Text Royal Ten Cate Translation Annual Report 2006...Landscape Solutions bv (20%) Goirle (NL)...

‘Materials’ best describes all our

products. Our materials are at the

crossroads of textile technology

and chemical processes.

WE WANT TO BE KNOWN FOR THE DIFFERENCE WE MAKE, THIS IS THE FOCUS OF OUR TAGLINE

We play an active role, contributing

to progress in our industries.

We bring measurable benefits to our customers

through the functionality of our materials.

Commercial overview

AN

NU

AL REPO

RT 2006RO

YAL TEN

CATE

Operating companies, associated companies and other interests

Annual Report 2006Royal Ten Cate

Royal Ten Cate

Egbert Gorterstraat 3

7607 GB Almelo

The Netherlands

P.O. Box 58

7600 GD Almelo

The Netherlands

Telephone +31 (0)546 544 911

Fax +31 (0)546 814 145

[email protected]

www.tencate.com

COLOPHON

Text

Royal Ten Cate

Translation

VVH business translations, Utrecht (NL)

Concept and realisation

C&F Report Amsterdam B.V.

Photography

Picture Report, Amsterdam

Getty Images

Royal Ten Cate

Arjan Reef

Pete Sajic

Number of copies printed

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ADVANCED TEXTILES & COMPOSITES

Ten Cate Advanced Textiles bv Nijverdal (NL)Holding Ten Cate Advanced Textiles group

Ten Cate Protect bv Nijverdal (NL)Fabrics for work and protective clothing and professional wear

Ten Cate Protective Fabrics USA inc Union City, Georgia, USAFabrics for protective clothing

Ten Cate Technical Fabrics bv Nijverdal (NL)Outdoor fabrics

Ten Cate Advanced Weaving Nijverdal (NL)Fabrics for applications in specialist professions and outdoor applications

Ten Cate Advanced Spinning bv Nijverdal (NL)High-grade yarns

Ten Cate Permess Interlinings Hong Kong ltd Hong Kong, China

Ten Cate Permess Xishan Xishan, ChinaSale and production of interlinings

Ten Cate Advanced Composites bv Nijverdal (NL)Components for aircraft construction and antiballistic materials

Ten Cate Advanced Composites USA inc San José, Components for aerospace and antiballistic materials California, USA

Ten Cate Advanced Armour S.A.S. Vienne, FranceAntiballistic materials

GEOSYNTHETICS & GRASS

Ten Cate Geosynthetics Netherlands bv Almelo (NL)

Ten Cate Geosynthetics North America inc Atlanta, Georgia, USA

Ten Cate Geosynthetics Austria GmbH Linz, Austria

Ten Cate Geosynthetics France S.A.S. Bezons, France

Ten Cate Geosynthetics Asia sdn bhd Kuala Lumpur, Malaysia

Geofabrics Australasia pty ltd (50%) Cheltenham, AustraliaGeotextiles and industrial fabrics

Ten Cate Geosynthetics sdn bhd (Malaysia) Kuala Lumpur,

Malaysia

Ten Cate Geosynthetics (Thailand) ltd Bangkok, Thailand

Ten Cate Geosynthetics pte ltd Singapore

Ten Cate Geosynthetics Italia sri Lazzata, Italy

Ten Cate Geosynthetics (UK) ltd Telford, United Kingdom

Ten Cate Geosynthetics sl Madrid, Spain

Ten Cate Geosynthetics Schweiz AG Zurich, Switzerland

Ten Cate Deutschland GmbH Dietzenbach, Germany

Ten Cate Geosynthetics Polska Spzoo Krakow, Poland

Ten Cate Geosynthetics CZ sro Prague, Czech RepublicSales offices

Ten Cate Thiolon bv Nijverdal (NL)

Ten Cate Thiolon North America inc Dayton, Tennessee, USAArtificial grass fibres

Ten Cate Thiobac bv Nijverdal (NL)Backing for artificial grass and carpets

TECHNICAL COMPONENTS

Ten Cate Enbi International bv Beek (NL)

Ten Cate Enbi GmbH Opladen, Germany

Ten Cate Enbi Kft Rétság, Hungary

Ten Cate Enbi inc Shellbyville, Indiana, USA

Ten Cate Enbi pte ltd Singapore

Ten Cate Enbi Zhuhai co ltd Zhuhai, ChinaTechnical rollers and components for printers, copiers, fax machines,

postal sorting machines, automated teller machines, insulation and

heating systems

Business Key sl Barcelona, SpainTrading in components for fluid systems for agriculture, horticulture,

industry and construction

OTHERS

Ten Cate Assurantiën bv Almelo (NL)Insurance

Ten Cate Nederland bv Almelo (NL)

Royal Ten Cate USA inc Atlanta, Georgia, USA

Ten Cate UK ltd London, United Kingdom

Ten Cate France S.A.S. Paris, France

Ten Cate Deutschland GmbH Opladen, Germany

Royal Ten Cate Pacific ltd Hong Kong, China

Royal Ten Cate China Holding ltd Hong Kong, ChinaCountry holding companies

NON-CONSOLIDATED COMPANIES

DIS Enbi Seals Ireland ltd (20%) Portlaoise, IrelandSeals

GreenFields bv (20%) Kampen (NL)Marketing organisation for artificial grass

Landscape Solutions bv (20%) Goirle (NL)Artificial grass for landscaping

Operating companies, associated companies and other interestsas at 31 December 2006

The operating companies listed here are consolidated in the financial statements, with the exception

of the companies shown as non-consolidated. Some interests of minor relevance to the overall

picture have been omitted from the list, in accordance with article 379, paragraph 3, Book 2 of the

Netherlands Civil Code. The companies are wholly owned, unless otherwise stated.

Royal Ten Cate Annual Report 2006

ADVANCED TEXTILES & COMPOSITES SECTOR

PROTECTIVE & OUTDOOR FABRICS� TenCate Protect

� TenCate Protective Fabrics USA

� TenCate Technical Fabrics

Protective and safety fabrics for applications

in specialist professions and industry and for

outdoor applications

AEROSPACE & ARMOUR COMPOSITES� TenCate Advanced Composites

� TenCate Advanced Composites USA

� TenCate Advanced Armour

Composites for applications in the aerospace

industry, bullet-, needle- and fragment-proof

materials and specialist industrial applications

GEOSYNTHETICS & GRASS SECTOR

GEOSYNTHETICS� TenCate Geosynthetics EU

� TenCate Geosynthetics North America

� TenCate Geosynthetics Asia

Synthetic fabrics, nonwovens and grids

for applications in civil engineering,

the environmental market, the

construction industry, agri-

culture, sport and recreation

GRASS� TenCate Thiolon

� TenCate Thiolon North America

� TenCate Thiobac

Artificial grass systems and components

(fibres, backing, infill and sub-base) for top-

flight sports and recreational and landscape

applications

Royal Ten Cate (TenCate) is a multinational

company which combines textile technology

with related chemical processes in the devel-

opment, production and marketing of func-

tional materials. Various market applications

are created around this technological basis.

Within the strategic core activities, TenCate

presents itself as a developer and producer of

specialist materials with high-quality, func-

tional characteristics. TenCate stimulates and

structures technological innovation and

product and process development in such a

way as to occupy long-term leading positions

in markets.

Materials that make a difference means that

TenCate develops and produces materials that

are distinctive. The materials are mostly in-

corporated in an end-product or system, as a

result of which the end-product or system

itself becomes distinctive. TenCate strives for

an active process, in order to develop high-

quality, functional solutions jointly with

partners and end-users. TenCate materials

must be advanced, offering greater added

value. TenCate materials are mainly used for:

� safety and protection;

� aerospace;

� sport and recreation;

� infrastructure and the environment.

TenCate employs approximately 4,000 people

worldwide* and strives to operate in an ethi-

cally and socially responsible way. On this

basis it encourages employees to be both

proactive and enterprising, as part of its aim of

achieving progress for all stakeholders.

* Including Roshield and Ten Cate Thiolon Middle East.

Commercial overview Profile


Geographic breakdown of sales in 2006

in per cent

� By destination

� By origin

The division into market groups is based on the clustering of operating companies which co-operate intensively in the field of production technology,

research and development, marketing and sales. These market groups are combined into sectors. A complete overview of the legal entities which make

up the group can be found on the inside back cover.

TECHNICAL COMPONENTS SECTOR

TENCATE ENBI(Technical) rollers and components based on

rubber and foam technology for paper transport

and image transfer in printers, copiers, fax

machines, postal sorting machines, automated

teller machines, insulation and heating

systems

BUSINESS KEYTrading in technical products for agriculture,

horticulture, industry and constructionTenCate Cetex®

This is TenCate Cetex, a thermoplastic composite material

that is qualified for various applications in the aircraft

industry. The material stands out because of its excellent

mechanical characteristics, such as fire safety and high

surface quality. It is also light in weight.

TenCate Cetex is used by Boeing and Airbus, among others,

in the wings, floor components, baggage compartments and

other interior parts of aircraft such as the A340, A380, Boeing

747 and Boeing 787.

Thermoplastic composites can be formed by manufacturers

into any required shape under specific temperature and

pressure. They can also easily be recycled.

� Countries where TenCate

is established or represented

Commercial overview

Profile

Financial highlights

Key developments in 2006

Evaluation of action plans

Actions for 2007

Mission, strategy and objectives

Foreword by the Chairman of the Executive Board

The TenCate share

Report of the Supervisory Board

The Boards

Materials that make a difference

Report of the Executive Board

General

Financial performance

SWOT analysis

Challenges for TenCate

Information technology

Personnel & Organisation

Organisational development

Socially responsible enterprise

Post balance sheet events

Outlook

Corporate governance

Risks and risk management

Sector reports

Advanced Textiles & Composites

Geosynthetics & Grass

Technical Components

2006 financial statements

Additional data

Ten-year summary

Colophon

Inside cover

Inside cover

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Outside backcover

Annual Report 2006Royal Ten Cate nv

Royal Ten Cate nv Annual Report 20062

SALES PER SECTORin millions of euros

� Advanced Textiles & Composites

� Geosynthetics & Grass

� Technical Components

2002 2003 2004 2005 2006

450

400

350

300

250

200

150

100

50

0

EBIT PER SECTORin millions of euros




2002 2003 2004 2005 2006

27

24

21

18

15

12

9

6

3

0

OPERATING RESULT AND NET PROFITin millions of euros

� Operating result

� Net profit*

2002 2003 2004 2005 2006

54

48

42

36

30

24

18

12

6

0

FIGURES PER SHAREin euros

� Cash flow*

� Net profit*

� Dividend

2002 2003 2004 2005 2006

3.6

3.2

2.8

2.4

2.0

1.6

1.2

0.8

0.4

0.0

* Excluding extraordinary result 2002: + € 12.3 million

and 2006 (sale Synbra) € 39.3 million.

Financial highlights

Royal Ten Cate nv Annual Report 2006 3

in millions of euros, unless stated otherwise

PROFIT AND LOSS ACCOUNT

Revenues

Operating result before depreciation & amortisation (EBITDA)

Operating result (EBIT)

Net profit

Net profit excluding result from divested activities

CASH FLOW

Depreciation and amortisation

Cash flow before change in working capital

Changes in working capital

Investments in tangible and intangible fixed assets

Acquisitions/deconsolidations

Cash flow from operating and investment activities

RATIOS (%)

Operating result as % of sales (EBIT margin)

Operating result as % of net capital employed (RONA)

Net profit as % of equity

Risk capital/total capital (solvency ratio)

PER SHARE DATA IN EUROS

Net profit

Net profit excluding result from sale of Synbra (basis of dividend)

Net profit excluding all divested activities

Cash flow**

Dividend

Payout in %**

Shareholders’ equity

OTHER KEY FIGURES

Number of staff years at year-end

* Adjusted for the purposes of comparison.

** Excluding income from sale of Synbra.

2005

686.5

57.8

38.5

30.5

26.8

19.3

59.2

– 23.9

26.2

40.8

– 45.0

5.6

15.3

18.6

36.5

1.48

1.48

1.30

2.42

0.60

40%

8.75

3,578

2006

770.5

73.2

50.1

76.0

34.0

23.1

65.7

– 4.0

43.0

– 63.0

68.9

6.5

14.4

36.1

48.8

3.66

1.76

1.64

2.88

0.70

40%

11.33

3,532

*


� Sales growth of 12.2% to € 771 million,

of which 4.9% was organic. The organic

growth was mainly affected by the lower

growth of the artificial grass activities.

� Increase of 30% in the operating result to

€ 50 million. On an organic basis, the rise

was 17.6%. The increase occurred across

a broad front, but resulted mainly from the

activities in protective fabrics (US),

geosynthetics, aerospace and armour com-

posites and components for printers and

copiers.

� On a consolidated basis, the EBIT margin

increased to 6.5%. Significant growth was

achieved in the Advanced Textiles & Com-

posites sector. A decrease was recorded in

the Geosynthetics & Grass sector.

� Net profit grew by 26.5% to € 34 million,

excluding the result from divestments of

€ 42 million. The reported net profit is € 76

million.

� Sales and results in the Grass group fell

short of expectations. Measures were

announced in the fourth quarter which will

strengthen TenCate’s market position in

the artificial grass market and consequent-

ly improve the margins.

� Major advances were made with regard to

the fix it/exit policy with the divestments

of Synbra Group (50%) and Plasticum.

� Polyfelt was fully integrated in TenCate

Geosynthetics, which now operates world-

wide as a single integrated group and has

become engaged in large projects.

� Significant growth was achieved in

America in the field of protective fabrics.

Large military orders have been

announced.

� TenCate Advanced Composites won new

orders, including from Boeing (787) and

Embraer. This will bolster future sales

growth.

� The acquisition of Roshield in Denmark

(vehicle protection) was announced at the

end of 2006. This transaction is being

completed at the start of 2007.

� In mid-2006 a declaration of intent was

signed with the Province of Overijssel and

the District of Hellendoorn with regard to

urban development and concentration of

industrial activities.

Key developments in 2006


Evaluation of action plans which were

announced for 2006 in the 2005 annual report.

� Corporate branding

The corporate branding project was suc-

cessfully completed. It included a critical

assessment of our brand policy worldwide.

This led among other things to greater

commercial consistency. Our publications

are now also being produced in the new

house style.

� Integration of Polyfelt

The integration of Polyfelt proceeded

according to plan. The Polyfelt organisa-

tion in Europe, Asia and Australia was

successfully merged with TenCate Geo-

synthetics, the worldwide market leader in

geosynthetics.

� Progress of the acquisition

and divestment policy

Significant progress was made with regard

to divestments. The interest in Synbra

Group was sold with a book profit of

€ 39 million. TenCate Plasticum was

divested at the beginning of 2006 (book

profit of € 3 million). TenCate made known

during the year that it saw various possi-

bilities for acquisitions. The acquisition of

Roshield was announced at the beginning

of December 2006; the acquisition will

considerably strengthen the activities in

the field of ballistic vehicle protection.

� Further strengthening and

embedding of knowledge protection

TenCate has established various patents.

Knowledge protection is an important sub-

ject in new developments.

� Further development of

the digital finishing process

Approval was obtained in the second half

of 2006 for the Digitex innovation project,

which had been submitted to the European

Commission. This means that the project

will be subsidised with European funds.

The development work will take four

years.

� Internal co-operation

TenCate companies mostly operate on the

basis of shared technological knowledge.

This requires co-operation, for example in

research and development. Exchanges of

products and technologies also take place

on an operational and commercial level.

� Management development

At the end of 2006 an active learning

programme was developed in co-operation

with TSM Business School. The objectives

include the promotion of innovative capac-

ity, entrepreneurship and the situational

leadership of the participants.

� Construction of production

facilities in Asia

New investments were made in both

TenCate Enbi and TenCate Geosynthetics.

� Concentration of production in

TenCate Protective & Outdoor Fabrics

(Advanced Textiles & Composites sector)

TenCate participated actively in a success-

ful pilot project run by the government

with the aim of accelerating government

procedures for plant relocations and

permit applications. The declaration of

intent for the Nijverdal-Noord Master Plan

was signed with the local and provincial

authorities in mid-2006. The gradual

concentration of the production process

was initiated with the delivery of the new

continuous wide bleaching machine.

Evaluation of action plans


Actions for 2007

The actions for this year include the challenges

based on the SWOT analysis.

� Buy & build – fix it/exit policy

In 2007 the measures taken in the Grass

group should lead to a considerable

improvement in results. The system

approach (performance of the overall

sports pitch) will be developed further.

The Nijverdal-Noord Master Plan should

ultimately deliver a significant cost reduc-

tion. It will also be a major spearhead of

the new developments based on an open

innovation centre. As part of this plan,

steps will be taken in 2007, including an

expansion of capacity in TenCate Aero-

space & Armour Composites.

Although the divestments have almost

been completed, this remains an area of

attention.

� Knowledge protection

TenCate is a knowledge-intensive company

which has to be innovative in order to

maintain its lead. The establishment or

acquisition of patents and licences is an

important process which requires constant

attention.

� Creating conditions for sales growth in

Asia and other emerging geographic

markets

TenCate already operates in a large

number of countries. The possibilities are

being investigated of developing the

market for TenCate products in a broader

sense, using the existing network and

possibly third parties.

� Promoting innovative developments

TenCate is active in this regard on many

fronts. Mr D. Hendriks (Group Director

TenCate Protective & Outdoor Fabrics) is

Chairman of the European Technology Plat-

form for Textiles & Clothing. Some devel-

opment projects are of a strategic nature

and are therefore not publicly disclosed.

� Management development

TenCate requires young talent in order to

achieve its ambitions. Measures have

been initiated to secure such talent both

internally and externally.

TenCate rewarded for transparency and innovation

In 2006 TenCate was nominated among other things for the Sijthoff Prize, the prize for the best financial reporting. TenCate also

received a high score in the Scenter Annual Report Prize 2006. The company was also nominated for the Rematch Investor

Relations Awards 2006 and received the Roland Berger Award in the Merger & Acquisitions category. TenCate also carried off

prizes in the product area, such as the 'Ei van Columbus 2006' in the sustainable production technology category for Digitex

(digital textile finishing). For projects in the field of Geosynthetics, TenCate received two Outstanding Achievement Awards and an

Award of Excellence from the Industrial Fabrics Association International.

MISSIONTenCate strives for leadership in growing mar-

ket niches for specialist functional materials.

To that end it uses its broad technological

base, the specialist skills available within the

company and its strong position in the value

chain. In markets which make high demands in

terms of functionality, TenCate offers high-

grade solutions. The objective is to contribute

to progress in the sectors in which TenCate

operates. The added value for its customers

results in higher valuation of the materials and

profitable growth for the company. That also

creates value for shareholders.

STRATEGYThe strategy is characterised by:

� market leadership;

� value chain management:

� cost leadership in combination with

� product differentiation, focusing on

specific applications and customer

requirements;

� end-user marketing and an industrial

brand policy;

� technological innovation.

� a focus on markets for specialised mate-

rials;

� growth (buy & build);

� a balanced portfolio of strategic activities

and the scaling down of non-core activities

fix it/exit).

The value chain management is focused

on occupying leading market positions and

thereby achieving critical mass and strategic

coherence. In this way a healthy cost basis is

formed and capacity is created for investments

which are necessary for further growth.

QUALITATIVE STRATEGICOBJECTIVES� value creation for shareholders –

achieving profitable growth based on our

knowledge, skill and internal synergy,

taking into account our social responsi-

bilities;

� achieving critical mass in product/market

combinations by occupying leading posi-

tions in worldwide market niches;

� a healthy financial position with sufficient

strength to undertake acquisitions;

� a balanced portfolio of activities –

product/market combinations differ in

terms of growth potential and risk profile;

� promoting an open culture for progress

and innovation;

� a commercial organisation which thinks in

terms of systems (solutions) instead of the

traditional role of the provider of (system)

components.

FINANCIAL OBJECTIVES� return on capital employed (operating

result as a % of net capital employed) of

at least 15% and generation of sufficient

liquidity for innovative developments and

acquisitions.

� profitable growth, reflected in a gradual

rise in the operating EBIT margin (target of

at least 8%).

� strong balance sheet position (solvency of

at least 35%); the main covenants that

determine borrowing capacity are:

� total debt/EBITDA + result from

participating interests < 3;

� interest cover > 4.

� longer-term net profit growth of at least

10% per annum.

Mission, strategy and objectives


In strategic terms we once again made good

progress in 2006. That applies both to the buy

& build policy for our core activities and to the

fix it/exit policy in particular for the Technical

Components sector.

Sales grew by over 12% in 2006 to € 771

million. In organic terms, the growth was 5%

higher than in the previous year. The growth in

net profit, corrected to take account of divest-

ments, remained high at around 27%, reaching

€ 34 million.

BUY & BUILDThe integration of Polyfelt, which was acquired

at the end of 2005, proceeded according to

plan. Polyfelt has been fully integrated in the

TenCate Geosynthetics group, which operates

on the basis of close international co-

operation. The group was involved in some

attractive projects in 2006.

Agreement was reached on the acquisition

of Roshield at the end of 2006. This Danish

company will considerably strengthen the

TenCate Advanced Composites group in the

field of vehicle protection.

As a result of the co-operation with Green-

Fields, the TenCate Grass group took the first

step towards strategic alliances with commer-

cial organisations and their direct access to

the end-user. This co-operation process will be

extended with the addition of other parties to

form a network of high-quality partners. In this

context TenCate also entered into a worldwide

strategic alliance at the beginning of 2007

with FieldTurf Tarkett, a leading marketing

organisation for artificial grass systems for

sport applications. The organisation has exten-

sive knowledge of patented artificial grass

systems. For TenCate, the alliance provides

improved access to the market. It also provides

considerable support for the strategic focus on

systems and system characteristics.

A major project which began in 2006 is the

Nijverdal-Noord Master Plan. This provides for

TenCate’s production plants in Almelo and

Nijverdal to be brought together on a single

site.

An important initial step in this direction was

taken with the entry into service of the contin-

uous wide bleaching machine at TenCate

Advanced Textiles. This is unique in our sector

in terms of its size and technological advance-

ment.

With regard to technological innovation,

progress was made with the Digitex project

(digitisation of textile finishing), for which a

European subsidy was obtained.

FIX IT/EXITSubstantial progress was also made with our

divestment policy. Both TenCate Plasticum and

our interest in Synbra Group were sold. This

generated substantial income from divest-

ments. The profit recovery at TenCate Enbi

continued in 2006.

PERFORMANCEAlthough TenCate operates in growth markets

and occupies leading positions, there are

differences between the various sectors in

terms of the – predominantly positive –

developments. There was a striking improve-

ment in the operating result in the Advanced

Textiles and Composites sector. This was due

mainly to the strong developments in the field

of protective fabrics in the US and our growth

in sales of composite materials for the core

markets of aerospace and armour (ballistic

protection).

Foreword by the Chairman of the Executive Board

Master Plan combines business concentration and an open knowledge centre

Under the Master Plan, TenCate is planning to merge its plants in Nijverdal-Noord. A declaration of intent has been signed with

the Province of Overijssel and the District of Hellendoorn. An open knowledge centre is being established around the TenCate

companies in Nijverdal-Noord. In this centre, industry, universities and other knowledge institutions will jointly develop initiatives

for new products and production processes. This fits in with the plans of the Twente Innovation Platform, which has the objective

of clustering the Materials & Mechatronics sectors. The developments produced by TenCate in the last few years may provide a

positive impetus for an innovative platform for new materials for different areas of application.


In some units our results show room for

improvement. The decrease in the operating

result of the Geosynthetics & Grass sector in

relation to sales (EBIT margin) was due in

particular to the disappointing performance of

our artificial grass activities. However, the

artificial grass market is developing apace,

with major changes occurring in environmental

factors and competitive relationships. As

market leader we must respond appropriately

to these developments. In 2006 the Executive

Board was actively engaged in redefining our

strategic policy for that purpose. From 2007,

adjustments will be made to our policy in order

to strengthen our artificial grass proposition in

line with the market (see page 56).

In 2006 we defined a stronger company-wide

profile for TenCate as a producer of functional

materials. Our branding project was success-

fully implemented during the year. It has led to

greater recognition among our (potential)

customers. TenCate is seen more as a single

company in which quality and functionality are

important core values.

Our materials are increasingly used in systems

which provide solutions for the market.

TenCate itself also provides system solutions.

By offering system components, it is possible

to provide a total solution. This requires us to

maintain a constant market focus and enter

into partnerships with our customers and local

market operators/distributors. The system

approach is occupying an increasingly

important place.

STAKEHOLDERSShareholders value the strength of TenCate.

The international diversification of the share-

holder base increased further in 2006. There

must also be a balance between short-term

objectives and the long-term strategy. The aim

is to reflect this balance in our shareholder

base. In the short term we are focusing prima-

rily on achieving growth in our strategic core

markets and on increasing our efficiency by

continuing to operate in a cost-conscious way.

The short-term effects of our investments

are also analysed. The strategy is clearly

formulated in the context of what we refer to

as value chain management. Our strategic

activities are focused on leading positions in

worldwide market niches. These give us a

distinctive position in the value chain and are

focused on long-term continuity.

At this point I should like to thank the

employees of TenCate for their commitment in

the past year. Being a market leader does not

mean we can rest on our laurels. Each of

us must demonstrate entrepreneurship. The

situation in the artificial grass market has

also shown that in a changing environment

additional effort is required on the part of the

market leader and from our employees.

Flexibility in the labour factor is important in

order to grow on a global scale. We must be

increasingly aware of that particularly in the

Netherlands, because our employment system

is fairly inflexible and hence relatively

expensive. Flexibility and speed of reaction are

of great importance. In this regard, employees,

works councils and trade unions were called

upon to show commitment once again in 2006.

I would like to express my gratitude for the

constructive co-operation.

L. de Vries, Chairman of the Executive Board

JAN FEB MA APR MAY JUN JUL AUG SEP OCT NOV DEC

130

125

120

115

110

105

100

95

90

85

80


LISTINGThe TenCate share is listed on Euronext

Amsterdam (Next 150) and forms part of the

Amsterdam Small Cap Index. A number of

banks and securities houses are actively

involved in trading in the share. The stock-

market trading volume of the TenCate share

rose once again. A 4:1 split of the TenCate

ordinary shares was effected in mid-April

2006; each now has a par value of € 2.50. The

closing price of the share on 29 December was

€ 23.21, with a closing price at the end of 2005

of € 21.50 (€ 86 before 4:1 split). The number

of shares currently in issue is 23,169,621,

following an issue of 2,106,329 shares on

12 February 2007.

INVESTOR RELATIONSTenCate conducts an active investor relations

policy. A large number of roadshows were held

once again in the Netherlands and abroad.

There were many individual contacts with

investors, and investors also showed interest

in visiting our production sites. A visit was

organised for them to the continuous wide

bleaching machine at TenCate Advanced

Textiles.

The TenCate Share

Number of ordinary

shares in issue*

Par value

Highest price

Lowest price

Closing price

Net earnings per share**

Dividend per share* Fully diluted and after split of par value

from € 10.00 to € 2.50.

** Excluding result from sale of Synbra.

2005

20,955,932

€ 2.50

€ 24.25

€ 12.89

€ 21.50

€ 1.48

€ 0.60

2006

21,069,546

€ 2.50

€ 24.84

€ 18.65

€ 23.21

€ 1.76

€ 0.70

Source: Euronext

ISIN code: NL 0000375731

Reuters code: NTCN.AS

Bloomberg code: KTC.NA

� KTC

� AMX

� AEX


Private investors are also important in

investor relations. Private individuals make up

approximately 13% of our shareholder base.

Shareholders are regularly informed of

important developments through our house

journal TenCate Update, which is accessible to

everyone and can be requested via the web-

site.

Although TenCate strives for open and

transparent communication, due account must

be taken of competitive positions and the

interests of suppliers and customers. Various

external assessments relating to transparency

and investor relations policy indicate that

our financial communication is increasingly

appreciated.

SHAREHOLDERSTenCate strives for an international spread of

institutional and other shareholders. Attention

is also devoted to the investment style

(growth/value) and profile of the investor

(focus on short or long term). TenCate currently

has a well-diversified shareholder base.

Although the concentration in the United

Kingdom decreased from the 2005 level to

around 20%, the percentage reflects the

importance of that market for the TenCate

share, as was the case last year. Increased

holdings of TenCate shares were observed

particularly in France, Scandinavia and

Switzerland.

Apart from the holdings notified through

the Dutch Financial Markets Authority,

approximately six institutional investors have

holdings of 2-4%. These are mostly specialist

small cap investment funds. Approximately

45 different institutional investors in TenCate

shares are known to the company.

DISCLOSURE OF MAJOR HOLDINGSIN LISTED COMPANIES ACTDuring the year under review Stichting

Pensioenfonds Shell ceased to have a

disclosable holding and notice was received

of an 11.21% interest held by Schroders and

an 8.99% interest held by WAM. Kempen

Capital Management N.V. is a professional

asset manager for companies including Orange

Oranje Participaties N.V. and Orange Deel-

nemingen Fund N.V.

Kempen Capital Management N.V. 14.92%

Schroders plc 11.21%

Aviva plc (Delta Lloyd) 5.08%

WAM Acquisitions GP, Inc 8.99%

Source: Dutch Financial Markets Authority

Geographical spread of shareholdings

in percentage

� The Netherlands

� Belgium/Luxembourg

� United Kingdom

� USA/Canada

� Others

48%

26%

6%

14%

6%

52%

20%

5%

11%

12%

2005

2006


OPTION PLAN, SHAREHOLDINGS OF PERSONNEL AND EXECUTIVEBOARDDetails of the option plan for managers and

members of the Executive Board can be found

on page 116 of this report. The shares repur-

chased by the company are connected with the

coverage of granted options.

