Company profile Key Figures Presentation of the Picanol Group 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 Report by the Board of Directors 17 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 Consolidated financial statements 61 Definitions 62 Annual accounts 63 Notes to the consolidated financial statements 67 Statutory financial statements of Picanol NV 115 Report by the Auditor 118 Information for the Shareholders 121 Shares and listing 121 Dividend 123 Useful information 125 Addresses 126 Glossary 128 CONTENTS CONTENTS 1 PICANOL GROUP ANNUAL REPORT 2006 I
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CONTENTS · PDF fileWeaving machines PRESENTATION OF THE PICANOL GROUP OptiMax (new in 2007) Rapier weaving machine for the higher segments and
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Company profi le
Key Figures
Presentation of the Picanol Group 3
70 years in the lead with innovative technology (36-06) 3Customer-oriented organization 3International network 6Worldwide activities 8Product range 10Organizational diagram 13Board of Directors and Management Committee 14
Report by the Board of Directors 17
Letter to the Shareholders 18Main events 20OEM Business activities report 2370 years: History of the Picanol weaving machines 27Weaving Machines activities report 30Innovation Council 3370 years: Social life of the Picanol Group 34Human Resources 36Information Technology 38Corporate Governance 40 Consolidated f inancial statements 61
Defi nitions 62Annual accounts 63Notes to the consolidated fi nancial statements 67
Statutory f inancial statements of Picanol NV 115
Report by the Auditor 118
Information for the Shareholders 121
Shares and listing 121 Dividend 123 Useful information 125
Addresses 126Glossary 128
C O N T E N T S
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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:
• 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.
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
70 YEARS IN THE LEAD WITH INNOVATIVE TECH-NOLOGY
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.
70YEARS
CUSTOMER-ORIENTED ORGANIZATION
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OEM Business
• 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 fi nd 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 specifi cally develop and
produce accessories for weaving machines.
Specifi cally, 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).
T E X T I L E A N D N O N - T E X T I L E O E M ’ S
O E M B U S I N E S S
Manufacturing
Mechatronics & Accessories
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- 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.
Weaving machines
• 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
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,
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.
T E X T I L E C U S T O M E R S
W E AV I N G M A C H I N E S
Technology & Operations
Marketing, Sales & Services
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INTERNATIONAL NETWORK Situation on 31/12/2006
LEGEND
R – Research & Development
P – Production
M – Marketing
S – Service
EUROPE
B e l g i u m
Picanol (Ieper): headquarters + R/P/M/S
Proferro (Ieper): P/M/S
Verbrugge (Ieper): R/P/M/S
PsiControl Mechatronics (Ieper): R/P/M/S
Melotte (Zonhoven): R/P/M/S
G e r m a n y
Günne (Möhnesee-Günne): R/P/S
F r a n c e
Burcklé (Bourbach-le-Bas): P/M/S
Lhenry (Saint-Romain-la-Motte): P/M/S
I t a l y
GTP Milano: M/S
N e t h e r l a n d s
Te Strake Textile (Deurne): R/P/M/S
R o m a n i a
PsiControl Mechatronics srl (Brasov): R/P
Tu r k e y
GTP Istanbul: P/M/S
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I n d i a
New Delhi, Mumbai and Coimbatore: perma-
nent sales & services agency
I n d o n e s i a
GTP Bandung: M/S
P a k i s t a n
Lahore: permanent sales & services agency
P e o p l e ’ s R e p u b l i c o f C h i n a
Picanol SIP (Suzhou Industrial Park)Textile
Machinery: R/P/M/S
Picanol (Suzhou) Trading Company: M/S
Picanol Bejing Representative Offi ce M
Picanol Guangzhou Representative Offi ce M
Picanol Shanghai Representative Offi ce M
AMERICAS
B r a z i l
GTP São Paulo: P/M/S
M e x i c o
GTP Mexico: P/M/S
U S A
GTP Greenville: R/P/M/S
The Picanol Group is also represented by one or more agents in all countries with a signifi cant textile market.
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EUROPE
B e l g i u m
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.
THE EARLY YEARS
The company was founded as the
‘Vansteenkiste Company to Promote
Industrialization of Flax Fiber Production,
Foundry and Workshops’ in 1928. The
Steverlynck family was represented on the
Board of Directors when the company was
fi rst 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 fl ax industry suffered a
worldwide downturn. Vansteenkiste
managed to survive by building various
other types of machine.
