ANNUAL REPORT and Consolidated ANNUAL REPORT 2004 Annual Report of the company Sava d.d.

An abundance of talent An abundance of talent

The result of the Sava Group have been achieved by teams that are driven by outstanding individuals.

Their energy encourages and bonds us all.

Their thoughts and endeavours over many years are imbued in the shift in development that was characteristic for all divisions in 2004.

2004 ANNUAL REPORT ANNUAL 1 ANNUAL REPORT and Consolidated ANNUAL REPORT 2004 Annual Report of the company Sava d.d.

An abundance of talent An abundance of talent

The result of the Sava Group have been achieved by teams that are driven by outstanding individuals.

Their energy encourages and bonds us all.

Their thoughts and endeavours over many years are imbued in the shift in development that was characteristic for all divisions in 2004.

2004 ANNUAL REPORT ANNUAL 1 INTRODUCTION

1 INDEX

INTRODUCTION

5 1. KEY FINANCIAL DATA AND INDICATORS 6 2. GENERAL DATA 6 2.1. Profile of the holding company 7 2.2. Composition of the Sava Group 8 2.3. Organisational structure of the Sava Group 9 2.4. Changes in the structure of the Sava Group 9 2.5. Inclusion of companies in the Consolidated Financial Statements 10 2.6. Associated companies in the Sava Group 10 2.7. Representative offices of the Sava Group 11 3. A REVIEW OF HIGHLIGHTS AND ACHIEVEMENTS 11 3.1. Most important events and achievements in the period January-December 2004 13 3.2. Most important events in 2005 - after the accounting period 15 4. MANAGEMENT AND ADMINISTRATIVE BODIES 15 4.1. Profile of the Board of Management 18 4.2. Members of the Supervisory Board 22 5. INTERVIEW WITH THE CHAIRMAN OF THE BOARD 25 6. REPORT BY THE SUPERVISORY BOARD 29 7. CORPORATE GOVERNANCE 35 8. RISK MANAGEMENT 37 9. THE SAVA SHARE AND OWNERSHIP STRUCTURE

BUSINESS ANALYSIS

44 10. DEVELOPMENT STRATEGY 47 11. GENERAL ECONOMIC CONDITIONS 48 12. BUSINESS OPERATIONS OF THE SAVA GROUP 48 12.1. Business success 50 12.2. Assets and liabilities structure 53 13. BUSINESS OPERATIONS ACCORDING TO DIVISION 53 13.1. Rubber Manufacturing division with foreign trade network 56 13.2. Chemicals division 57 13.3. Trade division

2 59 13.4. Tourism division 63 13.5. Real Estate division 64 13.6. Investment Finance division 67 14. BUSINESS OPERATIONS OF SAVA D. D. 67 14.1. Business success 70 14.2. Assets and liabilities structure 73 15. OUTLOOK FOR 2005 75 16. MARKETING AND CUSTOMERS 75 16.1. Managing brand names and marketing communications 76 16.2. Customer policy 77 17. STRATEGIC PURCHASING AND SUPPLIERS 79 18. DEVELOPMENT ACTIVITIES 79 18.1. Development of business programmes and strategic activities 80 18.2. Quality of business and development of business procedures 81 18.3. Development of information support

SUSTAINABLE DEVELOPMENT REPORT

84 19. SUSTAINABLE DEVELOPMENT 85 20. A REVIEW OF HIGHLIGHTS AND ACHIEVEMENTS 85 20.1. Most important events and achievements in the period January-December 2004 87 20.2. Most important events and achievements in 2005 - after the accounting period 88 21. THE DEVELOPMENT OF HUMAN RESOURCES 88 21.1. Concern for employees 91 21.2. Concern for employees outside of working hours 92 21.3. Concern for employee safety and health at work 95 22. DEVELOPING THE SOCIAL COMMUNITY 95 22.1. Sponsorship for and donations to the social community 97 22.2. Open dialogue and integration in the social community 98 23. PROTECTING THE ENVIRONMENT AND FIRE SAFETY 98 23.1. Environmental protection 101 23.2. Fire safety

FINANCIAL REPORT

104 24. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES FOR THE COMPANIES OF THE SAVA GROUP 104 24.1. Basis for drawing the financial statements 104 24.2. Change in the accounting standards on 1 January 2004 105 24.3. Reporting according to section 105 24.4. Exchange rate and conversion method in domestic currency 105 24.5. Intangible fixed assets 105 24.6. Tangible fixed assets 106 24.7. Depreciation 106 24.8. Financial investments 106 24.8.1. Long-term investments 107 24.8.2. Short-term investments 107 24.9. Receivables 107 24.10. Inventories 107 24.11. Cash 108 24.12. Capital

3 108 24.13. Goodwill and negative goodwill in the Consolidated Balance Sheet 108 24.14. Long-term provisions 108 24.15. Liabilities 109 24.16. Short-term accruals and deferrals 109 24.17. Recognition of revenues 109 24.17.1. Operating revenues 109 24.17.2. Financial revenues 110 24.17.3. Extraordinary revenues 110 24.18. Recognition of expenses 110 24.18.1. Operating expenses 110 24.18.2. Financial expenses 110 24.18.3. Extraordinary expenses 110 24.19. Cash Flow Statement 111 25. AUDITED FINANCIAL STATEMENTS FOR SAVA D.D. WITH NOTES 111 25.1. Auditor’s Report for Sava d.d. 112 25.2. Audited Balance Sheet of Sava d.d. 113 25.3. Audited Profit and Loss Account of Sava d.d. 114 25.4. Audited Cash Flow Statement of Sava d.d. 116 25.5. Audited Statement of Changes in Equity of Sava d.d. for the period from 31 December 2003 to 31 December 2004 118 25.6. Calculation of accumulated profit or loss 118 25.7. Proposal for the appropriation of accumulated profit 118 25.8. Breakdown and notes to the financial statements 118 25.8.1. Balance Sheet 128 25.8.2. The Profit and Loss Account 135 25.8.3. Statement by the Board 136 26. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE SAVA GROUP WITH NOTES 136 26.1. Auditor's Report on the Sava Group 137 26.2. Audited Consolidated Balance Sheet as at 31 December 2004 138 26.3. Audited Consolidated Profit and Loss Account for the period January - December 2004 139 26.4. Audited Consolidated Cash Flow Statement for the period from 1 January to 31 December 2004 141 26.5. Audited Consolidated Statement of Changes in Equity for the period from 31 December 2003 to 31 December 2004 143 26.6. Calculation of accumulated profit or loss 143 26.7. Important notes to the Consolidated Financial Statements 143 26.7.1. Disclosures in connection with the Consolidated Balance Sheet 155 26.7.2. Disclosures relating to the Consolidated Profit and Loss Account 160 26.7.3. Disclosures relating to the Consolidated Profit and Loss Account 161 26.7.4. Other disclosures relating to the Sava Group 164 26.7.5. Changeover to International Accounting Standards 164 26.7.6. Statement by the Board

165 STATEMENT ON CONFORMITY WITH THE CORPORATE GOVERNANCE CODE FOR SLOVENIA

167 CONTACT PERSONS

4 1. KEY FINANCIAL DATA AND INDICATORS

€ in millions SAVA d. d. SAVA GROUP Index Index 2001 2002* 2003 2004 2004/2003 2001 2002* 2003 2004 2004/2003 Sales 53.2 13.9 11.9 7.6 64 109.4 211.7 231.3 236.1 102 Exports 32.9 0.0 0.0 0.0 - 59.5 72.0 81.9 67.2 82 Added value 13.9 3.9 7.0 4.2 60 50.1 51.9 62.1 73.4 118 Total profit before taxes 7.9 7.5 8.3 15.8 190 6.1 7.0 8.0 24.3 304 Net profit 7.3 7.0 7.0 12.9 184 5.3 6.4 6.4 20.7 323 Net cash flow (profit + depreciation) 12.0 11.6 11.5 15.7 137 15.8 16.6 16.8 32.9 196

Balance sheet total 307.1 291.6 308.8 363.3 118 412.4 412.4 420.0 514.9 123 Fixed assets 191.0 179.4 163.0 270.9 166 225.3 197.7 178.6 345.2 193 Current assets and deferred costs and accrued revenues 116.1 112.2 145.8 92.4 63 187.1 214.7 241.4 169.3 70 Capital 213.9 226.0 222.7 283.4 127 250.3 233.5 233.7 292.9 125 Provisions and accrued costs and deferred revenues 0.3 0.1 0.5 0.5 100 21.0 21.5 16.0 31.5 197 Long-term liabilities 4.1 7.7 11.3 6.8 60 23.9 33.2 34.3 49.0 143 Short-term liabilities 70.8 57.8 74.2 72.6 98 117.2 124.2 136.1 141.5 104 Investments in fixed assets 8.3 10.7 10.8 8.4 78 14.3 23.1 14.4 37.0 257

Employees (on 31 December) 876 49 46 47 102 2,586 2,505 2,426 3,017 124 INDICATORS Added value/employee (€ in thousands) 15.9 80.3 159.3 91.3 57 19.4 21.3 24.4 25.5 105 Total profit/ gross proceeds - % 14.2 57.2 64.5 195.9 304 3.1 3.2 3.4 10.1 297 Total profit / capital** - % 3.5 3.4 3.8 6.6 174 2.5 3.1 3.5 9.7 277 Net profit per share - € 4.3 4.1 4.1 6.6 161 Level of independence (capital/balance sheet total) - % 75 78 72 78 108 61 57 56 57 102 Liquidity (short-term receivables+cash/ short-term liabilities) - % 148 191 195 126 65 120 129 138 83 60 SHARE Nominal value - € 42 42 42 42 100 Book value - € 130 131 130 141 108 Market value on 31 December - € 75 124 118 183 155 Dividend per share - € 2.3 2.4 2.4 2.4*** 104

* On 1st January 2002 the joint stock company Sava was restructured to become a management and finance company. All rubber manufacturing programmes that were still in operation in 2001 within the Sava joint stock company were integrated in the company Savatech d.o.o. from the stated date. That is the reason why the data on sales, imports, exports and added value are not comparable with those for 2001. ** With regard to the increase in capital of Sava d.d. in March 2004 the average state of capital is calculated on the basis of monthly states of capital not including the specific capital revaluation adjustments and net profit for the current year. *** Proposal to the Shareholders’ Meeting.

5 2. GENERAL DATA

2.1. Profile of the holding company

Firm: the company and involves the purchase and Sava, druæba za upravljanje in financiranje, d. d. sale of real estate, formation of subsidiaries and companies and take-over of equity in Slovenia Abbreviated form: and abroad, joining businesses in an association Sava, d. d. with commercial interests and making commercial Head office: contracts of all types. ©kofjeloπka cesta 6 4000 Kranj Share capital of the company on 31 December 2004: Slovenia €83,714,102 Tel.: +386 4 206 50 00 Nominal value of one share: Fax: +386 4 206 64 46 42 e-mail: [email protected] € www.sava.si Number of shares on 31 December 2004: 2,006,987 ordinary freely transferable personal Registration No.: shares 5111358 Shares listed on: VAT-ID No.: Ljubljana Stock Exchange d.d. under SI75105284 the A standard Entry No. in court register: Stock exchange designation: Srg 96/00267 SAVA Date of entry in court register: Chairman of the Board of Management: 26 April 1996 Janez BohoriË The nature of our business and most important Members of the Board of Management: activities: Vinko PerËiË, Emil Vizoviπek - Managing companies in which Sava d.d. has a Chairman of the Supervisory Board: majority or significant ownership share; providing Stanislav Valant, M.A. financing and leasing of real estate; forming and managing competence centres of knowledge. Deputy Chairman of the Supervisory Board: - Managing investment portfolios. Miran KalËiË - All other commercial business that directly or indirectly contributes to achieving the goals of

6 2.2. Composition of the Sava Group

The Sava Group includes 42 companies (the holding company Sava d.d. and 41 affiliated companies - daughter companies and their affiliated companies). In addition to the holding company Sava d.d. the consolidated financial statements of the Group include 24 affiliated companies. In all companies of the Group the capital and controlling stakes are in agreement.

List of the affiliated companies of Sava d.d. Kranj on 31 December 2004

% ownership % ownership Change in % Consolidation 31/12/2003 31/12/2004 of ownership for 2004 in 2004 RUBBER MANUFACTURING DIVISION Savatech d. o. o., Kranj 100.00% 100.00% 0.00% YES Sava-GTI d. o. o., Kranj 100.00% 100.00% 0.00% YES Sava-Guma d. o. o., Kranj 100.00% 0.00% -100.00% - Sava Rol d. o. o., Zagreb 76.00% 76.00% 0.00% YES Sava-Schäfer d. o. o., Kranj 51.00% 50.00% -1.00% YES - FOREIGN TRADE NETWORK Sava Trade GmbH, Munich, Germany 100.00% 100.00% 0.00% YES Sava Trade sp. z. o. o., Warsaw, Poland 100.00% 100.00% 0.00% YES Sava Trade spol. s. o. o., Prague, Czech Republic 100.00% 100.00% 0.00% YES Sava Tech Ltd., Budapest, Hungary 100.00% 0.00% -100.00% - Sava Trade d. o. o., Split, Croatia 70.00% 70.00% 0.00% NO Eurosavatech S. r. l., Trieste, Italy 90.00% 90.00% 0.00% NO Sava Tech Trade Ltd., London, Great Britain 100.00% 100.00% 0.00% YES Sava Trade Inc., Port Orange, Florida 95.00% 95.00% 0.00% YES CHEMICALS DIVISION Sava Advanced Polymers d. o. o., Kranj 51.00% 51.00% 0.00% NO Color d. d., Medvode 84.74% 0.00% -84.74% - Teol d. d., Ljubljana 95.57% 97.33% 1.76% YES TRADE DIVISION Sava Trade d. d., Ljubljana 92.45% 94.99% 2.54% YES - MG Market d. o. o., Ljubljana (owned by Sava Trade d. d.) 74.50% 74.50% 0.00% YES - Chemo Zagreb d. o. o., Zagreb (owned by Sava Trade d. d.) 100.00% 100.00% 0.00% NO - Chemo Split d. o. o., Split(owned by Sava Trade d.d.) 100.00% 100.00% 0.00% NO - Tuzla Kem d. j. l., Tuzla (owned by Sava Trade d. d.) 100.00% 100.00% 0.00% NO - Chemo Rijeka d. o. o., Rijeka (owned by Sava Trade d. d.) 100.00% 100.00% 0.00% NO - Chemo Skopje d. o. o., Skopje (owned by Sava Trade d. d.) 98.00% 98.00% 0.00% NO - Chemo Niš d. o. o., Niš (owned by Sava Trade d. d.) 65.00% 65.00% 0.00% NO - Chemo Invest d. o. o., Ljubljana (owned by Sava Trade d. d.) 50.00% 50.00% 0.00% NO - Argum d. o. o. Tuzla (owned by Sava Trade d. d.) 50.00% 50.00% 0.00% NO TOURISM DIVISION Golf and Camp, Bled d. d., Bled 86.55% 91.58% 5.03% YES Grand Hotel Toplice Bled d. o. o., Bled 90.95% 98.88% 7.93% YES G&P Hotels Bled d. o. o., Bled 87.40% 87.40% 0.00% YES Terme 3000 d. d., Moravske Toplice 4.41% 96.65% 92.24% YES - Terme Lendava d. d. (owned by Terme 3000 d. d.) 0.00% 93.80% 93.80% YES - Terme Ptuj d. o. o. (owned by Terme 3000 d. d.) 0.00% 72.00% 72.00% YES - Radenska-ZdravilišËe d. o. o., Radenci (owned by Terme 3000 d. d.) 0.00% 100.00% 100.00% YES REAL ESTATE DIVISION Sava IP d. o. o., Ljubljana 100.00% 100.00% 0.00% YES - IP Nova d. o. o., Ljubljana(owned by SAVA IP d.o.o.) 100.00% 100.00% 0.00% YES - IP Nova A d. o. o., Ljubljana (owned by SAVA IP d.o.o.) 0.00% 100.00% 100.00% NO - Sava IPN d. o. o., Ljubljana (owned by SAVA IP d.o.o.) 0.00% 100.00% 100.00% NO - PC AG d. o. o., Velenje (owned by SAVA IP d.o.o.) 50.00% 50.00% 0.00% NO - Sava IMG d. o. o., PoreË (owned by SAVA IP d.o.o.) 0.00% 50.00% 50.00% NO Sava Nova d. o. o., Zagreb 100.00% 100.00% 0.00% YES Sava Medical and Services d. o. o., Kranj 100.00% 100.00% 0.00% YES INVESTMENT FINANCE DIVISION Gea Sol International d. o. o., Kranj 100.00% 100.00% 0.00% YES Biool d. o. o., Kranj 0.00% 100.00% 100.00% NO Sava DVA d. o. o., Kranj 0.00% 100.00% 100.00% NO 7 2.3. Organisational structure of the Sava Group (31 December 2004)

SAVA d.d. - HOLDING

BOARD OF MANAGEMENT

ACTIVE MANAGEMENT & FINANCIAL INVESTMENTS

RUBBER CHEMICALS TRADE INVESTMENT MANUFACTURING TOURISM REAL NEESTATE FINANCE SAVATECH d.o.o., TEOL d.d. SAVA TRADE d.d., GOLF & CAMP SAVA MEDICAL AND INVESTMENTS IN Kranj Ljubljana - 97.33% Ljubljana - 94.99% BLED d.d., Bled - SERVICES d.o.o., FIXED ASSETS 91.58% Kranj SAVA ROL d.o.o., MG Market INVESTMENTS IN Zagreb - 76% Ljubljana - 74.50% GRAND HOTEL SAVA NOVA d.o.o., INNOVATIVE PROJECTS TOPLICE d.o.o., Zagreb - Limb d.o.o., Ptuj - 38%* SAVA-SCHÄFER d.o.o., Bled - 98.88% - Gea Sol International Kranj - 50% SAVA IP d.o.o., d.o.o., Kranj - 100% GOLF & PARK HOTELS Ljubljana SAVA-GTI d.o.o., Ptuj BLED d.o.o., Bled - FINANCIAL 87.40% IP NOVA d.o.o., INVESTMENTS FOREIGN TRADE Ljubljana NETWORK TERME 3000 d.d., SAVA TRADE Gmbh, Moravske toplice - Munich 96.65% SAVA TRADE Sp.z.o.o., TERME LENDAVA d.d., Warsaw Lendava - 93.80% SAVA TRADE s.r.o., TERME PTUJ d.o.o., Prague Ptuj - 72.00% SAVATECH TRADE Ltd, RADENSKA - London ZDRAVILI©»E d.o.o., Radenci - 100% SAVA TRADE Inc., Port Orange - 95%

DIVISIONS

* Companies under 100% Sava d.d. ownership ** Companies under majority Sava d.d. ownership * Acquiring a majority share in the company Limb d.o.o., is planned for 2005

The Sava Group is administratively connected to the foreign trade companies and two representative company Sava d.d., Holding company. offices in eight countries. Besides the holding company Sava d.d., the Group The recognisable brand name of Sava and the benefits of is formed from affiliated companies operating in six the Group are being successfully exploited and marketed divisions: Rubber Manufacturing, Chemicals, Trade, both in Slovenia and in the international arena. Tourism, Real Estate, and Investment Finance. The holding company Sava d.d. is determined that Teol d.d., which makes products for a broad range all divisions of the Sava Group achieve and maintain of applications, especially cleaning agents, operates over the long term a leading position with their as part of the Chemicals division. That company is products and services in the domestic, regional and currently undergoing restructuring of its production global market. programmes. Consolidating production programmes with market potential is another direction in the In 2004 the following companies operated within development of its current operations of producing the Rubber Manfacturing division, where high green fuel or biodiesel. quality industrial rubber products are made: Savatech d.o.o, Sava-Schäfer d.o.o., Sava-GTI d.o.o., Two companies operate within the Trade division: and Sava-Rol d.o.o., as well as a network of five Sava Trade d.d., and MG Market d.o.o., which run

8 stores with technical and industrial goods as well as - Tourism division: stakes were increased with articles for the household and construction. Since further acquisitions, namely: 5.03 per cent in 2002 Sava Trade d.d. has been operating as a single Golf and Camp Bled d.d., Bled, and 7.93 per cent in trading company with wholesale and retail activities Grand Hotel Toplice Bled d.o.o. A 92.24 per cent under the brand name AstraChemo. Its largest affiliate stake in the company Terme 3000 d.d., Moravske is MG Market d.o.o., which performs its operations on Toplice, was purchased, thereby the holding the basis of an OBI franchise. Both sales networks, company Sava d.d. acquired a 93.80 per cent AstraChemo and OBI, are successfully expanding stake in the ownership of Terme Lendava d.d. and a throughout Slovenia. 72 per cent stake in Terme Ptuj d.o.o. A 100 per cent Tourism is becoming one of Sava's strongest stake in the company Radenska-ZdravilišËe d.o.o., development operations. The following companies which is also owned by Terme 3000 d.d., was also operate as part of the Tourism division: Grand acquired. Hotel Toplice Bled d.o.o., Golf and Camp Bled d.d., - Real Estate division: the companies IP Nova A Golf and Park Hotels Bled d.o.o., and Terme 3000 d.d. d.o.o., Ljubljana, and Sava IPN d.o.o., Ljubljana, The affiliated companies Terme Ptuj d.o.o., which are both 100 per cent owned by Sava IP d.o.o., Terme Lendava d.d., and Radenska-ZdravilišËe d.o.o. Ljubljana, as well as the company Sava IMG d.o.o., operate as part of the enterprise Terme 3000 d.d. PoreË, which is 50 per cent owned by Sava IP d.o.o., The Tourism division is founded on the strategy of Ljubljana, were formed. combined operation and a common approach of these - Other companies: Sava ENA d.o.o., Kranj, which is companies, which is why they are united under two 100 per cent owned by the parent company, and brand names: Sava Hotels Bled and Pannonian Spas. subsequently renamed Biool d.o.o., Kranj, and the company Sava DVA d.o.o., Kranj, also 100 per cent The Real Estate division comprises the companies: owned by the parent company, were formed. Sava IP d.o.o., IP Nova d.o.o., Sava Nova d.o.o. and Sava Medical and Services d.o.o. These companies build for the market and lease out their own real estate. An important part of their operations involves performing 2.5. Inclusion of companies services for the requirements of Sava Group companies. in the Consolidated Financial Investment Finance performs activities directly for the holding company Sava d.d. Within this framework Statements it manages the economic efficiency of the Group and growth in the value of investments. It also creates In the Consolidated Financial Statements for 2004 we opportunities for lucrative financial investments and have included 25 companies, whereas 9 companies supports the development of all strategic activities. were excluded from them for the following reasons: Within these activities two newly founded development - due to a state of stagnation or minimal activity: companies operate: Gea Sol International d.o.o. and Sava Advanced Polymers d.o.o., Kranj; Biool d.o.o. IP Nova A d.o.o., Ljubljana; Sava IPN d.o.o., Ljubljana; PC AG d.o.o., Ljubljana; 2.4. Changes in the structure of Sava IMG d.o.o., PoreË; Biool d.o.o., Kranj; the Sava Group Sava DVA d.o.o., Kranj; - due to the intended sale of the stake: In 2004 the following changes occurred in the Sava Trade d.o.o., Split; structure of the Sava Group: Chemo Invest d.o.o., Ljubljana; - Rubber Manufacturing division with the foreign - due to the commencement of the liquidation trade network: for the company Sava-Guma d.o.o., procedure: Kranj, which was 100 per cent owned by Sava d.d., Eurosavatech S.r.l., Trieste, Italy; the liquidation procedure was concluded. A one - due to operating under extraordinary circumstances per cent stake in the company Sava-Schäfer d.o.o., in past years, which has significantly reduced their Kranj, and a 100 per cent stake in the company ability to transfer assets to the parent company: Sava Tech Ltd., Budapest, were sold off. Chemo Zagreb d.o.o., Zagreb; - Chemicals division: an 84.74 per cent stake in the Chemo Split d.o.o., Split; company Color d.d., Medvode, was sold off. Tuzla Kem d.j.l. Tuzla; - Trade division: in the company Sava Trade d.d., Chemo Rijeka d.o.o., Rijeka; Ljubljana, the stake of Sava d.d. increased by 2.54 per Chemo Skopje d.o.o., Skopje; cent to 94.99 per cent through additional purchases. Chemo Niš d.o.o., Niš; and Argum d.o.o., Tuzla.

9 2.6. Associated companies in the Sava Group

In accordance with accounting standards companies In accordance with the set strategy the joint in which the stake is greater than 20 and less than stock company continued to purchase shares in 50 per cent are being incorporated under associated Gorenjska Bank d.d. in 2004. The ownership share on companies. 31 December 2004 amounted to 40.94 per cent, which is 2.38 percentage points higher than in the In 2004, the remaining 20 per cent stake of same period last year. At the level of the Sava Group Sava d.d. in the company Sava Tires Joint Venture only Gorenjska Bank d.d. Kranj is shown as a long-term Holding d.o.o., Kranj, was sold, thereby meeting in full financial investment in the associated company. the terms of the Agreement on Strategic Partnership with the Goodyear concern dating from 1997. Other investments in the associated companies are of lower sums, all being shown according to investment calculation methods.

% ownership % ownership Change % 31/12/2003 31/12/2004 in 2004 Sava d. d., Holding Company - as parent company - Limb d.o.o., Ptuj 0.00% 38.00% 38.00% - Sava Tires JVH d.o.o., Kranj 20.00% 0.00% -20.00% - Gorenjska Bank d.d., Kranj 38.56% 40.94% 2.38% TEOL d.d., Ljubljana - as parent company - Teodora d.o.o., Ljubljana 25.00% 25.00% 0.00% SAVA TRADE d.d., Ljubljana - as parent company - Gumteh & CO. d.o.o. Grosuplje 31.00% 31.00% 0.00% - Astra, tehniπka trgovina d.o.o., Beograd 20.00% 20.00% 0.00% GOLF IN KAMP d.d., Bled - as parent company - Golf Istra d.o.o., Koper* 0.00% 20.00% 20.00% SAVA IP d.o.o., Ljubljana - as parent company - PC AG d.o.o., Velenje** 50.00% 0.00% -50.00%

* The company was formed in 2004. ** In 2004 the company was included under the affiliates in the Sava Group.

2.7. Representative offices of the Sava Group

As part of the Sava Group only the company Savatech d.o.o. in 2004 as a form of sales outlet that would replace Kranj, has representative offices, these being in the company Eurosavatech S.r.l., for which we began Moscow and Trieste. The office in Trieste was opened the process of liquidation.

10 3. A REVIEW OF HIGHLIGHTS AND ACHIEVEMENTS

€33,402,435. Sava d.d. will allocate the assets to 3.1. Most important events and fund the Pannonian Spas project. achievements in the period The companies Golf and Camp Bled d.d. and January-December 2004 Grand Hotel Toplice d.o.o. receive the certificates ISO 9001:2000 and HACCP. Grand Hotel Toplice d.o.o. January thus becomes the first hotel company in Slovenia The joint stock company Sava becomes a 38 per cent to successfully perform the accreditation review owner of the company Limb d.o.o., whose business according to the HACCP system. - the production of modern agricultural tractors - will run in Ptuj in 2005.

February The joint stock company Sava successfully concludes the purchase of shares in the company Terme 3000 d.d., Moravske Toplice, thus becoming its 92.42 per cent owner. Sava d.d. forms the company Gea Sol International, Energy Consulting & Marketing, d.o.o., which is based in Kranj.

The company Sava-GTI d.o.o. obtains the certificate ISO TS 16249:2002, which is important for supplying the automobile industry.

April Sava d.d. acquires 1,230,000 shares of the company Maksima Holding d.d., thereby becoming a 19.2 per cent stakeholder of that company. The termination of the mandate by Member of the Board, Worker Director, Maksimiljan FijaËko, is agreed. His leaving this post is a logical consequence of the restructuring of the enterprise into a holding company. March Sava d.d. increases its share capital to €83,714,102. Sava d.d. increases the share capital of Savatech d.o.o. The total value of newly issued shares amounts to through material investment. The share capital of

11 Savatech d.o.o. after this increase amounted to (for building a residential area), and till the end of €21,112,000. the year Radenska-ZdravilišËe d.o.o. (for building and landscaping hotel Miral), and Terme 3000 d.d. (for May investment in building a new five star hotel). The company Grand Hotel Toplice d.o.o. completes the partial renovation of the hotel Vila Bled. August At a new constitutive session members of the new June Supervisory Board elect Stanislav Valant, M.A., as The ninth Shareholders Meeting of the joint stock chairman of the Supervisory Board of Sava d.d., and company Sava reviews and adopts the company Miran KalËiË, as the deputy chairman. Annual Report, proposes the payment of a dividend of €2.4 per share and elects new members of the September Supervisory Board of Sava d.d. The company Golf and Park Hotels Bled d.o.o. completes the full renovation of hotel Golf. The Cessation of the mandate of the second composition investment covers modernisation of the swimming of the Supervisory Board of Sava d.d., which in the pool and wellness complex (Wellness Živa), renovation past four years was chaired by Jože LeniË, M.A. of the reception area and restaurant, and completion Sava d.d. and Helios d.d. sign a Sales Agreement for of the multi-purpose banqueting hall. the sale/purchase of Sava's till now 84.74 per cent stake in the company Color d.d. Sava d.d. and the Goodyear concern meet their agreement on the purchase of Sava's remaining 20 per cent stake in the company Sava Tires JVH d.o.o.

July The company Radenska-ZdravilišËe d.o.o. comes under the ownership of the Sava company Terme 3000.

Terme 3000 d.d., Moravske Toplice, opens a new centre for relaxation, beauty and wellness as well as a therapeutic centre named Thermalium. Sava d.d. sells an 18.2 per cent stake of share capital in the company Triglav, FinanËna Družba, d.d., and a 10.22 per cent stake in the capital of the company Triglav Naložbe d.d. The buyer of these shares in both cases is Zavarovalnica Triglav d.d. Sava d.d. buys a 7.08 per cent stake in the company Terme Ptuj d.o.o. completes its investment in the Dom Holding d.d., Zagreb, thereby, together with renovation and expansion of the outdoor bathing previous purchases, becoming a 14.90 per cent area. With this investment it acquires a total of owner of the share capital of that company. 3,500 sq m of pool space and pertaining area. Two of Sava's companies are ranked among the first October four recipients of non-returnable assets based on a In the Rubber Manufacturing programme of public tender to obtain money from the European Savatech d.o.o. investment is concluded in the new Union Fund for Regional Development in the field technologically most advanced line for the production of tourism: Terme 300 d.d. (for investment in the of rubber profiles. The value of investment is Thermalium wellness centre), Terme Lendava d.d. €1.1 million.

12 November 4.98 per cent of the company's share capital. After In Terme Lendave a new residential apartment the purchase Sava d.d. will own 18.48 per cent of the area named Lipov Gaj is opened. Till now this is the share capital. largest investment within the Pannonian Spas Group. Sava d.d. increases its current ownership stake in The investment provides 27 new jobs in this less the company NFD Holding d.d. by 4.80 per cent, thus developed Slovene region. owning 11.63 per cent of the share capital of that company. Sava d.d. sells off its whole current business stake in the company Geoplin d.o.o., Ljubljana.

February The central laboratory of the Development Institute of Savatech d.o.o. obtains the accreditation certificate that confirms it meets the requirements of standard SIST EN ISO/IEC 17025.

Sava d.d. renames the company Sava ENA d.o.o., Kranj, which was formed in May and is 100 per cent owned by the parent company, into Biool d.o.o., and also forms the company Sava DVA d.o.o., Kranj, also 100 per cent owned by the parent company

December The company G&P Hotels Bled d.o.o. obtains the ISO 9001:2000 certificate and thus joins the other companies that operate as part of the Sava Hotels Bled brand name, i.e. Grand Hotel In Terme Lendava d.d. a new indoor swimming pool is Toplice d.o.o. and Golf and Camp Bled d.o.o. These opened adjacent to hotel Lipa, bringing an additional hotels have for some time been managing their 200 sq m of pool surface with new facilities that are operations, development and marketing of hotel appealing particularly to young guests. and tourism services according to the system of this international standard. In Terme Radenci d.d. a renovated, enlarged and modernised Centre for Health and Relaxation named Tri Srca (Three Hearts) is opened. Sava d.d. increases its stake in Gorenjska Bank d.d. to 40.94 per cent.

3.2. Most important events in 2005 - after the accounting period March January Camping Bled makes an important partnership with Construction works begin on new production the campsite of Wirthshof at Bodensee in Germany. facilities and offices for the EKO (Environmental This is the first case of a partnership with this kind of Protection and Rescue) production programme of tourism company both in Slovenia and in Germany. Savatech d.o.o., Kranj. Sava d.d. acquires 250,983 shares in the Sava d.d. increases its ownership share in the com- company Pivovarna Laško d.d., thereby becoming a pany NFD1, Delniški Investicijski Sklad, d.d. by 4.76 per cent owner of the shares of this company.

13 Vesna Muravec, Corporate Communications Specialist, Sava d.d. Obstacles are set to be surmounted.

Thanks to her utmost reliability and the personal energy she radiates among her colleagues and invests in the work itself, complex projects under her leadership are carried out more smoothly. The Annual Report is only one such project. From the team members she expects the same responsibility as she displays acting as a role model with her expertise, experience and broad-mindedness.

14 4. MANAGEMENT AND ADMINISTRATIVE BODIES

4.1. Profile of the Board of Management

Janez BohoriË, 63, university graduate in chemical technology; employed at Sava for 39 years; Chairman of the Board since 1996; current mandate expires in July 2006; responsible for strategic development of operations, finance and risk management, marketing, human resources, law, organisation and corporate communications; also responsible for development and control of business operations of the Trade division. Leadership experience: - Vice President of the Slovene Government - President and CEO of the Sava Group During this time he is also chairman of the Assembly of the Slovene Chamber of Commerce, committee chairman of the USP Institute (Learning Company), deputy chairman of the Awards Committee of the Republic of Slovenia for Business Excellence, as well as member and honorary member of many organisations, town councillor in Kranj and member of the local community of StražišËe. Member of the following Supervisory Boards: - Chairman of the Supervisory Board of Mercator d.d., Ljubljana; - Chairman of the Supervisory Board of NFD Holding, Ljubljana; - Member of the Supervisory Board of Pension Fund A, Ljubljana; and - Member of the Supervisory Board of Golnik Hospital. Member of the Supervisory Boards of Sava Group companies: - Chairman of the Supervisory Board of Terme 3000 d.d., Moravske Toplice; and - Chairman of the Supervisory Board of Sava Trade d.d., Ljubljana.

15 Vinko PerËiË, 61, university graduate in economics; employed at Sava for 41 years; Member of the Board of Management since 1996; current mandate expires in July 2006; responsible for the development of system planning and controlling business operations, the development of informatics and purchasing; also responsible for the development and control of business operations of the Tourism and Real Estate divisions. Leadership experience: - Director of the sector for planning, analysis and accounting at Sava. During this time he is a regular member and since 1994 chairman of the Association of Accounting and Finance Workers in Kranj; also member of the Board of the Federation of Accountants, Financiers and Auditors of the Republic of Slovenia and chairman of the Board of the Slovene Institute for Auditing. Member of the following Supervisory Boards: - Chairman of the Supervisory Board of Domel d.d., Železniki. Member of the Supervisory Boards of Sava Group companies: - Chairman of the Supervisory Board of Golf and Camp Bled d.d., Bled; - Chairman of the Supervisory Board of Grand Hotel Toplice d.o.o., Bled; - Chairman of the Supervisory Board of G&P Hotels Bled, d.o.o., Bled; - Member of the Supervisory Board of Terme 3000 d.d., Moravske Toplice; and - Member of the Supervisory Board of Sava Trade d.d., Ljubljana.

16 Emil Vizovišek, 60, university graduate in chemical technology; employed at Sava for 29 years; Member of the Board since 1996; current mandate expires in July 2006; responsible for the development of business quality systems, research and development, and systems to ensure continual improvements; also responsible for the development and control of business operations of the Rubber Manufacturing division with its foreign trade network and the Chemicals division and new development projects. Leadership experience: - Director of the car tyres plant in Sava; and - Head of Production in the company Semperit Reifen AG Traiskirchen. During this time he is a member of the board of the Association of Chemical Industries at the Slovene Chamber of Commerce, member of the board of the Technical Museum of Slovenia, member of the Managers’ Association, and member of the board of the National Foundation for Business Excellence. Member of the Supervisory Board of Sava Group companies: - Chairman of the Supervisory Board of Teol d.d., Ljubljana; and - Chairman of the Supervisory Board of Limb d.o.o., Ptuj.

Maksimiljan FijaËko, who till then performed the function of Worker Director, was a member of the Board of Sava d.d. until 30 April 2004.

17 4.2. Members of the Supervisory Board

On 28 June 2004 the mandate expired of the second composition of the Supervisory Board that took part in the business development of Sava d.d. in the past four years: The Members of the Supervisory Board of Sava d.d. during the mandate period from 28 June 2000 to 27 June 2004 were: - Chairman: Jože LeniË, M.A. - Members - shareholders representatives: Janez Bojc, Miran KalËiË, Janko Kastelic, Martin KopaË, M.A., Dr. Davorin Savin, and Božo JašoviË, M.A. (till 5 September 2003) - Members - employee representatives: Branko Fajdiga, M.A., Janez Justin, Janko LonËar, Romana Oman, Vesna ©ajatoviË-Okršlar, Stane Valentar and Viljem Žener

The members of the new Supervisory Board of Sava d.d. with a four year mandate period, which runs from 28 June 2004 on, are the following: Chairman:

Stane Valant, M.A., 55, university graduate in economics, MBA; Chairman of the Board of NFD d.o.o. Leadership experience: - Member of the Executive Committee of Ljubljanska Banka; and - Director of the project to form the Ljubljana Stock Exchange d.d., Ljubljana. Prominent current functions: - Chairman of the Association of Management Companies, Ljubljana; - Honorary member of the National Council of the Ljubljana Stock Exchange d.d., Ljubljana; - Chairman of the Supervisory Board of Etol d.d., Celje; and - Member of the Supervisory Board of Krka d.d., Novo Mesto.

18 Deputy Chairman

Miran KalËiË, 57, university graduate in law; Deputy Director of the Institute of Pension and Disability Insurance of Slovenia. Leadership experience: - Director of implementing insurance at the Institute of Pension and Disability Insurance of Slovenia; - Deputy Chairman of the Republic Committee for Work (Ministry of Labour); - Chairman of the Republic Committee for Work and member of the Executive Council of the Republic of Slovenia; - Project Director of the formation of and Chairman of the temporary Board of the Pensions Company SKB d.d., Ljubljana; - Chairman of the Government of Slovenia Board for Disabled Persons; and - Co-Chairman of the Committee of the formation of ZVPSJU. Prominent current functions: - Chairman of the Government of Slovenia Board for Disabled Persons; - Member of the Government of the Republic of Slovenia Board for Disabled Persons; - Deputy Chairman of the Supervisory Board of the Institute for Work Safety, ZVD d.d., Ljubljana; and - Chairman of the Committee for Closed Mutual Pension Funds for Public Employees in the Republic of Slovenia (ZVPSJU).

Members - Shareholder Representatives Goran Bizjak, 46, university graduate in economics; Member of the Board of Casino Portorož d.d. Leadership experience: - Assistant Director of the Fund of the Republic of Slovenia for Developing Small Businesses; and - Head of the sector for preparing and managing the budget of the Republic of Slovenia. Prominent current functions: - Member of the Supervisory Board of Triglav Insurance d.d., Ljubljana.

19 Janez Bojc, 43, university graduate in economics; Deputy Director of KD Holding d.d., Ljubljana. Leadership experience: - Assistant Director of Zadružna Kmetijska Družba d.o.o., Ljubljana; - Deputy Director of the KD Group d.d., Ljubljana; - Director of the KD Holding d.d., Ljubljana; and - Director of KD Investments d.d., Ljubljana. Prominent current functions: - Chairman of the Supervisory Board of Adriatic Insurance d.d., Koper; - Member of the Supervisory Board of Droga d.d., Izola; and - Deputy Chairman of the Supervisory Board of the company Žito d.d., Ljubljana.

Janko Kastelic, 55, university graduate in economics; President of the Board of Triglav Fund Managers d.o.o., Ljubljana. Leadership experience: - Assistant to the managing director of the company Slovenijales; and - Consultant in Triglav Insurance d.d., Ljubljana. Prominent current function: - Member of the Supervisory Boards of Krka d.d., Novo Mesto, Terme »atež d.d., »atež ob Savi, and Triglav Fund Managers d.d., Ljubljana.

Tomaž KuntariË, M.A., 39, university graduate in law, MBA; Member of the Board of Kapitalska Družba d.d. till 21 March 2005. Leadership experience: - Director of the legal department of Kapitalska Družba d.d., Ljubljana; and - Consultant to the director of ZPIZ Slovenia. Prominent current function: - Member of the Supervisory Boards of the companies Tosama d.d., Domžale; Gorenje d.d., Velenje; Kolinska d.d., Ljubljana; and Delo d.d., Ljubljana.

20 Members - Employee Representatives Janez Justin, 59, machine operator; President of the KNG Sava-Goodyear union. Leadership experience: - President of the Union of Chemical, Non-metal and Rubber Manufacturing Industry of Slovenia; - Member of the Executive Council of the European Mine, Chemical and Energy Workers’ Federation (EMCEF); - Member of the Executive Council of the International Federation of Chemical, Energy, Mine and General Workers’ Union (ICEM); - Chairman of negotiating committees for collective contracts for the chemicals, rubber products manufacturing and non-metal industries of Slovenia; and - Member of the negotiating team of employers in EMCEF negotiating with the EU directorates.

Jože Copek, 59, university graduate in labour organisation; retired. Leadership experience: - Director of the General Sector in Sava d.d., Kranj; and - Director of Sava Medical and Services d.o.o., Kranj, in the Sava Group.

Miha Resman, 29, university graduate in economics; expert in strategic finance for companies in Sava d.d., Kranj. Leadership experience: - Head of relations with investors; and - Member of the expert team for take-overs and acquisitions. Prominent current functions: - Member of the Supervisory Board of Limb d.o.o., Ptuj; and - Chairman of the Workers’ Council of Sava d.d., Kranj.

In the first quarter of 2005 there were no changes in the composition of the Supervisory Board of the companies of Sava d.d.

21 5. INTERVIEW WITH THE CHAIRMAN OF THE BOARD

Mr BohoriË, reporting on the business and financial results at the yearly level is, first and foremost, confronting the plans and results achieved. You forecast considerable growth in the business success of the Sava Group in 2004. To what degree have you managed to do that? We set as a goal the highest growth rate of success after the year 1997, which was a demanding task for all the executive teams in the Group. All plans were directed towards a more rapid rise in business profitability. After reviewing what has been achieved, the Board of Management determined that all the key plans were not only met, but in many places were also appreciably surpassed. The Sava Group and its parent company, Sava d.d., have both conducted business successfully. This was demonstrated by the bi-annual results, but the indices till the year end improved even further.

The period before 2004 was characterised first by the processes that brought external growth for the Group, then designing individual divisions and their internal restructuring. Investments in individual divisions required considerable funding. Which development processes were we looking at then? 2004 was the first year in which all the key divisions of the Sava Group conducted their business profitably. This shows that Sava's restructuring and choice of business strategy were both correctly set and their thorough implementation was efficient.