The Executive Board and the personnel hold a

total of 63,348 TenCate shares.

Details of the company’s shares and options

held by members of the Executive Board can be

found on page 110 of this report.

DIVIDEND PROPOSAL, POLICY ON DIVIDEND AND RESERVESSizeable investments are required in order to

achieve growth. There are opportunities for

TenCate in the strategic markets. It is expected

that the growth will be continued in the years

ahead. There will also be new technological

developments. Our preference is as far as

possible to finance our growth internally and

retain a sound financial basis.

The dividend policy is based on a payout of

40% of profit (excluding the result from divest-

ments). Shareholders are offered a choice of

cash or shares charged to the share premium

reserve.

It is proposed to set the dividend in respect of

2006 at € 0.70 per € 2.50 par value share,

payable in cash or as a stock dividend. The

payout percentage, adjusted to take account of

the result from the sale of Synbra, is 40%

of profit.

Important dates in 2007

Publication of 2006

full-year figures 1 March

Annual General Meeting

of Shareholders 29 March

Ex-dividend date 2 April

Record date for

dividend eligibility 4 April

Option period for

cash or stock dividend 5 April to 20 April

Payment of cash dividend;

delivery of shares (stock) 27 April

First-quarter figures 2007 2 May

Half-year figures 2007 22 August

Third-quarter figures 2007 1 November

The international diversification of TenCate’s

shareholder base increased further in 2006.

Changes in the number of outstanding shares

Number at the end of 2005

Increase in share capital as a result of stock dividend

Number at the end of 2006

Possible increase as a result of options

Shares repurchased for options and share savings plan

Fully diluted

20,784,472

278,820

21,063,292

515,200

– 508,946

21,069,546

Investor Relations & Corporate Communication

F.R. Spaan

P.O. Box 58

7600 GD Almelo

Telephone +31 (0)546 544 338

Fax +31 (0)546 824 655

[email protected]

www.tencate.com

Report of the Supervisory Board

We hereby present the 2006 annual report as

prepared by the Executive Board, incorporating

the financial statements. The financial state-

ments have been audited by KPMG Accoun-

tants and were discussed in detail with the

Executive Board on 28 February 2007. We are

therefore of the opinion that the annual report

fulfils the transparency requirements and

forms a good basis on which the Supervisory

Board can account for its supervision.

RESULTS AND DIVIDENDRoyal Ten Cate recorded a net profit of € 76.0

million in 2006, including € 34.0 million from

ordinary operations (a rise of 27%) and € 42.0

million from the sale of Plasticum and the 50%

interest in Synbra.

We approve the proposal of the Executive

Board to set the dividend at € 0.70 per € 2.50

par value share (= 28%). This proposal is in line

with the policy of distributing approximately

40% of the operating profit to shareholders.

We propose that the General Meeting of

Shareholders accordingly approve the financial

statements and grant discharge to the Execu-

tive Board in respect of its policy and to the

Supervisory Board in respect of its supervision.

SUPERVISIONThe Supervisory Board held plenary meetings

on seven occasions in 2006 with the Executive

Board and the Financial Director. It also met

independently.

On 12 April 2006 a visit was made to the

TenCate Advanced Textiles and TenCate

Thiolon plants in Nijverdal. The board took

the opportunity to appraise itself of the state

of affairs in these companies.

On 8 December 2006, almost one year after

the acquisition, the Supervisory Board visited

TenCate Geosynthetics Austria (formerly

Polyfelt) in Linz. In addition to a visit to the

plant, the Board took the opportunity to learn

of the developments.

At the seven regular meetings, in addition to

the trend in the results, the board devoted

particular attention to:

� the composition of the Executive Board,

leading to the intended appointment of

Mr J. Wegstapel as the successor to

Mr P.H. van der Vorm;

� the evaluation of the management by the

Executive Board, in particular the group

directors;

� the strategy of Royal TenCate, as set out

on page 7 of this annual report;

� the divestments of TenCate Plasticum,

TenCate Nicolon Australia and the 50%

interest in Synbra Group;

� the intended divestment of the remaining

companies in the Technical Components

sector: TenCate Enbi and Business Key;

� the acquisition of Roshield, as well as

the strategic connection with the other

European armour activities;

� the developments at the TenCate Grass

group. These were assessed in depth from

a strategic, commercial and operational

perspective. The same applies to the

proposed acquisition of Mattex, which

should be seen as an appropriate

response;

� the financing of these acquisitions, as

well as the refinancing of the existing

syndicated loan and the intended share

issue;

� a number of possible acquisitions in

addition to Roshield and Mattex which

either have not led to an acquisition or are

still being examined;

� the main investment projects, including

the continuous wide bleaching machine

for TenCate Protect in Nijverdal, the

Royal TenCate nv Annual Report 2006 13


construction of a geotextile plant in Zhuhai

(China) and expansion investments in the

TenCate Aerospace & Armour Composites

group, as well as the TenCate Grass group;

� the Nijverdal Master Plan, with the conse-

quences for the seven Nijverdal plants, as

well as the plans to establish aerospace-

related industrial activities at Twente

airport;

� the deeply regrettable fatal accident at

TenCate Technical Fabrics on 13 March;

� corporate governance, leading among

other things to the amendment to the

articles of association approved at the

meeting of shareholders of 4 April 2006.

This included the splitting of the € 10 par

value share into four shares of a par value

of € 2.50, the cancellation of the financing

preference shares and the protection

preference shares and finally the

dematerialisation of the TenCate share;

� the 2005 annual report and the related dis-

cussion with the auditor, the quarterly

reports in 2006 and the latest estimates

for the 2006 annual results;

� the system used to grant options to the

management of Royal Ten Cate;

� the budget for 2007.

INDEPENDENCEAll members of the Supervisory Board are

independent within the meaning of the best-

practice provisions of the Corporate Gover-

nance Code. No TenCate shares or options are

held by the members of the Supervisory Board.

WORKS COUNCILThe Supervisory Board was represented at

most of the consultative meetings of the

Central Works Council.

SUPERVISORY BOARD COMMITTEESThe Supervisory Board has two committees:

the Financial Committee and the combined

Remuneration, Selection and Appointments

Committee. Their task is to prepare for

the analysis and decision-making in

relation to subjects within their specific

areas of knowledge, thereby increasing the

effectiveness of the full Supervisory Board.

FINANCIAL COMMITTEEThe Financial Committee comprises Messrs

E. ten Cate (Chairman), A.W. Veenman and

P.P.A.I. Deiters. The Committee met on two

occasions in 2006 in order to prepare for the

discussion of the half-year and full-year figures

in the full Supervisory Board. This took place in

the presence of the Executive Board, the

Financial Director and the external auditor.

The matters considered included the following:

� the 2005 annual report and the 2006

half-year figures;

� the report of the auditors KPMG, including

findings with regard to the administrative

organisation and internal auditing,

computerisation, taxes and expenses

claims. The independence of KPMG was

confirmed;

� current legal proceedings and claims

and the associated risks;

� risk management, on which a report

appears on pages 35 ff;

� transfer pricing and in particular the

provision of the required documentation,

in order to avoid tax risks as far as

possible;

� treasury management, including the

establishment of a cash pool;

� the IT policy, IT security and a code of

conduct for the use of e-mail, internet

and intranet.

� the operational audits at a number of

operating companies.

Protection in high-risk work

TenCate Protective Fabrics has developed TenCate Oasis™, a fabric which protects workers in the aluminium industry against

molten metal drops and cryolite. When working with molten aluminium, there is a risk that it will not drip from the clothing but

will adhere to it. The heat will then penetrate the fabric, potentially causing severe burns. Cryolite is even hotter and adheres

even more. TenCate Oasis™ has a number of unique characteristics: it offers protection against molten metal drops, radiation

heat, flames and other risks associated with molten material. Oasis™ feels light and is flexible and comfortable to wear. It also

has excellent breathing and permanently flame-resistant characteristics.

The annual report fulfils the market requirements for transparency.

REMUNERATION REPORTNo changes were made in 2006 to the

remuneration policy set out in the 2005

annual report.

SALARY

As a result of the change to the system used in

the Hay Group Boardroom Guide, the market

image of the salary position of the Chairman of

the Executive Board will be based henceforth

on the job weightings expressed in Hay levels.

The previously applied categories (TenCate fell

within the B category) have been translated

into Hay levels.

The annual salary of Mr L. de Vries was

adjusted to 100% of the median of the

Hay system used. This resulted in an increase

of 7.4%.

The remuneration of the Executive Board is

stated in note 58.3 on page 110 of this report.

VARIABLE REMUNERATION

Mr L. de Vries received results-linked

remuneration in 2006 amounting to 50% of

annual salary as a result of having comfortably

exceeded the specified performance criteria.

Mr De Vries will also receive results-linked

remuneration amounting to 50% of annual

salary in respect of 2006.

Almelo, 28 February 2007

Supervisory Board

A.W. Veenman. Chairman

P.P.A.I. Deiters, Vice-Chairman

F.A. van Vught

C.W. Versteeg

E. ten Cate


The Boards

SUPERVISORY BOARDA.W. Veenman (59) Chairman 1) 2)

Commenced in office: 1996; end of current term: 2008

CEO of Nederlandse Spoorwegen

Supervisory director of Rabobank Groep

Supervisory director of TenneT Holding B.V.

P.P.A.I. Deiters (63) Vice-Chairman 1)


Former director of Berghaus International Fashion

Supervisory director of G-III Apparel Group Ltd

Supervisory director of Berghave B.V. Venture Capital

Supervisory director of Bandolera B.V.

Supervisory director of Tootal B.V.

Consultant to the European Bank for Reconstruction

and Development EBRD

Supervisory director of Lowland Fashion

Investments B.V.

F.A. van Vught (56) 2*)


Member of the Group of Policy Advisors of the

Chairman of the European Committee

Member of the Executive Board of the European

University Association Member of the National

Innovation Platform

Acting Crown-appointed member of the Social

and Economic Council of the Netherlands

Member of the University Grants Committee

of Hong Kong

Supervisory director of Rova N.V.

C.W. Versteeg (71)


Former General Manager of the Sheltered Employment

Service in Groningen

Supervisory director of Esso Nederland BV

Supervisory director of Koops-Furness NV

E. ten Cate (61) 1*)


Director of Bank ten Cate & Cie N.V.

Chairman of the Supervisory Board of Nyloplast N.V.

Supervisory director of Nesbic Investment Fund

Supervisory director of Pas Reform B.V.

EXECUTIVE BOARD L. de Vries (55), Chairman

P.H. van der Vorm (67), Member

MANAGEMENT COMMITTEEThe Management Committee comprises the

Executive Board and the following group and

corporate directors:

TenCate Advanced Textiles & Composites

F.B. Bruns (64)

TenCate Aerospace & Armour Composites

D. Hendriks (48)

TenCate Protective & Outdoor Fabrics

(Europe/Asia)

D. Olsen (52)

TenCate Protective Fabrics

(North America)

TenCate Geosynthetics & Grass

D.C. Clarke (48)

TenCate Geosynthetics

W.H. Smith (53)

TenCate Grass

TenCate Technical Components

B.R. Denekamp (51)

TenCate Enbi

Holding

J. Lock (60)

Corporate Director Finance & Administration

L.J. Kuipers (64) a.i.

Corporate Director Personnel & Organisation

1) Member of the Financial Committee.

2) Member of the combined Remuneration,

Selection and Appointments Committee.

*) Chairman.

L. de Vries

F.B. Bruns

D. Hendriks

P.H. van der Vorm

D. Olsen

D.C. Clarke

J. Lock

B.R. Denekamp

W.H. Smith



TenCate develops and produces high-grade

functional materials. Markets are selected

which make functional demands upon materi-

als, for example as a result of legislation and

standards. TenCate operates in growth markets

in which personal security and protection play

a particularly important role. In many respects

our materials provide the required protection

on the basis of the developed functional

characteristics. In the eyes of the end-user,

TenCate materials must constitute an impor-

tant distinctive element in the end-product or

total concept.

Market requirements evolve and standards are

adjusted, or new materials are developed as a

result of technological inventions. TenCate is

characterised by a culture focused on progress

and further product and market development.

This increasingly takes place jointly with the

customer. In addition, TenCate applies a sys-

tem-based approach as far as possible: a com-

position of materials with different functional

characteristics which are co-ordinated with

each other. Our broad technological base in the

field of textiles and related chemical processes

plays an important role in this regard. Intensive

internal co-operation therefore takes place in

order to make optimum use of the knowledge

and skills.

STRATEGIC FRAMEWORKTenCate’s mission is underpinned by market

leadership and growth based on our technolo-

gy. This is achieved by providing high-grade

solutions in the form of materials and systems

with functional characteristics. The mission

has been translated into a strategy centred on

value chain management. Problem-solving

ability is guaranteed in the context of product

differentiation. In addition, TenCate applies

user-end marketing, (technological) innovation

and cost control as elements of its strategic

policy. End-user marketing is playing an in-

creasing role, which is essential for a company

producing functional materials. TenCate is an

innovative company and once again acquired a

number of new patents in 2006 and aims to be

a leader in the technological field.

CUSTOMER REQUIREMENTSTenCate has a wide diversity of end-users. An

important customer group comprises (suppliers

to) original equipment manufacturers (OEMs)

and the institutional market (public sector

bodies, including defence ministries). Insti-

tutions such as hospitals, emergency services

and suppliers to these sectors also form part of

the major customer groups. In the artificial

grass market, the customer requirements

at the level of the individual player are even

relevant with regard to the safety and playing

characteristics of the pitch. Although customer

requirements are to a large extent related to

safety and protection, TenCate materials must

fulfil a wide range of functional characteristics

in the various markets.

An important factor is that there are usually

specified characteristics for the material.

End-user marketing is also focused on active

participation in the specification process, so

that the purchasing process takes place partly

on the basis of intrinsic aspects.

The commercial policy is increasingly directed

towards the provision of systems solutions.

Materials that make a difference

Progressive

Relia

ble

Knowledgable

Resourceful

High-level TenCate materials

In close co-operation with Lockheed Martin, the American producer of commercial satellites, TenCate Advanced Composites USA

has developed a lightweight, high-grade composite material for the bearing structures of the solar-cell-powered A2100 satellite.

These solar array substrate panels are crucial for the energy supply to the satellite. The use of new material combinations and

special resin systems has made it possible to design extendable solar panels of a greater length. At the same time a considerable

weight saving has been achieved.

TenCate has single-product systems and multi-

product systems. In the latter case different

products are combined to form a system

solution. An example is an artificial grass

system which consists of artificial grass fibre,

backing, infill and a shock-absorbent underlay.

The commercial policy in 2006 can once

again be illustrated by a number of TenCate

materials:

� Cetex® System 3 – triple-layer laminated

composite material, specially aimed at

new interior design in modern aircraft;

� GeoDetect/HydroDetect® – detection

material incorporated in geotextiles which

records subsidence and breaching of

dykes;

� Geotube® – for the cleaning of polluted

lakes in Sweden, the biggest order ever

received;

� the TenCate Thiolon® artificial grass

system for the FIFA Home – a solution for

artificial grass based on Thiolon Xtreme®

for top-flight sports (fulfils the FIFA Two

Star Recommended system requirements);

� TenCate Aramid® Camouflage – solution

for flame-resistant fabrics with infrared

reflection and camouflage print for military

applications in the US;

� International Achievement Award 2006

from the International Fabrics Association

– three projects in the US based on

TenCate Mirafi® (geosynthetics).


GENERALOur strategy is set out briefly on page 7 of this

report. Value chain management occupies a

central place within the strategic policy.

The four pillars of this concept – cost control,

product differentiation, end-user marketing

and innovation – are monitored intensively in

each operating company. If the situation

requires it, the focus of the operationalisation

of the strategy must be shifted. In the markets

in which TenCate operates, the position in the

value chain must be such that TenCate can

continue to play a distinctive role. This should

support margin growth.

In the field of protective fabrics there

is increasing co-operation between our

European and American activities. This is

strengthening the joint position in the

value chain. TenCate is a leader worldwide

in the supply of protective concepts for

protective clothing. TenCate has been highly

successful with this in the United States,

particularly for military applications and fire-

fighting. In these markets TenCate is able to

build up a lead on the basis of innovative

products and good contact with decision-

makers in end-markets. Action plans have

been introduced at the Dutch production

sites as part of the Master Plan with regard to

technological innovation and cost control.

Although the group has a strong position in the

field of composites in the core markets of

aerospace and armour, there is scope for a

further expansion of our position by means

of targeted acquisitions. The focus is primarily

on technology (innovation) and product

differentiation. This is still a relatively small

activity within TenCate, but one which is

showing above-average growth.

In Geosynthetics, the required positioning in

the value chain has almost been achieved.

Polyfelt, which was acquired at the end of

2005, has now been fully incorporated in the

TenCate Geosynthetics organisation and has

considerably strengthened our organisation.

There was a vigorous response to the

decrease in margins which emerged in the

Geosynthetics & Grass sector in 2006. The

main strategic movements in 2006 occurred

in the Grass group.

Within the Grass group greater emphasis is

being placed on cost control and end-user

marketing in order to implement the principles

of our strategic concept more fully. The

intended acquisition of the artificial grass

activities of Mattex Leisure Industries, which

will form part of TenCate Thiolon Middle East,

is an important step in our commercial

positioning, but it also means a reduction in

our cost base. The commercial alliances that

have been announced will strengthen our

end-user marketing in the commercial

implementation of our system approach in

the artificial grass sector.

FINANCIAL PERFORMANCERESULT AFTER TAX

Net profit rose in 2006 for the fifth year in

succession, this time to € 76 million. Adjusted

for income from divestments, net profit

rose from € 26.8 million to € 34.0 million

in 2006 (+27%). The main contribution to

this increase came from the Advanced Textiles

& Composites sector.

COMPOSITION OF THE COMPANY

Substantial progress was made once again in

2006 with the concentration on the two sectors

of Advanced Textiles & Composites and

Geosynthetics & Grass.

Report of the Executive Board


Analysis of 2006 results by sector

in millions of euros

Revenues




Other

Operating result (EBIT)




Other

Finance charges

Pre-tax result

Tax on profits

Result from participating interests

Result from ordinary operations

Minority interest

Result from divested activities

Net profit

Organic

+ 8%

+ 2%

+ 6%

–

+ 5%

+ 26%

– 20%

+ 14%

–

+ 18%

Of whichcurrency

–

– 1%

– 1%

–

– 1%

– 1%

– 1%

– 1%

–

– 1%

Acquisition/divestment

– 10%

+ 44%

– 32%

–

+ 8%

+ 2%

+ 28%

– 26%

–

+ 13%

Difference

-2%

+ 45%

– 27%

–

+ 12%

+ 27%

+ 7%

–13%

–

+ 30%

+ 74%

+ 24%

+ 1%

– 25%

+ 27%

+ 149%

2005

285.6

273.9

126.3

0.7

686.5

16.5

23.8

7.1

– 8.9

38.5

– 4.6

33.9

– 11.5

4.4

26.8

–

3.7

30.5

2006

279.7

397.5

92.7

0.6

770.5

20.9

25.5

6.2

– 2.5

50.1

-8.0

42.1

– 11.4

3.4

34.1

– 0.1

42.0

76.0

EBIT margins




2005

5.8%

8.7%

5.6%

5.6%

2006

7.5%

6.4%

6.7%

6.5%

The following were divested:

� On 25 April 2006: Plasticum – five operat-

ing companies in the field of packaging,

supplying caps and customer-specific

closures. The Plasticum group generated

sales of € 36 million and a net profit

of € 0.8 million in 2005. This divestment

generated a result of € 2.7 million.

� On 2 August 2006: Synbra Group bv (50%)

– a European company operating in the

field of EPS applications for building

insulation and packaging for the food and

non-food sector. In 2005, Synbra Group

recorded sales (on a 100% basis) of

€ 262 million and – before goodwill amor-

tisation – a net profit of over € 8 million.

The divestment of Synbra Group generated

a result of € 39.3 million.

Preparations were also made in 2006 for two

acquisitions:

� Roshield, a Danish company in the field of

vehicle armour and personal protection.

Roshield generated sales of approximately

€ 14 million in 2006. The acquisition was

completed in mid-February.

� Mattex Leisure Industries, established in

Dubai and specialising in artificial grass,

especially monofilament fibres, with a

natural appearance.

These acquisitions will represent an important

strengthening of two of TenCate’s strategic

market groups, namely armour composites and

artificial grass.

REVENUES

Consolidated revenues rose 12% in 2006,

including 5% on an organic basis, –1% as a

result of currency effects and +8% due to the

net effect of acquisitions and divestments

(see the table on page 21).

The strongest organic sales growth came from

the Advanced Textiles & Armour group. That

was particularly the case in the United States,

where demand for safety materials remained

high.

The Geosynthetics & Grass group achieved

45% sales growth, mainly as a result of the

addition of Polyfelt.

The organic sales growth remained limited

to 2%, because of the hesitant American

economy in the second half of the year.

The higher raw material costs were largely

(70%) passed on to customers.

OPERATING RESULT (EBIT)

The operating result increased by 30%, includ-

ing +18% organically and +13% due to the net

effect of acquisitions and divestments.

Three of the four sectors showed a healthy

performance with high organic growth figures.

That was the case of fire-resistant safety

fabrics (particularly in the US), at Aerospace

& Armour, Technical Components (TenCate

Enbi) and in the Other Activities (Holding)

sector. By contrast, in the Geosynthetics

& Grass sector the operating result fell by 20%

on an organic basis. This was due to two

causes. The weakening of the US economy

in the second half of the year led to a decrease

in sales and underutilisation of production

capacity. The competitive position of the Grass

group was also weakened by a shortage

of fibres with a natural appearance (mono-

filament) and increasing competition. After

careful consideration, this led to the intended

acquisition of Mattex Leisure Industries.


PERSONNEL COSTS

Personnel costs amount to 22% of sales.

There are large differences in the costs per

employee: approximately € 52,000 in the

Netherlands, € 45,000 in the rest of Europe,

€ 46,000 in the US and € 16,000 in Asia/

Australia. Although personnel costs are not the

only decisive factor in the choice of a location,

the differences are becoming increasingly

important on a global playing field.

TAXES

The tax rate fell from 33.8% to 27.2% in 2006.

This was partly due to a decrease in the

proportion of TenCate’s profit contributed by

American operating companies (with high tax

rates). There were also two incidental factors.

The reduction of Dutch corporation tax led

(paradoxically) to higher costs in connection

with a lower deferred tax receivable (effect

+2.3%). On the other hand, the improved

results in France led to the formation of a

deferred tax asset with a beneficial effect of

€ 1.8 million (effect – 4.2%).

INVESTMENTS

A total of € 43 million was invested in 2006,

against a depreciation level of € 23 million.

Organic growth requires the use of new tech-

nologies and capacity increases, and in some

cases bottlenecks have to be eliminated. Major

projects in 2006 were:

� TenCate Thiolon NL: 5 monofilament lines

and automation of packing.

� TenCate Thiolon USA: plant expansion and

two monofilament lines.

� TenCate Geosynthetics North America:

acquisition of a small nonwoven plant.

� TenCate Geosynthetics Asia: advance

payment for machines for geotextiles

plant in Zhuhai (China).

� TenCate Protect: continuous wide bleach-

ing machine and water treatment plant

(continuation from 2005).

CASH FLOWS

As a result of the divestment of TenCate

Plasticum and Synbra Group (50%) and the

fact that the intended acquisitions of Roshield

and Mattex were not completed in 2006,

the cash flow was strongly positive.


Cash flows

Net profit before divestments

Depreciation/amortisation

Increase in working capital of existing activities (–)

Investments

Other

Cash flow before acquisitions and divestments

Acquisition of Polyfelt

Divestments 1)

2005

26.8

19.3

46.1

– 23.9

– 26.2

– 0.2

– 4.2

– 71.9

+ 31.1

– 45.0

2006

34.0

23.1

57.1

– 4.0

– 43.0

– 5.2

+ 4.9

–

+ 64.0

+ 68.91) 2005: Mega Valves, Permess Europa

2006: TenCate Plasticum, Synbra Group (50%)

A unique machine in the textile industry

In mid-2006, TenCate Advanced Textiles began using a process-driven continuous wide bleaching machine. The capacity of the

machine, combined with its fully integrated control system, makes the machine unique in the textile industry. The new machine

carries out three separate operations in a single procedure. That results in higher processing speed and efficiency in operation and

logistics. The quality of the materials used is also higher and the machine is more efficient in its use of energy, chemicals and

water. Microprocessors in the machine enable it to measure all the variables for each formulation and if necessary to adjust the

quantity of water and chemicals and the speed and pressure.

WORKING CAPITAL

The working capital fell slightly, both in

absolute terms and in days. The shortage of

some raw materials decreased, making it less

necessary to build inventories.

FINANCING AND INTEREST

As a result of the positive cash flow and the

divestments, it was possible to reduce the

interest-bearing debt from € 157 million to € 94

million at the end of 2006. The average inter-

est-bearing debt nevertheless increased from

€ 103 million to € 132 million. This was due

to the timing of the Polyfelt acquisition: € 71

million on 15 December 2005. In combination

with a rise in Euribor (from 2.6% to 3.5%) and

dollar interest rates, this led to substantially

higher interest costs: from € 4.0 million to

€ 7.0 million.

SWOT ANALYSISAs part of the strategic planning, SWOT

analyses are carried out at operating company

level. Within this process, strengths and

weaknesses are compared with opportunities

and threats. Strategic actions are then

identified. The annual report contains only

a schematic account of the main points of

the SWOT analysis. For competition reasons,

strategic actions by operating companies or

market groups are stated only if they have

been previously disclosed.

CHALLENGES FOR TENCATE� Strengthening knowledge protection and

the patent position.

The knowledge domain is handled with

care in terms of personnel and in the field

of security and internal culture. Knowledge

protection must be incorporated early in

the development process.

� System approach

System solutions are a fairly new

development within TenCate. With its

broad technological basis and the

available knowledge, TenCate is in a

position to combine functional materials

into systems. This increases its problem-

solving ability and increases profitability.

� Communication

TenCate will harmonise the internet

communication by the various parts of the

group to a greater extent in 2007. Good

communication about what TenCate-

materials add to a system can reduce the

business-critical risk for TenCate with

regard to systems to which TenCate

does not contribute. Communication can

increase the distinctive capability.

� Optimisation of partnerships

In order to implement end-user marketing

more efficiently, links are established with

commercial operators with direct access to

end-markets. An example of this is the co-

operation with parties in the artificial

grass market announced in 2006.

� Further strengthening of the position in

Asia and emerging European countries.

As in the case of geosynthetics, these

geographic areas will be relevant for the

intensification of activities in the other

market groups, either independently or

through partners.

� Reduced dependence on oil products.

TenCate will promote activities which

reduce the dependence on oil-related raw

materials. The use of more natural raw

materials is also a positive development

with a view to sustainability.

TENCATE’S STRENGTHS

� Knowledge-intensive and flexible company, focused on the develop-

ment of new materials which meet functional requirements in the

market.

� Short time-to-market as a result of a strong market focus.

� Broad technological basis in the field of textile technology and

related chemical processes.

� Innovative and distinctive in the value chain.

� Leading world market positions in niches.

� Scale benefits mean that extensive investments are possible for

future developments, such as environmental investments and digital

finishing (Digitex).

� Synergy effects within and between business sectors.

� Positive corporate image and strategic focus based on value chain

management.

� Guaranteed market positions through (industrial) certifications,

patents and licences.

POINTS FOR IMPROVEMENT

� Faster change to an even more market-focused organisation.

� Wider spreading of knowledge within TenCate, by devoting a

great deal of attention to training and education and an internal

management development programme.

� Further strengthening of the Asian organisation, based on both the

logistics processes and the market potential of this region.

� Strengthening of the market position in emerging Eastern European

countries in order to benefit from the growth in the region.

� Further reduction of the cost base and increase in the efficiency of

European sites, in addition to the initial steps in that direction in the

Netherlands.

OPPORTUNITIES

� Tighter regulations on safety and protection, such as the moderni-

sation programmes in defence (safety, protection, wearing comfort

and new functionalities) and appropriate water management

worldwide.

� Advanced materials and smart textiles are growth markets, with

European subsidy programmes.

� Product differentiation of the new sales in existing or new markets.

� The positioning of TenCate as a single company based on a connect-

ing strategy among operating companies, with attractive customers.

� Hyperfragmentation, particularly in European markets with divergent

standards, offers possibilities for functional materials with different

specifications.

� Emerging markets which will introduce standards following the

example of developed markets.

THREATS/RISKS

� Dependence on the purchasing side, temporary shortages of certain

raw materials

� Rising raw-material costs cannot always be passed on directly, and

cannot always be hedged.

� In the case of sharp fluctuations and strong rises in oil prices, these

can only be allowed for to a limited extent in market prices.

� Seepage of knowledge; a technology-oriented company such as

TenCate is vulnerable and must therefore guard its knowledge

domain to the maximum extent possible.

� Greater visibility of the TenCate brand also means higher business-

critical risk.



� Links with other industrial sectors to

develop new applications for materials

Co-operation will increasingly take

place with other business sectors in

order to generate solutions. As a result of

TenCate’s innovative character and greater

visibility in the market, the company is

considered to be a good partner. The plans

for open innovation centres should be seen

in this context.

INFORMATION TECHNOLOGYInformation technology (IT) is the nervous

system of an organisation. More extensive

internationalisation as a result of acquisitions

and the increase in worldwide activities

requires fast, efficient and secure communica-

tion between systems and people. Hence there

is a greater focus on internal and external

communication. The vital role of IT then

becomes evident. Further progress was made

in this regard in 2006.

