Annual report 2006

Annual Report of Dunapack Group for 2006

2006 was a year of upsurge for the European paper industry. Supply and demand became balanced, and there was a significant increase in product prices based upon the rising costs of production (raw materials and energy). By the end of the year, paper prices showed a continuous increase of over 60 EUR/ton, equivalent to 20 per cent, and in consequence the entire European paper industry operated at a profit. The profitability of paper manufacturing was increased by the falling exchange rate of the Hungarian forint too. Due to the movement of exchange rates, our paper prices expressed in forint grew by an additional 10 per cent. The processing activity of the Group was also characterised by growing prices yet the increase in basic material costs could only be passed on to a certain extent and at a delay. These unfavourable circumstances could be counterbalanced by higher than planned sales realised by most of our business units, and consequently, the results of operation were as planned in this area, with the exception of Croatia and Poland, where the profit expectations could not be met in the face of highly edged competitive situations.

For the above reasons, the profits realised by the Group far exceed the planned level. Financial reserves also grew, and therefore, we still have sufficient funds at our disposal to meet our strategic objectives.

In 2006, most of our capital investment projects were realised at the subsidiaries. Dunapack Ltd. implemented a number of such projects in environmental protection and production line optimisation in an amount of HUF 509 million, including the one aimed at reducing energy consumption at Nyíregyháza (HUF 238 million). Office and business administration software programs were also purchased in an amount close to HUF 40 million. With a considerable cut-back in capital investments for the maintenance of standards, only HUF 750 million was spent instead of the budgeted HUF 1.3 billion.

Only a minimum level of investment activities were undertaken throughout the year, being limited to a capital decrease of HUF 345 million in our subsidiary in Poland, in consequence of which a property share of 10.6 per cent in the Croatian subsidiary was returned to Dunapack Ltd., which became the sole owner of Valoviti Ltd.