CONTENTS

Co mp an y p r o file

Key F i g u r e s

P resen t a tio n o f th e P ic a n o l Gr o u p 3

70 years in the lead with innovative technology (36-06) 3

Customer-oriented organization 3
International network 6
Worldwide activities 8
Product range 10
Organizational diagram 13
Board of Directors and Management Committee 14

Rep o rt by th e B o a r d o f D ir e c to r s 17

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I C ON TE N TS

Letter to the Shareholders 18
Main events 20
OEM Business activities report 23
70 years: History of the Picanol weaving machines 27
Weaving Machines activities report 30
Innovation Council 33
70 years: Social life of the Picanol Group 34
Human Resources 36
Information Technology 38
Corporate Governance 40

Co n so l i d a te d fin a n c ia l s ta te m e n ts 61

Definitions 62
Annual accounts 63
Notes to the consolidated financial statements 67

S t at u t o ry fin a n c ia l s ta te m e n ts o f P icanol N V 115

Rep o rt by th e A u d ito r 118

I n f o rmatio n fo r th e S h a r e h o ld e r s 121

Shares and listing 121

Dividend 123

Usef u l i n fo r m a tio n 125

1
Addresses 126
Glossary 128
P R E S E N TAT I O N O F T H E P I C A N O L G R O U P

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I P R ES E N TATI O N O F T H E P I C A N O L G R O U P

7 0 YE A R S IN T H E L E A D
W I T H IN N O VAT IV E T E C H -
70
YEARS
N O L O GY

The Picanol Group celebrated its 70th birthday

on 22 September 2006.

Over the space of seven decades the Picanol

Group has developed from a traditional buil-
der of weaving machines to a worldwide sup-
plier of global solutions for the textile and
other industries. 70 years in the lead, thanks
to innovative technology, during which the
Picanol Group has played a pioneering role
worldwide in development and production of
high-tech weaving machines.

CUSTOMER-ORIENT ED ORGANIZATION

The mission of the Picanol Group is to create
sustainable growth and productivity, by
developing, producing and marketing rapier and
airjet weaving machines and related products and
services for the textile industry worldwide, and by
marketing its own competencies and technological
spin-offs developed in-house, to customers inside
and outside the textile industry.
A new organization was implemented at the be-
ginning of 2006, with increased emphasis on the
weaving machine activities together with devel-
opment of the OEM business. This new market-
oriented organization enables the group to man-
age and support a number of core activities in an
integrated way at group level, and to react quickly
to market requirements and opportunities. The
group has two core divisions aimed at its target
markets:
3
• The OEM Business division develops, produces
and sells high-tech components, services and
mechatronic system solutions for Original
Equipment Manufacturers both for the textile
industry and for other sectors.
• The Weaving Machines division carries out de-
velopment, production and marketing of high-
tech weaving machines, together with services
for the after-market provided to customers in
the textile industry.
 OEM BUSINESS
Manufacturing
Mechatronics & Accessories
TEXTILE AND NON-TEXTILE OEM’S
O E M B u sin es s
• Manufacturing covers the foundry activities
of Proferro and the Group’s machining activi-
ties in Ieper, Belgium.
• Mechatronics is made up of PsiControl
Mechatronics (Ieper, Belgium), PsiControl
Mechatronics srl (Brasov, Romania), the
mechatronics department of Picanol (SIP),
Textile Machinery (Suzhou, China) and
Melotte (Zonhoven, Belgium). It offers a full
range of mechatronic and electronic solutions.
PsiControl Mechatronics forms the heart
of Mechatronics. It concentrates on design,
development and production of electronic and
mechatronic systems such as switchboards and
switched reluctance motors, both for the Picanol
weaving machines and for original equipment
manufacturers (OEMs). For example,
PsiControl Mechatronics develops among
others the central control, motors, drives and
user interface for Picanol weaving machines.
It also offers a full range of services including
R&D, prototyping, procurement, production
and repair of printed circuit boards.
Melotte for its part specializes in production of
very high grade metal parts for use in production
processes and as machine components. The
Melotte products find application in a very wide
range of industries including electronics, the
automotive industry, chemicals and aerospace.
The activities are characterized by very small
production series, complex shapes, high
precision and special materials and coatings.
• GTP Accessories covers all the companies in
the Picanol Group that specifically develop and
produce accessories for weaving machines.
Specifically, it is responsible for developing,
producing and marketing textile accessories
such as weaving frames, reeds, heddles and
nozzles (main and relay nozzles). These prod-
ucts are sold to OEMs by OEM Business; they
are also sold to weaving mills directly by Weav-
ing Machines and indirectly through agents.
The GTP Accessories activities are subdivided
into three product groups:
- Frames, heddles and dropwires: these
weaving accessories are sold under the Steel
Heddle brand and are produced by Steel
Heddle (which legally forms part of GTP
Greenville in the USA) and by Verbrugge
(Ieper, Belgium).
 TEXTILE CUSTOMERS
W E AV I N G M A C H I N E S
Marketing, Sales & Services
Technology & Operations
- Reeds: all reeds are sold under the Burcklé
quality label and produced by Burcklé
(Bourbach-le-Bas, France) and Lhenry
(Saint-Romain-la-Motte, France). Burcklé
also produces airjet reedwires and sells them
itself to reedshops, both inside and outside
the Picanol Group.
- Jet insertion: Te Strake Textile (Deurne,
Netherlands) develops and produces insertion
technology for airjet weaving machines. The
product range includes among other things
main and relay nozzles, valves and sensors.
We a v i ng mac h in e s
• Marketing, Sales & Services covers the
activities of the Weaving Machines CRTs and
After Market Sales & Services. The Weaving
Machines CRTs (customer relations teams)
are responsible for marketing, sales and
servicing of weaving machines. After Market
Sales & Services for its part comprises all the
more frequent sales of services (preventive
maintenance programs, training courses,
service calls and repairs) and products (spare
parts and accessories) to weaving mills. These
two sales processes support one another, as
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I P R ES E N TATI O N O F T H E P I C A N O L G R O U P
a larger installed base of weaving machines
boosts sales of industrial consumables and
services; conversely the latter stimulate sales
of weaving machines.
• Technology & Operations is responsible for
design, integrated development and assembly
of airjet and rapier weaving machines, and for
purchasing of parts (from within the group
and from outside companies). The weaving
machines are produced in Ieper (Belgium),
Suzhou (China) and Günne (Germany).
In addition to the two core divisions there are two
corporate support departments:
Finance & Administration provides support for
the rest of the group in Finance & Administration,
5
Information Technology and Legal Affairs.
Human Resources & General Services covers
Human Resources, Corporate Communication,
General Services, Environment, Health & Safety,
World Class Manufacturing & Total Quality Man-
agement and Facilities & Central Sourcing.
INTERNATIONAL NETWORK
Situation on 31/12/2006

EUROPE

Belgium Italy
Picanol (Ieper): headquarters + R/P/M/S GTP Milano: M/S
Proferro (Ieper): P/M/S Netherlands
Verbrugge (Ieper): R/P/M/S Te Strake Textile (Deurne): R/P/M/S
PsiControl Mechatronics (Ieper): R/P/M/S Romania
Melotte (Zonhoven): R/P/M/S PsiControl Mechatronics srl (Brasov): R/P
Germany Tu r k e y
Günne (Möhnesee-Günne): R/P/S GTP Istanbul: P/M/S
France
Burcklé (Bourbach-le-Bas): P/M/S
Lhenry (Saint-Romain-la-Motte): P/M/S

LEGEND

R – Research & Development

P – Production
M – Marketing
S – Service
 ASIA Picanol Bejing Representative Office M

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I P R E S E N TATI O N O F T H E P I C A N O L G R O U P

Picanol Guangzhou Representative Office M
India Picanol Shanghai Representative Office M
New Delhi, Mumbai and Coimbatore: perma-
nent sales & services agency AM ERICAS
Indonesia
GTP Bandung: M/S Brazil
Pakistan GTP São Paulo: P/M/S
Lahore: permanent sales & services agency Mexico
People’s Republic of China GTP Mexico: P/M/S
Picanol SIP (Suzhou Industrial Park)Textile USA
Machinery: R/P/M/S GTP Greenville: R/P/M/S
Picanol (Suzhou) Trading Company: M/S

The Picanol Group is also represented by one or more agents in all countries with a significant textile market.
 ACTIVITIES AND BRANCHES
WORLDWIDE

EUROPE

Belgium
Picanol as the parent company is also the admin-
istrative headquarters of the Picanol Group, based
in Ieper. The core activities are carried out here.
These include production of the OMNIplus 800
and GamMax weaving machines (the latter is due
to be replaced by the OptiMax in the course of
2007).

Proferro comprises the foundry and machining ac-

tivities of the group.

PsiControl Mechatronics develops and produces

mechatronic systems for Picanol weaving ma-
chines and for original equipment manufacturers.

T H E E A R LY Y E A R S
70
YEARS

The company was founded as the worldwide downturn. Vansteenkiste

‘Vansteenkiste Company to Promote managed to survive by building various
Industrialization of Flax Fiber Production, other types of machine.
Foundry and Workshops’ in 1928. The
Steverlynck family was represented on the
Board of Directors when the company was
first set up, with Baldewijn Steverlynck (1893-
1976) as chairman. This marked the entry
of the Steverlynck family into the industrial
development of the Ieper region, in which
it played a leading role throughout the 20th
century. But the Vansteenkiste company did
not have an easy time, as competitors soon
tried to copy its machines. Furthermore, a
few years later the flax industry suffered a

Verbrugge develops and produces weaving acces-
sories such as frames, heddles and dropwires.
Melotte specializes in production of very high-
precision metal parts for use in production pro-
cesses and as machine components.
Germany
Günne develops and produces the TERRYplus
800 and OMNIplus 800 TC weaving machines.
France
Burcklé and Lhenry produce reeds.
Italy
GTP Milano sells weaving machines, spare parts
and accessories.
Netherlands
Te Strake Textile is a competence center for
nozzles and sensors. It also focuses on R&D for
breakthrough projects in the field of air insertion.
Romania
PsiControl Mechatronics srl concentrates on cable
assembly, PCB assembly (THT and SMD) and
product engineering.
Tu r k e y
GTP Istanbul sells weaving machines, parts and
accessories, and also produces reeds.
ASIA
Indonesia
Through GTP Bandung the group provides Pica-
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I P R ES E N TATI O N O F T H E P I C A N O L G R O U P
nol parts, accessories and services for the Indone-
sian textile market.
People’s Republic of China
Picanol SIP (Suzhou Industrial Park) Textile Ma-
chinery produces GTXplus and OMNIjet weaving
machines, and also makes and sells mechatronics
parts. Picanol (Suzhou) Trading Company for its
part supplies aftermarket products and services
for weaving mills in China. The Picanol Group
also has representative offices in Beijing, Guang-
zhou and Shanghai.
AM ERICAS
Brazil
GTP São Paulo sells Picanol weaving machines,
parts and accessories to the South American tex-
tile industry, and also produces reeds.
Mexico
GTP Mexico sells parts and accessories, and also
produces reeds.
USA
GTP Greenville (Steel Heddle) develops and pro-
duces accessories that are used in the weaving
industry all over the world. GTP Greenville also
takes care of service and sales of Picanol weaving
machines and parts in the USA.
9
PRODUCT RANGE: OEM BUSINESS

1 . M a n u fac tu rin g

Proferro produces cast iron parts for Picanol weaving

machines and parts for among other things agricultural
machinery and compressors. When it comes to mechani-
cal finishing, the group has facilities both for prototyping
and for series production using a very wide range of tech-
nologies including CNC machining, gear cutting, grind-
ing, thermal treatment and welding.

2 . M e c h atro n ics

PsiControl Mechatronics
The products made by PsiControl Mechatronics include
machine controllers, man-machine interfaces, actuators
and switched reluctance motors.

Melotte
Melotte specializes in production of high-precision metal
parts for use in production processes, machine compo-
nents, dies and prototypes.

3 . G T P A cc e s s o ries

Steel Heddle
Steel Heddle produces frames, heddles, drop wires and
reeds.

Burcklé
Burcklé produces weaving reeds.

Te S t r a k e Te x t i l e
Te Strake Textile for its part produces nozzles and
sensors for airjet weaving machines. It also acts as a
competence center for nozzles and sensors and as an
R&D center for air insertion
PRODUCT RANGE: WEAVING MACHINES

1 . We a v in g ma c h in e s

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I P R ES E N TATI O N O F T H E P I C A N O L G R O U P

OptiMax (new in 2007)
Rapier weaving machine for the higher segments
and niche applications, including technical tex-
tiles. This machine offers the greatest versatility,
and is produced in Ieper.

OMNIplus 800
Airjet weaving machine for the higher segments,
combining high versatility with maximum pro-
duction speeds. This machine is also produced in
Ieper.

OMNIplus 800 TC (new in 2006)

Airjet machine specially equipped for weaving tire
cord, a technical fabric used for making vehicle
tires. This machine is based on the OMNIplus 800
series and is finished in Günne (Germany).

TERRYplus 800 (new in 2006)

Airjet machine specially designed for weaving
terry cloth. This machine is produced in Günne.

GTXplus
Rapier weaving machine with universal applica-
11
tion for the middle segment of the market, pro-
duced in Suzhou (China).

OMNIjet (new in 2006)

Airjet weaving machine for the middle segment of
the market, produced in Suzhou (China).
2 . A f t er Mark e t S ale s &
S e rvice s
With its technical support packages, After Market
Sales & Services makes textile know-how
available to customers, enabling them to achieve
better quality, higher output or greater production
flexibility. It also offers full training programs
tailored to the operational requirements of the
customer. As well as carrying out training at the
T H E 1 930 S
YEARS
Despite every effort, the Vansteenkiste
company was no longer viable by the mid-
1930s, and so Baldewijn Steverlynck called
on the Spaniard Juan Picañol, who had fled
to Flanders from the civil war in Spain. Juan
had invented a revolutionary weaving loom
at his father’s engineering works in Sabadell,
Catalonia. In 1935 he was ready with his design
for an automatic weaving machine, but still
needed a partner to put his plans into effect.
With no end to the worldwide depression in
sight, the Flemish machine builders and the
Catalonian inventor began negotiations. These
led to the formation of Weefautomaten Picañol
customer’s location it has a fully equipped training
center in Ieper, and training centers in Greenville
and Suzhou.
The Picanol Group also sells spare parts for
weaving machines, and in addition it develops
and sells upgrade kits that enable customers to
equip their machines with the latest technology.
Weaving accessories are sold through the same
sales channels.
70
NV on 22 September 1936, marking the
birth of the Picañol company.
However, Juan Picañol’s modernized looms
did not live up to expectations. Baldewijn
Steverlynck brought his brother Karel into
the business, and he in turn called on Jaimé
Picañol (Juan’s younger brother) to lead
the development work. Jaimé successfully
launched the Omnium on the market, laying
the basis for the later success of the still young
company.
 ORGANIZATIONAL CHART OF THE GROUP - Situation on 31/12/2006

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I P R ES E N TATI O N O F T H E P I C A N O L G R O U P

PICANOL NV

0,01%

99,99% PROFERRO GTP SAO PAULO 99,99% PICANOL (SUZHOU) TRADING CO. 100%

PSI-CONTROL MECHATRONICS (ROM) GTP MEXICO 99,99% P(SIP)T 100%

100%
99,90% PSI-CONTROL MECHATRONICS GTP GREENVILLE 100% GTP BANDUNG 99%
100%
0,01% 0,10% TE STRAKE TEXTILE

99,99% MILLENTEX 0,04%

50,31%
49,69%
VERBRUGGE

99,96% MELOTTE
98% CHANGES IN THE COURSE OF 2006
2%
GEREEDSCH. MELOTTE
Amtech: sold
Picanol Korea: sold
100% GÜNNE GMBH & CO, KG Picanol Overseas: wound up
PSI-Control: wound up
PsiControl Mechatronics (Romania): set up
100% GÜNNE GMBH
Picanol (Suzhou) Trading Co. Ltd: set up
GTP Shanghai: wound up
BCN Laminados: wound up
100% BURCKLÉ
PTS and PST: integrated in P(SIP)T

100% LHENRY

100% GTP MILANO

100% BCN LAMINADOS

99,75% GTP ISTANBUL 13

BOARD OF DIRECTORS AND MANAGEMENT COMMITTEE
Situation on 31/12/2006

H o n o rary c h airma n
Mr. Emmanuel Steverlynck

B o a rd o f D ire c to rs

Chairman Mr. Luc Van Nevel, Chairman of the Appointments &

permanent representative of The Marble BVBA (1)* Remuneration Committee
Directors Mr. Chris Dewulf, President & CEO
permanent representative of Christulf BVBA (3)*

Mr. Filiep Libeert, Member of the Nomination &

permanent representative of LMC NV (2)* Remuneration Committee
Mr. François Meysman, Member of the Audit Committee
permanent representative of M.O.S.T. BVBA (2)*

Mr. Patrick Steverlynck (3)*

(as of May 2006)

Mr. Johan Tack, Chairman of the Audit

permanent representative of TACAN BVBA (2)* Committee
Baron Hugo Vandamme, Vice President,
permanent representative of HRV NV (2)* Member of the Nomination &
Remuneration Committee
Mr. Paul Vandekerckhove, Member of the Nomination &
permanent representative of Buraco NV (1)* (as of 22 Remuneration Committee
May 2006) Member of the Audit Committee
Mr. Joos Waelkens (1) Member of the Audit Committee

* Appointed until the AGM of 2008

(1) Non-executive director (2) Non-executive, independent director (3) Executive director

Secretary of the Board, Mr. Jurgen Couvreur, Vice-President Finance & Administration
M a n a g eme n t C o mmitte e

• Mr. Chris Dewulf*, President & CEO

• Mr. Jurgen Couvreur, Vice-President Finance & Administration
• Mrs. Cathy Defoor, Vice-President Manufacturing

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I P R ES E N TATI O N O F T H E P I C A N O L G R O U P

• Mr. Stefaan Dewulf*, Vice-President Mechatronics & Accessories
• Mr. Jan Laga*, Vice-President Marketing, Sales & Services
• Mr. Geert Ostyn, Vice-President Technology & Operations
• Mr. Dirk Verly, Vice-President Human Resources & General Services
* under the form of a company (see page 45, Corporate Governance)

Auditor
Deloitte Bedrijfsrevisoren represented by Mr. William Blomme and Mr. Kurt Dehoorne, appointed until
the AGM of 2009.

T H E WA R Y E A R S 70
YEARS
The Omnium was a triumph over the many heavy physical labor were given special
mechanical problems that had dogged the ini- ration stamps for additional food, and after a
tial years, and appeared on the market as a mature time the Picañol employees gained a reputation as
design. In just a few years the company achieved people with a capacity for hard work.
an annual production of 120 machines, and by the
outbreak of World War II the level had risen to In late 1946 the management decided to set up the
one machine per day. foundry once more. With the new shock forming
machines it was possible to mold the sand under
But the war conditions put a spoke in the wheels. pressure and break it out quickly after casting. In
Raw materials became scarce due to the exactions 1948 the foundry was equipped with a new labo-
of the German occupiers, and output plummeted. ratory for mechanical, metallurgical and chemical
Exports could only be kept alive by bartering for research. During this period Picañol became one
15
food, with weaving machines being exchanged of the first companies to use synthetic sand for its
for fish products from Denmark and sardines or foundry molds.
oranges from Spain and Portugal. After the war
these export machines were the company’s first
foreign references and helped considerably to
establish Picañol’s name around the world. The
German occupiers asked Picañol to do casting
and forming work for artillery munitions. Pica-
ñol refused, confining itself to machining smaller
shafts for the electric motors of German subma-
rines. The employees had to struggle through this
difficult period as best they could. Those who did
REPORT BY THE BOARD OF DIRECTORS
70
T H E 1 95 0 S YEARS
In 1951 Picañol presented its new President
weaving machine to the public at the ITMA exhi-
bition in Lille. This machine was such a success
that the Picañol management decided to expand
production and to appoint representatives in other
countries. A network of agents was gradually built
up, extending to South America and the Far East.
Meanwhile, production of the President created
employment for hundreds of people in Picañol’s
home region. The number of personnel expanded
from 200 in 1945 to 700 in 1952.
The foundry too was modernized. In the course
of 1954 the company acquired a low-noise mold
making machine and a new mold production
line. Four years later the smelting furnaces were
equipped with a cooling system on the outside
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I R E PO RT B Y TH E B O A R D O F D I R E C TO R S
wall. In 1958 Picañol unveiled a new version
of the President at Expo 58, the world fair held
in Brussels that year. However, the world textile
industry was experiencing a downturn at the time
and the market remained flat, so Picañol went in
search of new sales territories. Among others it
made an agreement with the Saco-Lowell com-
pany, which represented Picañol in the USA and
Canada. In 1960 the Omnium went out of pro-
duction, leaving only the President in a series of
smaller types. From the end of the Second World
War until 1955 Picañol had sold more than 8,000
Omniums. By the beginning of the 1960s Picañol
had a wide range of weaving looms for weaving
spun yarns, and the Picañol looms were increas-
ingly able to handle synthetic materials.
17
LETTER TO THE SHAREHOLDERS
Dear shareholder,
2006 was a particularly busy year for the Picanol
Group, in which moreover we returned to opera-
tional profitability. The turnover was up by nearly
3.5% compared with 2005, and the group made a
consolidated net result of 5.57 million euros com-
pared to a loss of 4.72 million euros.
The weaving machine business in which the Pica-
nol Group operates developed positively in 2006
in terms of volume. World demand rose during the
first nine months of 2006, spurred on especially by
large purchases in China. The market slackened
slightly in the fourth quarter, and the prospects for
the beginning of 2007 are a little more modest.
However, prices and margins remained under
heavy pressure, due among other things to compe-
tition from Japanese manufacturers in particular,
who benefited from the weak yen. The Picanol
Group has opted resolutely not just for turnover
but for turnover and margin. Significantly in
this respect, we were able to maintain and even
strengthen our position in market segments with
higher added value.
The further shift by the textile industry toward the
East also put heavy pressure on sales of services,
spare parts and accessories. Points that demanded
special attention were the new, small-scale com-
petitors in low wage countries, and a different parts
policy pursued by the new textile manufacturers.
To deal with this we took various initiatives in 2006
to protect our sales volume and our margin.
Our OEM Business pursued a differentiated pol-
icy in 2006. The foundry activities (Proferro) ex-
perienced strong growth in tonnage, thanks both
to Picanol and to other customers. The strategy of
focusing on engineered casting solutions clearly
bore fruit. In the field of mechanical finishing
(Bumac), particular efforts were made to get back
into profitability, win new customers and raise ef-
ficiency. All this should yield positive results in
2007.
Our Mechatronic activities experienced further
growth in 2006. The start-up of PsiControl in Ro-
mania helped to strengthen our competitiveness,
and also permitted further growth in our product
portfolio.
The Picanol Group celebrated its 70th birthday
in 2006. In the past few decades our group has
developed from a traditional weaving machine
builder to a global supplier of total solutions for
the textile industry and other sectors. A significant
theme throughout our successful history has been
our continual focus on innovation. In 1971 we in-
troduced the world’s first ever electronically-con-
trolled weaving machine, and we were also the
first weaving machine manufacturer in the world
to obtain ISO 9001 certification. Thanks to our
policy of innovation we were able to surprise the
market again and again with new, high-tech weav-
ing machines, from the Omnium in 1936 to our
latest flagship, the OptiMax in 2007.
Technological innovation was and is crucial to the
future success of the Picanol Group, and so we
once again confirm our determination to plough
back 5% of our annual turnover into research
and development of high-tech products with high
added value. In line with this ambition we intro-
duced three new weaving machines in 2006: the
OMNIjet, the OMNIplus 800 TireCord and TER-
RYplus 800. And in another move we set up our
own Innovation Council in 2006. This new um-
brella organization will stimulate the development
of innovation and enable us to use innovation as a
strategic lever for the group.
At our headquarters in Ieper, Belgium, we began
the physical and administrative merging of the
PsiControl Mechatronics activities on the one
hand and the weaving machine business on the
other. These are now located together in a new
production and office building on the industrial
site in K. Steverlyncklaan. In the meantime, the
revamped production line for Verbrugge has been
built up and finished. In China, an entirely new
assembly plant went into production (at Suzhou
Industrial Park), and all the Chinese activities that
had previously been spread out were brought to-
gether at this site.
Given the results achieved in 2006, we aim to re-
turn to our tradition of paying out an annual divi-
dend. The Board of Directors therefore proposes
to the Annual General Meeting to pay out a gross
dividend of 0.32 euros per share.
Outlook
In the future the Board of Directors, the Manage-
ment Committee and the personnel will continue
their efforts to further develop the group. The ex-
tent to which we succeed in this will largely de-
pend on our fl exibility and our preparedness to
seize the opportunities that the world offers us.
The further expansion of our activities abroad will
undoubtedly contribute to the continued develop-
ment of the group.
The Picanol Group takes into account that the de-
mand for weaving machines could be somewhat
lower in 2007 than in 2006 and that the competi-
tive pressure on prices and margins will stay high
Chris Dewulf
President & CEO
in the textile market. The exchange rate trend of
the yen will remain extremely important in this.
The Picanol Group is aiming at further growth
and an improvement in its market share in seg-
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I R E P O RT B Y TH E B O A R D O F D I R E C TO R S
ments with higher added value, among others by
reinforcing its physical presence in the market and
by focusing on expanding its textile technology
range for Picanol weaving machines. In addition
building on its activities for third parties by con-
tinuing to market technology outside the group
will remain an important cornerstone in the strate-
gy. Rounding off the full revamping process of the
product portfolio is also planned in 2007, begin-
ning of 2008. In March 2007 the Picanol Group
started the launch of its latest rapier machine for
the top segment, the OptiMax. In this context the
Picanol Group will continue to make increasing
efforts towards reinforcing its market position in
the strategic markets and the further growth of its
OEM Business, while continuing to focus on an
improved cost structure.
The Picanol Group looks to 2007 full of confi-
dence, strong in the conviction that the members
of personnel who made possible the excellent re-
sults in 2006 are fully motivated to achieve the
objectives for 2007. The basis of our growth de-
pends more than ever on the efforts, dedication
and motivation of all our members of personnel
around the world; it is thanks to them that the
Picanol Group has been able to develop over the
past 70 years into the company that it is today. The
Board of Directors would also like to thank all the
stakeholders for the confidence that they show in
19
our group.
L u c Va n N e v e l
Chairman
MAIN EVENTS
In 2006
Our entire stake in the Chinese subsidiary Amtech,
a 50/50 joint venture with BMT NV, was sold off
to the latter with effect from 1 January 2006, due
to differences in strategic directions.
In January 2006 the Picanol Group set up a new
subsidiary of PsiControl Mechatronics (the former
Protronic) in Romania, and Picanol Korea was
sold to an agent. Picanol Overseas (Singapore)
for its part was wound up.
In the production plant at K. Steverlyncklaan in
Ieper, the Picanol Group began a new construction
project in March 2006 with the aim of bringing
the Verbrugge, PsiControl Mechatronics and the
R&D activities together at a single location in
Ieper.
During the first half of 2006 the Picanol Group
introduced two new weaving machines. The
OMNIplus 800 TC (tire cord weaving machine)
was launched on the market in March. It was
followed in May by the OMNIjet airjet machine
for the mid-segment of the textile market.
In accordance with the settlement agreement
between family shareholders, Mr. Paul
Vandekerckhove and Mr. Patrick Steverlynck
were appointed as directors at the extraordinary
general meeting of shareholders on 22 May
2006.
PsiControl Mechatronics started up a freshly-built
production line in the new Romanian subsidiary
in Risnov (Brasov) in June.
In September, the Picanol Group put its new
Chinese production plant in Suzhou into operation.
Also in September the Picanol Group introduced
the TERRYplus 800. As its name implies, this
airjet weaving machine based on the OMNIplus
800 is designed for weaving terry cloth.
To mark the 70th anniversary of Picanol a festival
was held for all members of staff in Belgium, at
the plant in K. Steverlyncklaan.
At the end of September the Picanol Group
sold the assets of its Spanish subsidiary BCN
Laminados, specialized in production of reed
wire, after which the company was wound up.
Finally, in November GTP Shanghai moved its
activities to the new site in Suzhou.
Event s af t er t he balance
sheet closing dat e
On 1 January 2007, Findar BVBA represented by
Mr. Stefaan Haspeslagh was co-opted as a new di-
rector to replace Mr. Joos Waelkens.
An agreement between Mr. Jan Coene and Pasma
NV dated 10 October 2004 provides that a sum
of 3.577 million euros must be reimbursed to
Picanol NV by 31October 2007. This amount
corresponds to the professional withholding tax
paid on the sign-up premium received by Mr. Jan
Coene in 2002. At the end of December 2004 Mr.
Coene had already reimbursed the net part of the
sign-up premium, corresponding to an amount of
2.9 million euros.
In the course of March 2007, the tax authorities
granted a tax exemption in respect of this
professional withholding tax and will soon
be repaying the amount of the professional
withholding tax to Mr. Jan Coene. This repayment
will be used to settle Picanol’s outstanding claims
against Mr. Jan Coene. Mr. Jan Coene will also be
paying the interest due in respect of the outstanding
claim for repayment of the sign-up premium.
In order to obtain repayment of the professional
T H E 1 960 S
70
YEARS
The demand for weaving machines
gradually began to exceed supply. An
average of 140 machines per week
was no longer sufficient to meet all
the orders that were coming in, and
so it was decided to move to another
location. In the spring of 1961 the
company built an impressive assem-
bly hall in the new industrial area,
enabling 25 machines per day to emerge from
the assembly line. In 1962 the company invested
in setting up its own foundry, in a daring initia-
tive. Picañol opted for the most modern casting
technique at that time, namely the high-pressure
method. By November 1966 a fifth of the cast iron
output was being produced in the new foundry.
In 1966 Picañol went public, becoming listed on
withholding tax, Picanol NV accepted inclusion
of the sign-up premium paid to Mr. Jan Coene
in the corporate income tax base for the 2003
assessment year and a detaxation of an identical
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I R E P O RT B Y TH E B O A R D O F D I R E C TO R S
sum in the 2005 assessment year. If the sign-up
premium had not been paid in 2002, then Picanol
NV would indeed have had to pay corporate
income tax in the 2003 assessment year on the
total amount at a 40.17% corporate income tax
rate, whereas it has now deducted the sum of the
sign-up premium as an operating cost. Although
the claim against Mr. Jan Coene had been
included in the 2004 tax assessment base for an
amount corresponding to the amount of the sign-
up premium, the corporate income tax rate had
decreased to 33.99% at that time. The fiscal cost
of this arrangement for Picanol NV is estimated
at 643,000 euros, being the difference in the tax
rates of 2002 (40.17%) and 2004 (33.99%).
the Brussels stock exchange. Mean-
while, it concentrated more and
more on overseas markets, aiming
not only at North America but also
at developing countries.
In 1963 Picañol scored a first in the
history of the Belgian textile indus-
try when it sent a special President
to the USA by airfreight. Thanks to
21
good collaboration between Picañol
and the Pan-Am airline the new ma-
chine was delivered within three weeks of being
ordered, instead of several months as would nor-
mally have been the case. Picanol of America was
set up in 1966 with responsibility for the activities
in the USA and Canada, considerably strength-
ening the company’s position there. Later this
subsidiary moved to Greenville, the center of the
American textile industry.
Wo rl d C las s Man u fac tu ring
The aim of World Class Manufacturing (WCM)
is to make the Picanol Group a world class com-
pany through continually improving processes
and eliminating losses, with the involvement of
all members of personnel. For this purpose the
Picanol Group works with seven core groups on
themes such as cost development, continuous
improvement, self management, planned mainte-
nance, total quality, training and health, safety and
the environment.
In 2006 further investments were made in contin-
ued development and implementation of WCM.
Within each department, special attention was
paid toward developing and monitoring key
performance indicators for QCDISME (Quality
– Cost – Delivery – Improvement – Safety – Mo-
rale - Environment). The core groups also fo-
cused mainly on further development of a number
of projects that had been introduced previously.
There are also various annual management audits,
To t a l Qu a lity Man ag eme nt
Quality is something that concerns all subsidiaries
and employees in the Picanol Group, all over the
world. At its Ieper headquarters the Picanol Group
has a team of internal ISO 9001 auditors who
form a crucial link in the group’s quality process.
Each year several internal audits are carried out in
order to continuously improve the quality system.
In 2006 particular attention was paid to renewal of
Proferro ISO 9001 certification. Integration of the
enabling management to follow the implementa-
tion of WCM on the workfloor, together with a
two-day seminar for all production managers.
WCM was developed further internationally too
in 2006. The five-step methodology (selecting,
structuring, cleaning, standardizing and maintain-
ing) was implemented at Te Strake Textile and
GTP Greenville. In China, the WCM know-how
acquired in Ieper was applied to the setting up of
the production hall as part of the new construc-
tion project in Suzhou. The various projects in the
subsidiaries are supervised from Ieper by a WCM
coordinator. To complement the WCM approach,
the Picanol Group will introduce a World Class
Selling program for the Weaving Machines CRT
department in 2007, aimed at more structured
management of sales based on relevant indicators.
Proferro and Picanol quality assurance systems is
on the agenda for 2007. As well as updating the
procedures and documents, special attention will
be paid here also the process-oriented approach.
The main aim will be to make the quality assur-
ance system an even more user-friendly tool.