PROJECTS IN 2006

One of the most important projects which

TenCate conducted in 2006 was the implemen-

tation of the security policy. Important aspects

are the logical and physical security of the

information systems. For example, the move

was completed from the group’s own computer

areas to a specialist hosting company. In order

to ensure continuity, access to the network

has been guaranteed by the installation of a

1 Gigabit internet ring.

IT STRATEGY AND POLICY

Royal TenCate has drawn up an IT strategy

memorandum. This provides among other

things for a clear separation between auto-

mation supply and demand. On the basis of the

strategy, specific guidelines have been

developed for automation, and these have

been implemented. Flexibility and cost-

effective deployment of automation will

continue to play an important role in the

future. The further standardisation of systems

will make a positive contribution to this.

ACTION PLANS IN 2007

In order to guarantee the quality of the

projects and the management of the IT

processes, targeted IT audits will once again

take place in 2007. In a number of projects

external specialists will be deployed to provide

advice and handle the implementation.

In the context of standardisation, work will

begin in 2007 on the implementation of the

JOMAR ERP package at TenCate Thiolon USA

and TenCate Protective Fabrics in America.

The Dutch companies will also take a decision

in 2007 on the ERP applications to be used.

The establishment of automation for the newly

acquired companies Roshield and Mattex

and for the move of the head office to a new

location in 2007 will need to be effectively

supervised.

A business case will also be drawn up in order

to link the TenCate companies to a joint

network, based on Active Directory. The main

advantages expected from this are greater

flexibility, rapid delivery and lower costs for

the connection of new companies.

PERSONNEL & ORGANISATION

In 2006 the operating companies of TenCate

Plasticum (part of the Technical Components

sector) were demerged from the group.

ORGANISATIONAL DEVELOPMENTThe organisational model chosen in 2005 was

implemented during the year under review.

This model is focused on managing the world-

wide value chains in which TenCate operates.

TenCate strives worldwide for a corporate

culture with the following main characteristics:

� professionalism;

� openness;

� versatility;

� efficiency.

By being willing to learn from each other,

with the aim of being ‘best in class’, and

continuing to invest in the available high-grade

knowledge, we aim to further strengthen our

position in the global market. The core values

of our company are:

� entrepreneurship;

� innovation;

� focus on results.

Our employees make the difference and

determine whether we fulfil our ambitions.

MANAGEMENT DEVELOPMENT

In the context of the investment in the

knowledge and skills of the management, an

active learning programme has been developed

in co-operation with TSM Business School.

This began in December 2006 and is due to run

for approximately one year. The programme

is focused among other things on the strength-

ening of management qualities in general.

One of the objectives is the promotion of the

innovative capability, entrepreneurship and

situational leadership of the participants.

Projects relating to strategies, tactics and

operations form the common theme of the

training. All participants begin the course with

an individual development assessment.

PERSONNEL POLICY

The Personnel & Organisation policy memoran-

dum 2006-2010 was drawn up in 2006, with

the title: ‘Employees that make a difference’.

The policy has the following main themes:

� strengthening competences and expanding

knowledge;

� transformation to more flexible employees

who think in terms of processes;

� enthusing and inspiring employees and

building loyalty;

The organisational model is focused on managing the

worldwide value chains in which TenCate operates.

Number of employees

(in staff years)

Netherlands

Rest of Europe

United States

Asia/Australia

Total

Year end 2006

962

619

1,527

424

3,532

All-in-one protection

TenCate Pro-Tector is a protective material which has a wide range of uses and is suitable for multi-threat concepts. It offers

protection against bullets, knives and needles. This was previously only possible with a heavy construction, but TenCate

Pro-Tector is light, thin and flexible. It gives the wearer optimum all-in-one protection against a wide range of bullets, knives and

other stabbing weapons in accordance with various international standards. The uses include law enforcement, military, VIP,

coastguard and special forces.

Year end 2005

1,122

684

1,427

345

3,578


� further developing, sharing and

guaranteeing knowledge and skills,

technologies and market intelligence;

� appropriate succession planning;

� increasing international co-operation;

� promoting results-oriented working and

more performance-oriented pay;

� strengthening active coaching from P&O

to and for the line management;

� increased uniformity in policies and

guidelines from P&O;

� effective deployment and further

professionalisation of P&O systems.

A balanced intake and recruitment policy was

conducted in 2006. Depending on the available

potential and the further strengthening of

competences, it was decided to fill vacant

positions both internally and externally.

At the end of 2006 a campaign was launched

to recruit young technical and commercial

talent. By means of advertisements placed

in a number of media and a presence at job

fairs for example at the University of Twente

and Saxion College in Enschede attention

was drawn to TenCate as a progressive

multinational employer. The response to this

recruitment was very gratifying.

The training and development of employees is

an area of constant attention. At all levels,

employees can develop further in terms of

knowledge, skills and competences. This took

place intensively in 2006 by means of on-the-

job training, specialised training courses, skills

training and coaching by internal and external

experts.

Performance interviews at ‘CAO 1’ level began

to be conducted in two operating companies

in the Outdoor & Protective and Armour

& Aerospace groups in the first half of 2006.

In close consultation with the joint works

council of these groups, this led to approval

of the request to introduce performance

interviews at ‘CAO 1’ level in the other

operating companies in 2007 (extending into

2008).

EMPLOYMENT CONDITIONS

The global remuneration policy for senior and

upper management developed in 2005 was

transposed to specific regions such as the US

during the year under review. The employment

conditions of acquired companies are also

being harmonised with those of TenCate on a

phased basis.

The framework provided by the industry-wide

collective labour agreement for the fashion,

interior, carpet and textile industry concluded

for the period 2005-2008 was given further

substance in 2006. Within this framework,

TenCate wishes to introduce more customised

employment conditions, in consultation with

the trade unions and the Central Works Council.

The new pension scheme for TenCate

employees came into force on 1 January 2006.

It is an average salary scheme. The early

retirement scheme was discontinued as a

result of the legal changes on 1 January 2006.

To compensate for this, there is higher pension

accumulation for retirement from the age of

65. As a result of the introduction of a new

transitional scheme, the higher accumulation

will also apply to past membership years.

In the new scheme the higher accumulation

can be used to bring forward the actual

retirement date.


TenCate believes it is important that

employees should continue to receive good

incomes in the future. A life course savings

scheme was therefore introduced in 2006.

20% of employees took part in this scheme

in 2006. They can save for the life course

scheme from various financial sources.

TenCate has arranged group health insurance

and employment-related employers’ insurance.

If an employee chooses to take part in this

group insurance, TenCate contributes to the

costs. These insurances are part of the policy

of further reducing and controlling sickness

absence.

REPRESENTATIVE CONSULTATION

Many subjects were discussed with the

Central Works Council in 2006. The Central

Works Council played a constructive role,

particularly with regard to acquisitions

and divestments,

The Central Works Council made an important

contribution to the introduction of the code of

integrity and the associated whistleblowers

scheme. It was intensively involved in the

recommendation processes concerning the

sale of the Plasticum businesses, the sale of

the interest in Synbra Group, the co-operation

with GreenFields, the appointment of a

member of the Executive Board and the

acquisition of the Danish company Roshield.

In the periodic consultation with the manage-

ment, the Central Works Council fulfilled

its reporting role in a very appropriate way

with regard to the activities in the operating

companies. Under the heading of employment

matters, subjects are regularly placed on the

agenda which are of importance for all

TenCate employees, such as the life course

savings scheme, the absenteeism policy,

supplementary working conditions specified

in the collective labour agreement and

consultations with employee organisations.

SOCIALLY RESPONSIBLEENTERPRISESustainable enterprise is an integral part of

TenCate’s operations. The operating companies

have sustainable production high on their

agenda. That is evident in, among other things,

the ISO 14001 certification obtained by most

of the Dutch operating companies and the

investments made.

TenCate formulated central policy principles

for socially responsible enterprise in 2006.

These include the following key points:

� environmental protection in the production

process;

� product quality;

� safety;

� employee expertise;

� integrity;

� innovation

� respect for society.

These central policy principles are being

further developed in terms of policy with

measurable criteria for the whole company.

Sustainability and ethics have for many years

played an important role in the working

processes of all operating companies. TenCate

strives for production processes which limit

environmental impacts to a minimum. TenCate

is conscious of its position in the chain.

TenCate also exerts its influence from the sup-

plier’s position in order to achieve sustainable

enterprise objectives throughout the value

chain. As a result of this chain approach,

it is possible to achieve objectives which also

have an impact outside the company itself.

TenCate promotes consideration of sustainable

enterprise by demonstrating best practices

through internal media. Good projects are

demonstrated. Operating companies are

encouraged to put forward their own projects.

ENVIRONMENTAL PROTECTION

Most Dutch production sites have been certi-

fied in accordance with ISO standard 14001.

This environmental protection system is the

basis on which TenCate strives to limit the

use of raw materials, water and energy

consumption and emissions. Working jointly

with raw material suppliers and customers, the

company continuously examines possible ways

of reducing environmental effects. Examples

include replacing chemical additives by

environmentally friendly materials, improving

the production process, reducing energy and

water consumption, reusing hot process water

and analysing energy and waste flows.

TenCate only uses chemicals and paints that

are included in the textile environmental

database in Veenendaal.

TenCate is working constantly on the further

development of the production system, taking

into account the increasing environmental

regulations. These investments in the machine

fleet have a positive effect both on the

environment and on the quality of the products.

TenCate Advanced Textiles began using a new

continuous wide bleaching machine in 2006.

It is an extremely innovative machine for the

textile sector because of its very advanced

computer-controlled operation. This machine is

the result of intensive co-operation between

TenCate and the builder of the machine. Prior

to its construction, TenCate commissioned

the University of Twente to carry out a

detailed analysis of the pretreatment process.

This resulted in a pretreatment machine that

is unique in the sector worldwide and

handles energy and water very efficiently.

In combination with its own water purification

system, in which biogas can be produced,

it is expected to deliver an energy saving

of 7%.

The TenCate operating companies devote a

great deal of attention to the control of waste

flows. In addition to the consistent separation

of waste materials, a mass balance sheet is

maintained at various productions sites. This

serves as preparation for the limitation of

waste flows in the entire production process.

By first ascertaining where any mass losses

occur, a solution can be devised for each unit.

Further in the chain a saving has been

achieved in the waste flows by shipping

products from the TenCate Grass group to

customers in plastic sleeves rather than card-

board boxes.

Operating companies have also entered into

agreements with industry associations to

reduce water and energy consumption at

industry level. These agreements have been

set out in a covenant. The aim of this covenant

is to achieve an energy saving of 10% within

10 years. This will be achieved by drawing up

and implementing an energy-saving plan every

three years, with possible savings being

weighed up against the level of investment.

Partner of the Johan Cruyff Foundation

TenCate is a corporate partner of the Johan Cruyff Foundation. TenCate Thiolon is a founding partner of Cruyff Courts KNVB

pitches. Approximately 100 Cruyff Courts KNVB pitches are being laid in the Netherlands in co-operation with the KNVB.

Cruyff Courts are grass plots laid in accordance with a fixed pattern, with an artificial grass base that is safe and able to

withstand intensive use. A Cruyff Court encourages young people to take part in sport and football in their own district. The aim is

to promote playing together, integration and social contact.


The covenant looks expressly at possibilities

for saving energy throughout the chain.

QUALITY

The operating companies use operational

management systems and apply high quality

standards. Most of the companies are qualified

in accordance with the ISO 9001 standard.

In view of the demands made upon TenCate

products, quality plays an important role. Some

customers apply additional quality standards

which must be met, as in the case of materials

for aerospace applications. As a result of close

quality monitoring during the production

process, TenCate products meet strict quality

requirements.

SAFETY AND EXPERTISE OF EMPLOYEES

A safe working environment in TenCate world-

wide has the utmost priority. Safety has to do

with safe machines and personal protection

equipment which makes work safer. TenCate

creates a safe working environment for all its

employees and encourages its employees to

work safely by means of information and

training. Internal training programmes are held

to make employees constantly alert to possible

risks. In spite of this, a fatal accident occurred

at one of the TenCate Advanced Textiles sites.

This accident is very greatly regretted.

Measures have been taken locally in order to

prevent any recurrence.

In addition to the legal requirements, research

is carried out on the level of exposure to

occupational risks. All employees are subject

to a periodic occupational health examination.

This covers subjects such as the general

physical condition, hearing and working

atmosphere.

Quality, Health & Safety and Environment

officers have been appointed within the

operating companies. They monitor the

situation in the operating companies with

regard to these areas.

INTEGRITY

TenCate has drawn up a code of integrity and

rules concerning persons of trust. The code

forms the basis for all actions of our operating

companies in the Netherlands and abroad.

TenCate enters into relationships with those

around it as a supplier, developer, partner, etc.

These relationships are based not only on

trust, our technological knowledge and skills or

the quality of our products, but also on our

working methods and our treatment of the

environment and social organisations. The

code is intended to contribute to this trust.

TenCate therefore adheres to this code of

integrity and expects all its employees to do

likewise. The code of integrity concerns every-

one who is employed in TenCate or its

operating companies. The code is inextricably

linked to each individual contract of

employment. In order to support this code,

a central compliance officer and a person

of trust have been appointed. The code is

included in full on the website.

Because TenCate purchases some raw

materials, particularly raw cloth, in low-wage

countries, a code of conduct has been drawn

up. Suppliers are asked to sign the code,

thereby declaring that they will act in

accordance with the UN Declaration of Human

Rights, the UN Declaration of Children’s rights

(article 32:1), International Labour Organisation

(ILO) agreements on forced labour, child labour

and equal treatment of employees. Annual

visits are made to verify whether the suppliers

are indeed adhering to this code.

Most chemicals and synthetic fibres are

purchased from large multinationals. These

companies are also requested to sign the code

of conduct. In most cases they have a clear

policy on sustainable enterprise.

INNOVATIONS

TenCate is constantly engaged in innovation in

relation to its products and production

systems, with a focus on safety and protection.

TenCate works with its knowledge partners to

achieve this. The company aims to continually

improve the performance of its products in its

product development.

RESPECT FOR SOCIETY

Many of TenCate’s products contribute directly

to the safety and protection of users. Our

involvement in the community of which we

form part is evidenced by, among other things,

our support for local cultural and sporting

events in the Netherlands and abroad.

TenCate is a corporate partner of the Johan

Cruyff Foundation, which enables less

advantaged children in the Netherlands to take

part in sports. TenCate Thiolon is a founding

partner of Cruyff Courts. This organisation lays

artificial grass playing surfaces for young

people in urban areas. TenCate Thiolon has

also entered into a partnership with the Royal

Dutch Football Association (KNVB) in order to

bridge the gap between street football and

club football by laying Cruyff Courts KNVB

pitches. This involves co-operation with

professional football clubs and local authority

neighbourhood organisations.

MEASURABILITY

The aforementioned central principles in the

field of sustainable enterprise are being

further developed. These central principles

allow centralised direction based on

quantitative principles. They also enable

the effects of the policy to be measured.

POST BALANCE SHEET EVENTSAt the beginning of February 2007 TenCate

reached agreement on the acquisition of the

artificial grass activities of Mattex Leisure

Industries by means of an assets/liabilities

transaction, with an acquisition price of

US$ 178 million. Mattex is a Dubai-based

producer of artificial grass fibres and other

products. Its artificial grass activities are being

taken over by a newly formed company,

TenCate Thiolon Middle East LLC. The

acquisition was partly financed by an issue

of shares. It is expected to be completed in the

first quarter of 2007.

The acquisition of Mattex, which specialises

mainly in the production and sale of mono-

filament fibres, considerably strengthens the

position and further development of TenCate

Thiolon, in both a strategic and an operational

sense. TenCate Thiolon can now respond more

effectively to demand in both the volume

segment and the market segment for customer-

specific fibres and artificial grass systems.

The TenCate Grass group expects to achieve

synergy benefits through increased efficiency

and economies of scale.

In mid-February 2007 the acquisition of

Roshield was completed. Roshield is a leading,

innovative company in the European market for

vehicle armour and personal protection.

The acquisition price was € 34.7 million. The

company is based in Odense (Denmark).

Roshield will form part of the TenCate

Aerospace & Armour Composites group. The

technological knowledge, distribution facilities

and activities of TenCate and Roshield are a

good fit. The two companies co-operate

commercially in the provision of solutions

Very Light Jet with the aid of TenCate composites

Embraer had for some time been looking for possible ways of using composite materials in its range of executive aircraft.

With technical support from TenCate Advanced Composites and TenCate Cetex®, the aircraft builder has developed a number of

wing components as part of its Very Light Jet programme. After a qualification process, the thermoplastic Cetex laminates are

incorporated in the ribs in the stabilisers of the Phenom 100 and 300. The main principles in the design of these jet aircraft were

optimum comfort, outstanding performance and low operating costs. The business jets will come onto the market in 2008 and

2009 and will carry 6 to 9 passengers over a distance of 2,500 km at Mach 0.7.

Many of TenCate’s products contribute

directly to the safety and protection of users.

for ballistic protection. The acquisition

strengthens TenCate’s leading position in the

European market for personal protection and

vehicle armour.

OUTLOOKTenCate’s strategic core markets offer good

prospects. Barring unforeseen circumstances,

a substantial increase in sales and profit is

expected, partly as a result of the recent and

intended acquisitions.

The profit growth in 2007 compared to the

2006 net profit, corrected to take account of

divestments, is expected to be at least 25%.

In the field of protective fabrics, above average

growth is expected particularly in the United

States. The outlook is also favourable for com-

posites (armour and aerospace), partly due to

the acquisition of Roshield. Roshield has

recently received long-term orders worth

approximately € 20 million.

The acquisition of Mattex is expected to be

completed in the near future, subject to the

necessary formal approvals from local authori-

ties. The strengthening of the position of

TenCate Grass in the value chain is expected to

have a significant positive effect on sales and

results. TenCate Thiolon Middle East (Mattex)

is expected to have a strong positive effect on

net profit, having regard to the low cost base.

CORPORATE GOVERNANCECORPORATE GOVERNANCE STRUCTURE

The Supervisory Board and the Executive Board

endorse the main principles of corporate

governance. The few exceptions which apply

within TenCate mostly relate to the nature and

size of the organisation. They do not affect

the basic principles of good corporate

management and integrity. The exceptions to

the best practice provisions can be found on

the TenCate website.

The corporate governance structure is based

on the voluntary application of the two-tier

board structure. The main elements of this are:

� The financial statements are adopted by

the general meeting of shareholders.

� Supervisory directors are appointed by the

general meeting of shareholders on the

basis of nominations by the Supervisory

Board. The profile of the members of the

Supervisory Board is first discussed at the

general meeting of shareholders at the

time of adoption and on each subsequent

modification.

� The general meeting of shareholders and

the works council can recommend persons

to the Supervisory Board for nomination as

supervisory directors.

� In the case of one-third of the members of

the Supervisory Board, the Supervisory

Board will in principle place in nomination

the name of a person recommended by the

works council (works council’s reinforced

right of recommendation).

� In the event of an outright majority of the

votes, the general meeting of shareholders

representing at least one-third of the

issued share capital may reject the

nomination by the Supervisory Board.

� The members of the Executive Board are

appointed by the general meeting of

shareholders on the basis of a binding

nomination by the Supervisory Board.


Safe covering for waste water plants

To comply with tighter environmental legislation, a US producer of viscose had to cover two open waste water plants. The site,

comprising two 160 x 160 metre open lagoons, was filled with a five-metre-thick marsh-like layer of mud. An extremely strong,

high-grade geotextile from TenCate was used to cover the lagoons. As a result of the use of these geotextiles, the earth-moving

could be carried out using vehicles that were able to travel across the covered lagoons. A conveyor belt system would have been

far more expensive. With this solution from TenCate the system meets all the environmental requirements for the years ahead and

the site has been safely covered.

Corporate governance within TenCate is based

on the following principles:

� Value creation for shareholders:

This means making optimum use of the

available resources. In the context of

internal financial control, financial ratios

and metrics are monitored closely. These

reflect the performance in terms of cash

flow generating assets, efficiency, margins

and the return on capital employed.

Consideration is also given to longer-term

continuity. TenCate takes account of

efficient use of natural resources and

its social responsibilities.

� Quality of the management

and appropriate remuneration

The remuneration policy must make it pos-

sible to attract high-quality management

which is appropriate for the specialised

and multinational character of TenCate.

The performance pay structure must be

transparent and focused on key perform-

ance indicators. The Supervisory Board’s

Remuneration Committee is responsible

for developing the remuneration policy and

assessing the performance criteria for

members of the Executive Board.

� Code of conduct for

management and employees

The company has a code of integrity,

a whistleblowers scheme and rules to

prevent abuse of inside information.

� Disclosure

Disclosed information must fulfil criteria of

accuracy, completeness and promptness

and comply with IFRS standards, in order

to provide stakeholders with the most

transparent and accurate information

possible on the performance and out-

look. The main risks must be stated and

evaluated.

The information on TenCate’s corporate

strategy is communicated clearly. TenCate

provides full quarterly financial reports.

TenCate maintains an open communication

policy, providing regular information on

important commercial developments.

� Financial control and risk monitoring

The Supervisory Board forms a financial

committee from among its members to

supervise the financial performance,

acquisitions, divestments and general risk

policy.

� Avoidance of conflicts of interest

TenCate is alert to conflicts of interest.

These are addressed and where necessary

avoided.

� Social responsibility

TenCate strives to maintain good relations

with other parties in its vicinity and with

stakeholders. The company endeavours

to limit environmental impact as far as

possible. Substantial environmental

investments are made for this purpose.

Operating companies have long

implemented major elements of socially

responsible enterprise. In order to ensure

that the policy is widely disseminated, it is

increasingly publicised internally.

RISKS AND RISK MANAGEMENTThe niche markets in which Royal Ten Cate

operates – protective fabrics, aerospace,

antiballistics, geotextiles and artificial grass –

entail a spreading of strategic and commercial

risks. Moreover, TenCate conducts these activi-

ties in most cases on four continents, each

with its own dynamic. TenCate is therefore not

part of a monoculture. Consequently, none of

the risks detailed below will have a dominant

influence. Risk management nevertheless

continues to be co-ordinated at group level.

RISK MANAGEMENT IN 2006

On the basis of risk assessments from previous

years, it was decided in 2005 that priority

would be given in 2006 to the strengthening of

the marketing and sales functions, product

renewal, the protection of intellectual property

and the attraction and retention of good key

officers.

Good progress was made in a number of areas

in 2006. For example, much more attention is

now devoted to the protection of intellectual

property and its timely patenting. The strength-

ening of the marketing and sales functions was

also a central theme in 2006, and the career

development of key officers is now monitored

more closely at group level.

The most important form of risk management

is direct contact between the Executive Board,

the group managements and the operating

company directors. Direct discussion takes

place regularly, depending on the matter at

hand. More formally, extensive monthly

reporting takes place and the performance,

results, outlook and certain facets of risk

management are discussed once each quarter.

Risk management also forms part of the

consultation with the Financial Committee of

the Supervisory Board.

1. Market risks

The market risks differ in each niche. In some

niches, such as base fabrics for professional

wear, there is fierce competition and high price

elasticity. In addition, production of less

distinctive products is gradually shifting

to Asia.

In other niches, such as those for safety fab-

rics, antiballistics, geotextiles and artificial

grass, TenCate has a technical lead combined

with market leadership. That provides no

guarantee for the future. Products which reach

the end of their life cycle must be succeeded

on time by new versions. End-user marketing

provides pull effects, as a result of which

the value chain is controlled more effectively

and distinctive ability is rewarded by the

market.

Finally, there are niches in which development

programmes last many years, such as the

aerospace market. Here the development is

reasonably stable, being protected by

qualification processes. A precondition is of

course that TenCate adheres to the quality

guidelines specified by the customers.

Although in various niches there is a depend-

ence on very large customers, at consolidated

level no single customer accounts for more

than 3% of sales (2005: 4%), while the five

largest customers collectively accounted for no

more than 9% of sales in 2006 (2005: 11%).


TenCate spall liners provide protection against metal splinters

TenCate has developed a spall liner, a material which protects occupants and equipment against serious anti-tank threats.

This spall liner ensures that after an impact metal splinters do not find their way through the entire vehicle, but are deflected into

a limited area like a ray. The material has been developed in co-operation with the Dutch Army.

The TenCate spall liner has been selected for the Dutch CV9035 vehicle project due to its low weight and high effectiveness.

Commercial production began in August 2006. TenCate’s spall liners have also been fitted in other vehicles, such as the Leopard II

tank and BVS10 transport vehicles.

2. Raw material risks

Prices in the commodity market may fluctuate

widely. The price of plastics is determined

indirectly by the oil price, but in particular by

shortages or surpluses in the market.

Price rises can be passed on to the customer

with a time lag of three to six months. The

same applies to price reductions.

In the case of super-strength or fire-resistant

armour fibres, regular shortages occur or

a strong dependence develops on a single

supplier. In such situations suitable agree-

ments have been entered into with the

supplier. Ten Cate operating companies

will increasingly participate jointly in the

negotiations with large suppliers, in order

to achieve a maximum result from the

negotiations.

3. Environmental risks

TenCate’s environmental policy is based on

minimising any impact on the environment.

Periodic inspections are carried out both cen-

trally and by local authorities, and measures

are taken in order to avoid environmental risks.

Textile finishing in particular may involve the

use of chemicals which must be covered by

guarantees. The waste water from the textile

finishing process is treated in provincial water

treatment plants. In June 2007, a new internal

water treatment plant will enter service at

Nijverdal-Noord. It has cost € 2.2 million

but will considerably reduce the future

environmental impact.

TenCate considers that the environmental risks

have been limited as fully as possible. Environ-

mental co-ordinators have been appointed at

local level who know the local situation and

implement the local laws and regulations.

4. Product development risks

Product development is the lifeline for the

years ahead. It must be managed with care. If

products are brought to market too early, this

can result in teething troubles, recalls and

damage. On the other hand, if the time-to-

market is too long, TenCate will lose a large

part of its competitive advantage. The product

development process has been structured in

accordance with strict procedures and criteria.

These processes were evaluated and, where

necessary, adjusted once again in 2006.

5. Production and product liability risks

TenCate has various small- to medium-scale

production processes, for example involving

fewer than 100 employees. Where there is a

relatively low degree of production automation

there is a higher risk of human error. Incidents

in production can never be ruled out. These

may lead to a loss of quality in the end-

products, claims from customers or even a

temporary halt in the production process.

However, TenCate carries out preventive

inspections of its products and almost all

plants are ISO-certified. Control of production

processes and quality management are

important priorities in order to avoid product

claims. With regard to the processing of such

claims, work has been carried out to tighten

the procedures applied by the operating

companies, with a view to more critical and

objective assessment of claims.

6. Management risks

It is increasingly the case that having the right

management for a group or operating company

is the main concern for TenCate. The combi-

nation of strategic insight, commercial and

interpersonal skills as well as decision-making

ability appears to be less widely spread than

we would wish.

Not having the right man or woman in the right

place can result in an operating company

rapidly losing its lead or even falling behind its

competitors. The selection criteria for new

management have therefore been tightened.

Another risk is dependence on key personnel,

often with an R&D background. It is necessary

to ensure that this expertise is retained

and shared across the organisation. This is

achieved by guaranteeing knowledge. We are

aware that it is people who make or break a

company. TenCate endeavours to create the

right mentality through a culture of robust

task-setting, if necessary with confrontation,

but not without an appropriate measure of

humour.

7. Insurable risks

Where risks are insurable, such as for fire and

loss of profits and third-party and product

liability, they are laid off to insurers. The

balance between insurance cover, premium

levels and own risk is reassessed each year.

Regular inspections and follow-up increase the

continuity of the business processes, reduce

production outages and lead to lower risk

costs. Damage prevention and preventive

investments improve the risk profile.

8. Currency risks

Approximately 50% of TenCate’s sales are

denominated in euros. The main currency risk

incurred by TenCate is in respect of the US dol-

lar (45% of sales) and a number of more or less

dollar-related currencies such as the Hong

Kong, Singapore and Australian dollar and the

Chinese renminbi.

With regard to currencies, we draw a distinction

between competition, transaction and trans-

lation risk. The competition risk concerns the

changing competitive position vis-à-vis com-

petitors in areas with a different currency. This

risk is hedged over the subsequent six months

by means of options. Thereafter a permanent

answer must be found to the new situation.

Transactions in foreign currencies are immedi-

ately hedged by means of futures or options.

These are mainly transactions by European

operating companies denominated in US dol-

lars and British pounds. Translation risks aris-

ing from the ownership of operating companies

outside the eurozone were not hedged up to

2004. In view of the fact that American operat-

ing companies make a substantial contribution

to the result, their profit has been hedged in

dollars since 2005. At the beginning of 2007 a

contribution to net profit of over $ 20 million

was hedged with a put option at € 1 = $ 1.35.

In this way the translation risk of a currency

effect on the results of TenCate is limited with

regard to the dollar. Translation risks outside

the euro and dollar zones only affect 5% of

TenCate’s results and are therefore not

hedged.

9. Interest rate risks

The financing of the group is more than 90%

centralised. The risk of an interest rate rise is

in principle 90% hedged in the subsequent

year and 75% and 50% respectively for the

following years, taking into account expected

interest rate trends. The preference is to use

caps for this purpose. A rise of one percentage

point in interest is estimated to have a

negative effect of € 0.7 million on the pretax

result in 2006.