22 The structural movements in the Sava Group have A leap in business performance was very well received unfolded and will continue to do so in the future too. also by the share capital market. The Sava share We have reduced our presence in the Chemicals attained a record value. Its stock exchange price at division and exploited the opportunity of a favourable the year end increased by 59 per cent, ranking the exit. By selling off our investment in the company share among the three fastest growing shares of Color d.d., we enabled Helios to continue with Slovene companies. the concentration that is underway in the Slovene paints and coatings industry. Simultaneously, in What were the achievements in sales and marketing? the Tourism division, by taking over the company Sales revenues increased in all divisions with the Terme 3000 d.d. and its affiliated companies, we exception of Chemicals, where our presence was expanded our operations in Pomurje and gained the reduced. Here we were confronted by the restructuring position as the leading provider of tourism services of the company Teol d.d. Looking at the whole picture, in Slovenia. By strengthening share capital we at the all divisions achieved a growth in sales revenues. same time made extensive investments too and for On this point I should add that also cost efficiency the future development of this division allocated over improved especially in the Trade division, to which 25 million or two thirds of all investment funds of € the development of quality business procedures the Group. For this purpose in the first half of the contributed. year we made an injection of capital in the holding company. In the field of marketing it is worth highlighting the operations of the Rubber Manufacturing division, After the initial start-up, the development of selected which has improved the competitive position of Sava divisions, combined into the Sava Group, is its products. This is revealed by an even greater gradually moving to a period of accelerated growth in presence in international markets. If we separate the business performance. We have achieved the desired effect of the changed structure of operations between level of development which, in the results produced, the years, we find that the Rubber Manufacturing have increased the business role of affiliated division increased sales by 15 per cent. The second companies. These have already contributed some very dynamic division from the marketing aspect is 28 per cent to the net profit of the Sava Group. Tourism, which also attained a high 8 per cent growth Increasingly evident are the positive effects of past in its business volume. The acquisition of the Terme investments. The renovated Rubber Manufacturing 3000 Group has enabled collaboration with the Sava division has improved its performance substantially companies in Bled and the development of both and exceeded by half the planned figure of total holding company brand names: Sava Hotels Bled and pre-tax profit. Moreover, the Trade division, where the Pannonian Spas. Investment in a common marketing renovation of AstraChemo retail stores and expansion approach, upgrading services and the standard of the OBI shopping centres is taking place, is already development of business procedures are paying off. gaining success after a period demanded by the This is revealed in the growth of overnight stays and initial start-up. the rise in sales revenues at both destinations, Bled and Pomurje, together with a marked increase in the What was the growth rate of net profit and return on share of these operations in total revenues at the capital that you set for the main scale of business Group level. performance and how have these achievements been The Trade division did not meet plans in full, yet it reflected in the movement of the Sava share price? achieved a high increase in sales volume in the large As investment managers we in the holding company, OBI shopping centres; that grew by more than one first and foremost, are committed to raising return on quarter. Sales volume in the Real Estate division, capital. Here we have leapt a high step. Calculated as where preparations for expansion to Croatia were the ratio between net profit and the average position being made at the same time, grew by one fifth. of capital, return on capital for 2004 amounts to 8.2 per cent at the Group level, which is Sava’s financial investments have been highly 5.4 percentage points more than the year before. The lucrative till now. return on capital of Sava d.d. was 2.3 percentage In 2004 that was also the case. With investment finance points higher than in the previous year and reached operations, which are performed by the holding company 5.3 per cent. Sava, we ensured above-average profits - a position Distinct movements were achieved on the part of that we intend to keep in the future too. For long-term increasing profits. Net profit of the Sava Group tripled in and short-term financial investments we allocated one year and amounted to €20.7 million. Net profit of more than €100 million, of which two thirds of funds Sava d.d., in comparison with the year before, was some were provided by divestitures. We sold the remaining 84 per cent higher and totalled €12.9 million. one fifth stake in the company Sava Tires d.o.o., the

23 already mentioned investment in Color d.d., and On this aspect we should add new products and our stake in two companies in the Triglav Group. services that are developing our sustainable business Besides purchasing the company Terme 3000 d.d., policy. After terminating production programmes and we increased investment in Gorenjska Bank d.d. and technologies that are a burden on the environment, entered as a stakeholder in two principal Croatian from the environmental aspect we evaluated the tourism holding companies. We allocated a part of restructuring of Teol and decided to focus on the our investments for innovative projects in the field of production of biofuel. Our active work in the social renewable energy sources and energy consulting as environment is a lot broader as we are working not well as entry in a project to manufacture advanced only as its partner, but are attempting to encourage agricultural tractors. thinking about its development and collaborate in implementing solutions. The special development The Sava Group seeks to become the most attractive of tourism dictates public endorsement and broad opportunity for employing a good workforce. What co-operation, which is why we were co-organisers of steps have you taken to realise this part of the debates on the development of the region where we business vision? operate. We have accelerated the development of work in Social responsibility governs long-term successful the area of managing the capabilities of employees. business performance. How bold are the business We invested primarily in the occupational and plans after the leap achieved in 2004? personal growth of employees, different forms of advancement and a range of educational Here it is worth mentioning that for long-term opportunities. We increased by more than one third success, first and foremost, efficient and transparent the scope of education, the introduction of electronic management is necessary, which in a commercial learning making a large contribution to this. One group with 42 companies is even more important. tenth of employees took part in the Sava Academy, For this very reason in the holding company we have within which a course intended for younger talented responded with satisfaction to the adoption of the employees was run for the second time. first Slovene Corporate Governance Code companies. The diligence of our employees is demonstrated in In 2005 we intend to consolidate the institute of the progress of business procedures and in the internal supervision. number of proposals for improvements, which On the basis of currently known data and conditions strengthens optimism. More than 1,300 applications we assess that approaching the target indices of for innovation were filed just within the business success planned for 2007 will continue with equal procedure optimisation project alone. intensity. In the fore will be a rise in the operational efficiency of the affiliate companies while sales of the How much attention did you devote to the business Group will continue to grow. We are planning for net sustainability aspect in 2004? profit at the Group level to gain 11 per cent and that Our behaviour demonstrates that the Sava Group return on capital of the Sava Group will once again believes only in a socially responsible business. In exceed 8 per cent. Ahead of us lies a very demanding 2004 we achieved a great deal in the fieldof managing year with respect to investments, in which we shall natural resources and with energy sources. By far the consolidate the long-term sources of the Group's greatest is the achievement concerning the specific competitiveness. consumption of drinking water, which we reduced Our commitments will be confirmed with the results by 42 per cent. Emissions of dust particles at the achieved this year and in those to come - for Sava and Kranj location have been almost eliminated in full in for you, our shareholders, customers, employees and the past few years. Furthermore, in 2004 we almost all other partners who jointly make our achievements eliminated emissions of organic solvents in full at the possible and believe in our common success. Teol d.d. location. Thank you for your future co-operation and support.

24 6. REPORT BY THE SUPERVISORY BOARD

ON THE RESULT OF EXAMINING THE AUDITED 2004 ANNUAL REPORT, AUDITED 2004 CONSOLIDATED ANNUAL REPORT AND THE PROPOSAL FOR USING ACCUMULATED PROFIT

Components of the Annual Report and the Paragraph 3 of Article 256 of the Law on Economic Consolidated Annual Report Enterprises prescribes that the Board of Management must present the compiled Annual Report together with The Supervisory Board of the joint stock company Sava the Auditor’s Report to the Supervisory Board without has reviewed the formal aspects concerning the 2004 delay. The Board of Management of Sava d.d. did this Annual Report from the Board of Management and the on 14 April 2005. We therefore determine that the Consolidated Annual Report for 2004. aforementioned legal provision was observed. It has determined that the 2004 Annual Reports were produced within the legal deadline and contain all the Method and scope of examining the running obligatory components as prescribed by the currently of the company valid Law on Economic Enterprises. The Annual Report The Supervisory Board performed its supervisory function consists of the financial report that includes the Balance Sheet, Profit and Loss Account, enclosures mainly at Supervisory Board meetings. It also established with notes to all the statements, Cash Flow Statement, a review commission to prepare the written report from Statement of Changes in Equity and the business the Supervisory Board on the 2004 Annual Report. The report. The Consolidated Annual Report consists of all commission consisted exclusively of Supervisory Board the prescribed contents too, whereby it stands that the members. Business Report is common to both the Annual Report The Supervisory Board held eight regular meetings and the Consolidated Annual Report. All the essential and one correspondence meeting; five meetings and a constituents that are prescribed by legislation to produce correspondence meeting were held by the former 13- the individual statements and reports are contained in member Supervisory Board, and three meetings were the Annual Report. The company has correctly created held by a new 9-member Supervisory Board. At these legal reserves and reserves for its own shares. The meetings individual members of the Supervisory Board explanations to the financial statements contain all exercised their right under Paragraph 1, Article 274(a) the information prescribed by the Law on Economic of the Law on Economic Enterprises, which enables all Enterprises in Items 1 to 19 of Paragraph 1, Article 65. members of the Supervisory Board to examine all the The business report contains all the significant business bases for producing the Annual Report. In accordance events that took place after the end of the business year, with the legal provision the Supervisory Board has the anticipated growth of the company and operations of the right to revoke such a right from an individual member, Sava Group in the field of research and development and but the Supervisory Board did not adopt any resolution data about the affiliates of the company. The business on this matter in 2004. report contains an in-depth analysis on the material risks and uncertainties that the company is exposed to. The Supervisory Board meetings in 2004 took place on 16 January, 19 February, 21 March, 15 April, 3 June, The Annual Report was submitted for auditing to a 27 August, 28 October and 2 December. selected auditor at the 9th Shareholders’ Meeting of the joint stock company. The auditors KPMG d.o.o. produced an Auditor’s Report on 6 April 2005.

25 The most important resolutions of the Management submit to the Supervisory Board a Supervisory Board dividend policy proposal for a period of the following five years (2nd meeting). The following two resolutions by the Supervisory Board - The Supervisory Board adopted the standing orders for contain the greatest implications in relation to the its work (2nd meeting); business of the Sava Group: - The Supervisory Board concluded an annex to the - Sava has significantly strengthened its strategic managerial contracts with members of the Board of position in the Tourism division. The Supervisory Management (3rd meeting). Board approved the purchase of a majority stake in the shares of the company Terme 3000 d.d. on Reporting by the Board of Management the basis of a public tender and the purchase of a In the 2004 business year reporting by the Board 100 per cent stake in Radenska-ZdravilišËe d.o.o. by of Management enabled the Supervisory Board to Terme 3000 d.d. (22nd meeting); suitably implement its supervisory role. The reports - Sava has changed its long-term strategy on the coatings by the Board of Management were usually produced industry in the Chemicals division. The Supervisory according to individual areas with a synthetic review Board agreed that Sava sell Helios an 85.044 per cent of all business impacts. These involved the operations stake in the company Color d.d. (24th regular and 2nd of the divisions: Rubber Manufacturing with foreign correspondence meeting). trade network, Chemicals, Trade, Tourism, Real A summary of other more important resolutions of Estate and Investment Finance, thereby enabling individual meetings of the Supervisory Board (in one to monitor the positive and negative effects of chronological order) is given in the following wording: individual operations of the Sava Group. - The Supervisory Board became acquainted with the The Supervisory Board was also allowed to make a 2004 Business Plan together with a projection for review of individual companies or production and 2005 and 2006. The Business Plan is to be completed service programmes within individual divisions. The with the planned results of the companies that will be interest of the Supervisory Board primarily referred to the included in the Sava Group in 2004 (23rd meeting). business operations of larger companies and production - The Supervisory Board adopted the 2003 Annual programmes. Report produced by the Board, a written report from the Supervisory Board on the 2003 Annual Report and In its reports the Board of Management presented all the a proposal for using the accumulated profit of Sava d.d. most important categories that affect the business of the (25th meeting). joint stock company Sava and the Sava Group. These are - The Supervisory Board supported the proposal by the categories of profit, turnover, costs, added value, etc. the Board to use accumulated profit as well as other Furthermore, comparative statements for the previous proposals of the resolutions for the Shareholders’ year and planned statements for the current and future Meeting (25th meeting). two years were added to the statement for 2004. In this - The Supervisory Board put forward a proposal to way the Supervisory Board could continuously examine appoint KPMG d.o.o. Slovenia, Dunajska cesta the trend with respect to the past and planned business 21, Ljubljana, as the auditor of the financial statements performance. th for 2004 (25 meeting). Business performance assessment - The Supervisory Board proposed that the Shareholders’ Meeting elect Tomaž KuntariË, Stanislav Valant, The Supervisory Board examined the business operations Goran Bizjak, Janko Kastelic, Janez Bojc and Miran of Sava d.d. and the Sava Group during the year based on KalËiË as the members of the Supervisory Board the submitted 2004 Annual Report. (25th meeting). The Supervisory Board ascertains that the Board of - Based on the corresponding proposal by the Workers’ Management of the company was successful in 2004 Council the Supervisory Board recalled the Workers’ as all the key goals were implemented both in Sava d.d. Director (25th meeting). and the Sava Group. Most of business goals that were - The Supervisory Board became acquainted with the planned were achieved and certain goals were greatly examination of operations of the joint stock company surpassed. Sava and the Sava Group during the second composition The Supervisory Board estimated that the key of the Supervisory Board (for the business years 2000- achievement of the past year was that a major part 2003; 1st meeting of a new Supervisory Board). of the increased profit is due to the operating and - The third composition of the Supervisory Board Sava cost efficiency of the affiliated companies. Important elected Stanislav Valant as its Chairman and Miran progress was attained in business with assets. The KalËiË as its Deputy Chairman (1st meeting); business performance was much affected by the - The Supervisory Board became acquainted with the results of development activities of Sava d.d. as well as bi-annual report on business operations (1st meeting). by restructuring the Sava Group. In 2004 the company - The Supervisory Board insisted that the Board of Color d.d. Medvode was sold off, which, owing to poor

26 results in past years, aggravated the consolidated to shareholders, which is the amount exceeding 4 per business results. The company has considerably cent in cumulative terms totalling 802,794,800 tolars. strengthened the Tourism division by purchasing When endorsing the Annual Report, the Supervisory Pannonian Spas and through extensive investment in Board supported the proposal by the Board of other affiliated companies of this division. Management to form other reserves for one half of the To certify the a.m. findings the Supervisory Board net profit that remains after using accumulated profit analysed the movements of important financial data and for the purposes from the first paragraph of Article 228 indicators, which prove the business success and thereby of the Law on Economic Enterprises. determined that: - sales revenues in the Sava Group were achieved in the Based on the third paragraph of Article 286 of the Law on amount of 56,386 million tolars, which in regard to the Economic Enterprises, the Supervisory Board proposed previous year was 4 per cent higher or at the planned that the Shareholders’ Meeting adopt a resolution on level; using accumulated profit as proposed by the Board of - the total profit before tax in the Sava Group was Management. generated in the amount of 5,812 million tolars and is 210 per cent higher than last year or 97 per cent higher Auditor’s Report than planned; The Supervisory Board has examined the Auditor’s - the net profit of the Sava Group in the amount of Report and determined that the auditor’s opinion is an 4,946 million tolars was three times higher than in the affirmative one. same period last year, or 96 per cent higher than planned; - the profitability of the Sava Group, measured as the The auditor has also presented his views in the report to ratio between the total profit before tax for the financial the Supervisory Board. year and the average state of capital for 2004 amounts The Supervisory Board has no comments on the Auditor’s to 9.7 per cent, which is 6.2 percentage points or three Report. It determines that the Auditor’s Report contains times higher than last year; the constituents prescribed in the second paragraph - the profitability of the Sava Group, calculated as the of Article 54 of the Law on Economic Enterprises. The ratio between the net profit for the financial year and auditor has confirmed that the financial reports have the average state of capital for 2004, amounts to been produced in accordance with Slovene Accounting 8.2 per cent, which is 5.4 percentage points more or Standards, the accounting policies of the company and almost three times higher than last year; by employing corresponding provisions of International - as at 31 December 2004 the Sava Group employed Accounting Standards. 3,017 people, which is 591 employees or 24 per cent more than last year; Comments of the Supervisory Board on the 2004 - successful business with assets is revealed in the Annual Report and the 2004 Consolidated Annual difference between net cash flow, i.e. the sum of profit Report and depreciation and the net use of assets for current The Supervisory Board has no comments on the 2004 purposes and investments. It was planned that the Annual Report and the 2004 Consolidated Annual Report affiliated companies would have a negative balance in that would delay the adoption of a decision to endorse the amount of 5.4 billion tolars, while in fact a surplus the Annual Report and the Consolidated Annual Report. in the amount of 0.5 billion tolars was formed. Endorsement of the 2004 Annual Report and the Proposal for using accumulated profit 2004 Consolidated Annual Report The Supervisory Board examined the proposal for using The Supervisory Board hereby endorses the 2004 accumulated profit. Annual Report and the 2004 Consolidated Annual Report. It ascertained that the profitwasdistributedinaccordance with Article 228 of the Law on Economic Enterprises, while The Supervisory Board received the 2004 Annual the proposal for using accumulated profit comprises the Reports within an open deadline, i.e. before one month data prescribed in the fourth paragraph of Article 282 of expires including the day the 2004 Annual Reports were the aforementioned law. submitted to the Supervisory Board. This was done on 14 April 2005. The Supervisory Board assessed whether there was 22 April 2005 a possibility for challenging such a resolution about using accumulated profit in line with the first paragraph of Article 368 of the Law on Economic Enterprises. It determined that there was no such possibility, since the proposal by the Board of Management anticipated that Stanislav Valant the amount of 1,162,144,840,00 tolars was distributed Chairman of the Supervisory Board

27 Daniel Kozar, Head of the professional team for the development of culinary arts, Terme 3000 d.d. Pannonian Spas Competitions are opportunities

As a member of the Slovene National Chef Team he won another silver medal in the Chef Olympics in Erfurt. Every day he shares victories with his team in the kitchen of Hotel Ajda and ensures that the cuisine in the Pannonian Spas meets the expectations of the most discerning guests.

28 7. CORPORATE GOVERNANCE

The Corporate Governance of Sava d.d. refers to The goals that we follow in corporate governance the operation of its executive bodies as well as to are: to ensure the growth and development of all internally and externally specified mechanisms, Sava, consolidate relations with shareholders and methods and rules that guide and regulate the our partners, respect the legitimate interests of operation of companies in the Group. The efficient employees, and perform good practice in the field and transparent system of corporate governance of environmental protection - all the while observing strengthens confidence among our shareholders unconditionally laws and regulations as well as the and other financial publics as well as our partners, principles of ethical business. On the basis of these employees and the broader social communities in goals and to the benefit of society we are increasing the long-term growth and development of Sava and business success and efficiency, upgrading in the way its business is conducted in a socially information systems to support announcements responsible way. and decision-making, and creating the frameworks for continual improvements in carrying out our The basic role of our system of obligations and meeting our responsibilities to all corporate governance is to ensure levels of employees, especially management. the implementation of the strategic We welcome the creation of the Corporate goals of Sava Governance Code for Slovenia Achieving the long-term development of the company, and thereby the long-term growth in the value of Last year Slovenia was ranked among more than the Sava share, are closely linked to establishing forty countries in the world that have till now good principles of corporate governance. This is confirmed their aspiration to establish high standards primarily understood as a system that ensures the of corporate governance by adopting a special Sava Group's efficient operation of corporate bodies Corporate Governance Code for Slovenia in this field. to provide lasting competitive business advantages This Code was produced in March 2004 together of the Group companies operations. Its value extends with the Ljubljana Stock Exchange d.d., Association merely beyond the scope of mechanisms to safeguard of Supervisory Board Members and the Manager’s against various forms of abuse. It is a necessity Association of Slovenia. It represents one of the key in protecting against and appreciably reducing steps in the development of the capital market and the risks of possible business failures. However, business culture in Slovenia. We welcome the creation internal and external supervision cannot substitute of this Corporate Governance Code for Slovenia and quality decision-making by the management. For us the goals to come! corporate governance represents above all a tool In order to ensure respect for this Corporate that permits the fulfilment of our strategic goals - not Governance Code for Slovenia, the Board of only an obligation on paper. We comprehend it as a Management of Sava d.d. appointed a team of system that follows the different interests of individual experts when it came into force to ensure maximum Sava stakeholder groups and regulates them so as to conformity with the its provisions. The responsibilities reduce the possibility of various conflicts arising. of members of the team are divided according to

29 individual thematic parts of the document. The basic the Board of Management are specified in more detail role of the team is to supervise the implementation in the Rules of the Board of Management of Sava d.d. of provisions and introduce improvements into the The Board of Management reports to the Supervisory current system of corporate governance with respect Board on a regular basis, in understandable terms and to the recommendations outlined in the Corporate on time with respect to all the more important issues Governance Code. concerning the business operations of the company We respect the current rules of corporate governance and the whole Group. At the same time the Board of and are establishing them in our daily work and Management with the Supervisory Board standardises business. On the basis of the Rules of the Ljubljana their position on the implementation of corporate Stock Exchange last year for the first time we published strategy. The Board of Management must obtain a statement on observing the Corporate Governance the consent of the Supervisory Board for individual Code fro Slovenia. With certain exceptions we are decisions or for a specific transaction. These cases observing the binding provisions of the Corporate include, for example, the purchase of a stake of more Governance Code according to its variants as from than 20 per cent in the value of the share capital of 18 March 2004. Sava d.d., increasing the share capital under the item of approved capital, and similar operations. The current system of corporate governance of Sava d.d. has already to a large extent been made to The Supervisory Board of Sava d.d. appoints members correspond with non-obligatory recommendations. The of the Board of Management and also supervises and statement on respecting the Corporate Governance consults with that Board on all fundamental strategic Code is on page 165 of this Annual Report. Together issues. Its operation is specified in more detail in the with the entire content of the Corporate Governance Rules of the Supervisory Board. The decisions made Code for Slovenia this statement is available on our by the Supervisory Board are based on a bare majority. website: http://www.sava.si/1/1d/frame4.htm The four-year mandate of the second composition of the Supervisory Board of Sava d.d. expired on The core of good corporate governance 28 June 2004. It comprised 14 members and was at Sava lies in constructive dialogue and chaired by Jože LeniË, M.A. The new Supervisory Board of Sava d.d. currently has nine members and consists cooperation of six shareholder representatives and three employee Two bodies of management operate at Sava d.d. - the representatives. Members of the Supervisory Board, Board of Management of the joint stock company and who are elected by the shareholders, were elected at the th the Supervisory Board - which is characteristic of a 9 Shareholders’ Meeting on 2 June 2004. The two-tier system of corporate governance. Membership other three members of the Supervisory Board were in both bodies is separate as prescribed by law. appointed by the Workers’ Council to the Supervisory Board of Sava d.d. at the end of May 2004. At The Board of Management of Sava d.d. consists of a constitutive session the members of the new the Chairman and two Members of the Board. Till Supervisory Board elected a Chairman and Deputy of 30 April 2004 one member was also the Worker’s the Supervisory Board of Sava d.d. Stanislav Valant, Director. Leaving this post was a logical consequence M.A., was elected as its Chairman and Miran KalËiË as of restructuring the enterprise into a holding company. its Vice Chairman. The Board of Management is responsible for running the company as well as representing and presenting the As a rule the Supervisory Board conducts its business joint stock company Sava to third parties. The activities at regular meetings. By way of exception it makes and decisions of the Board of Management are decisions through a correspondence meeting or directed to monitoring the interests of the company and appoints a special commission. The established carrying out the basic goal: to increase the value of the practice of the Supervisory Board is to appoint a company over the long term. The Board of Management commission to draw up a report from the Supervisory deals with more important issues connected with the Board on the Annual Report and a proposal on how ongoing business and development of the company at to use the accumulated profit. The field of operation regular weekly board meetings. The decisions of the of this commission is almost identical to the Board of Management are adopted by a bare recommendations of the aforementioned Corporate majority. The current Board of Management of Governance Code, namely that the Supervisory Board Sava d.d., instead of making a decision on voting should form the review committee. down, practices attuning the opinions of its members Encouraging constructive dialogue remains the with the aspiration of adopting a unanimous decision. cornerstone of good cooperation between the Board of The operation and demarcation of responsibilities of Management of Sava d.d. and its Supervisory Board.

30 Corporate governance of Sava Group Park Hotels Bled d.o.o., and from 29 March 2004 affiliated companies joining the director Zvone Špec in the company Grand Hotel Toplice d.o.o. Šprajc at the same time Sava d.d. is the governing company of the Sava Group, is still continuing to run the company Golf and Camp which is why the key task of the executives of the Bled d.d. while performing the tasks of director of parent company is to provide efficient leadership and operations of the Tourism division. the kind of management of the Group that is oriented - From 1 May 2004 or after the agreed termination to following the strategies and meeting the goals of the of the function of Workers’ Director in the Board affiliated companies which should support the strategy, of Management of Sava d.d., Maksimiljan FijaËko goals and policies of the holding company. The work became the director of the company Sava Medical of all employees in the Sava Group is connected and and Services d.o.o. Jože Copek, the director of that governed by common values and business principles company till then, performed the tasks of an expert (www.sava.si/1a/frame.htm), which form the basis consultant to the new director of that company until to meet the corporate strategy of Sava d.d. and its his retirement on 31 December 2004. affiliates. The second form of active corporate governance Executive representatives of Sava d.d. realise or its body at the Group level is the Council of their managerial role through their membership Directors of the Sava Group. It is formed by the in the supervisory boards of affiliated companies, Board of Management of Sava d.d., the directors simultaneously with other forms of the corporate of the divisions or individual companies as well governance system and those that ensure the as the directors of the knowledge competence standardised operation and increasing the benefits of centres. The Council of Directors collaborates in joint operation of all companies in the Sava Group. designing the business policies at the Group level Executive representatives of Sava d.d. actively perform and dealing with implementing set goals. It usually their role in the supervisory boards of affiliated meets in session once per month. The Rules of the companies. This includes the regular evaluation of Board of Directors also specify the formation and implementing the strategic policy of these enterprises operation of the knowledge competence centres. and their efficiency. This is how the management The directors of these centres are obliged to ensure conducts the adopted business policies, gives its the implementation of adopted policies in their consent to strategic decisions, and appoints or recalls sphere, endorse expert decisions and set up vertical members of the boards and their remuneration. and horizontal flows of information, knowledge and experiences. Changes to the management of affiliated companies in 2004: The Board of Management of Sava d.d. organises a - From 1 February 2004 Anton Rogina became the business conference of the Sava Group twice per new director of the company Sava-GTI d.o.o., Ptuj. year. The June conference is intended for business He replaces Jože Copek in this post, who is also the announcements by the year end, whereas the director of the Kranj company Sava Medical and December conference deals with the business plan Services d.o.o. for the following year. At the conferences company - From 26 March 2004 on Andrej Šprajc became executives as well as the directors of the competence the director of both the following companies joining centres themselves present their plans. the director Lidija Dokl in the company Golf and

31 COMPETENCE CENTRES OF KNOWLEDGE SAVA d.d. BOARD OF MANAGEMENT Chairman: Janez BohoriË Board of Management: Emil Vizoviπek, Vinko PerËiË

JANEZ BOHORI» VINKO PER»I» EMIL VIZOV©EK

STRATEGIC FINANCE STRATEGIC PURCHASING QUALITY SYSTEM Director: Miha Dolinar Director: Marko ©tebe Director: Joæe VodiËar RISK MANAGEMENT STRATEGIC COST CONTROL, Director: Vlasta Mekiπ ACCOUNTING, PLANNING OPERATIONAL & ANALYSIS EXCELLENCE FINANCE Director: Director: Emil Vizoviπek Procurator: Iva Æagar, M.A. Mojca GloboËnik MARKETING SYSTEMS ECOLOGY AND SAFETY Manager: Alojzija Murn STRATEGIC Manager: Janez Fabijan INFORMATICS CORPORATE Director: Anton Kepic COMMUNICATIONS Director: Lidija Bregar HR, LAW & COMPETENCE CENTRES OF KNOWLEDGE COMPETENCE CENTRES OF KNOWLEDGE ORGANISATION Director: Tatjana Lozar DIVISIONS

TRADE INVESTMENT TOURISM REAL ESTATE RUBBER CHEMICALS FINANCE MANUFACTURING WITH FOREIGN TRADE NETWORK

Responsibility to shareholders and respect whether in meeting goals or in being given news for shareholder rights and information. We are endeavouring to prevent all forms of damaging behaviour that could, for instance, The basic responsibility to shareholders - increasing be the consequence of irregular and inappropriate the assets of the company - are realised through information provided to shareholders, or dealing with continual improvements in the business operations an issue in the interest of an individual shareholder of Sava and by revealing the results achieved in an instead of the company as a whole. Also members of honest way. At the same time we clearly define the the Supervisory Board are obligated to acquaint the paths of future development and openly communicate company if a possible conflict of interest arises in line on the position of the company. with the Rules of the Supervisory Board. In accordance with the law all Sava shareholders have the right to participate in the Shareholders’ Meetings Ensuring transparency of business and of the company. The majority of shareholders use strengthening investor confidence their right at these meetings, which are held once per year. Each share gives one vote. Shareholders The changing conditions of competitive business in the can implement their electoral right at the company global market and an increased level of awareness and Shareholders‘ Meetings in person or by proxy. Their information availability among all key stakeholders, rights and interests are realised also by appointing or require the introduction of greater openness and dismissing members of the Supervisory Board. transparent business. Shareholders demand the unveiled and honest presentation of all key business Elected individuals in the role of members of the categories. Stock Exchange rules add new forms of Supervisory Board independently represent the obligatory reporting, and the interest of the media is interests of all shareholders and the company, growing too. irrespective of the possible personal interest or benefit of an individual shareholder or stakeholder. At Sava One of the clearly visible achievements in strengthening we support the principle of equality of all shareholders our policy of increasing transparency, while also an

32 expression of the increasing demands of shareholders of information published. This is accessible in and interest of the general public concerning announcements in the electronic system of reporting the business of Sava d.d. and the Sava Group, news and information provided by the Ljubljana Stock is the continuing growth in the range and quality Exchange - SEO-net, as well as other electronic and printed media.

Growth in the scope of reporting by Sava d.d. in the Ljubljana Stock Exchange electronic news system - SEO-net

No. of announcements 100

80 78

60

40 29 25 20

0 2002 2003 2004 In 2004 Sava d.d. strengthened appreciably the scope of reporting in the electronic news system of the Ljubljana Stock Exchange - SEO-net. In comparison with 2002 the number of announcements in 2004 has more than tripled.

Growth in reporting by electronic and printed media on the Sava Group

No. of announcements 4,000

3,500 3,164 3,000

2,500

2,000 1,527 1,632 1,500

1,000

500

0 2002 2003 2004

As a result of greater activity in the field of publishing sensitive information about prices and other data and due to the simultaneous increased interest of the media, the number of announcements in 2004 grew considerably. In 2004 we registered 3,164 announcements on the Sava Group, which is twice as many with regard to the previous year.

In Sava d.d. we are continually augmenting the This has resulted in increasing our abilities to evaluate information system, both technically and thematically, and confirm the accuracy of our reporting whilst ensuring to acquire and process information and set up control the efficiency of our internal control system. systems for financial reporting within the Sava Group.

33 The method, processes and responsibilities of reporting of Sava d.d. and the Sava Group for the duration of the are detailed in the Rules of Sava d.d. They refer to how to mandate of the second composition of Sava's Supervisory report on Sava d.d. as a public company. The Team for Board. This report was discussed at the last session of Corporate Communications is responsible for providing the previous composition of the Supervisory Board and supervision over implementing the adopted system of the first session of its current composition. In 2004 the reporting and introducing improvements on the basis of Group first issued a detailed Sustainability Report for new legislation and best practices of domestic and foreign 2003, which will be produced on a periodic basis. commercial enterprises. This Team consists of directors The 2003 Annual Report of Sava d.d. was ranked also and other members of the competence centres who, last year among the first five best reports of Slovene according to their field of work, are more deeply involved enterprises in a competition run by the journal Finance. in relations with publics in the following financial fields: Sava d.d. therefore became the only company to be Strategic Finance, Strategic Accounting, Planning and ranked among the group of winners in all four years since Analysis, Legal Office, and Corporate Communications. this assessment began. One key area of the work of the Team for Corporate All documents and publications are available at our web Communications was directed in 2004 to adapting the site: www.sava.si current system to conform to the Corporate Governance Code and new rules of the Ljubljana Stock Exchange (also in the sense of the added obligation of providing Looking ahead quarterly reports). The Team is therefore monitoring the We anticipate that the supervision of corporate introduction of new tools and other improvements in the governance will receive considerable attention in the field of relations with financial publics. One of the most future. Experts forecast that the executive boards of important starting points for planning and carrying out European companies will, under strong pressure from operations in this field were presented by the results of shareholders and the general public, continue to improve a research project obtained at the beginning of 2004. It business and inform shareholders. The most exposed to used quantitative and qualitative methods to determine this are the best performance companies whose shares the level of satisfaction of shareholders and other circles of are traded on stock exchanges. They are at the same financial publics with regard to business and information time under strong pressure from global competition and as well as the future development of Sava d.d. international capital markets. For that reason at Sava The results of surveys using questionnaires or in-depth too we expect a continuation of the trend to strengthen interviews have confirmed our hypothesis that Sava is the confidence of our shareholders and stakeholders in well positioned as an investment opportunity among all our corporate governance. One should realise that the the financial publics analysed: institutional shareholders, requirement for greater transparency is at the same time internal and external (current and former) small considerably increasing the amount of documentation shareholders, stockbrokers and analysts as well as the and administrative work, and consequently also the business media. The favourable assessment of satisfaction amount of pertaining costs. with being informed is common to all these segments. Sava's activities in this field will be marked in 2005 most News about the business of Sava was evaluated as strongly by the transition to international accounting very good or good by 77.1 per cent of external and standards and the influence of changed tax legislation. 84.8 per cent of internal shareholders. The same findings Important progress in improving the adoption of the corporate governance system, especially for affiliated or a comparably even better evaluation was achieved companies, will be brought about by an increase in on the basis of qualitative in-depth interviews that were staff for the internal supervision and the introduction of performed among the other studied parts of the financial additional forms of systematic work in this field. publics. Besides new variations of the Corporate Governance 79.8 per cent of external shareholders and 68.4 per cent Code for Slovenia, we are anticipating a recommendation of internal shareholders were very satisfied or satisfied concerning remuneration of the boards of management with the past business performance of Sava. The opinions and supervisory boards from the General Directorate for of other segments were divided to a greater degree; the the Domestic Market - a body of the EU Commission. This latter also on account of the shorter term or longer term recommendation will, in our opinion, have an important views of interviewees with respect to the development of effect on the formation of Slovene practice in this field. the company. Possible greater transparency can contribute to even With the broad web of established tools of greater efficiency of Slovene members of boards of communication with shareholders the Team for management and supervisory boards. Due to better Corporate Communications produced in 2004, at the information with regard to remuneration, we anticipate end of the mandate of the previous Supervisory Board an improvement in the operation of the management of Sava d.d., a four-year report entitled Business Review and supervisors market in Slovenia.

34 8. RISK MANAGEMENT

Risk management in the Sava Group is relatively opportunities to improve purchasing conditions; well regulated on the basis of quality assurance - controlling expenses; certificates, safety systems and various methods - regular maintenance and improvements in the to establish good business and a continual processes governing quality in the Sava Group improvement in business procedures. To these we companies; have added in the past year the competence centre - managing the environment, care for safety and for risk management. health at work; - risks in the branch of individual companies and With last year's founding of the competence centre the economic and natural environment where they for risk management we have expanded the matrix operate. organisation, thereby increasing the transparency of important events and the possibilities for a timely The former method of working with risk is being response to the opportunities and dangers that enhanced by ascertaining the probability of a certain arise in a commercial environment. Members of the event and the effects it has on business itself even competence centres are representatives from all the before the event actually occurs. Furthermore, a divisions of the Sava Group. designed policy, that will systematically prevent harmful consequences and exploit favourable ones The present system of risk management relies on of unanticipated events, will further increase its the principle that each competence centre and each efficiency. individual company manages risk in its own field. These are: By forming the competence centre for risk - currency and interest risk and exposure in banks, management, we have thus systematically tackled payment abilities and capital suitability; all kinds of risk. In doing so, we seek to improve the - selection of staff, human resources policy and already established preventive action in individual education, establishing values in the business branches of operation of the competence centres and enterprise; companies in the Sava Group and perfect the timely - sales performance and competitiveness; warning system of risk and opportunities offered. - relations with key stakeholder groups; The risks that the Sava Group are exposed to are - observing and standardising internal regulations, divided into four large groups on which internal and ensuring the quality of legal guarantees and external factors have an effect: enforcing external legal standards; - strategic risks that affect the development of the - implementing a timely, effective and transparent company and intellectual capital (mergers and system of planning, accounting, analysis and purchases, competition, policies to customers and supervision conforming to accounting standards, suppliers according to individual branches); taxation and other regulations; - financial risks that have an influence on payment - making information on the business enterprise ability and cash flow (interest rate, currency available, standardising reporting and protecting exchange rates and debt policy; data bases; - other business risks that affect employment and - familiarisation with purchase prices and exploiting the production chain (legislation, culture and

35 ethics, Board of Management, Supervisory Board); Looking ahead - random risks that affect the public, employees, assets and products (contracts, natural disasters, The main task of the competence centre in 2005 the environment, suppliers, price levels, etc.). will be to make an inventory of all types of risk, their positioning in individual groups, their assessment In 2004 we centralised reporting on the insurance with regard to the possibility of them occurring, and of assets with insurers and set up a debt insurance the level of effect of a particular risk on business as scheme with individual companies. We therefore well as relations to individual risks. In the process began to deliberately prevent the probability of non- of defining them we shall include the price and payments due to the insolvency of our customers. effectiveness of management of a particular type of At the same time we began to arrange procedures risk, comparative information, methods of recognition to determine incentives for our customers and debt and persons responsible. recovery. The risk of customers not paying has thus been reduced considerably, which is evident also in the reduction of delays in payment and an improvement in the ratio between open liabilities to suppliers and trade receivables.

36 9. THE SAVA SHARE AND OWNERSHIP STRUCTURE

In 2004 the Sava share gained 59 per cent in value. months still continued to grow and in the middle of The unit price on the last day of trading in 2004 December it exceeded €160. The unit price of the reached €183. Besides good business results, the share achieved a record level on 30 December 2004, growth in the rate was affected by a favourable at- attaining a value of €183. mosphere at the Ljubljana Stock Exchange. One of the most important events that affected the growth of the share price in 2004 is undoubtedly Movements of the Sava share in 2004 the publication of the company's good business The price of the Sava share from the beginning till results. The growth in the rate was also facilitated by the end of 2004 gained 59 per cent in value. In the an optimistic mood at the Ljubljana Stock Exchange same period the SBI 20 index grew by 24.7 per cent. that was linked to extraordinary market liquidity. This Once the Sava share reached a value of around liquidity was to a large degree ensured by the flow of €118 in 2004, its value in the first half of the year cash into mutual funds whose yields, with the lowering fluctuated at a level up to €120. In the second half of of interest rates for bank deposits, had become more the year interest in the Sava share increased strongly. attractive to savers who in the past had not been Its price first exceeded the milestone €120 mark in lured to investments in the capital market. the month of July. The share value in the next few

Price and volume of the Sava share traded in the period 1 January 2004 to 31 December 2004

Share price (SIT) Trading volume (SIT in thousands) 45,000 5,000

43,000 4,500

41,000 4,000

39,000 3,500

37,000 3,000

35,000 2,500

33,000 2,000

31,000 1,500 trading volume 29,000 1,000 share price 27,000 500 adjusted 25,000 0 index SBI20 Jan. 04 Feb. 04 Mar. 04 Apr. 04 May. 04 Jun. 04 Jul. 04 Aug. 04 Sep. 04 Oct. 04 Nov. 04 Dec. 04

Note: due to comparability of data the movement of the SBI 20 index is adjusted so that the ratio between the Sava share price and SBI 20 index in the whole period amounts to 7.09, as it was on 1 January 2004.

37 Trading with own shares other risks in the period from 1 January 2004 to 31 December 2004. As at 31 December 2004 The number of own shares in comparison with the Sava d.d. had available 3,289 own shares whose previous year was 25 shares fewer. According to value, calculated according to the average purchase a resolution adopted by the Board of Management price, amounted to €224,351. The nominal value of of Sava d.d., these were allocated to cover a own shares amounted to €137,189. The number of compensation claim due to an error in the transfer own shares represents 0.16 per cent of the total of of the share register to KDD. There were no shares issued..

Key data on the Sava share

2000 2001 2002 2003 2004 No. of shares 1,720,987 1,720,987 1,720,987 1,720,987 2,006,987 Nominal value of shares (in €) 74.74 74.74 74.74 72.71 84.02 Book value of share (in €) 120.06 130.01 131.46 129.53 141.35 Net profit per share (in €) 3.24 4.02 3.99 4.02 6.62 Dividend per share (in €) 2.08 2.30 2.37 2.37 2.42 * Share of dividend in net profit 61.90% 56.80% 59.30% 68.60% 36.50% Total annual earnings per share -3.25% 6.81% 74.49% -0.52% 59.46% - Dividend yield 2.90% 3.20% 2.00% 2.00% 1.30% - Capital yield -6.15% 3.61% 72.49% -2.52% 58.16% Market capitalisation (in €) 121.88 123.37 212.60 206.83 368.06 Share price - Highest 80.69 78.48 130.29 122.52 183.39 - Lowest 64.70 64.00 71.66 59.54 115.95 - Weighted average 71.10 70.71 101.80 111.86 149.38 - At year end 70.86 71.73 123.60 116.84 183.39 P/E (price/earnings ratio) - Highest 24.90 19.50 32.62 30.37 27.69 - Lowest 19.90 15.90 17.94 23.68 17.51 - Weighted average 21.92 17.57 25.48 27.72 22.76 - At year end 21.80 17.80 30.95 28.96 27.69 PB - market price as % of book value 59% 55% 94% 90% 130%

* proposal by the Board of Management

Notes: - The book value of a share equals the fraction of - Market capitalisation equals the multiple of the the difference between capital and reserves for number of Sava d.d. shares and the market value own shares at the end of the year and the number of shares on the last day of the year. of shares in which own shares were deducted. - The P/E index is calculated as the fraction of market - Net profit per share is calculated according to price of the Sava d.d. share on the last day of the the MRS 33 standard and equals the fraction of year (or the highest and lowest market prices in the profit on the last day of the year and the average calendar year) and profit per share. number of established ordinary shares of Sava d.d. - The PB index is calculated as the fraction of the multiplied by the value adjustment quotient due to price of the Sava d.d. share on the last day of the newly issued shares. accounting period and book value of the share in - The share of dividends in net profit equals the fraction the same period. product of dividend per share and the number of shares on the ex-dividend date in the share register Share book value and net profit on the last day of the year. - The dividend yield equals the fraction of dividend The book value of the Sava d.d. share on 31 December per share in the year and market price of the share 2004 was €141. When calculating the book value on the last day of the year. of the Sava share the number of own shares was deducted from the total number of shares.

38 Ownership structure of Sava d.d. In 2004 the number of shareholders of Sava d.d. shareholders were registered in the share register of fell by 1,199 so that on 31 December 2004 18,674 the company.

Ownership structure of the company on 31 December 2004 in comparison with the position on 31 December 2003

SHAREHOLDER No. of shares on Stake SHAREHOLDER No. of shares on Stake 31 December 2004 31 December 2003 Kapitalska Druæba 375,286 18.70% Kapitalska Druæba 329,458 19.14% Slovene Compensation Fund 222,029 11.06% Slovene Compensation Fund 222,029 12.90% Legal entities 1,008,271 50.24% Legal entities 705,624 41.00% NFD1 Investment Fund 305,581 15.23% NFD1 Investment Fund 190,002 11.04% Zvon Ena Holding d.d 119,927 5.98% Triglav Steber 1, d.d. 117,343 6.82% Radenska d.d. 107,000 5.33% Mercator, d.d. 78,005 4.53% Banka Celje d.d. 78,520 3.91% ID KD, d.d. 67,656 3.93% NFD Holding 72,644 3.62% Zlata Moneta 1, PID 52,274 3.04% ETOL d.d.. 54,805 2.73% KD, d.d., VS Galileo 43,753 2.54% Gorenjska Bank d.d. 52,500 2.62% Abanka, d.d. 18,100 1.05% Merkur d.d. 41,500 2.07% Zavarovalnica Triglav, d.d. 16,978 0.99% Other legal entities 115,863 5.77% Other legal entities 121,513 7.06% Sava (own shares) 3,289 0.16% Sava (own shares) 3,314 0.19% Natural persons 398,112 19.84% Natural persons 460,562 26.76% TOTAL 2,006,987 100.00% TOTAL 1,720,987 100.00%

Greater changes in the ownership structure of Sava d.d., at its regular session on 2 March 2004, adopted a resolution by which it was determined that In the ownership structure of Sava d.d., in comparison new shares would be paid in full and all legal entities with the position on 31 December 2003, the stake increasing their capital in Sava d.d. would be registered of legal entities increased from 41 per cent to by 27 February 2004. This was done on the basis of 50.2 per cent, whereas the stake of the state, through their resolution on 25 November 2003 on increasing Kapitalska Družba and the Slovene Compensation share capital by 11,929,441 to a total of 83,714,102 Fund fell by 2.3 percentage points. The stake of natural € € and issuing 286,000 shares with a nominal value of persons fell by 6.9 percentage points and amounted to 42 with the exclusion of priority right for current 19.8 per cent on 31 December 2004. € shareholders and an appeal to register and pay for new The stake of foreign investors in Sava d.d. at the end of shares. Pre-emption rights were assured for the newly 2004 reached 1.7 per cent, which is a 0.08 percentage issued shares to the benefit of the issuer for a period point less than at the end of 2003. of two years after issue. For the decision to validate In the month of December 2003 the Supervisory or non-validate pre-emption rights for all shares that Board gave its consent to the planned total nominal exceed more than one per cent of share capital, it was increase in share capital of Sava d.d. in the amount of necessary to obtain the consent of the Supervisory €11,929,441 and the exclusion of the right of priority Board. The resolution on the increase of capital was for current shareholders. The Board of Management entered in the court register on 23 March 2004.

The legal entities who registered and paid for new shares are the following:

NAME No. of shares Paid in sum in € Radenska, d.d. 107,000 12,496,715 Zvon 1 Holding, d.d. 80,427 9,393,209 Kapitalska Druæba 45,000 5,255,628 NFD 1 ID, d.d. 35,715 4,171,217 Etol, d.d. 17,858 2,085,666 TOTAL 286,000 33,402,435

39 Company securities - members of the Board of Management and Supervisory Board Members of the Sava d.d. Board of Management and Supervisory Board began their mandate on 28 June 2004. On 31 December 2004 they owned 2,848 shares of the joint stock company Sava, which represents a 0.142 per cent stake of the total share capital of the company.