70YEARS
ACTIVITIES AND BRANCHES WORLDWIDE
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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.
G e r m a n y
Günne develops and produces the TERRYplus
800 and OMNIplus 800 TC weaving machines.
F r a n c e
Burcklé and Lhenry produce reeds.
I t a l y
GTP Milano sells weaving machines, spare parts
and accessories.
N e t h e r l a n d s
Te Strake Textile is a competence center for
nozzles and sensors. It also focuses on R&D for
breakthrough projects in the fi eld of air insertion.
R o m a n i a
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
I n d o n e s i a
Through GTP Bandung the group provides Pica-
nol parts, accessories and services for the Indone-
sian textile market.
P e o p l e ’ s R e p u b l i c o f C h i n a
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 offi ces in Beijing, Guang-
zhou and Shanghai.
AMERICAS
B r a z i l
GTP São Paulo sells Picanol weaving machines,
parts and accessories to the South American tex-
tile industry, and also produces reeds.
M e x i c o
GTP Mexico sells parts and accessories, and also
produces reeds.
U S A
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.
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1. Manufacturing
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 fi nishing, 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. Mechatronics
P s i C o n t r o l M e c h a t r o n i c s
The products made by PsiControl Mechatronics include
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 fi rst weaving ma-
chine with pushbuttons instead of levers.
1975 Picañol introduces the PGW at ITMA Milan. The
PGW (Picanol Gripper Weaving machine) is the
fi rst shuttleless machine to apply the recently-
developed gripper insertion technology to an
existing design. This technology makes it easy
to weave different fi lling 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
developed, and is presented for the fi rst 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.
1983 Picanol scores another big breakthrough at ITMA
Milan: the world’s fi rst 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 fi rst GTM machines with their weaving width
of 190 cm achieve a speed of 360 PPM, eventually
rising to 500 PPM.
70 YEARS OF INNOVATION: THE HISTORY OF PICANOL WEAVING MACHINES
70YEARS
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1985The 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 fl exible pro-
duction. A type 190 OMNIplus machine achieves
a speed of 1100 PPM.
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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 fi ve years.
The new 160 type achieves a speed of 650 PPM.
2004In April of this year, Picanol introduces the Olym-
pica and GamMax for weaving glass fi ber.
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 effi cient 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 profi tability.
2006Since 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.
2007Picanol introduces the OptiMax, the latest stan-
dard-setter for rapier weaving.
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WEAVING MACHINE ACTIVITY REPORT
Market review
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 fl ying 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.
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 fi ber 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 fl uctuations 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.
(1) Based on our own analysis of fi gures from the International Textile Manufacturers Federation (ITMF), customs statistics and our own market research.
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 fi rst 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 infl uenced 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-
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
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
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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.
Outlook
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 fi eld 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, fl exibility and cost-
effectiveness, along with further development of
World Class Manufacturing. Particular emphasis
will be placed on optimizing the worldwide
processes and improving the fl ow of information.
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
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.
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
project or investment plan. In addition the
Innovation Council coordinates networking
with other parties that are active in innovation,
and ensures effi cient 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
product strategy, WCM or sourcing. Innovations
or suggestions concerning these activities are
still passed on within the organization, but the
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Innovation Council concentrates specifi cally 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.
The Innovation Board is made up of a fi xed 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.
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 fi nancial support
has been given to social organizations and sports
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
70 years of social l i fe
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 fi rst
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 fi eld 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 rifl e shooting and
trout fi shing. For the very young there is the annual
St. Martin’s Festival, which was revived in 2002
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.
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HUMAN RESOURCES
The Picanol Group employs 2,336 people
worldwide (fi gure 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 signifi cant 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
classifi cation system for employees was also
implemented, based on an internationally
recognized system. The aim of this classifi cation
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 specifi c, 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.
Environment, health & safety
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 certifi cation,
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
priority for the Picanol Group, along with
ergonomics, accident prevention and protection
on the factory fl oor. 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 fi rst-aiders,
emergency teams, internal fi refi ghting 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, fi re 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.
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INFORMATION TECHNOLOGY
2006 was a hinge year, in which the IT strategy
fi rst outlined in 2004 was fi nally 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.