ACTIVITIES REPORT OF
THE OEM BUSINESS
M a n u f ac tu rin g
Proferro experienced a strong growth in tonnage
in 2006, producing 22,148 tonnes of cast iron, a
rise of 21% compared with the 18,134 tonnes in
2005. This increase is mainly due to various new
products for new and existing customers, and
to the higher demand by the weaving machine
division. To further expand our presence on the
market, the Proferro sales team acquired several
new members. Also in the course of 2006 new
mold boxes were put into use, with a positive
impact on quality and productivity. To hedge
against the volatile raw material prices, Proferro
took various initiatives in 2006 to guarantee the
availability and market pricing of raw materials.
On the mechanical processing side, meanwhile,
the necessary process modifications were made to
improve the quality and productivity.
The Manufacturing strategy of focusing on
engineered casting solutions with its foundry and
mechanical finishing processes is clearly bearing
fruit. By combining foundry work with mechanical
finishing, assembly and co-design, Manufacturing
is able to react flexibly to the rising demand
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I R E P O RT B Y TH E B O A R D O F D I R E C TO R S
for technically more difficult, specialized parts
with high added value. In line with this policy,
Manufacturing will increase its sales efforts in
2007, so as to further expand its presence on the
market and do more work for outside customers. In
the meantime, raising the competitive position of
Manufacturing remains an absolute priority. This
will be done by making further improvements to
productivity and quality, as part of the World Class
Manufacturing program, and by making critical
choices of finishing activities. In 2007, new
investments are planned in among other things a
deburring system and additional casting machines
(in the foundry), various milling machines,
measurement equipment and extensions to some
important workstations for mechanical finishing.
M echat ronics
23
In 2006, Protronic changed its name to PsiControl
Mechatronics. The new name reflects the ambi-
tions of PsiControl Mechatronics to acquire a
leading position in the field of mechatronics. To
expand its activities for outside customers in a
more targeted, proactive way, the sales network
was enlarged in 2006. In 2006 PsiControl Mecha-
tronics was also present at various European trade
fairs such as Actuator (Germany), Midest (France)
and Electronica (Germany).
Since Mechatronics is a core competency for the
weaving machine business, a start was made in
2006 on physically and administratively combin-
ing the activities of PsiControl Mechatronics (R&D
and production) with the weaving machine busi-
ness in a new building beside the Ieper production
site. As well as cost savings and synergy advantag-
es, grouping the activities together in this way will
also promote an integrated approach toward devel-
opment of machines, mechatronics, spare parts and
accessories. The R&D organization for its part was
given a more customer-oriented focus with the set-
ting up of Customer Focus Teams (CFTs).
At the beginning of 2006 PsiControl Mechatronics
set up a new subsidiary in Romania, PsiControl
Mechatronics srl, in order to further strengthen
the competitiveness of the Mechatronics activities
and consolidate the growing project portfolio.
PsiControl Mechatronics srl concentrates on
cable assembly, PCB assembly (THT and SMD)
and product engineering. The latter activity will
eventually be expanded in Romania. Setting up
production in this country is an important step
toward acquiring a stronger position in the market
for mechatronics, and contributes to improving the
competitive position of PsiControl Mechatronics.
In the meantime, PsiControl is pressing ahead
with World Class Manufacturing projects,
improvements to productivity and savings in
procurement.
Within Chinese Picanol (SIP) Textile Machinery,
the mechatronics division concentrates on
purchase and production of mechatronic parts
for Picanol weaving machines and for PsiControl
Mechatronics. Products purchased or assembled
locally include switched reluctance and stepper
motors, aluminum cooling fins and control
boxes. In the course of 2006, assembly of filling
detectors for Te Strake Textile was transferred to
the mechatronics division in China. In 2007 the
mechatronics activities in Suzhou will be further
expanded, with the focus on local production and
engineering of mechatronics parts, mainly for
existing customers within the Picanol Group.

After 2005, Melotte experienced a positive year
once more in 2006, with the investments made in
2005 beginning to show strong returns. In 2006 its
activities were further extended internationally in
a number of niche markets, with its organization
being adapted correspondingly.
Outlook
To support the continued expansion of PsiControl
Mechatronics and provide every opportunity for
growth in China and Romania, the Mechatronics
organization will be split up in 2007 into different
teams, focusing on the one hand on worldwide ac-
tivities such as sales, sourcing, R&D and product
management and on the other on the local produc-
tion activities in Ieper, China and Romania. In the
meantime PsiControl Mechatronics will continue
to concentrate on improving its cost competitive-
ness, by among other things making operational
improvements to its processes as part of the World
Class Manufacturing program and developing
global sourcing. Investments are planned for 2007
in among other things new inspection and test sys-
tems (Ieper) and in test, insertion and assembly
equipment (Romania).
Finally, in 2007 Melotte will continue to position
itself as a cost-competitive producer and supplier
with a strong focus on niche markets. It will also
work further toward introduction of innovative
production techniques, for which the necessary
investments will be made.
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I R E P O RT B Y TH E B O A R D O F D I R E C TO R S
GTP Accessories
As a consequence of the further migration of the
textile industry to low wage countries in the East,
sales of accessories also came under pressure in
2006. Accordingly, the necessary efforts were
made to react to this and to make the Accessories
activities better armed to face the future.
In 2006, Verbrugge introduced the HybridPower
158 frame under the Steel Heddle brand name.
This new, hybrid frame with its modular design
is reinforced with carbon fiber. It currently offers
what is indisputably the best price/performance
ratio for demanding airjet weaving applications.
At the same time Verbrugge began partial auto-
mation of its weaving frame production in Ieper.
With this automation project Verbrugge aims to
further raise its quality and productivity, and to
assure its prospects in terms of a stronger com-
petitive position and higher volume flexibility.
25
At the end of 2006 Verbrugge’s frame activities
moved into the new building at the production
site in Ieper. The further automation of the frame
production process will be completed in the first
half of 2007. Also in 2006, Verbrugge made a
large number of improvements in productivity
and logistics as part of the World Class Manu-
facturing program. In 2007 it will continue to
position itself within the group as a competence
center for high-performance, cost-competitive
frames.
GTP Greenville (Steel Heddle) had a difficult
year in 2006, in view of the lower demand for
non-tempered heddles and the pressure on prices
caused mainly by the weak yen. At the same
time, the price pressure on the local reed market
remained very high. However, improvements to
productivity were achieved as part of the World
Class Manufacturing program. In 2007, GTP
Greenville will further develop into a competence
center for heddles, drop wires and niche frames,
and will continue to focus on improvements to
quality and the logistics processes, and on reducing
the complexity of the products. Preparations
are being made to introduce new products and
production processes in 2007.
In the field of reed production, the Spanish
subsidiary BCN Laminados was wound up at the
end of September 2006; in view of the limited
number of reed shops within the group, it was
no longer strategically necessary to have an
internal supplier of reeds. Despite the difficult
situation on the French aftermarket, Burcklé for
its part managed to turn in a fairly good result in
2006, thanks among other things to the positive
development of its international sales of reed
wire. In 2007, the activities of Burcklé and Lhenry
will be more closely coordinated, while Burcklé
will further expand its international activities, by
among other things collaborating with partners.
In the field of airjet insertion, Te Strake Textile was
further developed in 2006 into a competence center
for nozzles and sensors, and as a knowledge center
for air insertion. In 2006 the assembly of filling
stop motions was transferred to the mechatronics
division in China. However, Te Strake Textile
remains active in development of these stop
motions. In 2007, further attention will be paid
to making improvements in technical support for
the local sales teams, further developing into a
competence center for weaving machine sensors,
and sales of nozzles on the aftermarket.
In 2007 GTP Accessories will continue to aim
at sustainable expansion of its market share, by
collaborating more closely with After Market
Sales & Services and by further extending its
own sales channels for the OEM Business. There
will also be new product launches and further
improvements to productivity by Steel Heddle,
Verbrugge and Te Strake Textile as part of World
Class Manufacturing.
 70 70 YEARS OF INNOVATION: THE HISTORY
YEARS OF PICANOL WEAVING MACHINES
Thanks to its policy of innovation, the Picanol
Group has managed to surprise the market time
and time again with new high-tech weaving ma-
chines, from the Omnium in 1936 to its latest flag-
ship model, the OptiMax in 2007, thus reinforcing
its position among the world leaders.
1936
The first Picañol weaving machine, a flying shut-
tle machine in which a new spool core can be in-
serted into the flying shuttle without stopping, is
named the Omnium.
1940
Picañol builds one Omnium weaving machine per
day. This machine has a weaving width of 188 cm
and is able to achieve a speed of 140 picks per
minute.
1951
The big breakthrough comes when Picañol
introduces the President weaving machine at
the ITMA textile trade fair in Lille. More than
160,000 of these machines are ultimately sold,
establishing Picañol’s name in the weaving
industry worldwide. A President machine with a
weaving width of 188 cm achieves speeds of up to
180 picks per minute. Later, Picañol also develops
the less expensive Diplomat for lighter yarns.
1971
At the ITMA exhibition in Paris, Picañol surprises
the textile industry with the MDC, the world’s first
electronically controlled flying shuttle machine.
MDC stands for Mono Disc Control, referring
to the electromagnetically controlled clutch-and-
brake unit which makes it possible to increase the
speed of this 188 cm machine to 220 picks per
minute. The MDC is also the first weaving ma-
chine with pushbuttons instead of levers.
R E P O RT B Y TH E B O A R D O F D I R E C TO R S
1975
Picañol introduces the PGW at ITMA Milan. The
PGW (Picanol Gripper Weaving machine) is the
first shuttleless machine to apply the recently-
developed gripper insertion technology to an
existing design. This technology makes it easy
to weave different filling yarns (colors) into the
fabric, opening up new sectors such as wool and
upholstery weaving in which Picanol did not
previously specialize. The machine achieves a
production speed of 230 picks per minute.
1980
The revolutionary PAT weaving machine is
PIC ANO L G ROU P JA A RV E R S LA G 2006 I
developed, and is presented for the first time
at the ATME trade fair in Greenville. The
PAT (Picanol Air Tronic) uses air insertion
technology, and is the result of Picañol’s heavy
investment in R&D. The PAT surprises the
textile world because its air insertion nozzles are
controlled electronically instead of mechanically.
It also features an opto-electronically controlled
prewinder, whose principle is still used today.
With the PAT, Picañol heads the list of the
world’s great weaving machine manufacturers.
A PAT machine with a weaving width of 190 cm
initially achieves a speed of 600 picks per minute.
Further improvements eventually increase the
speed to 800 PPM.
27
1983
Picanol scores another big breakthrough at ITMA
Milan: the world’s first microprocessor-controlled
rapier weaving machine. The GTM Grip Tronic
Machine, the successor to the PGW, represents a
new era in electronic control of weaving machines.
The first GTM machines with their weaving width
of 190 cm achieve a speed of 360 PPM, eventually
rising to 500 PPM.
1985
The microprocessor-controlled PAT is also pre-
sented at ATME Greenville. Bidirectional control
between a central computer and the microproces-
sors on both types of machine (PAT and GTM) is
also demonstrated.
1992
Picanol introduces a new generation of airjet
weaving machines: the versatile Omni and its
simpler variant, the Delta. Both are equipped with
Picanol’s unique QSC (Quick Style Change) sys-
tem, making it possible for a single person to carry
out a complete style change in under 30 minutes.
The Omni (190 type) achieves a speed of 1000
PPM, the Delta 800 PPM.
1997
Picanol introduces the successful Gamma, a
rapier weaving machine of an entirely new
concept, powered by a direct drive switched
reluctance motor. This super motor is named the
Sumo (because it is able to shift a large weight
very quickly). The application of this technology
represents a new milestone in the electronic control
of weaving machines, as the machine speed can be
varied during the weaving process. The Gamma is
also equipped with the QSC (Quick Style Change)
system. A type 190 Gamma achieves a speed of
600 PPM.
2000
The OMNIplus airjet machine is introduced as the
successor to the Omni, again using direct drive
switched reluctance technology. Further applica-
tion of electrical drives (for cloth batching and
selvedge units) permits even more flexible pro-
duction. A type 190 OMNIplus machine achieves
a speed of 1100 PPM.
2002
In November of this year, the Picanol group intro-
duces its new GamMax rapier weaving machine.
The GamMax not only represents the know-how
of the group but also incorporates the experience
gained with the Gamma during the past five years.
The new 160 type achieves a speed of 650 PPM.
2004
In April of this year, Picanol introduces the Olym-
pica and GamMax for weaving glass fiber.
2005
In April one year later, the group launches its new
OMNIplus 800 airjet weaving machine. With this
machine, the Picanol Group sets the new standard
for efficient airjet weaving. The OMNIplus 800
is distinguished by its modular concept, enabling
the machine to be quickly extended or adapted
in response to new market opportunities. All the
components are optimized for hitherto unheard-
of industrial speeds, minimum maintenance and
maximum profitability.
PICANOL G R OU P A N N U A L R E P ORT 2006 I R E PO RT B Y TH E B O A R D O F D I R E C TO R S
2006
Since technological innovation is crucial for fu-
ture success, the Picanol Group extends its prod-
uct range with several new airjet weaving ma-
chines: the OMNIplus 800 TC, the OMNIjet and
the TERRYplus 800.
2007
Picanol introduces the OptiMax, the latest stan-
dard-setter for rapier weaving.
29
WEAVING MACHINE ACTIVITY REPORT
M a rk e t rev ie w
The world market for new weaving machines for
the industrial production of textiles is estimated
at 80,000 to 100,000 units per year on an an-
nual basis (1). Of this number some 20% to 30%
of machines are based on waterjet technology.
The remaining share of the market is accounted
for mainly by airjet and rapier machines, and to a
declining degree by flying shuttle machines.
Finally, there is still a small market for projectile
weaving machines. The Picanol Group manufactures
airjet and rapier weaving machines exclusively.
Flying shuttle and simple rapier weaving
machines are nowadays mainly produced in coun-
tries such as China and India, where they are
sold at the bottom end of the market, estimated
at 30,000 machines annually. The Picanol Group
aims at the remaining market, namely the middle
and top segments for airjet and rapier machines.
This technologically advanced market represents
an annual volume of around 30,000 to 45,000
machines annually.
(1) Based on our own analysis of figures from the International Textile Manufacturers Federation (ITMF), customs
statistics and our own market research.
At its Ieper plant in Belgium the Picanol Group
produces weaving machines for the higher seg-
ments and for niche applications. In Suzhou (Chi-
na) it produces weaving machines for the middle
segment of the market. The German plant focuses
on niche products such as machines for weaving
terry or tire cord.
Important uses for textiles are apparel (e.g. denim
and shirting); household applications (sheets, ta-
ble cloths, curtains and upholstery); and technical
textiles (airbag, sun awnings, coating cloth, tent-
cloth, sailcloth, glass fiber materials, Kevlar and
tire cord). The Picanol Group sells its machines
to weaving mills that produce various textile
applications around the world. There are signifi-
cant fluctuations from year to year, not only in
the total number of machines sold but also in the
geographic mix and the mix within the various
textile segments.

The weaving machine market in which the Picanol
Group operates developed positively in 2006 in
terms of volume, as expected. Demand for weav-
ing machines throughout the world rose steadily
during the first nine months of 2006, driven by the
continuing high consumption in China, but then
slackened off in the fourth quarter. The large de-
mand for weaving machines was influenced by
among other things the abolition of quotas for
textile and clothing products, which last year pro-
duced its full impact on the international textile
industry; world trade in these products was com-
pletely deregulated on 1 January 2005 under the
terms of the Agreement on Textiles and Clothing
within the WTO. This agreement phases out all
the quantitative limitations on exports of textiles
and clothing from a number of developing coun-
tries to the leading industrialized countries. How-
PICANOL G R OU P A N N U A L R E P ORT 2006 I R E PO RT B Y TH E B O A R D O F D I R E C TO R S
ever, the rising local demand in China probably
also played a role.
Despite all this, in 2006 the Picanol Group still
had to battle with heavy pressure on prices and
margins, mainly due to competition in the mar-
ket for airjet machines, in particular from Japan,
a trend that was exacerbated by the further fall in
31
the value of the yen against the euro in the course
of 2006. On the other hand, Picanol was able to
maintain and indeed strengthen its position in
market segments with higher added value. Picanol
managed to increase its share of the world market
for rapier machines, thanks among other things to
the excellent technical performance of its models.
In 2006 the Picanol Group introduced three new
weaving machines. The OMNIplus 800 TC (tire
cord weaving machine) was launched on the
market in March. It was followed in May by the
OMNIjet. This machine is aimed at the growing
mid-segment of the airjet market. It is sold mainly
in Asia but also in Europe and Latin America.
Then in September the Picanol Group launched the
TERRYplus 800. This airjet machine, based on the
OMNIplus 800, is specially designed for weaving
terry cloth. In developing these new machines,
particular attention was paid to performance,
energy consumption and user-friendliness, putting
the group even farther ahead of the competition.
The weaving machines were received with great
acclaim worldwide on the occasion of their market
launch. The Picanol Group also displayed these
machines in 2006 at various international textile
exhibitions such as Kortex (Korea), ITM Istanbul
(Turkey), Cinte Techtextil (Russia), CITME
Beijing (People’s Republic of China) and ATME
Atlanta (USA).
As a consequence of the further migration of
the textile industry to low wage countries in the
East, sales of services, parts and accessories also
came under pressure in 2006. To deal with this
development, various initiatives were taken to
counteract the resulting negative effect on sales.
For example, local sales teams were reinforced,
new services were offered, and the product range
was expanded in line with the higher performance
of the new weaving machines.
Also in 2006, a completely new assembly plant
was put into operation in Suzhou, China. The
Group invested in new infrastructure to centralize
its Chinese activities at a single location. GTP
Shanghai moved to this new site at the end of
2006.
As part of the World Class Manufacturing program,
lasting improvements in quality and productivity
were achieved in the various assembly plants.
Finally, 2006 also saw investments in new IT
platforms for engineering, logistics and assembly,
to serve all the production plants around the
world.
Out look
The group expects in general that demand for
weaving machines could be somewhat lower in
2007 than in 2006. The Picanol Group foresees that
the competitive pressure on prices and margins in
the textile market will continue, due among other
things to the continuing trend in the value of the
yen. The Picanol Group aims to achieve further
growth and improve its market share in segments
with higher added value, by among other things
reinforcing its physical presence in the market,
extending its product portfolio and focusing on
extending the textile handling capabilities of
the Picanol weaving machines. In the field of
technology, Picanol is determined to remain the
trendsetter in both airjet and rapier machines,
and will distinguish itself in terms of energy
consumption, performance and user-friendliness.
Development of aftermarket activities continues
to be another important pillar of the group’s
strategy, with the focus on achieving an even
stronger presence in the market. When it comes
to product development, special attention will
be paid to design for quality, flexibility and cost-
effectiveness, along with further development of
World Class Manufacturing. Particular emphasis
will be placed on optimizing the worldwide
processes and improving the flow of information.
INNOVATION COUNCIL
In 2006 the Picanol Group set up its own Inno-
vation Council. With this new umbrella
organization, the Picanol Group aims not only to
stimulate the day-to-day development activities but
also to promote and strengthen the internal culture
of innovation, as a strategic lever for the group.
Innovation is crucial for the future growth of the
Picanol Group. The core tasks of the Innovation
Council are therefore to map out an innovation
policy, to stimulate innovation by setting up an
innovation platform, to identify and evaluate
innovation projects, and to propose suitable
projects to the Management Committee. In this
way, it should be possible to convert worthwhile
ideas into a concrete business plan, development
For this purpose the R&D and procurement
activities will be brought together physically
and administratively with the weaving machine
production and test facilities in Ieper. The R&D
PICANOL G R OU P A N N U A L R E P ORT 2006 I R E PO RT B Y TH E B O A R D O F D I R E C TO R S
activities of PsiControl Mechatronics will also
move to the new building in Ieper, thus permitting
a more integrated approach to R&D projects
for weaving machines. In line with the group’s
ambition to introduce a new or improved machine
each year, a number of new products will be
launched on the market in 2007 in those segments
where further growth is expected.
project or investment plan. In addition the
Innovation Council coordinates networking
with other parties that are active in innovation,
and ensures efficient exchange of information
internally and externally. The Innovation Council
devotes attention to innovation in various areas
such as new materials, production processes,
technologies, business models and marketing the
current competencies outside the usual markets.
The Innovation Council is distinguished from
other innovation initiatives within the group by
concentrating on innovation processes apart from
33
product strategy, WCM or sourcing. Innovations
or suggestions concerning these activities are
still passed on within the organization, but the
Innovation Council concentrates specifically on
projects that lie farther away from the group’s
own business, or that pose greater uncertainty.
The Innovation Council assesses the feasibility of
such projects, for which it has its own operating
budget.
7 0 y e a rs o f s o cia l life
Ever since the early days, the Picanol Group has
been convinced that people cannot stand alone:
without solidarity and conscientious collaboration,
the chances of success are nil. Karel Steverlynck,
the founder of the company, always promoted this
viewpoint. He was concerned for social life in and
around his factory, and at his initiative various as-
sociations were set up which still exist today and
are supported by the Picanol Group.
Particularly in the years since the Second World
War, a considerable amount of financial support
has been given to social organizations and sports
The Innovation Board is made up of a fixed core
of permanent members, who can also call on ad-
hoc experts for assessing and examining particu-
lar projects. The Innovation Council meets every
two weeks, and reports to the Management Com-
mittee every two months.
clubs. Many sports and cultural associations have
been set up at the initiative of the Picanol Group
itself, partly inspired by Karel’s soccer and athlet-
ics activities during his youth. The company soc-
cer team WAP Sport was set up on 9 November
1943. Its founding charter states that its objects are
“... in addition to physical and moral education, to
provide decent amusement and to raise funds in
support of sick and injured employees with long-
term work disablement.” Among the many other
sports initiatives was the inauguration of the bas-
ketball court at Kruisstraat on 1 May 1960, there-
by giving the company team somewhere to play
its home matches. The Bernard Steverlynck Hall
also caters for the sporting needs of local young-
sters. This being Belgium, attention was paid not
only to ball sports but also to cycling. On the oc-
casion of the St. Eligius festival in 1962 the first
cycle race reserved to members of personnel was
introduced.
The “1st Bernard Steverlynck Grand Prix” pigeon
racing championship was inaugurated in 1962, as
part of the celebrations to mark the 1000th anni-
versary of Ieper. This competition was held for the
44th time in 2006. With support from the Social
Fund, the Festival Committee sets up many activi-
ties on behalf of company personnel. The annual
Ieper Review that draws full crowds each year has
its origins in Picanol. The company also contrib-
utes in the field of music. The Picañol Harmonie
was set up in 1947, and was latter joined by the
majorettes and the hunting horn corps.
The Festival Committee, whose members include
representatives of employees and employers, or-
ganizes various activities throughout the year, in-
cluding minority sports such as rifle shooting and
trout fishing. For the very young there is the annual
St. Martin’s Festival, which was revived in 2002
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I R E P O RT B Y TH E B O A R D O F D I R E C TO R S
and is becoming ever more popular. Young artists
too are catered for, at the traditional Bernard Ste-
verlynck Art Circle competition. Then there are
charity activities such as sponsored cycling for the
cancer charity Kom Op Tegen Kanker.
Many other cultural associations have their ori-
gins in the company, including Picamera and
Yprentis. The annual St. Eligius festival for re-
tired employees enjoys growing success, enabling
many former members of personnel to see their
old workmates again.
The range of social activities supported by the
company continues to expand: there is the bird
fanciers’ club, the pigeon fanciers’ club, the annu-
al cycling excursion, the motorbike rally and the
chess tournament, as well as various ball sports
such as basketball, volleyball and soccer.
35
HUMAN RESOURCES

The Picanol Group employs 2,336 people

worldwide (figure on 31 December 2006),
including 1,528 in Belgium, 258 in China and
259 in the USA.