BOARD MEMBERS Position No. of shares Stake No. of shares Stake Difference on 31/12/2003 (1) on 31/12/2004 (2) (2 - 1) Janez BohoriË Chairman 706 0.041% 706 0.035% 0 Vinko PerËiË Member 717 0.042% 717 0.036% 0 Emil Vizoviπek Member 1,105 0.064% 1,140 0.057% 35 BOARD MEMBERS TOTAL 2,528 0.147% 2,563 0.128% 35 SUPERVISORY Position No. of shares Stake No. of shares Stake Difference BOARD MEMBERS on 31/12/2003 (1) on 31/12/2004 (2) (2 - 1) Stanislav Valant, M.A. Chairman 0 0.000% 0 0.000% 0 Miran KalËiË Deputy 86 0.005% 86 0.004% 0 Janez Bojc Member 163 0.009% 163 0.008% 0 Janko Kastelic Member 36 0.002% 36 0.002% 0 Tomaæ KuntariË, M.A. Member 0 0.000% 0 0.000% 0 Goran Bizjak Member 0 0.000% 0 0.000% 0 Joæef Copek Member 0 0.000% 0 0.000% 0 Janez Justin Member 36 0.002% 0 0.000% -36 Miha Resman Member 0 0.000% 0 0.000% 0 SUPERVISORY BOARD MEMBERS TOTAL 321 0.019% 285 0.014% -36 BOARD AND SUPERVISORY BOARD BOARD MEMBERS TOTAL 2,849 0.166% 2,848 0.142% -1

Other clarifications Approved capital - The Board of Management can to the statute of Sava d.d. are entered in the court until 20 September 2005, with the consent of the register, to increase share capital once or more up Supervisory Board, increase share capital once or to a total nominal value of €23,962,869, which more up to a total of 50 per cent of the value of share represents 33.4 per cent of the value of share capital capital relative to the balance on 31 December 1999. according to the balance on 31 December 1999. As part of increasing the share capital the Board of Management can, with the consent of the Supervisory Cross links with other companies Board, exclude the right of priority concerning new According to the criteria of the Corporate Governance shares. Code Sava on 31 December 2004 was cross-linked on the basis of the following ownership connections: In the month of December 2003 the Supervisory Board gave its consent for the planned total nominal - Sava d.d. had a 13.5 per cent stake in the company increase of the share capital of Sava d.d. in the NFD1 Investment Fund, and NFD1 a 15.2 per cent amount of 11,929,441 and exclusion of the right € stake in Sava. of priority for current shareholders. The resolution - Sava d.d. had a 6.8 per cent stake in the company on the increase of capital was entered in the court NFD Holding, and NFD Holding had a 3.6 per cent register on 23 March 2004. stake in Sava. After the performed partial increase of capital the - Sava d.d. had a 40.9 per cent stake in Gorenjska Board of Management has the possibility, with the Bank d.d., and Gorenjska Bank d.d. had a 2.6 per cent consent of the Supervisory Board and within a period stake in Sava. of 5 years from the day other changes and annexes

40 Calendar of more significant announcements

ANTICIPATED DATE OF ANNOUNCEMENT* TYPE OF ANNOUNCEMENT 25 April 2005 Audited Annual Report of the Sava Group and company Sava d.d. for 2004. Summary of the audited Annual Report of the Sava Group and company Sava d.d. for 2004. Publication of the company's statement on conformity with the recommendations of the Corporate Governance Code for Slovenia. 29 April 2005 Convocation of the 10th Shareholders’ Meeting of Sava d.d. 30 May 2005 Unaudited report on the business operations of the Sava Group and Sava d.d. for the period January-March 2005. 1 June 2005 The most important resolutions of the 10th Shareholders’ Meeting of Sava d.d. Note: only those shareholders who will be registered as holders of shares in KDD two working days after the Shareholders’ Meeting will be entitled to dividends. 29 August 2005 Unaudited report on the business operations of the Sava Group and Alternative date: 22 August 2005 Sava d.d. for the period January-June 2005. 28 November 2005 Unaudited report on the business operations of the Sava Group and Sava d.d. for the period January-September 2005. 19 December 2005 Business forecast for the Sava Group and Sava d.d. for 2005 and business plan for 2006. * The stated dates are those planned and may be changed during the year.

Contact persons: - Investor relations: Miha Resman, e-mail: [email protected], Tel: +386 4 2066 068, Aleš Aberšek, e-mail: [email protected], Tel: +386 4 2065 690 - Information on dividend payments: Karmen Mežnar, e-mail: [email protected], Tel: +386 4 2065 518, 2065 690 - Corporate Communications: Lidija Bergar, e-mail: [email protected], Tel: +386 4 2065 819 Vera Drašak, e-mail: [email protected], Tel: +386 4 2066 143

Further information for shareholders is available: - on the company's website: www.sava.si - e-mail: [email protected]

41 Alenka Hribar, Head of Purchasing, Sava Trade d.d., Trade division I respect other people's opinions.

She is reliable and has a systematic approach when transforming her constant desire to attain new knowledge in efficient projects in which her colleagues collaborate. The expertise that she obtained in the Sava Academy programme bore joint results with the introduction of new business operations.

42 BUSINESS ANALYSIS

43 10. DEVELOPMENT STRATEGY

We are strengthening the position of Sava as one of - growth in operations volume owing to the internal the pillars of the Slovene economy. In the seven years growth of companies, capital mergers and the since changing the company’s basic operations establishment of new companies; from a predominantly car tyre manufacturer into - enabling the expansion of development through a holding company, which manages a diverse Investment Finance operations (converting free group consisting of six divisions, the volume of financial assets into actual projects and profitable operations has been increased six-fold and over financial investments). 170 million has been invested. After upgrading € In 1996 Sava set the principal goal: to increase the business strategy in 2003 we have focused on the annual net sales revenues from the then most products and services with promising market 38 million euros to 310 million euros in 2007. potential, thus increasing profitability. After four years of implementing the new development On a new path - from 1997 to 2002 strategy Sava surpassed the volume of operations As the leading rubber manufacturing company in which it had had before establishing its partnership with the markets of the former Yugoslavia and with a the Goodyear concern. It restructured into a holding three per cent market share in the European car tyre company for managing and financing, which consists of market Sava faced the pressures of globalisation six strategic divisions. In this way and on account of large in the world car industry in the nineties. Confronted investments Sava assured the required basis for the with unacceptable demands by the then partner, the next level of planned development, which concentrates Continental concern, and without its own technology on strengthening the long-term competitive edge of the for radial car tyre production, Sava in 1997 linked Group and increasing profitability. with the American corporation Goodyear and sold it a majority stake in its car industry programmes. After On firm foundations - the strategy from establishing two companies under mixed ownership, 2003 to 2007 Sava, in 1998, with its operations volume amounting to scarcely one quarter of the previous volume, stepped The upgraded strategy is continuing with the on a new development path and underwent thorough delineated path from the first period, the key restructuring. difference in the second period being moving the focus from growth on profitability. Until 2007 profitability The foundations of the new development strategy of should achieve ten per cent, or three times more Sava d.d. after 1997: than in 2002 when profitability decreased due to - restructuring the industrial rubber programmes rapid growth and large investments. that remained fully owned by Sava d.d.; Based on these foundations the vision was renewed: - expanding operations and utilising the synergies in the divisions that are related to rubber manufacturing - The holding company Sava d.d. will become the such as chemicals and technical trade; after 1998 most successful and sought-after manager of diversification into tourism, and due to extensive capital in Slovenia and a reputable and responsible investment requirements also into the real estate partner in the sustainable development of the business; natural and social environment.

44 - The Sava Group will become the greatest asset for In this way we made use of a favourable exit, a possibility customers and the most attractive employment which is always present in our decisions. The integration opportunity for the best personnel in Slovenia. of the Slovene chemicals industry, planned for several years, is now taking place under the auspices of the The mission of Sava d.d. is to increase the value of Helios Group. This decision placed us in a position to company assets, which is being implemented by direct our capital in the business with a higher potential establishing top-rate competences in both areas for the long-term growth of the Group. of our operations: managing the majority-owned companies and managing the investment portfolio. The tourism industry shows the highest growth rates globally. In 2004 we considerably strengthened our Managing the companies: the affiliated companies Tourism division. In February a majority stake in the are trained to achieve returns on capital invested company Terme 3000 d.d., Moravske Toplice, with that are above average with regard to the relevant the affiliates Terme Ptuj d.o.o. and Terme Lendava d.d. branch. was acquired. In June the company Radenska- Managing the companies is based on five strategic ZdravilišËe d.o.o. was acquired through the company guidelines: Terme 3000 d.d,, which also includes Terme Banovci and Hotel Jeruzalem. The project of joining the - to ensure the most modern management systems; spa resorts in the north-east of Slovenia under the - to establish efficient competence centres of Pannonian Spas brand name was implemented by an knowledge; increase in capital of Sava d.d. In both parts of the - to provide conditions for employment, development Tourism division - Sava Hotels Bled and Pannonian and corporate feeling among the best employees, Spas - over €25 million or 67 per cent of the total particularly top specialists; investment value of the Sava Group was invested. - to strengthen the portfolio of globally competitive products and services (TOP 3/2/1 - be at least the Further larger investments are planned for the first in Slovenia, among the first two in the region coming years as well as additional opportunities for and the first three in Europe or worldwide); and the creation of new jobs at both destinations. - to ensure operational excellence and cost efficiency. In 2004 we began to implement renewable energy Managing the portfolio: we identify, select, acquire sources and energy consulting projects. We produced and integrate the correct portfolio in order to improve the required project documentation to build a the profitability of investments in the divisions of the plant to produce biodiesel fuel, which is one of the Sava Group. development opportunities in the restructuring of Teol. The construction of the plant is planned for Managing the portfolio — either acquisitions or 2005. We decided to purchase patent rights and divestitures — is an essential component in managing established the company Gea Sol International such a diverse system like Sava, therefore exacting d.o.o., which will mainly provide consulting services criteria that support the abilities in this field are being in the field of energy within the Group and develop developed. In 2004 the short-term investments innovative solar tiles, which are based on solar portfolio was restructured in order to decrease its heating systems. diversification and focus on investments that were evaluated as having good mid-term potential and were As far as financial investments are concerned, in accord with requirements as regards liquidity. the year 2004 was very dynamic. As agreed in the agreement on strategic partnership in 1997, a The year 2004 - in the direction planned 20 per cent share in the company Sava Tires, JV Holding was sold. The second large divestiture In 2004 we successfully proceeded in the direction was selling the Sava stake in Geoplin d.o.o. in the planned. The achieved profitability on share capital at beginning of 2005. The financialinvestments portfolio the level of Sava d.d. rose to 5.3 per cent, and at the was strengthened by an increase in the ownership level of the Group to 8.2 per cent. stake of Sava d.d. in Gorenjska Bank to 40.94 per The main achievements in managing the companies cent, the purchase of shares of the Zagreb company are presented in detail further in the report. At Dom Holding d.d., and by an increase in the ownership the level of the Group it is worth pointing out the stakes in the companies Maksima Holding d.d. and achievements in certain priority fields such as human NFD Holding d.d. and in the investment fund NFD 1. resources, quality of operations, industrial safety and a new competence centre for risk management. A look ahead - to continue with the same Managing the portfolio brought changes in the intensity structure of the divisions and financial investments. The conditions for implementing the development In the middle of the year Color d.d. was sold and Sava strategy until 2007 are secured. Our future task is thus retreated from the paints and coatings industry. to successfully implement the outlined development

45 strategy and enhance the competences of all the The diversity of our operations will be combined with companies in the Group in accordance with the plan. the common values and business principles that join Only profitable growth will assure global us in attaining our common goals. competitiveness in the capital markets. That is why All of our activities will also in the future be founded we shall direct our assets to promising business on the principles of sustainable development. areas where we are able to achieve a competitive Business success will be achieved owing to a edge globally. balanced responsibility towards the natural and Our financial compass remains to achieve a return social environment, which we see as the condition on capital invested, concentrating our full attention for attaining a competitive edge in the long run and to cash flow and maintaining a solid assets balance. for growth in the value of Sava.

46 11. GENERAL ECONOMIC CONDITIONS

In 2004 the GDP of Slovenia increased by 4.6 per cent Economic movements in 2004 were more in comparison with last year, which is especially due advantageous also for companies in the Sava Group. to the growth of industrial production, particularly - In sales we made use of a relatively good exports. Imports increased appreciably as well; the domestic market situation and in most of the coverage of imports with exports even decreased by companies higher growth rates than in the 1.2 percentage points. economy in general were achieved. Exports to Similarly favourable results with even higher EU countries were far better than the economic growth rates than in Slovenia were achieved in average and increased by 15 per cent, while this eastern European countries. Less favourable was increase for the entire Slovene economy totalled the economic situation in the EU countries, which 9.7 per cent. achieved an average economic growth of only - We only partly succeeded in transferring the 1.6 per cent, and in Germany growth was even slightly rise in prices of oil products and energy and the lower. nominal growth of salaries in selling prices. Last year Slovenia progressed in controlling inflation, - The general decrease in interest rates was well which despite a high increase in oil prices, was only exploited by all the companies of the Sava Group, 3.6 per cent, while in the EU countries it reached and movements in the Stock Exchange turned to 2.4 per cent on average. A measure by the Bank of the benefit of the company as well. Slovenia to stop adjusting the euro exchange rate to rise in domestic prices had a favourable effect on prices. Throughout the year the exchange rate rose by 1.3 per cent only. Another important factor in decreasing the growth in prices is the dollar exchange rate, which during the year fell by 6.3 per cent. Due to the lower inflation rate and an open financial market in Slovenia interest rates decreased considerably, which, consequently, increased stock exchange rates. The stock exchange SBI 20 index rose to 4,904 points in December, which is 24.7 per cent more than in the year before. The relatively high economic growth had a favourable effect on the employment rate: the number of employees in Slovenia increased by 1.3 per cent with regard to last year, and the unemployment rate fell from 11 per cent to 10.4 per cent. The average salary in 2004 increased by 5.7 per cent in nominal terms and 2.1 per cent in real terms.

47 12. BUSINESS OPERATIONS OF THE SAVA GROUP

In addition to the holding company Sava d.d. the order to achieve a higher analytical value, certain consolidated financial statements of the Sava comparisons with last year are drawn on the basis Group for the year 2004 include 24 affiliated of the consolidated financial statements of the companies. Due to major changes in the structure Group that were announced officially as well as on of the Group in 2004, which are described in the the identical structure of the Group. chapter on the structure of the Group, and in

12.1. Business success

€ in millions

2001 2002 2003 2004 Index Plan Index 2004/2003 2005 2005/2004 Net sales revenues 190.4 211.7 231.3 236.1 102 251.3 106 Other revenues 14.4 11.4 4.3 5.2 121 0.0 - Operating expenses -217.5 -231.9 -243.2 -237.1 97 -242.1 102 Financial result 6.6 13.5 8.9 18.8 211 15.1 80 Total profit before taxes 6.1 2.2 8.0 24.3 304 24.2 100 Net profit of the Sava Group 5.3 6.4 6.4 20.7 324 22.9 111 NET PROFIT BELONGING TO SAVA d.d. 6.8 6.9 6.9 20.5 297 22.7 111

Net sales revenues In 2004 the Sava Group created net sales revenues included in the Sava Group created net sales revenues in the amount of €236.1 million, or 2 per cent more in accordance with the plan, while in comparison with than last year and at the planned level, respectively. last year net sales revenues were 5 per cent higher. The companies that on 31 December 2004 were

48 Net sales revenues structure in 2004 by division (consolidated):

TRADE DIVISION 40.2%

RUBBER MANUFACTURING DIVISION WITH FOREIGN TRADE NETWORK 28.9%

TOURISM DIVISION 22.3%

REAL ESTATE DIVISION 5.7%

CHEMICALS DIVISION 2.5%

OTHER COMPANIES 0.4%

In comparison with last year net sales revenues Financial result were augmented in all divisions of the Sava Group except in Chemicals, which due to selling off In 2004 the Sava Group created financial revenues Color d.d., considerably reduced its volume of in the amount of €31.6 million, or 43 per cent more operations in 2004. than last year and financial expenses in the amount of €12.8 million or 4 per cent less than last year. The In the sales structure of the Sava Group Trade still had financial result of €18.8 million was produced, which a major share with 40 per cent, followed by Rubber is 111 per cent more than last year. The financial Manufacturing together with the foreign trade network result was entirely generated in the holding company with a 29 per cent share, Tourism with a good 22 per Sava d.d. due to selling off short- and long-term cent share, and other operations created 9 per cent financial investments. of sales revenues. By including Pannonian Spas in the Sava Group, Tourism became one of three most Total profit before taxes important divisions of the Group. The total profit before taxes generated by the The Sava Group created 28 per cent of net sales Sava Group in the amount of €24.3 million was revenues directly in foreign markets. The major 204 per cent higher than last year or 97 per cent part was generated by Rubber Manufacturing in the higher than planned. amount of €67.2 million, and to a smaller extent also Trade. It should be pointed out that Tourism, Net profit with a 22 per cent share in net sales revenues of the Sava Group, realised 63.4 per cent of overnight stays Net profit of the Sava Group in the amount of of guests from abroad. €20.7 million is three times higher than last year or 96 per cent higher than planned. Operating expenses A 72 per cent share of net profit of the Group for Operating expenses in the amount of €237.1 million 2004 was generated with financial business of the are at last year’s level. In the operating expenses holding company and a 28 per cent share is due to structure costs of goods, materials and services have successful operations of the affiliated companies in a 69 per cent share, labour costs a 22 per cent share, all divisions of the Sava Group. amortisation, depreciation expenses and write-offs The net profit that belongs to Sava d.d. totalled an 8 per cent share and other operating expenses a €20.5 million and is 197 per cent higher than last year one per cent share. and 95 per cent higher than planned, respectively.

49 Net profit of the Sava Group belonging to Sava d.d.

€ in millions 25.0 22.7 22.5 20.5 20.0

17.5

15.0

12.5

10.0 6.9 6.9 7.5 6.8

5.0

2.5

0.0 2001 2002 2003 2004 Plan 2005

Return on capital higher than last year. This was due to re-qualifying the investment in Gorenjska Bank d.d. from long-term to The profitability of the Sava Group calculated as the short-term financial investments, which is described ratio between total profit for the financial year before tax in detail in the chapter on Sava d.d. operations. and the average state of capital totalled 9.7 per cent for 2004, which was 6.2 percentage points more Operating receivables and inventories totalling than last year. €83.6 million had a 16 per cent share in the assets structure of the Sava Group. Rubber Manufacturing The profitability of the Sava Group calculated as the with the foreign trade network had a 22 per cent ratio between net profit for the financial year and share in inventories, Trade a 36 per cent share, the average state of capital totalled 8.2 per cent for Real Estate that builds real properties for sale a 2004, which was 5.4 percentage points more than 38 per cent share, and other divisions a 4 per cent last year. share. Rubber Manufacturing with the foreign trade network had a 33 per cent share in operating receivables, Trade a 39 per cent share, 12.2. Assets and liabilities Tourism a 10 per cent share and other divisions an 18 per cent share. structure Short-term financial investments totalling €76.9 million had a 15 per cent share in the assets Balance Sheet total structure of the Sava Group and 93 per cent of these The Balance Sheet total of the Sava Group is investments were realised in Sava d.d. €514.9 million and compared to last year it increased by 23 per cent. The increase is mostly due to the Liabilities structure inclusion of Pannonian Spas in the Sava Group. Capital of the Sava Group totalling €292.9 million as at 31 December 2004 was 25 per cent higher Assets structure than at the end of last year. This growth was due to A major share in the assets structure of the Sava the increase in capital of the joint stock company Group or 48 per cent was formed by tangible fixed Sava and successful operations of the Sava Group assets, which were 56 per cent higher in comparison in 2004. In the liabilities structure capital had a with last year. Tangible fixed assets totalled 57 per cent share, which was one percentage point more than last year. €246 million, out of which Tourism had a 54 per cent share, the holding company Sava d.d. a 27 per cent The share of capital, long-term provisions and long- share and other divisions of the Group the remaining term liabilities in the liabilities structure amounted 19 per cent share. to 73 per cent. The Sava Group entirely covers fixed Long-term financial investments in the amount of assets with long-term financial sources. €93.1 million had an 18 per cent share in the assets Financial and operating liabilities in the amount of structure of the Sava Group and were considerably €190.5 million were 12 per cent higher than last

50 year, having a 37 per cent share in t he liabilities Investments in fixed assets str ucture. In 2004 t he Sava Group ear mar ked €37 million for Tour ism had a 54 per cent share in long-ter m liabilities,investments in fixed asse ts, whic h was 157 per cent while t he rest of liabilities was shown in Real Estate, more t han last year. The major ity of investments, Tr ade and t he holding company Sava d.d. 67 per cent, was made in Tour ism, 23 per cent in t he Sava d.d. had a 47 per cent share of short-ter m holding company Sava d.d., and 10 per cent out of financial and operating liabilities, Trade an 18 per cent total invested funds in ot her divisions. share, Tour ism an 1 8 per cent share, Real Estate a 12 per cent and ot her divisions a 10 per cent share. Oper ations of t he Sava Group were not exposed to r isks t hat would be connected wit h short-ter m payment liquidity. The Sava Group had suitable capital available to cor respond to t he oper ations of t he companies in t he Sava Group.

Assets structure of the Sava Group on 31 December 2004

TANGIBLE FIXED ASSETS 47.8%

LONG-TERM FINANCIAL INVESTMENTS 18.1%

SHORT-TERM FINANCIAL INVESTMENTS 14.9%

INVENTORIES 8.6%

OPERATING RECEIVABLES 7.6%

OTHER ASSETS 3.0%

Liabilities structure of the Sava Group on 31 December 2004

CAPITAL 56.9%

SHOR T-TERM LIABILITIES 27.5%

LON G-TERM LIABILITIES 9.5%

LON G-TERM PROVISIONS 5.8%

OTHER LIABILITIES 0.3%

51 Igor Jagodic, Chef, Grand Hotel Tolice d.o.o., Sava Hotels Bled My profession is my favourite hobby.

For achieving the highest standards of cuisine he has received awards in international competitions and also ensures the well-being of guests in “his” five star hotel. As a member of the Slovene National Chef Team he presented Slovene cuisine in the United Nations building in New York.

52 13. BUSINESS OPERATIONS ACCORDING TO DIVISION

13.1. Rubber Manufacturing division with foreign trade network

In 2004 the companies in Rubber Manufacturing considerably enhanced their success as they all concluded the business year with a positive result. Sales revenues totalling €66.5 million were 13 per cent higher with regard to last year and 12 per cent higher than planned, respectively. Total profit before taxes in the amount €1.1 million was much higher than in the same period last year and 52 per cent higher than planned, respectively. In the structure of the total consolidated sales of the Sava Group Rubber Manufacturing had a 21.7 per cent share and thus contributed 5 per cent to the total profit of the Group. In Rubber Manufacturing €2.5 million was earmarked for investment. For 2005 we plan to achieve net sales revenues in the amount of €69.9 million, total profit before taxes in the amount of €2.1 million and investments in the additional modernisation of manufacturing facilities in the amount of €5.3 million.

53 Key data for Rubber Manufacturing*

€ in millions

RUBBER MANUFACTURING Index WITH FOREIGN TRADE NETWORK 2003 2004 2004/2003 Net sales revenues 59.0 66.5 113 Total profit before taxes 0.1 1.1 1,287 Net profit 0.1 1.1 1,912 Balance Sheet total 22.4 33.5 150 Fixed assets 1.2 11.0 904 Current assets 21.2 22.5 106 Capital 10.4 20.5 196 Long-term liabilities 0.1 0.9 944 Short-term liabilities 11.8 12.1 102 Investments in fixed assets 0.6 2.5 458

* Note: Data is shown with regard to the comparable division structure.

Savatech d.o.o., the most important company in result of a clearly defined and targeted marketing Rubber Manufacturing, increased its net sales strategy in all six programmes that operate within the revenues by 17 per cent in comparison with last company. year and exceeded the plan by 12 per cent. It sold its products in 81 countries; 81 per cent of total Savatech d.o.o. concluded the business year with production was exported, the remaining 19 per cent a net profit totalling €0.7 million, which was much being sold in Slovenia. A high growth in sales is the better than last year and in accordance with plan.

Sale of products according to country - Savatech d.o.o.

GERMANY 23% SL O VENIA 1 9% IT AL Y 9%

GREA T BRIT AIN 8%

CR O A TIA 5%

FRAN CE 3%

CZECH REPUBLIC 3% S WITZERLAND 3%

POLAND 3% US A 2%

CHIN A 2%

O THER 20%

Sava-GTI d.o.o. started its business operations in In 2004 Sava-Schäfer d.o.o. increased its net sales 2003 when its moulded products programme was revenues by 9 per cent in comparison with last year, dissolved from the company Sava Guma d.o.o. In which totalled €2.9 million. After three years of 2004 the company discontinued non-profitable co-operation with the strategic partner Schäfer AG programmes and re-oriented to the car industry the company has its list of references available. This market by selling high quality and high added assures it an independent presence in the market, value products. Therefore net sales revenues were which along with the offer of additional services, 22 per cent higher than last year and totalled guarantees successful operations in the future too. €3.4 million and a net profit of €0.1 million was The company Sava-Schäfer d.o.o. generated a net generated, which was an improvement in comparison profit in the amount of €0.2 million, or 34 per cent with the loss last year. more than last year.

54 Foreign trade network Sava Rol d.o.o. from Zagreb faced tough business The foreign trade network sells products conditions in Croatia, particularly high insolvency in manufactured by the rubber manufacturing the industry, crises that certain customers programmes. It includes five companies in Germany, experienced and keen competition. Net sales Great Britain, USA, Czech Republic and Poland. The revenues were 16 per cent higher than last year and network is being restructured to develop a more at the planned level. The net profit generated was suitable approach to customers in the mentioned slightly positive. markets. In 2004 the representative office of Savatech d.o.o. in Trieste was opened, while the representative office in Moscow has been operating successfully since 2003.

With the right choice of production programmes the goal of the Rubber Manufacturing is to become the most successful and, as far as volume is concerned, the second largest manufacturer of industrial rubber products in Central Europe. This will be accomplished by restructuring the programmes and continual improvements in the competitive position of products in selected markets.

55 13.2. Chemicals division

In 2004 the company Teol d.d. created net sales revenues in the amount of €6.2 million, which is 90 per cent of last year’s amount; the planned goal was not achieved. The company had a loss totalling €0.5 million, which was mainly due to forming revaluation adjustments in receivables for sales to customers from the countries of the former Yugoslavia. The company sold 73 per cent of its production in the Slovene market, 25 per cent in countries of the former Yugoslavia and 2 per cent in EU countries. The decrease in sales is a consequence of former brands that are not well recognisable as well as price non-competitiveness resulting from insufficient production and sales volume. In 2005 the Board of the company introduced comprehensive measures to seek new sales channels, additionally rationalise costs and analyse various possible scenarios for restructuring the company, particularly in connection with green fuel - biodiesel.

Key data for Chemicals* € in millions

Index CHEMICALS 2003 2004 2004/2003 Net sales revenues 7.0 6.2 88 Total profit before taxes -0.4 -0.5 143 Net profit -0.4 -0.5 143 Balance Sheet total 5.9 4.0 69 Fixed assets 2.8 1.6 56 Current assets 3.0 2.4 80 Capital 2.0 1.5 73 Long-term liabilities 0.0 0.1 108 Short-term liabilities 3.6 2.3 63 Investments in fixed assets 0.0 0.1 359

* Note: Data is shown with regard to the comparable division structure.

The fundamental goal of the company Teol and therefore the Chemicals division is to improve and restructure the company by introducing new programmes that will assure the growth and development of the company.

56 13.3. Trade division

With net sales revenues totalling €97.8 million Trade exceeded last year’s result by 2 per cent, however, that was still 5 per cent below plan. In the structure of total consolidated sales of the Sava Group net sales revenues of Trade had a 40.2 per cent share. Total profit before taxes in the amount of €1.1 million signifies important progress with regard to the loss last year, while the planned total profit before taxes was not achieved, primarily due to lower sales figures and write-offs in inventories, which was in accordance with the accounting policy of the Sava Group. Trade had a 5 per cent share in the total profit of the Sava Group. In 2005 Trade plans sales revenues in the amount of €104.6 million and total profit before taxes in the amount of €2.2 million. Investments of €2.0 million will be earmarked especially for improvements of the retail store infrastructure.

Key data for Trade* € in millions

Index TRADE 2003 2004 2004/2003 Net sales revenues 95.7 97.8 102 Total profit before taxes -1.8 1.1 - Net profit -1.8 0.9 - Balance Sheet total 74.4 66.0 89 Fixed assets 34.9 31.1 89 Current assets 39.4 34.8 88 Capital 27.5 28.0 102 Long-term liabilities 13.2 10.8 81 Short-term liabilities 33.5 26.8 80 Investments in fixed assets 0.3 0.4 117

* Note: Data is shown with regard to the comparable division structure.

57 Net sales revenues

WHOLESALE TRADE 40%

RETAIL TRADE 60%

In 2004 Sava Trade d.d. created net sales revenues In four open stores with DIY products the OBI in the amount of €56.6 million, which was franchise partner for Slovenia MG Market d.o.o. 10 per cent less than last year and 5 per cent created net sales revenues in the amount of below plan, respectively. The company generated €41.2 million or 26 per cent more than last year and 3 per cent below plan, respectively. In 2004 the a profit totalling €1.7 million, which was much better than last year and in accordance with that company operated with a loss totalling €0.8 million, planned. Operations of the company in 2004 were which was considerably better than last year. In 2004 characterised by restructuring the retail trade and, as well the company’s operations were burdened with consequently, the closure of certain retail trade units. high start-up costs for four OBI stores. The company noticeably improved cost control and decreased open receivables to customers as well as all of its liabilities.

The goal of t he Trade division is to develop into t he larges t trader wit h tec hnical goods in t he area of t he former Yugoslav countries.

58 13.4. Tourism division

The companies in Tourism successfully concluded the business year. The achieved net sales revenues totalling €53 million were 6 per cent above last year’s figure and 2 per cent above plan. In the consolidated sales structure of the Sava Group net sales revenues of the Tourism division had a 22.3 per cent share. Total profit before taxes of €2.8 million was 10 per cent lower than last year but 7 per cent above plan for this year. Deviations as regards last year were partly due to the planned performance of large investments and partly due to the revaluation of land in the company Golf and Camp d.d. Bled. In total profit before taxes of the Sava Group Tourism had a 12.5 per cent share, which ranks it among the key divisions of the Group. Tourism invested €24.9 million for investments in fixed assets, which is 259 per cent more than last year. 67 per cent of total investments of the Sava Group were made in Tourism. Significant investments in Sava Hotels Bled in 2004 were refurbishing of the accommodation facilities in the King’s Club House, renovation of toilets at the campsite, refurbishing of Vila Bled, building a new congress hall and Živa wellness centre in hotel Golf; and in Pannonian Spas adaptation of the Thermalium wellness centre, completion of the golf course and refurbishment of apartments in hotel Ajda in Moravske Toplice, expansion and modernisation of the thermal water park in Ptuj, and building of an apartment village and a new indoor swimming pool in Lendava. For 2005 we plan to achieve in Tourism net sales revenues in the amount of €60.1 million, total profit before taxes of €3.7 million and invest €21.4 million.

Key data for Tourism*

€ in millions

TOURISM 2003 2004 Index 2004/2003 Net sales revenues 50.0 53.0 106 Total profit before taxes 3.1 2.8 90 Net profit 3.0 2.7 91 Balance Sheet total 137.9 169.9 123 Fixed assets 128.9 160.8 125 Current assets 8.5 8.6 101 Capital 105.6 108.4 103 Long-term liabilities 17.0 27.8 164 Short-term liabilities 14.7 31.9 218 Investments in fixed assets 6.9 24.9 359

* Note: Data is shown with regard to the comparable division structure.

59 The company Golf and Camp Bled d.d. created net hotel Vila Bled it continues to remain the best hotel sales revenues in the amount of €2.7 million, which service provider of the highest quality in the region. is same as last year or 3 per cent below plan. The The company Grand Hotel Toplice d.o.o. created company generated profit from ordinary activities 64 per cent of net sales revenues in Grand Hotel in the amount of 0.2 million. The main reason for € Toplice (in the hotels Toplice, Jadran and Trst), the loss totalling €0.5 million was impairment in the value of land as prepared by an authorised appraiser 18 per cent in hotel Vila Bled and 17 per cent in the Panorama restaurant. in the amount of €0.6 million. 46 per cent of the company’s sales were achieved by It achieved 62,535 overnight stays, or 16 per cent sales in the golf course, 28 per cent in the campsite, more than last year and one per cent more than and the rest by providing catering services in the planned. 50 per cent of overnight stays were King’s Club House. realised in hotel Toplice, 24 per cent in hotel Jadran, 12 per cent in hotel Trst and 14 per cent in Vila Bled. We plan that together with the quality services provided by the King’s Club House the golf course will In 2004 the company G&P Hotels Bled d.o.o. created be ranked in the next five years among the ten best net sales revenues in the amount of €9.1 million, golf courses in Europe. The campsite of Bled shall which is 11 per cent more than last year or 7 per cent maintain its level of quality and its leading position in above plan. Net profit totalling €0.7 million was Slovenia in the future too. According to international 24 per cent lower than last year but eight times higher standards it will improve its position by transferring than planned. from the fourth to the second quality class. Due to carrying out an investment hotel Golf was The company achieved 92,946 overnight stays, which closed for a longer period of time. However, the is 7 per cent more than last year. With overnight stays negative effects of the investment such as booking alone it created net sales revenues in the amount of cancellations and claims for compensation were €0.8 million or 19 per cent more than last year. successfully neutralised, therefore the business year was successfully concluded and plans were In 2004 the company Grand Hotel Toplice Bled d.o.o. exceeded. In comparison with the average results in created net sales revenues in the amount of 5.8 million € Slovenia the company achieved above average growth or 19 per cent more than last year, and thus fulfilled levels as far as overnight stays and sales revenues the plan. The generated net profit totalling 0.1 million € are concerned. was the first positive result achieved in the last three years. Thus the company this year consolidated its It had 159,609 overnight stays, i.e. 7 per cent more operations and set a solid foundation for attaining than last year. The share of overnight stays of guests business success in the future. By renovating the from abroad amounted to 95 per cent.

Net sales revenues structure in 2004 according to market - Sava Hotels Bled

SLOVENIA 73%

EUROPEAN UNION 20%

OTHER COUNTRIES 7%

60 The company Terme 3000 d.d. created net sales 3 per cent below plan. In order to operate successfully revenues in the amount of €15.8 million, or in future, insufficient investments from the past will 2 per cent more than last year and 1 per cent above have to be compensated. Large investments will plan, respectively. The generated net profit totalling begin in 2005 with the renewal of hotel Miral and an €1.6 million was 9 per cent higher than last year and expansion of the apartment village in Banovci spa as 3 per cent higher than planned. 2004 was the most well as the modernisation of energy supply systems. successful year for Terme 3000 in the last decade. The planned investment value in 2005 amounts to 5.7 million. There were 363,835 overnight stays and in € comparison with last year this figure was 2 per The company Terme Ptuj d.o.o. created net cent higher and 1 per cent higher than planned, sales revenues in the amount of €3.7 million or respectively. 258,095 daily guests visited Terme 29 per cent more than last year and 19 per cent 3000, which is 1 per cent more than planned. The above plan, respectively. A net profit totalling Health unit achieved 334,535 medical points or €0.3 million was generated, which was 126 per cent 34 per cent less than last year. The main reason for more than last year, or 77 per cent above plan. The this was adaptation of the physiotherapy unit, which business results of the company in 2004 were the was closed for three months. Terme had a 14.6 per best so far. After the investments were made net cent share in the total amount of overnight stays in sales revenues increased by 50 per cent. In 2004 Slovene spas. the company Terme Ptuj d.o.o. completed large investments in the expansion and modernisation In 2004 the company Terme 3000 d.d. completed of the outdoor swimming pools. The building of an three major investments totalling 5 million: a € attractive water fun park and the biggest water slide complete adaptation of the Thermalium wellness system ranked the company among the largest spa centre, completion of the building of a golf course resorts in Slovenia. In 2004 investments totalled and refurbishment of apartments in hotel Ajda. €1.9 million. In 2005 the company will earmark 10 million for € The total number of overnight stays was 60,000. A investments. The major part of assets will be intended further increase in that number is expected for the for the construction of a five-star hotel. future. The health services volume increased by In 2004 the company Radenska-ZdravilišËe d.o.o. 12 per cent in comparison with last year. created net sales revenues in the amount of In 2005 the Thermal park will be expanded by a large 12.9 million, which was 1 per cent less than last € amphitheatre, a children’s swimming pool and an year and 2 per cent less than planned. A net profit increase in campsite capacity. In September 2005 of 0.4 million was generated, which is 20 per cent € the building of a four-star hotel with thermal facilities, more than last year and 3 per cent less than planned. medical departments, congress halls and a casino Most of the set goals were implemented. The market will commence. This project will rank the company at position of ZdravilišËe is gradually improving despite the top of tourist service providers. The value of the certain problems, the growth being slower due to planned investments in 2005 totals 1.2 million. tougher competition. € The total number of overnight stays amounted to 259,846, which was at the level of last year and

61 In 2004 t he company Ter me Lendava d.d. created 55,050 day guests visited Ter me Lendava, whic h was ne t sales revenues in t he amount of €2.9 million, or 9 per cent more t han last year. Providing healt h and 6 per cent more t han last year and 9 per cent less t her apeutic services ac hieved 73,135 medical points t han planned. The company gener ated a ne t profit of or 4 per cent more t han last year. 0.1 million, whic h was muc h be tter t han last year or € In 2004 t he company ear mar ked 4.6 million 16 per cent more t han planned. € for building t he apartment village Lipov Gaj and a The ac hieved number of over night stays of 60,308 new indoor swimming pool, while in 2005 anot her was 10 per cent higher t han last year. In t he sales €0.5 million will be required to comple te t he already str ucture domestic over night stays represent begun renovation wor ks. 42 per cent and foreign 58 per cent. Last year

Net sales r evenues str uctur e in 2004 accor ding t o mar ket - Pannonian Spas

SLOVENIA 64%

EUROPEAN UNION 35%

OTHER COUNTRIES 1%

The goal of the Tour ism division is t o str engthen its position as the leading t our ist service pr ovider in Slovenia by offer ing t op-r at e hot el, health, cat er ing, golf and r elat ed services in the highest Eur opean t our ist cat egory.

62 13.5. Real Estate division

Real Estate achieved net sales revenues in the amount of €16.0 million, which was 18 per cent more than last year or one per cent above plan. All companies operated with a positive result. Total taxes before profit in the amount of €1 million was 2 per cent lower than last year and in accordance with plan. In the structure of consolidated sales of the Sava Group the Real Estate division had a 5.7 per cent share, and in total profit before taxes a 4.6 per cent share. In 2005 Real Estate plans to achieve net sales revenues of €18.3 million, total profit before taxes of €1.1 million and will invest €0.9 million in fixed assets.

Key data for Real Estate*

€ in millions

REAL ESTATE 2003 2004 Index 2004/2003 Net sales revenues 13.5 16.0 118 Total profit before taxes 1.1 1.0 96 Net profit 0.9 0.9 98 Balance Sheet total 34.4 45.7 133 Fixed assets 10.5 10.2 97 Current assets 23.9 29.1 122 Capital 9.8 10.6 108 Long-term liabilities 9.8 7.9 81 Short-term liabilities 11.3 24.0 212 Investments in fixed assets 0.4 0.8 229

* Note: Data is shown with regard to the comparable division structure.

Sava IP d.o.o. is the pillar of the Real Estate division market, in 2004 it concluded an agreement on a and attained 86 per cent of the division’s sales. In strategic partnership with the company IMG d.o.o. for 2004 the company created net sales revenues in a joint presence in the Croatian market. the amount of €13.7 million, which was 20 per cent In 2004 the company Sava Medical and Services d.o.o. more than last year or one per cent above plan. The created net sales revenues totalling €2.2 million, company created a net profit of €0.7 million, which was which was 4 per cent more than last year or one 22 per cent more than last year and at the planned per cent above plan. The company created a net level. profit of €0.2 million, which was half the profit In 2004 the company Sava IP d.o.o. ran its business generated last year or 37 per cent below plan. In only in Slovenia, concentrating on the demand in 2005 the company will complete the restructuring of Ljubljana, Maribor and the Slovene coastal region. its operations. In order to diversify its operations to the Croatian

The goal of the company Sava IP d.o.o. is to design a leading company for the real estate business in Slovenia, to be ranked among the leading real estate managers in Croatia and to become a key co-ordinator in real estate business in the Sava Group. The goal of the company Sava Medical and Services d. o. o. is to be an efficient provider of services that can be performed by disabled persons too, especially for the needs of companies in the Sava Group. 63 13.6. Investment Finance division

In 2004 Investment Finance made an important contribution to the business success of the company Sava d.d. as well as to the Sava Group. By investing in profitable investments, providing financing of the development of other divisions and efficient acquisition of funds on the basis of an integrated and co-ordinated presence in the market, we create an above average yield for our shareholders. Investment Finance implements a long-term development strategy. New investment activities and funds for financing investments are acquired through a combination of our own and foreign sources. Own funds are ensured by issuing new shares within the capital approved as well as selling off short-term financial and non-strategic investments or those for which the Sava Group cannot assure operations in accordance with its long-term strategy. When obtaining foreign funds we seek the most favourable combination of short- and long-term loans with a variable or fixed interest rate and loans linked to domestic or foreign currency in accordance with our policy of risk levelling. In 2004 we allocated over €100 million to investments in short- and long-term financial investments. More than €67 million was acquired by selling off certain financial investments, and a part of funds from other ownership and debtor sources.

64 Major investments in 2004 were: the purchase New paths of development of a majority ownership stake in the company Terme 3000 d.d., an increase in investments in A part of the assets is earmarked for investment in Gorenjska Bank and the acquisition of a significant innovative and therefore slightly more risky projects, ownership stake in two of the largest Croatian tourist which are expected to bring above average yields in holding companies: Dom Holding and SN Holding: the future. In Sava d.d. a lot of enterprising ideas arrive - During the official bid for buying off the company that cannot be ranked among the strategic operations Terme 3000 d.d. from 5 January to 25 February that have been established up till now. These projects inclusive, we acquired 2,776,203 shares of the have the potential for high profitability and could be company issuer, which is 87.2 per cent of the the start of new future strategic operations. entire issue. As at 31 December 2004 Sava d.d. In 2004 the company Gea Sol International d.o.o. owned 3,077,635 shares in total, which represents commenced its operations which in 2005 will 96.6 per cent of the company. The purchase of primarily provide energy consulting within the the company Terme 3000 d.d. is a part of the Sava Group. In this way the companies will achieve project of linking the capital of spa resort tourism considerable savings in energy consumption. At the in the north-east of Slovenia under the Pannonian same time the company will make preparations for Spas brand, which includes the holding company the manufacture and sale of solar tiles. Terme 3000 d.d. and the affiliates Terme Ptuj d.o.o. and Terme Lendava d.d. This anticipates The company Gea Sol International d.o.o. had a loss investments in the renewal and expansion of of €0.2 million, which is in accordance with the plan services in this part of Slovenia. During the year for the first year of operations as determined in the 2004 the Pannonian Spas project was rounded off by investment project. including the company Radenska-ZdravilišËa d.o.o. In addition to the manufacture and sale of tractors - In 2004 we increased our stake in Gorenjska Bank, in the company Limb d.o.o. in 2004 a project was one of the most profitable Slovene banks. Sava d.d. drafted to produce and sell biodiesel. Therefore the thus increased its ownership share in the company company Biool d.o.o. was established in which Sava by 40.9 per cent. The greatest part of the increase d.d. has a majority 100 per cent share. In this project is due to the purchase of 16,000 shares issued by Sava will upgrade its investments in renewable Gorenjska Bank from the company Merkur d.d. at a energy sources that have high market potential and follow the developmental policy of the EU. According price of €1,047 per share. to an EU directive Slovenia will have to provide from - In accordance with the development strategy in the 25,000 and 30,000 metric tons of biofuel in 2005. field of tourism we started to expand operations to the Croatian region. In 2004 we acquired an The dynamics of investment in innovative projects important ownership stake in two major Croatian will in the years to come be closely connected with tourist holding companies, which had been formed a number of interesting projects as well as with upon restructuring the privatisation investment the success of those already implemented. Such funds. At the end of the year Sava d.d. owned investment will be subject to the optimisation of Sava’s more than a 15 per cent share in the company strategic operations portfolio and a contribution by Dom Holding and more than a 5 per cent share in projects to target profitability. the company SN Holding.

Divestitures In accordance with our strategic orientation in 2004 we sold: - the remaining 20 per cent stake in the company Sava Tires d.o.o. totalling €42 million; - an 85 per cent stake in the company Color d.d. totalling €15.3 million; - an 8 per cent stake in the company Triglav Naložbe d.d. and an 18 per cent stake in the company Triglav, FinanËna Družba d.d., totalling €8.4 million.

The goal of the Investment Finance division is to become the most profitable financial pillar in Slovenia.

65 Ana Gjergjek, Shift Head of the Service Dept., Radenska-ZdravilišËa d.o.o., Pannonian Spas People have to make their own banqueting day.

An excellent organiser, an expert in service skills and a mentor of young staff who is acknowledged by her colleagues and students of hotel management schools throughout Slovenia. Guests enjoy talking to her and admire her decorative masterpieces that enhance many a celebration and social event.

66 14. BUSINESS OPERATIONS OF SAVA D.D.

