PEgAs NONWOVENs sA ANNUAL REPORT 2016 Report 2016.pdf · PEGAS NONWOVENS SA (hereafter “PEGAS” or “the Company” or “Group”) is one of the leading producers of nonwoven

ANNUAL REPORT

PEgAs NONWOVENs sA

2016

TAbLE Of CONTENTs

About CompanyIntroduction 3

Year2016inBrief 4

StatementbytheChiefExecutiveOfficer 6

Management ReportManagementReport 8

InvestorInformation 24

Corporate Governance ReportCorporateGovernanceReport 28

Financial partConsolidatedFinancialStatements 44

Stand-alonefinancialstatements 86

Glossary 101

StatementsofResponsiblePersons 103

PEGAS NONWOVENS SA (hereafter “PEGAS” or “the Company” or “Group”) is one of the leading producers of nonwoven textiles in the EMEA region (Europe, the Middle East and Africa) for use primarily in the personal hygiene products market. PEGAS supplies its customers with spunmelt polypropylene- and polypropylene/polyethylene-based (“PP“ and “PP/PE“) textiles principally for use in disposable hygiene products (such as baby diapers, adult incontinence and feminine hygiene products) and, to a lesser extent, in construction, agricultural and medical applications.

Foundedin1990,theCompanyhasgrownoverthepasttwodecadesandbasedon2016annualproductioncapacityhasbecomeoneoftheleadingproducersofspunmeltnonwovensintheEMEAregion.PEGAScurrentlyoperateseightproductionlinesintheCzechRepublicandoneproductionlineinEgyptwhichcommenceditscommercialoperationin2013.ThetotalproductioncapacityoftheCompanyiscurrentlyupto90thousandtonnesofnonwovenfabricperannumintheCzechRepublicandupto20thousandtonnesinEgypt.InJune2016,theCompanydecidedtoinstallanewproductionlineintheCzechRepublic.Itisexpectedthatitwillbeputintocommercialoperationattheendofthesecondquarterof2017andthenewlinewillincreasetheannualproductioncapacityby10thousandtonnesofnonwoventextiles.

PEGASconsistsofaparentholdingcompanyinLuxembourgandfouroperatingcompanies,PEGASNONWOVENSs.r.o.,PEGAS-NTa.s.,PEGAS–NWa.s.andPEGAS–NSa.s.,alllocated

intheCzechRepublic.Forthepurposeofinternationalexpansion,anewcompanyPEGASNONWOVENSInternationals.r.o.wasestablishedin2010andsubsequentlyPEGASNONWOVENSEGYPTLLCinJune2011,whichinvestsintheEgyptianproductionfacility.InJuly2016,asubsidiaryPEGASNONWOVENSRSA(PTY)LTDwasestablishedforthepurposeofrealizationoftheinvestmentprojectintheRepublicofSouthAfrica.Attheendof2016,PEGASemployed578people.

SharesinPEGASarelistedonthePragueStockExchangeandontheWarsawStockExchange,followinganInitialPublicOfferinginDecember2006.100%ofthesharesarefreefloat,heldbyinstitutionalandretailinvestors.

PEGASisamemberoftheEuropeanDisposablesandNonwovensAssociation(EDANA).

INTROdUCTION

3

Man

agem

ent

Rep

ort

Corp

orat

e G

over

nanc

e R

epor

tFi

nanc

ial p

art

PEGAS NONWOVENS SAANNUAL REPORT 2016

AbOUT COMPANy

Abo

ut C

ompa

ny

financials (EURthousands) 2016 2015

TotalRevenues 206,353 229,200

EBITDA 46,668 44,311

ProfitfromOperations 30,561 28,252

NetProfitforthePeriodAttributabletoShareholders 14,079 24,978

No.ofShares–EndofPeriod(“EOP”) 9,229,400 9,229,400

TotalAssets 385,115 391,788

TotalEquity 158,735 156,712

TotalBorrowings 185,034 191,917

NetDebt 160,814 163,835

CAPEX 21,078 9,320

Ratios

EBITDAMargin 22.6% 19.3%

OperatingProfitMargin 14.8% 12.3%

MarginofNetProfitAttributabletoShareholders 6.8% 10.9%

CAPEXas%ofRevenues 10.2% 4.1%

Operations

TotalProductionOutput(intonnesnetofscrap) 102,691 101,665

NumberofEmployees–EOP 578 580

Exchange Rates

EUR/CZKaverage 27.034 27.279

EUR/CZKEOP 27.021 27.023

EUR/USDaverage 1.1069 1.1095

EUR/USDEOP 1.0541 1.0887

YEAR 2016 IN bRIEf

Total Production Output(intonnesnetofscrap)