10. Risks of pension provisions

TenCate has placed the pension provision for

Dutch employees with Stichting Pensioenfonds

Koninklijke TenCate. This pension scheme is

designated as defined benefit under IFRS

reporting rules. A sharp fall in prices on inter-

national securities exchanges could lead to a

decrease in the value of the pension fund’s

investments. The result of this and of interest

rate developments may be that the provision

for pension liabilities on the Royal Ten Cate

balance sheet increases under the new IFRS

guidelines. The pension scheme was converted

from a final salary scheme to an average salary

scheme at the beginning of 2006. As a result,

the risk of the influence of raises in salary

in the pension provision has decreased.

In this regard the pension fund itself has taken

measures and will take further measures

within its investment policy, partly as a result

of the Financial Assessment Framework

(including interest rate risk management),

resulting in a lowering of the risk profile. In the

other countries there are defined contribution

schemes.

11. Tax risks

Disputes with tax authorities in various coun-

tries constitute a growing risk, particularly

with regard to the issue of transfer pricing.

TenCate is involved in a number of disputes

with tax authorities. However, sufficient

provisions have been set aside. Appropriate

transfer pricing documentation has been

drawn up.

12. Continuity of information provision

In principle, each group has its own

information system. For most Dutch operating

companies there is a shared service centre.

Measures have been taken to guarantee

continuity. The main hardware for the

Nijverdal-based companies has been

accommodated in a highly secure remote

computing centre. As announced in 2005,

an IT security policy has been drawn up

incorporating the necessary security measures.

13. Legal risks

TenCate is involved in various legal proceed-

ings resulting from its normal business opera-

tions. In the proceedings between United

Fabrics and TenCate, which began in 2000 and

have been reported on previously, The

Supreme Court issued a judgment on 7 April.

Part of the claim, based on a commercial

alliance, was dismissed. With regard to the

remainder of the claim, relating to a manage-

ment alliance, the other party has been

instructed to demonstrate the damage suf-

fered. TenCate is confident of the outcome.

The attachment of the Synbra shares was

lifted prior to the sale by the issue of a bank

guarantee of € 1.8 million. A provision of € 8.7

million has been recognised in respect of the

total warranties and claim risks.

14. Risk management and system

of measures

Risk management is a responsibility of the

management at all levels. In addition, corpo-

rate rules have been drawn up for powers,

audits, treasury, investments, IT management,

budgets, the greatly expanded monthly

reporting, insurances and legal matters. All

managers and controllers sign a twice-yearly

letter of representation on the financial

reporting/internal control.

All financial regulations are included in the

TenCate Accounting Manual. From 2007, the

managements and controllers of the operating

companies declare for each report that the

results have been prepared in accordance

Safe camping

TenCate has introduced a new flame-resistant fabric for tents. This quality is particularly suitable for group tents, such as tepees.

Because liquids are boiled and fires are lit in these tents, flame-resistance is very important. TenCate has developed an inherently

flame-resistant outdoor fabric for this type of application. This fabric offers high-quality, long-lasting flame-resistance, providing

safety for campers.

with the accounting manual. This manual

can be accessed by authorised parties via

the internet.

Each year the external auditors assess the

structure and operation of the administrative

organisation and internal control, to the extent

relevant to the auditing of the financial

statements. They report on this to the

management, the Executive Board and the

Supervisory Board. Rules concerning persons

of trust were introduced in 2006. Any

employee who suspects abuse can report it

to a person of confidence. The rules are set

out on the TenCate website.

STATEMENT

With regard to the financial reporting risks, the

Executive Board considers:

� that the risk management and control

systems provide a reasonable degree of

assurance that the financial reports are

free of material misstatements;

� that the risk management and control

systems have operated correctly during the

year under review;

� that there are no indications that the risk

management and control systems will not

operate correctly during the current year;

This statement should not be interpreted as

being a statement in accordance with the

requirements of section 404 of the Sarbanes

Oxley Act in the United States, which does not

apply to Royal Ten Cate.


Safety and comfort for first class air travel

TenCate Cetex® System 3 is used among other things as a floor component for fully adjustable first class aircraft seats. Because

these seats are often fitted diagonally, aircraft manufacturers have encountered design problems. These have now been remedied

by using a floor plate made of TenCate Cetex System 3, which, with a seat and a passenger, can withstand a crash with a force of

16 G. The composite material contributes therefore to a safe and comfortable flight.

TenCate Cetex System 3 has a lightweight sandwich construction based on thermoplastics. The panels can be fitted rapidly,

meet strict aviation standards for fire safety and have a high surface quality. In this way TenCate is also helping to reduce fuel

consumption and emissions.


ACTIVITIESThe Advanced Textiles & Composites sector

consists of the following market groups:

� TenCate Protective & Outdoor Fabrics

High-grade protective and safety fabrics

for the professional wear market, as well

as outdoor fabrics for the high-quality

segment of the tent and awning market

� TenCate Aerospace & Armour

Composites

Composites intended in particular for aero-

space and special industrial applications

as well as for armour, including plate

materials with bullet-proof and fragment-

proof characteristics and for protection

against needles and knives.

SALES AND RESULTSSales in this sector amounted to € 280 million

during the year under review (2005: € 286

million). The slight decrease in sales compared

to 2005 is due to the divestment of the

Permess/Multistiq group. On an organic basis,

sales rose by 8%. The operating result

grew strongly to € 20.9 million. (2005: € 16.5

million). On an organic basis the operating

result was 26% higher.

TenCate has a target for the EBIT margin of at

least 8%. Although the EBIT margin during the

year under review rose to 7.5% (2005: 5.8%), it

is not yet at the required level. This is partly a

consequence of temporarily higher costs due to

extensive investment programmes.

INVESTMENTSThe level of investments in 2006 was higher

than the level of depreciation of € 6.1 million.

The total investments in this sector (€ 11.7

million) showed a decrease compared to the

previous year.


KEY FIGURES

Advanced Textiles & Composites 2006 2005 2004 2003 2002


Revenues 279.7 285.6 229.9 169.9 175.6

Operating result (EBIT) 20.9 16.5 11.1 8.6 8.2

EBIT margin 7.5 5.8 4.8 5.1 4.7

Investments 11.7 13.2 4.0 6.0 3.7

Depreciation and amortisation 6.1 6.2 5.6 4.1 4.3

Net assets 124.9 124.2 113.6 78.1 77.3

Staff years at year-end 1,203 1,171 1,204 813 855

Return on net assets (%) 16.8 13.3 10.3 11.6 11.1

Further improvement in fire brigade safety

TenCate Protective Fabrics has launched Millenia Light® in the European fire brigade market. Millenia Light is based on high-

strength fibres. The top layer is extremely resistant to tears, cuts and wear. The material is durable and also remains strong and

flexible after exposure to heat and UV rays and performs almost 100% better than any top layer in standardised flame tests.

Millenia Light is the lightest material that offers such high wearing comfort and heat resistance.

Millenia Light is an example of the commercial synergy between the TenCate companies in the Netherlands and the United States.

For the fire brigade market it is a major advance. Various fire brigades have now ordered suits with a Millenia Light top layer.

An important investment activity concerns the

production of protective and outdoor fabrics in

the Netherlands (Nijverdal). The plans for the

gradual concentration of the production

processes – in the context of the Nijverdal-

Noord Master Plan – were officially announced

midway through the year under review. At the

same time, work began on the modernisation

and reorganisation of the production process,

with the aim of achieving efficiency improve-

ments and cost reductions. Innovative produc-

tion processes have also been introduced

(including digital finishing under the Digitex

name), with the aim of product development

and cost savings. The entry into service of the

new continuous wide bleaching machine for

textile finishing in mid-2006 was also an

important step forwards. This new technology

has a positive effect on quality, capacity, costs

and delivery reliability.

Another major investment programme currently

being implemented (over € 13 million) is

aimed primarily at a increasing the production

capacity for advanced composites for aero-

space activities.

PROTECTIVE & OUTDOOR FABRICSMARKET POSITION AND STRATEGY

TenCate is the market leader in protective

fabrics in the United States (particularly in the

firefighting market) and in Europe (mainly the

industrial market) and therefore has a leading

position worldwide in high-quality concepts for

personal protection in the professional wear

market, including:

� firefighting and defence market

� industrial market and

� health sector.

TenCate has specialised in the production

of safety fabrics. These are marketed under

TenCate brand names. The tightening of safety

requirements in work situations has led to

greater demand for high-quality protection.

Personal protection is based on European and

North American standards, which have been

drawn up for various industries. TenCate has

developed tailor-made products for these

markets. An important means of competition is

efficient production, particularly for volume

products. The innovative multi-year (invest-

ment) projects are intended to significantly

reduce the cost base.

TenCate conducts a policy aimed at manage-

ment of the value chain. Combined with the

acquisition and subsequent integration of

Southern Mills, as well as other factors, this

has considerably strengthened the market

position in the past few years. End-user

marketing and product differentiation have

been successful. The company anticipates

the various safety requirements and risks

in a wide range of work situations by

marketing fabrics for specific risk areas. The

scale which TenCate has achieved makes it

possible to exchange products and technology

between the various geographic markets.

This generates savings in development costs,

gives rise to purchasing advantages and gives

TenCate a broad product portfolio. A market

share in Asia will be developed on the basis of

TenCate’s existing infrastructure.

TenCate material provides the basis for a successful composite aircraft

Over the past seven years, TenCate Advanced Composites USA has supplied composite material to Cirrus Design Corporation for

the production of the successful SR20 and SR22 aircraft series. TenCate supplies large runs of materials of a consistently high

quality, with which Cirrus produces more than 60 aircraft per month. TenCate’s delivery reliability with large volumes of aviation-

qualified composite materials enables Cirrus Design to produce one of the best commercial aircraft that is currently available.

GENERAL PERFORMANCE IN 2006

Continued strong growth was recorded in the

European and particularly the North American

market for protective fabrics for protective

clothing and professional wear in 2006.

TenCate once again gained market share

on these continents as a result of its speciali-

sation in these markets and by means of

a direct approach to end-users. High-grade

safety fabrics account for a growing share

of sales.

A new generation of safety fabrics has been

developed for the market for high-grade fire-

resistant protective clothing, with high

wearing comfort for both the military market

(TenCate Aramid Camouflage) and the

industrial market (TenCate TecaSafe Plus).

TenCate works continuously to improve the

wearing comfort of high-grade safety fabrics

(moisture regulation, air permeability, weight).

There is growing demand for such products,

particularly in the American market. TenCate’s

market position in the US resulted in a number

of large defence orders for fire-resistant

camouflage fabric in 2006.

TenCate is the only company in its market with

a global approach. That gives it the necessary

critical mass. It is therefore able to take full

advantage of the knowledge and experience in

the various geographic markets. Through

Southern Mills, TenCate has a considerable

share of the firefighting market in North

America, which is also of importance for the

European market position. For example, the

concept was extended from North America to

the European firefighting market under the

brand name TenCate Millenia® in 2006 with

Millenia XT and Millenia Light. Different

functional layers are combined to produce a

security concept. The extensive specialisation

in fire-resistant protection in North America

provides further good opportunities in the

European market and will improve TenCate’s

position in the firefighting market. Growth

was also achieved in the industrial market

in Europe.

The new environmentally friendly bleaching

line entered service at the Nijverdal-Noord

production site in mid-2006. This is unique

within the textile industry and optimises the

production process. This machine is also

of importance for the DigiTex project, because

it enables a considerably higher quality

level (degree of whiteness) to be achieved.

TenCate iTex® is an innovative technological

development for digital textile finishing.

The digitisation of the processes makes them

easier to control. This technology will also

open up new markets as a result of new

functionalities in fabrics. The iTex® project was

awarded a European subsidy in October 2006.

The development, with 26 companies and

(scientific) institutions, is currently in the initial

phase. It will be some time before the first

products appear in the market.

The market for outdoor fabrics remained stable

again in 2006. In the outdoor fabrics market

TenCate produces awnings and tentcloth for

the quality segment. It does not focus on the

market for small tents, which are usually made

of cheaper materials. Ten Cate does not

produce any products based on materials such

as PVC and others which entail health risks.

In addition to quality, TenCate devotes

particular attention in its production activity

to environmental and health aspects and

safety.


In protective fabrics TenCate has a leading position

worldwide in high-quality concepts for personal protection.

OUTLOOK

The outlook remains favourable for the

protective fabrics market for protective

clothing and professional wear. TenCate is well

positioned in this market. It is increasingly

tailoring its product range to specific risk

groups and has enhanced the concept of end-

user marketing. The production capacity in the

United States will be further expanded in 2007.

As the market leader in tentcloth, TenCate

observes the market trends and responds

with innovations such as lightweight and

flame-resistant fabric, contemporary designs

and maintenance-friendly fabric. TenCate

strengthens its market position by creating

added value. TenCate continues to focus

on environmentally friendly fabrics and

finishes. The emphasis is on further

quality improvement and customer-specific

requirements.

AEROSPACE & ARMOUR COMPOSITESMARKET POSITION AND STRATEGY

TenCate is one of the world’s leading

companies in the field of composites for

aviation and armour. TenCate concentrates on

applications of composites with a high degree

of functionality, in which weight saving is

often not the only important or decisive

characteristic. TenCate operates in markets

with high barriers to entry. The competitive

position in the markets of importance for

TenCate is determined above all by the

qualification basis and references. These

provide assurance that TenCate will continue

to play a role in the supply of specified

materials in specific programmes. TenCate is

innovative, flexible and prepared to co-operate

as a partner in development programmes over

the long term.

TenCate Aerospace Composites

TenCate occupies a leading position in the

field of continuously fibre-reinforced high-

temperature deformable composites (thermo-

plastics). These composites (under the name of

Cetex®) were developed for the construction of

the latest generation of aircraft, but also have

other applications. In addition to a weight

saving, thermoplastics deliver cost benefits for

the aviation industry in the processing of

components which make up the structure of an

aircraft. There has been a large increase in the

use of composite materials in the aviation

industry. This has been prompted by the desire

to build aircraft more economically and to limit

fuel consumption and noise emissions.

The innovative developments at Airbus in

the field of advanced materials have greatly

accelerated the use of composites. The Airbus

A380 includes a substantial proportion of

composites. The use of composites will

increase further in both the new Airbus A350

and the new Boeing 787, which will enter

the market in 2008. Approximately half of the

primary structure of the Boeing 787 will

consist of composites. TenCate occupies a

good strategic position. The increase in Cetex®

applications in the past few years has exceed-

ed the growth of composite use as a whole.

TenCate Armour Composites

TenCate is active worldwide in this market and

occupies an important position in the complete

range of personal and vehicle protection.

The position in the aviation industry is an

advantage. In terms of its structure, the market


for vehicle protection has great similarities

with the aviation industry. TenCate focuses

increasingly on security concepts based on a

multi-risk approach. In the armour market there

has been a worldwide increase in the use of

armour for increasingly serious threat levels.

The choice of composites has been prompted

by weight saving and functional characteris-

tics. By combining materials, it is possible to

develop safety concepts for different threat

levels. The market is characterised by large

projects and tenders, and bids can often

be submitted jointly with other parties as a

consortium. TenCate is highly specialised and

internationally well established in this market

and works closely with a number of major

suppliers. There is also good co-operation

with leading vehicle producers (road transport

and aviation).


The American activities grew relatively strong-

ly again in Aerospace & Armour Composites in

2006. This is closely related to the activities of

the US Army and current government budgets.

The growth elsewhere in the world is more

moderate. The Aerospace segment grew

substantially, but armour composites still

account for the largest share of sales.

Aerospace

This sector grew substantially during the year

under review, particularly with regard to sales

in TenCate Cetex (thermoplastic composites).

Although the delays at Airbus (A380) will also

affect TenCate from 2007, the consequences

are not significant. Other outlets have been or

are being found for this advanced material in

other segments of Airbus and among other

producers, such as private and business

aircraft.

The year under review was characterised by

strong growth in demand for TenCate

Cetex®System 3. This is a lightweight and

cost-effective system solution for interior parts

of aircraft, which also lends itself to other

high-grade applications. The growth results

mainly from the excellent mechanical and

other characteristics of the composite

material, such as the lower production costs,

the higher fire safety and lower waste

gas emissions. The material forms part of

maintenance and renewal programmes and is

also used among other things in floor

components and aircraft seats. There are

currently more than 4,000 aircraft seats in use

with TenCate Cetex®System 3.

The Brazilian manufacturer Embraer has also

qualified TenCate Cetex for its new Phenom

100 and 300 business jets. This aircraft will be

operational at the end of 2008. Orders have

already been received for several hundred

aircraft. Embraer is also developing new

components based on Cetex, which will result

in further growth in this relationship.

TenCate is also involved in the development of

the A350-XWB. For this type of aircraft, which

will be operational in 2013, Airbus will make

large-scale use of lightweight composite

materials.

In addition to thermoplastics, TenCate has

composites with other technical characteristics

(thermosets). These are used particularly in

military aviation and for smaller private

aircraft. Demand is high, particularly in the

business market. Thermosets are also used

n the radar and telecommunications market.

Armour

Bullet-proof and fragment-proof materials,

integrated into safety concepts, account for

the largest share of sales in this sector. Sales

rose strongly again, mainly due to strong

growth in the US. The strategic focus on

vehicle protection resulted in growing sales in

this market segment and will ultimately

provide a more even order flow, as well as a

positive margin trend.

The share of vehicle protection is on a rising

trend. There is also growing demand for multi-

threat protection. This involves simultaneous

protection against threats from bullets, knives,

and (hypodermic) needles. These segments are

becoming increasingly important. Although the

number of tenders for personal protection was

somewhat disappointing in 2006, Ten Cate has

a good order book. Some uncertainty with

regard to the time of delivery of (project-

related) orders is inherent in this market.

Consequently, periodic sales fluctuations

occur. TenCate reduces this uncertainty by

operating worldwide.

TenCate won the tender from the Dutch

National Police Services Agency (KLPD) in 2006

for the supply of 30,000 bullet-proof, knife-

proof and fragment-proof vests for the Dutch

police. The KLPD has followed the trend

for multi-risk protection. The consortium

comprising TenCate and BSST (the producer of

the vests) was judged to have the best safety

concept, partly on the basis of weight and

wearing comfort.

TenCate introduced multi-threat material

concepts (Pro-Tector) for personal protection in

2006. TenCate Pro-Tector provides advantages

in particular in terms of weight, flexibility,

watertightness and ease of incorporation in

vests. The company participated in various

worldwide programmes. Further growth is

expected in 2007.

TenCate is also supplying the spall liners for a

new infantry combat vehicle for the Dutch

army. This involves 184 vehicles, which will

replace the YPR armoured vehicle from 2007.

TenCate has now been approached with a view

to co-operation in a similar Danish vehicle

project.

The changing role of the Navy (coastal protec-

tion) is leading to interesting developments in

the protection of vessels.

OUTLOOK

Aerospace

TenCate has an excellent position with

the Cetex® material, which is being used

increasingly in various segments of the aircraft

industry. The outlook for this composite

material is therefore favourable. In order to

achieve the planned growth, a new production

hall with a third press will enter service in

Nijverdal in mid-2007. The AS/EN 9100

certificate has also been obtained. This makes

TenCate one of the few qualified Dutch

companies to operate in accordance with this

system, which is intended for suppliers to the

aircraft industry.

Armour

As a result of the modernisation programmes

in various defence units, TenCate is experienc-

ing strong growth, particularly in high-grade

programmes for vehicle protection. The acqui-

sition of the Danish company Roshield will

contribute to this in 2007. In this market

TenCate focuses particularly on concepts

based on a combination of threat levels.

TenCate focuses increasingly on security

concepts based on a multi-risk approach.

Comfortable multi-threat protection offering a perfect fit

In close co-operation with BSSt GmbH of Germany, TenCate Advanced Composites supplies a bullet-, needle- and stab-proof vest

for the Dutch police. The vest is able to offer such triple protection due to its innovative overall concept. It is flexible and weighs

just 2 to 2.5 kilos. The low weight and the limited size mean that the vest can be worn comfortably under a shirt. Due to its

completely individual measurements, this is also the first vest that is comfortable for both women and men.

Electronic dyke monitoring increases the safety of dykes

TenCate Geosynthetics is developing HydroDetect, a monitoring system based on geotextiles with interwoven optical fibres.

The coating and weaving of the fibres for this functionality is sensitive, specialist work. The geotextile is buried in the core of

the dyke. HydroDetect takes continuous measurements through the optical fibres using the characteristics of the reflected light,

which is tension- and temperature-dependent.

In addition to deformations and tensions in the core of the dyke, HydroDetect records leaks and moisture.

Using special recording equipment, changes can be observed up to several hundredths of a percent. In this way it is

possible to detect deformations and tensions as well as leaks. Measures can then be taken to prevent

a breach of the dyke.

Fast, noise-free dewatering system

The Port of Arcachon in France had to be dredged. Since the port is an important tourist attraction, the dredging had to be carried

out rapidly and without noise and also had to take up little space. Previously the sludge could still be removed to the Atlantic

Ocean, but tighter environmental legislation meant that this was no longer possible. A local contractor decided to conduct a trial

with the TenCate Geotube® system. By adding polymers to the dredging sludge in the Geotube system, the sludge was rapidly

dewatered. As a result, the volume and weight decreased rapidly. The solid materials could then be removed by truck for further

processing.

ACTIVITIESThe Geosynthetics & Grass sector consists of

the following market groups:

� TenCate Geosynthetics

Fabrics, grids and nonwovens for use in

civil engineering projects, the construction

industry and the environmental market.

TenCate also produces industrial fabrics

for various applications, such as fish

farms, agribusiness, sport and recreation.

� TenCate Grass

Artificial grass (Thiolon® Grass) for a wide

range of sport applications. TenCate pro-

duces the artificial grass fibre and the

carpet backing. From 2007 TenCate is also

supplying infill and other components,

according to its own specifications, which

play a part in determining the characteris-

tics of an artificial grass pitch. Fibre

production accounts for by far the largest

proportion of sales.

SALES AND RESULTSIn the year under review, sales in the TenCate

Geosynthetics & Grass sector amounted to

€ 398 million, a rise of 45% (2005: € 274 mil-

lion). This rise was almost entirely due to the

acquisition of Polyfelt (on 15 December 2005).

The operating result rose from € 23.8 million to

€ 25.5 million. On an organic basis, the operat-

ing result decreased by 20%.

The EBIT margin fell during the year under

review to 6.4% (2005: 8.7%). This is mainly

due to the higher costs associated with

extensive investment programmes and lower

margins on the artificial grass activities as a

result of increased competition. Measures

were taken during the year under review in

order to achieve efficiency improvements, cost

control and greater distinctive capability


KEY FIGURES

Geosynthetics & Grass 2006 2005 2004 2003 2002


Revenues 397.5 273.9 231.9 213.0 223.3


EBIT margin 6.4 8.7 9.4 7.9 7.7

Investments 28.9 10.5 5.3 8.3 8.8


Net assets 215.8 206.4 98.2 102.1 108.1

Staff years at year-end 1,633 1,544 1,176 1,121 1,065



INVESTMENTSThe total investments in this sector rose 175%.

€ 28.9 million was invested during the year

under review, compared to € 10.5 million in

2005. Depreciation and amortisation amounted

to € 13.7 million in 2006.

Considerable sums were invested in 2006 in

the expansion of production capacity in China

(Geosynthetics) and in Dayton and Nijverdal for

monofilament fibres.

GEOSYNTHETICSMARKET POSITION AND STRATEGY

As a result of the acquisition of Polyfelt at

the end of 2005, TenCate has acquired a

leading position in the geosynthetics market

worldwide. TenCate operates in the market

under the name of TenCate Geosynthetics.

Geosynthetics is the collective name for

fabrics, grids and nonwovens which are mainly

used in civil engineering, agriculture and

the construction industry. The use of these

materials is mainly aimed at (erosion)

protection, ground stability, land reclamation,

drainage, separation of strata and

strengthening of dykes and sheet piling.

Customers for these products are mainly the

dredging industry and construction companies.

The market leadership should ensure further

profitable growth in this sector. In the

implementation of the global strategy, market

positions with a strong brand image (Mirafi®,

Polyfelt®, Bidim® and Nicolon® labels) are

exploited.

In addition to the United States, TenCate has

substantial production and distribution

facilities in Europe and south-east Asia for

geosynthetics with TenCate Geosynthetics

Austria (Polyfelt) and France (Bidim). Both

companies have a prominent presence in these

regions. The companies integrated in the

organisation are entirely complementary in

terms of market area, product portfolio and

technology. With plants in Linz (Austria),

Bezons (France) and Kuala Lumpur (Malaysia)

and ten sales offices spread across Europe

and South-East Asia, as well as a 50%

interest in Geofabrics Australasia, with a

dominant share of the Australian market,

TenCate Geosynthetics Austria and France

represent an important strengthening of

TenCate Geosynthetics. A position has there-

fore been attained, or can be built up, which is

comparable to that in America. TenCate is

successful in the US on the basis of a strategy

aimed at offering a wide range of products

with a high level of service and technical

support.

TenCate has been active for many years in the

geosynthetics market and constantly develops

new applications, such as the TenCate

Geotube® concept. Geotube®, a large container

filled with sand, has already been in use

successfully for a number of years worldwide

for the construction of water works, coastal

protection and land reclamation. Further

development of this concept has led to a

solution in the environmental market, whereby

sludge is cleared from ports, canals and lakes.

In the case of industrial sludge from,

for example, the paper and pulp industry,

Geotube® operates as a filtering and

dewatering technology (high performance

filtration fabric). These products can be used

in a wide range of water management

applications. Their use worldwide is

increasing, partly as a result of natural

disasters, flooding and water shortages.

A more economical way to bridge the gap

The Incheon Bridge is being built to link the Korean city of Seoul to Incheon Airport. At the mainland end, the access road is being

built on reclaimed land. Instead of the usual construction using steel sheet piling, TenCate Geotube® is being used. As a result

there are two causeways with a height of five metres, 100 metres apart. Sand is being deposited between the causeways,

creating a work island for the building of the bridge and the approach road. Approximately 18 km of Geotube has been used to

build the causeways.


For TenCate Geosynthetics 2006 was

dominated by the integration of Polyfelt. Partly

as a result of favourable market developments,

considerable progress was made in increasing

profitability in Europe and Asia. There

was growth in both the geotextiles and the

industrial fabrics market, with a good level of

capacity utilisation. The new product line at

the Linz site, based on a technology developed

in-house, improved further in 2006. The cooling

of the US economy impacted the growth of

activities in that country, leading to somewhat

lower margins.

A global strategy was formulated and

implemented during the year under review.

This is focused on gearing the various

production facilities and technologies to the

required product portfolio, product innovations

and growth in new applications and

geographic areas. In addition to dominant

positions in the US, Europe and Asia, TenCate

is increasingly looking at growth potential in

the Middle East and Eastern Europe.

More than 50% of materials are used in infra-

structure projects (geoproducts and systems)

and in civil engineering. In addition, materials

are supplied for the construction industry, the

recreation market and the agricultural sector.

TenCate has a share of over 50% of the

mushroom cultivation sector. Substantial

growth was achieved in grids and nonwovens

for varied applications once again in 2006.

Filtration is another application for which

new products were developed. As a result

of the acquisition of Polyfelt, TenCate has

considerably strengthened the position in the

European and Asian project market. In this

market, which has higher margins, there is

growing demand for technological support and

assistance for materials in systems solutions.

TenCate is well positioned for this and made it

a focus of its strategy.

The companies in the sector won a number

of attractive projects and orders in the infra-

structure and environment area in 2006:

� TenCate is involved in one of the most

important infrastructure projects in Korea,

the largest Geotube order ever obtained;

� TenCate is involved with Geotube in an

extensive water treatment project in two

lakes in Sweden which are polluted with

sludge from the paper and pulp industry;

� TenCate Geosynthetics Iberia was involved

in an extensive project with geotextiles in

a former mining area in Calaña (Spain)

which had to be fully integrated into the

environment;

� TenCate’s Geotube technology was chosen

for the dewatering of dredging sludge

(120,000 m3) from the area around Venice;

� a pilot was successfully completed in the

US for the dewatering of industrial sludge.

Geotube systems were also used in 2006 for

land reclamation, coastal protection and dyke

construction. Interesting developments are

taking place in the latter field, such as the

possibility of early detection of defects in

dykes (HydroDetect). This is a monitoring

system based on geotextiles with interwoven

optical fibres. This geotextile is buried in

the core of the dyke. Using special

recording equipment, it is possible to detect

deformations and tensions such as leaks.

Measures can then be taken to prevent a

breach. TenCate is already applying the

principle in GeoDetect, a geotextile with

integrated optical fibres. GeoDetect makes it

possible to monitor reinforced soil structures

and deal with subsidence before it becomes

critical. Fifteen projects have been successfully

completed worldwide with GeoDetect.

Two trial projects are currently under way


TenCate’s position in the geosynthetics market offers

excellent prospects for further sales and profit growth.

for HydroDetect. There is considerable market

potential and in Europe the projects announced

in the field of water management and dyke

construction will provide a boost for this

market segment.

TenCate Nicolon Australia was sold to

Geofabrics Australasia (a TenCate joint

venture) in order to serve the Australian

market more efficiently.

OUTLOOK

TenCate’s position in the European and Asian

market for infrastructure projects has been

considerably strengthened through the integra-

tion of Polyfelt. This offers excellent prospects

for further sales and profit growth, in spite

of the economic uncertainties in America.

This growth is expected partly on the basis of

the increasing attention devoted to water

management and environmental protection.