In 2006, solutions were worked out and

agreements made in consultation between
both sides of industry, in connection with the
automation of a significant part of the Verbrugge
production activities and the move of PsiControl
Mechatronics to the production site in Ieper.
Also in 2006, Human Resources devoted the
necessary attention to supporting the move of the
Shanghai activities to Suzhou, and to the setting
up of PsiControl Mechatronics srl in Romania.
In China, further steps were taken toward
professionalization of the local HR management.

In 2006, Human Resources switched over to an

external IT solution for its personnel and payroll
administration, combined with a worldwide
HR reporting system. A new, worldwide job
classification system for employees was also
implemented, based on an internationally
recognized system. The aim of this classification
is to draw up a consistent internal ranking for all
jobs, using a modern weighting method tuned
to the needs of present-day management. In this
way the system forms the basis for a fair and
transparent remuneration policy and external
benchmarking. As well as modernization per
se, this affords opportunities for international
mobility and job mobility within the group.

As part of the effort to recruit new employees,

further investments were made in the Young
Engineers Program (YEP) in 2006. With this
intensive practical training program in Belgium
and other countries, Picanol aims to attract young,
talented engineers. Last year Human Resources
invested further in the Picanol Academy, which
offers training courses and study opportunities for
Picanol Group employees. In this connection the
emphasis is shifting from open training courses to
more specific, narrowly targeted courses aimed at
building up future-oriented skills. As well as on-
the-job training the group pays a great deal attention
to “network learning” in collaboration with other
companies, the educational establishment and the
government.
Priorities for 2007 include further development
of an international personnel policy, with regular
HR audits in all the group’s sites around the
world. In 2007, Human Resources will also
revise its existing competency model and invest
further in developing a talent management policy,
with a view to among other things meeting the
expectations of the new generation of employees.
In this connection Human Resources will pay
particular attention to career coaching and career
management, HR planning, personal development
plans and development centers. In addition, Human
Resources will set up a number of initiatives
aimed at promoting internal job mobility. The
aim is not only to promote employability and
personal development, but also to build up a pool
of resources from which future recruiting needs
can be met.
Human Resources will also take initiatives to
stimulate the innovative power of the organization,
in support of more technically oriented projects
and the Innovation Council that was set up in
2006.
E n v i ro n me n t, h ea lth & saf et y
In 2006 efforts focused on among other things
reducing waste and waste-related costs, and on
energy-saving measures including compressed
air consumption and heat recuperation from
the cupola furnace. In 2006 Te Strake Textile
successfully renewed its ISO 14001 certification,
a standard that lays down the requirements for
an environmental management system. In 2007
the group will concentrate further on energy-
saving measures for lighting, economical water
management and reducing waste costs still more.
The health and safety of employees is a top
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I R E P O RT B Y TH E B O A R D O F D I R E C TO R S
priority for the Picanol Group, along with
ergonomics, accident prevention and protection
on the factory floor. Numerous safety issues are
considered and solved each year in consultation
with the Committee for Accident Prevention,
Protection and Well-being at Work. One of the
main foundations is the voluntary collaboration
of many employees, including first-aiders,
emergency teams, internal firefighting teams
and safety monitors, who annually provide the
necessary training in each department. Last year,
the Committee organized information campaigns
on dangerous substances and preparations, drugs
and alcohol, fire prevention and internal transport.
Following the introduction of the new law against
smoking at work which came into effect on 1
January 2006, all the Picanol Group’s working
areas in Ieper were declared smoke-free zones,
and sessions were organized to help people give
up smoking. Also in 2006, risk analyses were
carried out in connection with noise and vibration.
Subjects that will be dealt with in 2007 include
lifting gear and personal health and safety. In
addition, risk analyses will be carried out in among
others the assembly and smelting areas.
37
INFORMATION TECHNOLOGY
2006 was a hinge year, in which the IT strategy
first outlined in 2004 was finally implemented
in all cycles throughout the organization, and so
became a practical reality for everyone. This will
enable the total IT costs to be compressed from
2007 onwards, and the IT environment will be-
come better supported and more stable.
I T v i s i on
The Information Technology objective is to stan-
dardize all current applications and platforms in
a consistent way. In the past, the prevalence of
highly-customized applications developed in-
house, along with the differences in the underly-
ing infrastructure, made maintenance, support and
development of our products particularly difficult.
Moreover, system stability is crucial to assure
continuity of the business.
P ri o ri t y
In view of the above, the Picanol Group follows
a deliberate strategy of continual improvement,
standardization and simplification of its process-
es, so as to reduce complexity and compress costs.
As part of this strategy, the Picanol Group’s main-
frame was taken out of operation in 2006, with the
26,000 programs on the mainframe being ported
to a Windows platform. The remaining 1,500 pro-
grams, mainly relating to product configuration
and development, were transferred to a new, mini-
mainframe with an external supplier. This change-
over is the most important step toward the gradual
build-down of the IT costs from 2007 onwards,
with sufficient guarantees for the operational se-
curity of the systems.
Business archit ect ure
The new architecture, with the transformation from
a mainframe to a Windows platform, was techno-
logically necessary in the first place because of
the outdated systems and the need for uniformity
and stability. Simultaneously with this, a move
was made to standardize the business processes,
in consultation with the business managers. With
the implementation of standard software packages
and the phased definition and introduction of best
practices, the Picanol Group aims to reduce com-
plexity and so make additional cost savings.
A p p l i c a tio n s a rc h ite c tu re
In practical terms, four main fields of application
have been defined:
• Supply Chain (procurement, stock control,
production and plant maintenance): these busi-
ness cycles have been linked to one another
through implementation of Microsoft Dynam-
ics Axapta ERP.
• Sales: in 2006 the sales configurator was port-
ed to the Sofon package and linked to the new
ERP system.
• Product Life Cycle (configuration of weaving
machines): all processes related to product de-
velopment and configuration have been trans-
ferred to a new mini-mainframe at Volvo IT for
the next three years.
• HRM: these processes have been taken off the
mainframe and transferred to Manager V, with
linkage to the ERP package.
M u l t i - ven d o r o u ts o u rc in g
Along with consistent implementation of the
strategy, 2006 was also the year in which the Pica-
nol Group opted for a multi-vendor outsourcing
policy, in order to achieve a structural reduction
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I R E P O RT B Y TH E B O A R D O F D I R E C TO R S
in costs and raise the quality of the IT infrastruc-
ture.
With the conversion from a mainframe environ-
ment to a server platform, we will be extremely
dependent on these servers in the future. To hedge
against this, a three-year agreement was made
with the external partner Dolmen, which will
provide the hardware along with monitoring and
support.
The connections between the various servers is
just as critical, as is the security of all the transac-
tions, and so these have been guaranteed for the
next three years by Belgacom. Finally, the end
user equipment is supported externally by HP.
Out look
In the coming years IT will mainly work toward
further roll-out of ERP in the other production
plants, in China, Germany and the USA. In the
meantime, analysis for a new CRM application
has begun, and the product configurator will be
modernized.
39
CORPORATE GOVERNANCE
As required by the Corporate Governance Code,
this chapter describes the corporate governance
policy during financial year 2006, and states the
main principles and provisions of the Code from
which the Picanol Group deviates, giving rea-
sons.
For the general operations of the Board of Direc-
tors, the Subcommittee of the Board of Directors
and the Management Committee as far as they
relate to corporate governance policy, readers are
referred to the Corporate Governance Charter on
the website www.picanolgroup.com.
I . B o a rd o f d irec to rs
COMPOSITION OF THE BOARD OF
DIRECTORS
For the full membership of the Board of Direc-
tors, see page 14.
At the extraordinary general meeting of share-
holders on 22 May 2006, two new directors were
appointed on the nomination of the Board of Di-
rectors, namely Mr. Patrick Steverlynck and Bu-
raco NV, the latter being represented by Mr. Paul
Vandekerkhove. Mr. Patrick Steverlynck was for-
merly Chairman and CEO, and has acquired wide
commercial experience as a member of the Execu-
tive Committee of the Picanol Group, thus giving
him valuable industrial expertise. Mr. Paul Vande-
kerckhove* comes from a legal background, and
has experience as a director with among others
Cobeca NV, Meli NV, Alcomel NV, Wildescreen
Partners NV and Alcopro NV. He is currently a
director of the Cecan NV holding company and
chairman of Cecan Invest NV.
Mr. Joos Waelkens retired as a director at the end
of 2006. He is succeeded by Findar BVBA, rep-
resented by Mr. Stefaan Haspeslagh, who was co-
opted by the Board as a new director. His term of
 office runs until the next Annual General Meeting,
which will be asked to confirm his appointment.
Accordingly, since 22 May 2006 the Board of Di-
rectors consists of nine members, seven of them
non-executive directors. Four of the directors are
independent in the sense of art. 524 of the Com-
pany Code, as required by the Corporate Gover-
nance Charter of the Picanol Group.
Under the guidance of the Chairman the directors
assessed the operation of the Board of Directors in
order to ensure that it functions efficiently.
ACTIVITIES OF THE BOARD DURING
T H E PA S T F I N A N C I A L Y E A R
The Board of Directors met eight times in 2006,
with practically full attendance each time. Apolo-
T H E 1 97 0 S
YEARS
At the ITMA exhibition in Paris in 1971,
Picañol surprised the textile industry with
the MDC, the world’s first electronically con-
trolled flying shuttle machine. Rising sales of
weaving machines meant that Picañol was do-
ing well. Sales continued to expand in the Far
East while the western European economy
entered a slack period. Research and develop-
ment started to play an increasingly important
role. In 1973 a new type of weaving machine
entered production: the Diplomat, an inexpen-
sive machine for weaving standard, light fab-
rics. But the end of the flying shuttle era was
in sight. In 1975 the company presented its
President PGW rapier weaving machine at the
textile fair in Milan.
The company invested heavily between 1973
and 1977, with heavy emphasis on more ratio-
nal production thanks to modernization of the
(*) representing a company
gies for absence were received from Baron Hugo
Vandamme on 13 March, and from Mr. Filiep Lib-
eert on 7 December 2006. A telephone meeting of
the Board was held on 23 March 2006 by Messrs.
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I R E P O RT B Y TH E B O A R D O F D I R E C TO R S
Luc Van Nevel*, Johan Tack* (representing Frank
Meysman*), Baron Hugo Vandamme* and Joos
Waelkens (representing Filiep Libeert*). There
was full attendance at all other meetings.
In addition to carrying out the duties required by
law and the Articles of Association, the Board of
Directors dealt with the following matters in 2006:
– Nomination of the new directors at the Gen-
eral Meeting of Shareholders and co-opting of
Mr. Stefaan Haspeslagh*;
– Appointment of the new members of the
Management Committee, and setting their
remuneration;
70
manufacturing facilities. It also put an effort
41
into purchasing land and building new facili-
ties in order to become more centralized and
work on a larger scale. The first spade of soil
for construction of the new core-making work-
shop was dug in 1975. June 1976 saw the move
from the “old” to the “new” foundry. Mean-
while, Picañol continued to invest in R&D, tak-
ing on several new engineers. The premises at
Zonnebeekseweeg in Ieper also came into use
during this period.
– Appointment of Mr. Paul Vandekerckhove*
as member of the Audit Committee and of the
Nomination & Remuneration Committee;
– Appointment of the company auditors.
– The monthly reporting, the quarterly updates,
the half-year figures, the annual accounts, the
annual report and the AGM;
– The 2007 budget and the 2007-2009 strategic
plan;
– The reports of the Audit Committee and the
Nomination & Remuneration Committees;
– The progress and assessment of the business
activities;
– The setting up of a Romanian subsidiary;
– The important investment projects, such as
the OptiMax crossbeam (for Proferro) and the
new SMD line for the Romanian subsidiary;
– R&D and product strategy;
– Yen hedging strategy;
– Structuring of notional interest deduction;
– The status of carrying out the recommenda-
tions of the CEO exit review, and supervis-
ing the implementation of the findings agree-
ment;
– Discussion and approval of a settlement
agreement between the company, Deminor
International CVBA, Peter Weinreb, Olivier
Goldberg, Victor Levy and the Wingole civil
company, and a shareholding agreement be-
tween Pasma NV/Sofines NV, the sharehold-
ers who are members of the Buraco group (as
defined therein) and the Company.
. –
II. Subcommit t ees of t he
board of direct ors
COMPOSITION
With reference to the provisions of the Corporate
Governance Charter, the arrangements under the
shareholder agreement concerning Picanol NV
between the parties Pasma NV/Sofines BV, Bu-
raco Group and Picanol dated 23 March 2006, the
Board Meeting held on 28 August 2006 confirmed
the appointment of Mr. Paul Vandekerckhove*
as a member of the Audit Committee and of the
Nomination & Remuneration Committee.
This appointment was examined for conformity
with the Picanol Corporate Governance Charter,
which in turn is based on the recommendations
of the Lippens Code. It was determined that the
appointment was in conformity with the Charter,
both for the Appointments & Remuneration Com-
mittee and for the Audit Committee, since:
– as regards the composition of the Appoint-
ments & Remuneration Committee, the Chair-
man of the Board will act as an independent
director once more as of April 2008, since his
interim appointment as non-independent di-
rector was only temporary;
– as regards the Audit Committee, in case of a
tie the casting vote lies with the Chairman,
who is an independent director;
the current membership of the Board of Direc-
tors, and thus of the subcommittees, is limited
in time, and all the directors’ terms of office
 expire at the same time, which permits a rear-
rangement to be made at that moment in accor-
dance with the Corporate Governance Charter.
AUDIT COMMITTEE
The members of the Audit Committee are Messrs.
Johan Tack*, Frank Meysman*, Joos Waelkens
and – with effect from 28 August 2006 – Paul
Vandekerckhove*.
The Audit Committee met three times in 2006,
with all the members being present.
Special attention was paid to:
– the half-yearly and annual results;
– the notional interest deduction;
– reporting on the internal audit, the audit ap-
proach and the 2006 audit scope;
– yen hedging;
– update of the CEO exit review;
– IT audit findings and 2006 audit approach;
– insurance strategy.
After each meeting the Audit Committee reported
through its chairman Johan Tack* to the Board of
Directors about the above-mentioned matters, and
gave its advice with a view to decisions by the
Board.
N O M I N AT I O N & R E M U N E R AT I O N
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I R E P O RT B Y TH E B O A R D O F D I R E C TO R S
COMMITTEE
The members of the Appointments & Remunera-
tions Committee are Messrs. Luc Van Nevel,
Filiep Libeert, Baron Hugo Vandamme and – with
effect from 28 August 2006 – Paul Vandekerck-
hove*.
The Committee met three times during the report
year, with apologies for absence being received
from Mr. Filiep Libeert* on two occasions. The
following subjects were discussed, among others:
– the management incentive plan: assessment
of 2005 and drawing up of a plan for 2006;
– the remuneration of the Management Com-
mittee, and the appointment of new members;
– nominations and resignations of directors.
The chairman of the Nomination & Remuneration
Committee reported on these matters to the Board
of Directors after the meeting, and gave its advice
with a view to decisions by the Board.
43

T H E 1 98 0 S
In 1980 Picañol introduced the revolution-
ary PAT airjet weaving machine. That same
year the ZF hall was set up at K. Steverlynck-
laan, as a result of an investment in a produc-
tion hall for automatic machining of gearbox-
es for the Germany company Zahnradfabrik
Friedrichshafen. In 1983 Picañol launched a
successor to the PGW machine, the GTM. A
new assembly line was built in Ieper to meet
the rising demand quickly and efficiently. In
1984 a Total Quality Control program was
introduced, with new production equipment
including sophisticated CNC machines be-
ing used to meet the demand for high quality.
1985 brought heavy investments in production
capacity to keep pace with the brisk demand.
70
YEARS
The company built a new, 4,000 m2 pro-
duction hall for all the CNC machining centers,
along with storage facilities for spare parts.
In 1987 the company changed the spelling of
its name from Picañol to Picanol, and built
the Picanol Service Center in Shanghai. Also
during that year, modifications were made to
the production facilities in Ieper. The company
split the production division into two smaller
units, with similar workpieces being grouped
together and finished in a specialized produc-
tion cell. In 1988 Picanol acquired a stake in
Melotte, specialized in production of mechani-
cal parts. That same year it built its last flying
shuttle machine, which was shipped to Indo-
nesia. In 1989 the foundry division was split
off from the other activities and made into a
separate company, Proferro NV. Also in 1989
Picanol took a stake in what was then Protron-
ic (now PsiControl Mechatronics).
I I I . M a nag eme n t c o mmittee
a n d d ay -to -d ay ma n ag ement
The Management Committee is made up as fol-
lows (since 17 March 2006):
– Christulf BVBA, represented by Mr. Chris
Dewulf, President & CEO;
– Consilium BVBA, represented by Mr. Stefaan
Dewulf, Vice-President Mechatronics & Ac-
cessories;
– Jurgen Couvreur, Vice-President Finance &
Administration;
– Cathy Defoor, Vice-President Manufacturing;
– Jan Laga BVBA, represented by Mr. Jan Laga,
Vice-President Marketing, Sales & Services
– Geert Ostyn, Vice-President Technology &
Operations;
– Dirk Verly, Vice-President Human Resources
& General Services.
I V. R e mu n era tio n
NON-EXECUTIVE DIRECTORS
– The remuneration for non-executive directors
is made up of an amount that depends on at-
tendance at Board meetings (2,000 euros per
Board meeting per director) and at meetings
of the subcommittees (2,000 euros per com-
mittee meeting per director, with the excep-
tion of the Chairman of the Audit Committee,
whose remuneration is 3,000 euros per com-
mittee meeting). In addition there is a fixed
annual remuneration of 20,000 euros per di-
rector. Exceptionally, the Board granted a
farewell remuneration of 10,000 euros to Mr.
Joos Waelkens, on his resignation as director.
– The fixed remuneration for the Chairman of
the Board is 7,500 euros per month. He does
not receive any other remuneration such as
attendance fees for meetings of the Board of
Directors or the subcommittees that he chairs.
– The remuneration granted to Mr. Joos
Waelkens as director of Proferro NV in 2006
was 23,000 euros.
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I R E P O RT B Y TH E B O A R D O F D I R E C TO R S
– This results as follows:
Mr. Filiep Libeert 34,000 euros
Mr. Frank Meysman
Mr. Johan Tack
40,000 euros
45,000 euros
Baron Hugo Vandamme 40,000 euros
Mr. Joos Waelkens 75,000 euros
Mr. Paul Vandekerckhove 26,500 euros
Mr. Luc Van Nevel 90,000 euros
EXECUTIVE DIRECTORS
President & CEO
Mr. Chris Dewulf* received a basic remunera-
tion of 459,000 euros for the office of President &
CEO in 2006. In addition an amount of 62,545.80
euros was granted for insurance premiums and a
company car. A variable remuneration of 229,000
euros was paid for services rendered in 2006.
Other executive director
The remuneration granted to Mr. Patrick Ste-
verlynck since his appointment as director on
22 March 2006 amounts to 280,658.66 euros.
This amount does not include the remuneration
of 33,139.73 USD received from GTP Greenville.
No other remuneration such as attendance fees
for Board meetings or variable remuneration was
paid.
Management committee
45
– The total cost of the basic remuneration for
members of the Management Committee
(with the exception of the President & CEO)
in 2006 amounted to 1,275,627.39 euros. This
amount includes insurance premiums and
company cars.
– A variable remuneration of 442,082 euros was
paid for services rendered in 2006.
– There are no current share option plans or
warrant plans.
V I . A u dito rs ’ re mu n e ra tion
The auditors received an amount of 157,000 euros
for performance of their audit tasks at Picanol NV
in 2006. During the course of 2006, the following
additional tasks were carried out:
– other audit tasks: 5,150 euros
– tax advice: 52,470 euros
V I I . S h are h o ld er s tru c tu re
a n d a g ree me n ts , a n d
c e rt i f i ca te h o ld er
a g re e men ts
No disclosures were received in the course of
2006. The shareholder structure of Picanol NV is
therefore as follows (situation on 7 March 2007):
– Stichting Administratiekantoor Picanol, Her-
engracht 420 1017 BZ Amsterdam (Nether-
lands): 2,950,217 shares, or 50.0036%
– Buraco NV, Jan De Trochstraat 151, 1703
Schepdaal (Belgium): 457,000 shares, or 7.75%
– Three private individuals (each holding less
than 5%) acting in concert as Gevolmachtigde
BVBA Vincent Busschaert Keizerslaan 3, 1000
Brussels (Belgium): 379,043 shares, or 6.42%
The company is not aware of the existence of any
agreements between its shareholders on the one
hand and certificate holders on the other, or be-
tween the certificate holders themselves, with
the exception of the shareholders’ agreement
mentioned under X below.
VIII. W hist le- blowing
procedure
In accordance with internal policies implemented
previously (rules of conduct that apply worldwide,
governing relations between employees on the one
hand and shareholders, customers, suppliers, fel-
low employees, the press and society on the other),
a new “whistle-blowing” procedure was also intro-
duced. This procedure forms part of a wider policy
on company ethics, and provides a way for em-
ployees to report suspicions about something they
think is not right within the company, either to a
manager or to someone in a position of confidence.
The procedure covers not only the rights and obli-
gations of employees who report their misgivings,
but also the duties of the Picanol Group regarding
how to deal with such reports.
IX. Insider t rading and
market rigging
The Trading Regulations lay down the condi-
tions under which shares in the company can be
acquired or disposed of by directors and key em-
ployees, in compliance with the relevant legisla-
tion. No notification of such operations was re-
ceived during financial year 2006.
I X . A p plic a tio n o f article s
5 2 3 a n d 5 2 4 o f th e C o mp any
Code
Board meeting of 23 March 2006
Prior to the Board consultations on these agenda
points, Mr. Luc Van Nevel, the permanent rep-
resentative of The Marble BVBA, informed the
Board of a shareholding conflict of interests in
the sense of art. 523 of the Company Code, be-
tween the latter company and Picanol NV.
Mr. Luc Van Nevel explained that there might
be a conflict of interests since the settlement
agreement covers among other things a minor-
ity claim that was made on 2 March 2005 by
Deminor International CVBA, Peter Weinreb,
Olivier Goldberg and Victor Levy against The
Marble BVBA, and against all former directors
of Picanol NV; under the terms of the settlement
agreement, the shareholders who entered the mi-
nority claim have to waive their claims against
The Marble BVBA.
With regard to the shareholders’ agreement,
the conflict of interests lies in the fact that the
members of the Buraco group waive their claims
against among others The Marble BVBA con-
cerning the disputes that arose between the par-
ties to this agreement concerning the sharehold-
ership and the management of Picanol NV.
In this connection it is in the interests of The
Marble BVBA for Picanol NV to approve both
agreements, at least in principle, including the
implications for Picanol NV in terms of share-
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I R E P O RT B Y TH E B O A R D O F D I R E C TO R S
holding law.
The Marble BVBA has informed all directors of
Picanol NV about this conflict of interests, and
will also inform the Auditor.
The Marble BVBA, in the person of Mr. Luc Van
Nevel, then withdrew from the discussion, and so
did not take any further part in the deliberations
or the voting about the points on the agenda. The
Board decided that the rest of the meeting should
be chaired by HRV NV, represented by Baron
Hugo Vandamme.
The Board of Directors took note of the draft set-
tlement agreement (hereinafter referred to as the
“Settlement Agreement” between Picanol NV,
Deminor International CVBA, Peter Weinreb,
Olivier Goldberg, Victor Levy and the Wingole
civil company (hereinafter referred to as the “De-
minor Parties”) and a draft settlement agreement
between Picanol NV, Pasma NV/Sofines NV and
the shareholders who are members of the Buraco
Group (hereinafter referred to as the “Sharehold-
ers’ Agreement”).
The legal advisor to Picanol NV explained that
this Settlement Agreement, along with the Share-
47