Total Revenues (EURthousands)

Number of Employees – EOP

20

14

20

14

20

14

20

15

20

15

20

15

20

16

20

16

20

16

100,570 230,547 569

101,665 229,200 580

102,691 206,353 578

4 PEGAS NONWOVENS SAANNUAL REPORT 2016

AbOUT COmPANy

Man

agem

ent

Rep

ort

Corp

orat

e G

over

nanc

e R

epor

tFi

nanc

ial p

art

Abo

ut C

ompa

ny

Dearshareholders,businesspartners,colleagues,

Pleaseallowmetotakeadvantageofthisopportunitytoreviewlastyear‘smostsignificanteventsandtooutlineourexpectationsandplansforthefuture.

Evaluating2016fromtheoperating-financialpointofview,Imuststartbymentioningtherecordproductionvolumes,whichweresupportednotonlybystrongandstablesaleslevelsbutwerealsocomprisedofabetterproductmix.Wewereonceagainsucessfulinexpandingtheshareoftechnologicallyadvancedproductsandtherebyfulfilledoneofthemainpillarsofourstrategy.Allthiswasthenprojectedintoourfinancialresults,wherefull-yearEBITDAamountedtoEUR46.7million,andwhenadjustedforone-offnon-operationalitems(effectoftherevaluationoftheshareoptionplan)EBITDAreachedEUR48million,whichrepresentsthebestresultintheCompany’shistory.

Weworkedonmanynewprojectslastyear,someofwhichwefinished,somewearestillworkingon,andmostofthemwillplayasignificantroleinthefuture.

Oneofthelargestinvestmentprojectslastyearwastheconstructionofanewwarehousehall,whichwebuiltandputintooperationrightonschedule.SinceSeptember,thisnewhallhasgraduallybeenreplacingexternalstoragecapacitiesandismeetingourexpectationsregardingtheincreaseinefficiencyandsimplificationoftheCompany‘slogisticsflows.Nolessimportant,perhapsevenmoreso,isthefactthatthishallhasprovideduswithspacefortheinstallationofthenewCompactproductionline,theinstallationofwhichwasinitiallyplannedforourproductionplantinEgypt.

ThenewCompacttechnologyplatformhasprovenitsflexibility,aswewereabletoreacttothecurrentmarketsituationandshifttheinstallationofnewproductioncapacitiestotheCzechRepublic.Rightnowwearerevivingnewstate-of-the-arttechnologywithaBiCoconfigurationinZnojmo.IcannotoverstressthehugeprioritythatweareplacingonthisprojectandIamconfidentthatwewillstartcommercialproductiononscheduleand,mostimportantly,thatwewillutilisethespecialconfigurationofthislinetomakeourproductporfoliomoreattractive.

AfurthersignificantstepthatwetooklastyearwastheestablishmentofasubsidiaryintheRepublicofSouthAfricawiththeobjectiveofrealisinginvestmentsintotheconstructionofaproductionplantnearCapeTown.Currently,wearefinalisingnegotiationsforthepurchaseoflandintheAtlantisindustrialzoneandifnounexpectedproblemsarise,thiscontractwillbe

signedinthesecondquarter.Negotiationswithcustomersarealsodevelopingpositively,thesuccessfulcompletionofwhichisaconditionfororderingthenewproductionlineforthislocation.

Ourcrowningachievementlastyearwastheprestigious„BusinessPartneroftheYear”awardthatwereceivedfromProcter&Gamble.Wehavereceivedthisawardforthefourthtimeinanextremelycompetitivefieldofcompetitors.Itisverypleasanttobeperceivedasalong-term,reliablepartner–notonlybyourcustomersbutalsobyotherbusinesspartnersaswell.Agreatexampleofthisisthenewissueofseven-yearbondswithafixedannualinterestrateof1.875%thatweissuedinJanuaryofthisyearintheamountofEUR50million.Theparametersofthisissueserveasevidenceoftheexceptionaltrustthatexternalinvestorsplaceinourcompanyevenifweconsiderthecurrentverylowinterestrateenvironment.