GRASSMARKET POSITION AND DEVELOPMENTS

TenCate is the global market leader in terms

of volume and innovation in the market for

artificial grass fibres. The company has been

developing, producing and marketing artificial

grass fibres and carpet backing for artificial

grass pitches for various applications for

almost 40 years. TenCate has a leading role in

research and development and is therefore

aware of its social responsibility. In contact

sports such as football, player safety is of

paramount importance. Environmental aspects

are taken into account in the development of a

safe overall concept, consisting of a top layer

and a base TenCate has leading products and

systems. These are supplied to companies

which offer total concepts to end-users,

such as companies in the carpet sector and

marketing organisations

The volume of the world market is expected to

grow in the next few years by an average of

15% per year. Geographically, however, there

are major differences. According to external

sources (2005), the European artificial grass

market accounted for over 40% of total

demand in 2005. The American market is

somewhat smaller, with a share of over 35%,

although the growth trend is much higher.

This is due not only to the enormous market

potential, but also to the higher degree of

acceptance. Artificial grass has been widely

accepted for much longer in America. It is used

not only for American football but also for

other sports and for university and high-school

pitches. The continuing growth in the market is

attracting new market participants. This is also

one of the challenges in a growth market. The

industry intends jointly to ensure better quality,

with quality criteria, delivery conditions and

warranties providing a better guarantee for

end users.

TenCate is well represented in the European

and American market. The TenCate Thiolon®

brand has a strong quality image in that

country. Quality and characteristics such as

ball behaviour, friction resistance of the boot

and sliding performance are aspects which

have developed strongly among end-users

in the American market. In Europe too there

is evidence of a trend towards greater

importance being attached to quality and

safety. That is due to the fact that particularly

local authorities, which are major customers,

are accumulating greater knowledge of

artificial grass.

Super artificial grass for the Superdome

The Superdome in New Orleans (Louisiana, USA) was severely damaged by hurricane Katrina in August 2005. It was subsequently

used as a reception centre for 25,000 residents who had been made homeless. A year later the completely renovated stadium was

the venue for the first home game of the New Orleans Saints. The Superdome had a completely new artificial grass pitch based on

TenCate Thiolon® fibres. Thiolon grass fibres have been designed for optimum performance in competitions at every level, but are

also suitable for other events. The pitch provides footballers in the NFL and other leagues with a fast and stable base which

protects them against injuries.

In addition, the public debate on the use of

rubber infill based on recycled vehicle tyres in

sports pitches has stimulated discussion of

safety and environmental aspects. TenCate

sees this as a positive development.

TenCate has built up a close relationship

with many suppliers of artificial grass

pitches. In the US, the emphasis is on

marketing organisations. In Europe, carpet

producers also occupy an important position.

In the context of end-user marketing, TenCate

itself is also active in dealings with end-users,

partly on the basis of the knowledge

accumulated in the field of research and

development. In this regard TenCate is an

important partner in the chain, for both direct

customers and end-users.

A large number of sports are played on

artificial grass around the world. Football is

one of the main growth markets. FIFA and

UEFA now allow artificial grass to be used up

to the highest level, but acceptance among

top-flight clubs is slow. Nevertheless,

increasing interest is evident and the

prejudices are disappearing. That is because

players are finding that a new generation of

artificial grass pitches provides a real

alternative in periods in which it is almost

impossible to play on natural grass.

The Grass group also includes production of

backing, the material on which fibres are

tufted by carpet producers. Growth is being

achieved in outdoor backing for artificial grass

carpet. The production of indoor backings is

gradually being scaled down because of low

margins. In 2006, TenCate also began supply-

ing infill (Thiolon Infill Pro), which occupies the

space between the grass fibres. The type of

infill is one of the factors that determines

performance of the artificial grass pitch. This

infill is made not of recycled material but

of environmentally friendly thermoplastic

granules and is therefore free of any harmful

substances. The supply of infill is a necessary

step in order to be able to market system

concepts, together with components which are

used in the base. At present, there are still too

few total concepts in the market which enable

the end-user to make choices on the basis

of the required performance or playing

characteristics of the pitch. This approach is

being developed further together with partners

in the chain. This is an important strategic

development and one which increases the

distinctive capability.

STRATEGY

TenCate’s strategy is focused on supplying

high-quality artificial grass fibres and backing

for a large number of sports and landscaping

(landscape applications, green spaces).

TenCate distinguishes itself through product

differentiation in various artificial grass

applications for top-flight sports and recreation

sport on a competition level. However, the

European amateur market still makes too few

specific demands on the quality aspects and is

therefore still highly price-sensitive. However,

this is changing to some extent, because of

increasing awareness of the performance

of sports pitches. In the past there was a

strong emphasis on innovation and product

differentiation. In the context of system

development, the focus is being shifted more

to cost control and marketing.

In addition to a focus on costs, TenCate will

develop system concepts in order to make

quality differences in sports pitches clearer.

The strategy here too is focused on exploiting

economies of scale within the strategic

concept of value chain management.

Within the system concept, TenCate aims to

co-operate with market operators who endorse

this approach:


� systematic development of sports pitches,

with predictable technical characteristics;

� provision of a wide range of artificial

grass systems, focusing on the specific

requirements of users;

� increase in the current quality standards,

with greater attention being devoted to

the level of technical characteristics;

� safe base for players;

� development of a cost-effective total

concept in order to put the product within

reach of a wider target group;

� partnerships in the chain to guarantee the

quality of the end-product, made from

high-quality system components;

� end-user marketing, in which TenCate,

together with partners, advises end-

users such as leagues, clubs and other

interested parties directly or through its

sales partners with regard to the system

performance of the pitch;

� transparency with regard to the

characteristics and durability of the sports

pitch

� exclusion of possibly environmentally

unfriendly or harmful raw materials.

TenCate seeks to maintain its distinctive

position by supplying high-quality products and

systems and carrying out intensive R&D,

in close co-operation with knowledge

institutions. This includes co-operation

with the Institute for Sport & Leisure of the

University of Twente, TNO and other testing

and research centres. In this way it is able to

provide sound advice and information for

end-users.


Growth in the Grass group fell short of

expectations during the year under review.

This was due partly to a delay in the laying of

new sports pitches in the US. There was also a

substantial shift in demand. The European

market in particular saw a shift within a short

period as a result of growing demand from

football.

The football market is increasingly demanding

fibres with a strong visual similarity to natural

grass. TenCate has anticipated this by develop-

ing new fibres (including monofilament fibres)

in which the required technical characteristics

are guaranteed. These fibre types are used by,

among others, FIFA, which chose a TenCate

Thiolon system for the FIFA Home in Zurich

during the year under review, the KNVB

training complex, Heracles Almelo, AGOVV and

leading clubs such as PSV and Ajax for their

training pitches

Hockey, which also accounts for a large share

of sales, is a replacement market.

The large extension of the production capacity

for monofilaments, which was completed after

some delay, involved high costs. Because of

the switch of production, there was temporary

sales shortfall, because for a certain period it

was not possible to meet demand from the

market.

Due to increasing competition, there was

a further tightening of margins, particularly

in the volume segment (amateur market).

The margins in this market declined further

compared to 2005.

Both internal and external factors, as stated

previously, put pressure on results. Measures

were therefore taken during the year under

review, with the aim of achieving further

efficiency improvement, improvement in

logistics processes and cost control.

Attractive artificial grass saves precious water

Severe shortages of rainwater occur regularly in southern Europe. Partly for that reason, artificial grass is becoming increasingly

popular for use in public open spaces in various local authority areas. It looks very natural and needs no water. The company

responsible for laying the pipes which supply and remove water investigated the payback period of Royal Grass in open

installations on roundabouts and central reservations in Madrid. It turned out to be less than four years. In that way TenCate is

helping to limit water consumption.

In 2006 TenCate drew up an action plan in

order to shape its future leading role in the

artificial grass sector. In addition to measures

aimed at operational and logistical improve-

ments, these are:

� adaptation of the product portfolio in order

to accommodate the shift in demand to

football;

� making end-users aware of the importance

of a good, durable and safe pitch (brand

awareness and system approach);

� acceleration of technological develop-

ments based on patent positions (new

generations of artificial grass fibres and

artificial grass systems);

� repositioning through greater control over

the value chain and embedding of the

system philosophy.

In order to accelerate the technological

developments, TenCate signed a declaration of

intent in 2006 with GreenFields in Kampen

with a view to the joint development of a new

artificial grass system (fourth-generation

artificial grass). This concept is based on an

integrated artificial grass system.

In order to strengthen TenCate’s current

knowledge position, a patent is being acquired

from GreenFields, thereby significantly

enhancing our existing worldwide patent

position. The development of the fourth-

generation artificial grass system is aimed

partly at reducing the cost of the artificial

grass system.

The repositioning in the value chain is taking

place partly as a result of greater co-operation

with strategic partners. With GreenFields this

co-operation entails the following:

� TenCate sells 80% of the shares in

Landscape Solutions (artificial grass for

landscaping under the Royal Grass brand

name) to a company associated with

GreenFields;

� TenCate continues to supply artificial grass

fibres and backing for the Royal Grass

brand to GreenFields;

� GreenFields will be among the market

participants that work closely with

TenCate, in both the development and

commercial areas.

TenCate has also entered into a strategic

alliance with FieldTurf Tarkett, the leading

marketing organisation in the United States

and Europe for artificial grass systems for

many sport applications. FieldTurf Tarkett has

extensive knowledge of patented artificial

grass systems and excellent access to the

market. For Ten Cate, the partnerships deliver

improved access to the end-market. It provides

major support for the strategic focus on

systems and system characteristics.


TenCate also strives for a system approach in the artificial grass market.

OUTLOOK

The artificial grass market is experiencing

structural growth, with an expected average

of 15%. The announced acquisition of the

artificial grass activities of Mattex Leisure

Industries in February 2007 will further

strengthen TenCate’s position worldwide. The

products supplied by Mattex (TenCate Thiolon

Middle East) are an excellent addition to the

existing product portfolio.

The alliances with FieldTurf Tarkett and

GreenFields give TenCate more direct access to

end-markets, lending further support to the

system concept. In 2007 the production facility

at Nijmegen (Nymplex site) will be absorbed in

TenCate Thiolon in Nijverdal. This will involve

non-recurring costs. There will be a further

expansion of production capacity and

adjustments to logistics in 2007. It is expected

that TenCate will be better able to anticipate

market demand in 2007. Important strategic

steps were taken at the end of 2006 and in the

first quarter of 2007. These are expected to

make a positive contribution to the result

in 2007.

Never a banknote too many or too few. That is no coincidence. In thousands of ATMs worldwide rollers from TenCate Enbi

are doing their work. You cannot see them, but these rollers ensure that the correct number of banknotes are issued.

Time after time, millions of times a day in all currencies.

ATMs run on rollers

TenCate Enbi rollers process more than 150 different types of currency, if necessary at a speed of more than 40 banknotes per second.

That requires very precise technology. TenCate Enbi supplies materials for the right solution. The self-regenerating surfaces of the

rollers ensure a reliable and durable performance. With truly invisible precision.


ACTIVITIESThe Technical Components sector consists of:

� TenCate Enbi

TenCate Enbi is one of the major global

players in the development and production

of (technical) rollers and components

based on rubber and foam technology for

paper transport and image transfer in

printers, copiers and fax machines, and for

postal sorting machines and automated

teller machines.

� Business Key

Business Key, the only remaining part of

the Mega Valves International group which

was sold in the spring of 2005, is a small

Spanish company trading in components

for fluid systems for agriculture and

horticulture, industry and the construction

sector. In view of the limited size of this

unit, no separate performance report is

presented.

SALES AND RESULTS

Sales decreased during the year under review

to € 93 million. (2005: € 126 million). This was

mainly due to the sale of TenCate Plasticum).

On an organic basis, sales grew 6%. This

increase was due in particular to growth of

TenCate Enbi in Europe and the United States.

The operating result amounted to € 6.2 million

(2005: € 7.1 million). On an organic basis, the

operating result was 14% higher.

MARKET POSITION AND STRATEGY

OF TEN CATE ENBI

TenCate Enbi is a leading supplier to major

European and American printer and copier

producers and is one of the few suppliers to

operate on three continents. Europe, America

and Asia. Competitors operate primarily in

local markets. The market is price-sensitive

and cost control is therefore of great

importance. In order to optimise logistics, it is

necessary to manufacture products in the

immediate vicinity of the customer (OEM).

TenCate Enbi is a major supplier to producers

of printers and copiers. It also serves a number

of niche markets, including those for postal

sorting machines, automated teller machines,

insulation and heating systems.


KEY FIGURES

Technical Components 2006 2005 2004 2003 2002


Revenues 92.7 126.3 178.7 186.3 202.5


EBIT margin 6.7 5.6 5.0 4.6 1.7

Investments 2.2 2.5 2.7 2.5 4.4


Net assets 27.9 44.9 68.5 79.9 92.1

Staff years at year-end 661 828 1,223 1,281 1,327


High-grade products are developed in co-oper-

ation with the customer. The company also

develops and produces its own products for

OEMs as well as rollers for cartridges for the

replacement market. TenCate Enbi is striving to

broaden its customer portfolio. In 2006 it

achieved major progress in this regard,

including its qualification as a supplier to a

Korean OEM of laser printers. TenCate Enbi

stands out from its competitors because of its

high-grade knowledge and products, high

delivery reliability and a competitive cost level.

Moreover, the company is able to react quickly

to global shifts in production by OEMs. The

sites in Singapore and China are particularly

well-placed to benefit from the latter trend.

TenCate Enbi fulfils high technological and

quality requirements. The development of new

products is essential in order to generate

replacement sales in a market with ever

shorter life cycles and achieve further growth.

TenCate Enbi has all the necessary tools for

success, although it has become clear that

allowance must be made for protracted

qualification procedures that are intended to

ensure that the requirements are met in almost

all circumstances.

As a result of its global spread of production

facilities, the introduction of in-house products

and a larger customer base, TenCate Enbi’s risk

profile has improved greatly. There is also

more certainty of further earnings growth.

PERFORMANCE IN 2006

The Technical Components sector showed

a further improvement in results in 2006.

TenCate Enbi benefited from positive develop-

ments in the European companies in Germany

and Hungary.

Sales at TenCate Enbi increased during the

year under review after falling in previous

years due to restructuring. This is a positive

development, particularly in view of the fact

that one of the largest customers has opted for

backward integration. The challenge is to

generate replacement sales in time in a market

in which products are becoming obsolete ever

faster and in which production is constantly

being transferred to low-wage countries, such

as China and Malaysia.

A new strategic market is the replacement

market for (colour) laser printer cartridges.

TenCate Enbi further expanded its position in

this market in 2006. It produces its own rollers

for laser printer cartridges based on its own

technological knowledge. These rollers fulfil

the same criteria as those applied for the

OEMs. For logistics reasons, the production of

rollers for the replacement market is tied more

to individual regions, making it attractive for

all TenCate Enbi sites. In addition to the fact

that this is an important potential market for

TenCate Enbi, this helps provide a better

foundation for the company. Corporate risks,

such as customer dependence and under-

utilisation of capacity, are thereby reduced.

The market penetration, however, has been

slower than expected due to protracted

qualification procedures.

TenCate Enbi has a good basis for further

growth in both the OEM and the replacement

market, given that the company is well known

for its high quality and delivery reliability. This

enables TenCate Enbi to penetrate new

markets, with other industrial applications for

rubber and foam technology. Further major

orders were received from existing customers in

2006 for new platforms for printers and copiers.


OUTLOOK

TenCate Enbi operates in a global market

which is dominated by a number of large

players. Customers will continue to transfer

production in order to make cost savings. The

transfer of production to low-wage countries

applies mainly to the production of volume

products. High-grade production for niche

markets is taking place on an increasingly

regional basis. With sites in the United States,

Europe and Asia, TenCate Enbi can respond

appropriately to every possible development.

In the longer term it therefore expects further

growth in sales and earnings.

TenCate has previously expressed its intention

of divesting TenCate Enbi. No time limit has

been put on the divestment.



The Technical Components sector showed

a further improvement in results in 2006.

X-ray photographs turned out fast with TenCate Enbi

When the highest-quality photographs are required for X-ray examinations or other uses, TenCate Enbi offers a helping hand.

The rollers are made from materials which are resistant to developing and fixing liquids. Broken leg or wrist? Preventive examina-

tion? Doctors and medical personnel can rapidly obtain razor-sharp photographs and use them to provide the necessary treatment.

More comfort and better fire protection for military personnel

TenCate Protective Fabrics USA has developed a second-generation Universal Camouflage Pattern fabric. This material, based on

aramid fibres and a patented process, is more comfortable than the current military standard, but that is not at the expense of the

fire resistance and other functional characteristics. In that way TenCate can meet the US Army’s requirement for fire-resistant

camouflage uniforms to provide better protection for its military personnel.

TenCate has a leading role in the US military market for fire-resistant camouflage print fabrics. Clothing manufacturers use

the TenCate materials to produce clothing for the crews of combat vehicles, aircraft and other high-risk environments.

Royal Ten Cate Annual Report 2006 67

Consolidated profit and loss account

Consolidated balance sheet

Consolidated cash flow statement

Equity

Notes to the consolidated financial statements

1 General information on Royal Ten Cate

2 General principles for financial reporting

3 Principles for the preparation

of the financial statements

4 Consolidation principles

5 Foreign currencies

6 Derivatives

7 Hedge accounting

8 Segment reporting

9 Revenues

10 Raw materials and manufacturing supplies

11 Lease payments

12 Financial income and expenses

13 Profit tax

14 Earnings per share

15 New standards and interpretations

not yet applied

16 Principles for the cash flow statement

17 Tangible fixed assets

18 Intangible fixed assets

19 Inventories

20 Trade and other receivables

21 Cash and cash equivalents

22 Impairment

23 Share capital

24 Pension liabilities

69

70

72

74

75

75

75

75

76

76

77

77

78

78

78

78

78

79

79

79

80

80

81

82

82

82

82

83

83

Financial statements 2006Royal Ten Cate

25 Share-based payments

26 Provisions

27 Long-term debts

28 Trade creditors and other payables

Notes to the consolidated profit and loss account

29 Segment information

30 Acquisitions and divestment of subsidiaries

31 Personnel costs

32 Other operating costs

33 Financial income and expenses

34 Profit tax

35 Result from associated companies

36 Result from divested activities

37 Notes to the consolidated balance sheet

38 Tangible fixed assets

39 Intangible fixed assets

40 Associated companies

41 Other long-term receivables and investments

42 Deferred tax receivables and liabilities

43 Inventories

44 Trade debtors

45 Other receivables

46 Cash and cash equivalents

47 Equity

48 Earnings per share

49 Long-term debts

50 Pension liabilities

51 Provisions

52 Other information

53 Financial instruments

54 Liabilities not shown in the balance sheet

55 Investment liabilities

56 Contingent liabilities

57 Subsequent events

58 Related parties

59 Estimates and judgments formed by

the management

60 Company financial statements

61 Company profit and loss account

62 Company balance sheet

63 Notes to the company financial statements

64 Financial fixed assets

65 Equity

66 Called and paid-up capital

67 Ordinary shares

68 Share premium reserve

69 Retained earnings of associated companies

70 Other reserves

71 Option scheme

72 Provisions

73 Long-term liabilities

74 Short-term liabilities


Additional data

Auditors’ report


Provision of the articles of association

relating to appropriation of profit

Proposed appropriation of profit

Ten-year summary

84

84

85

85

86

86

88

89

89

90

90

91

91

92

92

94

95

96

96

96

97

97

97

97

99

100

102

105

106

106

108

108

109

109

109

111

112

112

113

114

114

115

115

115

115

116

116

116

118

118

118

118

120

121

123

125

125

126


Consolidated profit and loss account in millions of euros

Revenues

Changes in inventories of finished products and work in progress

Raw materials and manufacturing supplies

Work contracted out and other external expenses

Personnel costs


Other operating costs

Total operating expenses

OPERATING RESULT

Financial income

Financial expenses

NET FINANCIAL EXPENSES

PRE-TAX RESULT

Profit tax

Result after tax but before divestment of activities

Result from associated companies

Result from divested activities after tax

RESULT AFTER TAX

ATTRIBUTABLE TO:

Shareholders of the company (net profit)

Minority interests

Weighted average number of shares (x 1,000)*

Weighted average number of shares after dilution (x 1,000)*

Net earnings per share (euro)*

– corrected for result from sale of Synbra

Diluted net earnings per share*

– corrected for result from sale of Synbra

* After split of par value of shares from € 10 to € 2.50.

2005

686.5

0.5

353.8

29.3

161.6

19.3

83.5

648.0

38.5

0.2

– 4.8

– 4.6

33.9

– 11.5

22.4

4.4

3.7

30.5

30.5

–

20,567

20,946

1.48

1.48

1.46

1.46

2006

770.5

– 4.8

402.2

34.7

171.2

23.1

94.0

720.4

50.1

0.1

– 8.1

– 8.0

42.1

– 11.4

30.7

3.4

42.0

76.1

76.0

0.1

20,749

21,264

3.66

1.76

3.57

1.72

note

29

31

32

33

33

34

35

36

48

48


Consolidated balance sheet in millions of euros

FIXED ASSETS

Tangible fixed assets

Intangible fixed assets

Associated companies

Long-term receivables from associated companies

Other long-term receivables

Deferred tax receivables

Total fixed assets

CURRENT ASSETS

Inventories

Receivables

Trade debtors

Tax receivables

Other receivables

Cash and cash equivalents

Total current assets

TOTAL ASSETS

210.4

287.1

497.5

161.4

13.8

16.9

0.5

4.0

13.8

157.5

105.9

3.8

15.3

4.6

196.5

292.6

489.1

165.8

12.4

1.3

–

5.1

11.9

157.7

109.0

4.7

14.5

6.7

note

38

39

40

40

41

42

43

44

45

46


31 December 200531 December 2006


GROUP EQUITY

Share capital

Share premium reserve

Statutory reserve*

Other reserves*

Undistributed result

Equity attributable to shareholders of the company

Minority interests

Group equity

LONG-TERM LIABILITIES

Long-term debt

Pension liabilities

Provisions

Deferred tax liabilities

Total long-term liabilities

SHORT-TERM LIABILITIES

Banks, current accounts

Repayment of long-term debts

Trade creditors and other payables

Provisions

Tax payable

Total short-term liabilities

Total liabilities

TOTAL GROUP EQUITY AND LIABILITIES

* Adjusted for comparison purposes.

181.8

–

181.8

186.3

129.4

315.7

497.5

52.0

7.0

28.5

63.8

30.5

130.2

37.6

18.1

0.4

25.9

1.2

96.4

5.2

0.7

238.7

0.2

238.9

107.3

142.9

250.2

489.1

52.7

6.3

– 2.0

105.7

76.0

63.5

31.8

11.8

0.2

29.1

1.3

103.1

5.8

3.6

note

47

49

50

51

42

46

49

51


31 December 200531 December 2006

Consolidated cash flow statementin millions of euros

CASH FLOW FROM OPERATING ACTIVITIES

Result after tax

Adjustments for:

Depreciation

Amortisation

Interest

Exchange rate differences

Profit tax



Result from sale of tangible fixed assets

Share-based payment transactions settled in

equity instruments

Change in provisions

CASH FLOW FROM OPERATING ACTIVITIES (EBIT)

BEFORE CHANGE IN WORKING CAPITAL

CHANGES IN WORKING CAPITAL

Inventories

Receivables

Short-term liabilities

Cash flow from operating activities

Interest paid

Profit tax paid

Cash flow from operating activities

59.2

– 23.9

35.3

– 5.0

– 12.3

18.0

30.5

18.6

0.7

5.0

– 0.4

11.5

– 4.4

– 3.7

– 0.7

0.5

1.6

– 14.1

– 17.8

8.0

65.7

– 4.0

61.7

– 7.3

– 9.2

45.2

76.1

22.1

1.0

7.1

0.9

11.4

– 3.4

– 42.0

– 3.7

0.2

– 4.0

– 6.7

– 11.7

14.4

note

38

39

33

33

34

35

36

32


20052006


CASH FLOW FROM INVESTING ACTIVITIES

Income from sale of tangible fixed assets

Interest received

Dividend received

Divested activities less cash

Receipt of long-term receivables

Acquisition of operating companies less cash acquired

Acquisition of associated company

Cash acquired from joint venture included in consolidation

Investments in intangible fixed assets

Investments in tangible fixed assets

Increase in long-term receivables

CASH FLOW FROM INVESTING ACTIVITIES

CASH FLOW FROM OPERATING AND INVESTING ACTIVITIES

CASH FLOW FROM FINANCING ACTIVITIES

Issue of shares

Repurchase of own shares

Drawdown of long-term debt

Repayment of long-term debt

Dividend payment to shareholders

Dividend payment to minority shareholders

CASH FLOW FROM FINANCING ACTIVITIES

CHANGE IN CASH*

Cash on 1 January

Currency differences in cash

CASH AS AT 31 DECEMBER

– 63.0

– 45.0

49.2

4.2

– 19.6

– 5.9

– 21.3

3.5

0.4

–

31.1

0.3

– 71.9

–

–

– 0.4

– 25.8

– 0.2

0.2

–

57.0

– 3.3

– 4.7

–

23.7

68.9

– 80.2

– 11.3

– 21.3

10.2

– 22.4

4.5

0.2

0.6

64.0

0.2

–

– 1.3

0.3

– 0.7

– 42.3

– 1.8

0.3

– 7.2

0.6

– 68.1

– 5.8

–

note

32

40

30

30

39

38


20052006

* Cash includes cash and cash equivalents minus banks, current accounts (see note 46).

Equityin millions of euros

BALANCE AS AT 1 JANUARY 2005

Appropriation of 2004 profit

Dividend paid

Stock dividend

Foreign exchange translation differences

Share-based payments

Issue of repurchased shares for

share savings plan/option plan

Result for 2005

BALANCE AS AT 31 DECEMBER 2005

BALANCE AS AT 1 JANUARY 2006

Appropriation of 2005 profit

Dividend paid

Stock dividend


Release of statutory reserve

on sale of associated company

Share-based payments

Issue of repurchased shares for

share savings plan/option plan


for share savings plan/option plan

Result for 2006

BALANCE AS AT 31 DECEMBER 2006

MINORITY INTERESTS

Balance as at 1 January 2005

Acquisition of 10% of shares of Business Key

Balance as at 31 December 2005

In consolidation of Geofabrics Australasia

Result for 2006


Total equity

145.7

–

– 4.7

–

9.5

0.5

0.3

30.5

181.8

181.8

–

– 5.8

–

– 6.2

– 0.4

0.2

0.3

– 7.2

76.0

238.7

Undistributed result

23.6

– 13.4

– 4.7

– 5.5

30.5

30.5

30.5

– 18.0

– 5.8

– 6.7

76.0

76.0

Undistributed profit

0.2

0.2

0.4

0.4

0.1

0.5

Retained earnings

46.1

11.0

5.5

0.5

0.3

63.4

63.4

13.5

6.7

28.3

0.2

0.3

– 7.2

105.2

Translation differences

– 4.9

9.5

4.6

4.6

– 6.2

– 0.4

– 2.0

Retained earnings of associatedcompanies

21.7

2.2

23.9

23.9

4.4

– 28.3

–

Share premium

7.8

– 0.8

7.0

7.0

– 0.7

6.3

Share capital

51.2

0.8

52.0

52.0

0.7

52.7

0.1

– 0.1

–

0.1

0.1

0.2


Notes to the consolidated financial statements

ACCOUNTING STANDARDS

1 GENERAL INFORMATION ON ROYAL TEN CATE

Koninklijke Ten Cate nv (Royal Ten Cate) (the Company) is established in Almelo, the Netherlands.

The consolidated financial statements of the Company include the Company and its operating companies

(referred to collectively as the Group) and the Group’s interests in (non-consolidated) associated companies and

a joint venture. The 2006 annual report and accounts were discussed on 28 February 2007 at the meeting of the

Supervisory Board. The financial statements were prepared by the Executive Board and were released for

publication on 1 March 2007. They will be presented to the General Meeting of Shareholders for adoption on

29 March 2006.

The parent company financial statements form part of the 2006 financial statements of Royal Ten Cate. Royal

Ten Cate has made use of the exemption pursuant to article 2:402 of Book 2 of the Netherlands Civil Code with

regard to the parent company financial statements.

2 GENERAL PRINCIPLES FOR FINANCIAL REPORTING

The consolidated financial statements have been prepared in accordance with International Financial Reporting

Standards, as adopted within the European Union, and with Title 9 of Book 2 of the Netherlands Civil Code.

3 PRINCIPLES FOR THE PREPARATION OF THE FINANCIAL STATEMENTS

The financial statements are presented in millions of euros, unless stated otherwise. The financial statements

have been prepared on the basis of historical cost, except for the following assets and liabilities, which are

valued at market value: derivatives, financial instruments held for trading purposes.

In preparing the financial statements the management has in some cases used estimates and assumptions

which affect the amounts stated in the consolidated financial statements (see note 59). Changes in estimates

and assumptions may affect amounts reported in future years. The actual results may differ from such estimates.

The accounting principles set out below have been applied consistently by the Group’s operating companies and

joint venture for the periods presented in the consolidated financial statements.


> NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4 CONSOLIDATION PRINCIPLES

4.1 Operating companies

Operating companies are companies in which the Group directly and/or indirectly has a controlling interest. The

Company has a direct or indirect controlling interest if it can determine the financial and operational policy of a

company in such a way that it can derive a benefit from the activities of that company. The financial statements

of operating companies are included in the consolidated financial statements from the first to the last date on

which control is exercised.

4.2 Associated companies and joint ventures

Associated companies are companies in which the Group can exert significant influence on the financial and

operational policy, but in which it has no controlling interest and is not therefore included in the consolidation.

Joint ventures are companies over which the Group has joint control and in which such control has been set

forth in an agreement and in which strategic decisions on the financial and operational policy are taken on the

basis of unanimity.

Joint ventures are proportionally consolidated. Associated companies are accounted for using the equity

method.