In 2004 the operations of Sava d.d., the holding €12.9 million was 84 per cent higher than in 2003 company of the Sava Group, were successful. The and it exceeded the plan by 23 per cent. The return achievements according to the key business factors on capital in 2004 amounted to 5.3 per cent and were better than the results last year and better was 2.3 percentage points higher than last year. than planned. The generated net profit totalling

14.1. Business success

€ in millions

2001 2002 2003 2004 Index Plan Index 2004/ 2005 plan 2003 2005/2004 Net sales revenues 53.2 13.2 11.9 7.6 64 7.9 104 Other revenues 7.7 0.2 0.6 0.5 83 0.0 0 Operating expenses -65.9 -20.0 -17.5 -11.9 68 -11.3 95 Financial result 11.0 14.1 13.3 19.5 147 18.8 96 Total profit before taxes 7.9 7.5 8.3 15.8 190 15.5 98 NET PROFIT 7.3 7.0 7.0 12.9 184 14.2 110

Net sales revenues In the structure of net sales revenues of Sava d.d. rents for business premises had a 45 per cent share Since 2002 net sales revenues of Sava d.d. have and the rent for equipment a 20 per cent share. The mainly represented sales within the Sava Group; in remaining 35 per cent mainly includes the sale of the total sales structure of the Group they have only services by competence centres of knowledge. a 3.1 per cent share. In 2004 the joint stock company Sava achieved net Operating expenses sales revenues in the amount of €7.6 million, which is 2 per cent less than foreseen in the business plan Operating expenses totalled €11.9 million, which is and 36 per cent lower than last year. The decreased 13 per cent less than planned and 32 per cent lower volume of revenues was chiefly the result of a planned than last year. The decrease in expenses was due decrease in the volume of real estate business due to to lower costs for the purchase value of goods sold an increase in capital of the company Savatech d.o.o. (in connection with the company Teol d.d.) and lower with an investment in kind and discontinued dealing depreciation (in connection with an increase in the in raw materials with Teol d.d. capital of the company Savatech d.o.o.).

67 In the expenses structure the costs of goods, authorised appraiser the value of tangible fixed materials and services had a 29 per cent share, assets was impaired by €2.1 million. labour costs a 28 per cent share and write-offs a A considerable amount of operating expenses arose 43 per cent share. from managing financial investments, therefore the - Costs of services were 9 per cent higher than planned surplus of the financial result was partly intended to and 36 per cent higher than last year. A considerable cover these expenses as well. part of this was due to higher fees bound to the increase in the capital of the company, and costs related to making sales and leasing out real estate. Financial result - Labour costs were 9 per cent higher than planned In 2004 the joint stock company Sava created financial and 19 per cent higher than last year. They included revenues in the amount of €28.1 million, which was provisions for payments of a variable part of salaries 18 per cent more than planned and 29 per cent in accordance with managerial contracts. more than last year. Financial expenses totalling - Depreciation costs and operating expenses from €8.6 million increased as well and were 33 per cent revaluation in the amount of €5.0 million were higher than planned and 2 per cent lower than last year, 38 per cent lower than planned or 45 per cent lower respectively. The created surplus of financial revenues than last year. In addition to the already mentioned over financial expenses totalling €19.5 million was depreciation the impairments in fixed assets were 12 per cent higher than planned and in comparison lower too. In accordance with the appraisal by the with the year before it had improved by 47 per cent.

Achieved financial result according to type - € in millions

Financial revenues Financial expenses Financial result Dividends 2.8 0 2.8 Securities 9.6 4.6 5.0 Sale of a 20% share in Sava Tires JVH d.o.o. 14.0 0 14.0 Interest 0.9 3.0 -2.1 Affiliated companies 0 0.7 -0.7 Other 0.8 0.3 0.5 TOTAL 28.1 8.6 19.5

A major, 84 per cent share of dividends, which totalled to indebtedness at banks, and in comparison with €2.8 million, represented the received dividends from last year they were €1.2 million lower. Moreover, the Gorenjska Bank d.d. Kranj. In future an important average indebtedness level was lower in 2004 than source will be the dividends of other companies in in the year before. which Sava has financial investments. In this year the accounting policy relating to the Financial revenues arising from the sale of securities evaluation of long-term financial investments in the totalled €9.6 million and mainly include proceeds affiliated companies changed. The profits of affiliated from the sale of shares of Gorenjska Bank d.d., companies totalling €6.0 million that belong to Krka d.d. and Triglav, FinanËna Družba d.d. Financial Sava d.d. were dealt with as specificequity revaluation expenses in relation to securities totalled €4.6 million adjustments, while losses totalling €0.7 million and mainly arose from impairments in securities with (Teol d.d. and the newly established companies regard to the Stock Exchange price on the day of the Geasol d.o.o. and Biool d.o.o.) affected the current accounting period. result of the holding company like financial expenses. In 2004 the remaining 20 per cent share of Sava d.d. in Sava Tires Joint Venture Holding d.o.o. was sold 49 per cent of other financial revenues in the amount at a price of €42.2 million. In this way the contract of €0.8 million represent charged guarantees. The on a strategic partnership with the Goodyear concern remaining part was due to exchange rate differences signed in 1997 was entirely fulfilled. With this and other financial revenues. Financial expenses in transaction financial proceeds totalling €14.0 million the amount of €0.3 million were negative exchange were generated. rate differences and miscellaneous other financial expenses. Interest revenues were due to loans granted to the affiliated companies. Interest expenses were due

68 Total profit before taxes than planned and 84 per cent above the net profit generated last year. The total profit before taxes of Sava d.d. in 2004 amounted to €15.8 million, which was almost twice Based on a resolution adopted by the Board of as much as in the year before. Management and approval by the Supervisory Board 50 per cent of the net profit of 2004 in the amount of Net profit €6.4 million was allocated to other reserves. The generated net profit for the financial year in the amount of €12.9 million was 23 per cent higher

Net profit of Sava d.d. according to year

€ in millions 16 14.2 14 12.9

12

10

8 7.3 7.0 7.0

6

4

2

0 2001 2002 2003 2004 Plan 2005

Return on capital Earnings per share Return on capital of Sava d.d., calculated as the ratio Net earnings per share in 2004 have considerably between the total profit before taxes for the financial increased and attained €6.6, which was 61 per cent year and the average state of capital for 2004, more than in 2003. As at 31 December 2004 the totalled 6.6 per cent, which is 2.7 percentage points standard price for a share of the company that is more than last year. traded at the Ljubljana Stock Exchange amounted to 183, which is 53 per cent more than at the end The profitability of Sava d.d. calculated as the ratio € of the previous year. The share book value as at between net profit for the financial year and the 31 December 2004 amounted to 141, or 8 per cent average state of capital for 2004 totalled 5.3 per cent, € more than last year. which is 2.3 percentage points more than last year. The profitability of the Sava Group, calculated as the Influence of the changed accounting ratio between the total profit before taxes for the policy on net profit financial year and the average state of capital for 2004, totalled 9.7 per cent, which was 6.2 percentage Due to a change in the accounting policy governing points more than last year. the evaluation of long-term financial investments in the affiliated companies the net profit of the holding The profitability of the Sava Group, calculated as the company Sava d.d. was €6 million lower. The profit ratio between net profit for the financial year and the of the affiliated companies that with regard to the average state of capital for 2004, totalled 8.2 per cent, ownership of the affiliated companies belongs to the which is 5.4 percentage points more than last year. holding company will correspondingly be reflected in the consolidated financial statements of the Sava Group.

69 Our exposure in this investment is so high that in 14.2. Assets and liabilities the future the demand to restructure a part of the structure financial investments portfolio might be revealed. If business conditions and macro-economic Balance Sheet total circumstances do not change, we wish to continue to remain a long-term owner of at least a 33 per cent The Balance Sheet total of Sava d.d. in the amount of stake in Gorenjska Bank d.d. €363.3 million was 18 per cent higher in comparison with last year. - In future we do not intend to actively market the shares of Gorenjska Bank d.d., which is why we Assets structure changed the investment from a short-term into a long-term investment. A major share - a good 55 per cent - of the assets - By purchasing an additional 92.24 per cent structure comprises long-term financial investments stake in the company Terme 3000 d.d, totalling €201.5 million. The share of long-term financial investments in the assets structure is Moravske Toplice, we became a 96.65 per cent 140 per cent higher than last year, significant changes owner of Radenska-ZdravilišËe d.o.o. and thus being the following: significantly strengthened the division Tourism. The investment cost €31 million. - In the past Sava d.d. showed the investment in Gorenjska Bank d.d. as a short-term investment. - In accordance with agreements on the integration The approval by the Bank of Slovenia to increase the of the Slovene coatings industry an 84.74 per cent stake in Gorenjska Bank up to 50 per cent assured stake in the company Color d.d. was sold totalling the required flexibility in making business decisions €15.3 million. related to the purchase of shares of Gorenjska Short-term financial investments totalling €86.9 million Bank d.d. and at the same time it presumed that represent 23.9 per cent of all assets, and in comparison Sava d.d. will remain a long-term strategic partner with last year they were 36 per cent lower due to a of the bank. transfer of the investment in Gorenjska Bank d.d. - With purchases made during last year the stake under long-term financial investments. Other short- in Gorenjska Bank d.d. was increased to almost term financial investments include an increase on 41 per cent and reached the point when we account of purchasing significant stakes in the two repeatedly had to review our strategy and anticipate largest Croatian tourist holding companies, which further steps in connection with this investment. is in accordance with the development strategy on strengthening the business of Sava d.d. in Croatia.

Assets structure of Sava d.d. on 31 December 2004

LON G-TERM FIN AN CIAL INVESTMENT S 55.5%

SHOR T-TERM FIN AN CIAL INVESTMENT S 23.9%

TAN GIBLE FIXED ASSET S 19.0%

OTHER ASSET S 1 .6%

70 Liabilities structure - For dividends and bonuses the amount of €4.9 million was earmarked in accordance with a resolution by In comparison with last year the capital of the joint the Shareholders’ Meeting. stock company Sava totalling €283.4 million was 27 per cent higher, 14 per cent of the sum was due - The equity revaluation adjustments were increased to the increase in capital. In the liabilities structure it by €22.2 million. The sum in the amount of had a 78 per cent share, or 6 percentage points more €6.0 million comprised the profits of the affiliated than at the end of last year. companies and the sum in the amount of €16.2 million the profit of the associated company Changes in the capital were as follows: Gorenjska Bank d.d. for 2004, when the capital - In 2004 the increase in capital of the joint stock method is applied. company Sava totalling €33.4 million was carried out, which was an important financing source for Financial and operating liabilities totalling €79.3 million expansion of the Tourism division. were 7 per cent lower than last year. In the liabilities structure they had a 22 per cent share, which was - We generated a net profit in the amount of 6 percentage points less than last year. €12.9 million; one half of the sum was allocated to other reserves.

Liabilities structure of Sava d.d. on 31 December 2004

CAPITAL 78.0%

SHORT-TERM LIABILITIES 20.0%

LONG-TERM LIABILITIES 1.9%

OTHER LIABILITIES 0.1%

Investments in fixed assets In 2004 Sava d.d. earmarked €8.4 million for Major investments included a purchase of a majority investments in tangible fixed assets, which was ownership share in the company Terme 3000 d.d., 22 per cent less than last year. These investments Moravske Toplice, an increase in investment in include the purchase of hotel buildings and land for Gorenjska Bank d.d., and acquisition of a significant the requirements of the Tourism division, purchase ownership share in the two largest Croatian tourist of land for building a commercial centre in Kranj, holding companies. purchase of land for green fuel of the future - biodiesel Dealing with financial investments is presented in production, and smaller investments in equipment detail in the report on Investment Finance. to make further technological improvements in the Rubber Manufacturing division. Financial position of the company The entire Sava Group earmarked €37.0 million for investments in tangible fixed assets. The joint stock company Sava shows high liquidity and solvency with a favourable capital structure. Due to a low level of indebtedness it has a lot of Financial investments opportunity for hiring short- and long-term debts In 2004 Sava d.d. earmarked over €100 million for that will facilitate expansion and development in the short- and long-term investments. 67 per cent of the future too. We assess that in doing business with the finance for this purpose was acquired as a result of joint stock company Sava there are no risks for Sava divestitures of certain financial investments, and the to fail in meeting its financial obligations in the short rest from other ownership and indebtedness sources. term. The company has sufficient capital with regard to volume and type of operation available.

71 Dividend policy on the Sava Group as a whole, we have adopted the strategy of dividend payments for the following years. The Board of the joint stock company Sava advocates According to the adopted strategy and considering a long-term stable policy for dividend payment. This the anticipated macro-economic circumstances, up most corresponds to the needs of the company, since to 40 per cent of the annual net profit of the Sava it ensures a higher level of anticipating business Group will be paid in dividends. yields for shareholders and enables the company to adapt to investment and financial requirements. The dividend policy has been prepared on the basis Furthermore, the long-term stable policy of dividend of the currently known assumptions on the macro- payment is well accepted by creditors and it decreases economic environment and implementing the their request as regards the interest rate. development strategy of Sava d.d. If the essential Sava restructured to form a holding company in elements of these two assumptions change, it will be 1996. Dividends have been paid since 1996. Since necessary to adapt the dividend policy to meet the then the dividend per share totalled €0.5 until 2004 changed conditions. when a proposal was put forward to pay a dividend of The Board of Management of the joint stock company €2.4 per share. During all these years 46 per cent Sava will put forward a proposal to the Shareholders’ of the net profit of the joint stock company Sava on Meeting to pay dividends for 2004 in the amount of average were allocated for dividends. €2.4, which represents 5.7 per cent per nominal With regard to the change in the tax law and a share value. We will propose that the Shareholders’ transfer to international accounting standards, due Meeting use the 1999 net profit for the intended to which the major focus in analysing business will be dividend payment totalling €4.9 million.

72 15. OUTLOOK FOR 2005

The year 2005 will be very successful for the Sava The number of employees in the Sava Group will Group, since all the key success indicators further increase by two per cent and in 2005 will amount to include positive growth trends. The basic operations, 3,022 on average. which will be carried out in order to strengthen competitiveness and business efficiency, were Operations of the affiliated companies in determined by the strategy of the Sava Group as 2005 well as the strategies of its divisions. In 2005 the focus will be on increasing the Business operations of the Sava Group operational excellence of the affiliated companies in 2005 in the Sava Group. Development activities in the affiliated companies will be concentrated on The successful year of 2004 forms a good basis for a restructuring sales programmes for the benefit of bold plan as far as the policies and business goals of products and services with a higher added value and the companies within the Sava Group are concerned. to strengthening market positions, also by means of The plan for the Sava Group was laid out in accordance intensive investment activities. In 2005 all divisions with Slovene Accounting Standards. in the Sava Group will achieve a positive result. In 2005 the Sava Group will create net sales revenues In 2005 the affiliated companies in the Sava Group will create sales revenues in the amount of of €251.3 million, or 6 per cent more than in 2004. The Trade division will achieve a 39.5 per cent share €257.1 million, which is 9 per cent more than in 2004. of the net sales revenues structure of the Group, the With a total number of 2,973 employees the affiliates Rubber Manufacturing division a 26.4 per cent share, will create a net pre-tax profit totalling €8.8 million, or the Tourism division a 21.2 per cent share and other 30 per cent more than last year. divisions a 12.9 per cent share. In the affiliated companies €30 million will be In 2005 the Sava Group plans to create a net pre-tax earmarked for investments in fixed assets, out of this profit of €24.2 million, which is at the 2004 level. sum 71 per cent for investments in Tourism. The share of Investment Finance in the structure For 2005 Rubber Manufacturing with the foreign of the Group’s profit will be 64 per cent, Tourism trade network plans to achieve a 10 per cent increase 15.1 per cent, Trade 9 per cent, Rubber Manufacturing in sales revenues, a 44 per cent increase in profit 8.8 per cent and other operations 3.1 per cent. from operations and a 9 per cent increase in total In 2005 the Sava Group plans to create a net profit profit before taxes. Possible increases in the prices of €22.9 million, which is 11 per cent more than in of basic raw materials, which are mainly linked to oil 2004. The profitability of the Group, computed as the and oil product prices, is a risk factor in implementing net profit on capital, will total 8.1 per cent. these high goals.

The Sava Group earmarked €57 million for The company Teol d.d. plans to strengthen its investments in fixed assets, or 54 per cent more than operations due to a change in the production in 2004. programme.

73 The business plan for 2005 includes the company Spas. The companies in the Tourism division will Gea Sol International d.o.o., established last year, increase operating profit by 29 per cent and total pre- which in 2005 will basically provide consulting tax profit by 40 per cent. services in the field of energy, especially to companies The Real Estate division will increase sales revenues within the Sava Group. In this way they will make by 15 per cent, operating profit by 17 per cent and considerable savings in energy consumption. At the total pre-tax profit by 3 per cent. same time Gea Sol International d.o.o. will make preparations for the production and sale of solar tiles. Business operations of Sava d.d. in 2005 In 2005 profit of the holding company Sava d.d. will Trade will increase its sales by 6 per cent, its profit rise substantially. from operations by 24 per cent and total profit before taxes by 6 per cent. While in the company Sava Trade In accordance with the business plan the joint stock d.d. major attention will be paid to designing business company Sava will in 2005 create a net profit of programme policies, the company MG Market d.o.o. €14.2 million, or 10 per cent more than in 2004. will focus on the efficient use of its sales potential In 2005 the joint stock company Sava will earmark acquired in the past through four OBI stores. €27.2 million for investments in fixed assets, which In Tourism we plan an 8 per cent increase in sales is three times more than last year. The already begun on average, of which an 11 per cent increase in Sava project of building real estate for sale and renewable Hotels Bled and a 6 per cent increase in Pannonian energy sources, namely bio fuels, will be continued.

74 16. MARKETING AND CUSTOMERS

which has become a synonym for quality wellness 16.1. Managing brand names services, golf and congress tourism. and marketing communications The Pannonian Spas brand in the north-east of Slovenia offers quality health programmes which By managing brand names the Sava Group are upgraded with the wellness programmes. seeks to enhance the assets of the company, This brand name includes the companies of strengthen its positive public image, emphasize Terme 3000 d.d., Terme Lendava d.d., Terme Ptuj d.o.o. the characteristics of the products themselves and Radenska-ZdravilišËe d.o.o. All brand names and assert Sava as the leading company in the are insured with the Patent Office. successful Group. The Corporate Communications Companies in the Sava Group invest in promotion in competence centre is responsible for managing Slovenia and abroad, the level of investment being brand names and communications within the adapted to the set marketing goals. Companies from Sava Group. all divisions appeared in specialised trade fairs and The companies annually determine their activities in held numerous meetings with domestic and foreign marketing communications based on their long-term business partners. communication plans. At the level of the holding Last year in Sava Hotels Bled the advertising campaign company corporate communications are performed on the Živa wellness centre in the Golf Hotel in Bled which provide support in communicating with met with a broad public response and made the centre shareholders and financial publics and managing the more widely known. Various advertising campaigns system of brand names. about the companies included in Pannonian Spas The basic synergetic effects and recognisability are were launched as well. achieved with a common element of identity - the Sava In the Trade division sales were successfully promoted Group designation to mark affiliation to the Group. and in comparison with 2003 the number of Bober The development of products and services is card holders in the OBI stores rose by a good 27 per cent. connected with developing and strengthening the New brands in Tourism and the entire Sava Group trademarks. The affiliated tourist companies have are also being promoted by launching websites. thus been joined under the common brand name Sava The number of website visitors and purchases on Hotels & Resorts Bled, which includes brands for two the web is continually increasing, and by monitoring destinations: Sava Hotels Bled and Pannonian Spas. visits to our websites we have established that those Sava Hotels & Resorts creates a competitive edge by of individual divisions as well as Sava d.d. are well offering well-recognised tourism programmes in the visited, especially news and the Sava newspaper domestic and international tourism markets. section. The acknowledged tourist service providers in A new home page has been created for Sava Hotels Bled - Grand Hotel Toplice Bled d.o.o., Golf and Bled. One of the key projects in 2005 is completing Camp Bled d.d., and G&P Hotels Bled d.o.o. - are the websites and updating the home pages and joined under the brand name Sava Hotels Bled, images in certain companies of the Group.

75 Bober card holders

Number 250,000

208,254 200,000

151,247 150,000

100,000 88,920

50,000

0 2002 2003 2004

The development of brand names will follow the management of related risks and anticipated development of the Sava Group in the future too. sales figures more accurately also for the period exceeding one year. Specific goals were introduced and activities for attaining these goals determined 16.2. Customer policy for each individual customer. Such activities include investments in selected partners, therefore a selective Market competitiveness is enhanced through approach is particularly important. focusing on our customers’ needs. This includes a good knowledge of customers, appropriate Customer satisfaction adaptation of our services, attaining the position of a partnership supplier for selected customers and A systematic approach is a starting point for defining common growth. In addition to sales, which plays and meeting the requirements and expectations of our the most important role, other business functions customers that are continually changing. Customer satisfaction is regularly measured in all divisions. are subordinated to that goal too. These measurements are adapted to the specifics of A systematic approach in marketing and customer individual operations and they enable comparability service has been introduced in all companies of of individual companies and their operations. The the Sava Group. We have introduced the measures, measurements are carried out with all our important procedures and indicators related to the strategic customers and, based on the results gathered, we goals of Sava d.d. and individual companies. assess their satisfaction and readiness to accept recommendations and their suggestions. The strategic goals of the Sava Group form the basis for the annual analysis of the customer database. The results are considered as guidelines that are Customers are not respected according to the financial included in the system of continual improvements criteria only, but also according to other criteria and introduction of new features and services. which are in compliance with the strategic goals of Over the last two years customer satisfaction surveys individual companies. Moreover, we are interested in with more important customers in the Rubber assessing competitive strength and the position of Manufacturing division show an improvement in the our companies with these very customers. following decisive factors: punctuality of deliveries We have established mutual collaboration based as regards agreed delivery terms, quality of products on partnership with key customers over the long and the quality/price ratio. The results in the Tourism term. Therefore in the system of balanced indicators division show improvements in customer satisfaction, we also pursue those that relate to strategically which is reflected in a rise in the satisfaction factors important customers. and good results in connection with claims. We have introduced the systematic gathering of In future we will continue to take measurements of certain types of information on the most important customer satisfaction, especially with strategically accounts. In this way we have improved the important customers.

76 17. STRATEGIC PURCHASING AND SUPPLIERS

The purchasing policy of the Sava Group is based on - steps for the implementation of purchasing goals; achieving optimum purchasing conditions in reliable and purchasing channels to assure the companies an - purchasing operations performed jointly. advantage for providing a joint and co-ordinated Owing to its contribution to the competitive edge of the approach in the purchasing market. For the fourth Sava Group, the role of the Purchasing competence year in succession standardised management, centre is growing stronger. joint goals and strategies with an efficient and decentralised performance based on common In 2004 the advantages of a common approach in agreements and purchase contracts have resulted the purchasing market were shown in: in a decrease in purchase prices. Implementing - a significant decrease in oil price growth in the the joint purchasing strategy has significantly world market and remarkably increased demand contributed to higher profitability of the companies for industrial raw materials in the Far East; and divisions within the Sava Group. - a stronger role in planning and co-ordinating Purchasing operations are developed in forms that demand in the long run together with strategic assure the best possible use of advantages that a big suppliers and big partners; customer possesses. They are organised according - lower costs due to purchasing chains and, consequently, an increase in market shares and to the network principle, their mainstay being the better coverage from sales; and competence centre for purchasing. - a rapid improvement of business achievements in Based on the joint purchasing policy we define: companies that were included in the Group and - basic purchasing goals; thus in joint purchasing.

Fluctuations in material and goods prices (annual deviation in %)

Percentage 4 %

3.6 3 %

2 %

1 % 1.3

0.0 0 % 0.1 - Sava Group -1 % 0.9 - 1.0 - ECB, Statistic Pocket Book: Industrial producer prices -2 % in the euro area 2002 2003 2004 77 Inventories of manufacturing materials and goods in days at the level of the Sava Group

Days 60

58 57

56

54

52 51

50 49

48

46

44 Sava Group 2002 2003 2004

Quotation markets and suppliers The supply of raw materials for rubber manufacturing, term strategies that lead to the most favourable the chemicals industry and the distribution of raw volume of suppliers and result in permanent price materials for trading activities are controlled by large competitiveness among them. global companies. Prices are strongly influenced by In 2004 the effects of joint purchasing and long- the fluctuations and cycles in supply and demand. term strategies to maintain the competitive position The reliability of forecasts regarding such fluctuations substituted the unfavourable price increase effect of is restricted. Risks can be managed by strengthening vital natural raw materials, gas, electricity, polymers partnership relations at the regional level. Competition and chemicals. in the local market for energy, services and the supply of goods for the trading and tourism industry Despite Slovenia joining the European Union, the is becoming ever more keen, which has a favourable conditions for supply have not changed much. In 2005 effect on the price and quality of services. the prices of industrial raw materials and products are expected to increase and the supply of goods and The structure and volume of suppliers for the services in the tourism industry is expected to improve. Sava Group are designed and based on long-

78 18. DEVELOPMENT ACTIVITIES

For the ninth year in succession the campaign to 18.1. Development of business encourage innovative proposals by our employees programmes and strategic was held and more than 488 useful proposals were obtained. The estimated value of the impact of these activities innovations is €0.5 million. We continued implementing the 20 Keys method and We are focusing on meeting the expectations of our completed the project concerning optimisation of customers, on innovations and making continual entrepreneurial procedures. Owing to the programme improvements in processes and products. We offer of making continual improvements, the Rubber products and services with high added value. Manufacturing division saved over €2.1 million by In Rubber Manufacturing we are continuing to the end of the year. introduce innovative technologies and products, Until June 2004 the Chemicals division included the automation, the development of environment-friendly company Color d.d., which should have become a part products and a continual decrease in and control of of the amalgamated coatings industry in Slovenia. environmental effects. The project revived outside the planned framework, We have completed the first and the second phase therefore Sava d.d. decided to sell the company. The of a project, the goal of which is to expand and concept of the joint coatings industry is now being modernise the production of conveyor belts. implemented in the Helios Group. With a new line for manufacturing rubber profiles The marketing strategy of the company Teol d.d production capacity and product quality have been already considered new conditions after Slovenia’s enhanced. The development activities in Rubber Manufacturing membership in the European Union. Production of concentrated on the development of new materials bio-lubricants and bio-cleaning agents was started. and products. The company operations are being restructured to We prepared everything required to modernise the provide storage and distribution facilities and to start technology and relocate the production of the EKO bio-diesel production. Programme and started building a new plant in The restructuring process of retail stores in Trade has January 2005. continued. Three smaller retail units were closed, The Development Institute, which operates in two stores were redesigned and a new franchise Savatech d.o.o., is actively engaged in numerous store in Jesenice was opened. The storage of goods organisations and associations that focus on making improved. Wholesale trade was expanded together improvements in co-operation with economic, with the quality and volume of products and services research and academic institutes. The Institute is a in OBI stores. Owing to the development of business member of GIZ Cluster Plasttehnika, which includes procedures €0.5 million was saved. more than 50 small, medium and large-sized Slovene companies in the field of marketing, development Tourism enhanced its services with a new destination. and services for products made from polymeric Until 2004 the division operated only in Bled where materials. all companies were merged under the brand name

79 Sava Hotels Bled. In 2004 plans were set to expand Group began to introduce the SIST EN ISO 14001, OHSAS the tourism industry to the north-eastern part of and HACCP systems. Winning over European thinking Slovenia. After purchasing the company Terme 3000 and practice in endeavouring to make better quality the capital link was rounded by the purchase of the products and services was and continues to be at spa Radenska-ZdravilišËe d.o.o. In this way the basis the core of interests for Sava d.d. because it enables was formed for a joint presence in the market and a set strategic goals to be achieved. One of them is the new brand name Pannonian Spas was launched. Both development and introduction of European systems brand names were presented to the Slovene public in for balanced testing and certification of products and 2004 at the Nature and Health Fair in Ljubljana. processes as well as the establishment of mechanisms for making continual and systematic improvements Investments were directed to the development of of quality and enhancing the competitive edge of strategic products: business tourism (congresses and products. seminars), relaxation programmes (wellness), golf and camping. There were several projects introduced to Strong international competition, more strict increase the quality and improve business procedures responsibility for products and new forms of resulting in an increase in cost efficiency. organisation of the company demand even more efficient systems for quality management. In practice Real Estate expanded its business to the Croatian this means that more exacting system solutions market and established the company Sava Nova d.o.o. should be introduced - the third version of the The company acquired certain interesting properties SIST EN ISO 9001 standard and those valid for the in Istria, while Sava IP d.o.o. purchased several car industry such as VDA 6.1 (since 1999 applied attractive premises in Slovenia and expanded its real in the Rubber Manufacturing division), EAQF and estate business and investment management to the ISO/TS 16949. companies of the Sava Group as well. Demands for introducing the model according to the New development opportunities are sought in the 6 sigma method are more frequent. We try to ensure area of renewable energy sources and consulting suitable conditions for introducing these concepts by services by the company Gea Sol International d.o.o., employing the EQA model and 20 Keys method. established in the middle of the year 2004, and In a competition that the Ministry of Higher Education, Biool d.o.o., which develops the green energy project, Science and Technology holds every year Sava d.d. also called biodiesel, to be used in transportation received the national award for business excellence vehicles. and in 2002 also recognition for its co-operation in a In the company Limb d.o.o. in Ptuj a new 80hp tractor pilot scheme to introduce business excellence in the was developed. Mass production and sales will Tourism division. already commence in 2005. Based on these endeavours we were successful in 2004, which is evident from the savings due to improvements in the quality of products, services and maintaining the system for managing quality. 18.2. Quality of business and We began with the integration of quality systems, environment management, and health and safety development of business at work (especially in the company Sava Trade d.d.), procedures and at the level of the Sava Group savings totalling €0.3 million were created. In all companies of the Sava Group we have embraced system solutions and guidelines as regards quality Awards for quality and the economic management. The business operations are conducted benefit owing to its development in compliance with SIST EN ISO 9001 (the quality In 2004 all companies successfully underwent management system), SIST EN ISO/EC 17025 certification, recertification and control follow-ups. (standards for qualifications of testing and calibration labs), SIST EN ISO 14001 (environment In Rubber Manufacturing savings in the area of management), OHSAS 18001 (health and safety quality amount to nearly €0.2 million. This mostly at work) and HACCP (identifying, evaluating and results from the improved quality of products and controlling health hazard factors in foodstuffs). favourable results as regards claims. Tasks that remain to be implemented in 2005 are mostly Introducing system solutions as defined by the connected with a decrease in the amount of waste standard SIST EN ISO 9001 (then ISO 9000) already from the introduction of new products. began in 1992 in the Rubber Manufacturing division and was finally introduced in all companies by 2003. Trade achieved savings totalling €0.1 million. The Until 2004 the majority of other companies in the Sava integration of quality system management was

80 successfully carried out, as well as environment designed a standardised computer support model management and health and safety at work. The for the production company. The introduction of 20 Keys method is being gradually introduced to MIS (Manager Information System) is underway. upgrade the existing management system. Joining the EU required certain adjustments and In Teol d.d., a part of the Chemicals division, the expansion of informatics, especially when reporting release of raw materials was rationalised. The about material and financial flows inside the EU and operations were carried out according to the the rest of the world. For companies that already use environment management system SIST EN ISO 14001, SAP we established electronic links with appropriate health and safety at work OHSAS 18001 and organisations and automated the data flow. We the 20 Keys method. After certain remodelling, introduced an additional computer-based program complementing and claims, quality costs decreased, named Foreign Trade for Tracing the Origin of Goods. and when compared to 2003, savings totalled about In production companies of the Rubber €10,000. Manufacturing division we introduced a database In order to standardise processes in Tourism, quality warehouse and designed a sales cube (for business processes that were originally developed comparability of numerous data), on the basis of which at Sava are being further developed, activities the executives of sales departments, programmes standardised and best practices transferred. and companies can rapidly acquire reliable data useful in business decision-making. We perfected the The company Golf and Park Hotels Bled d.o.o. existing programmes of production, supervision and passed the certification follow-up successfully. All maintenance. companies under the brand name Sava Hotels Bled thus met the requirements of the SIST EN ISO 9001 The programmes in the divisions Trade and Chemicals standard. The companies participated in the national were functionally upgraded. business excellence competition. Grand Hotel Toplice A larger development shift was made in Tourism. In Bled d.o.o. became the first hotel company in Sava Hotels Bled branded companies the information Slovenia that had successfully upgraded last year’s system is being thoroughly modernised. In September certification follow-up according to the HACCP system the SAP modules for finance and controlling were with a follow-up according to DS 3027:2002. introduced. These will be connected with the The achievements for a suitable quality service by Ros hotel and catering information system. Similar Camping Bled are evident internationally. Based on improvements will be introduced in Pannonian Spas an inspection the organisation ANWB ranked the branded companies in 2005. campsite under recommended campsites in Europe The MIS (Manager Information System) project and worldwide. In the association Camping Cheque, is underway to replace the current system. which includes 500 campsites from 18 countries, The goal of the new system is to introduce a Bled campsite was appointed Top Camping 2004. sophisticated information system that intended to According to an assessment by Golf World, one of be used by company executives and the Board of the most influential golf newspapers in Great Britain, Sava Group. It will be completed in 2005 and will Bled golf course ranked 27th among the best golf facilitate the implementation of plans and operations courses in Europe. of all companies at a higher quality level and provide In all companies under the Pannonian Spas brand the basis for decision-making. name the quality management system according to An increase in efficiency of non-manufacturing work, SIST EN ISO 9001 and HACCP is being introduced. regulation and a computer-controlled system for Hotel Ajda in Moravske Toplice received the Q quality monitoring the flow of documentation as defined badge and may designate its category as ****Q. by the ISO standards is the focus of our attention. By renewing computer hardware and software and improving equipment maintenance the efficiency and satisfaction of end consumers of computer services 18.3. Development of has been enhanced. information support In 2005 we shall draw up documentation on the security policy in informatics, which will serve as After the successful introduction of an integrated the basic document for assuring data security in all computer program SAP R/3 in the Rubber Sava companies. Manufacturing division the modules introduced are being further developed and the programme is being expanded to other companies of the Sava Group. Based on the experience acquired we have

81 Boπtjan Rus, Head of the Technology Development Dept., Savatech d.o.o., Rubber Manufacturing division Two know more than one.

He defines the ways to reach goals based on long-term thinking, a systematic approach and team work. An expert and mentor by repute, he has provided a creative atmosphere for introducing improvements. The department under his leadership made five useful proposals per employee.

82 SUSTAINABLE DEVELOPMENT REPORT

83 19. SUSTAINABLE DEVELOPMENT

Reporting on sustainable development is a constituent part of the Annual Report of the company Sava and a part of implementing its business strategy. In 2003 the Sustainable Development Report of the Sava Group was issued in a separate publication, in which the topic was dealt with in detail. Such periodic reports are planned to be published in the future too. Below we present the key contents, goals and results achieved. Sustainable development is implemented as establishing an equilibrium of social development, the quality of the natural environment and economic competitiveness; we treat this balance according to the principles of ethical operation. In addition to economic success the key principles of our commitment to sustainable development are as follows: - responsible action on the part of all employees; - defining measurable goals and an independent evaluation of the effects on the natural environment; - prudent management of natural sources; - establishing the highest international standards of business quality; and - active integration in the social environment.

84 20. A REVIEW OF HIGHLIGHTS AND ACHIEVEMENTS

20.1. Most important events April The first Sava Academy programme is completed. and achievements in the period 27 promising young employees from all divisions of the Sava Group acquire key knowledge in the January-December 2004 programme that was held from September 2003. January As the first trading company in Slovenia Sava We provide assistance for the charity concert Trade d.d. is certified according to the OHSAS 18001 to benefit Kranj Medical Centre to purchase an standard and successfully passes the audit ambulance vehicle. according to the SIST ISO 14001 standard (integrated environment management system). March The companies Savatech d.o.o. and Sava-Schäfer May d.o.o. obtain the OSHAS 18001 certificate, which Sava d.d. sponsors the extremely successful Youth proves that both companies are taking preventive Week event in Kranj. measures in the field of safety and health at work. Together with the Scouts Association of Kranj and the Municipality of Kranj we organise the Let’s Clean Kranj campaign. In the competition in Portoroæ organised by Gospodarski Vestnik magazine this project wins first place in Slovenia as the event that met with the broadest public response in 2004.

In Teol d.d. activities to establish the environment management system according to the SIST ISO 14001 standard are underway. An analysis and evaluation of environmental influences is carried out. The companies that operate under the auspices of the Sava Hotels Bled brand support the campaign to The golf course in Bled continues its environment- clean Bled lake. friendly tradition in the international programme to protect the environment in golf courses called Committed to Green. 85 June We provide support to establish a youth crisis The Letter of Intent is signed declaring that we centre in Kranj by raising funds in the 6th Friendship assume responsibility for the care of swans in Bled Tournament for the President’s Cup. Lake. We also sponsor the international Dana RonËelj We celebrate Sava Day in the Prešeren Theatre; ballet school. this day is devoted to our employee colleagues who The Ambassadress of the Slovene UNICEF proved especially successful in their work. organisation, Milena ZupanËiË, hands over to Emil Vizovišek, Member of the Sava d.d. Board, an acknowledgement for Sava’s assistance - the charity campaign Look at Me seal. On the occasion of the anniversary of Bled and in collaboration with Finance and Gorenjski Glas magazines we prepare a round table about the future of this Slovene jewel entitled: Bled Enters the New Millennium - New Challenges and Opportunities.

July Terme Lendava d.d. collaborates as the organiser of the Lendava Night event and the Three Countries cycling marathon together with the bilingual school Lendava. October We donate a car to the Retirement Home in Kranj to September facilitate visits at home. Experiences and views are presented at numerous At the 7th conference on managing people at work specialised conferences: the 10th Stock Exchange the Sava Group receives an award for the e-learning Focus organised by the Ljubljana Stock Exchange project as the second best project in 2004 involving and Finance magazine; Association of Economists the practice of managing people at work. of Slovenia: about Modern Aspects of Business Operations Analyses and Organisation; and a round In a competition organised by Finance Magazine the table by Gospodarski Vestnik and the Manager’s 2003 Annual Report of Sava d.d. is ranked among Association on internal entrepreneurship. the five best annual reports produced by Slovene companies for the fifth time in succession. We give a donation — an apartment that was originally The chefs team, one of its member being the chef in owned by Sava Trade d.d. — to the Municipality of hotel Ajda, Danilo Kozar, wins the silver medal at the Bovec to provide assistance in the restoration after Chef Olympics in Erfurt, Germany. the earthquake.

At the 51st catering and tourism meeting in Radenci As the co-organiser and main sponsor the company employees from the Tourism division of the Sava Group Terme 3000 d.d. together with the Municipal receive 22 gold, 24 silver and 25 bronze medals in Sports Association Moravske Toplice carries out a total as well as 9 awards of recognition. recreational cycling marathon named Terme 3000. In the My Country - Beautiful and Clean campaign organised by the Slovene Tourist Board Terme Ptuj is

86 ranked second best in the small size spas category for the year 2004 among large campsites; the in Slovenia in 2003 and Radenska-ZdravilišËe d.o.o. campsite in Bled gains first place among medium- third in the larger spas category. sized campsites, and the campsite in Ptuj first place among smaller campsites. In the pan-Slovenia campaign Best Slovene Pool 2004 the spa resort of Ptuj ranks first in the category As the first one in Slovenia the company Terme 3000 d.d. of medium- and small-sized spas for the third time in hosts the European Darts Tournament - EDU. succession, and the pool in Terme 3000 is ranked second in the category of large spas. December The company Savatech d.o.o. receives the golden Together with visitors of the Supernova centre in award Top innovation for Gorenjska for a pneumatic Kranj we celebrate the first anniversary of the OBI sealing plug produced by its EKO production store in Kranj. programme. We host the 3rd annual conference entitled Furthering the 20 Keys Method and integrate auditing systems. The Sava Group makes a donation with the sales programme Sava Trade d.d. to the regions of south- east Asia that were affected by the catastrophic earthquake and tsunami in the form of plastic material suitable for roofing and building temporary shelters.

20.2. Most important events and achievements in 2005 - after completing the financial period

November January th Sava sponsors the 4 international conference of As result of a test by the Austrian Consumers’ Middle and Eastern European countries entitled Association and the German organisation Stiftung National Quality Programmes and the National Award Warentest the company Radenska-ZdravilišËa d.o.o. for Quality - Keys to Success, which takes place in receives the highest rating for the quality of swimming Bled. pools and their adaptability to different groups of At a traditional Meet the Neighbours gathering in guests. About thirty spas from Austria, Hungary, Kranj representatives of the Sava companies from the Slovakia and Slovenia were included in the test. Rubber Manufacturing Division and the companies Sava Tires d.o.o. and Goodyear-EPE d.o.o. present the February actual results and indicators achieved at limiting the In co-operation with Finance Magazine and Pomurski impact on the environment. Vestnik we prepare the Pomurje forum entitled: Pomurje - a region with the highest development potential. The meeting is attended by over two hundred participants from governmental and municipal circles as well as the economy and others who are interested in the swifter development of this region. On the occasion of a visit by the former European Union Commissioner, Roman Prodi, we sponsor a conference on the future of the European Union.

March Together with Finance Magazine and Gorenjski Glas we prepare the Gorenjski Forum intended for development of the region where we operate, this time entitled: Gorenjska - sliding into decline or a In the project My Country - Beautiful and Hospitable development breakthrough? the campsite in Moravske Toplice wins third place

87 21. THE DEVELOPMENT OF HUMAN RESOURCES

21.1. Concern for employees

We expand the culture of the Sava Group in relation to our environment and, prior to that, through its internal quality growth. Therefore strengthening our values was a topic of debate in the strategic workshop for senior executives. We have speeded up in particular development work associated with managing the capabilities of employees. Number of employees in the Sava Group

Number of Number of Index Average number employees employees 2/1 of employees as at 01/01/2004 (1) as at 31/12/2004 (2) Year 2004 Year 2004 RUBBER MANUFACTURING DIVISION 841 863 103 848 Savatech d. o. o., Kranj 684 691 101 682 Sava-GTI d. o. o., Kranj 55 70 127 64 Sava-Schäfer d. o. o., Kranj 42 42 100 42 Sava Rol d. o. o., Zagreb 10 10 100 10 Foreign Trade Network 50 50 100 50 TOURISM DIVISION 389 1,344 346 1,337 Grand Hotel Toplice Bled d. o. o., Bled 136 155 114 154 Golf and Camp Bled d. d., Bled 45 45 100 45 G&P Hotels Bled d. o. o., Bled 208 224 108 238 Terme 3000 d. d., Moravske toplice - 375 - 372 Terme Lendava d. d., Lendava - 121 - 100 Terme Ptuj d. o. o., Ptuj - 76 - 74 Radenska-ZdraviliπËe d. o. o., Radenci - 348 - 354 TRADE DIVISION 650 595 92 615 Sava Trade d. d., Ljubljana 382 337 88 356 MG Market d. o. o., Ljubljana 268 258 96 259 CHEMICALS DIVISION 434 78 18 78 Teol, d. d., Ljubljana 82 78 95 78 Color, d. d., Ljubljana* 352 - - - REAL ESTATE DIVISION 81 90 111 88 Sava Medical and Services, d. o. o., Kranj 64 71 111 69 Sava IP d. o. o., Ljubljana 17 19 112 19 Sava, d. d., Kranj 46 47 102 47 SAVA GROUP TOTAL 2,441 3,017 124 3,014 * In 2004 Sava d.d. sold the company Color d.d. and acquired the company Terme 3000 d.d. with the named affiliated companies. 88 The average number and structure of 28 per cent share and Trade a 20 per cent share in employees the employees structure. In 2003 there were 2,650 employees on average The movement in the number of employees, a in the Sava Group; in 2004 this number is common fluctuation for objective and personal 3,014. Due to selling the company Color d.d. the reasons, amounted to 10.3 per cent in the Sava Group, number of employees in the Chemicals division which is considerably lower than in the year before decreased. In absolute terms and in terms of (17.4 per cent). With regard to the high employment structure the number of employees in the Tourism flexibility level in Tourism, this percentage is relatively division grew due to new companies joining; Tourism low, which reveals a high level of employee loyalty has a 44 per cent share, Rubber Manufacturing a and satisfaction.

Educational structure of employees in the Sava Group on 31 December 2004 in comparison with the educational structure on the same day in 2003 and 2002

1.1 0.9 0.7

9.4 8.4 10.0 4.5 5.0 5.3

27.5 30.2 29.6 %

26.2 27.5 33.2

1st, 2nd & 3rd level 6th level 4th level 7th level 28.1 26.7 25.7 5th level 8th & 9th level

2002 2003 2004

The educational structure of employees did not Sava Group. The level of education in the future substantially change in 2004. However, the differences will grow, since 2.3 per cent of employees study achieved reflect changes in the structure of the part-time.

Age structure of employees on 31 December 2004

Number 20 18.23 18.47

15.32 15 14.04 12.31

10.39 10

6.19 5 3.52

0.95 0.58 0 18 - 20 21 - 25 26 - 30 31 - 35 36 - 40 41 - 45 46 - 50 51 - 55 56 - 60 60 +

The age structure did not change noticeably. The number of employees aged 41 or more decreased, as well as the number of employees aged 30 or less.