Thisyear,thereareagainchallengesaheadofus.Iamveryconfidentthatwewillbeabletocontinueonfromlastyear‘ssuccesses.Ourproductioncapacityhasbeensoldout,whichamongstotherthingswillenableustofocusonfurtheroptimisingproductionandimprovingitsefficiency.TheCompany‘sfinancialresultswillalsobepositivelyimpactedbythelaunchofthenewproductionline.Ofcourse,unfavourablesituationscouldarisebutIthinkthatweareverywellpreparedfor2017.

Therefore,basedonexistingexpectations,thecompanyissettingEBITDAguidanceforthisyearintherangeEUR43.0to50.0million.

Wewillworkhardonachievinggoodresults,whichareoneoftheprimaryprerequisitesforthepayoutofsoliddividends.Inthisrespect,IbelievethatourshareholderswillappreciatethedecisionoftheBoardofDirectors,which,inlinewiththeprogressivedividendpolicy,willproposeadividendofEUR1.30pershare.

Toconclude,Iwouldliketothankouremployeesforthequalityoftheirwork.Iamproudoftheresultsoftheirworkand,likewise,IbelievethattheyarealsoproudofourCompany.Iwouldliketothankeveryonefor2016,andIbelievein2017.

františek ŘezáčCEOandmemberoftheBoardofPEGASNONWOVENSSA

sTATEmENT bY ThE ChIEf ExECUTIVE OffICER


AbOUT COmPANy

Man

agem

ent

Rep

ort

Corp

orat

e G

over

nanc

e R

epor

tFi

nanc

ial p

art

Abo

ut C

ompa

ny

description of the Company’s business and market

Basic Information on the Company

Name

PEGASNONWOVENSSA,apubliclimitedliabilitycompany(sociétéanonyme)existingunderthelawsoftheGrand-DuchyofLuxembourg

Address:

68–70,boulevarddelaPétrusse

L-2320Luxembourg

Grand-DuchyofLuxembourg

Tel:(+352)26123144

Fax:(+352)26496564

Registry and registration number:

RegisteredwiththeLuxembourgTradeandCompaniesRegister(“RegistredecommerceetdessociétésdeLuxembourg“)undernumberB112.044

Incorporated:

On18November2005underthenamePamplonaPEHoldco2SA

Jurisdiction:

Grand-DuchyofLuxembourg

TheholdingcompanyofPEGAS,PEGASNONWOVENSSA,wasincorporatedinLuxembourgasapubliclimitedliabilitycompany(sociétéanonyme)foranunlimiteddurationon18November2005underthenamePamplonaPEHoldco2SAandisregisteredwiththeLuxembourgtradeandcompaniesregisterundernumberB112.044.ThearticlesofincorporationoftheCompanyhavebeenpublishedintheMémorialC.,RecueildesSociétésetAssociationsnumberC440of1March2006.TheCompany‘sregisteredofficeisat68−70,boulevarddelaPétrusse,L-2320Luxembourg,Luxembourg.Theregisteredofficeandprincipalplaceofbusinessofthemainoperatingandtradingcompany,PEGASNONWOVENSs.r.o.,isatPřímětická86,66902Znojmo,CzechRepublic.

scope of business (according to Article 3 of the Articles of Association)TheobjectoftheCompanyis:a) totakeparticipationandinterests,inanyformwhatsoever,

inanycommercial,industrial,financialorother,Luxembourgorforeignentities;

b) toacquireanysecuritiesandrightsthroughparticipation,contribution,underwritingfirmpurchaseoroption,negotiationorinanyotherwayandnamelytoacquirepatentsandlicences,andotherproperty,rightsandinterestinpropertyastheCompanyshalldeemfit,andgenerallytohold,manage,develop,sellordisposeofthesame,inwholeorinpart,forsuchconsiderationastheCompanymaythinkfit,andinparticularforsharesorsecuritiesofanyCompanypurchasingthesame;

c) toenterinto,assistorparticipateinfinancial,commercialandothertransactions,andtogranttoanyholdingCompany,subsidiary,orfellowsubsidiary,oranyotherCompanyassociatedinanywaywiththeCompany,orthesaidholdingCompany,subsidiaryoffollowsubsidiary,inwhichtheCompanyhasadirectorindirectfinancialinterest,anyassistanceas,e.g.,pledges,loans,advancesorguarantees;

d) toborrowandraisemoneyinanymannerandtosecuretherepaymentofanymoneyborrowed;

e) toborrowfundsandissuebondsandothersecurities;andf) toperformanyoperationwhichisdirectlyorindirectlyrelated

tothispurpose.