IT vision
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 diffi cult.
Moreover, system stability is crucial to assure
continuity of the business.
Priority
In view of the above, the Picanol Group follows
a deliberate strategy of continual improvement,
standardization and simplifi cation 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 confi guration
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 suffi cient guarantees for the operational se-
curity of the systems.
Business architecture
The new architecture, with the transformation from
a mainframe to a Windows platform, was techno-
logically necessary in the fi rst 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 defi nition and introduction of best
practices, the Picanol Group aims to reduce com-
plexity and so make additional cost savings.
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Applications architecture
In practical terms, four main fi elds of application
have been defi ned:
• 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 confi gurator was port-
ed to the Sofon package and linked to the new
ERP system.
• Product Life Cycle (confi guration of weaving
machines): all processes related to product de-
velopment and confi guration 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.
Multi-vendor outsourcing
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
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.
Outlook
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 confi gurator will be
modernized.
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CORPORATE GOVERNANCE
As required by the Corporate Governance Code,
this chapter describes the corporate governance
policy during fi nancial 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 . Board of directors
C O M P O S I T I O N O F T H E B O A R D O F
D I R E C T O R S
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
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offi ce runs until the next Annual General Meeting,
which will be asked to confi rm 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 effi ciently.
A C T I V I T I E S O F T H E B O A R D D U R I N G
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-
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.
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;
THE 1970S
At the ITMA exhibition in Paris in 1971,
Picañol surprised the textile industry with
the MDC, the world’s fi rst electronically con-
trolled fl ying 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 fl ying 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
manufacturing facilities. It also put an effort
into purchasing land and building new facili-
ties in order to become more centralized and
work on a larger scale. The fi rst 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.
70YEARS
(*) representing a company
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– 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 fi gures, 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 fi ndings 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/Sofi nes NV, the sharehold-
ers who are members of the Buraco group (as
defi ned therein) and the Company.
.
I I . Subcommittees of the board of directors
C O M P O S I T I O N
With reference to the provisions of the Corporate
Governance Charter, the arrangements under the
shareholder agreement concerning Picanol NV
between the parties Pasma NV/Sofi nes BV, Bu-
raco Group and Picanol dated 23 March 2006, the
Board Meeting held on 28 August 2006 confi rmed
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 offi ce
expire at the same time, which permits a rear-
rangement to be made at that moment in accor-
dance with the Corporate Governance Charter.
A U D I T C O M M I T T E E
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 fi ndings 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
C O M M I T T E E
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.
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THE 1980S
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 effi ciently. 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.
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, modifi cations 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 fi nished 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 fl ying
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).
70YEARS
I I I . Management committee and day-to-day management
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.
IV. Remuneration
N O N - E X E C U T I V E D I R E C T O R S
– 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 fi xed
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 fi xed 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.
– This results as follows:
Mr. Filiep Libeert 34,000 eurosMr. Frank Meysman 40,000 eurosMr. Johan Tack 45,000 eurosBaron Hugo Vandamme 40,000 eurosMr. Joos Waelkens 75,000 eurosMr. Paul Vandekerckhove 26,500 eurosMr. Luc Van Nevel 90,000 euros
E X E C U T I V E D I R E C T O R S
President & CEO
Mr. Chris Dewulf* received a basic remunera-
tion of 459,000 euros for the offi ce 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
– 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.
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VI. Auditors’ remuneration
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
VII . Shareholder structure and agreements, and certif icate holder agreements
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 certifi cate holders on the other, or be-
tween the certifi cate holders themselves, with
the exception of the shareholders’ agreement
mentioned under X below.
VII I . Whistle-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 confi dence.
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 trading and market r igging
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 notifi cation of such operations was re-
ceived during fi nancial year 2006.
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IX. Application of art icles 523 and 524 of the Company Code
B o a r d m e e t i n g o f 2 3 M a r c h 2 0 0 6
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 confl ict 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 confl ict 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 confl ict 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-
holding law.
The Marble BVBA has informed all directors of
Picanol NV about this confl ict 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/Sofi nes 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-
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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, fi nal 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 profi t. 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-
fi nes 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 suffi cient 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-
fi es 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.
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-
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cording to the Board, there can be no justifi cation
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 defi nitive
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 diffi cult 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 justifi ed 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 justifi ed, since all
shareholders benefi ted 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
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 signifi cant 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 justifi ed in the interests of the company.