holders’ Agreement, is the result of discussions
during the previous weeks between Picanol NV
and the shareholders represented by Deminor
on the one hand, and the shareholders grouped
around Buraco NV on the other. Such discus-
sions had been necessary since among other
things Deminor had made new claims against
Picanol NV in February concerning certain deci-
sions by the Board in the past (see the letter from
Deminor to Picanol NV dated 24 February 2006,
as discussed at the Board meeting of 13 March
2006). These discussions were aimed at achiev-
ing an all-embracing, final settlement with the
shareholders concerned, regarding the persistent
disputes about the management of the company.
Under the terms of the Settlement Agreement,
the Deminor Parties acknowledge the need to
put an end to the disputes concerning matters in
the past, in the interests of Picanol NV and the
further growth and development of the company,
and they further waive all their claims related to
these matters. The Deminor Parties further rec-
ognize and unanimously approve the settlement
agreements made by Picanol NV in March 2005
with Messrs. Jan Coene, Herwig Bamelis, Em-
manuel Steverlynck, Patrick Steverlynck, Michel
Steverlynck, Yves Steverlynck and Jean-Pierre
Fafra-Baltes, albeit with application of art. 565
para. 2 of the Company Code.
For the rest, Picanol NV undertakes to ensure
that the necessary control mechanisms within the
Board of Directors are approved and applied, so
as in future to avoid any abuses or irregularities
that might have occurred in the past.
Under the terms of the Shareholders’ Agreement,
Mr. Paul Vanderkerkhove will be nominated as
director of Picanol NV and member of the Ap-
pointments & Remuneration Committee by the
group of shareholders around Buraco NV, who
represent around 20% of the shares and whose
members belong to the branch of the family re-
lated to the late Bernard Steverlynck. The Board
further determined that the shareholders con-
cerned will also nominate the former chairman,
Patrick Steverlynck, representing the Emmanuel
Steverlynck branch, to join the Board once more.
The Shareholders’ Agreement also states that a
dividend policy will be resumed as soon as Pica-
nol is back in profit. Furthermore, Picanol NV
agrees that if the minority shareholders wish to
sell their shares at any moment, the company
will lend its assistance. Lastly, the Shareholders’
Agreement includes a once-and-for-all settle-
ment between Picanol NV, Pasma NV and So-
fines NV and the Buraco group.
The Board of Directors then considered the con-
sequences for the company of both agreements,
in terms of shareholding law.
Concerning the shareholding law consequences
of the Settlement Agreement, the Board deter-
mined that the agreement provides for the pay-
ment by Picanol NV of an amount of 500,000
euros plus VAT to the Deminor Parties, for the
costs incurred by them in exercising their rights
as shareholders. The Deminor Parties declare and
recognize that they have made sufficient agree-
ments among themselves as to the sharing of this
amount, and that they will not make any claims in
this respect against Picanol NV and/or its direc-
tors. However, since the Settlement Agreement
also provides for the approval by the Deminor
Parties of the settlement agreement made be-
tween Yves Steverlynck and Patrick Steverlynck,
in addition to the amounts already received an
amount of 240,000 euros which was previously
held in an escrow account will be released in fa-
vor of Picanol NV. The net cost to Picanol NV
of the Settlement Agreement therefore comes to
260,000 euros.
Also under the terms of the Settlement Agree-
ment, Picanol NV waives its rights against the
Deminor Parties. However, this does not have
any direct consequences for the company in
terms of shareholding rights.
As regards the shareholding law consequences
for Picanol NV of the Shareholders’ Agree-
ment, the Board noted that this agreement speci-
fies among other things that the costs incurred
by the Buraco group in exercising its rights as a
shareholder, amounting to 700,000 euros, will be
borne by Picanol NV and repaid to the Buraco
group. The payment will be made by bank trans-
fer to the third-party account held by Modrika-
men BVBA, which will take responsibility for
sharing out this amount between the members of
the Buraco group, in accordance with the agree-
ments made by them about this.
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I R E P O RT B Y TH E B O A R D O F D I R E C TO R S
For the rest, the Board considered that the com-
mitment for Picanol NV to lend its collaboration
to the minority shareholders in selling off their
shares, should they wish to do so at any point
in the future, did not have any immediate conse-
quences for the company in terms of sharehold-
ing law.
After examining the content of both agreements
and their shareholding law consequences for the
company, the Board then discussed the appropri-
ateness of both agreements.
From these discussions it emerged that the Board
fully supported the need and the desirability of
the proposed settlement. The Board is convinced
that in view of the far-reaching reforms that have
been carried out during the past two years, the
company can once more concentrate on its core
activities and the creation of added value. Ac-
49
cording to the Board, there can be no justification
for the company continuing to be hindered in fu-
ture or incurring costs for disputes about certain
decisions in the past, given the results already
achieved by the reforms and the measures taken
by the company to avoid a repetition of the facts
that let to them.

Based on the discussions the Board further de-

termined that the actions of the Deminor Parties
(including the introduction of a minority action
in front of Ieper Commercial Court on 2 March
2005 under the terms of art. 562 of the Company
Code) and the Buraco group have made an impor-
tant contribution toward the reform of the com-
pany. In particular, the Board determined that the
initiatives and actions of the Deminor Parties and
of the Buraco group have permitted and helped
the company to recover large amounts paid by
the company to certain directors in the past. The
Board recalled in this connection that since Oc-
tober 2004 the company has already recovered
an amount of around 5,000,000 euros, and that
the company is still entitled to receive a further
repayment of around 3,570,000 euros on 31 Oc-
tober 2007. Furthermore, the members of the
former management, acting under pressure from
initiatives by the Deminor Parties and the Buraco
group, have waived their share options, which by
itself resulted in a cost saving of 1.41 million or
3.28 million euros (depending on whether or not
the costs of the associated group insurance policy
are included in the calculation). A detailed list of
the amounts recovered was attached to the min-
utes as an appendix.

Also as a result of these agreements, a definitive

end can be put to the disputes that arose in the
past concerning certain decisions and policy op-
tions. This will permit the company to complete
a difficult period of reforms and to concentrate
fully once more on its commercial activities. In
this light, the Board considered that the costs of
1,200,000 euros were fully justified in the inter-

ests of the company, since among other things
under the terms of the agreement an amount of
240,000 euros that had been held in an escrow
account and so had not yet been included in the
result could now be released in favor of the com-
pany. The net costs to Picanol NV of the agree-
ments therefore come to 960,000 euros.
The Board considered that spreading these costs
among all shareholders was justified, since all
shareholders benefited from the company re-
forms, and since – given the amounts already
recovered – it was in their interest to have a fi-
nal settlement of all the previous disputes, and to
avoid any additional costs for them.
The directors representing LMC NV and M.O.S.T
BVBA at the meeting declared that these two
companies had asked them to note that, from the
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I R E P O RT B Y TH E B O A R D O F D I R E C TO R S
corporate governance point of view, it would be
appropriate for this proposed assumption of the
costs by the company to be put to the AGM. The
other Board members agreed in principle with
this observation, and decided that the agreement
should be reported and communicated on to the
AGM in the most transparent way, all the more
so because a significant number of sharehold-
ers – who together make a majority at the AGM
– are party to the agreement.
The Board considered that both the Settlement
Agreement and the Shareholder Agreement, and
the all-embracing settlement proposed in them,
are justified in the interests of the company.
After these discussions, the Board of Directors
unanimously agreed to approve both agree-
ments.
51
Board meeting of 13 February 2007
Prior to the deliberation, Mr. Patrick Steverlynck
informed the Board of Directors of the fact that
with respect to the agenda, he had a possible
conflict of interest of a proprietary nature in the
sense of article 523 of the Company Code.
Mr. Steverlynck explained that the conflict of
interest consists in the fact that the proposal
for approval between the Company and the tax
authorities, and the associated settlement with Mr.
Jan Coene, can have an impact on the obligations
committed by himself and by the company
controlled by him, Pasma NV, with respect to the
Company pursuant to the mediation settlement
agreement that was signed on 10 October 2004
between Mr. Jan Coene and Pasma NV («the
Mediation Settlement Agreement»).
The resolution on the agenda after all relates to
the reimbursement to the Company of the gross
part of the sign-up premium that the Company
paid to Mr. Jan Coene in 2002. In this respect,
the Mediation Settlement Agreement stipulates
that Mr. Jan Coene would submit a request to
the Federal Public Service Finances for official
dispensation concerning the income tax paid on
the sign-up premium. Mr. Jan Coene in principle
is only required to repay the gross part of the sign-
up premium after the income tax, pursuant to the
request for official exemption, has been repaid to
him by the tax authorities, on the understanding
that the repayment of the gross part of the sign-
up must take place in any case no later than 31
October 2007, regardless the outcome of the
request for official exemption.
Should the Federal Public Service Finances,
for whatever reason, only reimburse a part of
the gross part of the sign-up premium, Pasma
NV has committed itself, together with Mr. Jan
Coene, each for one half, to pay to Picanol NV the
amount not repaid by the Federal Public Service
Finances. Mr. Patrick Steverlynck is guarantor for
compliance by Pasma NV with this agreement.
Mr. Patrick Steverlynck thus in principle has an
interest in the Company approving the present
settlement, including the proprietary implications
thereof for the Company, since this settlement
could substantially limit his repayment obligation
pursuant to the Mediation Settlement Agreement.
The Chairman determined that all directors of the
Company were notified of the conflict of interest,
and will inform the statutory auditor concerning
this.
Mr. Steverlynck then withdrew from the discussion
and left the meeting room. Consequently, he
did not take part in the deliberation and the vote
concerning the agenda.
The Board of Directors is of the opinion that the
resolutions do not need to be subjected to the
procedure of article 524 of the Company Code. The
Board of Directors after all notes that the net cost
of the resolution for the Company is 745,878.76
euros (more specifically 642,863 euros as a result
of the difference in tax rates, and 156,061 euros
for discontinuation of collection less the interest
rate due to tax deductibility), which is less than
1% of the consolidated net assets of the Company
(consolidated net assets as of 31 December 2005:
78.8 million euros). Pursuant to article 524 §1,
third section, 2°, there is then no reason to apply
the procedure of article 524 of the Company Code
with respect to the resolution on the agenda. The
Chairman established that the meeting was validly
convened, was validly composed and was able
to validly deliberate and decide concerning the
agenda items set forth in the convocation notice.
The Chairman then opened the debate concerning
the agenda:
1. Explanation of the factual background and
content of the global agreement
By way of introduction, the Chairman explained
the nature and the factual background of the reso-
lution that was being presented to the Board of Di-
rectors, of which two parts can be distinguished
a. Settlement with the tax authorities
The Chairman reminded the meeting that in the
Mediation Settlement Agreement of 10 October
2004, Mr. Jan Coene agreed to repay to Picanol
the sign-up premium that he received from Picanol
in 2002, for an amount of 6,562,972.20 euros. The
net part of the sign-up premium, an amount of
2,986,140.60 euros, was repaid to Picanol before
31 December 2004, pursuant to the Mediation
Settlement Agreement.
However, for the difference between the gross and
the net amounts, i.e. an amount of 3,576,831.60
euros (hereinafter the «Amount»), the Mediation
Settlement Agreement established that Mr.
Jan Coene would submit a request for official
exemption of the income tax assessment for tax
year 2003, income from 2002. Mr. Jan Coene
has agreed that when the Federal Public Service
Finances deposits the Amount to Mr. Jan Coene,
he will forward the Amount to Picanol NV.
The Mediation Settlement Agreement further
establishes that, concerning the part of the Amount
not reimbursed by the Federal Public Service
Finances, Mr. Jan Coene or Pasma NV, each for
half, would be responsible for the repayment of
the balance to the Company. According to the
Mediation Settlement Agreement, in any case
the Amount must be reimbursed to the Company
before 31 October 2007, regardless of the outcome
of the request for official exemption.
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I R E P O RT B Y TH E B O A R D O F D I R E C TO R S
With a view toward this repayment, at the end
of 2004 Mr. Jan Coene filed a request for official
exemption with the Regional Department of
Bruges, in accordance with the Mediation
Settlement Agreement. The Company has
followed the processing of this request carefully
and closely. Due to the magnitude of the claims
of the Company with respect to Mr. Jan Coene
and Pasma NV, it was deemed irresponsible for
the Company to simply remain detached from
the exemption procedure. After all, if this request
for official exemption has a favourable outcome,
this would accelerate and simplify the repayment
to the Company of the gross part of the sign-up
premium by Mr. Jan Coene, and if necessary
Pasma NV.
After exhaustive meetings, in the end the Regional
Department appeared to be prepared to grant
the request for official exemption only on the
following conditions:
1. Picanol agrees to an increase of the taxable
basis for tax year 2003 (income from 2002) for
the amount of the sign-up premium.
2. Picanol agrees to a reduction of the taxable
basis for tax year 2005 (income from 2004) for
the same amount.
3. Picanol pays the additional corporate tax that
would be owed due to the difference between
53
the corporate tax rate for revenue year 2002
and revenue year 2004, and the increase due to
insufficient prepayments.
As explained below, the corporate tax thus owed
would cost the Company a net amount of 642,863
euros.
Pursuant to the conditions described above, the tax
authorities were prepared to repay Mr. Jan Coene
the amount of the income tax to be exempted
pursuant to the request, after Picanol had paid
this additional corporate tax. With respect to this
settlement, a draft agreement was submitted to the
Company by the tax authorities.
At the request of the Chairman, the lawyers then,
based upon a summarising presentation, provided
further explanation on the steps that were
taken with a view toward obtaining an official
exemption and the position that was taken by the
tax authorities. The Chairman and the lawyers for
the Company also answered the questions asked
in this regard by the directors.
b. Settlement with Mr. Jan Coene
The Chairman then explained that the settlement
with the tax authorities drafted for this purpose
was an opportunity to secure the effective
reimbursement of the gross part of the sign-up
premium, insofar as Mr. Jan Coene would agree
to request that the amount to be deposited to him
by the tax authorities would be paid directly to the
Company (if necessary via the third party account
of his lawyer).
As a result of contacts that took place in this regard
with Mr. Jan Coene at the end of 2006, Mr. Jan
Coene, in the context of a general settlement of all
discussion points still open between the Company
and Mr. Jan Coene, was finally prepared to agree
with such a direct payment.
This global settlement can be summarised as
follows:
1. Mr. Jan Coene acknowledges that each amount
that the Federal Public Service Finances would
award him pursuant to official exemption for
withholding tax/income tax and moratorium
interest for a total amount of 3,576,831.60
 euros must be repaid to Picanol. Mr. Jan
Coene would give the competent collector of
direct taxes an irrevocable order to repay the
complete amount of withholding tax/income
tax and moratorium interest to the third
party account of his lawyer. The latter would
immediately deposit this amount to the third
party account of the lawyer for the Company.
Should on the occasion of the granting of the
above-mentioned request, Mr. Jan Coene not
be refunded moratorium interest, he would
transfer half of the amount corresponding to
the part of the withholding tax/income tax that
was not refunded by the tax authorities to the
third party account of his lawyer within 7 days
after a final and conclusive ruling was made
that no moratorium interest would be owed on
the exempt withholding tax / income tax by the
Federal Public Service Finances. The lawyer for
Mr. Jan Coene would then immediately transfer
this amount to the above-mentioned third party
account of the lawyer for the Company. As long
as this balance is not repaid, interest continues
to be owed on this amount.
2. Mr. Jan Coene will deposit the overdue interest
for the period up to and including 31 October
2006 resulting from the Mediation Settlement
Agreement (53,652.47 euros) to the third party
account of his lawyer and also agrees to pay
interest at an annual interest rate of 3% on half
of the amount of 3,576,831.60 euros for the
period beginning 1 November 2006 until the
value date of payment of the aforementioned
amount. Mr. Jan Coene will pay this interest
within five working days after the notification
of the ruling to grant the request for official
exemption.
3. Picanol waives its claims with respect to the
repayment of the VAT deduction rejected by the
tax authorities with respect to the invoices of
Adequate Advice and Synergy for an amount of
156,060.84 euros.
4. Picanol acknowledges that it should have paid
withholding tax for an amount of 52,626.85 euros
with respect to a non-competition remuneration
that was owed Mr. Jan Coene pursuant to an
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I R E P O RT B Y TH E B O A R D O F D I R E C TO R S
out-of-court settlement with Mr. Jan Coene of
16 March 2005.
The Chairman explained that the settlement under
item 1 goes back to the Mediation Settlement
Agreement between Mr. Jan Coene and Pasma
NV. This establishes that if the tax authorities
were not to agree to the payment of moratorium
interest, the difference between the amount
that should be repaid pursuant to the Mediation
Settlement Agreement on the one hand, and the
amount of income tax that would be reimbursed
by the tax authorities to Mr. Jan Coene pursuant
to official exemption on the other hand, would
be repaid in equal halves by Mr. Jan Coene and
Pasma NV (this amount can be estimated at no
more than 130,040 euros),
2. Nature of the transaction
The chairman explained that the Board of Directors
must decide whether the Company is prepared (i)
with a view toward the efficient collection of the
amounts still owed by Mr. Jan Coene, to accept
the settlement outlined above in order to effect an
official exemption on the part of Mr. Jan Coene,
and within the framework thereof among others
to bear an estimated net cost of 642,863 euros
due to additional corporate tax, and (ii) to take
cognisance of the agreement between Mr. Jan
55
Coene and Pasma NV that an amount of at most
130,040 euros would be subject to the rule of split
charges described above.
3. Proprietary consequences for the Company
The Board of Directors then investigated the
proprietary consequences of both schemes for the
Company.
As can be seen in the calculation below, the net
cost for the Company of the settlement with the
tax authorities can reasonably be estimated at
642,863 euros:
1. Tax year 2003 (Income from 2002): rejection of fiscal deduction of sign-up premium (undervaluation of
assets)
Additional corporate tax:
Increase insufficient prepayments:
Fiscal cost :
2. Tax year 2005 (Income from 2004): increased tax loss by 6,562,972.20 €
Fiscal savings at moment of effective adjustment for loss
33.99% of 6,562,972.20 euros
Net cost for Picanol: (A) – (B)
With a view toward a global settlement with Mr.
Jan Coene, Picanol confirms that it will no longer
insist on the repayment by Mr. Jan Coene of the
VAT deduction rejected by the tax authorities
with respect to the invoices of Adequate Advice
and Synergy for an amount of 156,060.84 euros,
for which a claim was made in 2006. Now that
a waiver is being made with a view toward
securing the collection of the balance of the sign-
up premium owed by Mr. Jan Coene, the waiver
of this action in principle can be deducted in the
corporate tax. The net cost of this waiver can then
be estimated at 103.015.76 euros.
Within the framework of this agreement, Picanol
also confirms that it should have paid withholding
tax for an amount of 52,626.85 euros with respect
to a non-competition remuneration that was owed
Mr. Jan Coene due to an out-of-court settlement
with Mr. Jan Coene of 16 March 2005. The
corresponding amount was already booked in
2006 and the confirmation of this payment within
the framework of the agreement with Mr. Jan
Coene then has no financial consequences for the
Company.
The resolution thus represents an amount that can
be estimated at 745,878.76 euros.
40.17% of 6,562,972.20: 2,636,346 euros
9% of 2,636,346: 237,271 euros
2,873,617 euros (A)
2,230,754 euros (B)
642,863 euros
4. Resolution and justification
After the investigation of the proprietary effects
of the proposed resolution for the Company, the
Board of Directors discussed the appropriateness
of the settlement sketched above.
From this discussion it appears that the Board of
Directors is of the opinion that, if the Company
were to accept the statement of agreement of the
tax authorities and the associated global agreement
with Mr. Coene, this would considerably
simplify the collection of the amounts still owed
the Company by Mr. Jan Coene and possibly
Pasma NV pursuant to the Mediation Settlement
Agreement, and substantially increase the chances
for actual and complete collection thereof.
In this, the Board of Directors assumes that the
settlement with Mr. Coene implies that an amount
estimated at 3,446,873 euros (possibly even more
if the tax authorities would pay moratorium interest
on the amounts to be repaid to Mr. Jan Coene)
would be directly deposited to the Company by
the tax authorities. This means that at least 96% of
the amounts still owed would be immediately and
with certainty collected, without the Company
being dependent on any further intervention or
collaboration on the part of Mr. Coene and/or
Pasma NV, and without being required to take
specific actions with respect to these parties.
If the Company were to reject the conditions for
the official exemption, and thus the amount of in-
come tax paid on the sign-up premium were not
to be refunded to Mr. Jan Coene, the Company
would be required to recover the entire amounts
from Mr. Jan Coene and Pasma NV. Apart from
the question whether the parties involved are ca-
pable of honouring their repayment obligations
with respect to the Company if the tax authorities
were not to reimburse the income tax paid on the
sign-up premium, based on the information the
Board of Directors has at its disposal, it is dubious
to say the least whether Mr. Jan Coene, and if nec-
essary Pasma NV, would be prepared in this case
to repay the amounts owed at their own initiative.
The Company in principle has various means at
its disposal to force execution if necessary of the
outstanding payment obligations with respect to
the Company (including prejudgement and/or
executory attachment). Nevertheless, the Board
of Directors, taking a realistic and pragmatic
approach, believes that it is very unclear whether
such steps would lead to these amounts actually
being collected in the end.
The Board of Directors also believes that it cannot
be denied that compulsory collection in any case
would be awkward and would require prolonged
and intensive follow-up on the part of the
Company, which in itself would imply substantial
costs.
There is also the risk that a legal initiative would
again expose the Company to negative publicity
with respect to certain decisions taken in the
past. The Board of Directors believes that this
PICANOL G R OU P A N N U A L R E P ORT 2006 I R E PO RT B Y TH E B O A R D O F D I R E C TO R S
cannot be justified in the light of the results that
the Company has achieved within the framework
of its reorganisation in the most recent years and
the far-reaching measures that the Company has
taken to prevent a repetition of the facts that led
to them.
The Board of Directors thus judges that it is
desirable for the Company to cooperate in order
to arrive at an official exemption. An agreement
with the tax authorities allows actual collection in
the short term of at least 96% of the amounts still
owed. The Board of Directors believes that it has
no reasonable, reliable indications at its disposal
to allow it to assume that the owed amounts
could be recovered to the same extent based on
the Mediation Settlement Agreement. In view of
the fact that there is a real risk that the amounts
owed might not be (entirely) recovered, the Board
of Directors judges that acceptance of the fiscal
correction requested by the tax authorities and
the associated net fiscal cost for the Company
of (an estimated) 642,863 euros, this being the
difference in the tax rate for 2002 (40.17%) and
2004 (33.99%), is justified.
Based on similar considerations, the Board of
Directors believes that the Company would also
be served by reaching a settlement with Mr.
Coene in which the tax authorities would pay
57
the amounts owed him pursuant to an official
exemption directly to the third party account of
his lawyer, who would then transfer this repaid
amount to the third party account of the Company
lawyer. Such a procedure means it is almost
certain that actual repayment of the gross part
of the sign-up premium would be secured in the
short term, and incidents with respect to payment
and collection risks would be further reduced and
even eliminated.
With respect to the terms and conditions of the
proposed settlement with Mr. Coene, the Board of
Directors first of all points out that account must
be taken of the fact that the settlement foresees
that Mr. Jan Coene will pay the overdue interest
(53,652.47 euros) due pursuant to the Mediation
Settlement Agreement, for which the Company
has repeatedly been forced to serve notice of
default to Mr. Coene, within five working days
following notification by the tax authorities of the
decision to grant the request for official exemption.
The payment of the interest owed after this is also
secured in a similar way.
Concerning the waiver of the legal claim with
respect to the wrongly deducted VAT, the
Board of Directors believes that, in view of the
actions already taken to recover this amount,
payment of this amount could only be obtained
via legal means. In this regard, it is not certain
whether this amount can actually be recovered,
in view of the fact that differences of opinion are
possible concerning the appropriateness of the
repayment to the tax authorities of the deducted
VAT amount. Within the framework of a global
agreement concerning the amounts outstanding,
the estimated maximum net cost of 103,015.76
euros associated with this part of the settlement
is then also justifiable according to the Board
of Directors. The payment of withholding tax
on the non-competition remuneration that was
paid to Mr. Jan Coene for that matter also risks
becoming the object of protracted disputes, with
the considerable costs that these would entail.
For the rest, the Board of Directors takes
cognisance of the fact that Mr. Jan Coene and
Pasma NV have mutually agreed, to the extent
that moratorium interest would not be paid or

PICANOL G R OU P A N N U A L R E P ORT 2006 I R E PO RT B Y TH E B O A R D O F D I R E C TO R S

would not be owed by the tax authorities on the
amount that would be repaid to Mr. Jan Coene
pursuant the official exemption, to repay, each
for one half, the balance of at most 130,040
euros (corresponding to the difference between
the amount required to be repaid pursuant to the
Mediation Settlement Agreement on the one hand,
and the amount of income tax that would be repaid
to Mr. Jan Coene by the tax authorities pursuant
to the official exemption on the other hand). The
Board of Directors notes that this settlement has
no impact on the extent to which the gross part of
the sign-up premium will be repaid.

The Board of Directors thus also believes that

the conditions for the official exemption and the
agreement with the tax authorities, as well as the
proposed global settlement with Mr. Jan Coene,
are justified in the light of the interests of the
Company. The Board of Directors believes that
the distribution of the associated costs over all
shareholders is justified, since all shareholders
have an interest in the actual collection of the
gross part of the sign-up premium in the short
term and a maximum limitation of the payment
and collection risks attached to this.

The Board of Directors is convinced that, in view

of the thoroughgoing reorganisation work that
has been realised over the last three years and the
59
amounts that have already been recovered within
this framework, the proposed settlement will
allow the Company to further concentrate on its
core activities and on the creation of shareholder
value.
C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 2 0 0 6

PICANOL G R OU P A N N U A L R E P ORT 2006 I FIN A N C I A L S TATE M E N T S 2 0 0 6

I . D e f i nitio n s 62

I I . F i n an cia l s tateme n ts 63

II.1. Consolidated income statement 63

II.2. Consolidated balance sheet 64

II.3. Consolidated cash flow statement 65

II.4. Statement of changes in shareholders’ equity 66

III. Notes to the Consolidated Financial Statements for the year ending

31 December 2006 67

III.1. Summary of the valuation rules 67

III.2. Changes in accounting principles applied 78

III.3. Changes in scope of consolidation 78

III.4. Segment information 79 61

III.5. Income statement 85

III.6. Balance sheet 92

III.7. Miscellaneous 111

I. DEFINITIONS

Associated companies Companies in which Picanol has a significant influence and which
are accounted for under the equity method.