If the Group’s share in losses exceeds the book value of the associated company, the book value is stated at zero

and further losses are no longer stated, unless the Group has entered into a legally enforceable or actual liability

on behalf of the associated company. Associated companies over which no significant influence is exerted are

valued at cost.

4.3 Elimination of transactions on consolidation

Intragroup balances and transactions between the operating companies in the Group and unrealised profits and

losses on such transactions are eliminated in the preparation of the consolidated financial statements. Unre-

alised profits on Group transactions with non-consolidated companies are eliminated in proportion to the

Group’s interest in the respective company. Unrealised losses are eliminated in the same way as unrealised

profits, but only to the extent that there is no indication of impairment.

5 FOREIGN CURRENCIES

5.1 Transactions in foreign currencies

Receivables and liabilities denominated in foreign currencies are converted into euros at the rate prevailing on

the balance sheet date. Transactions in foreign currencies are converted into euros at the exchange rate apply-

ing on the transaction date. Foreign exchange translation differences are stated in the profit and loss account.

Non-monetary assets and liabilities which are denominated in foreign currencies and valued on the basis of his-

torical cost are converted into euros at the exchange rate on the transaction date.


5.2 Financial statements of foreign operating companies

The profit and loss accounts of foreign operating companies are converted into euros at the exchange rate on

the transaction date. Assets and liabilities with goodwill are converted at the rates on the balance sheet date.

The resulting translation differences are carried in equity. If a foreign activity is fully or partly divested, the

respective amount is transferred from equity to the profit and loss account. The rates of the main currencies

against the euro are as follows:

US dollar

Singapore dollar

Hong Kong dollar

Hungarian forint (100)

Malaysian ringgit

6 DERIVATIVES

Royal Ten Cate uses derivatives in order to hedge exchange rate and interest rate risks resulting from operating,

financing and investing activities. Examples are interest rate caps and swaps as well as currency options and

forward contracts. In accordance with its treasury policy, the Group does not use derivatives for trading pur-

poses. Nor does it issue such derivatives. Any derivatives which do not meet the requirements for hedge

accounting are stated as trading instruments. Derivatives are valued at market value. The inclusion of the result-

ing income or expense depends on the nature of the item being hedged. The market value of interest rate swaps

is the estimated amount which the Group would receive or would have to pay in order to terminate the swap on

the balance sheet date, taking into account the current interest rate and the current creditworthiness of the

counterparty/counterparties in the swap. The market value of foreign exchange forward contracts is the quoted

market price (forward price) on the balance sheet date.

7 HEDGE ACCOUNTING

Where specific conditions are met (IAS 39 88), hedge accounting can be applied. Under these specific condi-

tions, there must be a demonstrable one-on-one relationship between the risk and the hedge instrument. In such

a situation, the profit or loss is stated directly in equity during the term of the risk and the hedge instrument.

When the risk and/or the hedge instrument terminates, the result is stated in the profit and loss account or in

the cost price of the first-time inclusion of the non-financial asset or liability. If no hedge accounting is applied,

profits or losses on the hedge instrument are always stated in the profit and loss account. No hedge accounting

was applied in the 2005 and 2006 financial statements.


Average rateClosing rate

2005

1.25

2.07

9.69

2.49

4.72

2006

1.26

2.00

9.76

2.64

4.62

2005

1.18

1.97

9.18

2.53

4.48

2006

1.32

2.02

10.27

2.51

4.66


8 SEGMENT REPORTING

A segment is a clearly distinguishable part of the Group which is engaged in the supply of products or services

(business segment), or the supply of products or services in a particular economic environment (geographic seg-

ment) which has a different risk and return profile than other segments. The Group’s primary segmentation is

based on business segments.

9 REVENUES

Revenues comprise the revenues from goods and services supplied to third parties, less discounts and any taxes

due.

Revenues from sales of goods are recognised in the profit and loss account when the main risks and benefits of

ownership have been transferred to the purchaser.

Revenues from services supplied are recognised in the profit and loss account in proportion to the extent of per-

formance of the work applying on the balance sheet date.

No revenues are recognised if significant uncertainties remain with regard to the collection of the remuneration

due, the associated costs or the possible return of goods, and also if there is a protracted management involve-

ment with such goods.

10 RAW MATERIALS AND MANUFACTURING SUPPLIES

The consumption of raw materials and manufacturing supplies is calculated on the basis of historical cost.

11 LEASE PAYMENTS

11.1 Operational leasing

Lease payments in respect of operational leasing are stated in the profit and loss account on a straight-line

basis over the lease term.

11.2 Financial leasing

Lease payments are stated partly as financing charges and partly as a repayment of the outstanding liability. The

financing costs are allocated to each period of the total lease term in such a way that this results in a constant

periodic interest rate on the residual balance of the liability.

12 FINANCIAL INCOME AND EXPENSES

The financial income and expenses include the interest charges on cash, interest-bearing investments, interest

charges on financial lease payments, foreign exchange translation differences and results of derivatives for

which no hedge accounting is used. Interest income and expenses are included in the profit and loss account on

the basis of the effective interest rate method.


13 PROFIT TAX

The tax on profit for the financial year includes the taxation that is payable, available for set-off and deferred in

respect of the reporting period. The tax is stated in the profit and loss account, except where it relates to items

which are included directly in equity, in which case the tax is stated in equity.

Tax that is payable and available for set-off in respect of the reporting period is the tax which is expected to be

payable on the taxable result, calculated on the basis of tax rates which have been set on the balance sheet

date, or on which a firm decision has been taken by the balance sheet date, and corrections to tax payable in

respect of previous years.

A provision is formed for deferred tax differences using the balance sheet liability method for timing differences

between the book value of assets and liabilities for the financial reporting and the fiscal book value of the items

concerned. No provision is formed in respect of two timing differences: non-tax-deductible goodwill and the

difference between the economic and fiscal value of operating companies, associated companies and a joint

venture. The amount of the provision for deferred tax liabilities is based on the method by which the book value

of the assets and liabilities is expected to be realised or settled, using tax rates which, on the balance sheet

date, have been specified by law or in respect of which an effective legal decision has been taken. The amount

of deferred tax receivables is reduced to the extent that it is no longer likely that the associated tax benefit will

be realised.

Additional taxes on the profit in respect of dividend payments are stated at the same time as the liability to pay

the respective dividend.

14 EARNINGS PER SHARE

The Group presents ordinary and diluted earnings per share for the ordinary share capital. The net result

per ordinary share is calculated on the basis of the profit attributable to shareholders or the loss divided by

the weighted average number of ordinary shares in issue during the reporting period. In the calculation of the

diluted earnings per share, the weighted average number of ordinary shares in issue during the reporting period

is corrected to take account of the potential dilutive effect on the ordinary shares arising from the share options

granted to employees.

15 NEW STANDARDS AND INTERPRETATIONS NOT YET APPLIED

A number of new standards, amendments to standards and interpretations were not in force in 2006 and have

therefore not been applied to these consolidated financial statements:

� IFRS 7 Financial instruments: disclosures and the amendment to IAS 1

Presentation of financial statements: capital disclosures require an entity to provide more detailed notes

on the importance of financial instruments for the financial position and results together with qualitative

and quantitative information on the nature and extent of the risks. IFRS 7 and the amended IAS 1 become

compulsory with regard to the Group’s financial statements in 2007 and require detailed supplementary

notes on the Group’s financial instruments and share capital.



� IFRIC 10 Interim financial reporting and impairment prohibits the reversal of a goodwill impairment,

an investment in an equity instrument or a financial asset valued at cost where these have been recognised

in a prior interim period. IFRIC 10 becomes compulsory with regard to the Group’s financial statements in

2007 and applies to goodwill, investments in equity instruments and financial assets valued at cost, with

retroactive effect from the date on which the Group applied the valuation criteria of IAS 36 and IAS 39

(1 January 2004).

16 PRINCIPLES FOR THE CASH FLOW STATEMENT

The cash flow statement has been prepared in accordance with the indirect method. A distinction is drawn in

the cash flow statement between cash flows from operating, investment and financing activities.

17 TANGIBLE FIXED ASSETS

17.1 Owned assets

Tangible fixed assets are valued at cost less accumulated depreciation (see 17.4) and impairments (see note 22).

The cost price of self-manufactured assets comprises material costs, direct labour costs and an appropriate

portion of directly attributable overheads.

Where tangible fixed assets consist of components with differing useful lives, these are stated as separate

items under tangible fixed assets.

17.2 Leased assets

Lease agreements in which the Group actually assumes all risks and benefits of ownership are classified

as financial leases. Tangible fixed assets which are required by means of financial leases are valued at the

lower of market value and the discounted value of the minimum lease payments at the inception of the lease,

less accumulated depreciation (see 17.4) and impairments (see note 22). Lease payments are stated as

described in note 11.

17.3 Expenses after first-time inclusion

Expenses incurred for the replacement of a component of a separately stated item under tangible fixed assets

are capitalised provided the future economic benefits resulting from the asset accrue to the Group and the costs

of such periodic replacement expenses can be reliably determined. All other expenses are charged to the profit

and loss account when they are incurred.


17.4 Depreciation

Depreciation is charged to the profit and loss account on the basis of the straight-line method over the estimat-

ed economic life of each component of a tangible fixed asset. Land is not depreciated. The estimated economic

life is as follows:

� buildings 33 years

� fixtures and installations in buildings 10 years

� plant and equipment 7 – 10 years

� inventory 5 years

� computers and office equipment 3 – 5 years

18 INTANGIBLE FIXED ASSETS

18.1 Goodwill

All acquisitions are accounted for using the purchase accounting method. Goodwill results from the acquisition

of subsidiaries, associated companies and joint ventures and is the difference between the cost of the acquisi-

tion and the net market value of the acquired identifiable assets, liabilities and contingent liabilities.

Up until 2000, goodwill was charged to equity. In the years 2001 to 2003 it was stated at cost less depreciation.

Since 1 January 2004, goodwill has no longer been amortised but is valued at cost less accumulated impair-

ments. Goodwill is allocated to cash generating units.

18.2 Research and development

Costs of research activities carried out with a view to acquiring new scientific or technical knowledge and

insights are stated as an expense in the profit and loss account when they are incurred. Costs of development

activities, in which research results are used for a plan or design for the production of new or substantially

improved products and processes, are capitalised if the product or process is technically and commercially feasi-

ble and the Group has sufficient resources to complete the development. The capitalised costs include material

costs, direct labour costs and an appropriate portion of directly attributable overheads. Other development costs

are stated as an expense in the profit and loss account when they are incurred. The capitalised development

costs are valued at cost less accumulated depreciation and impairments (note 22).

18.3 Other intangible fixed assets

Other intangible fixed assets acquired by the Group are valued at cost less accumulated depreciation and impair-

ments (note 22). Costs of internally generated goodwill and trademarks are stated as an expense in the profit

and loss account as soon as they are incurred.



18.4 Expenses after first-time inclusion

Expenses after the first-time inclusion of capitalised intangible fixed assets are only capitalised if they lead to

an increase in the future economic benefits embodying the particular asset to which they relate. All other

expenses are charged to the profit and loss account when they are incurred.

18.5 Amortisation

Amortisation costs are charged to the profit and loss account by the straight-line method on the basis of the

estimated useful life of intangible fixed assets. Goodwill is tested each year on the balance sheet date to assess

whether any impairment has arisen. The amortisation of other intangible fixed assets begins as soon as the

assets are available for use. The estimated useful life is a maximum of five years.

19 INVENTORIES

Inventories are stated at the lower of cost or net realisable value. The net realisable value is the estimated sale

price in ordinary operations, less the estimated costs of completion and the sale costs. The cost of inventories is

based on the FIFO (First In, First Out) principle and includes the costs incurred on the acquisition of inventories

and of bringing them to the existing location and to the existing condition. In the case of inventories of finished

products and work in progress, the cost price includes an appropriate portion of the indirect costs based on the

normal production capacity.

20 TRADE AND OTHER RECEIVABLES

Trade and other receivables with a term of less than one year are stated at nominal value less any provision

deemed necessary.

21 CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash balances and immediately claimable credit balances. Current account

credit balances at banks which are immediately claimable and form an integral part of the Group’s cash manage-

ment are included as part of the cash and cash equivalents for the purposes of the cash flow statement.

22 IMPAIRMENT

The book value of the Group’s assets, except that of inventories (note 19) and deferred tax receivables (note 13)

is examined at each balance sheet date in order to determine whether there are indications of impairment.

If there are such indications, an estimate is made of the realisable value of the asset. In the case of goodwill

and intangible fixed assets which are not yet available for use, the realisable value is estimated at each balance

sheet date. An impairment is recognised when the book value of an asset or the cash generating unit thereof is

higher than the realisable value. It is first charged to any allocated goodwill and then deducted from the book

value of the other assets.


22.1 Calculation of the realisable value

The realisable value is the higher of the recoverable amount or the value in use. In determining the value in use,

the discounted value of the estimated future cash flows is calculated using a discount rate before tax which

reflects both the current market valuations of the time value of money and the specific risks relating to the

asset. In the case of an asset which generates no cash receipts which are to a large degree independent of

other assets, the realisable value is determined for the cash generating unit to which the asset belongs.

22.2 Reversal of impairments

An impairment relating to goodwill cannot be reversed. In the case of other assets, an impairment can be

reversed if there is a change in the estimates on which the realisable value was based.

An impairment is only reversed to the extent that the book value of the asset is no higher than the book value

which would have been determined after the deduction of depreciation, if no impairment had been recognised.

23 SHARE CAPITAL

23.1 Share capital

The share capital is classified as equity.

23.2 Repurchase of own shares

On the repurchase of share capital which is stated in the balance sheet as equity, the amount of the paid consid-

eration, including directly attributable costs, is stated as a change in equity.

Repurchased shares are classified under ‘Other reserves’ and presented as a deduction from total assets.

23.3 Dividend

Dividend is stated as a liability in the period in which it is declared.

24 PENSION LIABILITIES

24.1 Defined contribution schemes

Liabilities relating to contributions to defined contribution pension schemes are charged to the profit and loss

account in the period to which they relate.

24.2 Defined benefit schemes

The Group’s net liability in respect of defined benefit pension rights is calculated separately for each scheme

by estimating the amount of the future payments which employees have earned in the present and previous

reporting periods in exchange for their services. This payment is discounted in order to determine the present

day value, with the market value of the fund investments being deducted. The discount rate is the yield on

the balance sheet date of bonds with an AA creditworthiness rating and a term similar to that of the Group’s

liabilities.



The calculation is carried out by an authorised actuary on the basis of the projected unit credit method.

If the payments under a pension scheme are increased, the proportion of the higher payment which relates to

employees’ past service is stated as an expense in the profit and loss account on a straight-line basis over the

average period up to the granting of the rights. If the rights are granted immediately, the expense is stated

immediately in the profit and loss account.

With regard to the actuarial profits and losses which arise in the calculation of the Group’s liability under a

pension scheme, to the extent that the stated accumulated actuarial profits and losses exceed the higher of 10%

of the discounted value of the gross liability under defined benefit pension rights or the market value of the fund

investments, that portion is stated in the profit and loss account over the expected average residual service

period of employees participating in the scheme. Otherwise the actuarial profit or loss is not stated.

When the calculation results in a receivable for the Group, the stated asset item is limited to the net total of any

unstated actuarial losses and back-service costs and the discounted value of the lower of future repayments by

the fund or future pension contributions.

25 SHARE-BASED PAYMENTS

The option scheme enables the Group’s management to acquire shares in the legal entity. The market value of

the granted options is stated under personnel costs, with a corresponding entry in equity. The market value is

determined on the grant date and is allocated over the period up to the time at which the management acquires

an unconditional right to the options. The market value of the granted options is determined on the basis of a

binomial model, taking account of the conditions under which the options have been granted.

26 PROVISIONS

A provision is stated in the balance sheet if there is a legally enforceable or actual obligation for the Group as a

result of an event in the past and it is likely that an outflow of resources will be required to settle such liability.

If the effect of this is material, the provisions are determined by discounting the expected future cash flows

using a discount rate before tax which reflects the current market valuations of the time value of money and,

if necessary, the specific risks of the liability.

26.1 Claims and guarantees

The provision for guarantees relates to goods and services supplied and the provision for claims relates to

claims for damages and possible legal costs.


26.2 Reorganisation

Reorganisation provisions are included if the Group has formalised a detailed plan for the reorganisation and

has begun or publicly announced the reorganisation. The reorganisation provision does not include costs

incurred in relation to future activities.

26.3 Other personnel liabilities

Long service leave and other allowances such as anniversaries form part of the provisions under other personnel

liabilities. These provisions are accumulated over the relevant period, as in the case of defined benefit pension

schemes.

26.4 Environment

In accordance with the Group’s published environmental policy and the applicable legal obligations, a provision

for the clearance of environmental pollution is formed when the pollution occurs.

26.5 Incapacity costs

The provision for incapacity costs has been created in respect of the future additional premium under the

‘PEMBA’ act on premium differentiation and market forces in incapacity insurance.

27 LONG-TERM DEBTS

When included for the first time, interest-bearing loans received are stated at market value less attributable

transaction costs. After the first-time inclusion, interest-bearing loans are valued at amortised cost, with the

difference between the cost and the redemption price being stated in the profit and loss account on the basis of

the effective interest method over the term of the loans.

28 TRADE CREDITORS AND OTHER PAYABLES

Trade creditors and other payables are stated at nominal value.


Notes to the consolidated profit and loss account

29 SEGMENT INFORMATION

Segment information is provided for the business and geographical segments of the Group. The primary segmen-

tation basis, business segments, is based on the Group’s management structure and internal reporting structure.

The prices for transactions between the segments are determined on an objective, business basis.

The results, assets and liabilities of a segment comprise items which can be attributed directly or reasonably to

the segment. Financial income and expenses and profit tax are not allocated to the segments.

Investments in fixed assets in the segment relate to the total costs incurred during the reporting period for the

acquisition of the assets of the segment which are expected to remain in use for longer than a reporting period.

Business segments

The Group distinguishes the following main business segments:


� Manufacture and sale of protective and safety fabrics for professional wear, outdoor fabrics, personal

and vehicle protection and composites for technological applications in aerospace


� Manufacture and sale of fabrics and nonwovens for civil engineering and environmental projects and

manufacture and sale of artificial grass fibres


� Manufacture and sale of rubber and foam rollers for the office equipment industry, packaging and

closures for consumer goods (overcaps and spray caps up to 1 May 2006).

Geographic segments

The segments are managed on a global level, but are active on four continents, namely Europe, North America,

Australia and Asia. In the presentation of information based on geographic segments, the revenues of the

segment are based on the geographic location of origin. The assets of the segment are based on the geographic

location of the asset.


Netherlands

Rest of Europe

North America

Asia/Australia

Total

29.1 Segment information

29.2 Analysis by business segment

in millions of euros 2005

686.5

–

686.5

38.5

– 4.6

4.4

3.7

– 11.5

–

30.5

480.6

16.9

497.5

315.7

26.2

19.3

2006

770.5

–

770.5

50.1

– 8.0

3.4

42.0

– 11.4

– 0.1

76.0

487.8

1.3

489.1

250.2

43.0

23.1

2005

0.7

– 2.2

– 1.5

– 8.9

4.4

17.7

9.5

27.2

172.0

–

0.4

2006

0.6

– 1.0

– 0.4

– 2.5

2.7

39.3

16.5

1.3

17.8

99.3

0.2

0.6

2005

126.3

–

126.3

7.1

2.0

58.3

0.1

58.4

23.9

2.5

4.8

2006

92.7

–

92.7

6.2

2.7

37.5

–

37.5

17.3

2.2

2.7

2005

273.9

–

273.9

23.8

242.3

7.3

249.6

64.3

10.5

7.9

2006

397.5

–

397.5

25.5

0.7

– 0.1

266.1

–

266.1

77.6

28.9

13.6

2005

285.6

2.2

287.8

16.5

1.7

162.3

–

162.3

55.5

13.2

6.2

2006

279.7

1.0

280.7

20.9

167.7

–

167.7

56.0

11.7

6.2

Revenues

Intercompany sales

Total revenues

Operating result

Financial income and expenses



Profit tax

Minority interests

Net profit

Assets of segments

Investments in associated companies

Total assets

Liabilities of segment*

Investments





Other operating activities/

eliminations Consolidated

2005

10.5

1.7

13.6

0.4

26.2

2006

18.0

2.8

18.0

4.2

43.0

2005

144.2

137.2

179.3

36.8

497.5

2006

148.6

104.2

183.0

53.3

489.1

2005

257.2

91.5

316.2

21.6

686.5

2006

222.6

158.6

336.4

52.9

770.5

Net sales Assets

Investments in (in)tangible

fixed assets


* Excluding intercompany loans.

29.3 Analysis by geographic location

> NOTES TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT

30 ACQUISITIONS AND DIVESTMENT OF SUBSIDIARIES

30.1 Acquisitions in 2006

Following the sale of the interest in TenCate Nicolon Australia to Geofabrics Australasia, a 50% associated

company, the contracts between the Group and the co-shareholder of Geofabrics Australasia were amended.

With effect from 1 July 2006 control, has been exercised jointly and the 50% interest in Geofabrics Australasia

has been proportionally consolidated from that date.

On 29 November 2006 the Group acquired 20% of the shares of GreenFields bv, which were acquired for a cash

payment of € 1.3 million.

30.2 Divestments in 2006

The following interests were sold in 2006: Proceeds (including debt)

Plasticum group on 25 April 2006 (100% interest) € 14.4 million

TenCate Nicolon Australia on 24 May 2006 (100% interest) € 1.1 million

Synbra Group on 2 August 2006 (50% associated company) € 48.4 million

Landscape Solutions on 29 November 2006 (sale of 80% of share capital) € 0.1 million

30.3 Effects of the disposal of operating companies and associated companies



Other long-term receivables/deferred taxes

Inventories

Trade and other receivables


Equity (reserve for translation differences)

Long-term debts


Provisions


Net identified assets and liabilities

Consideration received in cash

Cash purchased/sold

Net cash flow

Since the sales did not qualify as ‘discontinued operations’ under IFRS 5, the effects have not been stated

separately in the consolidated profit and loss account.


2006

– 12.3

– 12.2

– 2.2

– 4.7

– 8.1

– 0.1

0.4

2.5

0.9

7.1

7.5

– 21.2

63.2

0.8

64.0

The effect of the sale of the activities of Plasticum group, TenCate Nicolon Australia and Landscape Solutions in

2006 on the profit and loss account for 2006 and 2005 was as follows:

Revenues

Costs of raw materials and manufacturing supplies

and work contracted out

Other costs

Operating result

31 PERSONNEL COSTS

Wages and salaries

Social charges

Costs of option scheme

Pension costs

Temporary personnel

Personnel costs

The pension costs comprise € 2.0 million in respect of defined benefit pension schemes and € 3.0 million in

respect of defined contribution schemes (see note 50.3).

32 OTHER OPERATING COSTS

32.1 Government subsidies

The Group was granted government subsidies amounting to € 1.2 million in 2006 (2005: € 1.4 million).

32.2 Research and development

The costs associated with research and development amounted to € 8.1 million in 2006 (2005: € 5.8 million), of

which € 3.4 million (2005: € 2.3 million) has been stated in personnel costs and € 4.7 million (2005: € 3.4 million)

in other operating costs.


TechnicalComponents

36.2

– 17.9

– 16.5

1.8

Geosynthetics& Grass

7.8

– 5.5

– 1.7

0.6

TechnicalComponents

13.0

– 6.6

– 6.1

0.3

Geosynthetics& Grass

3.3

– 2.2

– 0.7

0.4

20052006

2005

116.2

25.7

0.5

8.8

10.4

161.6

2006

125.4

28.8

0.2

5.0

11.8

171.2

> NOTES TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT

32.3 Result and income from sale of tangible fixed assets

In 2006 the Group sold a building and land on which a book profit of € 3.1 million was recorded.

Building and land

Other items

Result from sale

Book value of sold assets

Proceeds of sale

33 FINANCIAL INCOME AND EXPENSES

Interest income

Interest expenses


Net financial expenses

34 PROFIT TAX

34.1 Profit taxes payable

Current financial year

Release of provision in respect of previous years

34.2 Deferred profit tax

Valuation of timing differences

Use of tax losses

Total tax charge in profit and loss account


2005

0.2

– 5.2

0.4

– 4.6

2006

0.1

– 7.2

– 0.9

– 8.0

2005

– 13.5

1.5

– 12.0

–

0.5

0.5

– 11.5

2006

– 14.2

1.4

– 12.8

– 1.0

2.4

1.4

– 11.4

2005

–

0.7

0.7

2.8

3.5

2006

3.1

0.6

3.7

0.8

4.5

34.3 Reconciliation with applicable tax rate

Pre-tax result

Tax on profit at local profit tax rate

Losses not yet available for set-off

Non-tax deductible costs

Tax-exempt income

Use of loss set-off

Change of rate

Other items

Tax charge in profit and loss account

The change of rate is associated with the reduction of the tax rate in the Netherlands to 25.5% with effect from

1 January 2007.

35 RESULT FROM ASSOCIATED COMPANIES

The result of € 3.4 million (2005: € 4.4 million) relates to the share in the profit of Synbra Group BV (up to July

2006) and the share in the profit of Geofabrics Australasia for the first half of 2006.

36 RESULT FROM DIVESTED ACTIVITIES

See note 30.4.

Synbra Group

Plasticum Group

TenCate Nicolon Australia

Landscape Solutions

Mega Valves North Group

Permess Europe Group



euro

33.9

13.3

1.2

0.4

– 1.4

– 0.5

–

– 1.5

11.5

%

38.9%

3.5%

1.3%

– 3.8%

– 1.5%

–

– 4.6%

33.8%

euro

42.1

15.3

0.2

0.4

– 1.7

– 2.4

1.0

– 1.4

11.4

%

36.2%

0.6%

1.0%

– 4.2%

– 5.6%

2.3%

– 3.1%

27.2%

20052006

2005

–

–

–

–

2.0

1.7

3.7

2006

39.3

2.7

– 0.1

0.1

–

–

42.0

37 Notes to the consolidated balance sheet



38 TANGIBLE FIXED ASSETS

Acquisition value


Changes as a result of consolidations

Investments

Changes as a result of deconsolidations

Divestments





Investments


Divestments



Depreciation



Depreciation


Divestments




Depreciation


Divestments



Book value




Total

379.2

100.4

25.8

– 27.6

– 10.7

18.3

485.4

485.4

5.6

42.3

– 59.5

– 4.9

– 15.8

453.1

260.4

61.4

18.6

– 18.5

– 7.9

10.0

324.0

324.0

22.1

– 47.2

– 4.1

– 7.5

287.3

118.8

161.4

165.8

Fixed assetsnot used in the

productionprocess

4.3

–

–

–

– 4.9

0.6

–

–

–

–

–

–

–

–

2.8

–

–

–

– 3.2

0.4

–

–

–

–

–

–

–

1.5

–

–

Prepayments

3.7

–

8.3

–

–

0.5

12.5

12.5

–

0.4

– 0.5

–

– 0.7

11.7

–

–

–

–

–

–

–

–

–

–

–

–

–

3.7

12.5

11.7

Otheroperating

assets

41.5

10.4

2.3

– 7.5

– 0.9

1.0

46.8

46.8

0.7

2.4

– 12.6

– 0.4

– 0.7

36.2

35.0

8.6

1.9

– 6.4

– 0.5

0.8

39.4

39.4

2.0

– 10.8

– 0.2

– 0.7

29.7

6.5

7.4

6.5

Plant andequipment

234.3

55.7

14.0

– 9.5

– 4.1

11.4

301.8

301.8

2.9

34.5

– 35.0

– 2.2

– 9.8

292.2

182.3

39.7

13.6

– 8.9

– 4.0

7.4

230.1

230.1

16.1

– 32.0

– 2.2

– 5.7

206.3

52.0

71.7

85.9

Land,industrial

buildings anddwellings

95.4

34.3

1.2

– 10.6

– 0.8

4.8

124.3

124.3

2.0

5.0

– 11.4

– 2.3

– 4.6

113.0

40.3

13.1

3.1

– 3.2

– 0.2

1.4

54.5

54.5

4.0

– 4.4

– 1.7

– 1.1

51.3

55.1

69.8

61.7


38.1 Impairment and reversal of impairment

The Group recognised no impairment in 2006. No impairments were reversed during the year.

38.2 Leased plant and equipment

The Group leases buildings, plant and equipment under a number of financial lease contracts.

As at 31 December 2006 the net book value of these assets was € 2.4 million (31 December 2005: € 2.5 million).

The leased buildings, plant and equipment serve as collateral for the lease liabilities (see note 49).

38.3 Collateral

As at 31 December 2006, as was the case as at 31 December 2005, no land and buildings were encumbered as

collateral for bank loans.

38.4 Depreciation charge

The depreciation charge of € 22.1 million (2005: € 18.6 million) is included in depreciation and amortisation in

the profit and loss account.

> NOTES TO THE CONSOLIDATED BALANCE SHEET


39 INTANGIBLE FIXED ASSETS

Cost


Change as a result of consolidation

Investments

Divestments




Investments

Divestments



Amortisation


Amortisation/Impairments

Divestments




Amortisation/Impairments

Divestments



Book value




39.1 Amortisation/Impairments

The impairment of goodwill (€ 0.5 million) concerns the operating company Business Key.

