Annual Report of Dunapack Group for 2007

The European paper industry experienced continued growth in 2007. Demand outgrew supply for the majority of the year, with temporary shortage arising in certain periods. Increase in costs of raw materials and energy gave rise to significant increase in paper prices. Paper prices grew steadily all through the year, which means an increase of EUR 70 / ton or 20 % by year end.

The company’s processing operations were also characterised by rising prices, but the increase in raw material prices could be shifted on to customers only at a later stage. The sales volumes exceeded targeted figures, which was sufficient for balancing off adverse effects by most of the subsidiaries. Profits therefore proved higher than targeted. The only exceptions are Croatia and Romania, where extraordinary competition disappointed our profit expectations.

Owing to above factors, the Group realised profits well beyond targets. As for Dunapack Zrt., it generated its highest ever profits in 2007 since its foundation. As financial reserves have grown, we have sufficient funds at our disposal to meet our strategic objectives.

In 2007, capital investment gathered momentum, with environmental and production rationalisation projects implemented in Dunapack Zrt. to the value of HUF 2,389 million. The construction of the Csepel sewage treatment facility is of particular importance in this respect. Of the total investment worth nearly HUF 1 billion, in year 2007 an amount of HUF 758 million was actually invested. The remaining amount is to be invested in 2008. The corrugated board production line in Csepel was reinforced with a new processing machine costing HUF 373 million. In the Nyíregyháza facility full replacement of the dry end of the board making machine has begun. This investment rendered the board machine inoperative from the beginning of December until the second half of January 2008. This fact, however, did not affect deliveries to customers, as orders were met through intragroup corrugated board supply. The project costs more than HUF 800 million, of which nearly 700 million was actually paid in 2007. Capital investments for the maintenance of standards amounted to HUF 1 billion instead of the budgeted HUF 1.5 billion.

Investment activities were insignificant throughout the year. The Bulgarian subsidiary received a capital increase in the amount of HUF 127 million for financing the modernisation of the corrugated board machine. Another capital investment includes the most significant task to be completed in 2008 within the framework of the Ukrainian project, which involves the construction of a modern corrugated board plant with annual capacity of 120-160 million m²/year in Kherson county in the next two years. In the Ukraine, HUF 47 million was invested for the purpose of buying site for the prospective plant.