Shareholders’ equity Shareholders’ equity, including minority interests, for the calculation
of ratios.

Joint ventures Entities under joint control and which are consolidated
proportionately.

Net assets Net liabilities + shareholders’ equity

EBITDA EBIT + depreciation and impairment of assets

+ adjustments write-offs on inventories and trade receivables
+ adjustments other provisions.

Subsidiaries Entities under the control of Picanol and fully consolidated

Working capital Inventories + trade receivables – trade payables – down payments

received – remuneration and social security contributions – taxation
at source on remuneration.

Gross margin Sales – cost of sales

Export finance Bank loans to refinance credit granted to our customers, with as
security bills of exchange or promissory notes accepted by our
customers.
I I . F I N A N C I A L S TAT E M E N T S

The consolidated financial statements have been approved for publication by the Board of Directors on 19
March 2007.

II.1. CONSOLIDATED INCOME STATEMENT

PICANOL G R OU P A N N U A L R E P ORT 2006 I FIN A N C I A L S TATE M E N T S 2 0 0 6

PICANOL GROUP (in ‘000 euros) NOTES (*) 31/12/2006 31/12/2005

Sales III.4. 410,260 396,302

Cost of sales -343,693 -340,445

GROSS PROFIT 66,567 55,857

Gross profit % on sales 16,2% 14,1% (**)
General and administrative expenses -36,528 -39,188
Sales and marketing expenses -21,025 -21,085
Other operating income III.5.1. 3,697 2,082
Other operating expenses III.5.2. -2,866 0

OPERATING RESULT III.5.3. 9,845 -2,334

Net financing expenses III.5.4. -619 -1,169
Other financial income III.5.4. 528 1,423
Other financial expenses III.5.4. -951 -1,060

PROFIT OR LOSS BEFORE TAXES 8,803 -3,140

Income taxes III.5.5. -3,236 -1,577

PROFIT OR LOSS 5,568 -4,717

SHARE OF MINORITY INTERESTS -1 1

SHARE OF THE GROUP IN PROFIT OR LOSS 5,569 -4,716

(*) the accompanying notes are an integral part of this income statement. 63
(**) A re-allocation of head-office costs amounting to 6.9 million euros from the beginning of 2006 led to an adjustment
of the gross profit on 31/12/2005, in order to make a comparison possible.

E A R N I N GS P E R S H A R E

PICANOL GROUP (in ‘000 euros) NOTES 31/12/2006 31/12/2005

Earnings per share (basic) III.5.7. 0.94 -0.80

Earnings per share (after dilution) III.5.8. 0.94 -0.80
II.2. CONSOLIDATED BALANCE SHEET

PICANOL GROUP (in ‘000 euros) NOTES (*) 31/12/2006 31/12/2005

FIXED ASSETS 94,476 118,635

Intangible assets III.6.1. 8,610 10,858
Goodwill III.6.2. 1,492 1,920
Tangible fixed assets III.6.3. & III.6.4. 59,267 63,237
Other financial fixed assets III.6.6. 103 103
Receivables more than one year III.6.7. 22,230 39,717
Deferred tax III.5.5. 2,774 2,800

CURRENT ASSETS 161,384 166,071

Inventories and contracts in progress III.6.8. 61,178 58,020
Trade receivables III.6.9. 69,265 76,890
Other receivables III.6.9. 14,456 13,027
Cash and cash equivalents III.6.10. 16,485 18,134

TOTAL ASSETS 255,860 284,706

SHAREHOLDERS’ EQUITY II.4. 82,719 78,899

Capital III.6.11. 7,400 7,400
Share premiums III.6.12. 1,332 1,332
Reserves 74,354 68,785
Translation differences -368 1,379
Minority interests 1 3

NON-CURRENT LIABILITIES 50,447 67,762

Pension and similar liabilities III.6.13. 6,485 7,109
Provisions III.6.14. 1,459 2,075
Deferred tax III.5.5. 9,073 7,584
Interest-bearing financial borrowings III.6.15. 33,430 50,994
Financial leasing III.6.17. 11,640 13,498
Credit institutions III.6.15. 21,790 37,495
Other liabilities III.6.16. 0 0

CURRENT LIABILITIES 122,694 138,045

Pensions and similar liabilities III.6.13. 1,035 1,201
Provisions III.6.14. 3,487 3,050
Interest-bearing financial borrowings III.6.15. 23,928 35,511
Trade payables III.6.19. 60,940 64,556
Taxes payable III.6.19. 2,518 3,431
Other liabilities III.6.19. 30,786 30,296

TOTAL LIABILITIES 255,860 284,706

(*) The accompanying notes are an integral part of this balance sheet.
II.3. CONSOLIDATED CASH FLOW STATEMENT

PICANOL GROUP (in ‘000 euros) 31/12/2006 31/12/2005

Operating result 9,845 -2,334

Depreciation on intangible and tangible fixed assets 14,112 15,656
Impairment of assets 1,025 0

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

Write-offs on assets 704 717
Changes in provisions 546 -4,734
Profit/loss on disposals of assets 0 -12
Income from associates 0 0
Gross operating cash flow 26,231 9,293

Changes in working capital 15,783 26,415

Operating cash flow 42,014 35,709

Income taxes -3,236 -1,577

Net operating cash flow 38,778 34,132

Interest received 2,552 2,647

Acquisitions in intangible fixed assets -1,464 -2,619
Acquisitions in tangible fixed assets -9,538 -10,369
Revenue from the sale of intangible fixed assets 32 1,864
Revenue from the sale of tangible fixed assets 1,805 75
Net cash flow from investment operations -6,613 -8,402

Interest paid -3,171 -3,817

Dividends paid 0 -1,475
Increase/ (Decrease) of export finance -15,045 -13,500
Acquisitions of interest-bearing financial borrowings 280 5,663
Repayments of interest-bearing financial borrowings -14,380 -8,685
Cash flow from finance operations -32,317 -21,813
65
Effect of exchange rate changes -1,497 1,717

Adjustments to cash and cash equivalents -1,649 5,634

Net cash position at opening balance 18,134 12,500

Net cash position at closing balance 16,485 18,134
-1,649 5,634
II.4. STATEMENT OF CHANGES IN
SHAREHOLDERS EQUITY

F o r t h e y e a r e n d in g 2 0 0 6

Translation differences

Total before minority

Total after minority

Retained earnings

Minority interests
Share premiums

interests

interests
Capital
PICANOL GROUP
(in ‘000 euros)

At the end of the preceding period 7,400 1,332 68,785 1,379 78,896 3 78,899
Changes in scope of consolidation 0 0 0 0 0 -1 -1
Changes in applied accounting 0 0 0 0 0 0 0
principles
Result over the reporting period 0 0 5,569 0 5,569 -1 5,568
Dividends 0 0 0 0 0 0 0
Translation differences 0 0 0 -1,747 -1,747 0 -1,747
Other 0 0 0 0 0 0 0
At the end of the reporting period 7,400 1,332 74,354 -368 82,718 1 82,719

F o r t h e y e a r e n d in g 2 0 0 5
Translation differences

Total before minority

Total after minority

Retained earnings

Minority interests
Share premiums

interests

interests
Capital

PICANOL GROUP
(in ‘000 euros)

At the end of the preceding period 7,400 1,332 74,760 -889 82,603 132 82,735
Changes in scope of consolidation 0 0 0 0 0 -128 -128
Changes in applied accounting 0 0 0 0 0 0 0
principles
Result over the reporting period 0 0 -4,716 0 -4,716 -1 -4,717
Dividends 0 0 -1,475 0 -1,475 0 -1,475
Translation differences 0 0 0 2,268 2,268 0 2,268
Other 0 0 216 0 216 0 216
At the end of the reporting period 7,400 1,332 68,785 1,379 78,896 3 78,899
I I I . N O T E S T O T H E C O N S O L I D AT E D
F I N A N C I A L S TAT E M E N T S O F T H E Y E A R
ENDING 31 DECEMBER 2006

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

III.1. SUMMARY OF THE VALUATION RULES

I I I . 1 . 1 . S ta teme n t o f c o mpliance – principles f or t he

co mp ila tio n o f th e f inancial st at ement s

Since 1 January 2005, the consolidated financial statements of the Picanol Group have been compiled in
accordance with the International Financial Reporting Standards (IFRS), as drawn up by the International
Accounting Standards Board (IASB) and the Interpretations issued by the Standing Interpretation Commit-
tee of the IASB and approved by the European Union.

I I I . 1 . 2 . G en era l p rin c ip les

Basis for presentation

The consolidated financial statements are expressed in thousands of euros. They have been compiled on the
basis of the historical cost convention.

The valuation rules, with the exception of IAS 32/39 (financial instruments), IFRS 3 (business combina-
tions) and the ‘bandwidth’ approach as laid down in IAS19 (personnel benefits), have consistently been
applied to the year 2006, and also to the previous financial year and the opening balance on the date of
transition to IFRS.

The following new standards and interpretations, already issued on the date of approval of this annual re-
port, but not yet in effect, were not applied by the Picanol Group for the year 2006:
67
• IFRS 7 Financial instruments: Disclosures; in effect for the financial year that starts per 1 January 2007
• IFRS 8 Operating segments; in effect for the financial year that starts per 1 January 2009
• IFRIC 7 Applying the Restatement Approach under IAS29; in effect for the financial year that starts after
1 March 2006
• IFRIC 8 Scope of IFRS 2; in effect for the financial year that starts after 1 May 2006
• IFRIC 9 Reassessment of Embedded Derivatives; in effect for the financial year that starts after 1 June
2006
• IFRIC 10 Interim Financial Reporting and Impairment; in effect for the financial year that starts after 1
November 2006
• IFRIC 11 IFRS 2 Group and Treasury Share Transactions; in effect for the financial year that starts after
1 March 2007
• IFRIC 7 Service Concession Arrangements; in effect for the financial year that starts per 1 January 2008

According to a first estimation, the application of IFRS 7 and IFRS 8 will only influence the notes of the
Picanol Group. The application of the above mentioned standards and interpretations will have no material
influence on the financial statements of the Picanol Group.

Foreign currency

The presentation currency of the Picanol Group is the euro.

Transactions denominated in foreign currencies are accounted for at the exchange rates prevailing at the
date of the transaction. At each balance sheet date, any monetary assets and liabilities that are expressed in
foreign currency, will be translated at the closing rate.
Any non-monetary assets and liabilities carried at fair value and denominated in a foreign currency , will be
translated at the rate of exchange applicable at the time when their fair value was determined. Any profits
and losses which result from these transactions will be recognized in the income statement. However, if
these are deferred, they will be recognized in the shareholders’ equity.

Assets and liabilities of the group’s foreign operations are translated at the closing rate. Profits and losses
are translated at the average exchange rate over the period. Any currency exchange differences resulting
from this will be recognized in shareholders’ equity, under the heading “Translation differences”. Upon
disposal of the foreign operation, currency exchange differences accumulated in equity will be recognized
in the income statement.

Consolidation principles

Subsidiaries
The consolidated financial statements enclose all subsidiaries where the group has acquired control. Control
means that Picanol NV has the power to control the financial and operational policy of the entity in order to
benefit from its activities. Such control is supposed to exist when Picanol NV, either directly or indirectly,
holds over 50% of the voting rights of the entity. The existence and effect of potential voting rights, practi-
cable or convertible at that time, are taken into consideration when evaluating if the group has the power to
control the financial and operational strategy of another entity.

Subsidiaries are those companies in which Picanol NV holds, either directly or indirectly, more than 50%
of the voting rights or in which Picanol NV can exert, either directly or indirectly, a deciding influence on
the policy.
Acquisitions of subsidiaries are accounted for on the basis of the take-over method.
The cost of a business combination is valued at the total fair value on the date of the exchange, of assets
handed over, liabilities entered into or taken over, and the shareholders’ equity instruments issued by the
acquirer, plus any costs directly attributable to the business combination. The identifiable assets, liabilities
and contingent liabilities of the acquirer which comply with the admission criteria of IFRS 3 Business
Combinations are recognized at the fair value on the date of take-over with the exception of the fixed assets
(or groups of assets disposed of) classified as held for sale in accordance with IFRS 5 Fixed assets held for

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

resale and discontinued operations. Each minority interest in the acquirer will be recognized against the
minority share of the net fair value of the identifiable assets, liabilities and contingent liabilities.

The financial statements of the subsidiaries are recognized in the consolidation scope from the moment that
Picanol NV acquires control until the date on which this control ceases.

The financial statements of the subsidiaries bear the same reporting date as that of the parent company.
These financial statements are compiled on the basis of uniform principles for financial reporting for com-
parable transactions and other events in similar circumstances. Balances and transactions, profits and losses
within the group are totally eliminated.

Associated Companies
Associated companies are companies in which Picanol NV exercises significant influence. Significant in-
fluence is the power to participate in the financial and operating policy decisions of the shareholding, but
does not entail control or joint control over the relevant policy. Unless stated otherwise, significant control
is presumed when an investor holds, either directly or indirectly, 20% or more of the voting rights of the
shareholding.

These enterprises are accounted for under the equity method from the moment this significant influence
is acquired until the date it ceases. If the group share in the loss exceeds the book value of the associated
company, the book value will be reduced to zero and further losses will no longer be charged, except to the
extent which the group has entered into obligations with respect to this enterprise.

Joint ventures
A joint venture is a contractual agreement in which two or more parties enter into a business activity over
which they have joint control. Entities over which the group exercises joint control are recognized on the
basis of the proportional consolidation method. All of the assets, liabilities, profits and losses of the entities
69
under joint control are added entry by entry to comparable entries in the financial statements. The applica-
tion of proportional consolidation ceases on the date on which the group ceases to have joint control.
III.1.3. BALANCE SHEET

Intangible assets

Intangible assets are valued at cost less the accumulated depreciation and incidental impairment losses.

Internally generated intangible assets

Research expenditures are recognized as a loss in the income statement at the time when the expenditure
is incurred.

Internally generated intangible assets resulting from the development of the group are only recognized if
they meet the following criteria:
• An identifiable asset has been created.
• It is probable that the created asset will generate economic benefits that will flow to the entity.
• The development cost of the asset can be measured reliably.

From the moment a weaving machine is launched onto the market, the capitalized development costs are
depreciated on a straight-line basis over a period of 5 years. This is in line with the average lifecycle of a
weaving machine.

Separately acquired intangible assets

• Patents and Licenses
The costs of acquired patents and licenses are depreciated on a straight-line basis over their useful life, with
a maximum useful life of 5 years.
• Computer software
External and internal costs directly linked to the purchase of or to the installation of business software ap-
plications for ERP, Supply Chain, CRM, etc. are capitalized as intangible assets. These are depreciated on
a straight-line basis over their useful life, which is equivalent to 5 years.

Goodwill

Goodwill is the difference between the cost of a business combination and the interest of the Picanol Group
in the net fair value of the identifiable asset, liabilities, and contingent liabilities. Goodwill is measured at
cost less any incidental accumulated impairment losses.

The cash generating unit to which goodwill is accounted is checked every year on impairment, and each
time when there is an indication that the unit has experienced impairment comparing the book value of a
unit with the realizable value. If the realizable value is lower than the book value, the impairment will be
recognized in the book value of the unit’s added goodwill and further in the other assets of the unit in direct
proportion to the book value of each asset in the unit. A special impairment recorded in goodwill, can not
be reversed later on.
If the interest of the Picanol Group in the recognized net fair value of the identifiable assets, liabilities, and
contingent liabilities, exceeds the cost of the business combination, then:
(a) The identification and the valuation of the identifiable assets , liabilities and contingent liabilities of the
acquirer and the cost valuation of the business combination will be assesses; and

(b) Any incidental surplus remaining after that assessment will immediately be recognized in the income
statement.

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

Ta n g i b l e f i x e d a s s e t s

Tangible fixed assets are recognized in the balance sheet at the historical cost of acquisition less the accu-
mulated depreciation and any incidental impairment. The historical cost of acquisition includes the actual
purchase price plus any incidental costs incurred to bring the asset to its working condition and location for
it intended use.
Borrowing costs are not capitalized.

Any subsequent costs associated with tangible fixed assets are generally immediately expensed within the
period in which they occur. Such costs are only capitalized if it can be demonstrated that the economic
benefits generated by this expenditure will be higher than their initial estimated performance standard, and
that the cost of the asset can be measured reliably.

Depreciation is calculated on a straight-line basis as follows:

• Buildings 20 years
• Equipment, plant and machinery 10 years
• Melting furnace 15 years
• Tooling, moulds 5 years
• Office furniture 10 years
• Office and computer equipment 4 years
• Vehicles 5 years
• Internal transport equipment 10 years

The residual value and the useful life of an asset are reviewed at least at the end of each financial year and
if the expectations differ from previous estimates, adjustments are processed as an adjustment in estimate
in accordance with IAS 8 Principles of financial reporting, changes in estimates and errors.
71
Lease agreements

Financial lease
Lease agreements are classified as financial leases if the group substantially bears all the risks and rewards
associated with the agreement. Tangible fixed assets acquired by means of a financial lease are recognized
in the balance sheet at:

- The fair value of the leased asset, or if lower,

- The discounted value of the minimum lease payments, as stipulated at the start of the lease agreement.
The corresponding liability with the lessor is presented in the balance sheet as a financial liability.

Lease payments are partly presented as finance costs and partly as settlement of the outstanding liability, so
that a constant interest charge in comparison with the outstanding capital is created over the full term.

The depreciation rules for assets acquired in form of a financial lease are consistent with those for assets
acquired as property. If there is any uncertainty as to whether the company will own the asset at the end of
the lease, then the asset must be written off in full over the lease period or over the useful life should this
be shorter.

Operating lease
All lease agreements not classified as financial leases are operational leases. Payments made under an oper-
ating lease contract are expensed on a straight-line basis over the term of the agreement. Benefits received
or which will be received at the end or at the renewal of an operating lease will also be recognized on a
straight-line basis as a reduction of the rental costs over the lease term.

Impairment of tangible and intangible assets

The assets of the Picanol Group, other than the inventories, the deferred tax assets, the personnel benefits
and financial instruments, are reviewed for impairment, if there are indications that the carrying amount of
an asset or a cash generating unit might possibly not be recovered.
If the carrying amount of an asset or a cash generating unit exceeds its realizable value, an impairment loss
will be recognized in the income statement.
The realizable value of an asset or of a cash generating unit is equal to the highest fair value minus the costs
to sell and value in use of the asset or of a cash generating unit, whereby the fair value is equal to the amount
that can be obtained from its sale in a transaction between knowledgeable, willing, and independent parties,
and of which the going concern value corresponds with the discounted value of the estimated future cash
flows which would be expected to flow from the asset or a cash generating unit.

Impairment losses recognized in previous financial years are offset in the income statement if there are any
indications that a previously recognized impairment of an asset no longer exists or has decreased. Impair-
ment losses on goodwill are not reversed.

Available-for-sale fixed assets

Fixed assets or groups of assets that are being disposed of, are classified as available for sale if their carrying
amount will primarily be realized in a sale transaction and not through its continued use. This only applies
when the assets (or the group of assets being disposed of) are immediately available for sale in their present
condition and if the sale is highly probable. A sale is only considered as highly probable if the appropriate
management level has committed itself to a plan to sell the asset.

Fixed assets or group of assets which are being disposed of, are valued at the lower of carrying amount of
fair value minus the sales costs.

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

Borrowing costs

All borrowing costs are expensed in the period in which they are incurred.

Inventories

Inventories are valued at the lower of cost or market value. The realizable value is the estimated sale price
within the operational framework less the estimated costs for completion and the costs that are necessary
to achieve the sale.

The Picanol Group uses an inventory valuation method which approaches the FIFO method.
The cost of the inventory includes all the purchase costs, conversion costs, and any other costs necessary to
bring the inventory to their present location condition.

Minority interests

Minority interests are a share in the profit or the loss and the net assets of a subsidiary which are attributable
to the equity interests which are not held directly via subsidiaries by the parent company.

At the time of acquisition, the minority interest is initially recognized at the minority share of the fair value
of the identifiable assets, liabilities and contingent liabilities of the acquirer on the date of the acquisition.
This will later also include the minority share of the profits or losses.

Pensions and similar liabilities

The group primarily has defined contribution plans as well as defined benefit plans in Picanol NV and
73
Proferro NV.

Defined contribution plans

The contribution liabilities to the defined contribution plans are expensed by the group in the income state-
ment within the relevant period.

Defined benefit plans

For defined benefit plans the pension liability of the financial year has to be calculated on the basis of the
‘projected unit method’.
The amount recognized as a net liability of a defined benefit plan is the net total of the following amounts:
(a) the discounted value of the gross liability in respect of defined benefit plans at the balance sheet date;
(b) plus any actuarial gains (less any actuarial losses) that have not been recognized as a result of the ap-
plication of the ‘corridor’ approach
(c) less any unrecognized pension costs of past service;
(d) less the fair value at the balance sheet date of possible investment funds, from which the liabilities must
be directly settled.

The corridor approach entails that the actuarial gains and losses which, at the end of the previous reporting
period, exceeded the largest amount of 10% of the discounted value of the gross liability in respect of the
defined benefit rights on that date and 10% of the fair value of the investments funds on that date, are rec-
ognized in the income statement over the expected average remaining service lifes of the plan participants
involved.

The discounted value of the gross liability in respect of defined benefit plans is calculated by discounting
the gross liabilities at a discount rate which is based on the market yield of high quality company bonds at
the balance sheet date.

A provision for current early retirements is recognized as a liability and as charge if the entity has demon-
strably committed itself to either:
(a) the termination of the employment of an employee or a group of employees prior to the normal pension
date; or
(b) the settlement of redundancy payments as a result of an offer made to the employees to encourage vol-
untary redundancy.

If redundancy payments are due only 12 months at least after the balance sheet date, they will be discounted.
If an offer is made to encourage voluntary redundancy, the valuation of the redundancy payments will be
based on the number of employees who are expected to accept the offer.

No provision has been made for this in view to the fact that the Picanol Group does not have to provide any
constructive liability for future early retirement.

Provisions

Provisions are recognized at the balance sheet date if the group has a present obligation (enforceable by
law or constructive) due to a past event, and if it is probable that this liability will lead to a future outflow
of resources which in themselves hold economic benefits, when the liability will be settled, and if a reliable
estimate can be made of the amount of the obligation.

Provisions are recognized at the best estimate of the expenditure required to settle the existing obligation
at the balance sheet date.

Provision for warranty cost

A provision for warranty cost will be made for products under warranty. This is made on the basis of histori-
cal data related to repairs and returned goods.
Provision for restructuring
A provision for restructuring will only be made if the group has drawn up a detailed and formal restructur-
ing program and if the expectation is being created with the relevant parties that the group will be imple-
menting the restructuring program, either by the group already having started its implementation, or by
having informed the relevant parties of its main features prior to the balance sheet date.

Financial instruments

PI CAN OL GR OU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

From 1 January 2005:
Financial assets and financial liabilities are recognized on the balance sheet of the group when the group
becomes party to the contractual provisions of the financial instrument concerned.

Investments in equity instruments that do not have a quoted market price in an active market and whose fair
value cannot be reliably measured.
After the initial valuation, these are valued at cost less any incidental impairment losses.

Available-for-sale financial assets

At initial recognition, available-for-sale financial assets are recognized at fair value plus any transaction
costs directly attributable to their acquisition. Following their initial recognition, these assets are valued at
fair value without any deduction of incidental transaction costs incurred by the sale or any other form of
disposal. Any profit or loss generated by these assets is immediately recognized in the shareholders’ equity
with the exception of impairment losses and foreign currency gains or losses until the financial asset is
derecognized. Henceforth, any cumulative gain or loss previously recognized through shareholders’ equity
is recognized through profit or loss.

Financial liabilities and equity instruments

Financial liabilities and equity instruments issued by the group are classified in accordance with the eco-
nomic reality of the contractual agreement and with the definitions of a financial liability and shareholders’
equity instruments.

Equity instruments
Equity instruments issued by the company are recognized in accordance with the amounts received, minus
any direct issue costs.

75
Bank loans
Interest-bearing bank loans and fixed advances are recognized on the basis of the amounts received, less
any direct issue costs. Financial charges, including premiums payable upon settlement or redemption and
direct issue costs, are recognized proportionally through the income statement in accordance with the ef-
fective interest method and are added to the recognized amount of the instrument to the degree that they are
not settled in the relevant period.

Derivatives
Picanol NV has foreign currency hedges in the form of forward contracts, partly as fair value hedge and
partly as cash flow hedge.
Fair value hedges protect against foreign currency risks incurred by exchange rate fluctuations in the fair
value of recognized assets and liabilities. The profit and loss from both the revaluation of the hedging in-
strument (e.g. forward contracts) and the revaluation of their hedged assets and liabilities are immediately
recognized through the income statement.

Cash flow hedges protect against any incidental variation in cash flow which (i) is attributable to a particular
risk associated with a recognized asset or liability or a highly probable expected future transaction and (ii)
which could have an impact on the profit or loss. The share of profit or loss on the hedge instrument which
has been established as an effective hedge will immediately be recognized in the shareholders’ equity and
the non-effective share of the profit or loss on the hedge instrument will be recognized through the income
statement.

If the hedging of an expected future transaction leads to the recognition of a non-financial asset or a non-
financial liability, or if an expected future transaction concerning a non-financial asset or non-financial
liability becomes a firm undertaking for which administrative processing of fair value hedge transactions is
applied, then the entity will take the following action:
• The entity transfers the associated profits or losses recognized in the shareholders’ equity to the income
statement in the same period or periods in which the acquired asset or the liability entered into has an
impact on the profit and loss. However, if an entity expects that (part of) the profit which is directly rec-
ognized in the shareholders’ equity , will no longer be realizable in one or several future periods, then the
entity must transfer the expected non-realizable amount to profit and loss.

• The entity transfers the associated profits and losses which are recognized in the shareholders’ equity in
order to recognize these in initial cost or another book value of the asset or liability.

Financial instruments are not used at all for speculative purposes. The Picanol Group does not have any
other kind of financial instruments.
III.1.4. Revenue

General

Revenue is valued at the fair value of the consideration receivable.

Sale of goods

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

Revenue from the sale of goods is recognized when all the following criteria are met:
(a) the company has transferred all the substantial risks and rewards associated with ownership of the goods
to the buyer;
(b) the company retains neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold.
(c) the amount of revenue can be measured reliably.
(d) it is probable that the economic benefits associated with the transaction will flow to the company
(e) the costs already incurred or still to be incurred relating to the transaction can be measured reliably.