Total

14.8

0.1

0.7

– 0.3

2.0

17.3

0.4

0.7

–

– 1.5

16.9

2.7

0.7

– 0.3

0.4

3.5

0.2

1.0

–

– 0.2

4.5

12.1

13.8

12.4

Trademarksand usage

rights

3.1

0.1

0.4

– 0.1

0.5

4.0

–

0.5

–

– 0.4

4.1

0.4

0.4

– 0.1

–

0.7

0.5

–

–

1.2

2.7

3.3

2.9

Research/development

–

–

–

–

–

–

–

0.2

–

–

0.2

–

–

–

–

–

–

–

–

–

–

–

–

0.2

Goodwill

11.7

–

0.3

– 0.2

1.5

13.3

0.4

–

–

– 1.1

12.6

2.3

0.3

– 0.2

0.4

2.8

0.2

0.5

–

– 0.2

3.3

9.4

10.5

9.3


39.2 Testing of the impairment for cash generating units which include goodwill

The following units include goodwill items:

Advanced Textiles & Composites (TenCate Advanced Armour)

Geosynthetics & Grass (Thiolon USA/Geofabrics Australasia)

Technical Components (Business Key)

In 2006 the Group tested the realisable value of the goodwill on the basis of the market value less sale costs.

The calculation uses future cash flows based on current results from operations and a five-year forecast. The

realisable value exceeds the book value of the cash generating units including goodwill to such an extent that no

impairment has been recognised. The changes in 2006 related largely to changes in exchange rates and the

impairment in respect of Business Key.

39.3 Amortisation/impairments

The amortisation of € 1.0 million (2005: € 0.7 million) is included in the ‘Depreciation and amortisation’ item in

the profit and loss account.

40 ASSOCIATED COMPANIES

The main associated companies included below are: Greenfields bv (Kampen, 20%) and Landscape Solutions bv

(Goirle, 20%).


On acquisition of Greenfields (20%)

Result of Synbra up to July 2006

Result of Geofabrics Australasia up to June 2006


Dividend received from Geofabrics Australasia

Sale of 50% interest in Synbra

In consolidation of Geofabrics Australasia on 1 July 2006


The interest in Greenfields BV has for the present been valued at cost and no 2006 result has been recognised.

2005

1.2

8.8

0.5

10.5

2006

1.2

8.1

–

9.3

Total

17.4

1.3

2.7

0.7

– 0.7

– 0.6

– 12.2

– 7.3

1.3

Loans

0.5

–

–

–

–

–

–

– 0.5

–

Associatedcompanies

16.9

1.3

2.7

0.7

– 0.7

– 0.6

– 12.2

– 6.8

1.3



41 OTHER LONG-TERM RECEIVABLES AND INVESTMENTS

The main long-term receivables and investments relate to an investment of pension assets at TenCate Geo-

synthetics North America (€ 2.8 million) and an advance payment in connection with a long-term lease in China

and Malaysia (€ 1.9 million).

42 DEFERRED TAX RECEIVABLES AND LIABILITIES

The deferred tax receivables and liabilities stated in the balance sheet are attributable to the following items:



Financial fixed assets

Inventories

Other receivables

Pension provisions

Other provisions

Tax value of loss carry-forwards

Other

Deferred tax receivables/liabilities

Balance of receivables and liabilities

Net deferred tax receivables/liabilities

42.1 Deferred tax receivables not shown in the balance sheet

As at 31 December 2006 no deferred tax receivable was included in respect of an amount of € 13.7 million (2005:

€ 19.2 million) of losses available for set-off, because it is unlikely that the Group will be able to take advantage

of future taxable profit.

43 INVENTORIES


Semi-manufactures

Finished products

Inventories

2005

– 0.9

– 2.6

0.2

1.4

0.6

11.0

2.8

0.4

0.5

13.4

–

13.4

2006

– 2.4

– 2.2

0.1

1.6

0.3

7.7

3.3

2.3

1.0

11.7

–

11.7

2005

– 2.4

– 3.1

– 0.2

– 0.7

–

–

–

–

– 0.1

– 6.5

6.1

– 0.4

2006

– 2.5

– 2.6

– 0.2

–

–

–

– 0.3

–

–

– 5.6

5.4

– 0.2

2005

1.5

0.5

0.4

2.1

0.6

11.0

2.8

0.4

0.6

19.9

– 6.1

13.8

2006

0.1

0.4

0.3

1.6

0.3

7.7

3.6

2.3

1.0

17.3

– 5.4

11.9

NetLiabilitiesAssets

2005

44.2

30.8

82.5

157.5

2006

40.7

32.9

84.1

157.7


44 TRADE DEBTORS

Trade debtors are stated at nominal value after deduction of provisions deemed necessary. Transfers to

provisions for doubtful debts are included in the profit and loss account under direct sale costs (work contracted

out and other external costs).

45 OTHER RECEIVABLES

Receivable in respect of other taxes

Other receivables and prepayments

Other receivables

The other taxes receivable relate mainly to reclaimable VAT.

46 CASH AND CASH EQUIVALENTS

Bank balances

Cash balances



Cash in the cash flow statement

At the end of 2006 all amounts were freely available (end of 2005 € 0.2 million not freely available).

47 EQUITY

A statement of changes in equity can be found on page 74.

47.1 Ordinary shares

number x 1,000

Outstanding as at 1 January 2006*

Stock dividend issued

Outstanding as at 31 December 2006

* After split of par value from € 10 to € 2.50.

The authorised share capital amounts to € 200 million divided into 80 million shares of a par value of € 2.50.

The issued capital as at 31 December 2006 amounts to 21,063,292 ordinary shares of a par value of € 2.50

(as at 31 December 2005: 20,784,472 ordinary shares of a par value of € 2.50).

2005

2.8

12.5

15.3

2006

2.6

11.9

14.5

2005

4.6

–

4.6

– 25.9

– 21.3

2006

6.6

0.1

6.7

– 29.1

– 22.4

2005

20,472

312

20,784

2006

20,784

279

21,063



The holders of ordinary shares are entitled to dividend as approved periodically by the General Meeting of

Shareholders. They are also entitled to cast one vote per share at meetings of the Company. The Executive Board

proposes that as at 31 December 2006 a dividend of € 0.70 (2005: € 0.60) per ordinary share be paid as a charge

against reserves, payable at shareholders’ discretion in cash or in shares. The proposed dividend forms part of

the undistributed result on 31 December 2006.

Issue of shares and limitation of pre-emptive right

The general meeting of shareholders has granted the Executive Board the power to issue shares and to exclude

or restrict the pre-emptive right for a period of 18 months ending on 30 September 2007. The power to issue

shares concerns 10% of the issued share capital in the event that the issue takes place in the context of a merg-

er or acquisition. The same applies to the power of the Executive Board, with the approval of the Supervisory

Board, to restrict or exclude the pre-emptive right.

47.2 Repurchased ordinary shares

number x 1,000

Outstanding as at 1 January*

Repurchased shares

Exercise of options

Issued in connection with share plan

Outstanding as at 31 December

* After split of par value from € 10 to € 2.50.

The aim of the repurchase of ordinary shares is to avoid the dilution of earnings per share by the granting of

options and the issue of shares as part of the share savings plan. The repurchased shares have been purchased

at an average price of € 20.91.


The general meeting of shareholders has granted the Executive Board the power to acquire fully paid-up shares

in the company (or certificates thereof) for a period of 18 months ending on 3 October 2007. The maximum

number of shares which may thus be acquired is 10% of the issued capital at the time of acquisition of the

shares (or certificates thereof).

47.3 Share premium

The share premium reserve is to be considered as paid-up capital.

2005

244

–

– 30

– 7

207

2006

207

345

– 38

– 5

509


47.4 Retained earnings of associated companies

The reserve has been formed in respect of associated companies in which the free disposal of retained earnings

is subject to restrictions.

47.5 Translation differences

The reserve for translation differences comprises all exchange rate differences which arise due to the trans-

lation of the financial statements of foreign activities outside the eurozone. These exchange rate differences

(translation risk) are carried in equity. The accumulation of the respective amount began on 1 January 2004.

47.6 Undistributed result

Subsequent to the balance sheet date the following dividend has been proposed, which has not yet been

included in the balance sheet.

€ 0.70 per ordinary share (2005: € 0.60)

After issue of 2,106,329 shares on 12 February 2007

48 EARNINGS PER SHARE

48.1 Ordinary earnings per share

The calculation of the ordinary earnings per share as at 31 December 2006 is based on the net profit attributable

to holders of ordinary shares of € 76.0 million (2005: € 30.5 million) and a weighted average number of out-

standing ordinary shares during the 2006 financial year of 20,749,431 (2005: 20,567,296), calculated as follows:

Net profit for the financial year attributable to holders of ordinary shares

Weighted average number of ordinary shares

number x 1,000

Outstanding ordinary shares on 1 January

Effect of ordinary shares held (including repurchased shares)

Effect of shares issued in connection with stock dividend

Effect of shares issued as a result of exercised option rights

Effect of shares issued as a result of share savings plan

Weighted average number of ordinary shares as at 31 December

2005

30.5

2006

76.0

2005

20,472

– 244

312

23

4

20,567

2006

20,784

– 338

279

21

3

20,749

2005

12.5

2006

16.2


48.2 Diluted earnings per share

The calculation of the diluted earnings per share as at 31 December 2006 is based on the net profit of

€ 76.0 million attributable to the holders of ordinary shares (2005: € 30.5 million) and the weighted average num-

ber of outstanding ordinary shares during the 2006 financial year of 21,264,631 (2005: 20,945,896), calculated as

follows:

Net profit for the financial year attributable

holders of ordinary shares

Weighted average number of ordinary shares

number x 1.000

Weighted average number of ordinary shares as at 1 January

Effect of outstanding option rights

Weighted average number of ordinary shares (after dilution)

as at 31 December

49 LONG-TERM DEBTS

Secured bank loans

Financial lease liabilities

Other unsecured loans

Less: repayment of loans in forthcoming year

Long-term debts


2005

20,567

379

20,946

2006

20,749

515

21,264

2005

125.7

2.4

3.3

131.4

– 1.2

130.2

2006

59.6

2.3

2.9

64.8

– 1.3

63.5

2005

30.5

2006

76.0


49.1 Conditions and repayment schedule

Secured bank loans

EUR – Euribor + margin

USD – variable interest

GBP – fixed interest 6.39%

SGD – fixed interest 5.38%

AUD – variable interest

Financial lease liabilities

EUR – fixed interest 7.00%



Other unsecured loans

USD – fixed interest 10%

EUR – fixed interest 0.5 – 3.0%


Long-term debts

The euro loan with variable interest (Euribor + margin) is a syndicated loan of € 120 million concluded with a

syndicate of six banks. € 53 million of this facility was drawn as at 31 December 2006. The term of the loan is

five years (up to 30 November 2009) and repayment is due in full on the maturity date. The loan is valued at

amortised cost in accordance with the effective interest method.

The interest rate payable is linked to the debt/EBITDA ratio, which will be calculated quarterly in respect of

the preceding 12 months. The interest margin above three-month Euribor will be between 0.35% and 0.70%.

At the end of 2006 the margin was 0.35%.

The aforementioned syndicated loan is subject to a number of covenants, the principal of which are:

� total debt/EBITDA + Result from associated companies less than 3;

� EBITDA/net interest greater than 4;

� joint guarantee of operating companies with total assets of at least 60% of the Ten Cate total.

TenCate fulfilled these conditions as at the balance sheet date.

In the event of a change of control of the company, the syndicated loan of € 120 million is immediately

repayable.

2005Total

119.5

3.4

2.5

0.3

–

0.1

1.2

1.1

0.2

1.2

1.9

131.4

2011 ff.> 5 years

–

3.1

–

–

–

–

0.5

0.6

–

–

1.9

6.1

2008/102-5 years

52.6

–

–

–

3.6

–

0.5

0.2

–

–

–

56.9

20071-2 years

–

–

–

–

0.2

–

0.1

0.1

–

0.1

–

0.5

2006< 1 year

–

–

–

–

0.1

0.1

0.1

0.1

–

0.9

–

1.3

2006Total

52.6

3.1

–

–

3.9

0.1

1.2

1.0

–

1.0

1.9

64.8



The USD loan with variable interest concerns a USD 4 million loan from the Development Authority of Pike Coun-

ty Industrial Revenue Bonds. Repayment is due in full in 2018.

The AUD loan with a variable interest rate was granted by Westpac Banking Corporation and has a term of three

years.

The euro loans with a fixed interest rate between 0.5% and 3% were granted by Forschungsförderungsfond,

Vienna, and Öberbank AG, Linz.

Of the total of long-term loans, 92% have variable interest. The risk associated with this variability is hedged by

means of a number of instruments (caps, swaps).

50 PENSION LIABILITIES

Defined benefit schemes

Discounted value of covered liabilities

Market value of fund investments

Discounted value of net liabilities

Unstated actuarial profits and losses

Total defined benefit schemes

Other liabilities in respect of pensions

Pension liabilities

50.1 Changes in the valuation of liabilities as at the balance sheet date

Balance of liabilities as at 1 January

Decrease in connection with divestment of associated companies

Service costs

Interest costs

Benefits paid

Curtailment income

Actuarial differences

Balance as at 31 December

2005

302.4

– 3.9

298.5

9.8

13.6

– 13.2

– 2.5

20.3

326.5

2006

326.5

–

326.5

7.5

13.8

– 14.3

– 3.9

– 13.5

316.1

2005

326.5

289.1

37.4

– 6.4

31.0

6.6

37.6

2006

316.1

302.8

13.3

11.0

24.3

7.5

31.8

50.2 Investments

Balance as at 1 January

Reduction in connection with divestment of associated companies

Expected return

Employer’s contribution

Members’ contributions

Actuarial profits and losses

Benefits paid


Analysis of investments as at 31 December

Bonds

Shares

Private loans

Hedge funds

Real estate

Cash

Pension fund investments

50.3 Charge stated in profit and loss account

Pension costs attributed to the year of service

Interest on the liabilities

Expected return on fund investments

Curtailment income

Pension costs in respect of previous years

Pension income/charges

The pension charges have been stated in the profit and loss account in an amount of € 2.0 million under person-

nel costs, whereas the curtailment income (€ 3.9 million), as a result of the divestment of Plasticum on 25 April

2006, has been stated under the result from divested activities. At the end of 2005 an amount of € 1.8 million in

respect of pension agreements relating to the transitional scheme in the new pension scheme was included

in actuarial differences as at 1 January 2006. As a result of the final calculations, this amount was released in

2006 and credited to the result under personnel costs.


2005

265.9

– 3.0

262.9

14.4

5.3

4.0

15.7

– 13.2

289.1

2006

289.1

–

289.1

14.3

4.8

3.2

5.7

– 14.3

302.8

2005

143.2

94.3

9.6

14.4

19.3

8.3

289.1

2006

158.6

105.0

–

15.4

23.3

0.5

302.8

2005

– 5.8

– 13.6

14.3

2.5

–

– 2.6

2006

– 4.3

– 13.8

14.3

3.9

1.8

1.9


Netherlands

The defined pension scheme concerns the pension rights of the Dutch employees which have been placed with

Stichting Pensioenfonds Koninklijke Ten Cate.

The main features of the scheme are:

� pension accumulation based on average salary;

� accumulation rate of 2.1%;

� conditional indexation.

The other liabilities in respect of pensions comprise defined contribution pension schemes and/or old-age

provisions. One of these defined contribution schemes is a 401K (savings) scheme in the United States.

The contribution to this scheme is based on agreed rules.

50.4 Liability in respect of defined benefit schemes

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

Discount rate as at 31 December

Expected return on fund investments as at 31 December

Future wage increases

Future pension increases

Assumptions with regard to future mortality figures are based on published statistical data and mortality tables.

The mortality tables used are the GBM and GBV survival tables for 1995 – 2000 with a two-year age reduction.

The age difference between men and women is set at three years. Account has been taken of expected future

ageing by means of an actuarial correction to the liability. The total expected long-term return on investments

is 5.7%. This percentage is based on the portfolio as a whole and not on the sum of the returns in separate

investment categories. The expected return is based on the non-corrected historical returns. A 0.2% decrease

in the discount rate results in a decrease of € 0.3 million in annual charges and an increase of € 9.4 million in

the liability.

Historical information

Discounted value of covered liabilities

Market value of fund investments

Discounted value of net liabilities

Experience adjustments arising on liabilities of the scheme*

Experience adjustments arising on fund investments

* No figures are available for 2005 and 2004.


2004

302.4

265.9

36.5

5.8

2005

326.5

289.1

37.4

15.7

2006

316.1

302.8

13.3

– 1.6

5.7

2005

4.00%

5.00%

2.50%

1.50%

2006

4.60%

5.70%

2.40%

1.70%

In 2007 the Group expects to contribute € 1.3 million to defined benefit schemes.

51 PROVISIONS


Formed as charge against result

Released to result

Expenditure in current year



Of which short-term

as at 31-12-2005

as at 31-12-2006

The amount released to the result has been included as follows in the profit and loss account:


Work contracted out and other external costs

Personnel costs


Total

The guarantee provision relates to goods and services supplied and the provision for claims relates to damage

claims and possible legal costs.

The provision for other personnel liabilities has been formed in respect of long-term leave and other allowances,

such as anniversaries.

The environmental provision has been formed for expected costs of decontamination of industrial sites, on the

basis of functional decontamination (maintenance of business use).

The future additional premium payable under the ‘PEMBA’ act on premium differentiation and market forces in

incapacity insurance is included under other items. The provision at the end of 2006 amounted to € 0,7 million

(2005: € 0.9 million).


3.1

1.3

0.6

1.8

6.8

Total

23.3

4.9

– 6.8

– 3.6

– 0.1

17.7

5.2

5.8

Other

5.7

0.3

– 3.1

– 0.3

2.6

0.7

0.9

Reorga-nisation

0.6

– 0.5

– 0.1

–

0.6

–

Environment

1.7

0.1

1.8

–

–

Otherpersonnelliabilities

5.4

– 0.7

– 0.1

4.6

–

–

Guarantee/claims

9.9

4.5

– 2.5

– 3.1

– 0.1

8.7

3.9

4.9



53 FINANCIAL INSTRUMENTS

As part of the normal business operations, the Group incurs credit, interest and currency risks. The risk of

fluctuations in exchange rates and interest rates is hedged using derivatives.

53.1 Credit risk

The management has drawn up a credit policy and the credit risk is constantly monitored. In the case of all

supplies above a certain amount, the customer is subjected to a credit assessment and, where possible,

the debtor position is insured. All European operating companies, as well as a number of American and Asian

companies, have credit insurance.

On the balance sheet date there were no major concentrations of credit risk. The residual credit risk is the

balance sheet value of each financial asset, after deduction of derivatives.

53.2 Interest rate risk

The policy with regard to interest rate risks is stated in the risk section on page 35 of this report.

The aim of the interest rate policy is to limit the finance charges as far as possible. Interest rate instruments can

be used in order to adjust the fixed or variable interest character of finance to the required profile. The Group

has entered into interest rate swaps and a number of caps in order to fulfil this purpose within the policy of

the Group.

The following interest rate instruments were outstanding at the end of 2006:

� interest rate swap to 31-12-08: € 25 million received variable: payment 3.38% fixed

� interest rate swap to 02-01-18: USD 4 million received variable: payment 4.47% fixed

� interest rate swap to 05-02-08: € 5 million received variable: payment 3.46% fixed

� interest rate cap 30-12-05 to 31-12-07: € 30 million 3.5%



The Group classifies the interest rate swaps and the interest rate caps as cash flow hedging and values them at

market value. The net market value of the swaps as at 31 December 2006 of € 0.2 million comprises € 0.4 million

included under other receivables and € 0.2 million included under trade creditors and other payables. The net

market value of the caps amounting to € 0.6 million is included under other receivables.

53.3 Currency risk

The Group incurs currency risks on sales and purchases denominated in currencies other than the functional

currency of the operating companies in the Group. The currencies which give rise to this risk are primarily the

US dollar and, to a lesser extent, the Hong Kong, Singapore and Australian dollar, the Chinese renminbi and

the Malaysian ringgit.


Transaction risks

The Group hedges the trade receivables and debts denominated in foreign currencies. To that end it uses foreign

exchange forward contracts and options. Most forward contracts have a term of less than one year after the

balance sheet date. If necessary they are extended.

Competition risks

The Group also hedges the estimated currency risk of the expected purchases and sales in the subsequent

six months. Currency options are used for this purpose.

With regard to monetary assets and liabilities held in currencies other than the euro, the Group ensures that

the net risk remains at an acceptable level, by purchasing or selling foreign currencies as necessary in the spot

market in order to eliminate short-term imbalances.

The principal of the USD, and AUD loans of the Group is not hedged, because these loans have been drawn

by subsidiaries which have corresponding assets in the same currency.

53.4 Future transactions

The Group classifies foreign exchange forward contracts and options to hedge future transactions as cash flow

hedging and values them at market value. The net market value of forward contracts and options to hedge future

transactions as at 31 December 2006 amounted to € 0.4 million, of which € 0.5 million was included under other

receivables and € 0.1 million under trade creditors and other payables.

53.5 Assets and liabilities included in the balance sheet

Changes in the market value of foreign exchange forward contracts and options which are used to hedge, in an

economic sense, monetary assets and liabilities denominated in foreign currencies are stated in the profit

and loss account. Both changes in the market value of forward contracts and options and the exchange rate

differences relating to monetary balance sheet items are included as exchange rate differences under net

financial expenses (see note 33).

53.6 Sensitivity analyses

In managing interest rate and currency risks, the Group’s aim is to limit the effect of short-term fluctuations on

the Group result. In the longer term, however, sustained changes in exchange rates and interest rates will have

an effect on the consolidated result.

The effect of a general rise of one percentage point in the interest rate on the pre-tax result in 2006 is estimated

at € 0.7 million negative (2005: € 0.8 million). This calculation takes account of the interest rate swaps or caps.

A general rise of one percentage point in the value of the euro against other currencies would have reduced the

pre-tax result by an expected € 0.2 million (2005: € 0.1 million). Existing options and forward contracts have

been taken into account in this calculation.

> OTHER INFORMATION


53.7 Estimate of market value

Details are given below of the main methods and assumptions used in estimating the market value of financial

instruments appearing in the statement.

Foreign currency forward contracts are valued on the basis of quoted market prices. In the case of interest rate

swaps, bank statements are used.

The market value of long-term debts is calculated on the basis of the discounted value of expected future cash

flows from repayments and interest payments.

The market value of financial lease liabilities is estimated on the value of future cash flows, discounted at the

interest rate for comparable lease agreements.

In the case of trade debtors, other receivables, trade creditors and other short-term debts which fall due within

one year, the nominal value is deemed to reflect the market value.

54 LIABILITIES NOT SHOWN IN THE BALANCE SHEET

Operational lease as lessee

Payments due under non-cancellable operational lease agreements are as follows

Less than 1 year

Between two and five years

More than five years

The Group leases buildings, plant, vehicles and office equipment under operational leases. The leased buildings

have a term of 10 to 15 years. Lease payments are indexed annually. None of the lease agreements include con-

ditional lease payments. In principle the Group does not act as a lessor. The term of the other lease agreements

is a maximum of five years.

55 INVESTMENT LIABILITIES

In 2006 the Group entered into contractual liabilities for the purchase of tangible fixed assets amounting to

€ 31.5 million (2005: € 18.9 million). Of this, € 11.7 million has already been prepaid and included under tangible

fixed assets.

2005

4.6

9.0

4.2

17.8

2006

3.8

8.5

8.5

20.8


56 CONTINGENT LIABILITIES

The Group has received claims for damages arising from the conduct of business. Provisions for these have been

formed to the extent necessary.

A claim for damages has been made against Royal Ten Cate by United Fabrics nv, a company registered in the

Netherlands Antilles (majority shareholder in Textielgroep Twenthe nv). The claim is based on an outsourcing

and management agreement from 1998 and originally amounted to € 56 million. On 24 May 2002 the district

court of Almelo dismissed the claim in its entirety. In a judgment on 10 February 2004 the court of appeal of

Arnhem dismissed the claim in respect of the outsourcing agreement and referred the claim in respect of the

management agreement back to the plaintiff, requiring the latter to substantiate its loss before the court.

On 10 May 2004 both Royal Ten Cate and the receiver of United Fabrics lodged appeals in cassation against the

appeal court’s judgment. The Supreme Court issued a ruling on 7 April 2006 upholding the appeal court’s

judgment. The claim in respect of the outsourcing agreement has thus permanently lapsed. There remains

a damages assessment procedure with regard to the management agreement. Royal Ten Cate considers this

claim unfounded and is contesting it. The attachment of the Synbra shares was lifted prior to the sale of this

associated company, in exchange for a bank guarantee of € 1.8 million.

57 SUBSEQUENT EVENTS

A commentary on events subsequent to the balance sheet date can be found on page 123.

58 RELATED PARTIES

58.1 Identity of related parties

Related parties concern relationships between the Group and its subsidiaries, the associated companies, a joint

venture and the executive and supervisory directors.

58.2 Transactions

The 100% interest in TenCate Nicolon Australia was transferred to Geofabrics Australasia (50% interest) in

2006. The sale price was based on the market value. See note 30.1.

> OTHER INFORMATION

58.3 Directors’ remuneration

The remuneration of the members of the Executive Board was as follows:

in thousands of euros

Periodic remuneration

Results-related pay (in respect of the previous year)

Pension costs

Remuneration in connection with change in pension

accumulation

In addition to the above pension contribution, compensation of € 232,000 was also paid for reduced accumula-

tion. In 2005 a catch-up payment was made in respect of past service (€277,000). As at 31 December 2006,

Mr De Vries held 44,922 shares in the company (31-12-2005: 43,764 shares).

Mr De Vries is participating in the Group share option plan (see note 71) and on 31 December 2006 held the fol-

lowing options:

Issued on

27-02-2002

25-02-2003

25-02-2004

22-02-2005

01-03-2006

Mr P.H. van der Vorm has a management agreement which is based on the number of days worked. As at

31 December 2006 Mr Van der Vorm held no shares and had no Royal Ten Cate option rights.


2005

369

–

–

–

369

2006

300

–

–

–

300

2005

392

196

119

227

934

2006

421

210

107

–

738

Outstanding

40,000

40,000

40,000

50,000

60,000

230,000

Exerciseprice

6.42

6.18

10.29

15.17

23.63

Number

40,000

40,000

40,000

50,000

60,000

230,000

Uncondi-tional in

2005

2006

2007

2008

2009

Term until

27-02-2008

25-02-2009

25-02-2010

22-02-2011

01-03-2012

P.H. van der VormL. de Vries

The remuneration of the members of the Supervisory Board was as follows:

in euros

A.W. Veenman – Chairman

P.P.A.I. Deiters – Vice-Chairman

C.J.A.J.M. van Gestel (†)

F.A. van Vught

C.W. Versteeg

E. ten Cate

The members of the Supervisory Board held no shares or option rights of Royal Ten Cate at the end of 2006.

58.4 Operating companies

A list of (significant) subsidiaries and associated companies can be found inside the back cover of this report.

59 ESTIMATES AND JUDGMENTS FORMED BY THE MANAGEMENT

The Executive Board and the Financial Director have conducted discussions with the Financial Committee on

the critical principles for the financial reporting and estimates, as well as the application of such principles and

estimates.

With regard to the pensions, the main actuarial assumptions are stated in note 50.4. With regard to guarantees

and claims, provisions have been formed whenever there is an actual liability or it is likely that an outflow of

funds will be necessary. The result of this is stated in note 51.

With regard to impairments in the case of loss-making companies, an examination has been carried out to

determine whether the realisable value of any cash generating unit was lower than the book value. This proved

to be the case with Business Key. See note 39.2.


2005

32,700

25,900

4,775

19,100

19,100

19,100

120,675

2006

32,700

25,900

–

19,100

19,100

19,100

115,900


60 Company financial statements61 COMPANY PROFIT AND LOSS ACCOUNT


Result from associated companies after tax

Result from divested activities after tax

Other results after tax

NET RESULT

2005

26.1

–

4.4

30.5

2006

31.2

39.2

5.6

76.0

note

64

65

72

73

74


62 COMPANY BALANCE SHEET


FINANCIAL FIXED ASSETS

Interests in operating companies


Loans to operating companies

Deferred tax receivables

Other receivables

CURRENT ASSETS

Due from operating companies

Other receivables

TOTAL ASSETS

EQUITY

Share capital

Share premium reserve

Statutory reserve

Other reserves

Undistributed Result

PROVISIONS

LONG-TERM LIABILITIES

SHORT-TERM LIABILITIES

TOTAL EQUITY AND LIABILITIES

2005

164.0

9.5

155.9

2.0

0.3

331.7

1.3

3.8

5.1

336.8

52.0

7.0

28.5

63.8

30.5

181.8

4.6

122.5

27.9

336.8

2006

186.1

1.3

140.1

2.6

0.1

330.2

0.5

2.0

2.5

332.7

52.7

6.3

– 2.0

105.7

76.0

238.7

3.0

56.0

35.0

332.7


63 Notes to the company financial statements

GENERAL

Accounting principles

In determining the accounting principles for its parent company financial statements, Royal Ten Cate uses the

option available under article 2.362 paragraph 8 of the Netherlands Civil Code. This means that the accounting

principles for the parent company financial statements of Royal Ten Cate are the same as those applying to the

consolidated financial statements. Associated companies over which significant influence is exerted are valued

in accordance with the net asset value method. The consolidated financial statements have been prepared in

accordance with the standards set by the International Accounting Standards Board and adopted by the Euro-

pean Union. A description of these standards can be found in the accounting policies applicable to the consoli-

dated financial statements.

The share in the results of associated companies includes the share of Royal Ten Cate in the results of these

companies. Results from transactions involving a transfer of assets and liabilities between Royal Ten Cate and

its associated companies and between individual associated companies are not included to the extent that they

can be considered to be unrealised.

64 FINANCIAL FIXED ASSETS


Acquisitions

Sale/Liquidation

Translation differences

Loans granted

Repayment of loans


Dividend of associated companies

Added to result


Royal Ten Cate is at the head of the Group and has capital interests in the operating companies stated on the

cover.