mANAgEmENT REPORT


MANAGEMENT REPORT

Principal subsidiariesSubsidiariesinwhichPEGASNONWOVENSSAhasadirectoranindirectinterestamountingtoatleast10%oftheconsolidatedequityor10%oftheconsolidatednetprofit:

Name Registered Office Identification number Activity

PEGASNONWOVENSs.r.o. Znojmo,Přímětická3623/86,PSČ66902,CzechRepublic 25478478 Productionoftextiles

PEGAS–NTa.s Znojmo,Přímětická3623/86,PSČ66902,CzechRepublic 26287153 Productionoftextiles

PEGAS–NWa.s. Znojmo,Přímětická3623/86,PSČ66902,CzechRepublic 26961377 Productionoftextiles

PEGAS–NSa.s. Znojmo,Přímětická3623/86,PSČ66902,CzechRepublic 27757951 Productionoftextiles

PEGASNONWOVENSInternationals.r.o.

Znojmo,Přímětická3623/86,PSČ66902,CzechRepublic 29249708 Specialpurposevehicleforinvestments

PEGASNONWOVENSEGYPTLLC PlotNo.O6,O8inZoneNo.3–NorthernExpansionsArea,6thofOctoberCity,Egypt

CommercialregistryNo.52190

Productionoftextiles

PEGASNONWOVENSRSA(PTY)LTD Unit48,RoelandSquare,DruryLane,CapeTown,WesternCape,8001,SouthAfrica

RegistrationNo.2016/278699/07

Productionoftextiles

Expenses of PEgAs group related to external auditors’ services in year 2016

EUR thousands Audit Other* Total

PEGASNONWOVENSSA 23.6 0.0 23.6

OthercompanieswithinPEGASGroup 118.0 0.0 118.0

TOTAL 141.6 0.0 141.6

*Item„Other“includesexpensesforadvisoryservices,whicharenotdirectlylinkedtotheaudit.

Overview of the Nonwovens Market

PEGAS’skeymarketisgeographicallydefinedasEMEA–Europe(Western,CentralandEasternEurope,RussiaandTurkey),MiddleEastandNorthAfrica.

TheEMEApersonalhygienemarket,witha31%shareofthetotalannualEuropeannonwovenproductionor0.7milliontonnes1,denotesthecoreareaofbusinessactivityforPEGAS.Thissectorisdefinedbythreemajorproductapplicationgroups:disposablebabydiapers,adultincontinenceproductsandfemininehygieneproducts.Hygieneproductshavebecomeamodernnecessity,thedemandforwhichisnon-cyclicalandcomparedtoothermarketsectorsisrelativelyunaffectedbyeconomicdevelopments.

Geographically,theCompany’scoremarketcontinuestobethebroaderEuropeanarea,consistingoftraditionalWesternEuropeancountries,CentralandEasternEurope(CEE),includingRussia.PEGASstartedtoservetheMiddleEastandNorthAfricaregiontoagreaterextentfollowingtheopeningofthenewproductionplantinEgypt.Lowersaturation(lowerpercapitausage)ofhygieneproductsinMiddleEastandNorthAfricaregionandthedevelopingCEEcountriescomparedwithWesternEuropeexplainstheacceleratedgrowthindemandfornonwovenconsumablesinthesemarkets.Ontheotherhand,WesternEurope’sageingpopulation,

1 SourceEDANA

withincreasinglifeexpectancyandhighincomelevelswillsupportgrowthintheadultincontinencemarket.Modernlight-weightandcomfortablenonwoventextilesareleadingtoagreateracceptanceofincontinenceproductsbycustomers.

CompetitionPEGAS’scompetitioncanbedefinedasEuropean,MiddleEasternandNorthAfricanproducersofspunmeltPPandPP/PEnonwoventextiles,namelythoseactiveinthehygienesector.PEGAS’smaincompetitorsareinternationalandregionalcompanieswithproductionfacilitieslocatedinEurope.Comparedtoothercontinents,theEMEAspunmeltPP-andPP/PE-basednonwoventextilemarketismuchmorefragmented,numberingmorethan30producersintotal.