Rendering of services
If the result of a transaction involving the rendering of services can be measured reliably, the revenue as-
sociated with those services has to be recognized in direct proportion to the services rendered at the balance
sheet date.

Interest income from loans and export finance

Interest is recognized in accordance with the effective interest method (IAS39)

Dividends
Dividends are recognized when the shareholders’ right to receive the payment is established.

Income taxes

The tax expense of the period represents the sum of the current tax expense and deferred tax expense. The
current tax expense is based on the taxable profit of the financial year. Taxable profit differs from the net
profit as stated in the income statement because it excludes income or expenditure that is taxable or deduct-
ible in other years, and it further excludes components which are never taxable or deductible. The current
tax of the Picanol Group is calculated using tax rates enacted or substantively enacted at the balance sheet
77
date.

Deferred taxes are taxes payable or recoverable on the differences between the carrying amount of assets
and liabilities in the financial statements and the corresponding tax bases used in the calculation of taxable
profit, and these are recognized on the basis of the balance sheet liability method.

Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax
assets are recognized to the extent that it is probable that taxable profits will be available against which
deductible temporary differences can be utilized. Such assets and liabilities are not recognized when the
temporary differences originate from goodwill (or negative goodwill) or from the initial recognition of an
asset or of a liability in a transaction that is not a business combination, and which at the time of the transac-
tion, affects neither the accounting profit not the taxable profit or loss (taxable loss).
Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiar-
ies, interests in joint ventures and associated companies, except when the Picanol Group is able to control
the reversal of the temporary difference and when it is probable that the temporary difference will not
reverse in the foreseeable future.

The carrying amount of the deferred tax assets is reviewed at each balance sheet and reduced to the extent
that is no longer probable that sufficient taxable profit will be available to allow all or part of the tax assets
to be recovered.

Deferred taxes are calculated at the tax rates which will probably be applied to the period in which the li-
ability is settled or the assets are realized. Deferred taxation will be debited or credited in the income state-
ment, except if it relates to components which are directly debited or credited in shareholders’ equity, in
which case the deferred taxes will also be recognized in shareholders’ equity.

Deferred tax assets and liabilities are recognized if they relate to income tax levied by the same tax author-
ity and if the group has the intention to settle its current tax assets and liabilities on a net basis.

III.2. CHANGES IN ACCOUNTING PRINCIPLES

APPLIED

There were no changes in accounting principles applied in financial year 2006 in comparison with financial
year 2005.

III.3. CHANGES IN SCOPE OF CONSOLIDATION

The Picanol Group consolidation scope was modified in 2006 as a result of the settlement of the companies
Picanol Overseas and the Swedish joint-venture Psi-Control. The settlement of these companies was initi-
ated and completed in 2006. Formerly, the company Picanol Overseas was integrally entered in the consoli-
dation of the Picanol Group, whereas the company Psi-Control was consolidated proportionally.

The companies Amtech and Picanol Korea were sold in 2006. Picanol Korea was before integrally entered
in the consolidation, whereas Amtech was consolidated proportionally.

During the financial year 2005, the above mentioned companies had a contribution of the consolidated
net assets of -0.38 million euros, in the consolidated total assets of 1.94 million euro, in the consolidated
turnover for an amount of 1.89 million euros and an impact on the consolidated net result of -0.23 million
euros. On the contrary, these companies contribute in 2006 in the consolidated net assets for an amount of
0.10 million euros, in the consolidated total assets of 0.11 million euros, in the consolidated turnover for an
amount of 0.26 million euros and in the net-result of -0.74 million euros.
On the other hand, the consolidation scope changed because of the establishment of the Romanian company
PsiControl Mechatronics Romania Srl and the Chinese company Picanol (Suzhou) Trading Co. Ltd in 2006,
both a 100% participation.
The companies Picanol (Suzhou) Textile Machinery and Picanol Tex-Machinery Systems merged in 2006
into the company Picanol SIP (Suzhou Industrial Park) Textile Machinery, where these companies each
represent a 100% participation. These new companies have no impact on the consolidated financial state-
ments of 2006.

PI CAN OL GR OU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

Finally , the settlement of BCN Laminados was initiated, which had no influence in 2006 on the scope of
consolidation.

III.4. SEGMENT INFORMATION

I I I . 4 . 1 . B u sin es s s e g men ts

The group consists of two main divisions – OEM Business and Weaving Machines – and the Head Office.
Please refer to the first section of this annual report for more details concerning these divisions, which
form the primary segments of the group. Sales between segments take place in accordance with the general
market conditions.

Segment information about these divisions is presented below.

79
For the year ending 2006

OEM Business

Consolidated
Eliminations
Corporate
Machines
Weaving
PICANOL GROUP (in ‘000 euros)

External sales 76,383 333,877 410,260

Inter-segment sales 88,037 891 -88,928 0
TOTAL SALES 164,421 334,767 -88,928 410,260

Segment profit or loss 1,747 30,039 -21,942 9,845

OPERATING PROFIT 9,845

Financial result -1,042

PROFIT OR LOSS BEFORE TAXES 8,803

Income taxes -3,236

PROFIT OR LOSS AFTER TAXES 5,568

Share of Minority Interests -1

SHARE OF THE GROUP 5,569

For the year ending 2005

OEM Business

Consolidated
Eliminations
Corporate
Machines
Weaving
PICANOL GROUP (in ‘000 euros)

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

External sales 67,732 328,570 396,302
Inter-segment sales 63,891 -623 -63,268 0
TOTAL SALES 131,623 327,947 -63,268 396,302

Segment profit or loss -1,952 18,765 -19,147 -2,334

OPERATING PROFIT -2,334

Financial result -806

PROFIT OR LOSS BEFORE TAXES -3,140

Income taxes -1,577

PROFIT OR LOSS AFTER TAXES -4,717

Share of Minority interests -1

SHARE OF THE GROUP -4,716

The increase of the total group operating profit was caused, on the one hand, by an increase of the operating
profit of the OEM Business segment (3.7 million euros), and by an increase of the operating profit of the
segment Weaving Machines (11.3 million euros). On the other hand, the operating result of corporate has
decreased by 2.8 million euros.

The increase in the segment profit within OEM Business is mainly caused by an increase in the profit of
Manufacturing, which during 2005 had to deal with productivity problems.
81

The increase in the segment profit within Weaving Machines is mainly caused by, on the one hand, an in-
crease in realizable margins through the effect of a product mix and, on the other hand, through efficiency
improvements within the assembly department.

The increase in the segment loss of corporate is mainly caused by non-allocated other company costs in
2006 for an amount of 0.7 million euros against non-allocated other company costs in 2005 for 2.2 million
euros.
O t h e r in fo rma tio n

For the year ending 2006

OEM Weaving Consoli-

PICANOL GROUP (in ‘000 euros) Business Machines Corporate dated

Depreciation and amortization 7,808 2,877 3,427 14,112

Impairment losses
recognized in profit or loss 428 597 0 1,025

EBITDA 10,387 34,206 -18,395 26,199

Acquisitions 2,498 5,402 3,102 11,002

Restructuring 0 0 0 0

For the year ending 2005

OEM Weaving Consoli-

PICANOL GROUP (in ‘000 euros) Business Machines Corporate dated

Depreciation and amortization 4,984 8,094 2,578 15,656

Impairment losses
recognized in profit or loss 0 0 0 0

EBITDA 3,394 28,413 -17,403 14,404

Acquisitions 4,054 7,300 1,634 12,988

Restructuring 0 0 0 0
B a l a n ce s h ee t

For the year ending 2006

OEM Weaving Consoli-

PICANOL GROUP (in ‘000 euros) Business Machines Eliminaties dated

Segment assets 87,093 147,369 -25,061 209,401

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

Non-allocated assets 46,460

TOTAL CONSOLIDATED ASSETS 255,860

Segment liabilities 45,338 69,375 -25,061 89,653

Non-allocated liabilities 166,207

TOTAL CONSOLIDATED LIABILITIES 255,860

For the year ending 2005

OEM Weaving Consoli-

PICANOL GROUP (in ‘000 euros) Business Machines Eliminaties dated

Segment assets (*) 92,060 172,098 -30,775 233,383

Non-allocated assets 51,322

TOTAL CONSOLIDATED ASSETS 284,706

Segment liabilities (*) 47,052 91,206 -30,775 107,482

Non-allocated liabilities 177,224

TOTAL CONSOLIDATED LIABILITIES 284,706

(*) The segment assets and segment liabilities of OEM Business and Weaving Machines in 2005 were adjusted in
83
order to make a comparison with 2006 possible.
Non-recurrent elements per segment

OEM Weaving Consoli–

PICANOL GROUP (in ‘000 euros) Business Machines Corporate dated

2006
Impairment -428 -597 0 -1,025
Restructuring costs 0 0 0 0
Other 155 2,430 -729 1,856

TOTAL -273 1,833 -729 831

2005
Impairment 0 0 0 0
Restructuring costs 0 0 0 0
Other 55 -175 2,201 2,082

TOTAL 55 -175 2,201 2,082

The non-recurrent elements are discussed in detail in Par. III.5.1. “other operating income” and III.5.2. “other
operating expenses”.

I I I . 4 . 2 . G eo g ra p h ic a l s e g m ent s

The group’s activities can mainly be divided between, on the one hand, Europe, America & Africa, and Far
& Middle East on the other hand.
The table below provides an analysis of the sales and fixed assets of the Picanol Group according to the
geographical market.

Sales

PICANOL GROUP (in ‘000 euros) 2006 2005

Europe, America and Africa 158,393 144,825

Far & Middle East 251,867 251,477

TOTAL 410,260 396,302

Intangible assets – tangible fixed assets

PICANOL GROUP (in ‘000 euros) Net book value Acquisitions

2006 2005 2006 2005

Europe, America and Africa 63,191 71,636 7,717 11,447

Far & Middle East 4,686 2,459 3,285 1,541

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

TOTAL 67,877 74,095 11,002 12,988

III.5 INCOME STATEMENT

I I I . 5 . 1 . O th er o p e ra tin g income

PICANOL GROUP (in ‘000 euros) 2006 2005

Reversal of impairment losses 0 0

Other 3,697 2,082

TOTAL 3,697 2,082

The other operating income of 2006 primarily comprises revenue resulting from capital gain realized on the
sale of the building of the Chinese subsidiary PST (2.2 million euros), a surplus value realized on the sale
of the building of PsiControl Mechatronics (0.3 million euros) and received repayments within Picanol NV
(0.2 million euros).

The other operating income of 2005 primarily comprises revenue from repayments of the former president
& CEO and some members of the Board of Directors (1.7 million euros) and reversing of restructuring
provisions (0.4 million euros)

Overview of other operating income of sold or settled companies:

85
(in ‘000 euros) 2006
Amtech -138
Picanol Korea 138
PSI-Control -54
I I I . 5 . 2 . O th er o p e ra tin g expenses

PICANOL GROUP (in ‘000 euros) 2006 2005

Addition of impairment losses 1,025 0

Restructuring costs 92 0
Other 1,749 0

TOTAL 2,866 0

Impairment

Based on assumptions made regarding impairment, the Board of Directors has studied and evaluated the
carrying amount (i) intangible assets, (ii) the goodwill and (iii) the tangible fixed assets. Except for BCN
Laminados (cf. infra) the Board of Directors has evaluated that no additional impairment losses should be
recognized.

In 2006 an impairment loss was recognized on the remaining consolidation goodwill of the company BCN
Laminados (0.4 million euros), because the settlement of this company was initiated in 2006.
In addition, an impairment was recognized on a license acquired for the development of a new machine
platform (0.5 million euros) and capitalized development costs regarding this platform (0.06 million euros).
The development of this machine was stopped during 2006.

Other

The other operating expenses of 2006 primarily comprise payments made by Picanol NV to minority share-
holders according to the settlement agreements of March 2006 (1.2 million euros).

I I I . 5 . 3 . O p e ra tin g res u lt

PICANOL GROUP (in ‘000 euros) 2006 2005

Sales 410,260 396,302

Purchases and changes in inventories -212,032 -205,325
Amortization, depreciation and impairment -14,112 -15,656
Amounts written off on inventories & receivables -704 -717
Other goods and services -75,908 -80,928
Personnel costs -98,757 -97,727
Provisions 267 -365
Other operating income 3,697 2,082
Other operating expenses -2,866 0

TOTAL OPERATING RESULT 9,845 -2,334

The evolution of purchases and changes in inventories followed the evolution of the turnover in 2006 in
comparison to 2005. The turnover increased by 3.5% compared to 2005, whereas the purchases and com-
modities increased by 3.3%. This sales increase in relation to cost of materials partly explains the increase
in gross margin experienced by the Picanol Group in 2006.

The total decrease of 5.0 million euros in other goods and services and in personnel costs is mainly resulting
from major savings in overhead costs in 2006. These are partly compensated by an increase in personnel

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

costs compared to 2005 by 1.0 million euro.

I I I . 5 . 4 . F in an cia l re s u lt

PICANOL GROUP (in ‘000 euros) 2006 2005

Interest on export finance -1,544 -1,642

Interest on other loans -859 -1,409
Interest on financial leases -768 -765
Total borrowing costs -3,171 -3,817
Interest income from bank deposits 589 379
Interest income from financial receivables 1,963 2,269
Total interest income on financial receivables and cash 2,552 2,647
Interest income/(charges) -619 -1,169
Exchange rates differences 292 1,423
Profit or loss on financial instruments 237 0
Other financial income 528 1,423
Exchange rate differences -951 -692
Loss on revaluation of financial instruments 0 -368
Other financial expenses -951 -1,060

FINANCIAL RESULT -1,041 -807

In 2006, the consolidated interest expenses decreased by 0.6 million euros compared to 2005, primarily the
result of a substantial repayment of loans in Picanol NV during 2006.
87

The negative evolution of the exchange rate of the USD and RMB against the EUR in 2006 resulted in a
decrease of the other financial result by 0.8 million euros in relation to 2005.

The unrealized profit on financial instruments relates to foreign currency hedges in the form of forward
contracts within Picanol NV. These primarily relate to forward sales contracts, whereby USD and the JPY,
to a lesser degree, are sold forward. The forward contracts, for which there is no underlying balance sheet
position, are treated as cash flow hedges. These positions are recognized in view of orders placed but not
yet invoiced.
I I I . 5 . 5 . In c o me tax e s

I N C O M E TA X E X P E N S E

Recognized in the income statement

PICANOL GROUP (in ‘000 euros) 2006 2005

Current tax
TOTAL -1,828 -5,584

Deferred tax:
(Under)/ over provided in previous year 0 -220
Recognition and reversal of temporary differences 1,208 1,326
Utilization of previous years’ losses -2,790 -263
Deferred tax on current year’s losses 174 3,164
TOTAL -1,409 4,007

TOTAL INCOME TAXES -3,236 -1,577

Effective tax rate reconciliation

PICANOL GROUP (in ‘000 euros) 2006 % 2005 %

Profit before tax and before income from associates 8,803 -3,140
Tax at the applicable tax rate of 33.99% -2,992 33.99% 1,067 33.99%
Tax effects of non-deductible expenses
Non-deductible depreciation on goodwill and intangible
assets -146 1.66% 0 0.00%
Non-tax-deductible expenses -1,435 16.30% -2,149 -68.44%
Other 50 -0.57% -78 -2.48%
Tax effects of tax-exempt revenues
Non-taxable dividends received from non-consolidated
entities 0 0.00% 0 0.00%
Non-taxable financial and other income 0 0.00% 0 0.00%
Other 771 -8.75% -297 -9.46%
Deferred tax effect resulting from a change in tax rates -153 1.74% -11 -0.36%
Tax effects of corrections to deferred and current tax,
concerning previous periods 359 -4.08% -335 -10.67%
Effects of different tax rates of group entities in other
jurisdictions 499 -5.67% 122 3.87%
Tax effect of utilization of tax losses not previously
recognized 0 0.00% 160 5.08%
Valuation allowance on deferred tax assets -190 2.16% -55 -1.75%
Tax expense and effective tax rate for the period -3,236 36.76% -1,577 -50.22%
Deferred tax income/ (expenses) recognized directly in shareholders’equity

PICANOL GROUP (in ‘000 euros) 2006 2005

On effective portion of changes in fair value per 01/01/2005 0 0
TOTAL 0 0

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

D E F E R R E D TA X

Recognized deferred tax

PICANOL GROUP (in ‘000 euros) 31/12/2006 31/12/2005

Deferred Deferred Deferred Deferred
tax assets tax liabilities tax assets tax liabilities

Intangible assets 0 -1,512 56 -1,516

Tangible fixed assets 133 -7,781 275 -9,118
Inventories 587 -810 580 -576
Other assets 82 -68 0 -32
Employee benefits 678 0 799 -4
Other provisions 1,080 0 454 0
Other liabilities 236 -265 197 -90
Tax losses carry-forward/tax credits 1,655 0 4,266 0
Other adjustments 0 -314 13 -69
TOTAL 4,451 -10,750 6,640 -11,405

Valuation allowance 0 0 -19 0

Set-off (*) -1,677 1,677 -3,821 3,821
TOTAL (As stated in the balance sheet) 2,774 -9,073 2,800 -7,584

(*) In accordance with IAS 12 (Income Tax), deferred tax assets and deferred tax liabilities should, under certain
conditions, be offset against each other.

The deferred tax adjustment as per 31/12/2006 in relation to the end of 2005 is primarily due to :
• A realized tax profit of Picanol NV in 2006, resulting in the total reversal of the deferred tax for an amount
of 1.81 million euros. These deferred tax assets were originally recognized per 31/12/2005 as the result of
89
the tax loss of Picanol NV in 2005.
• Realized tax profits of mainly Proferro NV and Verbrugge NV in 2006, resulting in the reversal of the
deferred tax assets in 2006 for a total amount of 0.98 million euro.

The Picanol Group no longer holds joint ventures in 2006, compared to 2005 where they had an impact of
0.01 million euros on the consolidated deferred tax assets.
Non-recognized tax loss carry-forward, classified by due date:

PICANOL GROUP (in ‘000 euros) 2006 2005

Within 1 year 0 0
Within 2 years 0 0
Within 3 years 0 0
Within 4 years 0 0
Within 5 years or more 246 0
Without time limit 1,168 612

Deferred tax assets with valuation allowance, relate to the following elements as at closing date financial
year 2006:

Non-
Total Recognized recognized
Gross deferred tax deferred tax deferred tax
PICANOL GROUP (in ‘000 euros) amount assets assets assets

Tax loss carry-forward 1,414 481 0 481

Inventories 0 0 0 0
Other temporary differences 0 0 0 0
TOTAL 1,414 481 0 481

Deferred tax liabilities not recognized by the group and relating to the following elements as at 31 december
2006:

No liabilities or assets were recognized for temporary differences relating to undistributed earnings of sub-
sidiaries and joint ventures because the group is in control of the reversal of the temporary differences and
it is probable that such differences will not reverse in the foreseeable future.

I I I . 5 . 6 . D iv id en d s

Amounts recognized as distribution to shareholders in the reporting period:

No dividend was distributed for the financial year 2005.

The Board of Directors will propose, at the Annual General Meeting of 18 April 2007, to distribute a gross
dividend of 0.32 euros per share for the financial year 2006.

The proposed dividend is to be approved by the shareholders at the Annual General Meeting and is not
incorporated as a liability in this annual report.
I I I . 5 . 7 . B a s ic e a rn in g s p er share

From continuing and discontinued operations

The calculation of the basic and diluted earnings per share is based on the following data:

PICANOL GROUP (in ‘000 euros) 2006 2005

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

Net profit or loss over the period 5,569 -4,716

Net profit or loss from continuing operations 5,569 -4,716

2006 2005

(number of shares)
Ordinary shares per 01/01 5,900,000 5,900,000
Ordinary shares per 31/12 5,900,000 5,900,000

Weighted average number of outstanding ordinary shares 5,900,000 5,900,000

2006 2005

(in euros)
Basic earnings per share 0.94 -0.80
Basic earnings per share from continuing operations 0.94 -0.80

I I I . 5 . 8 . D ilu te d ea rn in g s per share

The diluted earnings per share of the Picanol Group are equivalent to the basic earnings per share, both for
the financial year 2006 and 2005.
91

PICANOL GROUP (in ‘000 euros) 2006 2005

Profit or loss over the period 5,569 -4,716

Profit or loss attributable to the ordinary shareholders of the

company 5,569 -4,716

Weighted average number of outstanding ordinary 5,900,000 5,900,000

Weighted average number of shares for the diluted earnings

per share 5,900,000 5,900,000
 (in ‘000 euros) 2006 2005

Diluted earnings per share 0.94 -0.80

Diluted earnings per share from continuing operations 0.94 -0.80

III.6. BALANCE SHEET

I I I . 6 . 1 . In tan g ib le a s s e ts

For the year ending 2006:

Concessions, Patents

Advance Payments
Construction and
Other Intangible
and Licenses

Assets under
Development

Goodwill

Assets
Costs

Total
PICANOL GROUP (in ‘000 euros)

At the end of the previous reporting period

Gross book value 4,360 16,670 0 0 0 21,030
Accumulated depreciation -627 -9,116 0 0 0 -9,743
Accumulated impairment 0 -429 0 0 0 -429
Net book value 3,733 7,125 0 0 0 10,858

Movements during the reporting period

Acquisitions 869 596 0 0 0 1,464
Expensed depreciation -553 -2,495 0 0 0 -3,048
Impairment -64 -533 0 0 0 -597
Sales and scrapped 0 -32 0 0 0 -32
Transfers 0 0 0 0 0 0
Exchange rate differences 0 -35 0 0 0 -35
At the end of the reporting period 252 -2,500 0 0 0 -2,248

Gross book value 5,229 16,042 0 0 0 21,271

Accumulated depreciation -1,180 -10,884 0 0 0 -12,063
Accumulated impairment -64 -533 0 0 0 -597
Net book value 3,985 4,625 0 0 0 8,610
The acquisitions of the total intangible fixed assets within the Picanol Group in 2006 are primarily a result
of on the one hand the further capitalization of the development costs within Picanol NV and the acquisition
of software, also within Picanol NV, on the other hand.

The acquisitions of 2006 comprise ‘internally generated intangible assets’ for an amount of 0.9 million eu-
ros. ‘Internally generated intangible assets’ comprises all the capitalized development costs within Picanol
NV.

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

The total net book value of the intangible assets at 31 December 2006 primarily consists of the following
components:
• Capitalized development costs of Picanol NV for a net book value of 4.0 million euros. These develop-
ment costs are depreciated over a period of 5 years.
• Know-how acquired with the acquisition of Te Strake Textile amounting to a net book value of 0.9 million
euros. This know-how has a residual period of one year.
• Capitalized software within Picanol NV, including a capitalized ERP package, amounting to a total net
book value of 3.2 million euros at 31 December 2006. This ERP package was primarily capitalized during
the financial year 2005 and 2006 and is depreciated over a period of five years.

The total effect of the development costs recognized in the 2006 income statement amounts to net 0.3 mil-
lion euros.

Impairment loss, recorded in the IFRS opening balance sheet on the total net book value of the right of
the company PST in China to use the ground, was reversed in 2006 for an amount of 0.43 million euros,
because the PST building on this ground was sold by this company in 2006.

An impairment loss was recorded for a license, originally bought by Picanol NV for use on a machine of
which the development was stopped definitively in 2006. This impairment loss amounts to 0.5 million
euros. In addition, an impairment loss is recorded for the capitalized development costs for this machinery
platform for an amount of 0.06 million euros.

The depreciation of the intangible fixed assets is recognized under the depreciation heading, partly as a
component of the cost of sales, and partly under the general and administrative costs, whereas the impair-
ment losses are recognized in the other operating income/expenses.

93
As per 31 December 2006, the intangible assets consisted of a pledge on a trade fund within Verbrugge NV
for an amount of 2 million euros. At the end of 2006, the intangible assets did not comprise any contractual
commitments.
For the year ending 2005:

Concessions, Patents

Advance Payments
Construction and
Other Intangible
and Licenses

Assets under
Development

Goodwill

Assets
Costs

Total
PICANOL GROUP (in ‘000 euros)

At the end of the previous reporting period

Gross book value 3,283 18,999 0 0 0 22,282
Accumulated depreciation -84 -8,254 0 0 0 -8,338
Accumulated impairment 0 -429 0 0 0 -429
Net book value 3,199 10,316 0 0 0 13,515

Movements during the reporting period

Acquisitions 1,077 1,542 0 0 0 2,619
Expensed depreciation -543 -2,902 0 0 0 -3,445
Impairment 0 0 0 0 0 0
Sales and scrapped 0 -1,864 0 0 0 -1,864
Transfers 0 0 0 0 0 0
Exchange rate differences 0 33 0 0 0 33
At the end of the reporting period 534 -3,191 0 0 0 -2,657

Gross book value 4,360 16,670 0 0 0 21,030

Accumulated depreciation -627 -9,116 0 0 0 -9,743
Accumulated impairment 0 -429 0 0 0 -429
Net book value 3,733 7,125 0 0 0 10,858

Intangible assets which comply with the recognition criteria of IAS 38 – Intangible assets are recognized
to the extent that future economic benefits are probable. If the realizable value of the intangible assets (i.e.
the higher of its fair value less the costs to sell and the present value of the future cash flows expected from
the continuing use of these assets and their disposal) is less than the carrying amount, then an impairment
loss will be recognized in accordance with IAS 36 – Impairment of assets.

The realizable value of a cash generating unit is equivalent to the highest fair value less the sales costs and
the operating value of the asset or cash generating unit, whereby the fair value is equal to the amount that
can be achieved from its sale at arm’s length, and for which the operating value is equal to the discounted
value of the estimated future cash flows which are expected to flow from the asset or cash generating unit.
I I I . 6 . 2 . G o o d will

PICANOL GROUP (in ‘000 euros) 2006 2005

At the end of the previous reporting period

Net book value 1,920 1,920

Movements during the reporting period

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

Acquisitions and changes to the consolidation scope 0 0
Impairment -428 0
Disposals and scrapped 0 0
Mergers and assets deals 0 0
Exchange rate differences 0 0
At the end of the reporting period -428 0

Net book value 1,492 1,920

The impairment loss recorded on the goodwill during the financial year 2006 is the result of the initiation of
the liquidation of the group company BCN Laminados, resulting in a depreciation of the remaining good-
will consolidation on this partnership of 0.43 million euros.

The carrying amount of goodwill acquired in a business combination must be allocated on a reasonable
and consistent basis to each cash generating unit or smallest group of cash generating units in accordance
with IAS 36.

The realizable value of a cash generating unit is defined on the basis of the operating value. To calculate the
operating value, cash flow prognoses are used which are based on financial budgets and projections over a
period of eight years. These projections comprise extrapolations based on the most justifiable percentage of
growth which must not exceed the average percentage of long-term growth for the sector in which the cash
generating unit is active, which in real terms is between 2 and 5%.