Total

331.7

19.2

– 14.4

– 16.7

85.7

– 91.2

31.2

– 15.9

0.6

330.2

Other receivables

0.3

– 0.2

0.1

Deferredtax

receivables

2.0

0.6

2.6

Loansto operating

companies

155.9

– 10.5

85.7

– 91.0

140.1

Associatedcompanies

9.5

1.3

– 12.2

2.7

1.3

Interest inoperating

companies

164.0

17.9

– 2.2

– 6.2

28.5

– 15.9

186.1


65 EQUITY

The equity of the parent company financial statements corresponds to the equity of the consolidated financial

statements. A statement of changes in equity can be found on page 74.

66 CALLED AND PAID-UP CAPITAL

Authorised share capital

Of which not issued

67 ORDINARY SHARES

The authorised share capital consists of:

80,000,000 ordinary shares of € 2.50

7,000,000 ordinary shares of € 10

3,000,000 A preference shares (financing prefs) of € 10

10,000,000 B preference shares (protection prefs) of € 10


Ordinary shares 20,784,472 and 20,472,060*

Issued stock dividend 278,820 and 314,412*

Issued share capital as at 31 December

* After share split reducing the par value from € 10 to € 2.50.

68 SHARE PREMIUM RESERVE


Issued stock dividend


The share premium reserve is available for distribution to shareholders.

2005

200.0

148.0

52.0

2006

200.0

147.3

52.7

2005

–

70.0

30.0

100.0

200.0

2006

200.0

–

–

–

200.0

2005

7.8

– 0.8

7.0

2006

7.0

– 0.7

6.3

2005

51.2

0.8

52.0

2006

52.0

0.7

52.7


> NOTES TO THE COMPANY FINANCIAL STATEMENTS

69 RETAINED EARNINGS OF ASSOCIATED COMPANIES


Added from appropriation of profit in respect of 2005 and 2004

Transfer to other reserves in connection with sale of associated company


This reserve has been formed in respect of associated companies in which the free disposal of retained earnings

is subject to restrictions.

69.2 Translation differences


Change in 2006 and 2005

Released to result in connection with sale of associated company


Balance of statutory reserve as at 31 December

70 OTHER RESERVES


Added from 2005 and 2004 result

Transfer from retained earnings of associated companies

Repurchase of own shares for share savings plan/option plan

Share and option schemes

Issue of repurchased shares for share savings plan/option plan


71 OPTION SCHEME

With effect from 2000 Royal Ten Cate has a revised stock option plan for the management, established by

the Supervisory Board. The maximum possible account has been taken of the recommendations of VNO-NCW

and the Dutch Investors’ Association (VEB). Those eligible for options are members of the Executive Board,

the corporate and group directors and a number of managers. The implementation of the share option plan is

supervised by the compliance officer.

The options are granted on a conditional basis. If after three years a specified performance level has been

attained, the options confer the right to acquire a € 2.50 ordinary share at the option exercise price.

2005

46.3

16.7

–

–

0.5

0.3

63.8

2006

63.8

20.3

28.3

– 7.2

0.2

0.3

105.7

2005

21.7

2.2

–

23.9

2006

23.9

4.4

– 28.3

–

2005

– 4.9

9.5

–

4.6

28.5

2006

4.6

– 6.2

– 0.4

– 2.0

– 2.0


The performance condition is that the earnings per share over the previous three years must have increased at

least by a percentage equal to inflation plus 3% per year. The exercise period of the option is between the third

and sixth years after the conditional granting of the option rights. The exercise price is equivalent to the average

price of the Royal Ten Cate share on Euronext Amsterdam nv on the five stock exchange trading days following

publication of the annual figures. Each granted option right lapses on termination of employment.

In principle the maximum number of options granted in any one year will not exceed 1% of the total number of

shares outstanding. The exercise of options is subject to the restrictions laid down in the Securities Transactions

Supervision Act.

71.1 Share savings plan

All employees in the Netherlands have been given the possibility of participating in the share savings plan. The

maximum amount per participant in 2006 was € 1,226 (2005: € 1,226). 4,794 shares were saved under this

scheme in 2006, taking the total number of shares ‘saved’ by employees since 2002 to 44,954.

71.2 Repurchasing of shares

In principle the company will repurchase shares in order to prevent any dilution of earnings per share caused by

the granting of options.

Number of shares repurchased at end of 2005

Shares repurchased in 2006

Issued in respect of options

Issued in respect of share savings plan

Number at end of 2006

71.3 Granting of options in 2007

On 28 February 2007 the intention was to grant 220,000 conditional options at the average market price during

the five stock exchange trading days following publication of the annual results on 1 March 2007.

The distribution is as follows:

Members of the Executive Board

Members of the Management

* Provisional

01-03-2006

60.000

141.200

201.200

28-02-2007

60.000

160.000

220.000

207,140

345,000

– 38,400

– 4,794

508,946

*


> NOTES TO THE COMPANY FINANCIAL STATEMENTS

71.4 Statement of movements in options in 2006

Issued on

27-2-2002

25-2-2003

25-2-2004

22-2-2005

01-3-2006

28-2-2007

The Group received € 237,500 for the 38,400 options which were exercised during the year and € 111,961 for the

4,794 shares relating to the share savings plan.

72 PROVISIONS

Guarantees and claims

Others

The term of the provisions exceeds one year.

73 LONG-TERM LIABILITIES

Syndicated loan

Loans from operating companies

The conditions of the syndicated loan can be found in the notes to the consolidated balance sheet on page 101.

74 SHORT-TERM LIABILITIES


Owed to consolidated operating companies


Lapsed in 2006

–

600

2.200

10.400

13.000

26.200

–

Outstanding31-12-2006

41.600

50.000

93.400

142.000

188.200

515.200

–

Exercised in 2006

800

37.600

–

–

38.400

–

Exercised/lapsed to

2005

37.600

–

–

–

37.600

–

Exerciseprice

6.42

6.18

10.29

15.17

23.63

14.75

–

Number ofoptions

80.000

88.200

95.600

152.400

201.200

617.400

220.000

Term until

27-2-2008

25-2-2009

25-2-2010

22-2-2011

01-3-2012

28-2-2013

2005

1.9

2.7

4.6

2006

3.0

–

3.0

2005

119.5

3.0

122.5

2006

52.6

3.4

56.0

2005

25.4

_

2.5

27.9

2006

32.7

0.1

2.2

35.0


75 OTHER INFORMATION

The company has issued a declaration of liability in accordance with article 403 of Book 2 of the Netherlands

Civil Code on behalf of its Dutch operating companies.

The company forms a tax group together with the majority of the Dutch operating companies for corporation and

sales tax. Each of the operating companies is severally liable for the tax payable by all the companies included

in the tax group.

Letters of guarantee

The company has not issued any letters of guarantee on behalf of foreign operating companies as security for

these companies’ payment liabilities on the balance sheet date.

In respect of the damages assessment procedure relating to the claim of United Fabrics (see note 56), a letter of

guarantee has been issued in an amount of € 1.8 million.

Almelo, 28 February 2007

Executive Board

L. de Vries, Chairman

P.H. van der Vorm

Supervisory Board

A.W. Veenman, Chairman

P.P.A.I. Deiters, Vice-Chairman

F.A. van Vught

C.W. Versteeg

E. ten Cate


Additional dataRoyal Ten Cate


To the General Meeting of Shareholders of Royal Ten Cate

Auditor’s report

REPORT ON THE FINANCIAL STATEMENTS

We have audited the financial statements 2006 of Royal Ten Cate Almelo, for the year 2006 as set out on pages

69 to 119. The financial statements consist of the consolidated financial statements and the company financial

statements. The consolidated financial statements comprise the consolidated balance sheet as at 31 December

2006, profit and loss account, statement of changes in equity and cash flow statement for the year then ended,

and a summary of significant accounting policies and other explanatory notes. The company financial statements

comprise the company balance sheet as at 31 December 2006, the company profit and loss account for the year

then ended and the notes.

MANAGEMENT’S RESPONSIBILITY

Company’s management is responsible for the preparation and fair presentation of the financial statements in

accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9

of Book 2 of the Netherlands Civil Code, and for the preparation of the management board report in accordance

with Part 9 of Book 2 of the Netherlands Civil Code. This responsibility includes: designing, implementing and

maintaining internal control relevant to the preparation and fair presentation of the financial statements that are

free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting

policies; and making accounting estimates that are reasonable in the circumstances.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our

audit in accordance with Dutch law. This law requires that we comply with ethical requirements and plan and

perform the audit to obtain reasonable assurance whether the financial statements are free from material

misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the

financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of

the risks of material misstatement of the financial statements, whether due to fraud or error. In making those

risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation

of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not

for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also

includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting esti-

mates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our

audit opinion.

> AUDITOR’S REPORT


OPINION WITH RESPECT TO THE CONSOLIDATED FINANCIAL STATEMENTS

In our opinion, the consolidated financial statements give a true and fair view of the financial position of

Royal Ten Cate as at 31 December 2006, and of its result and its cash flow for the year then ended in accordance

with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of

the Netherlands Civil Code.

OPINION WITH RESPECT TO THE COMPANY FINANCIAL STATEMENTS

In our opinion, the company financial statements give a true and fair view of the financial position of Royal

Ten Cate as at 31 December 2006, and of its result for the year then ended in accordance with Part 9 of Book 2

of the Netherlands Civil Code.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

Pursuant to the legal requirement under 2:393 sub 5 part e of the Netherlands Civil Code, we report, to the

extent of our competence, that the management board report is consistent with the financial statements as

required by 2:391 sub 4 of the Netherlands Civil Code.

Enschede, 28 February 2007

KPMG ACCOUNTANTS N.V.

A.J.M. Oude Weernink RA



a. Mattex Leisure Industries

On 12 February 2007 TenCate announced that it had reached agreement with the owners of Mattex Leisure

Industries of Dubai on the acquisition of the artificial grass activities by means of an assets/liabilities trans-

action.

The artificial grass activities will be placed in a newly formed company: TenCate Thiolon Middle East LLC. It is

expected that this company will generate revenues of USD 70 million (€ 53 million) in 2007.

The acquisition price will be USD 178 million (€ 136 million). TenCate Thiolon Middle East will be fully integrated

into the TenCate Grass Group.

b. Share issue

On the same day, 12 February, 2,106,329 new ordinary shares were issued (less than 10% of the outstanding

share capital) at a price of € 24.50 per share. This resulted in a gross amount of € 51.6 million being added in

new equity.

The delivery of and payment for the new shares took place on 15 February, the day on which the new shares

were also listed on the Eurolist of Euronext Amsterdam. These shares are also entitled to dividend in respect

of 2006.

c. Issue of syndicated loan

On 13 February the issue of a new syndicated loan of € 250 million was announced. This loan, in addition to the

share issue of € 51 million, will be used to finance the acquisition of Mattex and Roshield and to replace

the existing loan.

It is expected that the loan will be concluded on 16 March.

d. Closing of Roshield acquisition

The closure of and payment for the acquisition of Roshield A/G took place on 16 February, after approval had

been granted by the Danish ministry of Justice.

Roshield, which is based in Odense (Denmark), is a young, fast growing company in the field of vehicle armour

and personal protection. It has recently won a number of major long-term orders worth approximately

€ 20 million.

Roshield will become part of the European Armour activities of TenCate Aerospace & Armour Composites.

The acquisition price is unchanged at € 34.7 million.

POST BALANCE SHEET EVENTS

e. Estimated effect on the balance sheet of Royal Ten Cate

The effect of the acquisition of Mattex and Roshield, as well as the share issue, on the balance sheet of Royal

Ten Cate as at 31 December 2006 can be described as follows on a pro-forma basis:

Total assets Equity + liabilities

TenCate 489 TenCate equity

Mattex/Roshield 190 TenCate interest-bearing debt

TenCate other items

679

The figures stated above for Mattex/Roshield are based on the locally applicable valuation principles.

The difference between the purchase price of the two companies and the net assets is € 138 million.

On the basis of IFRS 3 Business Combinations, the net assets will be valued at fair value following the acquisi-

tion of Mattex and Roshield.


43%

32%

25%

100%

New

290

217

172

679

Increase

51 =

123 =

16 =

190 =

Previous

239 +

94 +

156 +

489 +

Provisions of the articles of association relating to appropriation of profit


Net profit

Added to other reserves in accordance with article 27, paragraph 2 of the articles of association

Net addition to the reserve for retained earnings of associated companies

Undistributed dividend balance from previous year

Payment of € 0.70 (28%) and € 0.60 (24%) dividend to holders of ordinary shares in accordance

with article 27 paragraph 3 of the articles of association*

Undistributed dividend balance at year end, which is transferred to the relevant account

* After issue of 2,106,329 shares on 12 February 2007.

2005

30.5

– 13.5

17.0

– 4.4

12.6

0.4

13.0

– 12.5

0.5

2006

76.0

– 58.5

17.5

– 1.3

16.2

0.5

16.7

– 16.2

0.5

(Article 27)

General

The authorised capital comprises only ordinary shares.

Summary of the provisions of the articles of association

1 Profit distributions may only take place to the extent that the equity of the company exceeds the paid

and called-up part of the issued capital plus the reserves which must be held by law.

2 With the approval of the Supervisory Board, the Executive Board is authorised to determine the part of the

profit that will be reserved.

3 The sum remaining from the profit after the reservation in accordance with paragraph 2 is at the disposal of

the general meeting of shareholders.

4 Shares held by the company in its own capital are not taken into account in calculating the appropriation

of profit.

5 The dividend payable shall be made payable no later than 30 days after adoption of the financial statements

by the general meeting of shareholders. It shall be made payable only to the authorised persons in whose

name the shares are held. Such payments shall discharge the company.

6 A shareholder’s claim for payment shall be time-barred after a period of five years has elapsed.

Proposed appropriation of profit



Ten-year summary In millions of euros, unless stated otherwise

CONSOLIDATED PROFIT AND

LOSS ACCOUNT

Revenues

Changes in inventories of finished

products and work in progress


Work contracted out and other

external expenses

Personnel costs



Total operating expenses

OPERATING RESULT

Financial expenses

PRE-TAX RESULT

Profit tax

RESULT AFTER TAX BUT BEFORE RESULT

FROM PARTICIPATING INTERESTS


(including divested activities)

RESULT AFTER TAX

Extraordinary items after tax

NET PROFIT AFTER TAX

Minority interests

NET PROFIT

Dividend

Operating result in % of revenues

Return on equity

Return on net capital employed

2006

770.5

– 4.8

402.2

34.7

171.2

23.1

94.0

720.4

50.1

– 8.0

42.1

– 11.4

30.7

45.4

76.1

–

76.1

– 0.1

76.0

16.2

6.5%

36.1%

14.4%

2005

686.5

0.5

353.8

29.3

161.6

19.3

83.5

648.0

38.5

– 4.6

33.9

– 11.5

22.4

8.1

30.5

–

30.5

–

30.5

12.5

5.6%

18.6%

15.3%

2004

641.0

– 12.6

332.1

29.5

159.7

19.2

78.5

606.4

34.6

– 6.8

27.8

– 9.2

18.6

5.1

23.7

–

23.7

– 0.1

23.6

10.2

5.4%

17.0%

13.5%

2003

569.6

– 2.6

280.7

28.8

142.9

19.6

71.5

540.9

28.7

– 7.0

21.7

– 5.3

16.4

3.9

20.3

–

20.3

–

20.3

8.5

5.0%

12.9%

11.7%

2002

602.1

– 2.4

289.9

36.4

151.3

24.0

79.0

578.2

23.9

– 12.0

11.9

1.7

13.6

5.4

19.0

12.3

31.3

– 0.2

31.1

7.7

4.0%

22.0%

9.7%

2001

620.0

6.0

297.2

37.9

159.1

26.0

78.9

605.1

14.9

– 12.9

2.0

0.7

2.7

3.5

6.2

– 12.0

– 5.8

0.1

– 5.7

2.4

2.4%

– 4.2%

5.9%

2000

620.2

– 3.2

294.4

36.3

160.2

25.2

74.7

587.6

32.6

– 10.6

22.0

– 3.3

18.7

5.5

24.2

–

24.2

–

24.2

9.8

5.3%

17.8%

13.6%

1999

665.5

9.6

279.8

48.6

165.5

30.1

91.0

624.6

40.9

– 10.2

30.7

– 9.0

21.7

– 0.1

21.6

–

21.6

–

21.6

8.6

6.1%

16.9%

13.5%

1998

632.9

5.2

276.0

44.8

159.2

27.9

85.3

598.4

34.5

– 9.7

24.8

– 8.4

16.4

0.7

17.1

– 59.0

– 41.9

– 0.1

– 42.0

6.2

5.4%

– 27.8%

11.5%

1997

620.8

– 8.9

279.0

51.4

153.4

27.5

81.5

583.9

36.9

– 10.1

26.8

– 9.1

17.7

0.6

18.3

– 4.5

13.8

–

13.8

6.4

6.0%

8.0%

11.3%

Figures based on IFRS Figures based on Dutch GAAP


CONSOLIDATED BALANCE SHEET



Financial fixed assets

Total fixed assets

Inventories

Receivables

Securities and cash

Total current assets

TOTAL ASSETS

Equity*

Minority interests

Group equity

Provisions

Long-term liabilities

Banks and short term loans

Other short-term liabilities

TOTAL LIABILITIES

Guarantee capital/total capital

Acquisitions /(de)consolidations

Investments in tangible and intangible

fixed assets


Cash flow

Number of staff years at year-end

Number of outstanding shares (x 1,000)**

Maximum increase from conversion**

Net earnings per € 2.50 share

Dividend per share in euro

Closing price in euro

2006

165.8

12.4

18.3

196.5

157.7

128.2

6.7

292.6

489.1

238.7

0.2

238.9

43.8

63.5

30.4

112.5

489.1

49%

– 63.0

43.0

23.1

99.1

3,532

21,063

–

3.66

0.70

23.21

2005

161.4

13.8

35.2

210.4

157.5

125.0

4.6

287.1

497.5

181.8

–

181.8

56.1

130.2

27.1

102.3

497.5

37%

40.8

26.2

19.3

49.8

3,578

20,784

–

1.48

0.60

21.50

2004

118.8

12.1

19.9

150.8

138.6

98.8

2.7

240.1

390.9

146.5

0.1

146.6

52.1

74.1

24.6

93.5

390.9

38%

29.2

12.0

19.2

42.9

3,634

20,472

–

1.17

0.50

13.55

2003

118.1

10.6

11.4

140.1

110.0

91.7

5.8

207.5

347.6

162.0

0.1

162.1

15.6

82.9

13.9

73.1

347.6

47%

0.3

16.9

19.6

39.9

3,245

20,096

–

1.03

0.43

9.02

2002

130.5

12.8

9.2

152.5

117.4

89.8

2.9

210.1

362.6

152.9

0.2

153.1

15.1

107.0

8.9

78.5

362.6

42%

1.4

17.0

24.0

57.5

3,278

19,192

–

1.63

0.40

6.25

2001

154.3

14.7

5.6

174.6

124.6

109.7

0.1

234.4

409.0

129.5

0.1

129.6

14.4

77.7

99.7

87.6

409.0

32%

23.6

28.5

26.0

27.7

3,625

18,872

768

– 0.31

0.13

6.50

2000

151.5

–

7.5

159.0

134.6

107.0

0.4

242.0

401.0

140.6

0.4

141.0

11.2

83.1

67.4

98.3

401.0

37%

14.8

29.5

25.2

49.4

3,585

18,872

1,200

1.30

0.52

8.23

1999

143.6

–

3.4

147.0

112.0

96.2

0.4

208.6

355.6

130.5

0.1

130.6

11.3

92.6

25.1

96.0

355.6

41%

34.6

33.7

30.1

51.7

3,970

18,092

1,716

1.20

0.48

9.38

1998

157.1

–

2.9

160.0

116.1

107.2

0.5

223.8

383.8

125.0

–

125.0

9.2

106.5

42.6

100.5

383.8

38%

0.5

29.2

27.9

– 14.1

3,886

18,092

2,296

– 2.34

0.34

7.26

1997

162.1

–

24.9

187.0

117.9

108.2

0.3

226.4

413.4

176.5

0.1

176.6

9.9

94.1

49.5

83.3

413.4

50%

11.1

29.8

27.5

41.3

3,848

17,732

2,936

0.78

0.36

9.93

Figures based on IFRS Figures based on Dutch GAAP

* With effect from 2003 equity including dividend payable.

** After split of par value of shares from € 10.00 to € 2.50.

0

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BELG

IUM

GERM

AN

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ENG

LAN

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FRAN

CE

AU

STRIA

ITALY

SPAIN

OTH

ER EU

OTH

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PE

USA

, CAN

AD

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ASIA

REST OF TH

E WO

RLD

ADVANCED TEXTILES & COMPOSITES

Ten Cate Advanced Textiles bv Nijverdal (NL)Holding Ten Cate Advanced Textiles group

Ten Cate Protect bv Nijverdal (NL)Fabrics for work and protective clothing and professional wear

Ten Cate Protective Fabrics USA inc Union City, Georgia, USAFabrics for protective clothing

Ten Cate Technical Fabrics bv Nijverdal (NL)Outdoor fabrics

Ten Cate Advanced Weaving Nijverdal (NL)Fabrics for applications in specialist professions and outdoor applications

Ten Cate Advanced Spinning bv Nijverdal (NL)High-grade yarns

Ten Cate Permess Interlinings Hong Kong ltd Hong Kong, China

Ten Cate Permess Xishan Xishan, ChinaSale and production of interlinings

Ten Cate Advanced Composites bv Nijverdal (NL)Components for aircraft construction and antiballistic materials

Ten Cate Advanced Composites USA inc San José, Components for aerospace and antiballistic materials California, USA

Ten Cate Advanced Armour S.A.S. Vienne, FranceAntiballistic materials

GEOSYNTHETICS & GRASS

Ten Cate Geosynthetics Netherlands bv Almelo (NL)

Ten Cate Geosynthetics North America inc Atlanta, Georgia, USA

Ten Cate Geosynthetics Austria GmbH Linz, Austria

Ten Cate Geosynthetics France S.A.S. Bezons, France

Ten Cate Geosynthetics Asia sdn bhd Kuala Lumpur, Malaysia

Geofabrics Australasia pty ltd (50%) Cheltenham, AustraliaGeotextiles and industrial fabrics

Ten Cate Geosynthetics sdn bhd (Malaysia) Kuala Lumpur,

Malaysia

Ten Cate Geosynthetics (Thailand) ltd Bangkok, Thailand

Ten Cate Geosynthetics pte ltd Singapore

Ten Cate Geosynthetics Italia sri Lazzata, Italy

Ten Cate Geosynthetics (UK) ltd Telford, United Kingdom

Ten Cate Geosynthetics sl Madrid, Spain

Ten Cate Geosynthetics Schweiz AG Zurich, Switzerland

Ten Cate Deutschland GmbH Dietzenbach, Germany

Ten Cate Geosynthetics Polska Spzoo Krakow, Poland

Ten Cate Geosynthetics CZ sro Prague, Czech RepublicSales offices

Ten Cate Thiolon bv Nijverdal (NL)

Ten Cate Thiolon North America inc Dayton, Tennessee, USAArtificial grass fibres

Ten Cate Thiobac bv Nijverdal (NL)Backing for artificial grass and carpets

TECHNICAL COMPONENTS

Ten Cate Enbi International bv Beek (NL)

Ten Cate Enbi GmbH Opladen, Germany

Ten Cate Enbi Kft Rétság, Hungary

Ten Cate Enbi inc Shellbyville, Indiana, USA

Ten Cate Enbi pte ltd Singapore

Ten Cate Enbi Zhuhai co ltd Zhuhai, ChinaTechnical rollers and components for printers, copiers, fax machines,

postal sorting machines, automated teller machines, insulation and

heating systems

Business Key sl Barcelona, SpainTrading in components for fluid systems for agriculture, horticulture,

industry and construction

OTHERS

Ten Cate Assurantiën bv Almelo (NL)Insurance

Ten Cate Nederland bv Almelo (NL)

Royal Ten Cate USA inc Atlanta, Georgia, USA

Ten Cate UK ltd London, United Kingdom

Ten Cate France S.A.S. Paris, France

Ten Cate Deutschland GmbH Opladen, Germany

Royal Ten Cate Pacific ltd Hong Kong, China

Royal Ten Cate China Holding ltd Hong Kong, ChinaCountry holding companies

NON-CONSOLIDATED COMPANIES

DIS Enbi Seals Ireland ltd (20%) Portlaoise, IrelandSeals

GreenFields bv (20%) Kampen (NL)Marketing organisation for artificial grass

Landscape Solutions bv (20%) Goirle (NL)Artificial grass for landscaping

Operating companies, associated companies and other interestsas at 31 December 2006

The operating companies listed here are consolidated in the financial statements, with the exception

of the companies shown as non-consolidated. Some interests of minor relevance to the overall

picture have been omitted from the list, in accordance with article 379, paragraph 3, Book 2 of the

Netherlands Civil Code. The companies are wholly owned, unless otherwise stated.


ADVANCED TEXTILES & COMPOSITES SECTOR

PROTECTIVE & OUTDOOR FABRICS� TenCate Protect

� TenCate Protective Fabrics USA

� TenCate Technical Fabrics

Protective and safety fabrics for applications

in specialist professions and industry and for

outdoor applications

AEROSPACE & ARMOUR COMPOSITES� TenCate Advanced Composites

� TenCate Advanced Composites USA

� TenCate Advanced Armour

Composites for applications in the aerospace

industry, bullet-, needle- and fragment-proof

materials and specialist industrial applications

GEOSYNTHETICS & GRASS SECTOR

GEOSYNTHETICS� TenCate Geosynthetics EU

� TenCate Geosynthetics North America

� TenCate Geosynthetics Asia

Synthetic fabrics, nonwovens and grids

for applications in civil engineering,

the environmental market, the

construction industry, agri-

culture, sport and recreation

GRASS� TenCate Thiolon

� TenCate Thiolon North America

� TenCate Thiobac

Artificial grass systems and components

(fibres, backing, infill and sub-base) for top-

flight sports and recreational and landscape

applications

Royal Ten Cate (TenCate) is a multinational

company which combines textile technology

with related chemical processes in the devel-

opment, production and marketing of func-

tional materials. Various market applications

are created around this technological basis.

Within the strategic core activities, TenCate

presents itself as a developer and producer of

specialist materials with high-quality, func-

tional characteristics. TenCate stimulates and

structures technological innovation and

product and process development in such a

way as to occupy long-term leading positions

in markets.

Materials that make a difference means that

TenCate develops and produces materials that

are distinctive. The materials are mostly in-

corporated in an end-product or system, as a

result of which the end-product or system

itself becomes distinctive. TenCate strives for

an active process, in order to develop high-

quality, functional solutions jointly with

partners and end-users. TenCate materials

must be advanced, offering greater added

value. TenCate materials are mainly used for:

� safety and protection;

� aerospace;

� sport and recreation;

� infrastructure and the environment.

TenCate employs approximately 4,000 people

worldwide* and strives to operate in an ethi-

cally and socially responsible way. On this

basis it encourages employees to be both

proactive and enterprising, as part of its aim of

achieving progress for all stakeholders.

* Including Roshield and Ten Cate Thiolon Middle East.

Commercial overview Profile


Geographic breakdown of sales in 2006

in per cent

� By destination

� By origin

The division into market groups is based on the clustering of operating companies which co-operate intensively in the field of production technology,

research and development, marketing and sales. These market groups are combined into sectors. A complete overview of the legal entities which make

up the group can be found on the inside back cover.

TECHNICAL COMPONENTS SECTOR

TENCATE ENBI(Technical) rollers and components based on

rubber and foam technology for paper transport

and image transfer in printers, copiers, fax

machines, postal sorting machines, automated

teller machines, insulation and heating

systems

BUSINESS KEYTrading in technical products for agriculture,

horticulture, industry and constructionTenCate Cetex®

This is TenCate Cetex, a thermoplastic composite material

that is qualified for various applications in the aircraft

industry. The material stands out because of its excellent

mechanical characteristics, such as fire safety and high

surface quality. It is also light in weight.

TenCate Cetex is used by Boeing and Airbus, among others,

in the wings, floor components, baggage compartments and

other interior parts of aircraft such as the A340, A380, Boeing

747 and Boeing 787.

Thermoplastic composites can be formed by manufacturers

into any required shape under specific temperature and

pressure. They can also easily be recycled.

� Countries where TenCate

is established or represented

‘Materials’ best describes all our

products. Our materials are at the

crossroads of textile technology

and chemical processes.

WE WANT TO BE KNOWN FOR THE DIFFERENCE WE MAKE, THIS IS THE FOCUS OF OUR TAGLINE

We play an active role, contributing

to progress in our industries.

We bring measurable benefits to our customers

through the functionality of our materials.

Commercial overview

AN

NU

AL REPO

RT 2006RO

YAL TEN

CATE

Operating companies, associated companies and other interests

Annual Report 2006Royal Ten Cate

Royal Ten Cate

Egbert Gorterstraat 3

7607 GB Almelo

The Netherlands

P.O. Box 58

7600 GD Almelo

The Netherlands

Telephone +31 (0)546 544 911

Fax +31 (0)546 814 145

[email protected]

www.tencate.com

COLOPHON

Text

Royal Ten Cate

Translation

VVH business translations, Utrecht (NL)

Concept and realisation

C&F Report Amsterdam B.V.

Photography

Picture Report, Amsterdam

Getty Images

Royal Ten Cate

Arjan Reef

Pete Sajic

Number of copies printed

2,500

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