9

Abo

ut C

ompa

nyCo

rpor

ate

Gov

erna

nce

Rep

ort

Fina

ncia

l par

t


MANAGEMENT REPORT

Man

agem

ent

Rep

ort

Overview of the Company’s Products

hygieneThecoreoftheCompany’sproductmixarethefollowingnonwoventextiles–Pegatex® S,Pegatex® SMSandPegatex® S BICO,whicharetailoredtomeetthespecificneedsofeachandeverycustomerandarefurtherusedfortheproductionof:• Disposablebabydiapers• Adultincontinenceproducts• Femininehygieneproducts

Inordertomeetthehighestrequirementsofcustomersinhygieneapplications,PEGASproducesawiderangeoflightandultra-lighttechnologicallyadvancednonwoventextileswithexcellenttechnicalproperties,whicharesoft,pleasanttotouchandthereforeprovideimprovedcomforttothefinalconsumer.

medical and Protective ClothingPegatex® SandPegatex® SMSnonwovenfabricsaresemi-finishedtextileproductsfortheproductionofsingle-useprotectiveclothing,meetingandexceedingthetechnicalrequirementsforhighstandardsofprotectionindangerousworkplacesforwhichtheyhavebeenspecificallydesignedanddeveloped.Theircharacteristichighbarrierqualitiesprovideprotectionfromaggressiveliquidsandpreventpenetrationofdustparticlesandmicro-organisms.Duetothesequalitiestheyareusedassemi-finishedtextileproductsforthefollowingapplications:

Medicalprotectiveclothing:• Surgicalmasks• Surgicalgownsanddrapes• Headcovers• Shoecovers

Industrialprotectiveclothing:• Protectiveoverallsandmasks

Agriculture Foragriculture,PEGASoffersanonwoventextileunderthebrandnamePEGAS-AGRO®,whichisusedmainlyinvegetablecultivationandgardeningandissuitableforlarge-scaleproductionandmechanisation.Thismaterialisusedasacoveringtextile(cropcover)creatingoptimalmicroclimateforplantsandshelteringthemfromweatherchanges(lightfrost,hail)andvariouspestsanditisalsousedasamulchingfabricforpreventingthegrowthandspreadingofweeds.

furniture and Construction IndustriesInthefurniture-makingindustry,thePegatex® SandPegatex® SMSnonwovenfabricisusedasaneateningfabric(eitheronthebackorbottompartsofupholsteredfurniture),andforseamreinforcementintheproductionofmattressesorasdisposablehygienicbedcovers.

Intheconstructionindustry,thePegatex® Snonwovenfabricisusedprimarilyasacomponentofacompositematerial(modifiedbylamination)fortheproductionofunder-roofingcovers,heatandsoundinsulationandwindbarriers.

Product name Application area Key applications

Pegatex® s Hygieneproducts Babydiapers,femininehygieneproducts,adultincontinenceproducts

Medicalandprotectiveclothing Gowns,headandshoecovers

Agriculture Cropcover,mulchingtextile

Furnitureandconstructionindustry Mattresses,neateningfabrics,interlinings,windbarriers,roofingmembranes

Pegatex® sms Hygieneproducts Babydiapers,adultincontinenceproducts

Medicalandprotectiveclothing Surgicaldrapes,gowns,facemasks,industrialprotectiveapparel

Constructionindustry Windbarriers

Pegatex® s bICO Hygieneproducts Babydiapers,femininehygieneproducts,adultincontinenceproducts

Variousindustries Compositefabrics,laminates

Pegatex® sms bICO Hygieneproducts Babydiapers,femininehygieneproducts,adultincontinenceproducts

Compositematerials,laminates

PEgAs-AgRO® Crop cover Agriculture Plantprotection

PEgAs-AgRO® mulching fabric Agriculture Soilcover


MANAGEMENT REPORT

Technology and Production TheGroupownsandoperatestechnologicallyadvancedequipmentnecessaryfortheproductionofhigh-qualityspunmeltnonwoventextiles.Productionmanagementisfocusedoncontinuousmaintenanceandmodernisationoftheequipmentandmachinery,ensuringthattheCompanycontinuestorankamongtheleadingEMEAregionproducersofnonwoventextiles.

AlltenproductionlinesweremanufacturedbyReifenhäuserReicofil,aleadingGermanglobalsupplierofspunmeltnonwovenproductionequipmentthatcurrentlydominatesthemarketforPP-andPP/PE-basedspunmeltnonwovenmachinesworldwide.ReifenhäuserReicofillwasalsochosenasthesupplierforthenewproductionlinewhichiscurrentlybeinginstalledintheCzechRepublic.

ThreeproductionlinesarelocatedattheBučoviceplantnearBrnoandsixproductionlinesarelocatedinPříměticenearZnojmo.Theoutputofthefirstandthesecondline,installedin1992and1996,isprimarilysoldfortechnicalandagriculturalapplications.Themeltblownline,installedin1996andusedfortechnicalapplicationsrequiringahighabsorptioncapacity,suchasindustrialwipesandabsorbents,iscurrentlynotoperated.Theremainingproductionlinesarededicatedtotheproductionofhygienematerials.