The management bases its assumptions on past performances and on its forecasts for future years. The dis-
count rate applied is based on the market interest rate (3.7% over a period of 5 years), and takes into account
a risk factor, which varies between 1.5% and 6% depending on the country.
95
I I I . 6 . 3 . Tan g ib le fixe d as s et s

For the year ending 2006:

Land and Buildings

Advance Payments
Construction and
Plant, Equipment
and Machinery

Other Tangible
Furniture and

Assets under
Fixed Assets
Vehicles

Total
PICANOL GROUP (in ‘000 euros)

At the end of the previous reporting period

Gross value 36,909 175,905 11,867 1,283 1,003 226,967
Accumulated depreciation -9,507 -145,216 -7,848 -239 0 -162,810
Accumulated impairment -863 -57 0 0 0 -920
Net book value 26,539 30,632 4,019 1,044 1,003 63,237

Movements during the reporting period

Changes in the consolidation scope 0 0 0 0 0 0
Acquisitions 4,800 3,328 705 22 683 9,538
Expensed depreciations -1,727 -7,962 -1,622 -84 0 -11,395
Impairment 0 0 0 0 0 0
Sales and scrapped -586 -647 -190 0 -49 -1,473
Transfers 612 563 -29 68 -1,214 0
Exchange rate differences -74 -322 -102 -87 -52 -637
3,024 -5,040 -1,238 -82 -632 -3,969

At the end of the reporting period

Gross value 39,760 177,308 11,014 1,236 371 229,689
Accumulated depreciation -10,197 -151,717 -8,233 -274 0 -170,421
Accumulated impairment 0 0 0 0 0 0
Net book value 29,563 25,590 2,781 962 371 59,267

The total acquisitions of tangible fixed assets amount to 9.5 million euros in comparison with 10.4 million
euros during the previous reporting period.

The acquisitions of 2006 comprise principally the construction of the new production plant for PsiControl
Mechatronics and Verbrugge for an amount of 2.1 million euros and the construction of the new building in
China for an amount of 2.7 million euros.

The sales and scrapped part of 2006 comprises principally the sale of the former production building of Psi-
Control Mechatronics with a net book value of 0.65 million euros and the sale of the tangible fixed assets of
the joint-venture Amtech with a net book value of 0.22 million euro.

The decrease in the total net book value of the tangible fixed assets is the result of a higher level of deprecia-
tion during the financial year in relation to the acquisitions.
The impairment loss, recorded in the IFRS opening balance on the total net book value of the former build-
ing of the partnership PST in China, was reversed in 2006 for 0.77 million euros because this building was
sold in 2006.

The impairment loss on machinery and equipment in the IFRS opening balance refers to the Chinese sub-
sidiary Amtech. This company was sold in 2006.

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

No additional impairment losses were recognized during the financial year 2006.

The tangible fixed assets do not comprise any ‘internally generated’ assets at 31 December 2006.

At 31 December 2006, the tangible fixed assets comprise the pledge for 99% of the shares of Millentex NV
to the value of a loan of 2.6 million euros in USD.

At the end of 2006, the tangible fixed assets do not comprise any contractual commitments.

For the year ending 2006:

Land and Buildings

Advance Payments
Construction and
Plant, Equipment
and Machinery

Other Tangible
Furniture and

Assets under
Fixed Assets
Vehicles

Total
PICANOL GROUP (in ‘000 euros)

At the end of the previous reporting period

Gross value 36,927 167,428 10,918 583 455 216,311
Accumulated depreciation -7,931 -136,699 -6,524 -67 0 -151,221
Accumulated impairment -863 -57 0 0 0 -920
Net book value 28,133 30,672 4,394 516 455 64,170

Movements during the reporting period

Changes in the consolidation scope 0 0 0 0 0 0
Acquisitions 134 7,645 867 250 1,473 10,369 97
Expensed depreciations -1,617 -8,892 -1,679 -145 0 -12,333
Impairment 0 0 0 0 0 0
Sales and scrapped -1 118 -42 0 0 75
Transfers -128 520 300 331 -1,023 0
Exchange rate differences 18 569 179 92 98 956
-1,594 -40 -375 528 548 -933

At the end of the reporting period

Gross value 36,909 175,905 11,867 1,283 1,003 226,967
Accumulated depreciation -9,507 -145,216 -7,848 -239 0 -162,810
Accumulated impairment -863 -57 0 0 0 -920
Net book value 26,539 30,632 4,019 1,044 1,003 63,237
For the measurement of tangible assets, the principles relating to impairment of assets of IAS 36 and to use-
ful life of significant components of assets of IAS 16 apply. For certain assets, such as land and buildings,
the fair value is used as the deferred cost (IFRS 1).

The reassessment of the useful life of certain asset components is based upon an industrial survey con-
firmed by the economic reality and the experience of peers reporting under IFRS.

The valuation of tangible fixed assets in accordance with the principles of IAS 36 is carried out by the same
method as that for the intangible fixed assets (III.6.1.).

I I I . 6 . 4 . A s s e ts u n d er fin a ncial lease

PICANOL GROUP (in ‘000 euros) 31/12/2006 31/12/2005

Land and buildings - Gross value 9,858 9,858

Land and buildings - Depreciation -2,136 -1,643
Land and buildings - Total 7,722 8,215

Plant, equipment and machinery - Gross value 6,595 6,655

Plant, equipment and machinery - Depreciation -957 -708
Plant, equipment and machinery - Total 5,639 5,947

Furniture and vehicles - Gross value 2,613 2,613

Furniture and vehicles - Depreciation -1,723 -983
Furniture and vehicles - Total 890 1,630

Intangible assets - Gross value 177 177

Intangible assets - Depreciation -74 -38
Intangible assets - Total 104 139

Total assets under financial lease 14,355 15,931

The assets under finance lease included in ‘land and buildings’ mainly consist of the finance lease of the
administration building of Picanol NV.

The assets under financial lease placed in ‘Plant, equipment and machinery’ include primarily the produc-
tion line of Proferro NV and an automation line of Verbrugge NV.

Furniture and vehicles comprise principally hardware of Picanol NV under finance lease.

No considerable financial lease-contracts were recorded during the financial year 2006.
I I I . 6 . 5 . S u b sid iarie s , jo in t vent ures and associat ed companies

2006 Shareholding %
2006 2005

1. FULLY CONSOLIDATED ENTITIES

Belgium
Proferro NV Ter Waarde 50 , 8900 Ieper 99.99% 99.99%

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

PsiControl Mechatronics NV Rozendaalstraat 53 , 8900 Ieper 100.00% 100.00%
Verbrugge NV Ter Waarde 50 , 8900 Ieper 100.00% 100.00%
Millentex NV Ter Waarde 50 , 8900 Ieper 100.00% 100.00%
Melotte NV Industrieweg 2019 , 3520 Zonhoven 100.00% 100.00%
Gereedschapsmakerij Melotte NV Industrieweg 2019 , 3520 Zonhoven 100.00% 100.00%
France
Burckle et Cie SAS Rue de Bourbach-le-haut 9 , 68290 Bourbach-Le-Bas 100.00% 100.00%
Etablissements Lhenry SAS Zone Industrielle Le Temple , 42640 St Romain La Motte 100.00% 100.00%
Netherlands
Te Strake Textile BV Dr. H. Van Doorneweg 26 , 5753 PM Deurne 100.00% 100.00%
Germany
Günne Webmaschinenfabrik GmbH & CO, KG Möhnestrasse 2 , 59519 Möhnesee-Günne 100.00% 100.00%
Günne Webmaschinenfabrik GmbH Möhnestrasse 2 , 59519 Möhnesee-Günne 100.00% 100.00%
Spain
BCN Laminados SL Apartado de Correos no. 35 , 08430 La Roca del Vallés 100.00% 100.00%
Italy
GTP Milano Srl Via Archimede 31 , 20041 Agrate Brianza (Milano) 100.00% 100.00%
Turkey
GTP Istanbul Merkez Mah., Yildirim Bayazid Cad. 179/2 99.75% 99.75%
34197 Yenibosna - Istanbul
Romania
PsiControl Mechatronics Srl Campului Street 1, 505400 Rasnov, Brasov county 100.00% 0.00%
People’s Republic of China
Picanol (Suzhou Ind. Park) Textile Machinery Co. Ltd Fengting Road/ Songzhuan Road, SIP, Suzhou 100.00% 100.00%
GTP Shanghai 30 A, Aidu Road, Waigaoqiao FTZ, Shanghai 100.00% 100.00%
Picanol (Suzhou) Trading Co. Ltd Fengting Avenue/ Songzhuan Road, SIP, Suzhou 100.00% 0.00%
South Korea
Picanol Korea Co. Ltd 1120-10 , Joongri-Dong , Seo-Gu , Daegu 0.00% 100.00%
Indonesia
PT GTP Bandung Jl. Moh. Toha KM 5.3 , 56 40261 Bandung 99.00% 99.00%
Singapore
Picanol Overseas PTE Ltd Raffles Place 20 17-00 , 048620 Singapore 0.00% 100.00%
USA
GTP Greenville Inc 1801 Rutherford Road , Greenville S.C. 29609 100.00% 100.00%
Mexico
GTP Mexico SA de CV Avena No 475 Col. Granjas Mexico , 08400 Mexico D.F. 99.99% 99.99%
99
Brazil
GTP São Paulo Rua do Tecelão 310 , 13478-721 Americana SP 100.00% 99.99%

2. PROPORTIONALLY CONSOLIDATED ENTITIES

Sweden
PSI-Control AB Ostergradsgatan 12 , 43153 Moelndal 0.00% 50.00%
People’s Republic of China
Amtech Precision Machinery (Suzhou) CO LTD Youxin Lu 18 , 215007 Suzhou , Jiangsu Province 0.00% 50.00%

3. NON-CONSOLIDATED ENTITIES

Belgium
Symatex CVBA A. Reyerslaan 80 , 1030 Brussel 34.00% 34.00%
Bedrijvencentrum Westhoek Industrielaan , 8900 Ieper 12.82% 12.82%
I I I . 6 . 6 . O th er fin a n cia l in vest ment s

PICANOL GROUP (in ‘000 euros) 2006 2005

Fair value at the end of the previous reporting period 103 103
Movements during the reporting period
Changes in the consolidation scope 0 0
Acquisitions 0 0
Sales and disposals 0 0
Reductions in fair value 0 0
Exchange rate differences 0 0
Fair value at the end of the reporting period 103 103

This heading contains all the non-consolidated investments, which are also non-listed entities. The fair
value equals the historical cost corrected for durable impairment losses.

No movements took place in the other financial investments during the financial years 2006 and 2005.

I I I . 6 . 7 . N o n -cu rren t re c e ivables

31/12/2006 31/12/2005
Interest- Interest- Interest- Interest-
Bearing Bearing Bearing Bearing
PICANOL GROUP Trading Guaran- other Trading Guaran- other
(in ‘000 euros) Receivables tees Receivables Receivables tees Receivables
At the end of the previous reporting period
Gross value 35,835 305 3,577 48,440 319 3,577
Accumulated amounts
written off 0 0 0 0 0 0
Net book value 35,835 305 3,577 48,440 319 3,577
Movements during the reporting period
Changes in the
consolidation scope 0 0 0 0 0 0
Acquisitions 5,747 50 0 10,546 0 0
Discount effect 0 0 0 0 0 0
Reimbursement 0 -56 0 0 -14 0
Write-off 0 0 0 0 0 0
Write-back 0 0 0 0 0 0
Transfers -19,678 0 -3,577 -22,675 0 0
Exchange rate
differences 27 0 0 -476 0 0
Other 0 0 0 0 0 0
At the end of the reporting period
Gross value 21,931 299 0 35,835 305 3,577
Accumulated amounts
written off 0 0 0 0
Net book value 21,931 299 0 35,835 305 3,577
The interest-bearing trade receivables consist fully of the export financing recognized by Picanol NV. The
fair value of this export financing approaches the net book value, due to the fact that these receivables are
insured and are also interest-bearing at a market interest rate. These long-term receivables primarily con-
cern the following countries: Turkey, Brazil, Mexico, Poland and Egypt.

In 2005, the acquisitions of interest-bearing other receivables consisted of a long-term receivable on the
former President & CEO for an amount of 3.58 million euros. This amount falls due in October 2007. As a

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

consequence this was transferred from the long-term to the short-term receivables in 2006.

I I I . 6 . 8 . In v e n to ries

PICANOL GROUP (in ‘000 euros) 31/12/2006 31/12/2005

Raw materials and auxiliaries Gross value 45,383 44,323

Raw materials and auxiliaries Amounts written off -12,892 -12,161
Raw materials and auxiliaries 32,491 32,162

Goods in progress Gross value 15,773 17,439

Goods in progress Amounts written off -657 -2,097
Goods in progress 15,117 15,342

Finished goods Gross value 15,538 10,943

Finished goods Amounts written off -2,187 -641
Finished goods 13,352 10,302

Trade goods Gross value 0 0

Trade goods Amounts written off 0 0
Trade goods 0 0

Down payments Gross value 220 214

Down payments Amounts written off 0 0
Down payments 220 214

Contracts in progress Gross value 0 0 101

Contracts in progress Amounts written off 0 0
Contracts in progress 0 0

Total inventories 61,178 58,020

The increase of the amount written off in the consolidated inventories by 3.2 million euros is mainly due to
an increase in the inventories of finished machines at 31 December 2006 in comparison with 2005 which is
the result of a timing difference.

The increase of inventories written off recognized in the income statement over 2006 amounts to 0.8 mil-
lion euros.

At 31 December 3006, the inventories are not subjected to any pledges as security for any liabilities.
At the end of 2006, the Picanol Group has no contractual commitments relating to existing inventories.
I I I . 6 . 9 . Tra d e re c e iv a b les and ot her receivables

Trade receivables at the balance sheet date consist of the amounts to be received from the sale of goods and
the supply of services to the value of 69.3 million euros (2005: 76.9 million euros).
An allowance has been created for irrecoverable amounts from the sale of goods to the value of 8.3 million
euros (2005: 7.5 million euros). This allowance has been determined on the basis of past experience with
respect to non-payment.
Other receivables, at the end of 2006, consist mainly of a receivable on the former President & CEO for 3.8
million euros which falls due in October 2007 and a VAT receivable of 3.5 million euros at Picanol NV.
In addition, the other receivables comprise a multitude of smaller amounts in the other group companies.
The other receivables at 31/12/2005 (13 million euros) consist mainly of a VAT receivable of 5.7 million
euros and 3.2 million euros of prepaid income taxes as a result of a special tax levy with regard to a stock
option plan.

Credit Risk

The main current financial assets of the group consist of cash and cash equivalents, trade receivables and
other receivables, and inventories, which represent the group’s maximum exposure to the credit risk associ-
ated with financial assets.

The group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the bal-
ance sheet are not of allowances for doubtful debtors, estimated by the management of the group on the
basis of prior experience and their assessment of the current economic environment.

The credit risk on cash is limited, as the counterparties are banks, with high credit ratings assigned by in-
ternational credit-rating agencies.

I I I . 6 . 1 0. C as h an d c a s h equivalent s

Cash and cash equivalents comprise cash retained by the group and short-term bank deposits with an origi-
nal maternity of maximum 3 months. The carrying amount of these assets is approximately equivalent to
their fair value:

PICANOL GROUP (in ‘000 euros) 31/12/2006 31/12/2005

Short-term bank deposits – for maximum 3 months 0 0

Cash at bank and in hand 16,485 18,134

Total cash and cash equivalents 16,485 18,134

I I I . 6 . 11. S h are c a p ita l

PICANOL GROUP (in ‘000 euros) 31/12/2006 31/12/2005

Issued shares
5 900 000 ordinary shares without nominal value 7,400 7,400

Fully paid-up shares

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

5 900 000 ordinary shares without nominal value 7,400 7,400

I I I . 6 . 1 2. S h are p remiu m

PICANOL GROUP (in ‘000 euros)

Balance at 31 December 2004 1,332

Premium on the issue of shareholders’ equity in 2005 0
Expenses on the issue of shareholders’ equity in 2005 0
Balance at 31 December 2005 1,332
Premium on the issue of shareholders’ equity in 2006 0
Expenses on the issue of shareholders’ equity in 2006 0
Balance at 31 December 2006 1,332

I I I . 6 . 1 3. P e n sio n s a n d s imilar liabilit ies

PENSION PLANS

Various entities within the Picanol Group operate defined benefit plans and/or defined contribution plans.
The defined benefit plans which typically provide retirement benefits related to remuneration and service
are only included in Belgian entities. These plans are insured.

DEFINED CONTRIBUTION PLANS – PROVISIONS FOR DEFINED CONTRIBUTION

PLANS
103

The amounts contributed by the Picanol Group to the defined contribution plans:

PICANOL GROUP (in ‘000 euros) 2006 2005

Paid contributions 754 903

In 2005 and 2006, the premium payments only consist of recurrent amounts.
DEFINED BENEFIT PLANS – PROVISIONS FOR DEFINED BENEFIT PLANS

Reconciliation between the defined provision for employee benefits and net liability for defined benefit
plans:

PICANOL GROUP (in ‘000 euros) 2006

Balance
Provisions – employee benefits – long-term 6,485
Provisions – employee benefits – short-term 1,035

Defined provisions not restored according to IAS19 891

Net liability for defined benefit plans 6,629

The amounts recognized in the balance sheet in respect of the defined benefit plans:

PICANOL GROUP (in ‘000 euros) 2006 2005

Defined benefit obligations – funded plans 5,489 7,074

Fair value of plan assets -4,285 -5,359
Deficit for funded plans 1,204 1,715
Defined benefit obligations – unfunded plans 6,197 6,706
Unrecognized actuarial profits and losses -773 -1,081
Net liability at balance sheet date 6,629 7,340

Recorded in the balance sheet

Net liability at balance sheet date 6,629 7,340

The amounts recognized in the income statement in respect of the defined benefit plans:

PICANOL GROUP (in ‘000 euros) 2006 2005

Current service charges 255 333

Interest charges 519 513
Expected return on plan assets -213 -205
Amortization of the actuarial losses (profits) 494 619
Losses (profits) on liability reductions -1,057
Losses (profits) on liability settlements 748
Net periodic pension charge 746 1,260
The actual return on plan assets in the current period 233 133
Changes in the benefit obligations:

PICANOL GROUP (in ‘000 euros) 2006 2005

Benefit obligations at the beginning of the financial year 13,780 13,096

Current service charges 255 333
Interest charges 519 513
Contribution of the participators 55 49

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

Actuarial (losses)/profits 239 1,109
Paid benefit obligations -1,197 -1,309
Paid premiums -28 -11
Liability reductions of the plan -1,074 0
Liability liquidations of the plan -862 0
Benefit obligations at the end of the financial year 11,686 13,780

Changes in the fair value of plan assets:

PICANOL GROUP (in ‘000 euros) 2006 2005

Fair value of plan assets at the beginning of the financial year 5,359 4,934
Expected return on plan assets 213 224
Actuarial (profits)/losses on plan assets 20 -91
Employer contributions 1,456 1,563
Member contributions 55 49
Paid benefit obligations -1,197 -1,309
Paid premiums -28 -11
Liability liquidations of the plan -1,594 0
Fair value of plan assets at the end of the financial year 4,285 5,359

The main actuarial assumptions used at the balance sheet date (weighted averages):

PICANOL GROUP 31/12/2006 31/12/2005

Discount rate 4.50% 4.00%

105
Expected return on plan assets 4.50% 4.00%
Estimated rate of salary increases 2.88% - 7.03% 2.88% - 7.03%

Defined - benefit obligations

PICANOL GROUP (in ‘000 euros) 2006 2005

Defined – benefit obligations – funded plans 5,489 7,074

Fair value of plan assets 4,285 5,359
Deficit for funded plans 1,204 1,715
I I I . 6 . 1 4. P ro vis io n s

For the year ending 2006

Environmental Risks

Restructuring Costs
Product Warranties

Other Risks
Litigations

Total
PICANOL GROUP (in ‘000 euros)

At the end of the previous reporting period 2,608 1,321 93 996 106 5,125

Movements during the reporting period

Increases 2,747 80 92 120 79 3,117
Utilizations -2,152 0 -75 -400 -6 -2,633
Write-backs -252 0 0 -366 -45 -663
Transfers 0 0 0 0 0 0
Exchange rate differences 0 0 0 0 0 0

At the end of the reporting period 2,951 1,401 110 350 134 4,946

Non-current provisions 10 1,401 18 0 29 1,459

Current provisions 2,941 0 92 350 105 3,487
Total 2,951 1,401 110 350 134 4,946

The provisions for product warranties primarily relate to warranties associated with the sale of weaving
looms. The provisions are calculated on the basis of historical costs of product warranties linked to the sup-
ply of goods and services. This provision is recalculated annually on the basis of actual costs incurred in
the previous financial year.

The provision for environmental risks only covers pollution risks associated with land located in Belgium.

The change in the provision for litigations in 2006 comprises the provision created for the dissolution of
an agency contract and the reversal of a provision, that is no longer necessary, with reference to a patent
case.
For the year ending 2005

Environmental Risks

Restructuring Costs
Product Warranties

Other Risks
Litigations

Total

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

PICANOL GROUP (in ‘000 euros)

At the end of the previous reporting period 2,717 1,300 669 496 10 5,192

Movements during the reporting period

Increases 2,202 21 86 500 106 2,916
Utilizations -2,311 0 -236 0 -10 -2,557
Write-backs 0 0 -426 0 0 -426
Transfers 0 0 0 0 0 0
Exchange rate differences 0 0 0 0 0 0

At the end of the reporting period 2,608 1,321 93 996 106 5,125

Non-current provisions 239 1,321 19 496 0 2,075

Current provisions 2,369 0 74 500 106 3,050
Total 2,608 1,321 93 996 106 5,125

I I I . 6 . 1 5. In te re s t-b ea rin g borrowings

For the year ending 2006

Total long-term
Due after more
1 and 5 years
Due between

than 5 years
Due within
one year

PICANOL GROUP (in ‘000 euros) 107

Finance leases 2,091 5,261 6,378 11,640

Credit institutions 2,950 3,129 0 3,129
Export finance 18,123 18,661 0 18,661
Other loans 0 0 0 0
Total interest-bearing borrowings more than 1 year 23,163 27,051 6,378 33,430
Credit institutions 765
Total interest-bearing borrowings for maximum 1 year 765
Total short-term 23,928
For the year ending 2005

Total long-term
Due after more
1 and 5 years
Due between

than 5 years
Due within
one year
PICANOL GROUP (in ‘000 euros)

Finance leases 2,150 6,676 6,822 13,498

Credit institutions 4,385 6,625 6 6,631
Export finance 20,966 30,865 0 30,865

Total interest-bearing borrowings more than 1 year 27,501 44,166 6,828 50,994

Credit institutions 8,010

Total interest-bearing borrowings for maximum 1 year 8,010

Total short-term 35,511

The group’s interest-bearing loans amount to 57.4 million euros as compared with 86.5 million euros at the
end of 2005.

The decrease in the interest-bearing loans in relation to 2005 is mainly due to a decrease in export financing.
This was due to less new export finances being taken out, compared to export finances being reimbursed
during the financial year 2006. In addition, a considerable part of the interest-bearing loans due within one
year were not renewed in 2006 and were refunded to the credit institutions.

The export finances due after one year were entered into at a fixed rate. The outstanding balance entered
into was 89.5% in euros and 10.5% in USD. Their average remaining term at 31 December 2006 was 27
months for the loan in euros, and 23 months for the loan in USD.

The other interest-bearing loans due after one year are at a fixed rate. The interest rate charge of these loans
varies from 4.6% to 4.7% per annum in euros, and from 6.8 % per annum in USD. At 31 December 2006,
34.3% of the loans entered into were in euros and 65.7% in USD.

The majority of the interest-bearing borrowings of the group are entered into and managed centrally by
Picanol NV.

The finance debts comprise a loan of 3.7 million USD by GTP Greenville Inc., a 100% subsidiary of Pica-
nol NV. The loan is subjected to the next “debt covenants” on the level of GTP Greenville:

a). Senior funded debt to EBITDA ratio: not more than 3.25 to 1.00 till 31/12/2004 and decreasing after-
wards;
b). Tangible net worth: not less than 9,000,000 USD;
c). Capital expenditures: not more than 1,200,000 USD;
d). Cash flow coverage ratio: not less than 1 to 1 till 30/09/2004 and decreasing afterwards;
e). Limitation on debt: no further amounts payable;
f). Dividends and management fees: not more than 2,000,000 USD;

I I I . 6 . 1 6. Oth e r a mo u n ts p ayable

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

For the year ending 2006

PICANOL GROUP (in ‘000 euros) Due Due between

within the year 1 and 5 years Total

Customer deposits 0 0 0
Other amounts payable 0 0 0

Total other amounts payable 0 0 0

At the end of the financial year 2006 the Picanol Group had no other amounts payable.

I I I . 6 . 1 7. Ob lig a tio n s u n d er f inance lease

Present value of

Present value of
minimum lease

minimum lease
Minimum lease

Minimum lease
payments

payments

payments

payments

PICANOL GROUP (in ‘000 euros) 31/12/2006 31/12/2006 31/12/2005 31/12/2005

Lease payments due within the year 2,671 2,091 2,780 2,150
Between 1 and 5 years 6,889 5,261 8,515 6,676
After 5 years 8,147 6,378 8,915 6,822 109

Total lease payments 17,707 13,731 20,210 15,648

Future financial charges -3,976 0 -4,562 0
Present value of the lease obligations 13,731 13,731 15,648 15,648

Less payments due within the year -2,091 -2,150

Payments due after 1 year 11,640 13,498

The consolidated financial leases primarily relate to the office building of Picanol NV, the plant and equip-
ment of Proferro NV and Verbrugge NV, and the hardware and software of Picanol NV. The total interest
charges vary between 5.8% and 16.5% per annum. The fair value of the financial leases amounts to 13.7
million euros at the end of 2006 opposite to 15.7 million at 31 December 2005.

The decrease of the fair lease obligations is due to the fact that there were no considerable new lease obliga-
tions recorded during 2006.

I I I . 6 . 1 8. D eriv a tive fin a n cial inst rument s

The Picanol Group manages a portfolio of derivatives in order to cover risks relating to exchange rate dif-
ferences resulting from operating and financial activities. It is the company policy not to engage in specula-
tive or leveraged transactions or to hold or issue derivatives for trading purposes.

Picanol NV has foreign currency hedges in the form of forward contracts. These primarily concern forward
sales contracts, whereby the USD and the JPY, to a lesser degree, are sold forward. The fair value of these
forward contracts is recognized in the statutory accounts of Picanol NV to the extent that it relates to exist-
ing balance sheet positions.
Furthermore, the company and the group of companies hold another interest rate swap on the USD loan
entered into by GTP Greenville. The fair market value is recognized in the results.