89 Voluntary supplementary pension in 2004 totalled over €0.5 million, and the awards insurance paid to employees over €33,000. We awarded the associates for significant 65 per cent of employees were included in the accomplishments. Individual companies paid various voluntary supplementary pension insurance scheme. awards to employees with no sick leave; at the level of In 2004 we shall integrate other acquired companies the Sava Group awards were presented to employees that have not yet been included in the scheme. for their work jubilee. The average premium paid by an individual and a company was maintained at last year’s level and Education - also e-learning totalled slightly below €42. The Sava Group sees education as the most important Sick leave and utilisation of work time method for achieving personal and professional growth and motivation, which is confirmed by the In 2004 the percentage of sick leave days remained results of organisational climate measurements. The at approximately the same level as in 2003. Total volume of education therefore increased and included sick leave of up to 30 days amounted to 2.27 per the broadest circle of employees. We participate in cent, and with that figure the plan was achieved. comprehensive EU projects such as the electronic The utilisation of work time, which is calculated as the learning project, for which we obtained funds from ratio between the hours of efficient work and regular the European Social Fund and the Ministry of Labour, working hours, increased by 4 per cent, i.e. from Family and Social Affairs. This project includes over 81 to 85 per cent. In total 45,220 overtime hours 1,000 employees who work on computer and will be were achieved, which is approximately a half per cent able to efficiently use their newly acquired knowledge of the total sum of regular and overtime work. in their work.

Remunerating and motivating employees The role of the Sava Academy to spread knowledge is becoming increasingly important. About 300 The success that an individual achieves at work is of employees or 6 per cent more than in the year before fundamental importance for his or her remuneration. are included in the Sava Academy; the number Employees are promoted on the basis of selective of hours increased by 38 per cent and exceeded advancement criteria such as promotion due to a 10,000 hours. The focus was placed on knowledge more demanding job, additional tasks and duties, about management at all levels. For the second time market adjustments or after successfully completing the Promising Employees programme was carried a training course. In 2004, 329 employees were out where, in addition to business planning, young promoted from their basic salaries. Senior and associates upgraded their knowledge about team managerial personnel as well as key specialists work, managerial systems, marketing, European received additional annual bonuses for achieving programmes and drafting a learning company. and surpassing the planned results. The average Various specialised training courses on industrial percentage of the variable part in the salaries safety and the quality of business procedures were amounted to 2.9 per cent; we are seeking to make organised in companies, as well as language and that figure approximate 10 per cent. computer science, communication and personal The average salary in the Sava Group in 2004 totalled growth courses and numerous other specialised €987. This figure was influenced primarily by the training courses for different fields of the Sava Group, merger of new companies with lower average salaries especially the Tourism division. from north-eastern Slovenia with the Tourism division. The average total of hours of education per employee In all companies employees received holiday allowance, was 71 per cent or 21 per cent more than last year, a while Christmas bonus was paid in the Kranj-based major contribution to that figure being e-learning and companies of the Rubber Manufacturing division and in on-the-job training. The average cost of education per most companies of the Tourism division. employee totalled 146. Cost efficiency was achieved Various prizes are distributed according to the Rules € by providing internal training courses, the transfer of on Remuneration and Awards, the most established know-how and good practice within the Group. The being Model Worker, Company Worker and Sava holders of such knowledge were appointed knowledge Worker. With the 20 Keys project we encourage administrators for individual specialised areas. proposing useful suggestions and improvements. In 2004 the associates from the Rubber Manufacturing Funds earmarked for education will be invested at division made 1,322 applications in the field of the quality level in the future too, which is why we innovations and within the Total Company Processes shall concentrate on measuring the quality of the Optimisation project. The estimated economic education process and its effectiveness. benefit of the approved proposals for improvements

90 Annual interview Sava Dialogue Sava d.d. Board, as well as regular meetings with the management. Sava Dialogue is an annual interview and one of the established tools of management. It is intended Care for developing, co-ordinating and regular for all employees with at least a college degree and maintenance of indirect forms of communication with has also been effectively introduced in the newly employees in the Sava Group and the environment joined companies. Various improvements are being is the task of the Corporate Communications introduced such as a form for evaluating competences competence centre. Weekly news from the Sava Group, according to 360° methodology. Owing to evaluations from the area of human resources, quality and by the superior, closer associates and subordinates, employee representatives, is displayed at the most the evaluation of an associate’s competences will visited points. A printed bulletin with brief information win on impartiality. about industrial safety is published at least once per month. The Sava newspaper, with the longest Communicating with employees tradition and now a bi-monthly, publishes articles from all divisions of the Sava Group and is available Communicating with employees is one of the on the Sava website as well. Intranet and Internet fundamental values of the Sava Group. There are an are the youngest tools that Sava uses for conveying increasing number of ways of informing employees as information and thus informing employees. well as bi- or multi-lateral forms of communication. Care for informing employees is, first and foremost, Organisational climate measurement the commitment and responsibility of managers. After measuring the organisational climate (mood and Once a year representative teams from all the inclination among employees) in 2003 steps were companies of the Sava Group meet with the Board taken to improve the climate in certain fields that give of Management of Sava d.d., and several times most opportunities for improvement. We focused a year representatives of the Personnel, Law and primarily on improving internal communication, the Organisation competence centre participate in work personnel development system and remuneration, meetings with employee representatives. The Boards where a tendency for improvement has already of individual companies hold monthly meetings with been demonstrated. The activities that have already the employee representatives. The broadest way begun will be continued in 2005 too. The results of communicating with employees are employee of organisational climate measurements and steps meetings, which are organised at least twice a year taken are presented to all employees at employee and where the strategic policies of the Group, most meetings. important goals of individual companies and other important issues are presented. The Directors’ Council meetings are intended for presenting strategic goals, current business results, actual projects and 21.2. Concern for employees personnel reports. outside of working hours In 2004 as well we successfully collaborated with employee representatives and received numerous We offer employees in the Sava Group and their initiatives. In line with legislation we informed the family members the opportunity to actively spend Trade Union and Workers’ Council about all the their spare time in numerous cultural and sports procedures in connection with a change in employee associations sponsored by Sava. activities, business results and the proposed work The Sava Cultural Association fosters creativity and calendar, changes in systematisation and similar love for culture. It includes groups that are involved topics. In Rubber Manufacturing the process of in folklore, literature, photography, film and painting concluding agreements is underway between the and it is noted for numerous appearances in Slovenia Workers’ Council and the employer about co-operation and abroad. The Sava folk dance group celebrated its in management. This division elected a new Workers’ 55th anniversary of preserving the folklore tradition. Director to represent Rubber Manufacturing and The group appeared at the 13th international folk Sava Medical and Services d.o.o. The employee dance festival in Bulgaria. In Kranj it organised the representatives from Rubber Manufacturing, Tourism meeting of folk dancers and musicians from three and Trade are members of the Supervisory Board of neighbouring countries - Austria, Italy and Slovenia. Sava d.d. The start of its collaboration with Slovene primary The methods of personal, direct communication are and high schools is of great significance. well established too. Employees attend meetings The literary group has designed an international and Open Days that are organised by the directors project in co-operation with the Austrian Union Ö.G.B., of individual companies and the Chairman of the which facilitates joint creativity by Slovene and

91 Austrian writers and is financed by the European Employees have a lot of opportunity for recreation Union. This literary group collaborates in the project in the Gumar sports association. Most active are launched by the Museum Association and the Ivan members of the Mountaineering section. In 2004 TavËar library from Škofja Loka entitled Coloured over 500 mountaineers participated in mountain Loka. hikes throughout Slovenia. A group of Sava’s The photography and film group celebrates its 20th employees conquered the “window to Europe”, Mt. anniversary and exhibits photographs on the premises Blanc. The number of members is continually growing, of Sava Group companies as well as paintings by owing to the fact that these excursions are superbly the painting group, which both enhance the working organised and marked by a congenial atmosphere environment. In addition to joint appearances, the that stimulates good relations at the work place. The members hold independent exhibitions as well. cycling section promotes recreational cycling.

21.3. Concern for employee safety and health at work

We consider responsibility for health and safety In the Sava Group the policy of health and safety at at work as one of the fundamental principles work is concentrated on the permanent improvement of business operations in all companies of the of physical, moral and social comfort at work. It is Sava Group. In this way we fulfil the basic right of based on a preventive approach to enhance the employees and the condition to perform successful working culture in view of preventing risks. It is our operations of an individual company, the source of wish to anticipate and successfully monitor risks. which is to preserve health, the ability to work and Several precautionary measures are primarily at the same time enhance employee satisfaction. intended to decrease the number of injuries at work, Safety and health at work are becoming increasingly prevent social risks, addiction to “psychoactive” important also because of extending the work substances and analyse new types of risk. period in our social environment. Our basic goal is therefore to improve working conditions.

Decrease in the number of work-related injuries

Injuries at work in the companies of the Sava Group

No. of injuries 120

100 96 85

80 64

60

40

20

0 2002 2003 2004

Improvements in working conditions, the efficiency of injuries per 200,000 working hours) decreased in of systematic work and a preventive approach result 2004 in comparison with 2003 by 22 per cent. The in fewer injuries and a decrease in frequency and set goal was exceeded by 14 per cent in the first nine severity. The frequency of injuries at work (number months.

92 Frequency of injuries at work with sick leave in the companies of the Sava Group

Frequency (No. of injuries per 200,000 working hours) 4.0 3.6 3.2

3.0 2.5

2.0

1.0

0.0 2002 2003 2004

Stress management Stress is one of most important new risks in the health at work. Such information is much broader working environment. Being aware of the possible and in addition to that legally prescribed it includes: consequences caused by negative stress, the - co-operation of employee representatives in teams companies of the Sava Group started with activities in for safety; the area of stress management in 2003. We organised training for executive employees on the topic of stress - weekly information and advice on safety at work management. The issue of stress management is also announced on special notice boards; included in regular education and training courses of employees in the field of industrial health and safety. - a regular column entitled SreËko - warns and We periodically inform employees about stress factors, advises in the monthly bulletin; and negative consequences and the ways to manage it. - notices published in the Sava newspaper.

Identifying stress through education In 2004 employees could give their suggestions to improve safety directly to the specialised service in Preventive activities and the culture of preventing all companies. Training courses for universally safe risks are implemented so as to continually provide work were attended by 40 per cent of employees in employees with information concerning safety and the Sava Group.

93 Alenka Ott ©aponia, M.A., Director of the Development & Research Sector, Teol d.d., Chemicals division Every day is a new discovery.

Her vast knowledge and numerous abilities make large and sophisticated projects both in the company and the Sava Group feasible. The biodiesel project is a recent one, prior to which there were many others. She is an expert and researcher who can appreciate and commend the achievements of her colleagues.

94 22. DEVELOPING THE SOCIAL COMMUNITY

22.1. Sponsorship for and donations to the social community

We are methodically involved in numerous social provides assistance in larger projects at the projects through sponsorships and donations. Our national and international level. With expansion of priority is to collaborate in the local environment of the Group we delegate such policy to new members an individual company, while the holding company in a new environment as well.

Sponsorships and donations by the Sava Group

SPOR T 52%

HUMANITARIAN NEEDS 21%

PROFESSION/EDUCATION 12%

CULTURE 12%

ENVIRONMENTAL ACTIVITIES 3%

In 2004 nearly €0.4 million was earmarked for Sava, a brand imbued with the spirit of sport sponsorships and donations, which is about 47 per cent more than that contributed by Sponsoring the Sava Cycling Club is one of the Sava Group companies in 2003. We have preserved partnerships with the longest tradition. It is and strengthened our long-term partnerships from successful for both the club and Sava, which is past years and established new ones. The major share demonstrated by numerous achievements. In 2004 of funding is allocated to sports and humanitarian too the athletes of the Sava Cycling Club won several purposes. national championship titles and first place rankings in international races; two athletes participated in the world cycling championships.

95 The Sava Cycling Club organised the 37th International Among the numerous cultural events sponsored by Kranj Grand Prix, one of the most attractive and Sava is the Just One Flower event organised by the interesting cycling events in Slovenia, being assisted Franc Rozman Stane Institute. For many years we by volunteers from Sava itself. have been sponsoring actors and producers of the Prešeren Theatre in Kranj. Repeatedly we enabled It is a tradition for Sava to sponsor the Sava Handball the young to visit and participate in Kranj Youth Week. Club and co-organise the international mountain race We decided to provide support to Slovenski Oktet of old-timers, the Hrast Memorial, in Ljubelj within and the mixed choir Musica Viva for their tour of the the organisation of TržiË Motoring Association. The USA and Canada. To promote Slovene photography company Savatech d.o.o. further sponsors go-kart we sponsored the photographic monograph of the races and races in the Karting Centre in Zagreb. master Janez MarenËiË. A new agreement on long-standing co-operation was concluded with the Triglav Ski Club, which with a new Encouraging professional development ski-jump in Bauhenk under Šmarjetna Gora provides better conditions for the advancement of ski-jumping We repeatedly devoted much attention to expanding in Slovenia. expertise on systematic quality management. We sponsored the 4th international conference of The companies in Tourism, operating under Sava Central and Eastern European Countries in Bled Hotels Bled, sponsor the Autocommerce Volleyball entitled National Quality Programmes and National Club in Bled and the Bled Rowing Club. The Quality Awards - Keys to Success organised by the Pannonian Spas resorts are aware of the significance Office of Metrics (MIRS) and Slovene Business of the sporting spirit in the local environment and Excellence Foundation. We contributed funds for the the possibility for recreation at the same time. Collection of Scientific Papers at the Annual Quality Consequently, they sponsor the traditional Radenci Conference, publication of the book Integration of marathon, the football clubs Mura, Beltinci, Drava, the Organisational Management System, and for the Bistrica and Olimpija, the swimming club Terme Ptuj Avgust Kuhar Foundation, which awards outstanding and the youth golf champion, Vanja Bransberger. achievements in the field of industrial safety.

Cultural events In accordance with their scope of operations the company Savatech d.o.o. actively encourages the On the occasion of the 1,000th anniversary of Bled development of the chemistry profession. It co-financed the companies of the Sava Group, which operate in the Slovene Chemical Society and took over sponsorship Bled, provided support to numerous cultural events of the Slovene Days of Chemistry organised by the held to honour this grand jubilee. The companies are Faculty of Chemistry and Chemical Technology in committed to sponsoring the Bled Ballet School for Maribor. Together with the Tourist Association of many years. The school, where the youngest children Pomurje and Radenska-ZdravilišËe d.o.o., the are taught ballet, was established in 1991 by Dana companies Terme 3000 d.d. and Terme Lendava d.d. RenËelj, world famous choreographer and dance sponsored the newly established Faculty of Medicine teacher. in Maribor.

96 Care of the environment and safety 22.2. Open dialogue and It is important for sustainable development to exchange experiences and professional expertise integration in the social community in various fields. To this end we sponsored the It is characteristic for our communication with international conference on sustainable development employees, business partners, neighbours, owners, of the Alps entitled The Alps of the Future Generation, shareholders, opinion leaders, other participants organised by the CIPRA association of Slovenia, and the broader community to lead an open and Association for Preserving the Alps. realistic dialogue. If possible, communication Sava Hotels Bled assisted Bled Diving Club in the runs both ways. In this we share success and seek cleaning campaign of the lake and Tourist Society Bled solutions to individual problems. We manage to in the protection of swans. We were delighted with solve many a common problem and contribute to the public response and success of the Let’s Clean the development of the environment. Kranj campaign that we carried out together with An open and responsible dialogue with the the Kranj Scouts Association and the Municipality of environment and various publics is run with the aid Kranj. We made contributions to various educational of the media as well. programmes to educate youth in the field of road An analysis of media publications reveals that the safety such as A Safe Way to School. number of articles in 2004 substantially increased in comparison with previous years. There were Help in distress 3,164 press releases and articles in the printed and Humanitarian campaigns form a part of our attention electronic media or once more than in the preceding to the needs of the social environment. On an appeal year. The share of neutral and favourable press by the Municipality of Bovec we helped a young family releases remains very high, close to 99 per cent. who was affected by the earthquake in PosoËje by Employees actively integrate in the social community in donating a furnished flat that was previously owned various professional associations and organisations and by Sava Trade. We concluded a long-standing also perform voluntary activities outside of working hours. partnership in the international project by UNICEF Sava representatives are members of various national Slovenia entitled Look at Me for the benefit of commercial associations and specialised associations for parentless children in Bosnia and Herzegovina. the development of quality. They collaborate in projects We contributed funds to open the Youth Crisis Centre run by non-profit organisations, stand for progress in local in Gorenjska that were collected at the 6th Friendship communities as members of local community bodies Tournament for the President’s Cup organised and municipalities, and exchange their knowledge with together with Golf&Country Club Bled. By participating others at congresses and specialised conferences. in the Good Thought campaign we provided funds to Janez BohoriË, Chairman of the Sava d.d. Board of modernise equipment in the Institute for Oncology. Management, presides over the assembly of the Chamber We helped numerous patients’ societies and of Commerce of Slovenia and is a town councillor in Kranj. supported the Slovene Association to Combat Breast Moreover, other members of the Board of Management Cancer — Europa Donna, and collected funds for and executive personnel in the Sava Group are members new apparatus to diagnose breast cancer. The of numerous associations of key importance for the company Sava Medical and Services d.o.o. donated a development of the economy, the professions and passenger car to Kranj Retirement Home to facilitate the broader social community such as the European the home-help service. Association of Manufacturers’ and Suppliers of Personal Protection Equipment, based in Brussels, the Managers’ Association and the National Business Excellence Foundation, just to name a few. 97 23. PROTECTING THE ENVIRONMENT AND FIRE SAFETY

A systematic approach to safety issues is introduced in the company Golf and Camp Bled d.d. demonstrated in the position and professionalisation in the same year and in 2004 also adopted by the of this role. Technical and fire safety as well as management of the company Radenska-ZdravilišËe d.o.o. environmental protection are organised within the One of the significant achievements in 2004 are savings company Sava Medical and Services d.o.o., whose in drinking and river water consumption as well as a staff perform professional tasks for other legal decrease in organic solvent emissions in the company entities too. In the holding company the Safety Teol d.d. competence centre has been established. The environmental policies are adopted and annually The tasks of the Safety competence centre are as reviewed by the executive boards of the companies. follows: They are laid out in accordance with international - continual improvements in working conditions and standards for system operations. a decrease in environmental influences; The advantages of our environmental policy are as - professional support for company executive bodies follows: to ensure compliance with legislation: - efficient management of energy, water, raw - integration of sustainable development principles materials and other natural resources; in the operations of individual companies; and - separate waste collection and recycling resulting in - employment of the most modern tools and methods a lower stored waste amount; to develop the profession and know-how and transfer - preventing environmental pollution; of good practice to all divisions of the Sava Group. - substituting hazardous substances with less Members of the Safety competence centre are the hazardous ones; and representatives of companies responsible for the - educating employees. business function. They are responsible for safety and Operations of all rubber manufacturing companies are health at work, environmental protection and fire safety. certified according to the environmental management standard ISO 14001. In 2004 the company Radenska-ZdravilišËe d.o.o. and Sava Trade d.d. were certified according to the same standard. Systematic 23.1. Environmental protection care for the natural environment is spread also throught other projects such as the Committed to Operations of the Sava Group in the field of safety are Green project introduced by the company Golf and based upon its principles of conducting business and Camp Bled d.d. Environmental awareness among are clear from the adopted environmental policies of employees and business partners is promoted by individual divisions. Policies and goals are adapted training external service providers and auditing to legal requirements and upgraded through national suppliers from the aspect of environmental environmental standards and models. suitability. The current Policy of Safety and Health at Work and environmental protection for Rubber Manufacturing Environmental indicators and Trade was adopted in 2003. In addition to the A continual decrease in the influences of our operations basic business definitions the environmental policy was on the environment was assured and demonstrated by 98 regularly monitoring environmental indicators in individual Care or the Responsible Care programme is a companies and at the level of the entire Sava Group. commitment by the international chemical industry (CEFIC) to continually improve the health and safety The following environmental indicators are measured of employees, decrease environmental influences and on a monthly basis: provide honest reports about these activities. - energy consumption; - drinking water consumption; Responsible care - water pollution; - air pollution; - space occupied by stored waste; - use of hazardous substances; and - noise.

Responsible care In 2004 the Association of Chemical Industries at the More efficient use of energy sources Slovene Chamber of Commerce granted the companies In all divisions of the Sava Group we have met the Savatech d.o.o., Sava-Schäfer d.o.o. and Sava-GTI d.o.o. established guidelines and made progress in the the right to use the Responsible Care logo. Responsible efficient use of energy resources.

Specific consumption of electricity

(kWh/kg) 2.0 1,713

1.5 1,464

1,394

1.0

0.5

0.0 2002 2003 2004

Specific consumption of crude oil for steam production

m3 crude oil /metric tons of products 350.0

300.0 275.5

250.0

199.1 200.0 193.0

150.0

100.0

50.0

0.0 aver. 02 aver. 03 aver. 04 99 On account of technical solutions Rubber Grand Hotel Toplice d.o.o. heating oil consumption was Manufacturing decreased specific crude oil replaced by more environmental friendly natural gas. consumption by 3 per cent and specific electricity consumption by 7 per cent. In the companies of A considerable decrease in drinking and the Chemicals division the specific consumption of river water consumption steam was reduced by 0.4 per cent at the annual level. The specific consumption of electricity in the We regularly monitor the pollution level of industrial company Sava Trade was decreased by 9.8 per cent. water effluents from our manufacturing facilities. In the Profiles Programme in Savatech d.o.o. a new production In Tourism the company Golf and Park Hotels Bled d.o.o. line for manufacturing rubber profiles was installed, built a new substitute well for pumping thermal water which prevents water pollution with eutectic salt. which is supplied to hotel swimming pools and is used for heating sanitary water. In this way annual heating We continued with the planned reduction in drinking oil consumption decreased by 6.3 per cent, while in water consumption by: Terme Lendava d.d. it decreased by 30 per cent. - employing methodical detection of drinking water leakage in water pipelines and eliminating faults at An 8.3 per cent decrease in specific energy the same time; consumption was achieved in the company - regular monitoring of water consumption; and Radenska-ZdravilišËe d.o.o.; in the Bled company - ensuring the efficient use of water.

Specific drinking water consumption

m3 drinking water/metric tons of products 20.0

16.4

15.0

10.0 7.4

5.0 4.3

0.0 aver. 02 aver. 03 aver. 04

In 2004 the Kranj-based companies of Rubber Owing to the installation of closed decanting systems Manufacturing decreased drinking water and the erection of our own clarification plant for consumption by 42 per cent, which is the most thermal incineration of air polluted by organic important achievement in environmental protection solvents, we managed to decrease substantially at this location. In the company Sava-GTI in Ptuj organic solvent vapour emissions in the Print specific drinking water consumption fell by 45 per programme in Savatech d.o.o. cent and in the company Teol d.d. in Ljubljana by 31 In the company Teol d.d. a programme for the gradual per cent. discontinuation of etoxilate production is underway. In the company Radenska-ZdravilišËa d.o.o. in the In comparison with last year organic solvent Tourism division drinking water consumption was emissions were 99 per cent lower and almost entirely decreased by 15.4 , while in Terme 3000 d.o.o. eliminated. specific consumption was reduced by 20 per cent in comparison with the year before. Less waste and hazardous substances Lower emissions In the companies of Rubber Manufacturing based in Kranj the amount of landfilled waste was reduced Lately emissions of dust particles have been by 18 per cent. In the company Sava-GTI d.o.o. the eliminated almost entirely owing to the installation of amount of waste was reduced by 40 per cent, the filtering apparatus in key processes. specific amount of rubber waste by 8 per cent and

100 the specific amount of hazardous substances by the introduction of separate waste collection in 80 per cent, while in Chemicals the decrease Terme Lendava d.d. the specific amount of landfilled amounts to 13 per cent. waste was reduced by 17 per cent. The decrease in Trade is noticeable as well: We plan to reduce the use of hazardous Sava Trade d.d. reduced the specific amount of substances. With technical improvements in landfilled waste by 55 per cent and the amount of Rubber Manufacturing, especially in rubber profiles hazardous substances by 91 per cent. production, we considerably reduced the specific Radenska-ZdravilišËa d.o.o. reduced the amount use of nitrite- and nitrate-based LCM salts. In the of waste and increased the amount of separately company Sava-GTI d.o.o. the specific consumption of collected fractions by almost 10 per cent. Due to halogenated solvents was reduced by 80 per cent.

Specific amount of all landfilled waste (rubber and sewage)

kg landfilled waste / metric tons of products 120.0

97.8 100.0

80.0

60.0 82.2 40.0 67.9 20.0

0.0 aver. 02 aver. 03 aver. 04 23.2. Fire safety

Systematic safety operations (environmental For intervention in extraordinary events we regularly protection, safety and health at work and fire safety) train and verify the expertise of the intervention teams. reduce risks in the field of fire safety. The number of In rubber manufacturing companies interventions fires has considerably decreased over recent years. are simulated several times a year, on the basis of which the abilities of employees and intervention In 2004 there was a fire in Terme 3000 d.d. that teams for intervening in extraordinary emergencies required intervention by an external professional are checked. Preventive actions were also carried out fire-fighting brigade, and a fire in Savatech d.d., in in other companies of the Sava Group. which professional fire-fighters of Sava fire brigade successfully intervened. Employees managed to In future we will further strengthen awareness as to master minor fires. The reasons that caused these the importance of preventing risks and co-operation fires were completely eliminated. in safety and health at work.

Practical drills for employees to extinguish fires with hand-operated Sava 2004 fire-fighting drill fire extinguishers in Savatech d.o.o. 101 Managing safety and health at work in accordance with the OHSAS 18001 standard In the Rubber Manufacturing division the companies safety and health at work, which assures a continual Savatech d.o.o. and Sava-Schäfer d.o.o. as well as improvement in working conditions. Sava’s companies the trading company Sava Trade d.d. obtained the Savatech d.o.o., Sava-Schäfer d.o.o. and Sava Trade d.d. international certificate OHSAS 18001. This standard belong to 15 companies in Slovenia whose operations determines the requirements for managing industrial in the field of safety and health at work have health and safety and thus enables the company to been made to conform to international standards control such risks and enhance its efficiency. First OHSAS 18001. The company Radenska-ZdravilišËa d.o.o. and foremost, obtaining the certificate means that will begin the certification process according to the we have established a system tool for controlling OHSAS 18001 standard in 2005.

Environmental management certificates of Sava Trade d.d.

OHSAS 18001 ISO 14001

102 FINANCIAL REPORT

103 24. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES FOR THE COMPANIES OF THE SAVA GROUP

24.1. Basis for drawing the financial statements

The financial statements of the joint stock company Sava and all the affiliated companies of the Sava Group in this report were drawn in conformity with 2001 Slovene Accountancy Standards, which had been issued by the Slovenian Institute of Auditors. The standards consider the basic accounting principles: accrual method of accounting, the infinite time of operations, and give a true and fair view with regard to the changes in the euro currency value and individual prices. The quality of the financial statements and, consequently, the complete accounting procedures, is above all based on comprehensibility, suitability, reliability and comparability. Due to better clarity the Balance Sheet and the Profit and Loss Account of the joint stock company Sava and the Sava Group are presented in an abridged form; additional explanations are contained in the enclosures. The financial statements are drawn in Slovene tolars rounded to one thousand units.

24.2. Change in the accounting standards on 1 January 2004

The Slovene accounting standard, which deals with long-term financial investments, permits two methods of recording capital revenues realised in affiliated companies: as financial revenues or specific equity revaluation adjustments. Until 2003 the joint stock company Sava also used the first method for recording capital revenues. While employing this method the profits of the affiliated companies were allocated to re-investment. They therefore mostly had not been paid to the holding company. Despite showing revenues, the cash flow was not realised. In 2004 capital revenues began to be recorded under specific equity revaluation adjustments. With regard to the Law on Commercial Enterprises (ZGD-H), the joint stock company Sava will on 1 January 2006 begin to apply the international accounting standards for reporting, which do not permit the use of the capital method for the evaluation of long-term investments in capital. The Board of Management of Sava d.d. is of the opinion that it is reasonable to gradually introduce the provisions of international accounting standards where these are in compliance with the presently valid Slovene accounting standards. Due to a change in recording capital revenues the revenues of the holding company in 2004 are lower by 1,426,067,000 tolars. This amount shows recording of the profits of the affiliated companies under specific equity revaluation adjustments. The changed accounting policy will not affect the consolidated financial statements of the Sava Group. The Board of Management of the joint stock company Sava d.d. therefore adopted the resolution concerning the change in the method of recording the stakes in the profit of the affiliated companies: as of 1 January 2004 these profits increase the equity revaluation adjustments from long-term financial investments.

104 24.3. Reporting according to section

Sava d.d. has not defined either regional or area sections, while the Sava Group is divided into divisions which are described in the Business Report of the Annual Report. The table of the companies included in a particular division is an integral part of the Business Report.

24.4. Exchange rate and conversion method in domestic currency

All of the items shown in the accounts books and expressed in foreign currency are converted to the tolar value at the medium exchange rate of the Bank of Slovenia as valid on the last day of the accounting period.

24.5. Intangible fixed assets

Intangible long-term fixed assets include investments in the acquired long-term rights on industrial property, long-term deferred development costs and investments in the goodwill of the acquired company. An intangible fixed asset is initially recognised according to the purchase value. The purchase value also includes import and non-refundable purchasing taxes. The purchasing value does not include interests accrued by the appearance of an intangible long-term asset. The purchase value of an intangible long-term asset, which appears in the company, includes the costs originating from its construction or manufacturing and indirect costs of its construction or manufacturing that can be attributed to it. Due to its increase in value the intangible fixed-term assets are not revalued. The mentioned method applies also to intangible fixed assets that are purchased abroad. If the book value exceeds the substitutable value, the value in intangible fixed assets will impair. The substitutable value is determined on the basis of revenue and expenses estimation, which arise from further use of the assets considering thereby a suitable discount rate in future cash flows.

24.6. Tangible fixed assets

At initial recognition a tangible fixed asset is valued at its purchase value. The value includes its cost of purchase, import and non-refundable purchasing taxes and costs which can be attributed directly to it being put in service for the intended use, especially costs for its conveying and installation. Purchase values do not increase the interests on loans for acquiring a tangible fixed asset until it is put in service for use. The purchase value of a tangible fixed asset, which is constructed or manufactured in the company, comprises costs that are caused by its construction or manufacturing and indirect costs of its construction or manufacturing that can be attributed to it. The tangible fixed asset, which is acquired on basis of a financial lease, is a constituent part of tangible fixed assets in the group to which it belongs. Its purchase value is equal to the fair value or the present value of the lowest sum of rentals, i.e. one, which is lower. Due to the increase in value the tangible fixed assets are not revalued. The effects of the impairment are shown in operating expenses from revaluation. The difference between the net sales value and the book value of an alienated fixed asset is transferred under the operating revenues from revaluation, if the former is higher than the latter and under the operating expenses from revaluation, if the latter is higher than the former, respectively. Costs that arise later in relation to a tangible fixed asset, increase its purchase value, if they increase its future benefits in comparison with the ones originally estimated. The costs that assure the prolongation of the serviceability period of the tangible fixed asset first decrease the depreciation adjustment of its value calculated by then.

105 Repairs of or maintaining the tangible fixed assets are intended for renewing or preserving the future economic benefits expected on the basis of the originally estimated level of asset efficiency. They are recognised as expenses upon their appearance.

24.7. Depreciation

The value of a tangible fixed asset and intangible fixed asset that is not written off is decreased through depreciation. The tangible fixed asset starts to be depreciated on the first day of the next month after beginning of use and performing the activity, for which it is intended, respectively. The intangible fixed asset starts to be depreciated when it is available for use. The depreciation rates are based on the service life of the assets and amount to: In % 2004 2003 Intangible fixed assets 20.0 20.0 Buildings from 2.5 to 4.0 from 2.5 to 4.0 Plant and machinery from 5.0 to 33.3 from 5.0 to 33.3 Other equipment from 10.0 to 25.0 from 10.0 to 25.0

The depreciation costs of fixed assets acquired through a financial lease are calculated separately. The decrease in value of depreciable assets due to an impairment are not depreciation costs but operating expenses from revaluation of depreciable assets, except if at its precedent increase in value the equity revaluation adjustment was enhanced. In such a case it should be used before it increases the operating expenses from revaluation of these assets.

24.8. Financial investments 24.8.1. Long-term investments

A long-term investment in capital, proprietary securities of other companies or debtor’s securities of other companies or the state are initially recognised at the cost of purchase, which equals either the paid sum of money or its equivalents, or the fair value of other substitutions for a purchase invested by the investor on the exchange day increased by costs that can be attributed directly to the investment. Long-term financial investments in capital of the affiliated and associated companies, which are included in the consolidated financial statements, are valued according to the capital method in the individual financial statements. This means that the investments are annually increased for that share of the net profit of affiliated companies, which belongs to the holding company. The specific equity revaluation adjustments related to long-term financial investments are increased by the effect of revaluation of investments in capital of the affiliated companies.* The effect of revaluation of investments in associated companies presents a specific equity revaluation adjustment, unless the investment is acquired and preserved with the intention to be alienated in the near future. In such a case the investment is valued according to the investment method. The subsequently received shares in profit decrease the originally shown increase in financial investment on the basis of a stake in the profit. Long-term investments in companies that are not investments in the affiliated or associated companies are valued according to the investment method and are annually not increased by a share of the net profit that belongs to them. The allocated stakes in the profit are dealt with outside the investments and increase the financial revenues. Long-term investments, which are relocated under short-term investments, are transferred individually at their book value.

106 24.8.2. Short-term investments

Short-term investments in the proprietary securities of other companies and debtor’s securities of companies or the state are valued at their purchase value. At the end of the year the value of those securities, which are listed at the Stock Exchange, is compared with the market price on the last day of the accounting period. In case that the market price is higher than the average purchase price the increase in value of the investment is not carried out. If the market price is lower than the average purchase price, then a revaluation adjustment is formed for the investment. For short-term securities, which are not listed at the Stock Exchange, the actual value is determined on the basis of an analysis of the companies’ operations and of their own estimations of the company value, which includes a comparison with the values and market prices of related companies that are listed at the Stock Exchange.

24.9. Receivables

At their initial recognition the receivables of all types are shown in the amounts that arise from the corresponding documents on condition that they will be paid. The original receivables can later be increased, or irrespective of payment or any other settlement, decreased by every amount, which is proven by an agreement. The advances in the Balance Sheet are shown in relation with the items they refer to. Advances for tangible fixed assets belong to the same group as tangible fixed assets and advances for intangible fixed assets are a constituent part of intangible fixed assets, and advances for inventories are part of inventories. Receivables in possession for trading are part of short-term financial investments. Receivables, which are assumed not be settled within the due term and in total amount respectively, are considered doubtful and, if a court procedure has already begun, disputable. The revaluation adjustments in receivables are formed as follows: - a 100 per cent adjustment currently when the responsible service makes a competent decision that reasonable grounds exist; - a 100 per cent adjustment in all sued receivables and receivables filed in a bankruptcy proceeding; - an 80 per cent adjustment in receivables filed in an obligatory enforcement proceeding.

24.10. Inventories

The quantity unit of inventories in material and merchandise is initially recognised at cost price, which consists of purchase prices, import and other non-refundable purchase taxes and direct costs of purchase. The quantity unit of a product or work in process is initially recognised at manufacturing cost. The purchase value of the quantity unit of work in process and products does not include interests from received loans used to finance such inventories. Companies use the method of weighted average pricing for evaluating the consumption of raw materials. The inventories of semi-products and products are valued at manufacturing cost. Manufacturing costs include costs of direct manufacturing and costs of manufacturing administration. Inventories are revalued due to impairment, if their book value, including that according to the recent actual cost prices and costs, respectively, exceeds their market value. Due to the increase in value inventories are not revalued. For inventories that have not changed for more than one year a 100 per cent revaluation adjustment is carried out.

24.11. Cash

Cash consists of cash in hand, book money and cash en route. Cash in hand is money in the cash box in banknotes, coins and received cheques and immediately redeemable securities, respectively. Book money is money on accounts at a bank or any other financial institution and can be applied for payment. It consists of

107 immediately available cash. Cash en route is money which is transferred from the cash box to the corresponding account at a bank or any other financial institution and is not yet entered as a credit balance on the same day. The book value of cash equals its initial nominal value until the need for a revaluation appears. Cash in foreign currency is translated to a domestic currency at the exchange rate on the day of receipt. The revaluation adjustment of cash is a change in its book value and is carried out on the day of reporting. It appears only in case of cash expressed in a foreign currency. On conversion the middle exchange rate of the Bank of Slovenia is used. The revaluation adjustment of cash is shown as financial revenue and expenses, respectively.

24.12. Capital

The total capital comprises called-up capital, capital reserves, revenue reserves, retained net profit or loss from previous periods, equity revaluation adjustments and temporary also undistributed net profit or not yet settled net loss for the financial year. Share capital is managed in the domestic currency.

24.13. Goodwill and negative goodwill in the Consolidated Balance Sheet

In the Consolidated Balance Sheet the surplus of the purchase price over the shareholding of the holding company in the fair value of acquired recognised assets and liabilities is treated as goodwill. It is shown under intangible fixed assets. Later on the goodwill is shown at purchase price decreased by the revaluation adjustment, which is in proportion to the shares belonging to the profit of the affiliated company. Goodwill is depreciated in five years’ time at the latest. The surplus of the share in the fair value of acquired recognised assets and liabilities over the purchase price is considered negative goodwill in the Consolidated Balance Sheet. It is shown under long-term provisions due to long-term deferred revenues. If negative goodwill results from the forecasts of future losses and expenses, it is converted into operating revenues in the Profit and Loss Account when the future losses and expenses are recognised, but not later than in five years’ time.

24.14. Long-term provisions

Long-term provisions can be long-term provisions due to long-term deferred revenues and long-term accrued costs or expenses. Long-term provisions due to long-term deferred revenues also include long-term provisions due to the negative goodwill, which as a rule is transferred under operating revenues in five years’ time.

24.15. Liabilities

Liabilities are either financial or operating, short-term or long-term. All liabilities are initially recognised with the amounts arising from the corresponding documents about their appearance, which prove the receipt of cash or redemption of any operating liability; in the case of long-term operating liabilities the receipt of tangible fixed assets, in the case of short-term operating liabilities the receipt of a product or a service or performed work and charged costs, expenses or a share in the net profit, respectively. Long-term liabilities are further increased by imputed interests or decreased by repaid amounts and any other settlements, agreed upon with a creditor. The book value of long-term liabilities equals their original value decreased by repayment of the principal and transfers under short-term liabilities until the need for a revaluation adjustment of long-term debts appears. The book value of short-term liabilities equals their original value adjusted by their increases or decreases as agreed upon with the creditors until the need for their revaluation adjustment appears.

108 Short-term and long-term liabilities of all kinds are initially shown with the amounts which arise from the corresponding documents on condition that the creditors request their repayment. The liabilities are later increased with imputed yields (interests, other compensations), about which an agreement is made with the creditor. Liabilities are decreased by repaid amounts and any other settlements in agreement with the creditor. Long-term liabilities are decreased for the part that should be paid in less than a year, which is shown under short-term liabilities.

24.16. Short-term accruals and deferrals

Deferred costs and accrued revenues include short-term deferred costs and short-term accrued revenues. Short-term accrued costs and deferred revenues include accrued costs and short-term deferred revenues. The basis for short-term accruals and deferrals are the facts determined owing to certain knowledge and put down as a resolution about the formation of short-term accruals and deferrals and book-keeping documents acquired from external business partners.

24.17. Recognition of revenues

Revenues are recognised if the enhancement of economic benefits in the accounting period is connected with an increase in an asset or decrease in a liability and such an increase could be reliably measured. Revenues are recognised when it is legitimate to expect they will result in earnings if these were not already implemented at their appearance.

24.17.1. Operating revenues

Operating revenues from the sale of products, merchandise and materials are measured with selling prices quoted in the invoices and other documents and decreased by discounts which are approved upon the sale or later on also owing to premature payment. Revenues from provided services with the exception of provided services that result in financial revenues are measured at the selling prices of finished services or at the selling prices of services in progress with respect to the level of their completion. Revenues from received subsidies or endowments are measured in amounts that are approved for this purpose. Operating revenues from revaluation arise upon the alienation of tangible fixed assets and intangible fixed assets considering the equity revaluation adjustment from the precedent increase in the value of assets.

24.17.2. Financial revenues

Financial revenues are revenues from investment activities. They arise in relation to long-term and short-term financial investments and also receivables. Financial revenues are recognised upon accounting irrespective of the proceeds if their size, maturity and redemption are not doubted. Interests are charged in proportion to the period expired and with regard to the not yet redeemed share of the principal and the valid interest rate. Dividends achieved in the affiliated and associated companies are taken into account when they are paid. Financial revenues from revaluation arise upon the alienation of long-term and short-term financial investments considering the equity revaluation adjustment from the precedent increase in the value of financial investments.

109 24.17.3. Extraordinary revenues

Extraordinary revenues consist of extraordinary items. They appear in actually incurred amounts.

24.18. Recognition of expenses

Expenses are recognised if a decrease in economic benefits in the accounting period is connected with a decrease in assets or an increase in liabilities and this decrease could be reliably measured. 24.18.1. Operating expenses

Operating expenses are recognised when the costs are no longer in the value of inventories of products and work in process and when merchandise is sold, respectively. In principle the operating expenses are equal to the accrued charges in the accounting period increased by the costs, which are included in the opening inventories of products and work in process, and decreased by costs that are included in closing inventories and work in process. Operating expenses include also the purchase costs of sold merchandise and material. Operating expenses from revaluation are recognised when a corresponding revaluation adjustment is carried out irrespective of their influence on the operating profit or loss. Operating expenses from revaluation arise in connection with tangible fixed assets, intangible fixed assets and current assets due to their impairment. 24.18.2. Financial expenses

Financial expenses are expenses for financing and investing activities. Financial expenses are recognised after balancing irrespective of payments that are in relation with them. Financial expenses from revaluation arise in connection with long-term and short-term financial investments due to their impairment and in connection with the increase in value of long-term and short-term liabilities. 24.18.3. Extraordinary expenses

Extraordinary expenses include extraordinary items that are shown in actually arisen amounts. Extraordinary expenses include also the revaluation adjustment of the operating profit or loss, which in accordance with the financial comprehension of the capital, preserves its purchasing power measured in the euro currency. 24.19. Cash Flow Statement

The Cash Flow Statement is drawn according to the indirect method based on data from the Balance Sheet as at 31 December 2004 and the Balance Sheet as at 31 December 2003 and the data from the Income Statement for the year 2004 and additional data which are required for adapting the inflows and outflows and a corresponding breakdown of important items.

110 25. AUDITED FINANCIAL STATEMENTS FOR SAVA D.D. WITH NOTES

25.1. Auditor’s Report for Sava d.d.

111 25.2. Audited Balance Sheet of Sava d.d.

Individual items of the Balance Sheet are explained in the breakdown and notes to the financial statements.

SIT in thousands 31/12/2004 31/12/2003 Index 2004/2003 ASSETS A. FIXED ASSETS 64,945,505 38,581,020 168 I. Intangible fixed assets 97,412 122,283 80 II. Tangible fixed assets 16,533,547 18,425,412 90 III. Long-term investments 48,314,546 20,033,325 241 B. CURRENT ASSETS 22,148,730 34,498,564 64 I. Inventories 0 201 - II. Operating receivables 1,317,592 1,573,619 84 A. Long-term operating receivables 287,467 352,264 82 B. Short-term operating receivables 1,030,125 1,221,355 84 III. Short-term investments 20,827,216 32,923,878 63 IV. Cash in banks, cheques and cash in hand 3,922 866 453 C. DEFERRED COSTS AND ACCRUED REVENUES 211 170 124 TOTAL ASSETS 87,094,446 73,079,754 119

LIABILITIES A. CAPITAL 67,955,085 52,715,753 129 I. Called-up capital 20,069,870 17,209,870 117 II. Capital reserves 17,326,885 12,178,885 142 III. Revenues reserves 6,238,856 4,700,980 133 IV. Retained net profit or loss from previous periods 4,691,785 5,033,887 93 V. Net profit or loss for the financial year 1,538,285 818,246 188 VI. Equity revaluation adjustments 18,089,404 12,773,885 142 B. PROVISIONS 93,316 102,965 - C. FINANCIAL AND OPERATING LIABILITIES 19,021,490 20,234,509 94 A) Long-term financial and operating liabilities 1,625,456 2,679,647 61 B) Short-term financial and operating liabilities 17,396,034 17,554,862 99 D. ACCRUED COSTS AND DEFERRED REVENUES 24,555 26,527 93 LIABILITIES TOTAL 87,094,446 73,079,754 119

112 25.3. Audited Profit and Loss Account of Sava d.d.

Individual items of the Profit and Loss Account are explained in the breakdown and notes to the financial statements.