After these discussions, the Board of Directors
unanimously agreed to approve both agree-
ments.
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B o a r d m e e t i n g o f 1 3 F e b r u a r y 2 0 0 7
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
confl ict of interest of a proprietary nature in the
sense of article 523 of the Company Code.
Mr. Steverlynck explained that the confl ict 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 offi cial
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 offi cial 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 offi cial 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 notifi ed of the confl ict 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 specifi cally 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 offi cial
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 offi cial exemption.
With a view toward this repayment, at the end
of 2004 Mr. Jan Coene fi led a request for offi cial
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 offi cial 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 offi cial 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
the corporate tax rate for revenue year 2002
and revenue year 2004, and the increase due to
insuffi cient prepayments.
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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 offi cial
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 fi nally 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 offi cial 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 fi nal 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 fi ve working days after the notifi cation
of the ruling to grant the request for offi cial
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
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 offi cial 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 effi cient collection of the
amounts still owed by Mr. Jan Coene, to accept
the settlement outlined above in order to effect an
offi cial 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
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.
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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 fi scal deduction of sign-up premium (undervaluation of
assets)
Additional corporate tax: 40.17% of 6,562,972.20: 2,636,346 euros
Increase insuffi cient prepayments: 9% of 2,636,346: 237,271 euros
Fiscal cost : 2,873,617 euros (A)
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 2,230,754 euros (B)
Net cost for Picanol: (A) – (B) 642,863 euros
With a view toward a global settlement with Mr.
Jan Coene, Picanol confi rms 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 confi rms 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 confi rmation of this payment within
the framework of the agreement with Mr. Jan
Coene then has no fi nancial consequences for the
Company.
The resolution thus represents an amount that can
be estimated at 745,878.76 euros.
4. Resolution and justifi cation
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
specifi c actions with respect to these parties.
If the Company were to reject the conditions for
the offi cial 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
cannot be justifi ed 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 offi cial 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 fi scal
correction requested by the tax authorities and
the associated net fi scal 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 justifi ed.
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
the amounts owed him pursuant to an offi cial
exemption directly to the third party account of
his lawyer, who would then transfer this repaid
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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 fi rst 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 fi ve working days
following notifi cation by the tax authorities of the
decision to grant the request for offi cial 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 justifi able 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
would not be owed by the tax authorities on the
amount that would be repaid to Mr. Jan Coene
pursuant the offi cial 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 offi cial 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 offi cial exemption and the
agreement with the tax authorities, as well as the
proposed global settlement with Mr. Jan Coene,
are justifi ed 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 justifi ed, 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
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.
RE
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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
I. Definit ions 62
I I . Financial statements 63
II.1. Consolidated income statement 63
II.2. Consolidated balance sheet 64
II.3. Consolidated cash fl ow 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
III.5. Income statement 85
III.6. Balance sheet 92
III.7. Miscellaneous 111
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I . D E F I N I T I O N S
Associated companies Companies in which Picanol has a signifi cant infl uence 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 fi nance Bank loans to refi nance credit granted to our customers, with as security bills of exchange or promissory notes accepted by our customers.
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I I . F I N A N C I A L S TAT E M E N T S
The consolidated fi nancial statements have been approved for publication by the Board of Directors on 19 March 2007.
I I .1. CONSOLIDATED INCOME STATEMENT
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 profi t % 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 fi nancing expenses III.5.4. -619 -1,169
Other fi nancial income III.5.4. 528 1,423
Other fi nancial 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. (**) A re-allocation of head-offi ce costs amounting to 6.9 million euros from the beginning of 2006 led to an adjustment
of the gross profi t on 31/12/2005, in order to make a comparison possible.
EARNINGS PER SHARE
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
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I I .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 fi xed assets III.6.3. & III.6.4. 59,267 63,237
Other fi nancial fi xed 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 fi nancial 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 fi nancial 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.