Overview of forward exchange contracts at 31 December 2006 (-= income en +=

charge):

Notional Fair market

PICANOL GROUP (in ‘000 euros) amount value P/L impact

Forward purchase contracts < 6 months 0 0 0

Forward purchase contracts > 6 months 0 0 0
Sub-Total 0 0 0

Forward sales contracts < 6 months 4,286 4,424 -138

Forward sales contracts < 6 months 731 754 -23
Sub-Total 5,017 5,178 -161

Interest Rate Swaps (IRS) 3,000 3,037 -37

Sub-Total 3,000 3,037 -37

TOTAL 8,017 8,215 -198

Overview of forward exchange contracts at 31 December 2005 (-= income en +=
charge):

Notional Fair market

PICANOL GROUP (in ‘000 euros) amount value P/L impact

Forward purchase contracts < 6 months 0 0 0

Forward purchase contracts < 6 months 0 0 0

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

Sub-Total 0 0 0

Forward sales contracts < 6 months 1,254 1,216 38

Forward sales contracts < 6 months 0 0 0
Sub-Total 1,254 1,216 38

TOTAL 1,254 1,216 38

The adjustment to the fair market value of the financial instruments is recognized in the income statement
under the heading “other financial income and charges”.

I I I . 6 . 1 9. Trad e a n d o th er payables

Trade and other payables comprise outstanding amounts for trade purchases and current liabilities.

The decrease in trade and other payables from 3.1 million euros in 2006 as compared with 2005 is due to
a decrease in the trade payables because the other liabilities remained constant compared to 2005 (+ 0.5
million euros).
The decrease in trade payables (- 3.6 million euros) is primarily due to timing differences in submitted pay-
ments at the end of 2006 and 2005.

III.7. MISCELLANEOUS

I I I . 7 . 1 . O p e ra tin g lea s e a greement s

111

PICANOL GROUP (in ‘000 euros) 31/12/2006 31/12/2005

Payments due within the year 2,665 1,795

Between 1 and 5 years 4,836 3,455
After 5 years 100 639

Minimum future lease payments 7,601 5,889

Operating lease payments represent rentals payable by the group for certain of its industrial and/or office
properties and for some production, logistics and/or administration equipment.

An amount of 2.7 million euros was recognized as a rental cost in the income statement in the financial year
2006, opposite to 1.7 million euros in 2005.

I I I . 7 . 2 . E ve n ts a fte r th e b alance sheet dat e

See annual report page 20. These events have no material impact on the income statement or the sharehold-
ers’ equity of the group.

I I I . 7 . 3 . R e la ted p a rty transact ions

OPPONENT KIND OF BALANCE SHEET INCOME STATEMENT

TRANSACTION POSITION
Pasma NV Remuneration 0 -500,107
Yves Steverlynck Remuneration 0 -167,683
Comm. V.A. Berlau Remuneration 0 -240,000
Groep Buraco Settlement 0 -700,000
Mr. Jan Coene Miscellaneous 3,771,010 -31,413
Cimarron Corp. Rent 0 -423,121 USD

The total costs for Pasma NV include company car and a remuneration for Mr. Patrick Steverlynck in GTP
Greenville (54,000 USD).
The costs for Yves Steverlynck include insurance premium, company car and a one-off contribution in the
group insurance.

For other remunerations, see annual report page 45.

I I I . 7 . 4 . R e mu n e ra tio n o f the management commit t ee

See annual report page 45.

I I I . 7 . 5 . E xc h an g e ra tes

in euros Average exchange rates Closing exchange rates

ISO 2006 2005 2006 2005

Brazilian Real BRL 0.366106 0.336830 0.354610 0.360881

Swiss Frank CHF 0.634037 0.646036 0.622278 0.643087
Chinese Yuan (Renminbi) CNY 0.099588 0.098703 0.097286 0.105042

PI CAN OL GR OU P A N N U A L R E P ORT 2006 I FIN AN C I A L S TATE M E N T S 2 0 0 6

Indonesian Roopee (1000) IDR 0.086730 0.082292 0.084431 0.086237
Japanese Yen JPY 0.006808 0.007310 0.006372 0.007194
Mexican Peso MXN 0.072623 0.074338 0.069862 0.079327
Romanian Leu RON 0.284639 0.295508
Turkish Lira TRY 0.555605 0.599986 0.536481 0.628931
US Dollar USD 0.792288 0.807318 0.759301 0.847458

I I I . 7 . 6 . P ers o n n el

31/12/2006 31/12/2005
Fully Proportionally Fully Proportionally
In units consolidated consolidated Total consolidated consolidated Total
Management 17 0 17 22 0 22
White-collars 726 0 726 686 5 691
Blue-collars 1,577 0 1,577 1,633 40 1,673
Average number
of personnel
employed 2,333 0 2,333 2,286 45 2,331

Average number
of personnel
employed in
Belgium 1,488 0 1,488 1,465 0 1,465

Remuneration
and social
charges (in ‘000
euros) 98,757 0 98,757 97,649 78 97,727
113

I I I . 7 . 7 . A u d it an d n o n -a u dit services provided by t he audit ors

Overview of the audit fees and additional services provided to the group by the auditors and the entities as-
sociated to the auditors for the reporting period ended at 31 December 2006 – see annual report page 46.
I I I . 7 . 8 . C o n tin g en t a s s e ts and liabilit ies

The Picanol Group has the following contingent assets and liabilities at 31 December 2006.

Picanol NV is in receipt of a pledge for 99% of Millentex NV shares in return for a loan in USD to the value
of 2.6 million euros.

I I I . 7 . 9 . Mis c e lla n eo u s

Emission Rights

In 2005 the Picanol Group was granted emission rights. These rights comprise an immaterial amount,
which is therefore not recognized in the accounting.

In 2006 these emission rights remained negligible.

Risk Factors

In accordance with Article 96, 1° of the Company Code, as amended by the Law dated 13 January 2006, the
company has provided a true overview of the development, the results, and the position of the company, as
well as a description of the main risks and uncertainties which it faces.

As a world player, the Picanol Group is faced with geo-political situations in which our customers find
themselves. In addition, our financial competitiveness is highly dependent on structural exchange rate dif-
ferences. Permanent technological development is also vital to safeguard our position as world player in
the sector.
I V. S TAT U T O R Y F I N A N C I A L S TAT E M E N T S

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I S TATU TO RY FI N A N C I A L S TAT E M E N T S P I C A N O L N V

PICANOL NV

PICANOL NV (in ‘000 euros) 2006 2005

FIXED ASSETS 59,481 61,205

Intangible fixed assets 2,939 3,746
Tangible fixed assets 10,788 10,207
Financial fixed assets 45,754 47,252

CURRENT ASSETS 127,594 148,159

TOTAL ASSETS 187,075 209,364

SHAREHOLDERS’ EQUITY 56,776 54,331

Capital 7,400 7,400
Share premium account 1,332 1,332
Reserves 43,656 43,657
Profit carried forward 4,387 1,942
Investment grants 0 0

PROVISIONS AND DEFERRED TAXES 7,434 7,598

LIABILITIES 122,864 147,435

Amounts payable after one year 20,047 33,959
Amounts payable within one year plus
accrued expenses and deferred income 102,817 113,476

TOTAL LIABILITIES 187,075 209,364

TURNOVER 324,566 302,118

OPERATING PROFIT 6,826 -5,288
115
FINANCIAL RESULTS -851 138
EXCEPTIONAL RESULTS -1,601 -1,625

TAXES -40 -3,191

PROFIT FOR THE FINANCIAL YEAR 4,334 -9,966

NOTES TO THE STATUTORY FINANCIAL
STATEMENTS

N o t e s to th e b ala n ce s h eet and income st at ement s of t he

p a re n t c o mp a n y P ic a n o l NV

The balance sheet total of Picanol NV decreased with 22.3 million euros, from 209.4 million euros at the
end of 2005 to 187.1 million euros at 31 December 2006. This is mainly due to a considerable decrease in
export finance compared to 2005.

The turnover of Picanol NV increased by 7.4% in 2006 compared to 2005, from 302.1 million euros to
324.6 million euros. This positive evolution in turnover is mainly caused by an increase in the volume of
machines sold. In absolute value, the gross margin (operating revenue less the value of raw materials and
auxiliaries, services and various goods) increased from 54.4 million euros in 2005 to 69.1 million euros in
absolute value at the end of 2006. The gross margin in comparison to the turnover evolved from 18.0% in
2005 to 21.3% in 2005. This increase of the gross margin was caused on the one hand by an increase of the
realized margins on the weaving machines sold and on the other hand it was caused by the measures taken
to save costs. The operating result climbed by 12.1 million euros to 6.8 million euros at the end of 2006.

The net exceptional costs amounted to 1.6 million euros at the end of 2006, principally as a result of pay-
ments in the context of settlement agreements (1.2 million euros) and a depreciation of the participation
in the company BCN Laminados (0.9 million euros), because the settlement of this entity was started in
2006.

The net book value in associated companies and the receivables on the relevant companies were valued and
ratified by the Board of Directors.

In accordance with Article 96, 1° of the Company Code, as amended by the Law dated 13 January 2006,
the company provides a true and fair overview of the development, the results, and the position of the com-
pany, as well as a description of the main risks and uncertainties which it faces.

As a world player, the Picanol Group is faced with geo-political situations which our customers have to
deal with and which they have to operate. In addition, our financial competitiveness is highly dependent on
structural exchange rate fluctuations. Permanent technological development is also vital to safeguard our
position as a world player in the sector.

A d d i t i o n a l A u d it F ee s

See annual report page 46.

B ra n c h O ffice s

PI CAN OL GR OU P A N N U A L R E P ORT 2006 I S TATU TO RY FI N A N C I A L S TAT E M E N T S P I C A N O L N V

Picanol NV operates three branch offices: Picanol Beijing Representative Office, Picanol Guangzhou Rep-
resentative Office and Picanol Shanghai Representative Office.

F i n a n cia l in stru me n ts

Picanol NV practices foreign currency hedges through forward contracts. These forward contracts have a
total nominal value of 5.0 million euros, the positive market value of these instruments amounts to 0.2 mil-
lion euros at 31 December 2006. This market value is recognized in the income statement of the company at
31 December 2005 to the extent that it relates to existing balance sheet positions at 31 December 2006. The
forward contracts for which no underlying balance sheet position exists at 31 December 2005 are treated
as cash flow hedges. These positions are justified by orders placed but not yet invoiced. For the financial
year 2006, all outstanding forward contracts include cash flow hedges. Under no circumstances the use
of derivative instruments takes place for speculative purposes. The company and the group of companies
otherwise have no other form of financial instruments whatsoever.

C o n f l i cts o f in te re s t

As legally included in the Company Code and as prescribed in the Corporate governance Charter of the
Board of Directors of Picanol Group, the members of the Board of Directors are expected to inform the
chairman about the agenda items with which they have a direct or indirect conflict of interest and they shall
not participate in the discussions or the decision-taking process of these items. In accordance with Article
523 Company Code a financial conflict of interest was drawn up at 23 March 2006 and at 13 February 2007.
For more details we refer to the chapter “Corporate Governance” in this annual report.

R e p o rt o f th e a u d ito r

The statutory auditor has issued an unqualified opinion on the statutory financial statements of Picanol NV.

117
REPORT BY THE AUDITOR

S t a t u t o ry a u d ito r ’s re p o rt t o t he shareholders’ meet ing on t he

c o n s o lid ated fin an cia l s tat ement s f or t he year ended at 31
D e c e m b er 2 0 0 6

To the shareholders,
As required by law and the company’s articles of association, we are pleased to report to you on the audit
assignment which you have entrusted to us. This report includes our opinion on the consolidated financial
statements together with the required additional comments and information.

Unqualified audit opinion on the consolidated financial statements

We have audited the accompanying consolidated financial statements of PICANOL NV (“the company”)
and its subsidiaries (jointly “the group”), prepared in accordance with International Financial Reporting
Standards as adopted by the European Union and with the legal and regulatory requirements applicable
in Belgium. Those consolidated financial statements comprise the consolidated balance sheet as at 31 De-
cember 2006, the consolidated income statement, the consolidated statement of changes in equity and the
consolidated cash flow statement for the year then ended, as well as the summary of significant accounting
policies and other explanatory notes. The consolidated balance sheet shows total assets of 255,860 (000)
euros and a consolidated profit (group share) for the year then ended of 5,569 (000) euros.
The financial statements of several entities included in the scope of consolidation which represent total
assets of 9,467 (000) euros and total sales of 10,257 (000) euros have been audited by other auditors. Our
opinion on the accompanying consolidated financial statements, insofar as it relates to the amounts contrib-
uted by those entities, is based upon the reports of those other auditors.
The board of directors of the company is responsible for the preparation of the consolidated financial state-
ments. This responsibility includes among other things: designing, implementing and maintaining internal
control relevant to the preparation and fair presentation of consolidated financial statements that are free
from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting
policies, and making accounting estimates that are reasonable in the circumstances.
Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with legal requirements and auditing standards applicable in Bel-
gium, as issued by the “Institut des Reviseurs d’Entreprises/Instituut der Bedrijfsrevisoren”. Those stan-
dards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated
financial statements are free from material misstatement.

In accordance with these standards, we have performed procedures to obtain audit evidence about the
amounts and disclosures in the consolidated financial statements. The procedures selected depend on our
judgment, including the assessment of the risks of material misstatement of the consolidated financial state-
ments, whether due to fraud or error. In making those risk assessments, we have considered internal control
relevant to the group’s preparation and fair presentation of the consolidated financial statements in order to
design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an
opinion on the effectiveness of the group’s internal control. We have assessed the basis of the accounting
policies used, the reasonableness of accounting estimates made by the company and the presentation of the
 PIC ANO L G ROU P A N N U A L R E P ORT 2006 I S TATU TO RY FI N A N C I A L S TAT E M E N T S P I C A N O L N V
consolidated financial statements, taken as a whole. Finally, the board of directors and responsible officers
of the company have replied to all our requests for explanations and information. We believe that the audit
evidence we have obtained, together with the reports of other auditors on which we have relied, provides a
reasonable basis for our opinion.

In our opinion, and based upon the reports of other auditors, the consolidated financial statements give a
true and fair view of the group’s financial position as of 31 December 2006, and of its results and its cash
flows for the year then ended, in accordance with International Financial Reporting Standards as adopted
by the EU and with the legal and regulatory requirements applicable in Belgium.

Additional comments and information

The preparation and the assessment of the information that should be included in the directors’ report on the
consolidated financial statements are the responsibility of the board of directors.
Our responsibility is to include in our report the following additional comments and information which do
not change the scope of our audit opinion on the consolidated financial statements:
• The directors’ report on the consolidated financial statements includes the information required by law
and is in agreement with the consolidated financial statements. However, we are unable to express an
opinion on the description of the principal risks and uncertainties confronting the group, or on the status,
future evolution, or significant influence of certain factors on its future development. We can, neverthe-
less, confirm that the information given is not in obvious contradiction with any information obtained in
the context of our appointment.
• As mentioned in the notes to the financial statements, we wish to draw the attention to:
- In accordance with the settlement agreements concluded on 16 March 2005 and as con-
sequence of the shareholder agreement and settlement agreement concluded on 23 March
2006, the company has accounted for the collected reimbursements under other income and
for the amounts paid under other expenses in the 2006 profit and loss statement.
- In accordance with the reimbursement agreement dd 10 October 2004, Picanol NV has an
outstanding receivable on Mr. Jan Coene for an amount of 3,576,831.60 euros which is
recorded as short term other account receivable per 31 december 2006. We refer to the sub-
sequent events whereby Picanol NV accepted the taxation in tax year 2003 of the sign-up
premium paid to Mr. Jan Coene and the detaxation of the same amount in tax year 2005 in
order to obtain the repayment of the withholding taxes towards Mr. Jan Coene. The repay-
ment will be used to pay to outstanding receivables Picanol NV has on Mr. Jan Coene.

119

Brussels, 20 March 2007

The statutory auditor
DELOITTE Bedrijfsrevisoren / Reviseurs d’Entreprises
BV o.v.v.e. CVBA / SC s.f.d. SCRL
Represented by
William Blomme
Kurt Dehoorne
I N F O R M AT I O N F O R S H A R E H O L D E R S
70
T H E 1 99 0 S
YEARS
At the beginning of 1990 Picanol pro-
duced a record number of machines and
scored its highest ever sales. But an abrupt
end to this success came in the second half of
the year, due to the downturn in the economy,
the recession in the USA and the Gulf crisis,
with many orders being cancelled and others
postponed. In the next few years more than
150 people left the company. Picanol did not
allow these setbacks to put it off its course,
but instead invested in new assembly lines,
new equipment and assembly robots. R&D too
SHARES AND LISTING
The Picanol Group has been listed on the Euron-
ext Brussels exchange since 1966 under the code
PIC (ISIN code BE0003807246).
On 31 December 2006 the share capital was rep-
resented by 5,900,000 Picanol shares. During the
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I IN FOR M ATI O N FO R S H A R E H O L D E R S
continued to play an essential role. In
1992 the company introduced a new gen-
eration of weaving machines, the OMNI and
the DELTA.
In 1993 Picanol achieved ISO 9001 certifica-
tion, as a guarantee of the quality of its prod-
ucts and services. In the following year the
group expanded further with the setting up
of the joint venture Suzhou Picanol Textile
Machinery Works (STP). Assembly of weav-
ing machines began in China in 1995 with the
GA733, the Chinese version of the GTM-A. In
1997 Picanol introduced the Gamma, an entire-
ly new rapier weaving machine. The German
company Günne Webmaschinenfabrik was
acquired in 1998. The textile sector entered a
new downturn, and Picanol was restructured
as a result, with some 300 people losing their
jobs. In 1999 Picanol acquired the other 40%
of the shares in SPT and set up Picanol Suzhou
Textile Machinery Ltd (PST) as a fully-owned
subsidiary.
121
course of 2006 there was no change in the number
of shares. As regards the present capital structure,
on 31 December 2006 there were no share op-
tions, warrants or convertable bonds.
The stock exchange capitalisation on 31 Decem-
ber 2006 amounted to 73.28 million euros.
S h a re ho ld e r ’s d iary

Payment of dividend 19 April 2007

Trading update Q1 16 May 2007
Announcement of half-yearly results 29 August 2007
Trading update Q3 24 October 2007
Announcement of annual results 19 March 2008
AGM 16 April 2008

J F M A M J J A S O N D

Stock closing price over 2006 (in euros)

Average daily volume over 2006

 PIC ANO L G ROU P A N N U A L R E P ORT 2006 I IN FOR M ATI O N FO R S H A R E H O L D E R S
J F M A M J J A S O N D

Stock closing price over 2006 (in %)

Belgium All Shares Index over 2006 (in %)

2003 2004 2005 2006

Stock closing price over the last 4 years (in %)

Belgium All Shares Index over the last 4 years (in %)

DIVIDEND
The dividend policy of the Picanol Group is based
on an annual judgement concerning the return for
shareholders, maintaining a free cashflow and op-
portunities for financing further growth. On the
123
basis of these considerations, the Board proposes
to the Annual General Meeting to pay out a gross
dividend of 0.32 euros per share.
U S E F U L I N F O R M AT I O N
2 0 0 0 - 20 0 6
YEARS
After the downturn of the late 1990s
Picanol returned to profit in 2000. The
OMNIplus was introduced as the successor
to the OMNI. In 2000 Picanol acquired a
larger stake in Protronic. A new corporate
organization was introduced, with global,
customer-oriented business units. There
followed a period of national and international
expansion, with a number of takeovers as part
of the strategic expansion of Picanol’s OEM
activities.
The considerable technical know-how that
Picanol has built up over the last decade
can also be applied to related or even totally
different sectors of industry. Consequently,
Picanol reaffirmed its strategy of expanding
the sale of these technologies to third parties.
This diversification built on the group’s
existing competencies, including knowledge
of and access to the textile markets, and
development and production know-how.
Verbrugge NV in Belgium and Steel Heddle
HAREHOLDERS
70
Inc. in the USA were acquired
ATSI E
in 2001. They were followed in 2002
MR
by Te Strake Textile in the Netherlands and
NRFO
Lhenry in France. The remaining shares in
I NOFO
Protronic and Melotte were acquired in 2002.
MEATI
The new GamMax weaving machine was
TTI G
N UFOR
presented in November 2002. In 2003 among
others Burcklé in France joined the group,
PIC ANO L G ROU P A N N U A L R E P ORT 2006 I IN
while GTP Bandung was set up in Indonesia,
GTP São Paulo in Brazil and GTP in Mexico.
The Picanol Group was adopted as the
collective name for all the group’s activities.
In 2004 a controversy arose concerning the
remuneration of the former President &
CEO. After a turbulent period Chris Dewulf
was chosen as the new President & CEO of
the Picanol Group in 2005, and a new Board
of Directors was appointed. Also in 2005 the
OMNIplus 800 airjet machine was introduced.
A new organization was implemented at the
beginning of 2006, with the emphasis on the
weaving machine activities and the OEM
business. Work on a new construction project
at K. Steverlyncklaan to house the Verbrugge,
125
PsiControl Mechatronics and R&D activities
began in March 2006. Meanwhile, more new
machines were introduced: the OMNIjet, the
OMNIplus 800 TC and the TERRYplus 800.
ADDRESSES

Lhenry
Belgium Zone Industrielle Le Temple
Picanol 42640 Saint-Romain-la-Motte
Ter Waarde 50 Tel. +33 4 77 71 31 04
8900 Ieper Fax +33 4 77 72 36 33
Tel. +32 57 22 21 11
Fax +32 57 22 22 20
Germany
Proferro Günne
Ter Waarde 50 Möhnestrasse 2
8900 Ieper 59519 Möhnesee-Günne
Tel. +32 57 22 21 11 Tel. +49 29 24 9707 0
Fax +32 57 22 22 00 Fax +49 29 24 9707 77

Verbrugge Indonesia
K. Steverlyncklaan GTP Bandung
8900 Ieper Jl. Moh. Toha Km 5,3 no. 56
Tel. +32 57 22 28 97 40261 Bandung
Fax +32 57 22 22 55 West Java
Tel. +62 22 521 1865
PsiControl Mechatronics Fax +62 22 520 0591
K. Steverlyncklaan
8900 Ieper
Tel. +32 57 21 88 33 It aly
Fax +32 57 21 88 55 GTP Milano
Via Archimede 31
Melotte 20041 Agrate Brianza
Industrieweg 2019 Milano
3520 Zonhoven Tel. +39 039 641 15 22
Tel. +32 11 81 30 25 Fax +39 039 688 12 47
Fax +32 11 81 39 54
M exico
B ra z i l GTP Mexico
GTP São Paulo Avena No. 475 Col. Granjas México
Rua do Tecelão, 310 08400 Mexico DF
13478-721 Americana SP Tel. +52 55 56 57 1740
Tel. +55 19 3478 9600 Fax +52 55 56 57 0041
Fax +55 19 3478 9608
Net herlands
F ra n c e Te Strake Textile
Burcklé Dr. H. Van Doorneweg 26, 5753 PM
Rue de Bourbach-le-Haut 9 Deurne
68290 Bourbach-le-Bas PO Box 244 5750 AE Deurne
Tel. +33 3 89 82 8989 Tel. +31 493 326 222
Fax +33 3 89 82 8359 Fax +31 493 326 352
P e o p l e’s R ep u b ic o f C h ina Romania
Picanol Beijing Representative Office PsiControl Mechatronics Srl
B0811, Hui Bin Office Building Campului Street 1
No. 8 Beichendong St. Chaoyang 505400 Rasnov
District Brasov County
Beijing 100101 Tel: +40-268-230081

PIC ANO L G ROU P A N N U A L R E P ORT 2006 I IN FOR M ATI O N FO R S H A R E H O L D E R S

Tel. +86 10 8498 3189 Fax: +40-268-230015
Fax +86 10 8498 1905
Turkey
Picanol Guangzhou Representative GTP Istanbul
Office Merkez Mah.
Room 701, Office Tower China Hotel Yıldırım Bayazıd Cad.
Liuhua Lu, Guangzhou 510015 No: 179/2
Guangdong Province 34197 Yenibosna - Istanbul
Tel. +86 20 86 266110 Tel. +90 212 652 99 00
Fax +86 20 86 666040 Fax +90 212 652 99 30
Picanol Shanghai Representative
Office Unit ed St at es
Room 618, Summit Center GTP Greenville
No 1088 Yan An Road West 1801 Rutherford Road
Shanghai 200052 Greenville SC 29609
PO Box 1867 Greenville SC 29602
Picanol SIP (Suzhou Industrial Park) Tel. +1 864 288 5475
Textile Machinery Fax +1 864 987 0972
Picanol (SuZhou) Trading
FengTing Road/Songzhuan Road,
KuaTang,
Suzhou Industrial Park, Suzhou 215122
Jiangsu Province
Tel. +86 512 6287 0688
Fax +86 512 6287 0710

127
GLOSSARY

Aftermarket The market for supplying additional products and services to weaving
mills, in addition to the market for the sale of weaving machines (basic
or primary market)
Airjet Airjet weaving machine
CFT Customer Focus Team
CNC-machine Computer Numerical Control. This refers to the computer controlled
system of the machine tool
CRT Customer Relation Team
Denim Jeans fabric
Drive switched reluctance Switched reluctance motor technology
Drop wire Steel strip which is suspended from the warp thread. When a warp
thread breaks, the drop wire drops due to its own weight activating the
switch that stops the machine
Frame See weaving frame
Gravity point Foreign branch of the Picanol Group held as a subsidiary
GTP Global Textile Partner
Heddle Each warp thread runs through a heddle. The heddles are mounted in
groups on the weaving frame
IAS International Accounting Standards
IFRS International Financial Reporting Standards
Man-machine interface Connection between operator and machine
Mechatronics Combination of mechanic, electronic and software systems
Nozzle Blower for air insertion, ensures the weft thread is inserted via an air jet
OEM Original Equipment Manufacturer, manufacturer of products or
components for brand suppliers
PCB Printed circuit boards or printing plate
PST Picanol-Suzhou Textile Machinery Systems
PTS Picanol Tex-Machinery Systems
R&D Research & Development
Rapier Rapier weaving machine
Reed Series of drop wires which moves between the warp thread. The reed
beats the weft thread against the weft.
SMD Surface mounted device (mounted directly onto the surface of printed
circuit boards)
Terry (towel) Towel fabric
THT Trough-hole-technology, refers to the technology used for electronic
components that involves the use of pins on the components that are
inserted into holes drilled in printed boards (also called insertion)
Tire cord Fabric used to reinforce car tires
Versatility Property of a weaving machine enabling it to weave different types of
fabrics
WCM World Class Manufacturing
Weaving frame The weaving frame or frame moves a warp thread up and down in a
weaving machine
Weaving machine Machine on which a fabric is made using two groups of threads. The
threads running lengthwise are known as warp threads, those running
perpendicular to the warp threads are the weft threads
WTO World Trade Organization