SIT in thousands Jan-Dec 2004 Jan-Dec 2003 Index 2004/2003 01. Net sales revenues 1,820,972 2,787,253 65 02. Change in the value of inventories of products and work in process 0 0 - 03. Capitalised own products and services 0 0 - 04. Other operating revenues (with operating revenues from revaluation adjustment) 110,874 148,729 75 05. Costs of goods, material and services 826,780 1,156,148 72 06. Labour costs 792,713 663,565 119 07. Amortisation and depreciation expense 1,194,365 2,159,021 55 08. Other operating expenses 27,214 121,714 22 Operating profit or loss (1+2+3+4-5-6-7-8) -909,226 -1,164,466 78 09. Financial revenues from shares 6,335,144 4,702,184 135 10. Financial revenues from long-term receivables 16,983 20,941 81 11. Financial revenues from short-term receivables 370,969 480,331 77 12. Financial expenses from long- and short-term investment write-offs 973,602 870,760 112 13. Interest expenses and financial expenses from other liabilities 1,092,552 1,232,635 89 14. Tax on profit from ordinary activities 0 0 - 15. Net profit or loss from ordinary activities 3,747,716 1,935,595 194 (1+-2+3+4-5-6-7-8+9+10+11-12-13-14) 16. Extraordinary revenues 37,234 2,333 - 17. Extraordinary expenses 90 6,695 - 18. Profit or loss from extraordinary activities 37,144 -4,362 - (16 - 17) 19. Tax on profit or loss from extraordinary activities 708,291 294,741 240 20. Other taxes not shown under the above items 0 0 - 21. Net profit or loss for the financial year 3,076,569 1,636,492 188 (15+16-17-19-20)

113 25.4. Audited Cash Flow Statement of Sava d.d.

SIT in thousands Jan-Dec 2004 Jan-Dec 2004 Jan-Dec 2003 Jan-Dec 2003 Inflows Outflows Inflows Outflows A. CASH FLOWS FROM OPERATING ACTIVITIES a) Inflows from operating activities 2,253,740 4,694,978 Operating revenues 1,976,570 3,096,196 Extraordinary revenues arising from operating activities 37,234 2,333 Opening minus closing operating receivables 239,977 1,596,527 Opening minus closing deferred costs and accrued revenues -41 -78 b) Outflows from operating activities 3,087,603 2,240,870 Operating expenses exclusive of depreciation expenses and long-term provisions 1,655,247 1,862,574 Extraordinary expenses arising from operating activities 90 6,695 Income tax and other taxes not included in operating expenses 708,291 294,741 Closing minus opening inventories -201 -3,067 Opening minus closing operating liabilities 722,204 80,885 Opening minus closing accrued costs and deferred revenues 1,972 -958 c) Net cash from operating activities (a minus b), or 0 2,454,108 Net cash from operating activities (b minus a) 833,863 0 B. CASH FLOWS FROM INVESTING ACTIVITIES a) Inflows from investing activities 19,191,462 7,311,507 Financial revenues from investing activities 6,356,379 4,201,652 Extraordinary revenues from investing activities 0 0 Offset decrease in intangible fixed assets 0 0 Offset decrease in tangible fixed assets 738,421 0 Offset decrease in long-term investments 0 3,109,855 Offset decrease in short-term investments 12,096,662 0 b) Outflows from investing activities 23,939,160 12,996,215 Financial expenses from investing activities 797,808 86,634 Extraordinary expenses from investing activities 0 0 Offset increase in intangible fixed assets 0 124,356 Offset increase in tangible fixed assets 0 2,479,445 Offset increase in long-term investments 23,141,352 0 Offset increase in short-term investments 0 10,305,780 c) Net cash used in investing activities (a minus b), or 0 0 Net cash used in investing activities (b minus a) 4,747,698 5,684,708 C. CASH FLOWS FROM FINANCING ACTIVITIES a) Inflows from financing activities 7,722,385 5,559,995 Financial revenues from financing activities 321,993 323,532 Extraordinary revenues from financing activities 0 0 Increase in capital 6,847,244 0 Offset increase in long-term provisions 0 0 Offset increase in long-term financial liabilities 0 911,881 Offset increase in short-term financial liabilities 553,148 4,324,582 b) Outflows from financing activities 2,137,768 2,346,646 Financial expenses from financing activities 1,084,156 1,384,942 Extraordinary expenses from financing activities 0 0 Decrease in capital 0 969,812 Offset decrease in long-term provisions 9,649 0 Offset decrease in long-term financial liabilities 1,054,192 0 Offset decrease in short-term financial liabilities 0 0 Decrease in dividends payable -10,229 -8,108

114 SIT in thousands Jan-Dec 2004 Jan-Dec 2004 Jan-Dec 2003 Jan-Dec 2003 Inflows Outflows Inflows Outflows c) Net cash used in financing operations (a minus B), or 5,584,617 3,213,349 Net cash used in financing operations (b minus a) 0 0 D. Cash and cash equivalent at end of period 3,922 866 Net increase in cash and cash equivalents (sum net cash used Ac, Bc and Cc) 3,056 -17,251 Cash and cash equivalents at beginning of period 866 18,117

In the 2004 Cash Flow Statement the following items were considered as non-cash ones: - depreciation and revaluation adjustment in intangible fixed assets in the amount of 24,871,000 tolars; - depreciation and revaluation adjustments in tangible assets in the amount of 1,153,444,000 tolars; - revaluation adjustment in receivables in the amount of 16,050,000 tolars; - financial expenses from shares in losses of the affiliates in the amount of 175,650,000 tolars; - specific equity revaluation adjustments in the amount of 5,315,519,000 tolars.

115

0 0 0 0 0 0 total Capital

SIT in thousands 0 -1,160,348 0 0 8,008,000 0 0 -408 0 -1,160,348 0 0 0 3,076,569 0 0 0 52,715,753 revaluation adjustments Specific equity

0 0 0 5,315,519 5,315,519 0 0 0 0 0 0 0 0 0 5,315,519 16,399,680 0 VI equity Equity revaluation revaluation revaluation

adjustments adjustments General General

V 0 0 0 0 0 0 0 0 for for year year

financial Net profit or loss for Net profit Net the financial the the

0 0 0 0 3,076,569 0 0 0 3,076,569 0 0 -1,538,284 IV Retained Retained Retained loss from net profit or net profit net from previous periods previous

previous periods previous

0 -1,160,348 0 0 0 0 0 -1,160,348 0 0 0 818,246 -818,246 0 0 Other reserves

0 0 0 0 0 0 1,538,284 818,246 -2,356,530 0 0 0 0 0 0 0 2,925,798 5,033,887 818,246 12,773,885 0 1,538,284 0 4,464,082 4,691,785 1,538,285 12,773,885 5,315,519 67,955,085

reserves Statutory III

0 0 0 0 0 0 0 0 0 0 0 shares

for own for

Reserves Revenue reserves Revenue

Legal reserves

II 0 0 0 0 0 0 0 0 -408 0 0 0 0 0 0 0 0 0 0 0 0 0 0 I/1 III/1 III/2 III/3 III/4 IV/1 V/1 VI/1 VI/2 Capital Capital reserves reserves I

I 0 0 0 0 0 0 0 0

I/1 0 0 Share capital capital

Called-up 2,860,000 5,148,000 0 17,209,870 17,209,870 12,178,885 1,720,987 54,195 0

20,069,870 17,326,885 1,720,987 53,787

2,860,000 5,148,000 0 -408

STATE AS AT 31/12/2004 AS AT STATE TRANSFER TO EQUITYTRANSFER TO TRANSFER FROM EQUITYTRANSFER FROM STATE AS AT 31/12/2003 AS AT STATE TRANSFER WITHIN EQUITY capital financial the for year adjustments revaluation adjustments revaluation of Management Board the to according and Supervisory resolution Board the to according reserves meeting Shareholders’ capital elements other and allocation to Entry of called-up Entry profit of net or loss Entry equity of general Entry of specific equity in capital increases Other profitAllocation of net for the financial year profitAllocation of net to additional shares own for Dissolution of reserves capital allocations within elements Other Dividends and bonuses paid

. . EQUITY IN CHANGES A. B. - - - - - C. - - - - D - E 25.5. Audited Statement of Changes in Equity of Sava d.d. 25.5. Audited in Equity of Sava Statement of Changes December 2004 December 2003 to 31 for the period from 31 financial the to and notes breakdown in the explained are in Equity of Changes Statement of the Individual items statements.

116

0 0 0 0 0 0 0 0 total Capital

SIT in thousands 0 -969,812 0 0 0 1,636,492 0 -969,812 0 0 0 0 0 0 1,636,492 0 0 52,049,073 0 52,715,753 revaluation adjustments Specific equity

0 0 0 0 0 0 0 0 0 0 0 0 VI equity Equity revaluation revaluation revaluation

adjustments adjustments General General

V 0 0 0 0 0 0 0 for for year year

financial Net profit or loss for Net profit Net the financial the the

0 1,636,492 0 0 0 0 1,636,492 0 0 -818,246 0 IV Retained Retained Retained loss from net profit or net profit net from previous periods previous

previous periods previous

0 Other reserves

0 -169,556 -800,256 0 0 0 0 0 0 987,802 621,892 -1,609,694 0 -169,556 -800,256 0 0 2,107,552 5,212,251 791,448 12,773,885 0 2,925,798 5,033,887 818,246 12,773,885 0 818,246 0 0 169,556 621,892 -791,448

reserves Statutory III

0 0 0 0 0 0 0 0 0 0 0 0 shares

for own for

Reserves Revenue reserves Revenue

Legal reserves

II II III/1 III/2 III/3 III/4 IV/1 V/1 VI/1 VI/2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Capital Capital reserves reserves

I 0 0 0 0 0 0 0 0 I/1 0 Share 0 capital capital Called-up 0 0

17,209,870 12,178,885 1,720,987 54,195

17,209,870 12,178,885 1,720.987 54,195 3 2

Supervisory resolution Board TRANSFER FROM EQUITYTRANSFER FROM STATE AS AT 31/12/200 AS AT STATE for the financial the for year Entry profit of net or loss Entry equity of general Dividends and bonuses paid TRANSFER WITHIN EQUITY revaluation adjustments revaluation adjustments revaluation profitAllocation of net financial year of Management Board the to according profitAllocation of net to additional resolution the to according reserves meeting Shareholders’ the by adopted and shares own for Dissolution of reserves capital elements other allocation to capital allocations within elements Other Entry of specific equity in capital increases Other . . EQUITY IN CHANGES 31/12/200 AS AT A. STATE EQUITYB. TRANSFER TO - - - - C. - and - - - D - E Audited Statement of Changes in Equity of Sava d.d. for the period from 31 December 2002 to 31 December 2003 31 December 2002 to the 31 from d.d. for period in Equity of Sava of Changes Statement Audited

117 25.6. Calculation of accumulated profit or loss

SIT in thousands CALCULATION OF ACCUMULATED PROFIT OR LOSS 31/12/2004 31/12/2003 21. Net profit or loss for the financial year 3,076,569 1,636,492 22. Retained profit (loss) 4,691,785 5,033,887 23. Decrease (reversal) of capital reserves 0 0 24. Decrease (reversal) of revenue reserves 0 0 25. Increase (additional allocation) for revenue reserves -1,538,284 -818,246 26. ACCUMULATED PROFIT (ACCUMULATED LOSS) 6,230,070 5,852,133 (21+22+23+24-25)

25.7. Proposal for the appropriation of accumulated profit

In 2004 the joint stock company Sava created a net profit in the amount of 3,076,569,000 tolars; in compliance with the resolution by the Board of Management and in accordance with the Supervisory Board 50 per cent of this sum was allocated to other reserves. As at 31 December 2004 the joint stock company Sava showed in its accounting books accumulated profit in the amount of 6,230,070,000 tolars. The Board of Management and the Supervisory Board of the joint stock company Sava will propose to the Shareholders’ Meeting that dividends be paid for the year 2004 in the amount of 580 tolars per share. 1,162,145,000 tolars will be allocated for the distribution to shareholders and we shall propose to the Shareholders’ Meeting that they utilise the accumulated profit from the year 1999 as a distribution source. In accordance with the proposal by the Board of Management of Sava d.d. the remainder of the accumulated profit in the amount of 5,067,925,000 tolars will remain undistributed.

25.8. Breakdown and notes to the financial statements 25.8.1. Balance Sheet

Intangible fixed assets Intangible fixed assets totalling 97,412,000 tolars include the purchased licences for the My.SAP.com software application. In 2004 no new intangible fixed assets were purchased. In 2004 the depreciation in the amount of 24,871,000 tolars was charged.

Survey of intangible fixed assets SIT in thousands 31/12/2004 31/12/2003 Index 2004/2003 I. INTANGIBLE FIXED ASSETS 97,412 122,283 80 1. Long-term deferred operating costs 0 0 - 2. Long-term deferred development costs 0 0 - 3. Long-term industrial property rights 97,412 122,283 80 4. Goodwill 0 0 - 5. Advances for intangible fixed assets 0 0 -

118 Survey of changes in intangible fixed assets SIT in thousands PURCHASING VALUE Long-term industrial property rights Total State as at 01/01/2004 124,356 124,356 Purchase, capitalisation 0 0 Alienation, write-offs 0 0 Revaluation adjustments 0 0 State as at 31/12/2004 124,356 124,356 VALUE ADJUSTMENT State as at 01/01/2004 2,073 2,073 Purchasing 0 0 Alienation, write-offs 0 0 Revaluation adjustments 0 0 Depreciation 24,871 24,871 State as at 31/12/2004 26,944 26,944 NET BOOK VALUE State as at 01/01/2004 122,283 122,283 State as at 31/12/2004 97,412 97,412

Tangible fixed assets Tangible fixed assets totalling 16,533,547,000 tolars present 19.0 per cent of the balance sheet total of the company and are 10 per cent lower than last year. In accordance with the business policy of the company certain investments in affiliated companies were financed by the joint stock company Sava and included the assets of the company too. A mortgage is placed on tangible fixed assets, precisely on the Grand Hotel Toplice building, with Bank Austria Creditanstalt due to the hired long-term loan for the renovation. As at 31 December 2004 the loan not paid totals 1,054,869,000 tolars. The following significant changes in tangible fixed assets appeared: - 2,022,070,000 tolars were allocated for investments, out of which 1,686,688,000 were earmarked for the purchase of strategic building plots, real estate and equipment, 284,248,000 tolars for technology improvements in manufacturing equipment in Savatech d.o.o., and 51,134,000 tolars for computer and other equipment. - In 2004 the depreciation of tangible fixed assets was charged in the amount of 635,766,000 tolars. - An increase in capital by an investment in kind in Savatech d.o.o. was carried out in the amount of 2,182,970,000 tolars. - In 2004 an impairment of tangible fixed assets in the amount of 501,633,000 tolars was made; 52 per cent of the impairment is due to the asphalted roads, yards and parking lots, 45 per cent of the impairment is due to real estate and 3 per cent is due to miscellaneous unused equipment, which in 2005 will be eliminated. - The quoted impairment was carried out on the basis of a valuation report elaborated by an independent certified appraiser of real estate registered with the Slovene Institute of Auditors. The following documents were used as the basis for the appraisal of values: projects, measurements, abstracts from the cadastral maps, agreements and other documents with notes on the company’s operations. - The last impairment prior to the year 2004 was made on 31 December 2003 and 84 per cent of the amount was due to the facility in Ptuj where the company Sava-Guma d.o.o. had discontinued its operations, and 16 per cent to real estate in Kranj. In 2004 a part of the real estate was repeatedly impaired on account of the manufacturing relocation in a new building in 2005; the emptied real estate will be sold.

119 Book value of revalued fixed assets

SIT in thousands TYPE OF TANGIBLE Book value prior Revaluation Book value as FIXED ASSET to revaluation adjustment at 31/12/2004 Asphalted roads, parking lots 1,145,327 -261,390 883,937 Real estate plant IV 514,809 -150,410 364,399 Real estate Juvan 90,430 -74,614 15,816 Equipment 15,219 -15,219 0 TOTAL 1,765,785 -501,633 1,264,152

Survey of tangible fixed assets SIT in thousands 31/12/2004 31/12/2003 Index 2004/2003 II. TANGIBLE FIXED ASSETS 16,533,547 18,425,412 90 1. Land and buildings 12,933,473 13,097,354 99 a) Land 3,547,899 3,802,839 93 b) Buildings 9,385,574 9,294,515 101 2. Plant and machinery 2,307,146 4,154,884 56 3. Other equipment 166,391 370,779 45 4. Tangible fixed assets under construction 1,126,537 802,395 140 a) Advances for tangible fixed assets 0 12,938 0 b) Tangible fixed assets under construction and manufacture 1,126,537 789,457 143

Survey of changes in tangible fixed assets

SIT in thousands PURCHASING VALUE Land Buildings Plant and Other Advances Tangible fixed Total machinery equipment for tangible assets under fixed construction assets and manufacture State as at 01/01/2004 3,802,839 16,813,630 16,306,998 1,853,682 12,938 789,457 39,579,544 Purchase, capitalisation 157,179 999,976 512,538 3,065 5,356 812,947 2,491,061 Alienation, write-offs -307,666 -816,003 -8,781,919 -1,396,592 -18,294 -475,867 -11,796,341 Revaluation adjustments -104,453 -500,268 -15,810 -9,622 0 0 -630,153 State as at 31/12/2004 3,547,899 16,497,335 8,021,807 450,533 0 1,126,537 29,644,111 VALUE ADJUSTMENT State as at 01/01/2004 0 7,519,115 12,152,114 1,482,903 0 0 21,154,132 Purchasing 0 0 0 0 0 0 0 Alienation, write-offs 0 -559,533 -6,762,980 -1,228,301 0 0 -8,550,814 Revaluation adjustments 0 -118,307 -6,469 -3,744 0 0 -128,520 Depreciation 0 270,486 331,996 33,284 0 0 635,766 State as at 31/12/2004 0 7,111,761 5,714,661 284,142 0 0 13,110,564 NET BOOK VALUE State as at 01/01/2004 3,802,839 9,294,515 4,154,884 370,779 12,938 789,457 18,425,412 State as at 31/12/2004 3,547,899 9,385,574 2,307,146 166,391 0 1,126,537 16,533,547

120 Long-term financial investments Long-term investments totalling 48,314,546,000 tolars represent 55.5 per cent of the balance sheet total and are much higher than last year, mainly due to transfer of the share in Gorenjska Bank d.d. under long- term financial investments as well as expansion of the Sava Group by the purchase of Terme 3000.

Survey of the long-term financial investments structure: SIT in thousands 31/12/2004 31/12/2003 Index 2004/2003 III. LONG-TERM FINANCIAL INVESTMENTS 48,314,546 20,033,325 241 1. Shares in companies in the Group 26,123,735 18,502,808 141 2. Long-term loan receivables due from group enterprises 568,472 250,841 227 3. Shares in associates 19,652,824 0 - 4. Long-term loan receivables due from associates 0 0 - 5. Other long-term shares 1,911,488 1,216,970 157 6. Other long-term loan receivables 4,240 8,511 50 7. Own shares 53,787 54,195 99

Shares in companies in the Group totalling 26,123,735,000 tolars were 41 per cent higher when compared to last year. Significant changes in individual types of long-term financial investments were as follows: - an 92.24 per cent share was acquired in the company Terme 3000 d.d., Moravske Toplice, the value of investment amounting to 7,389,671,000 tolars; - an increase in the capital of the company Savatech d.o.o., Kranj, in the amount of 2,182,970,000 tolars; - the shares in the following companies increased: in Teol d.d. by 1.76 percent, Sava Trade d.d. by 2.54 per cent, Golf and Camp Bled d.d. by 5.03 per cent and in Grand Hotel Toplice d.o.o. by 7.93 per cent; - an increase in the capital of the company GEA SOL International d.o.o. Kranj, amounting to 97,900,000 tolars; - the company Sava Ena d.o.o. was established with starting capital in the amount of 2,100,000 tolars. The company was later renamed Biool d.o.o. and its capital was increased by 7,900,000 tolars; - the company Sava DVA d.o.o. Kranj was established with starting capital of 2,100,000 tolars; - an 84.74 per cent share in Color d.d. Medvode was sold as well as a one per cent share in Sava Schäfer d.o.o. Kranj; - in 2004 long-term financial investments in the companies of the Sava Group were increased by 1,426,067,000 tolars with regard to the related part of net profit, and decreased by 175,650,000 tolars with regard to the related part of the loss in the companies of the Sava Group. Long-term loan receivables due from companies in the Group in the amount of 568,472,000 tolars were higher than last year, which is due to a long-term loan to the company Grand Hotel Toplice d.o.o. in the amount of 366,200,000 tolars. Shares in associates in the amount of 19,652,824,000 tolars represent a 40.94 per cent share in Gorenjska Bank d.d. Kranj. In 2004 the investment was transferred from short-term under long-term financial investments. Other long-term shares in the amount of 1,911,488,000 tolars were increased by 57 per cent when compared to last year. Other long-term loan receivables in the amount of 4,240,000 tolars were long-term loans to third business partners. Own shares in the amount of 53,787,000 tolars were decreased by one per cent when compared to last year; the number of own shares decreased by 25, which were allocated to settle the compensation claim. The status of own shares as at 31 December 2004 showed 3,289 shares; the nominal value of own shares amounted to 32,890,000 tolars, while the number of own shares represents 0.16 per cent of all shares issued.

121 Survey of changes in long-term financial investments SIT in thousands Shares in Long-term Shares Other Other Own Total companies loan and long-term long-term long-term shares in the Group receivables receivables shares loan due from in associates receivables group enterprises GROSS VALUE State as at 01/01/2004 18,594,766 250,841 0 1,388,743 8,511 54,195 20,297,056 Increase 11,264,065 369,665 0 889,603 0 0 12,523,333 Decrease 3,838,223 11,580 0 0 3,055 408 3,853,266 Transfers to other items 258,171 -40,454 19,652,824 -258,171 -1,216 0 19,611,154 Revaluation adjustments 0 0 0 0 0 0 0 State as at 31/12/2004 26,278,779 568,472 19,652,824 2,020,175 4,240 53,787 48,578,277 VALUE ADJUSTMENT State as at 01/01/2004 91,958 0 0 171,773 0 0 263,731 Increase 0 0 0 0 0 0 0 Decrease 0 0 0 0 0 0 0 Transfers to other items 63,086 0 0 -63,086 0 State as at 31/12/2004 155,044 0 0 108,687 0 0 263,731 NET VALUE State as at 01/01/2004 18,502,808 250,841 0 1,216,970 8,511 54,195 20,033,325 State as at 31/12/2004 26,123,735 568,472 19,652,824 1,911,488 4,240 53,787 48,314,546

Long-term operating receivables Long-term operating receivables totalling 287,467,000 tolars decreased by 18 per cent when compared to last year. 98 per cent of long-term operating receivables refer to long-term loans to employees for purchase of flats. These loans were insured by a creditor’s mortgage on these flats. The remaining 2 per cent are receiva- bles from scholarships and tuition fees. None of the long-term operating receivables have been matured yet.

Survey of long-term operating receivables SIT in thousands 31/12/2004 31/12/2003 Index 2004/2003 II. OPERATING RECEIVABLES A) Long-term operating receivables 287,467 352,264 82 1. Long-term trade receivables 0 0 - 2. Long-term receivables due from companies in the Group 0 0 - 3. Long-term receivables due from associates 0 0 - 4. Long-term receivables due from other entities 287,467 352,264 82 5. Long-term called-up capital unpaid 0 0 -

Short-term operating receivables Short-term operating receivables totalling 1,030,125,000 tolars decreased by 16 per cent when compared to last year, which is primarily due to a decrease in receivables from the affiliates.

122 Survey of short-term operating receivables

SIT in thousands 31/12/2004 31/12/2003 Index 2004/2003 II. OPERATING RECEIVABLES B) Short-term operating receivables 1,030,125 1,221,355 84 1. Short-term trade receivables 44,703 77,604 58 2. Short-term receivables due from companies in the Group 202,001 439,499 46 3. Short-term receivables due from associates 0 27 0 4. Short-term receivables due from other entities 783,421 704,225 111

Short-term trade receivables totalling 44,703,000 tolars are due to charged rentals and other services outside the Sava Group; short-term receivables due from companies in the Group are also due to charged rentals and other services; short-term receivables due from other entities are mainly receivables from buyers of securities and receivables arising from VAT, which are due from the state. In 2004 the value adjustment status in trade receivables decreased by 102,099,000 tolars and increased by 16,050,000 tolars. On 31 December 2004 the value of adjustment status in trade receivables totalled 236,292,000 tolars. Short-term operating receivables are not insured.

Survey of short-term operating receivables according to maturity

SIT in thousands Total Undue Due B) Short-term operating receivables 1,030,125 14,653 1,015,472 1. Short-term trade receivables 44,703 7,952 36,751 2. Short-term receivables due from companies in the Group 202,001 6,701 195,300 3. Short-term receivables due from other entities 783,421 0 783,421

Short-term financial investments Short-term financial investments totalling 20,827,216,000 tolars represent 23.9 per cent of the balance sheet total.

Survey of short-term financial investments

SIT in thousands 31/12/2004 31/12/2003 Index 2004/2003 III. SHORT-TERM FINANCIAL INVESTMENTS 20,827,216 32,923,878 63 1. Shares in companies in the Group 3,661,878 1,457,543 251 2. Shares in associates 0 19,288,217 0 3. Own shares 0 0 - 4. Other short-term investments 17,165,338 12,178,118 141

123 Shares in companies in the Group totalling 3,661,878,000 tolars represent short-term hired loans to the companies in the Group. Shares in associates include the investment in Gorenjska Bank d.d. Kranj in the amount of 12,336,305,000 tolars, which was transferred in full under long-term financial investments in 2004. The short-term investment in Sava Tires Joint Venture Holding d.o.o. Kranj in the amount of 6,736,912,000 tolars was sold in 2004 realising thereby financial revenues of 3,335,892,000 tolars. Other short-term investments totalling 17,165,338,000 tolars consist of the following items: - shares purchased for sale in the amount of 17,208,029,000 tolars; - advances to stock-brokers in the amount of 711,878,000 tolars; - short-term loans to other companies in Slovenia in the amount of 33,649,000 tolars; - value adjustment of short-term financial investments in the amount of 788,218,000 tolars. 70 per cent of shares purchased for sale include the shares of Dom Holding, Maksima Holding, Mercator, PID Maksima, NFD1 and NFD2 and Laško Brewery. On 31 December 2003 revaluation adjustments totalled 89,197,000 tolars. In 2004 an additional revaluation adjustment in other short-term financial investments was formed in the amount of 728,504,000 tolars and the adjustment in the amount of 29,483,000 tolars was eliminated. The revaluation adjustments status as at 31 December 2004 totalled 788,218,000 tolars, which reflects the value adjusting to the stock exchange price.

Capital The capital in the amount of 67,955,085,000 tolars is 29 per cent higher than last year. In the structure of finance sources the capital has a 78 per cent share.

In 2004 the following changes were carried out that influenced capital: - The capital of Sava d.d. was increased in the total value of 8,008,000,000 tolars, the number of issued shares increased by 286,000 shares, and the total number of shares amounted to 2,006,987. The share capital of the company increased from 17,209,870,000 tolars to 20,069,870,000 tolars and capital reserves increased from 12,178,885,000 tolars to 17,326,885,000 tolars. - A net profit of 3,076,569,000 tolars was created. - Other revenue reserves were increased in accordance with the proposal by the Board of Management and the proposal by the Supervisory Board by 50 per cent of the net profit for 2004 in the amount of 1,538,284,000 tolars; - According to the resolution of the Shareholders’ Meeting the sum of 1,160,348,000 tolars was distributed for dividends and bonuses. In 2004 the accounting principles in Sava d.d. changed as regards the treatment of the capital method for the affiliated companies. Interests in the profit of the affiliated companies are included in the specific equity revaluation adjustments for long-term financial investments and not in financial revenues, in the amount of 1,426,067,000 tolars. The total specific equity revaluation adjustments for long-term financial investments in the amount of 5,315,519,000 tolars include the following items:

124 - investments in the affiliated companies: 1,426,067,000 tolars SIT in thousands Total Savatech d.o.o., Kranj 160,810 Sava-GTI d.o.o., Kranj 31,754 Sava-Rol d.o.o., Zagreb 2,181 Sava-Schäfer d.o.o., Kranj 29,167 Sava Trade Vgmbh, Munich 19,028 Sava Trade sp.z.o.o., Warsaw 5,514 Sava Trade spool.s.o.o., Prague 20,142 Sava Tech Trade Ltd., London 11,704 Sava Trade Inc., Port Orange 11,345 Sava Trade d.d. Ljubljana 382,477 Grand Hotel Toplice Bled d.o.o., Bled 25,831 G&P Hotels Bled, d.o.o., Bled 156,637 Terme 3000 d.d., Moravske Toplice 358,599 Sava IP d.o.o., Ljubljana 169,255 Sava Nova, d.o.o., Zagreb 48 Sava Medical and Services, d.o.o., Kranj 41,575 TOTAL 1,426,067

- investment in Gorenjska Bank d.d. Kranj in the amount of 3,889,452,000 tolars represents 40.94 per cent of the unaudited net profit of Gorenjska Bank d.d. Kranj for 2004.

Survey of individual capital items

SIT in thousands 31/12/2004 31/12/2003 Index 2004/2003 A: CAPITAL 67,955,085 52,715,753 129 I. Called-up capital 20,069,870 17,209,870 117 a) Share capital 20,069,870 17,209,870 117 b) Uncalled capital 0 0 - II. Capital reserves 17,326,885 12,178,885 142 III. Revenue reserves 6,238,856 4,700,980 133 1. Legal reserves 1,720,987 1,720,987 100 2. Reserves for own shares 53,787 54,195 99 3. Statutory reserves 0 0 - 4. Other reserves 4,464,082 2,925,798 153 IV. Retained net profit or loss from previous periods 4,691,785 5,033,887 93 V. Net profit or loss for the financial year 1,538,285 818,246 188 VI. Equity revaluation adjustments 18,089,404 12,773,885 142 1. General equity revaluation adjustments 12,773,885 12,773,885 100 a) Revaluation adjustment in share capital 12,773,885 12,773,885 100 b) Revaluation adjustment in paid-in capital surplus 0 0 - c) Revaluation adjustment in reserves 0 0 - d) Revaluation adjustment in retained net profit or loss from previous periods 0 0 - 2. Specific equity revaluation adjustments 5,315,519 0 - a) Revaluation adjustment for tangible fixed assets 0 0 - b) Revaluation adjustment in long-term financial investments 5,315,519 0 - c) Revaluation adjustment in short-term financial investments 0 0 - d) Revaluation adjustment in long-term financial liabilities 0 0 - e) Revaluation adjustment in short-term financial liabilities 0 0 -

125 Provisions In 2003 long-term provisions totalling 102,965,000 tolars were formed, which were earmarked for covering potential liabilities due from lawsuits. In 2004 certain lawsuits were concluded and the provisions were drawn in the amount of 9,649,000 tolars. On 31 December 2004 the company showed 93,316,000 tolars in long-term provisions.

Survey of long-term provisions SIT in thousands 31/12/2004 31/12/2003 Index 2004/2003 B: PROVISIONS 93,316 102,965 0 1. Provisions for pensions and similar 0 0 - 2. Provisions for taxes 0 0 - 3. Other provisions 93,316 102,965 91

Long-term financial and operating liabilities On 31 December 2004 the company showed long-term financial liabilities to banks in the amount of 1,625,456,000 tolars, or 39 per cent less than in 2003. Their share in the structure of finance sources is 1.9 per cent.

Survey of long-term financial and operating liabilities

SIT in thousands 31/12/2004 31/12/2003 Index 2004/2003 C: FINANCIAL AND OPERATING LIABILITIES A) Long-term financial and operating liabilities 1,625,456 2,679,647 61 1. Long-term financial liabilities arising from bonds 0 0 - 2. Long-term financial liabilities to banks 1,625,456 2,679,647 61 3. Long-term operating liabilities arising from advances 0 0 - 4. Long-term trade payables 0 0 - 5. Long-term bills payable 0 0 - 6. Long-term financial and operating liabilities to companies in the Group 0 0 - 7. Long-term financial and operating liabilities to associates 0 0 - 8. Long-term financial and operating liabilities to other entities 0 0 -

- Long-term loans are obtained from domestic and foreign banks. All loans obtained are nominated in euros. Interest rates for long-term foreign currency loans are 3m Euribor + 0.5 % to + 1 % and 1m Euribor + 1.25 %. A part of loans is insured with a mortgage on real estate. - The total amount of long-term loans not secured amounts to 873,552,000 tolars.

The maturity dates of long-term financial liabilities are as follows: - in 2006: 966,173,000 tolars - in 2007: 537,921,000 tolars - in 2008: 40,454,000 tolars - in 2009: 40,454,000 tolars - in 2010: 40,454,000 tolars Changes in long-term financial liabilities in 2004 are as follows: - loans as at 01/01/2004: 2,679,647,000 tolars - new loans obtained in 2004: 1,100,067,000 tolars - repayments in 2004: -1,065,506,000 tolars - transfer under short-term liabilities: 1,088,752,000 tolars - loans as at 31/12/2004 : 1,625,456,000 tolars

126 Short-term financial and operating liabilities Short-term financial and operating liabilities totalling 17,396,034,000 tolars are one per cent lower than last year. Their share in the finance sources structure amounts to 20 per cent.

Survey of short-term financial and operating liabilities SIT in thousands 31/12/2004 31/12/2003 Index 2004/2003 C: FINANCIAL AND OPERATING LIABILITIES B) Short-term financial and operating liabilities 17,396,034 17,554,862 99 1. Short-term financial liabilities arising from bonds 0 0 - 2. Short-term financial liabilities to banks 11,352,805 10,414,945 109 3. Short-term operating liabilities arising from advances 22,671 18,716 121 4. Short-term trade payables 121,175 391,259 31 5. Short-term bills payable 0 0 - 6. Short-term financial and operating liabilities to companies in the Group 1,450,302 2,543,917 57 7. Short-term financial and operating liabilities to associates 3,492,847 3,351,158 104 8. Short-term financial and operating liabilities to other entities 956,234 834,867 115

Short-term financial liabilities from banks total 11,352,805,000 tolars and are 9 per cent higher than last year. All short-term loans are obtained from banks in Slovenia, interest rates being 1mEURIBOR + 0.70 %, and nominal interest rates from 4.0 to 5.0 per cent. Only a short-term part of long-term financial liabilities is nominated in foreign currency. None of the short-term financial liabilities to banks have fallen due as yet and all are insured with bills of exchange. 88 per cent of short-term trade payables totalling 121,175,000 tolars have not become due. Short-term financial and operating liabilities to companies in the Group total 1,450,302,000 tolars and are 43 per cent higher than last year. Financial liabilities to companies in the Group represent 98 per cent of the quoted sum, the remaining part being operating liabilities. The financial liabilities result from managing the financial sources of the companies in the Sava Group. Short-term financial liabilities to companies in the Group are shown to the following companies: - Sava Medical and Services d.o.o. in the amount of 406,925,000 tolars; - G & P Hotels Bled d.o.o. in the amount of 363,856,000 tolars; - Terme Lendava d.d. in the amount of 229,120,000 tolars; - Sava IP d.o.o. in the amount of 158,630,000 tolars; - Savatech d.o.o. in the amount of 100,368,000 tolars; - other affiliates in the Sava Group in the total amount of 163,607,000 tolars. All quoted short-term financial liabilities are debts to the companies in the Sava Group in Slovenia and have not yet fallen due and are not insured. Interest rates for obtained short-term loans from the companies in the Sava Group are from 3.2 per cent to 3.75 per cent. Short-term financial and operating liabilities to associated companies totalling 3,492,847,000 tolars are 4 per cent higher than last year. The amount includes the principal of received loans and liabilities for interests from Gorenjska Bank d.d.. The liabilities have not yet fallen due and are insured with bills of exchange. Interest rates are from 4.15 per cent to 5.5 per cent. Short-term financial and operating liabilities to other entities totalling 956,234,000 tolars are 15 per cent higher than last year. Liabilities from received loans from legal entities outside the Group represent an 11 per cent share and liabilities to the state a 58 per cent share, the rest being liabilities for salaries, unpaid dividends and other liabilities.

127 Accrued costs and deferred revenues Accrued costs and deferred revenues totalling 24,555,000 tolars mainly refer to short-term accrued costs for chemicals destruction.

Off-balance assets / liabilities Issued guarantees mainly refer to the loans received by the affiliated companies. Under item mortgages the amount of the loan from Bank Austria Creditanstalt is shown.

SIT in thousands 31/12/2004 31/12/2003 Index 2004/2003 Excluded farmland after opening balance 42,098 42,098 100 Assets excluded acc. to order due to nationalisation 82,333 82,333 100 Issued guarantees 7,601,779 14,411,084 53 Other possible liabilities 0 0 - Mortgages on Grand Hotel Toplice building 1,054,869 1,420,142 74 TOTAL 8,781,079 15,955,657 55

Other potential liabilities As at 31 December 2004 the joint stock company Sava did not have any other potential liabilities. All known liabilities are included in the financial statements. 25.8.2. The Profit and Loss Account

Net sales revenues Since 2002 the net sales revenues of Sava d.d. represent inter-company sales within the Sava Group. The share of net sales revenues in the holding company will constantly decrease, and as far as the nature of the revenues is concerned, these revenues cannot be equalized with the sales revenues from manufacturing activities. In 2004 the joint stock company Sava realised net sales revenues in the amount of 1,820,972,000 tolars, which is 35 per cent less than in the same period last year. The main reason for that is a discontinuation of dealing in the sale of raw materials to Teol, which was agreed in the business policy, as well as discontinuation of rent for the equipment to Savatech d.o.o due to an increase in capital by an investment in kind in the beginning of 2004. Sales revenues are created from leasing out fixed assets and equipment and providing other services mainly to the affiliated companies in the Sava Group, and to a lesser extent to companies outside of the Group.

Survey of net sales revenues

SIT in thousands Jan - Dec 2004 Jan - Dec 2003 Index 2004/2003 01. NET SALES REVENUES 1,820,972 2,787,253 65 a) Revenues in domestic market 1,802,956 2,782,040 65 to companies in the Group 1,591,683 2,561,923 62 to other affiliates 0 0 - to other entities 211,273 220,117 96 b) Revenues in foreign market 18,016 5,213 - to companies in the Group 2,987 -1,605 - to other affiliates 0 0 - to other entities 15,029 6,818 -

128 Other operating revenues (with operating revenues from revaluation) Other operating revenues with operating revenues from revaluation totalling 110,874,000 tolars mainly arise (in 93 per cent) from the sale of assets in Ptuj, Ljubljana, Zagreb, Belgrade, Niš, Kraljevo, and partly from the sale of miscellaneous equipment that Sava due to a discontinuation of programmes no longer requires. 7 per cent of other operating revenues include a grant by the Ministry of Labour, Family and Social Affairs for the e-learning project and revenues resulting from eliminating long-term provisions.

Cost of goods, materials and services Cost of goods, materials and services in the amount of 826,780,000 tolars are 28 per cent lower than in the same period last year. Lower costs are mainly due to a discontinuation of dealing in the sale of raw materials to Teol.

Survey of cost of goods, materials and services SIT in thousands Jan - Dec 2004 Jan - Dec 2003 Index 2004/2003 05. COST OF GOODS, MATERIALS AND SERVICES 826,780 1,156,148 72 a) Cost of merchandise and materials sold and cost of raw materials and consumables used 64,787 595,195 11 b) Cost of services 761,993 560,953 136

The table below shows cost of goods, materials and services according to type of cost:

SIT in thousands 2004 2003 Cost of merchandise sold 0 545,922 Cost of materials 64,787 49,273 Cost of postal charges and transportation services 15,102 14,489 Cost of maintenance services 86,604 61,581 Cost of rentals 31,542 31,494 Costs refunded to employees 7,045 6,344 Cost of payment transactions, bank services and insurance premiums 24,103 29,312 Cost of intellectual and personal services 201,121 180,973 Cost of fairs, advertisement and office allowance 72,946 71,072 Cost of other services 323,530 165,688 TOTAL 826,780 1,156,148

The costs of auditing the Annual Report for the joint stock company Sava and the Sava Group amount to 3,451,000 tolars. The audit was carried out by the company KPMG Slovenija d.o.o. Ljubljana. The costs of tax consultation amount to 3,140,000 tolars, the service being provided by the company KPMG Poslovno svetovanje d.o.o., Ljubljana.

Labour costs Labour cost totalling 792,713,000 tolars are 19 per cent higher than in the same period last year. Labour

Survey of labour costs

SIT in thousands Jan-Dec 2004 Jan-Dec 2003 Index 2004/2003 06. LABOUR COSTS 792,713 663,565 119 a) Wages and salaries 567,324 491,509 115 b) Social security costs 104,666 88,969 118 c) Other labour costs 120,723 83,087 145

129 cost includes provisions for additional payments in 2004 pursuant to managerial contracts. The company shows the premiums charged for additional pension insurance in the amount of 8,250,000 tolars under labour costs.

Amortisation and depreciation expenses, write-offs Amortisation and depreciation expenses, write-offs total 1,194,365,000 tolars and are 45 per cent lower than last year. In 2004 the revaluation adjustments of assets and amortisation are lower on account of an increase in the capital of the company Savatech due to an investment in kind.

Survey of amortisation and depreciation expenses, write-offs

SIT in thousands AMORTISATION AND DEPRECIATION EXPENSES, WRITE-OFFS Jan-Dec 2004 Jan-Dec 2003 Index 2004/2003 07. AMORTISATION AND DEPRECIATION EXPENSES, WRITE-OFFS 1,194,365 2,159,021 55 a) Amortisation of intangible fixed assets, depreciation of tangible fixed assets, and operating expenses from revaluation of tangible and intangible fixed assets 1,178,315 2,132,717 55 b) Operating expenses from revaluation of operating current assets 16,050 26,304 61

Amortisation and operating expenses from revaluation include the following items: - amortisation of intangible fixed assets in the amount of 24,871,000 tolars; - amortisation of tangible fixed assets in the amount of 635,766,000 tolars; - revaluation of tangible fixed assets in the amount of 501,633,000 tolars; - revaluation of fixed asset sales in the amount of 16,045,000 tolars; The revaluation of tangible fixed assets is described in the chapter on tangible fixed assets in detail. Operating expenses from the revaluation of operating current assets totalling 16,050,000 tolars refer to value adjustments of receivables due from customers.

Other operating expenses Other operating expenses totalling 27,214,000 tolars mainly represent paid contributions for urban real estate as well as the housing and compensation fund.

Financial revenues from shares Financial revenues from shares totalling 6,335,144,000 tolars are 35 per cent higher than in the same period last year.

Survey of financial revenues from shares SIT in thousands Jan - Dec 2004 Jan - Dec 2003 Index 2004/2003 09. FINANCIAL REVENUES FROM SHARES 6,335,144 4,702,184 135 a) Financial revenues from shares in Group companies 26,820 519,071 5 b) Financial revenues from shares in associates 1,537,276 586,302 262 c) Other financial revenues from shares (incl. financial revenues from revaluation) 4,771,048 3,596,811 133

Financial revenues from shares in Group companies - with the exception of associated companies in the amount of 26,820,000 tolars - include revenues from dividends of the company Golf and Camp d.d. Bled. Due to a change in the accounting policy the data is not comparable with last year’s.

130 Financial revenues from shares in associates in the amount of 1,537,276,000 tolars include received dividends from Gorenjska Bank d.d. in the amount of 552,960,000 tolars and proceeds from the sale of Gorenjska Bank d.d. shares in the amount of 984,316,000 tolars. Other financial revenues from shares with financial revenues from revaluation in the amount of 4,771,048,000 tolars are at 70 per cent due to proceeds from the sale of a 20 per cent share in Sava Tires Joint Venture Holding d.o.o. Kranj; the remaining 30 per cent are due from the sale of securities and received dividends.

Financial revenues from long-term receivables When compared to last year, financial revenues from long-term receivables totalling 16,983,000 tolars are 19 per cent lower and are mainly due to revaluation of long-term loans.

Survey of long-term receivables SIT in thousands Jan - Dec 2004 Jan - Dec 2003 Index 2004/2003 10. FINANCIAL REVENUES FROM LONG-TERM RECEIVABLES 16,983 20,941 81 a) Financial revenues from long-term receivables due from Group companies 56 236 24 b) Financial revenues from long-term receivables due from associates 0 0 - c) Other financial revenues from long-term receivables (incl. financial revenues from revaluation) 16,927 20,705 82

Financial revenues from short-term receivables Financial revenues from short-term receivables in the amount of 370,969,000 tolars are 23 per cent higher than in the same period last year.

Survey of financial revenues from short-term receivables SIT in thousands Jan - Dec 2004 Jan - Dec 2003 Index 2004/2003 11. FINANCIAL REVENUES FROM SHORT-TERM RECEIVABLES 370,969 480,331 77 a) Interest revenues and revenues from short-term receivables due from Group companies 240,631 365,730 66 b) Interest revenues and revenues from short-term receivables due from associates 191 4,209 5 c) Other interest revenues and revenues from short-term receivables (incl. financial revenues from revaluation) 130,147 110,392 118

Interest revenues and revenues from short-term receivables due from companies in the Sava Group, except in the associates in the amount of 240,631,000 tolars, are charged interest from short-term loans, operating interest and charged guarantees to companies in the Group. Interest revenues and revenues from short-term receivables due from the associates in the amount of 191,000 tolars are revenues realised with Gorenjska Bank d.d. Other interest revenues and revenues from short-term receivables (including financial revenues from revaluation) in the amount of 130,147,000 tolars include revenues from loans to others, interest from short- term securities and revenues from guarantees charged outside the Sava Group.

Financial expenses for long- and short-term investment write-offs Financial expenses for long- and short-term write-offs totalling 973,602,000 tolars are 12 per cent higher than last year.