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I I .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 fi xed assets 14,112 15,656
Impairment of assets 1,025 0
Write-offs on assets 704 717
Changes in provisions 546 -4,734
Profi t/loss on disposals of assets 0 -12
Income from associates 0 0
Gross operating cash fl ow 26,231 9,293
Changes in working capital 15,783 26,415
Operating cash fl ow 42,014 35,709
Income taxes -3,236 -1,577
Net operating cash fl ow 38,778 34,132
Interest received 2,552 2,647
Acquisitions in intangible fi xed assets -1,464 -2,619
Acquisitions in tangible fi xed assets -9,538 -10,369
Revenue from the sale of intangible fi xed assets 32 1,864
Revenue from the sale of tangible fi xed assets 1,805 75
Net cash fl ow from investment operations -6,613 -8,402
Interest paid -3,171 -3,817
Dividends paid 0 -1,475
Increase/ (Decrease) of export fi nance -15,045 -13,500
Acquisitions of interest-bearing fi nancial borrowings 280 5,663
Repayments of interest-bearing fi nancial borrowings -14,380 -8,685
Cash fl ow from fi nance operations -32,317 -21,813
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
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I I .4. STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
For the year ending 2006
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 principles
0 0 0 0 0 0 0
Result over the reporting period 0 0 5,569 0 5,569 -1 5,568
(*) The segment assets and segment liabilities of OEM Business and Weaving Machines in 2005 were adjusted in order to make a comparison with 2006 possible.
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N o n - r e c u r r e n t e l e m e n t s p e r s e g m e n t
PICANOL GROUP (in ‘000 euros)OEM
BusinessWeaving
Machines CorporateConsoli–
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. Geographical segments
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 fi xed assets of the Picanol Group according to the
geographical market.
S a l e s
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
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I n t a n g i b l e a s s e t s – t a n g i b l e f i x e d a s s e t s
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
TOTAL 67,877 74,095 11,002 12,988
I I I .5 INCOME STATEMENT
I I I .5.1. Other operating 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:
(in ‘000 euros) 2006
Amtech -138
Picanol Korea 138
PSI-Control -54
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I I I .5.2. Other operating 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
I m p a i r m e n t
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 fi xed 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.
O t h e r
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. Operating result
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
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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
costs compared to 2005 by 1.0 million euro.
I I I .5.4. Financial result
PICANOL GROUP (in ‘000 euros) 2006 2005
Interest on export fi nance -1,544 -1,642
Interest on other loans -859 -1,409
Interest on fi nancial leases -768 -765
Total borrowing costs -3,171 -3,817
Interest income from bank deposits 589 379
Interest income from fi nancial receivables 1,963 2,269
Total interest income on fi nancial receivables and cash 2,552 2,647
Interest income/(charges) -619 -1,169
Exchange rates differences 292 1,423
Profi t or loss on fi nancial instruments 237 0
Other fi nancial income 528 1,423
Exchange rate differences -951 -692
Loss on revaluation of fi nancial instruments 0 -368
Other fi nancial 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.
The negative evolution of the exchange rate of the USD and RMB against the EUR in 2006 resulted in a
decrease of the other fi nancial result by 0.8 million euros in relation to 2005.
The unrealized profi t on fi nancial 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 fl ow hedges. These positions are recognized in view of orders placed but not
yet invoiced.
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I I I .5.5. Income taxes
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 %
Profi t 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%
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 profi t 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
the tax loss of Picanol NV in 2005.
• Realized tax profi ts 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.
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Non-recognized tax loss carry-forward, classifi ed 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 fi nancial
year 2006:
PICANOL GROUP (in ‘000 euros)Gross
amount
Total deferred tax
assets
Recognized deferred tax
assets
Non-recognized
deferred tax 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. Dividends
Amounts recognized as distribution to shareholders in the reporting period:
No dividend was distributed for the fi nancial 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 fi nancial 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.
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I I I .5.7. Basic earnings per 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
Net profi t or loss over the period 5,569 -4,716
Net profi t 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. Diluted earnings per share
The diluted earnings per share of the Picanol Group are equivalent to the basic earnings per share, both for
the fi nancial year 2006 and 2005.
PICANOL GROUP (in ‘000 euros) 2006 2005
Profi t or loss over the period 5,569 -4,716
Profi t 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
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(in ‘000 euros) 2006 2005
Diluted earnings per share 0.94 -0.80
Diluted earnings per share from continuing operations 0.94 -0.80
I I I .6. BALANCE SHEET
I I I .6.1. Intangible assets
F o r t h e y e a r e n d i n g 2 0 0 6 :
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
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