131 Survey of financial expenses for long- and short-term write-offs SIT in thousands Jan - Dec 2004 Jan - Dec 2003 Index 2004/2003 12. FINANCIAL EXPENSES FOR LONG- AND SHORT-TERM WRITE-OFFS 973,602 870,760 112 a) Financial expenses from revaluation of investments in companies in the Group 175,650 789,526 22 b) Financial expenses from revaluation of investments in associates 0 0 - c) Other financial expenses from revaluation 797,952 81,234 -

Financial expenses from revaluation of investments in companies in the Group totalling 175,650,000 tolars mainly include financial expenses from revaluation for participating in the loss of the affiliates (Teol d.d., Gea Sol International d.o.o. and Biool d.o.o.) Other financial expenses from revaluation amounts to 797,952,000 tolars, of which 91 per cent is due to an impairment in short-term securities with regard to the Stock Exchange market price, while the remaining 9 per cent are realised expenses from the sale of short-term securities.

Interest expenses and expenses incurred in connection with other liabilities Interest expenses and expenses incurred in connection with other liabilities totalling 1,092,552,000 tolars are 11 per cent lower than in the same period last year.

Survey of interest expenses and expenses incurred in connection with other liabilities SIT in thousands Jan - Dec 2004 Jan - Dec 2003 Index 2004/2003 13. INTEREST EXPENSES AND EXPENSES INCURRED IN CONNECTION WITH OTHER LIABILITIES 1,092,552 1,232,635 89 a) Interest expenses and expenses incurred in connection with other liabilities to Group companies 57,860 87,661 66 b) Interest expenses and expenses incurred in connection with other liabilities to associates 191,444 299,158 64 c) Other interest expenses and expenses incurred in connection with other liabilities 843,248 845,816 100

Interest expenses and expenses incurred in connection with other liabilities to companies in the Group totalling 57,860,000 tolars include mainly interest expenses for bank loans. Interest expenses and expenses incurred in connection with other liabilities to associates totalling 191,444,000 tolars are charged interests for loans from Gorenjska Bank d.d. Other interest expenses and expenses incurred in connection with other liabilities totalling 843,248,000 tolars include interest expenses for other bank loans, negative exchange rate differences and other financial expenses.

Extraordinary revenues and extraordinary expenses Extraordinary revenues totalling 37,234,000 tolars represent revenues from settled lawsuits. Extraordinary revenues in the amount of 90,000 tolars are various costs originating from past years.

Survey of extraordinary revenues and extraordinary expenses SIT in thousands Jan - Dec 2004 Jan - Dec 2003 Index 2004/2003 16. EXTRAORDINARY REVENUES 37,234 2,333 - 17. EXTRAORDINARY EXPENSES 90 6,695 - a) Extraordinary expenses less expenses from equity revaluation adjustments 90 6,695 - b) Extraordinary expenses from equity revaluation adjustments 0 0 -

132 Tax on profit In 2004 we prepared the last consolidated tax balance sheet, which included the companies Sava d.d. and Savatech d.o.o. In 2004 the tax liability of the joint stock company Sava totals 708,291,000 tolars or 140 per cent more than in the same period last year and represents an efficient tax rate of 18.7 per cent.

Survey of tax on profit SIT in thousands 2004 2003 Revenues (acc. to Law on Tax on Profit) 8,139,079 6,833,193 Expenses (acc. to Law on Tax on Profit) -4,550,054 -5,329,370 Tax base I 3,589,025 1,503,823 Increase in tax base 185,698 805,551 Decrease in tax base 0 0 Tax base II 3,774,723 2,309,374 Investment tax credits -554,314 -879,598 Investment reserve -377,472 -230,938 Other tax credits -9,772 -9,205 Tax base from the company Savatech d.o.o. 0 0 Tax base III 2,833,165 1,189,633 Tax on profit 708,291 297,408 Paid special advance for profit sharing 0 -2,667 LIABILITIES FOR TAX ON PROFIT 708,291 294,741

Other tax credits exploited in 2004 were due to relief for disabled employees and financing the pension scheme.

Net profit or loss The net profit or loss from ordinary activities totalled 3,076,569,000 tolars in 2004 and is therefore 88 per cent higher than in the same period last year or 23 per cent higher than set in the business plan. Based on a resolution by the Board and approval from the Supervisory Board 50 per cent of the net profit for the financial year in the amount of 1,538,284,000 tolars is allocated to other revenue reserves.

Net profit after converting capital into euros and cost of living SIT in thousands Capital % growth Calculated Decrease effect in profit CAPITAL/ calculation from euro growth 57,561,405 1,29% 741,967 2,335,063 CAPITAL/calculation from cost of living growth 57,561,405 3,20% 1,841,965 1,235,065

Influence of the changed accounting policy on net profit or loss Owing to a change in the accounting policy as regards the evaluation of long-term financial investments in the affiliated companies, the net profit of the holding company Sava d.d. is lower by 1,426,067,000 tolars. The profit of the affiliated companies, which in view of the ownership of the affiliates belongs to the holding company, will correspondingly be reflected in the consolidated financial statements of the Sava Group.

133 Return on capital The return on capital of Sava d.d., calculated as the ratio between net profit before taxes for the financial year and the average state of capital, totals 6.6 per cent in 2004, which is 2.7 percentage points more than last year. The return on capital of Sava d.d., calculated as the ratio between net profit for the financial year and the average state of capital, totals 5.3 per cent in 2004, which is 2.3 percentage points more than last year. The average state of capital for 2004 amounts to 57,561,405,000 tolars, the average being calculated by taking into account the increase in capital of Sava d.d., excluding net profit for the year and the specific equity revaluation adjustments formed at the end of the current year.

Shares in profit The Shareholders’ Meeting has not approved any shares in the profit to those who are not owners.

Data about group of persons From 1 January to 30 April 2004 the Board of Management of Sava d.d. had four members; since 1 May 2004 the Board of Sava d.d. has had three members. In 2004 the total gross income of the members of the Board of Management amounted to 211,200,000 tolars. This sum also includes the income of the fourth Board member until the expiration of his mandate, and consists of gross salaries, gross bonuses, gross severance pay and other income. In 2004 the total net income of the Board members amounted to 91,186,000 tolars, which is 43 per cent of gross income.

Survey of income by the Board of Management SIT in thousands NAME AND SURNAME Gross Gross Gross Other Total Total salary bonuses severance income income income pay in gross in net amount amount Janez BohoriË Chairman of the Board 43,085 12,948 0 2,543 58,576 25,152 Emil Vizoviπek Member of the Board 41,340 12,023 0 2,100 55,463 24,126 Vinko PerËiË Member of the Board 41,340 12,023 0 2,653 56,016 24,368 Maksimiljan FijaËko Member of the Board 9,647 6,906 23,677 915 41,145 17,540 until 30 April 2004 TOTAL 135,412 43,900 23,677 8,211 211,200 91,186

Other income includes holiday allowance, other work-related earnings, benefits and travel expenses.

20 employees with managerial contracts received an income totalling 235,607,000 tolars in 2004. This income includes gross salaries, gross bonuses and other revenues. The income of the Supervisory Board members in 2004 amounted to 37,683,000 tolars gross. Receivables of Sava d.d. due from granted loans are as follows: - members of the Board: 368,000 tolars; - other employees with managerial contracts: 5,882,000 tolars. Sava d.d. showed liabilities to the Supervisory Board members in the amount of 6,843,000 tolars.

134 Basic Business Indicators

CONTENTS 31/12/2004 31/12/2003 1. BASIC FINANCING INDICATOR a) Rate of ownership of financing (capital/liabilities) 0.78 0.72 b) Rate of long-term nature of financing (sum of capital, long-term debts and provisions/liabilities) 0.80 0.76 2. BASIC INVESTMENT INDICATOR a) Basic investment rate (fixed assets according to net book value/assets) 0.19 0.25 b) Rate of long-term nature of investing sum of fixed assets, long-term financial investments and long-term operating receivables/assets 0.75 0.53 3. BASIC INDICATORS OF PARALLEL FINANCIAL STRUCTURE a) Capital coverage of fixed assets coefficient (capital/fixed assets according to net book value) 4.11 2.86 b) Direct coverage of short-term liabilities coefficient (fast coefficient) solvent resources /short-term liabilities 0.00 0.00 c) Accelerated coverage of short-term liabilities coefficient (accelerated coefficient) sum of solvent resources and short-term receivables/short-term liabilities 1.26 1.95 d) Short-term coverage of short-term liabilities coefficient (short-term coefficient) short-term resources/short-term liabilities 1.27 1.96 4. BASIC ECONOMIC INDICATORS a) Economy of operations coefficient (operating revenues/operating expenses) 0.68 0.72 5. BASIC PROFITABILITY INDICATORS a) Coefficient profitability of capital coefficient (net profit in business) year/average capital (without net profit for the year) 0.05 0.03 b) Coefficient of dividend of share capital (sum of dividends for the business year/average share capital) 0.06 0.05

25.8.3. Statement by the Board

The Board agrees with the financial statements of the company Sava d.d. for the year that ended on 31 December 2004. The Board confirms that when drawing up the financial statements it consistently applied the corresponding accounting guidelines and the accounting estimates were elaborated according to the principle of prudence and cost efficiency, and that the annual report gives a true and fair view of the company’s assets and performance of its business operations in the year 2004. The Board is responsible for the proper managing of its accounting procedures, adopting suitable measures for securing assets and other funds, and confirms herewith that the financial statements and notes have been produced based on the assumption that the company will proceed with its operations and in accordance with current legislation and Slovenian accounting standards.

Vinko PerËiË Janez BohoriË Member of the Board Chairman of the Board

Emil Vizoviπek Member of the Board

135 26. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE SAVA GROUP WITH NOTES

26.1. Auditor's Report on the Sava Group

136 26.2. Audited Consolidated Balance Sheet as at 31 December 2004

SIT in thousands Index ASSETS 31/12/2004 31/12/2003 2004/2003 A: FIXED ASSETS 82,763,982 42,272,870 196 I. Intangible fixed assets 1,470,529 2,040,344 72 II. Tangible fixed assets 58,968,946 37,768,396 156 III. Long-term investments 22,324,507 2,464,130 906 B: CURRENT ASSETS 39,005,868 57,025,461 68 I. Inventories 10,614,956 11,914,759 89 II. Operating receivables 9,419,916 12,089,213 78 A) Long-term operating receivables 327,230 538,922 61 B) Short-term operating receivables 9,092,686 11,550,291 79 III. Short-term investments 18,441,351 32,444,618 57 IV. Cash in banks, cheques and cash in hand 529,645 576,871 92 C: DEFERRED COSTS AND ACCRUED REVENUES 1,663,134 121,226 1,372 TOTAL ASSETS 123,432,984 99,419,558 124

LIABILITIES A: CAPITAL 70,212,406 55,310,705 127 I. Called-up capital 20,069,870 17,209,870 117 II. Capital reserves 17,326,885 12,178,885 142 III. Revenues reserves 6,238,856 4,700,980 133 IV. Retained net profit or loss from previous periods 4,489,631 4,853,963 92 V. Net profit or loss for the financial year 3,367,122 796,016 423 VI. Equity revaluation adjustments 16,663,337 12,773,885 130 VII. Consolidated equity adjustments 0 -37,751 - VIII. Capital of minority owners 2,056,705 2,834,857 73 B: PROVISIONS 7,144,399 3,326,038 215 C: FINANCIAL AND OPERATING LIABILITIES 45,670,951 40,320,227 113 A) Long-term financial and operating liabilities 11,745,884 8,107,550 145 B) Short-term financial and operating liabilities 33,925,067 32,212,677 105 D: ACCRUED COSTS AND DEFERRED REVENUES 405,228 462,588 88 LIABILITIES TOTAL 123,432,984 99,419,558 124

137 26.3. Audited Consolidated Profit and Loss Account for the period January - December 2004

SIT in thousands Jan - Dec 2004 Jan - Dec 2003 Index 2004/2003 01. Net sales revenues 56,385,784 54,079,587 104 02. Change in the value of inventories of products and work in process 188,980 -5,335 - 03. Capitalised own products and services 113,555 85,211 133 04. Other operating revenues (with operating revenues from revaluation adjustment) 945,267 920,610 103 05. Costs of goods, material and services 39,274,773 40,560,634 97 06. Labour costs 12,329,755 10,530,245 117 07. Amortisation and depreciation expense 4,364,877 4,818,132 91 08. Other operating expenses 673,500 936,495 72 OPERATING PROFIT OR LOSS (1+2+3+4-5-6-7-8) 990,681 -1,765,433 - 09. Financial revenues from shares 6,337,773 4,196,830 151 10. Financial revenues from long-term receivables 619,417 97,644 634 11. Financial revenues from short-term receivables 585,742 970,350 60 12. Financial expenses from long- and short-term investments write-offs 912,017 601,198 152 13. Interest expenses and financial expenses from other liabilities 2,145,437 2,592,197 83 14. Tax on profit or loss from ordinary activities 0 0 - 15. NET PROFIT OR LOSS FROM ORDINARY ACTIVITIES (1+-2+3+4-5-6-7-8+9+10+11-12-13-14) 5,476,159 305,995 1,790 16. Extraordinary revenues 392,380 1,601,041 25 17. Extraordinary expenses 56,969 33,945 168 18. PROFIT OR LOSS FROM EXTRAORDINARY ACTIVITIES ( 16 - 17 ) 335,411 1,567,096 21 19. Tax on profit or loss from extraordinary activities 865,737 370,522 234 20. Other taxes not shown under the above items 0 0 - 21. NET PROFIT OR LOSS FOR THE FINANCIAL YEAR (15+16-17-19-20) 4,945,833 1,502,569 329 22. Profit/loss of minority owners 40,426 -111,693 - 23. NET PROFIT OR LOSS FOR THE FINANCIAL YEAR BELONGING TO SAVA D.D. 4,905,407 1,614,263 304

138 26.4. Audited Consolidated Cash Flow Statement for the period from 1 January to 31 December 2004

SIT in thousands Jan - Dec 2004 Jan - Dec 2004 Jan - Dec 2003 Jan - Dec 2003 Inflow Outflow Inflow Outflow A. CASH FLOWS FROM OPERATING ACTIVITIES a) Inflows from operating activities 59,049,192 56,562,269 Operating revenues 58,132,800 55,546,978 Extraordinary revenues arising from operating activities 150,277 198,085 Opening minus closing operating receivables 2,308,023 759,686 Opening minus closing deferred costs and accrued revenues -1,541,908 57,520 b) Outflows from operating activities 52,277,813 54,181,212 Operating expenses exclusive of depreciation expenses and long-term provisions 52,442,021 52,992,596 Extraordinary expenses arising from operating activities 56,969 33,945 Income tax and other taxes not included in operating expenses 865,737 370,522 Closing minus opening inventories -1,299,803 117,394 Opening minus closing operating liabilities 155,529 676,302 Opening minus closing accrued costs and deferred revenues 57,360 -9,548 c) Net cash from operating activities (a minus b), or 6,771,380 2,381,057 Net cash from operating activities (b minus a) 0 0 B. CASH FLOWS FROM INVESTING ACTIVITIES a) Inflows from investing activities 21,348,982 12,819,100 Financial revenues from investing activities 6,894,332 4,334,007 Extraordinary revenues from investing activities 102,011 1,402,956 Offset decrease in intangible fixed assets 349,372 0 Offset decrease in tangible fixed assets 0 0 Offset decrease in long-term investments 0 7,082,137 Offset decrease in short-term investments 14,003,267 0 b) Outflows from investing activities 41,745,550 17,248,787 Financial expenses from investing activities 898,763 119,390 Extraordinary expenses from investing activities 0 0 Offset increase in intangible fixed assets 0 48,484 Offset increase in tangible fixed assets 24,875,862 7,347,345 Offset increase in long-term investments 15,970,925 0 Offset increase in short-term investments 0 9,733,569 c) Net cash used in investing activities (a minus b), or 0 0 Net cash used in investing activities (b minus a) 20,396,568 4,429,687 C. CASH FLOWS FROM FINANCING ACTIVITIES a) Inflows from financing activities 15,473,545 5,248,167 Financial revenues from financing activities 149,386 463,913 Extraordinary revenues from financing activities 140,092 0 Increase in capital 6,066,416 28,677 Offset increase in long-term provisions 3,621,825 0 Offset increase in long-term financial liabilities 3,649,884 490,001 Offset increase in short-term financial liabilities 1,845,942 4,265,576

139 SIT in thousands Jan - Dec 2004 Jan - Dec 2004 Jan - Dec 2003 Jan - Dec 2003 Inflow Outflow Inflow Outflow b) Outflows from financing activities 1,895,582 3,268,424 Financial expenses from financing activities 1,906,010 2,005,818 Extraordinary expenses from financing activities 0 0 Decrease in capital 0 0 Offset decrease in long-term provisions 0 1,270,714 Offset decrease in long-term financial liabilities 0 0 Offset decrease in short-term financial liabilities 0 0 Decrease in dividends payable -10,428 -8,108 c) Net cash used in financing operations (a minus b), or 13,577,963 1,979,743 Net cash used in financing operations (b minus a) 0 0 D. CASH AND CASH EQUIVALENTS AT END OF PERIOD 529,645 576,871 Net increase in cash and cash equivalents (sum net cash used Ac, Bc and Cc) -47,226 -68,887 Cash and cash equivalents at beginning of period 576,871 645,759

140

0 0 0 0 0 0 total Capital SIT in thousands -1,160,348

owners minority Capital of

0 0 0 8,008,000 0 0 0 0 0 0 3,889,452 0 0 0 -818,578 0 -1,978,926 -818,578 -818,578 0 40,426 4,945,833 0 0 0 0 0 0 0 2,056,705 70,212,406 equity revaluation adjustments Consolidated

0 0 0 0 0 37,751 0 37,343 0 0 0 0 0 0 0 0 -37,751 2,834,857 55,310,705 equity Equity Specific revaluation revaluation adjustments adjustments

0 0 0 3,889,452 0 0 0 0 0 0 0 0 0 0 0 3,889,452 37,751 40,426 16,880,628 VI equity General revaluation adjustments

V 0 0 0 0 0 0 0 0 0 year year for thefor Net profit Net profit or loss for

the financial financial year

0 0 4,905,407 0 0 -1,538,284 0 0 0 0 0 0 4,905,407 IV loss previous

profit from profit or Retained net Retained net Retained from

periods periods previous

0 -1,160,348 0 0 0 0 0 0 796,016 -1,160,3480 -796,016 0 0 0 0 Other reserves

0 0 0 0 0 1,538,284 0 796,016 -2,334,300 1,538,284 0 0 0 0 0 0 0 0 2,925,798 4,853,963 796,016 12,773,885 0 0 4,464,082 4,489,631 3,367,122 12,773,885 3,889,452 reserves

Statutory

III

0 0 0 0 0 0 0 0 0 0 0 0 shares for own for Reserves

Revenue reserves Revenue -408

Legal reserves

0

II III/1 III/2 III/3 III/4 IV/1 V/1 VI/1 VI/2 II 0 0 0 0 0 0 0 0 0 0 0 0 -408 0 0 0 0 0 0 0 0 0 0 0 Capital Capital reserves reserves

I 0 0 0 0 0 0 0 0

I/1 0 0 0

Share capital capital

Called-up 2,860,000 5,148,000 0 2,860,000 5,148,000 0 17,209,870 17,209,870 12,178,885 1,720,987 54,195 20,069,870 20,069,870 17,326,885 1,720,987 53,787

Audited Consolidatedin Equity for Statement of Changes the period

ther transfers from equity from transfers ther TRANSFER TO EQUITYTRANSFER TO STATE AS AT 31/12/2003 AS AT STATE Entry profit of net or financial the loss for year Entry equity of general adjustments revaluation Entry of specific equity adjustments revaluation in capital increases Other TRANSFER WITHIN EQUITY profitAllocation of net forManagement the of financial Board the to according year and Supervisory resolution Board profitAllocation of net to additional resolution the to according reserves Meeting Shareholders’ the by adopted shares own for Dissolution of reserves capital elements other and allocation to capital allocations within elements Other EQUITYTRANSFER FROM O Dividends and bonuses paid 31/12/2004 AS AT STATE

.5. . . CHANGES IN EQUITY A. B. - Entry of called - capital up share - - - - C. - - - - D - - E 26 December 2004 December 2003 to 31 from 31

141

0 0 0 0 0 0 0 0 total Capital SIT in thousands

owners minority Capital of

0 0 -969,812 0 0 0 0 0 0 -969,812 0 0 0 0 0 0 0 0 0 -111,693 1,502,570 0 0 0 2,081,484 53,779,459 equity revaluation adjustments Consolidated

0 0 -37,751 865,066 998,489 0 0 0 0 0 0 0 0 -37,751 753,373 2,501,059 0 0 0 0 -37,751 2,834,857 55,310,705 equity Equity Specific revaluation revaluation adjustments adjustments

0 0 0 0 0 0 0 0 0 0 0 0 VI equity General revaluation adjustments

V 0 0 0 0 0 0 0 0 year year for thefor Net profit Net profit or loss for

the financial financial year

0 0 0 1.614,263 0 0 0 0 -818,246 IV loss previous

profit from profit or Retained net Retained net Retained from

periods periods previous

0 171,174 0 0 0 171,174 1,614,263 0 0 0 0 Other reserves

169,556 605,109 -774,665

0 -169,556 -800,256 0 0 0 0 0 0 -169,556 -800,256 0 987,802 605,109 -1,592,911 0 0 0 0 2,107,552 4,877,936 774,665 12,773,885 0 2,925,798 4,853,963 796,016 12,773,885 0 818,246 reserves

Statutory II

0 0 0 0 0 0 0 0 0 0 0 0 shares for own for Reserves

Revenue reserves Revenue Legal reserves

II III/1 III/2 III/3 III/4 IV/1 V/1 VI/1 VI/2 II 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Capital Capital reserves reserves

I 0 0 0 0 0 0 0 0 0 I/1

0 Share capital capital 0 Called-up 0

17,209,870 12,178,885 1,720,987 54,195 17,209,870 12,178,885 1,720,987 54,195

ther transfers from equity from transfers ther Entry profit of net or financial the loss for year Entry equity of general adjustments revaluation Entry of specific equity adjustments revaluation increases Other in capital TRANSFER WITHIN EQUITY profitAllocation of net forManagement the of financial Board the to according year and Supervisory resolution Board profitAllocation of net to additional resolution the to according reserves Meeting Shareholders’ the by adopted Dissolution of reserves and shares own for capital elements other allocation to capital allocations within elements Other O Dividends paid 31/12/2003 AS AT STATE TRANSFER TO EQUITYTRANSFER TO TRANSFER FROM EQUITYTRANSFER FROM STATE AS AT 31/12/2002 AS AT STATE . . CHANGES IN EQUITY A. B. - - - - C. - - - - D - - E Audited Consolidated Statement of Changes in Equity for the period from 31 December 2002 to 31 December 2003 31 December 2002 to the 31 from in Equity for period of Changes Statement Consolidated Audited

142 26.6. Calculation of accumulated profit or loss

SIT in thousands ACCUMULATED PROFIT 31/12/2004 31/12/2003 21. Net profit or loss for the financial year belonging to Sava d.d. 4,905,407 1,614,263 22. Retained profit (loss) 4,489,631 4,853,963 23. Decrease (reversal) of capital reserves 0 24. Decrease (reversal) of revenue reserves 0 25. Increase (additional allocation) for revenue reserves -1,538,285 -818,246 26. ACCUMULATED PROFIT (ACCUMULATED LOSS) (21+22+23+24-25) 7,856,753 5,649,980

26.7. Important notes to the Consolidated Financial Statements 26.7.1. Disclosures in connection with the Consolidated Balance Sheet

Intangible fixed assets Intangible fixed assets totalling 1,470,529,000 tolars are by 28 per cent lower than last year. In the assets structure they have a 1 per cent share.

Survey of intangible fixed assets SIT in thousands Index 31/12/2004 31/12/2003 2004/2003 I. INTANGIBLE FIXED ASSETS 1,470,529 2,040,344 72 1. Long-term deferred operating costs 761,909 810,030 94 2. Long-term deferred development costs 4,986 292,107 2 3. Long-term industrial property rights 664,608 274,316 242 4. Goodwill 0 640,275 0 5. Advances for intangible fixed assets 39,026 23,616 165

At 142 per cent long-term industrial property rights show the greatest increase, mostly due to the company Grand Hotel Toplice d.o.o, while long-term deferred development costs show the greatest decrease, mainly due to the elimination of the company Color d.d. from the Sava Group. Goodwill that in 2004 was formed in connection with the company MG Market d.o.o. was in 2004 entirely covered from the negative goodwill of the company Sava Trade d.d.

Structure of intangible fixed assets according to division: SIT in thousands INTANGIBLE FIXED ASSETS 2004 Structure 2004 2003 Structure 2003 Sava d.d. - Holding 97,412 6.6% 122,283 6.0% Rubber Manufacturing division and Foreign Trade network 4,193 0.3% 5,664 0.3% Chemicals division 16,043 1.1% 326,396 16.0% Trade division 780,117 53.1% 1,564,413 76.7% Tourism division 505,265 34.4% 21,369 1.1% Real Estate division 1,715 0.1% 219 0.0% Other 65,784 4.5% 0 0.0% TOTAL 1,470.529 100.0% 2,040,344 100.0%

143 The Trade and Tourism divisions have a major part in the intangible fixed assets structure. In Trade intangible fixed assets include long-term deferred costs of the company MG Market d.o.o. in connection with the opening of new OBI stores. In Tourism the largest share is represented by investments in fixed assets — Vila Bled, within the company Grand Hotel Toplice d.o.o. In 2004 the depreciation of intangible fixed assets in the amount of 108,268,000 tolars was charged.

Survey of changes in intangible fixed assets SIT in thousands PURCHASING VALUE Long-term Long-term Long-term Goodwill Advances Total deferred deferred deferred for intangible operating costs development industrial fixed assets costs property rights State as at 01/01/2004 1,134,978 18,691 522,938 640,275 42,235 2,359,117 Purchase, capitalisation 42,110 2,782 475,579 0 8,927 529,398 Alienation, write-offs -46,036 0 -78 0 0 -46,114 Revaluation adjustments 57 0 0 -640,275 0 -640,218 State as at 31/12/2004 1,131,109 21,473 998,439 0 51,162 2,202,184 VALUE ADJUSTMENT State as at 01/01/2004 264,208 14,954 232,159 0 7,332 518,653 Purchasing 93,390 0 4,114 0 4,804 102,308 Alienation, write-offs -19,552 0 -78 0 0 -19,630 Revaluation adjustments 0 0 22,056 0 0 22,056 Depreciation 31,155 1,533 75,581 0 0 108,268 State as at 31/12/2004 369,200 16,487 333,832 0 12,136 731,655 NET BOOK VALUE State as at 01/01/2004 870,771 3,737 290,779 640,275 34,903 1,840,465 State as at 31/12/2004 761,909 4,986 664,608 0 39,026 1,470,529 Note: The opening balance in the survey differs by 199,879,000 tolars with regard to the Balance Sheet as at 31 December 2003. The difference is due to a change of companies included in the consolidation

Tangible fixed assets Tangible fixed assets totalling 58,968,946,000 tolars are 56 per cent higher than last year. In the assets structure they have a 48 per cent share.

Survey of tangible fixed assets SIT in thousands 31/12/2004 31/12/2003 Index 2004/2003 II. TANGIBLE FIXED ASSETS 58,968,946 37,768,396 156 1. Land and buildings 47,095,338 29,022,380 162 a) Land 8,895,584 7,278,113 122 b) Buildings 38,199,754 21,744,267 176 2. Plant and machinery 5,804,919 5,758,916 101 3. Other equipment 3,620,409 2,079,333 174 4. Tangible fixed assets under construction 2,448,280 907,767 270 a) Advances for tangible fixed assets 23,224 42,063 55 b) Tangible fixed assets under construction and manufacture 2,425,056 865,704 280

144 The increase in tangible fixed assets with regard to last year is mainly due to including the companies that operate under the Pannonian Spas brand in the Sava Group. The Sava Group allocated to investments in tangible fixed assets 8,890 million tolars, of which the Tourism division realised 67 per cent, the financial holding Sava d.d. 23 per cent and other divisions 10 per cent. In 2004 the depreciation of fixed assets was charged in the Sava Group in the amount of 2,800,646,000 tolars.

Structure of tangible fixed assets according to division SIT in thousands TANGIBLE FIXED ASSETS 2004 Structure 2004 2003 Structure 2003 Sava d.d. Holding 16,087,314 27.3% 17,740,548 47.0% Rubber Manufacturing division and Foreign Trade network 2,654,372 4.5% 307,692 0.8% Chemicals division 344,529 0.6% 4,622,582 12.2% Trade division 5,457,321 9.3% 5,816,444 15.4% Tourism division 31,992,416 54.3% 6,811,286 18.0% Real Estate division 2,432,975 4.1% 2,469,844 6.5% Other 19 0.0% 0 0.0% TOTAL 58,968,946 100.0% 37,768,396 100.0%

In the tangible fixed assets structure of the Sava Group the Tourism division has a 54.3 per cent share, the joint stock company a 27.3 per cent share and other divisions an 18.4 per cent share.

Survey of changes in tangible fixed assets in 2004 SIT in thousands PURCHASING VALUE Land Buildings Plant and Other Advances Tangible fixed Total machinery equipment for tangible assets under fixed assets construction and manufacture State as at 01/01/2004 9,369,961 64,992,838 19,321,711 10,843,455 41,885 1,055,128 105,624,978 Purchase, capitalisation 263,127 4,290,889 3,651,414 911,818 265,140 3,212,978 12,595,366 Alienation, write-offs -482,508 -2,995,484 -9,180,114 -2,092,100 -283,801 -1,843,050 -16,877,057 Revaluation adjustments -119,554 -538,415 -16,524 -35,358 0 0 -709,851 State as at 31/12/2004 9,031,026 65,749,828 13,776,487 9,627,815 23,224 2,425,056 100,633,436 VALUE ADJUSTMENT State as at 01/01/2004 0 28,467,954 14,112,799 7,090,797 0 0 49,671,550 Purchasing 0 -123,520 0 140,128 0 0 16,608 Alienation, write-offs 0 -1,870,768 -7,096,258 -1,876,321 0 0 -10,843,347 Revaluation adjustments 135,442 -118,307 -6,070 7,967 0 0 19,032 Depreciation 0 1,194,715 961,097 644,834 0 0 2,800,646 State as at 31/12/2004 135,442 27,550,074 7,971,568 6,007,406 0 0 41,664,490 NET BOOK VALUE State as at 01/01/2004 9,369,961 36,524,884 5,208,912 3,752,658 41,885 1,055,128 55,953,428 State as at 31/12/2004 8,895,584 38,199,754 5,804,919 3,620,409 23,224 2,425,056 58,968,946

Note: The opening balance in the survey differs by 18,185,032,000 tolars with regard to the Balance Sheet as at 31 December 2003. The difference is due to a change of companies included in the consolidation.

145 In the companies of the Sava Group impairments in tangible fixed asssets were carried out in the amount of 690,323,000 tolars: 501,633,000 tolars in Sava d.d. (land and real estate), 135,442,000 tolars in Golf and Camp Bled d.d. (land) and 53,248,000 tolars in Sava Trade d.d. The mentioned impairments were carried out on the basis of evaluation reports prepared by an independent authorised real estate appraiser, who is registered at the Slovene Auditing Institute. A part of the equipment in the company MG Market d.o.o. in the amount of 200,825,000 tolars is given in pledges at the insurance company.

Long-term financial investments Long-term investments totalling 22,324,507,000 tolars are considerably higher than last year, mainly on account of transfer of the stake in Gorenjska Bank d.d. from short-term under long-term financial investments in the affiliated companies. In the structure of assets of the Sava Group long-term financial investments have an 18 per cent share.

Survey of long-term financial investments SIT in thousands 31/12/2004 31/12/2003 Index 2004/2003 III. LONG-TERM FINANCIAL INVESTMENTS 2,324,507 2,464,130 906 1. Shares in companies in the Group 0 0 - 2. Long-term loan receivables due from companies in the Group 0 0 - 3. Shares in associates 19,652,824 7,607 - 4. Long-term loan receivables due from associates 0 572 - 5. Other long-term shares 2,439,883 2,177,498 112 6. Other long-term loan receivables 177,649 224,258 79 7. Own shares 54,151 54,195 100

Structure of long-term financial investments according to division SIT in thousands LONG-TERM FINANCIAL INVESTMENTS 2004 Structure 2004 2003 Structure 2003 Sava d.d. Holding 21,633,138 96.9% 1,284,313 52.1% Rubber Manufacturing division and Foreign Trade network 7,602 0.0% 2,773 0.1% Chemicals division 20,245 0.1% 282,187 11.5% Trade division 527,462 2.4% 838,515 34.0% Tourism division 124,088 0.6% 48,451 2.0% Real Estate division 11,972 0.1% 7,891 0.3% Other 0 0.0% 0 0.0% TOTAL 22,324,507 100.0% 2,464,130 100.0%

96.9 per cent of long-term financial investments were realised in Sava d.d. and are explained in the financial statements of Sava d.d. in detail.

146 Survey of changes in long-term financial investments SIT in thousands Shares and Long-term Shares and Other Other Own Total stakes of financial stakes and long-term long-term shares companies receivables long-term shares financial in the Group due from receivables receivables companies in due from the Group associates GROSS VALUE State as at 01/01/2004 0 0 13,081 2,185,311 224,258 54,195 2,476,845 Increase 0 0 320 1,011,570 9,317 364 1,021,571 Decrease 0 0 0 419,631 5,526 408 425,565 Transfers to other items 0 0 19,644,325 -195,560 -51,928 0 19,396,837 Revaluation adjustments 0 0 0 -3,104 1,651 0 -1,453 State as at 31/12/2004 0 0 19,657,726 2,578,586 177,772 54,151 22,468,235 VALUE ADJUSTMENT State as at 01/01/2004 0 0 4,902 194,908 0 0 199,810 Increase 0 0 0 7,044 123 0 7,167 Decrease 0 0 0 163 0 0 163 Transfers 0 0 0 -63,086 0 0 -63,086 State as at 31/12/2004 0 0 4,902 138,703 123 0 143,728 NET VALUE State as at 01/01/2004 0 0 8,179 1,990,403 224,258 54,195 2,277,035 State as at 31/12/2004 0 0 19,652,824 2,439,883 177,649 54,151 22,324,507

Note: The opening balance in the survey differs by 187,095,000 tolars with regard to the Balance Sheet as at 31 December 2003. The difference is due to a change of companies included in the consolidation.

Inventories Inventories in the amount of 10,614,956,000 tolars are 11 per cent lower than on 31 December 2003; their share in the assets structure is 9 per cent.

Survey of inventories SIT in thousands 31/12/2004 31/12/2003 Index 2004/2003 I. INVENTORIES 10,614,956 11,914,759 89 1. Materials 1,054,923 1,865,004 57 2. Work in process 3,998,201 2,662,353 150 3. Products and merchandise 5,505,015 7,232,284 76 4. Advances for inventories 56,817 155,118 37

Materials in the inventories structure have a 10 per cent share, work in process a 38 per cent share and products and merchandise a 52 per cent share.

147 Structure of inventories by division: SIT in thousands INVENTORIES 2004 Structure 2004 2003 Structure 2003 Sava d.d. - Holding 0 0% 201 0.0% Rubber Manufacturing division and Foreign Trade network 2,296,001 21.6% 2,116,381 17.8% Chemicals division 268,686 2.5% 2,320,722 19.5% Trade division 3,828,491 36.1% 3,786,609 31.8% Tourism division 180,679 1.7% 80,922 0.7% Real Estate division 4,031,211 38.0% 3,609,924 30.3% Other 9,888 0.1% 0 0.0% TOTAL 10,614,956 100.0% 11,914,759 100.0%

In 2004 expenses from revaluation of all types of inventories in the amount of 144,194,000 tolars were formed: 60 per cent in Trade, 20 per cent in Real Estate, the rest in other divisions. The net effect of all inventories that were performed resulted in a deficit totalling 123,608,000 tolars, which was entirely realised in the Trade division. None of the inventories in the Sava Group is encumbered.

Long-term operating receivables Long-term operating receivables totalling 327,230,000 tolars decreased by 39 per cent when compared to last year. Sava d.d. has an 87.8 per cent share in long-term operating receivables, which mainly refer to long-term loans to employees for purchase of flats. The mentioned receivables are insured with a creditor’s mortgage on flats. None of the long-term operating receivable in the Sava Group have matured as yet.

Survey of long-term operating receivables SIT in thousands Index 31/12/2004 31/12/2003 2004/2003 A. LONG-TERM OPERATING RECEIVABLES 327,230 538,922 61 1. Long-term trade receivables 30,821 130,574 24 2. Long-term receivables due from companies in the Group 0 0 - 3. Long-term receivables due from associates 0 0 - 4. Long-term receivables due from other entities 296,409 408,348 73 5. Long-term called-up capital unpaid 0 0 -

Survey of long-term operating receivables according to division SIT in thousands LONG-TERM OPERATING RECEIVABLES 2004 Structure 2004 2003 Structure 2003 Sava d.d. - Holding 287,467 87.8% 352,264 65.4% Rubber Manufacturing division and Foreign Trade network 1,314 0.4% 47,906 8.9% Chemicals division 0 0.0% 42,694 7.9% Trade division 6,672 2.0% 11,447 2.1% Tourism division 8,062 2.5% 9,922 1.8% Real Estate division 23,715 7.2% 74,689 13.9% Other 0 0.0% 0 0.0% TOTAL 327,230 100.0% 538,922 100.0%

148 Short-term operating receivables Short-term operating receivables totalling 9,092,686,000 tolars are 21 per cent lower than last year; their share in the assets structure is 7 per cent.

Survey of short-term operating receivables SIT in thousands Index 31/12/2004 31/12/2003 2004/2003 B. SHORT-TERM OPERATING RECEIVABLES 9,092,686 11,550,291 79 1. Short-term trade receivables 7,217,002 9,391,111 77 2. Short-term receivables due from companies in the Group 0 0 - 3. Short-term receivables due from associates 0 113 - 4. Short-term receivables due from other entities 1,846,603 2,129,986 87 5. Short-term called-up capital unpaid 29,081 29,081 100

Short-term trade receivables in the Sava Group are 23 per cent lower, which is mainly due to a change in the structure of the Group. Savatech d.o.o., Sava-Schäfer d.o.o., Sava Trade d.d. and Teol d.d. have their short-term trade receivables insured with the Slovene Export Corporation.

Survey of short-term operating receivables according to division: SIT in thousands SHORT-TERM OPERATING RECEIVABLES 2004 Structure 2004 2003 Structure 2003 Sava d.d. - Holding 828,124 9.1% 781,856 6.8% Rubber Manufacturing division and Foreign Trade network 2,954,839 32.5% 3,228,460 28.0% Chemicals division 295,019 3.2% 2,851,303 24.7% Trade division 3,507,319 38.6% 3,487,408 30.2% Tourism division 915,224 10.1% 259,820 2.2% Real Estate division 582,149 6.4% 941,444 8.2% Other 10,012 0.1% 0 0.0% TOTAL 9,092,686 100.0% 11,550,291 100.0%

Short-term financial investments Short-term financial investments totalling 18,441,351,000 tolars are 43 per cent lower than last year, their share in the assets structure is 15 per cent. In 2003 shares in associates included the investment in Gorenjska Bank d.d., which in 2004 was transferred under long-term financial investments, and the investment in Sava Tires Joint Venture Holding d.o.o., which was sold in 2004.

Survey of short-term financial investments SIT in thousands Index 31/12/2004 31/12/2003 2004/2003 III. SHORT-TERM FINANCIAL INVESTMENTS 18,441,351 32,444,618 57 1. Shares in companies in the Group 0 0 - 2. Shares in associates 172,724 19,984,366 - 3. Own shares 0 0 - 4. Other short-term investments 18,268,627 12,460,252 147

149 Survey of short-term financial investments according to division SIT in thousands SHORT-TERM FINANCIAL INVESTMENTS 2004 Structure 2004 2003 Structure 2003 Sava d.d. - Holding 17,165,338 93.1% 31,466,335 97.0% Rubber Manufacturing division and Foreign Trade network 175,328 1.0% 49,941 0.2% Chemicals division 125 0.0% 24,387 0.1% Trade division 641,543 3.5% 492,056 1.5% Tourism division 85,945 0.5% 54,393 0.2% Real Estate division 373,072 2.0% 357,506 1.1% Other 0 0.0% 0 0.0% TOTAL 18,441,351 100.0% 32,444,618 100.0%

The joint stock company Sava has a 93.1 per cent share of short-term financial investments, which are described in detail in the financial report of the Annual Report of Sava d.d. Short-term financial investment in the amount of 636,648,000 tolars in the Trade division refers to a loan to the company Chemo Invest d.o.o., the loan being secured with bills of exchange.

Deferred costs and accrued revenues Deferred costs and accrued revenues in the amount of 1,663,134,000 tolalrs are considerably higher than last year. The Real Estate division has a 91 per cent share in the structure of deferrals and accruals and represent revenues not charged to customers and included in the Profit and Loss Account based on the level of completeness of a particular project.

The capital of the Sava Group The capital of the Sava Group totals 70,212,406,000 tolars and is 27 per cent higher than last year. Its share in the liabilities structure is 57 per cent.

Survey of individual capital items SIT in thousands Index 31/12/2004 31/12/2003 2004/2003 A: CAPITAL 70,212,406 55,310,705 127 I. Called-up capital 20,069,870 17,209,870 117 a) Share capital 20,069,870 17,209,870 117 b) Uncalled capital 0 0 - II. Capital reserves 17,326,885 12,178,885 142 III. Revenues reserves 6,238,856 4,700,980 133 1. Legal reserves 1,720,987 1,720,987 100 2. Reserves for own shares 53,787 54,195 99 3. Statutory reserves 0 0 - 4. Other reserves 4,464,082 2,925,798 153 IV. Retained net profit or loss from previous periods 4,489,631 4,853,963 92 V. Net profit or loss for the financial year 3,367,122 796,016 423 VI. Equity revaluation adjustments 16,663,337 12,773,885 130 1. General equity revaluation adjustments 12,773,885 12,773,885 100 a) Revaluation adjustments of share capital 12,773,885 12,773,885 100 b) Revaluation adjustments of paid-in capital surplus 0 0 - c) Revaluation adjustments of reserves 0 0 - d) Revaluation adjustments of retained net profit/loss from previous periods 0 0 -

150 SIT in thousands Index 31/12/2004 31/12/2003 2004/2003 2. Specific equity revaluation adjustments 3,889,452 0 - a) Revaluation adjustments for tangible fixed assets 0 0 - b) Revaluation adjustments of long-term financial investments 3,889,452 0 - c) Revaluation adjustments for short-term financial investments 0 0 - d) Revaluation adjustments for long-term financial liabilities 0 0 - e) Revaluation adjustments for short-term financial liabilities 0 0 - VII. Consolidated equity adjustments 0 -37,751 - VIII. Capital of minority owners 2,056,705 2,834,857 73

In 2004 the following changes that had an affect on the capital of the Sava Group were made: - An increase in the capital of Sava d.d. was produced totalling 8,008,000,000 tolars. Share capital increased by 2,860,000,000, and capital reserves by 5,148,000,000 tolars. - Net profit of 4,905,407,000 tolars that belongs to Sava d.d. was generated. - According to the resolution of the Shareholders’ Meeting and the approval by the Supervisory Board 50 per cent of net profit from ordinary activities of Sava d.d. in the amount of 1,538,284,000 tolars was allocated to other reserves. - According to the resolution of the Shareholders’ Meeting 1,160,348,000 tolars were earmarked for dividends and bonuses. - The capital of minority owners decreased by 778,152,000 tolars, which is mainly due to the purchase of stakes and shares in companies Teol d.d, Sava Trade d.d., Golf and Camp d.d. and Grand Hotel Toplice d.o.o., further to the purchase of the company Terme 3000 d.d. and sale of the company Color d.d. A profit of the capital of minority owners in the amount of 40,426,000 tolars was generated too.

Long-term provisions Long-term provisions totalled 7,144,399,000 tolars and were 115 per cent higher than last year. Their share in the liabilities structure is 6 per cent.

Survey of long-term provisions SIT in thousands Index 31/12/2004 31/12/2003 2004/2003 B: PROVISIONS 7,144,399 3,326,038 215 1. Provisions for pensions and similar 16,433 14,438 114 2. Provisions for taxes 17,763 7,574 235 3. Other provisions 1,083,607 745,049 145 4. Provisions for negative goodwill 6,026,596 2,558,977 236

Survey of changes in long-term provisions SIT in thousands State as at 01/01/2004 Exploitation Formation State as at 31/12/2004 Provisions for pensions and similar liabilities 14,673 0 1,760 16,433 Provisions for tax liabilities 7,603 0 10,160 17,763 Other provisions 770,272 127,895 441,230 1,083,607 Provisions for negative goodwill 2,558,977 241,182 3,708,801 6,026,596 TOTAL 3,351,525 369,077 4,161,951 7,144,399

Note: The opening balance in the survey differs by 25,487,000 tolars with regard to the Balance Sheet as at 31 December 2003. The difference is due to a change of companies included in the consolidation.

151 Drawing of other provisions in the amount of 127,895,000 tolars was primarily intended for covering planned costs for the promotion of the new wellness and congress centre in the company Golf in Park d.o.o. and the depreciation expense in Sava Medical and Services d.o.o. in compliance with the Law on Training and Employing Disabled Persons from ceded contributions on salaries. The formation of other provisions in the amount of 441,230,000 tolars was influenced by the following events: - received non-returnable funds by the Ministry of the Economy and other government institutions in the company Terme Lendava d.d. in the amount of 232,100,000 tolars; - forming provisions in the company Golf in Park d.o.o. in the amount of 30,000,000 tolars for the promotion of a new congress centre in the Park hotel; - forming provisions in the disablement company Sava Medical and Services d.o.o. in the amount of 73,472,000 tolars from ceded contributions in 2004; - forming provisions for potential liabilities from as yet unresolved lawsuits in the company Sava Trade d.o.o. in the amount of 85,804,000 tolars. The formation of provisions for negative goodwill in the amount of 3,708,801,000 tolars results from the purchase of Terme 3000 d.d. Drawing provisions for negative goodwill in the amount of 241,182,000 tolars is mainly intended for covering the loss in the company Golf and Camp Bled d.d., and partly it represents the elimination of negative goodwill in 2004.

Long-term financial and operating liabilities Long-term financial liabilities in the amount of 11,745,884,000 tolars are 45 per cent higher than in the same period last year. Their share in the liabilities structure is 10 per cent. In the total amount of long-term liabilities the liabilities to banks have a 95 per cent share.

Survey of long-term financial and operating liabilities SIT in thousands Index 31/12/2004 31/12/2003 2004/2003 A) Long-term financial and operating liabilities 11,745,884 8,107,550 145 1. Long-term financial liabilities arising from bonds 0 0 - 2. Long-term financial liabilities to banks 11,189,910 7,907,641 142 3. Long-term operating liabilities arising from advances 5,997 4,000 150 4. Long-term trade payables 37,481 17,453 215 5. Long-term bills payable 0 0 - 6. Long-term financial and operating liabilities to companies in the Group 0 0 - 7. Long-term financial and operating liabilities to associates 0 0 - 8. Long-term financial and operating liabilities to other entities 512,496 178,456 287

Survey of long-term financial and operating liabilities according to division: SIT in thousands LONG-TERM FINANCIAL AND OPERATING LIABILITIES 2004 Structure 2004 2003 Structure 2003 Sava d.d. - Holding 1,625,456 13.8% 2,679,647 33.1% Rubber Manufacturing division and Foreign Trade network 220,177 1.9% 25,634 0.3% Chemicals division 12,301 0.1% 674,962 8.3% Trade division 1,691,916 14.4% 2,211,275 27.3% Tourism division 6,296,043 53.6% 201,050 2.5% Real Estate division 1,899,991 16.2% 2,314,982 28.6% Other 0 0.0% 0 0.0% TOTAL 11,745,884 100.0% 8,107,550 100.0%

152 Long-term financial liabilities to banks in the amount of 11,189,910,000 arose in the following companies of the Sava Group: - In Sava d.d. they total 1,625,456,000 tolars and are explained in the financial part of the Annual Report of the company in detail. - In Sava, IP d.o.o. they total 1,897,363,000 tolars: long-term loans obtained from banks in Slovenia and abroad and they fall due in 2011 at the latest; interest rates being from 2.9 to 3.8 per cent; the loans are insured with a guarantee of Sava d.d.; mortgage, bills of exchange and foreign currency payment guarantee. - In ZdravilišËe Radenci d.o.o. in the amount of 1,143,659,000 tolars: long-term loans obtained from two Slovene banks fall due in 2014 at the latest; interest rates from EURIBOR+0.5 to EURIBOR+2.25 per cent; loans are insured with a mortgage on real estate. - In Terme 3000 d.d. in the amount of 2,516,876,000 tolars: long-term loans obtained from Slovene banks fall due in 2017 at the latest; interest rates from EURIBOR+0.75 per cent to EURIBOR+1.2 per cent with loans calculated in euros, and TOM+0 per cent to TOM+2.5 per cent and 1 per cent to 6.4 per cent with loans nominated in tolars; loans are insured with a mortgage on real estate. - In Terme Lendava d.d. in the amount of 823,555,000 tolars: long-term loans obtained from different Slovene banks fall due in 2020 at the latest, interest rates from EURIBOR+3.02 per cent to EURIBOR 4.47 per cent for loans in euros and from TOM+0.5 per cent to TOM+4.5 per cent and from 4.5 per cent to 6.5 per cent for loans in tolars. - In Terme Ptuj d.o.o. in the amount of 714,514,000 tolars: two long-term loans obtained from one bank fall due in 2014; the interest rate being 3 or 4.45 per cent; loans are insured with a mortgage on real estate; - In Golf and Park Hotels Bled d.o.o. in the amount of 855,428,000 tolars: two long-term loans obtained from two different banks; maturity date in 2008 and 2012 respectively; interest rate EURIBOR+0.75 or EURIBOR+1.1 per cent; they are insured with two blank bills of exchange and Letter of Comfort by Sava d.d. - In MG Market d.o.o. in the amount of 1,329,908,000 tolars: loans are obtained from two banks; the last instalment falls due in 2010; interest rates between EURIBOR+1.3 per cent and EURIBOR+1.6 per cent; loans are insured with a guarantee by Sava d.d. and Sava Trade d.d. and bills of exchange.

Short-term financial and operating liabilities Short-term financial and operating liabilities totalling 33,925,067,000 tolars are 5 per cent higher than last year. Their share in the liabilities structure is 27 per cent.

Survey of short-term financial and operating liabilities SIT in thousands Index 31/12/2004 31/12.2003 2004/2003 B) Short-term financial and operating liabilities 33,925,067 32,212,677 105 1. Short-term financial liabilities arising from bonds 0 0 - 2. Short-term financial liabilities to banks 18,959,419 18,276,827 104 3. Short-term operating liabilities arising from advances 443,542 163,984 270 4. Short-term trade payables 7,578,875 7,992,852 95 5. Short-term bills payable 0 0 - 6. Short-term financial and operating liabilities to companies in the Group 0 0 - 7. Short-term financial and operating liabilities to associates 4,095,824 3,358,014 122 8. Short-term financial and operating liabilities to other entities 2,847,407 2,421,000 118

Short-term financial liabilities to banks (together with financial liabilities to Gorenjska Bank d.d. as the associated company) include 68 per cent of all short-term liabilities; 22 per cent of short-term liabilities are short-term trade payables.

153 Short-term financial and operating liabilities within the Group are as follows: SIT in thousands SHORT-TERM FINANCIAL AND OPERATING LIABILITIES 2004 Structure 2004 2003 Structure 2003 Sava d.d. - Holding 15,972,342 47.1% 15,028,938 46.7% Rubber Manufacturing division and Foreign Trade network 2,892,911 8.5% 2,452,416 7.6% Chemicals division 537,051 1.6% 4,720,409 14.7% Trade division 6,040,362 17.8% 6,969,790 21.6% Tourism division 4,480,103 13.2% 371,510 1.2% Real Estate division 3,996,534 11.8% 2,669,614 8.3% Other 5,764 0.0% 0 0.0% TOTAL 33,925,067 100.0% 32,212,677 100.0%

Short-term financial liabilities to banks amounted to 18,959,419,000 tolars and mainly arose in the following companies of the Group: - In Sava d.d. they total 11,352,805,000 tolars, which is 60 per cent of the total short-term debt to banks. The mentioned liabilities are explained in the financial report of the Sava d.d. Annual Report. - In Sava IP d.o.o. in the amount of 2,584,985,000 tolars: a short-term part of long-term loans amounts to 602,111,000 tolars, the remaining amount includes loans obtained from one of the Slovene banks; the interest rate for short-term loans is between 2.95 and 5.75 per cent p.a.; loans are insured with bills of exchange, Letter of Comfort by Sava d.d. and a guarantee by Sava d.d. - In Terme 3000 d.d. in the amount of 974,040,000 tolars: a short-term part of long-term loans totals 601,859,000 tolars, the remaining amount includes loans obtained from two Slovene banks; the interest rate is between 4.85 and 5.4 per cent p.a.; loans are insured with bills of exchange. - In ZdravilišËe Radenci d.o.o. in the amount of 640,201,000 tolars: a short-term part of long-term loans amounts to 280,201,000 tolars, the amount of 360,000,000 tolars includes two loans obtained from a bank in Slovenia; the interest rate is 4.8 or 5.0 per cent; loans are insured with a mortgage on real estate. - In MG Market d.o.o. in the amount of 1,585,206,000 tolars: a short-term part of long-term loans totals 411,649,000 tolars, the remaining amount includes loans obtained from two banks in Slovenia; the interest rate between 5 and 5.98 per cent, one loan at interest rate EURIBOR+ 1 per cent; loans are insured with bills of exchange and a guarantee by Sava d.d. - In Sava Trade d.d. in the amount of 871,299,000 tolars: loans obtained from several banks in Slovenia and one bank abroad; interest rates being between 4.5 and 5.5 per cent, and EURIBOR+0.75 to EURIBOR+1.35 per cent. None of the short-term financial liabilities of the companies in the Sava group has matured yet.

Accrued costs and deferred revenues Accrued costs and deferred revenues totalling 405,228,000 tolars are 12 per cent lower than last year. In the liabilities structure their share is not significant.

Survey of accrued costs and deferred revenues according to division: SIT in thousands ACCRUED COSTS AND DEFERRED REVENUES 2004 Structure 2004 2003 Structure 2003 Sava d.d. - Holding 24,555 6.1% 26,527 5.7% Rubber Manufacturing division and Foreign Trade network 13,642 3.4% 4,340 0.9% Chemicals division 45,930 11.3% 45,356 9.8% Trade division 4,207 1.0% 25,341 5.5% Tourism division 43,961 10.8% 8,925 1.9% Real Estate division 272,933 67.4% 352,099 76.1% Other 0 0.0% 0 0.0% TOTAL 405,228 100.0% 462,588 100.0%

154 Most of accrued costs and deferred revenues are formed in Real Estate — 67.4 per cent. Sava IP d.o.o. formed accrued costs and deferred revenues as accrued costs for provided but not yet charged services on buildings and deferred revenues, which refer to liabilities that the company will have to settle and depends on the volume of buildings sold based on the concluded agreement.

Off-balance evidence Off-balance evidence in the amount of 31,591,758,000 tolars is 36 per cent higher than last year.

Survey of off-balance evidence SIT in thousands 31/12/2004 Structure 2004 31/12/2003 Structure 2003 Excluded farmland after opening balance 42,098 0.1% 42,098 0.2% Assets eliminated acc. to order due to nationalisation 1,533,702 4.9% 413,324 1.8% Given warranties 9,742,154 30.8% 17,958,418 77.2% Other possible liabilities 5,540,895 17.5% 429,676 1.8% Mortgages on real estate 12,982,231 41.1% 4,057,618 17.4% Pledge of equipment 200,825 0.6% 200,825 0.9% Receivables due from former Yugoslavia 0 0.0% 4,579 0.0% Pledge of receivables in insurance 19,112 0.1% 48,869 0.2% Bills of exchange, payment orders for loan insurance 1,530,741 4.8% 122,140 0.5% TOTAL 31,591,758 100.0% 23,277,547 100.0%

Mortgages in a total value have a 41 per cent share, and given guarantees a 31 per cent share. Guarantees are given to business banks for loans hired by the affiliated companies in the Sava Group. Mortgages on real estate total 12,982,231,000 tolars; legal limitations are entered on the following real estates: - in Sava d.d. on the Grand Hotel Toplice building in the amount of 1,054,869,000 tolars; - in Terme 3000 d.d. on all real estates in the amount of 5,220,326,000 tolars; - in Terme Ptuj d.o.o. on all real estates in the amount of 774,580,000 tolars; - in ZdravilišËe Radenci d.o.o. on all real estates in the amount of 2,528,421,000 tolars; - in Terme Lendava d.d. on all real estates in the amount of 568,119,000 tolars; - in Golf and Camp Bled d.d. on land in the amount of 56,367,000 tolars; - in Sava Trade d.d. on two real estates under the amount of 454,807,000 tolars; - in Sava IP d.o.o. on real estates under financial lease in the amount of 1,380,420,000 tolars; - in G&P Hotels Bled d.o.o. in the amount of 944,322,000 tolars, but the mortgage is being cancelled, since the loans were repaid. 26.7.2. Disclosures relating to the Consolidated Profit and Loss Account

Net sales revenues Net sales revenues in the amount of 56,385,784,000 tolars are 4 per cent higher than last year. Exports in the domestic market have a 72 per cent share in the net sales revenues structure, while exports have a 38 per cent share.

155 Survey of net sales revenues SIT in thousands Jan - Dec 2004 Jan - Dec 2003 Index 2004/2003 01. NET SALES REVENUES 56,385,784 54,079,587 104 a) Revenues in domestic market 40,335,413 34,924,991 115 to companies in the Group 0 0 - to other affiliates 5,500 0 - to other entities 40,329,913 34,924,991 115 b) Revenues in foreign market 16,050,371 19,154,596 84 to companies in the Group 0 0 - to other affiliates 0 0 - to other entities 16,050,371 19,154,596 84

Net sales revenues within the Sava Group are as follows: SIT in thousands NET SALES REVENUES 2004 Structure 2004 2003 Structure 2003 Sava d.d. - Holding 226,302 0.4% 226,935 0.4% Rubber Manufacturing division and Foreign Trade network 16,276,045 28.9% 15,621,209 28.9% Chemicals division 1,418,161 2.5% 10,940,343 20.2% Trade division 22,662,397 40.2% 21,627,728 40.0% Tourism division 12,587,997 22.3% 3,651,345 6.8% Real Estate division 3,211,221 5.7% 2,012,027 3.7% Other 3,661 0.0% 0 0.0% TOTAL 56,385,784 100.0% 54,079,587 100.0%

Net sales revenues structure of the Sava Group according to geographic area:

SLO 60.1%

EU 28.0%

OTHER 6.3%

Former YU 5.6%

Other operating revenues including operating revenues from revaluation Other operating revenues including operating revenues from revaluation totalling 945,267,000 tolars are 3 per cent higher than last year. The highest values under this item were recorded in the following companies: - In Sava d.d. in the amount 110,874,000 tolars, which is described in detail in the financial part of the Sava d.d. Annual Report; - In Sava Trade d.d. in the amount of 105,001,000 tolars as revenues from the sale of fixed assets; - In Sava Medical and Services d.o.o. in the amount of 74,879,000 tolars as revenues from the elimination of long-term provisions;

156 - In ZdravilišËe Radenci d.o.o. in the amount of 52,852,000 tolars as grants by the state from the transfer of a geothermal well free of charge. - The consolidated financial statements include the generated profit from the sale of real estate outside the Group in the amount of 290,875,000 tolars.

Operating expenses In 2004 the Sava Group had operating revenues in the amount of 56,642,905,000 tolars, which is at last year’s level. In the cost structure the cost of goods, material and services has a 69 per cent share, labour costs a 22 per cent share, write-offs an 8 per cent share and other operating revenues a one per cent share.

Survey of operating expenses SIT in thousands Jan - Dec 2004 Jan - Dec 2003 Index 2004/2003 05. COSTS OF GOODS, MATERIALS AND SERVICES 39,274,773 40,560,634 97 a) Cost of merchandise and materials sold and cost of materials and consumables used 30,309,511 33,290,457 91 b) Cost of services 8,965,262 7,270,177 123 06. LABOUR COST 12,329,755 10,530,245 117 a) Wages and salaries 8,635,424 7,459,250 116 b) Social security cost 1,579,994 1,461,982 108 c) Other labour cost 2,114,337 1,609,013 131 07. AMORTISATION AND DEPRECIATION EXPENSES, WRITE-OFFS 4,364,877 4,818,132 91 a) Amortisation of intangible fixed assets, depreciation of tangible fixed assets, and operating expenses from revaluation of tangible and intangible fixed assets 3,895,755 3,557,268 110 b) Operating expenses from revaluation of operating current assets 469,122 1,260,865 37 08. OTHER OPERATING REVENUES 673,500 936,495 72

Distribution of costs according to functional groups within the Group is as follows: - costs of business effects sold 40,979,996,000 tolars; - selling costs 8,066,980,000 tolars; - costs of general services 7,494,329,000 tolars.

Financial revenues In 2004 the Sava Group generated financial revenues totalling 7,542,932,000 tolars, which is 43 per cent higher than last year. The share of Sava d.d. in financial revenues is 86 per cent and is explained in the financial report of Sava d.d. in detail.

157 Survey of financial revenues SIT in thousands Jan - Dec 2004 Jan - Dec 2003 Index 2004/2003 09. FINANCIAL REVENUES FROM SHARES 6,337,773 4,196,830 151 a) Financial revenues from shares in companies in the Group 0 0 - b) Financial revenues from shares in associates 1,537,276 586,302 262 c) Other financial revenues from shares (incl. financial revenues from revaluation) 4,800,497 3,610,528 133 10. FINANCIAL REVENUES FROM LONG-TERM RECEIVABLES 619,417 97,644 634 a) Financial revenues from long-term receivables due form companies in the Group 0 0 - b) Financial revenues from long-term receivables due from associates 0 0 - c) Other financial revenues from long-term receivables (incl. financial revenues from revaluation) 619,417 97,644 634 11. FINANCIAL REVENUES FROM SHORT-TERM RECEIVABLES 585,742 970,350 60 a) Interest revenues and revenues from short-term receivables due from companies in the Group 0 0 - b) Interest revenues and revenues from short-term receivables due from associates 3,920 4,766 82 c) Other interest revenues and revenues from short-term receivables (incl. financial revenues from revaluation) 581,822 965,584 60

Financial expenses Financial expenses totalling 3,057,454,000 tolars are 4 per cent lower than last year. Sava d.d. has a 60 per cent share in the financial expenses structure. A detailed explanation is in the financial part of the Annual Report for Sava d.d. Trade has a 13 per cent share, Tourism a 13 per cent share as well, Real Estate a 7 per cent share and other divisions a 7 per cent share in the financial expenses structure. The main part of financial expenses in the affiliated companies includes interests for loans obtained from banks.

Survey of financial expenses SIT in thousands Jan - Dec 2004 Jan - Dec 2003 Index 2004/2003 12. FINANCIAL EXPENSES FOR LONG- AND SHORT-TERM WRITE-OFFS 912,017 601,198 152 a) Financial expenses from revaluation of investments in companies in the Group 0 0 - b) Financial expenses from revaluation of investments in associates 0 0 - c) Other financial expenses from revaluation 912,017 601,198 152 13. INTEREST EXPENSES AND EXPENSES INCURRED IN CONNECTION WITH OTHER LIABILITIES 2,145,437 2,592,197 83 a) Interest expenses and expenses incurred in connection with other liabilities to companies in the Group 0 0 - b) Interest expenses and expenses incurred in connection with other liabilities to associates 216,363 300,709 72 c) Other interest expenses and expenses incurred in connection with other liabilities 1,929,074 2,291,488 84

Extraordinary revenues Extraordinary revenues totalling 392,380,000 tolars are 75 lower than last year. The amount of extraordinary revenues mainly includes eliminating negative goodwill in the consolidated financial statements in the amount of 241,182,000 tolars and collected written-off receivables in the amount of 71,257,000 tolars in Sava Trade d.d.

158 Extraordinary expenses

Survey of extraordinary expenses SIT in thousands Jan - Dec 2004 Jan - Dec 2003 Index 2004/2003 17. EXTRAORDINARY EXPENSES 56,969 33,945 168 a) Extraordinary expenses less expense from equity revaluation adjustments 56,969 33,945 168 b) Extraordinary expenses from equity revaluation adjustments 0 0 -

Extraordinary revenues totalling 56,969,000 tolars are mainly due to payment of damages in Sava Trade d.d.

Tax on profit In 2004 the Sava Group paid 865,737,000 tolars tax on profit, which is 134 per cent more than last year. The increase is due to a higher tax burden in the holding company.

Net profit or loss The net profit or loss for the financial year in the Sava Group totalled 4,945,833,000 tolars and is 3 times higher than last year. 72 per cent of net profit was generated by the financial business of the holding company Sava d.d., and 28 per cent was due to the successful operations of the affiliated companies in all divisions of the Group. The profit determined in the consolidation in the amount of 40,426,000 tolars belongs to minority owners, while in 2003 the loss was determined that belongs to minority owners. The net profit or loss for the financial year belonging to Sava d.d. totalled 4,905,407,000 tolars, which is 204 per cent higher than last year and 95 per cent higher than planned.

Net profit after converting capital into euros and cost of living SIT in thousands Capital % growth Calculated effect Decrease in profit CAPITAL/ calculation from euro growth 59,988,311 1.29% 773,249 4,132,158 CAPITAL/calculation from the cost of living 59,988,311 3.20% 1,919,626 2,985,781

The calculation takes into account the average capital of the Sava Group in 2004 excluding the 2004 net profit belonging to Sava d.d. and specific equity revaluation adjustments for long-term financial investments.

Return on capital of the Sava Group The return on capital of the Sava Group calculated as the ratio between the total profit for the financial year before tax and the average capital for 2004 amounts to 9.7 per cent, which is 6.2 percentage points more than last year. The return on capital of the Sava Group calculated as the ratio between the net profit for the financial year and the average capital for 2004 amounts to 8.2 per cent, which is 5.4 percentage points more than last year.

159 Survey of generated net profits in the affiliated companies in 2004 and the value of capital in the affiliated companies as at 31 December 2004 SIT in thousands 31/12/2004 Capital of company Profit/loss of company RUBBER MANUFACTURING 4,908,712 253,803 Savatech d.o.o., Kranj 4,602,332 160,810 Sava-GTI d.o.o., Kranj 80,804 31,754 Sava Rol d.o.o., Zagreb 38,512 2,906 Sava-Schäfer d.o.o., Kranj 187,064 58,333 CHEMICALS 357,120 -127,313 Teol d.d., Ljubljana 357,120 -127,313 TRADE 6,723,416 206,283 Sava Trade d.d., Ljubljana 7,906,195 402,650 - MG Market d.o.o. Ljubljana (owned by Sava Trade d.d.) -1,182,779 -196,367 FOREIGN TRADE NETWORK 218,177 68,457 Sava Trade VgmbH, Munich, Germany 37,806 19,145 Sava Trade sp. z.o.o., Warsaw, Poland 21,567 5,460 Sava Trade spol. s.o.o., Prague, Czech Republic 132,802 20,139 Savatech Trade Ltd., London, Great Britain 13,516 11,770 Sava Trade Inc., Port Orange, Florida 12,486 11,943 TOURISM 25.986,010 652,020 Golf and Camp d.d. Bled 1,381,571 -111,390 Grand Hotel Toplice Bled d.o.o., Bled 234,510 26,124 G&P Hotels Bled d.o.o., Bled 5,852,622 179,218 Terme 3000 d.d., Moravske Toplice 10,041,144 371,028 - Terme Lendava d.d. (owned by Terme 3000 d.d.) 1,059,275 25,171 - Terme Ptuj d.o.o. (owned by Terme 3000 d.d.) 1,305,284 62,433 - ZdravilišËe Radenci d.o.o., Radenci (owned by Terme 3000 d.d.) 6,111,604 99,436 REAL ESTATE 2,532,343 211,050 Sava IP d.o.o., Ljubljana 1,697,132 169,255 - IP Nova d.o.o., Ljubljana (owned by SAVA IP d.o.o., Ljubljana) 2,206 171 Sava Nova d.o.o., Zagreb 2,612 49 Sava Medical and Services d.o.o., Kranj 830,393 41,575 OTHER COMPANIES 53,901 -46,099 Gea Sol International d.o.o., Kranj 53,901 -46,099

26.7.3. Disclosures relating to the Consolidated Profit and Loss Account

The Cash Flow Statement has been drawn according to the indirect method from data in the consolidated Balance Sheet as at 31 December 2004 and the consolidated Balance Sheet on 31 December 2003, as well as from data of the consolidated Profit and Loss Account for the year 2004 and additional data required for adapting inflows and outflows and proper breakdown of individual items. In the Consolidated Cash Flow Statement the following non-cash items were excluded: - depreciation and operating expenses from revaluation of intangible fixed assets in the amount of 220,443,000 tolars; - depreciation and operating expenses from revaluation of tangible fixed assets in the amount 3,675,312,000 tolars; - operating expenses from revaluation of current assets in the amount of 361,274,000 tolars; - formed long-term provisions in the amount of 196,536,000 tolars; - formed specific equity revaluation adjustment for long-term investments in the amount of 3,889,452,000 tolars.

160 26.7.4. Other disclosures relating to the Sava Group

Data about group of persons The total gross income of members of the Boards of Management in the Sava Group amounted to 598,036,000 tolars. This sum includes gross salaries, gross bonuses, gross severance pay and other revenues (holiday allowance, other compensations, benefits, travel expenses). The companies in the Sava Group have receivables from loans totalling 4,287,000 tolars due from members of the Boards and 15,437,000 tolars liabilities to members of the Boards.

Survey of gross income, liabilities and receivables for members of the Boards in the Sava Group SIT in thousands DIVISION Gross income Receivables of company Liabilities of company Sava d.d. - Holding 211,200 368 0 Rubber Manufacturing 72,480 0 0 Chemicals 13,158 0 0 Trade 45,279 0 0 Foreign Trade network 78,020 0 0 Tourism 134,219 0 6,363 Real Estate 43,680 3,919 9,074 Other 0 0 0 TOTAL 598,036 4,287 15,437

The total gross income of employees with managerial contracts in the Sava Group amounted 1,223,144,000 tolars. This sum includes gross salaries gross bonuses, gross severance pay and other revenues (holiday allowance, other compensations, benefits, travel expenses). The companies of the Sava Group have receivables due from other employees with managerial contracts totalling 25,422,000 tolars and liabilities to other employees with managerial contracts in the amount of 29,946,000 tolars.

Survey of gross income, liabilities and receivables for other employees with managerial contracts in the Sava Group SIT in thousands DIVISION Gross income Receivables of company Liabilities of company Sava d.d. - Holding 235,607 5,882 0 Rubber Manufacturing 349,637 10,848 0 Chemicals 44,187 0 0 Trade 179,046 0 0 Foreign Trade network 12,470 0 0 Tourism 334,672 0 12,219 Real Estate 67,525 8,692 17,727 Other 0 0 0 TOTAL 1,223,144 25,422 29,946

The total gross income of the members of the Supervisory Boards in the Sava Group totalled 41,917,000 tolars. The liabilities to members of the Supervisory Board in the amount of 6,843,000 tolars are shown by Sava d.d. only.

161 Survey of gross income, liabilities and receivables for the members of the Supervisory Boards in the Sava Group SIT in thousands DIVISION Gross income Receivables of company Liabilities of company Sava d.d. - Holding 37,683 0 6,843 Rubber Manufacturing 0 0 0 Chemicals 727 0 0 Trade 645 0 0 Foreign Trade network 0 0 0 Tourism 2,862 0 0 Real Estate 0 0 0 Other 0 0 0 TOTAL 41,917 0 6,843

Exclusions in consolidation In 2004 the following items were excluded from or added to the consolidated financial statements:

SIT in thousands BALANCE SHEET TOTAL ASSETS 1. Land -199,335 2. Buildings -246,898 3. Shares in companies in the Group -32,054,772 4. Long-term financial receivables due from companies in the Group -1,252,382 5. Inventories 5,243 6. Short-term operating receivables due from companies in the Group -2,670,066 7. Short-term shares in companies in the Group -5,144,595 ASSETS TOTAL -41,562,805

LIABILITIES 8. Capital of affiliated companies -40,579,063 9. Capital of minority owners 2,056,705 10. Long-term provisions 6,026,596 11. Long-term financial and operating liabilities due from companies in the Group -1,252,382 12. Short-term financial and operating liabilities due from companies in the Group -7,814,661 LIABILITIES TOTAL -41,562,805

162 SIT in thousands PROFIT AND LOSS ACCOUNT 2004 1. Revenues in domestic market -3,690,625 2. Revenues foreign market -3,065,744 3. Change in inventories -446 4. Other operating revenues 238,631 OPERATING REVENUES TOTAL -6,518,184 5. Costs of merchandise and materials -3,372,770 6. Cost of services -3,383,599 7. Amortisation and depreciation expense, write-offs -8,508 OPERATING EXPENSES TOTAL -6,764,877 8. Financial revenues from shares -11,130 9. Financial revenues from long-term receivables -51,381 10. Financial revenues from short-term receivables -222,182 FINANCIAL REVENUES TOTAL -284,693 11. Financial expenses from long- and short-term financial investments write-offs -174,318 12. Interest expenses and expenses incurred from other liabilities -273,563 FINANCIAL EXPENSES TOTAL -447,881 13. Extraordinary revenues 241,182 EXTRAORDINARY REVENUES TOTAL 241,182 DIFFERENCE FROM THE PROFIT AND LOSS ACCOUNT 651,063

Basic business indicators SIT in thousands INDICATORS 31/12/2004 31/12/2003 1. BASIC FINANCING INDICATORS a) rate of ownership of financing 0.57 0.56 capital/liabilities b) rate of long-term nature of financing 0.72 0.67 sum of capital, long-term debts and provisions/liabilities 2. BASIC INVESTMENT INDICATORS a) basic investment rate 0.48 0.38 fixed assets (according to net book value)/assets b) rate of long-term nature of investing 0.66 0.41 sum of fixed assets, long-term financial investments and long-term operating receivables/assets 3. BASIC INDICATORS OF PARALLEL FINANCIAL STRUCTURE a) capital coverage of fixed assets coefficient 1.19 1.46 capital/fixed assets (according to net book value) b) direct coverage of short-term liabilities coefficient (fast coefficient) 0.02 0.02 solvent resources /short-term liabilities c) accelerated coverage of short-term liabilities coefficient (accelerated coefficient) 0.83 1.38 sum of solvent resources and short-term receivables/short-term liabilities d) short-term coverage of short-term liabilities coefficient (short-term coefficient) 1.18 1.75 short-term resources/short-term liabilities 4. BASIC ECONOMIC INDICATORS a) economy of operations coefficient 1.02 0.97 operating revenues/operating expenses 5. BASIC PROFITABILITY INDICATORS a) net profitability of capital coefficient 0.08 0.03 net profit in business year/average capital (without net profit for the year) b) coefficient of dividend of share capital 0.06 0.05 sum of dividends for the business year/average share capital

163 26.7.5. Changeover to International Accounting Standards

In line with Directive by the European Union and the EU Council, as well as the Law on Commercial Enterprises — H all companies whose shares are traded on one of the official markets of the EU members, and who prepare the consolidated financial statements for the business year that starts on 1 January 2005 or later, shall prepare and publish the annual consolidated financial statment on basis of International Accouting Standards. The preparations for a changeover to International Accounting standards for reporting are underway in all companies of the Sava Group as planned. Certain training was carried out as well as activities in the area of defining the differences with regard to Slovene Accounting Standards. We estimate that the analysis of the influences resulting from the changeover to International Accounting Standards on operations of all companies in the Sava Group will be finished in the first half-year 2005 and then the operational introduction of new features will be continued, particularly in the area of computer data gathering, and finalisation of standardised financial statements and notes suitable for reporting according to international Accounting Standards for all companies of the Sava Group. In 2005 the Sava Group will be entirely prepared to use International Accounting Standards, the consolidated financial statements according to International Accounting Standards will be drawn up for the business year 2005 and published in 2006. 26.7.6. Statement by the Board

The Board agrees with the consolidated financial statements of the Sava Group for the year that ended on 31 December 2004. The Board confirms that when drawing up the financial statements it consistently applied the corresponding accounting guidelines, the accounting estimates were elaborated according to the principle of prudence and cost efficiency and that the consolidated annual report gives a true and fair view of the company’s assets and results of its business operations in the year 2004. The Board is responsible for the proper managing of accounting procedures, adopting suitable measures for securing the assets and other funds, and confirms herewith that the financial statements and the notes have been produced based on the assumption that the company will proceed with its operation and in accordance with current legislation and the Slovenian accounting standards.

Vinko PerËiË Janez BohoriË Member of the Board Chairman of the Board

Emil Vizoviπek Member of the Board

164 STATEMENT ON CONFORMITY WITH THE CORPORATE GOVERNANCE CODE FOR SLOVENIA

Sava d.d. has developed a system of corporate governance that ensures transparency in managing companies and the Sava Group, achieves and exceeds the expectations of shareholders and other stakeholder groups and protects their interests. The final goal of Sava d.d. and each of its affiliated companies is sustainable development, thus bringing long-term success. The management of Sava d.d. has established and maintains a strong ethical and spiritual climate with the aim of conducting its business in accordance with the highest standards of personal and corporate behaviour. The senior executives of Sava d.d. have likewise designed an efficient system of internal supervision that maintains a suitable level of protection both with regard to honesty and the accuracy of information concerning its business. Finally, but of no less importance: by appointing the Reporting Team, the management of Sava d.d. has increased supervision over news reporting to ensure that it is on time and comprehensive while respecting the principle of equality in informing all shareholders and the development of the best practices in this field. Information on the key development achievements of the past year and the level of conformity with the best practice in the area of corporate governance are detailed in Chapter 7. Corporate Governance; the 2004 Annual Report of the Sava Group and the company Sava d.d. The policy and practice of corporate governance at Sava d.d. and its affiliated companies observes the Corporate Governance Code for Slovenia (hereinafter referred to as the Code), which applies from 18 March 2004 and was formulated in agreement with the Ljubljana Stock Exchange d.d., Ljubljana, Association of Supervisory Board Members, and the Manager’s Association with the aim of specifying more precisely the standards of corporate governance for public commercial enterprises in Slovenia. The Board of Management of the joint stock company Sava states that Sava d.d. and its affiliates observe the Code in full except in cases where it deviates from it, for which the following explanations are given: Item 2.3.2: The method of determining the level of pay, remuneration and other benefits for members of the Board of Management must first be prescribed and respect the criteria as they are presented especially: - the range of tasks of an individual member of the Board - the success of an individual member of the Board - the size of the company and its financial position - general economic circumstances in which the company operates

165 - the success of the company's business performance - meeting the strategic annual plans - awards to members of the Board in the affiliated companies On this point the Board of Management recommends that when determining the level of pay it is logical to also observe the scales for awarding members of the Board, which are endorsed and specified by professional organisations. However, we believe that Sava d.d. does observe the provisions, but the wording of the items is inaccurate as it indicates that the company must adopt special regulations in connection with the method of determining pay levels, remunerations and other benefits for members of the Board of Management. We believe that an arrangement suffices whereby individual contracts between the company and individual members of the Board of Management are made according to stated questions with criteria specified in advance. Item 2.3.10: The Board of Management must, in an internal decree of the company, prescribe the rules governing the limitations of trading with shares of the company and shares of the affiliated companies; the rules must be observed by members of the administrative bodies of the company and its affiliates as well as by employees who have access to inside information. The method of dealing with confidential information in the company is governed by the Rules on Specifying and Protecting Confidential Information. We have also produced a list of personnel who have access to inside information, which is being continually updated. The method of running this list is also defined. The company has no additional special statutes to manage rules concerning inside information as these rules are specified in current legislation. Furthermore, the company has no rules on limiting trading with the shares of the company and those of its affiliates. Item 6.1.4: The auditor must be present at the session of the company's Shareholders’ Meeting. In cases when the company has not formed a special auditors' committee, an auditor must be present at all meetings of the Supervisory Board where decisions are adopted connected with the Annual Report or the internal control system and risk management. At Sava d.d. this item is observed in full except that the auditor was not present at the Shareholders’ Meeting which was held in 2004. We shall ensure that the provisions of this Item in the Code are observed in the future. Item 6.1.5: The company must change the auditor at least once every five years. Auditing of the financial statements of Sava d.d. has been performed by KPMG, a select firm of auditors, for more than five years, but in this period the composition of the team of auditors has changed. To audit the 2004 Annual Report we obtained tenders from the largest auditing firms operating in Slovenia but a review of the tenders that arrived revealed once again that KPMG was the most favourable firm of auditors for this task. All other obligatory provisions of the Corporate Governance Code, which are published in full on the website of the Ljubljana Stock Exchange (www.ljse.si), are observed by Sava d.d. to the greatest extent. The vision and goal of Sava d.d. and its affiliated companies in the field of corporate governance is in accordance with all good practices, which is determined by the Code and the most progressive foreign practice too. The statement on observing the Corporate Governance Code on the part of Sava d.d. refers to the period from the implementation of the Corporate Governance Code to the day of publication of the Statement on Conformity with the Corporate Governance Code. In accordance with the Rules we shall regularly publish a statement on conformity with the Corporate Governance Code or its future variants in future annual reports.

Date: 31 March 2005 Board of Management of Sava d.d.

166 CONTACT PERSONS

Sava, d. d. - Holding

BOARD OF MANAGEMENT PROCURISTS

Janez BohoriË, Chairman Iva Žagar, M.A. tel: +386 4 206 52 15, fax: +386 4 206 64 46 tel: +386 4 206 63 46, fax: +386 4 206 64 46 : [email protected] : [email protected]

Emil Vizoviπek, Member Miran Hude tel: +386 4 206 52 10, fax: +386 4 206 64 46 tel: +386 4 206 59 46, fax: +386 4 206 64 06 : [email protected] : [email protected]

Vinko PerËiË, Member tel: +386 4 206 53 25, fax: +386 4 206 64 46 : [email protected]

COMPETENCE CENTRES

CORPORATE COMMUNICATIONS COST CONTROL AND OPERATIONAL EXCELLENCE Lidija Bregar, Director Emil Vizoviπek, Board Member tel: +386 4 206 58 19, fax: +386 4 206 64 01 tel: +386 4 206 52 10, fax: +386 4 206 64 46 : [email protected] : [email protected]

MARKETING SYSTEMS ECOLOGY AND SAFETY Alojzija Murn, Manager Janez Fabijan, Manager tel.: +386 1 280 03 90, fax: +386 1 280 03 08 tel: +386 4 206 53 78, fax: +386 4 206 64 42 : [email protected] : [email protected]

STRATEGIC INFORMATICS STRATEGIC FINANCE Anton Kepic, Director Miha Dolinar, Director tel: +386 4 206 53 07, fax: +386 4 206 64 46 tel: +386 4 206 59 88, fax: +386 4 206 64 46 : [email protected] : [email protected]

STRATEGIC ACCOUNTING, PLANNING & HR, LAW, ORGANISATION ANALYSIS Tatjana Lozar, Director Mojca GloboËnik, Director tel: +386 4 206 56 16, fax: +386 4 206 64 60 tel: +386 4 06 56 01, fax: +386 4 206 64 46 : [email protected] : [email protected]

167 STRATEGIC PURCHASING RISK MANAGEMENT Marko Štebe, Director Vlasta Mekiπ, Director tel: +386 4 206 63 73, fax: +386 4 206 64 22 tel: +386 4 206 51 36, fax: +386 4 206 64 46 : [email protected] : [email protected]

QUALITY SYSTEM FINANCE Joæe VodiËar, Manager Iva Žagar, M.A., Procurist tel: +386 4 206 52 85, fax: +386 4 206 64 36 tel: +386 4 206 63 46, fax: +386 4 206 64 46 : [email protected] : [email protected]

RUBBER MANUFACTURING

SAVATECH d. o. o. FOREIGN TRADE NETWORK Duπan Kveder, Director tel: +386 4 206 52 74, fax: +386 4 206 64 60 SAVA TRADE Vertriebsgesellschaft, : [email protected] G.m.b.H., Munich Zlatko Smrdel, Director SAVATECH d. o. o. tel: +49 89 544 14 30, fax: +49 89 532 89 51 Vesna »adeæ, Director : [email protected] tel: +386 4 206 51 79, fax: +386 4 206 64 60 : [email protected] SAVA TRADE s.r.o., Prague Roman Drapela, Director SAVA-GTI d. o. o. tel: +420 22 494 19 66, +420 22 494 25 67 Anton Rogina, Director fax: +420 22 494 25 59 tel: +386 2 787 93 30, fax: +386 2 787 93 40 : [email protected] : [email protected] SAVA TRADE Sp. z o. o., Warsaw SAVA-SCHÄFER d. o. o., Kranj Matjaæ Šuln, Director Iztok Dolenc, Director tel: +48 22 721 13 62, fax: +48 22 721 13 61 tel: +386 4 206 53 63, fax: +386 4 206 64 05 : [email protected] : [email protected] SAVATECH TRADE Ltd., London SAVA ROL d. o. o., Zagreb Boπtjan Podjed, Director Darko VodanoviÊ, Director tel: +44 20 8288 35 08, fax: +44 20 8688 00 55 tel. and fax: +385 1 366 74 89 : [email protected] : [email protected] SAVA TRADE Inc., Port Orange Tony Šimunac, Director tel: +1 386 760 07 06, fax: +1 386 760 87 54 : [email protected]

Representative Office Trieste Niko Golemac, Manager tel: +39 347155 34 86, fax: +39 348 859 14 00 : [email protected]

Representative Office Moscow Branimir AneliÊ, Manager tel: +7 095 775 38 46, fax: +7 095 775 38 47 : [email protected]

168 CHEMICALS

TEOL d. d., Ljubljana Danijel Šumej, General Manager tel: +386 1 520 41 30, fax: +386 1 520 41 09 : [email protected]

TRADE

SAVA TRADE d. d., Ljubljana MG MARKET d. o. o. Antonija Pirc, M.A., Director Duπan Papeæ, Director tel: +386 1 280 02 04, fax: +386 1 280 03 20 tel: +386 1 420 10 42, fax: +386 1 420 10 52 : [email protected] : [email protected]

TOURISM

Andrej Šprajc, Director Tourism division TERME 3000 d. d. tel: +386 4 579 12 69, fax: +386 4 574 33 87 Duπan Bencik, General Manager : [email protected] tel: +386 2 512 23 00, fax: +386 2 548 16 07 : [email protected] GOLF IN KAMP Bled d. d., Bled Andrej Šprajc, Director Terme Lendava d. d. tel: +386 4 579 12 69, fax: +386 4 574 33 87 Franc Huber, Director : [email protected] tel: +386 2 577 44 40, fax: +386 2 577 44 18 : [email protected] Camping Bled Marjeta Vizoviπek, Manager Terme Ptuj d. o. o. tel: +386 4 575 20 01, fax: +386 4 575 20 02 Andrej Klasinc, Director : [email protected] tel: +386 2 782 72 11, fax: +386 2 783 77 71 : [email protected] GRAND HOTEL TOPLICE d. o. o., Bled Zvone Špec, Director Radenska-ZdraviliπËe d. o. o. tel: +386 4 579 11 70, fax: +386 4 574 18 41 Milan Hojnik, Director : [email protected] tel: +386 2 520 27 00, fax: +386 2 520 27 472 : [email protected] Hotel Vila Bled Janez Fajfar, Deputy Director GHT Terme Banovci for Vila Bled Lea Hofman, Manager tel: +386 4 579 15 00, fax: +386 4 574 13 20 tel: +386 2 513 14 00, fax: +386 2 587 17 03 : [email protected] : [email protected]

G&P HOTELI BLED d. o. o. Hotel Jeruzalem Lidija Dokl, Director Branko Smodiπ, Manager tel: +386 4 575 10 00, fax: +386 4 575 10 49 tel: +386 2 581 12 11 , fax: +386 2 581 11 48 : [email protected] : [email protected]

Hotel Golf Fedja Pobegajlo, Director tel: +386 4 579 20 00, fax: +386 4 574 17 68 : [email protected]

Hotel Park Ludvik KerËmar, Director tel: (04) 579 30 00, faks: (04) 574 15 05 : [email protected]

169 REAL ESTATE

SAVA MEDICAL AND SERVICES d. o. o., Kranj SAVA IP d. o. o., Ljubljana Maksimiljan FijaËko, Director Joæe KavËiË, Director tel: +386 4 206 53 97, fax: +386 4 206 64 42 tel: +386 1 231 21 84, fax: +386 1 231 31 70 : maksimiljan.fi[email protected] : [email protected]

SAVA NOVA d. o. o., Zagreb IP NOVA d. o. o., Ljubljana Joæe KavËiË, Director Gorazd Rous, Director tel: +385 1 484 37 77, fax: +385 1 484 36 12 tel: +386 1 231 77 50, fax: +386 1 231 31 70 : [email protected] : [email protected]

INVESTMENT FINANCE

Investments in innovative projects:

GEA SOL INTERNATIONAL d. o. o., Kranj LIMB d. o. o., Ptuj Emil Vizoviπek, Director Natalija PotoËnik, Director tel: +386 4 206 52 10, fax: +386 4 206 64 46 tel: +386 2 787 93 20, fax: +386 2 787 93 27 : [email protected] : [email protected]

Joæef PπeniËnik, Technical Director GSM: +386 41 676 171 : [email protected]

170 Sava, d. d. Annual Report and Consolidated Annual Report

Published by Sava, d. d.

Written by Sava, d. d. Studio Kernel

English translators Lea Terlikar Mark A. Valentine

AD & Design Kompas Design, d. d.

Print engineering Boænar & Partner, d.o.o.

Photography Fulvio Grissoni Ivan DraškiË Archive

May 2005

www.sava.si

171 172 ANNUAL REPORT and Consolidated ANNUAL REPORT 2004 Annual Report of the company Sava d.d.

An abundance of talent An abundance of talent

The result of the Sava Group have been achieved by teams that are driven by outstanding individuals.

Their energy encourages and bonds us all.

Their thoughts and endeavours over many years are imbued in the shift in development that was characteristic for all divisions in 2004.

2004 ANNUAL REPORT ANNUAL 1