In1998,PEGASwasthefirstspunmeltmanufacturertoinstallReicofiltechnologywithamicrofilamentoption.In2000,PEGASinstalledaReicofil3productionlinecapableofproducingbi-componentmaterials,thefirstsuchproductionlineinEurope.

TheReicofil4line,whichwasinstalledattheendof2004,employsanewtechnologyleadingtohigh-speedproductionwithimprovednonwoventextileformationanduniformity.

PEGAS’s„SSMMMS23200Reicofil4Special“productionlinewasinstalledinautumn2007asthefirstofitskindintheworld.Itisstate-of-the-arttechnologythatisabletoproduceultralight-weightnonwoventextilesforthehygienesectoraswellasforotherapplications.

Inthesecondhalfof2011,theCompanylaunchedits9thproductionline.ThisReicofil4BiCotypeproductionlineproducesmainlyhygienematerialswiththeoptionofproductionforotherapplications.TheproductionlinehasexpandedtheCompany‘sannualproductioncapacitybyupto20thousandtonnesperannum(dependingontheproductportfolio)andhasawidthof4.2meters.

In2013,theCompanyinstalleditsfirstlineinEgypt,modelReicofil4S,whichhasacapacityofapproximately20thousandtonnesperannum(dependingontheproductportfolio).Commercialproductioncommencedinthethirdquarterof2013andthelinehasbeenrunninginstandardcommercialoperationsince2014.

InJune2016,theCompanyannouncedthedecisiontolocateanewproductionlineattheCompany‘sproductionplantinZnojmo-PříměticeintheCzechRepublic.TheCompanydecidedtoinstallaReicofill4SCompactBicoproductionlinewithanapproximateannualproductioncapacityof10thousandtonnes.Itisexpectedthatitwillbeputintocommercialoperationattheendofthesecondquarterof2017.

Inadditiontotheseproductionlines,PEGASoperatesthreesmallfinishinglines,whichenablethecutting,gluingandperforationofprocessedfabricsaccordingtocustomerspecifications.

2 „S“indicatesaspunbondlayer,„M“indicatesameltblownlayer

11

Abo

ut C

ompa

nyCo

rpor

ate

Gov

erna

nce

Rep

ort

Fina

ncia

l par

t


MANAGEMENT REPORT

Man

agem

ent

Rep

ort

Plants and PremisesPEGAShasplantsintheCzechRepublicandEgypt,andisplanningtoopenaplantinSouthAfrica.

PEGASoperatestwoproductionfacilitieslocatedapproximately100kilometresfromeachotherinthesoutheastoftheCzechRepublic.TheoriginalsiteinBučovicehasthreeproductionlinesinstalledandfurtherspaceforexpansionisnowlimited.ThenewersiteinPříměticewasdevelopedontheoutskirtsofZnojmoandhassixproductionlines.Inadditiontotheseproductionsites,theCompanyownsitsmainadministrativebuildinginZnojmo,closeto

thePříměticeproductionplant.Allpremiseshavebeenconstructedasgreenfieldprojects.

InFebruary2016,theCompanystartedtheconstructionofawarehousebuildingatitsproductionplantinZnojmo-Příměticeinordertoimprovetheitsefficiencyandlogisticsflowsandtoachievesavingsonexternalwarehousing.Thisbuildingwithatotalareaof11,000m2wasapprovedforuseinSeptember2016.Currently,thebuildingservesasawarehouseforfinishedproductsand,concurrently,theinstallationofthisnewproductionlineisbeingfinalizedinanotherpartofthebuilding.

machine Year of Installation

Technology Configuration

Plant Location Line width in metres

Annual production capacity in tonnes

Reicofil2 1992 S Bučovice 3.2 2,600

Reicofil2 1996 SMS Bučovice 3.2 4,700

Reicofilmeltblown 1996 M Přímětice 1.6 700

Reicofil3 1998 SMS Bučovice 3.2 6,900

Reicofil3BiCo 2000 SSMMS Přímětice 3.2 10,400

Reicofil3BiCo 2001 SSS Přímětice 3.2 9,700

Reicofil4 2004 SSS Přímětice 4.2 20,000

Reicofil4Special 2007 SSMMMS Přímětice 3.2 15,000

Reicofil4SAdvancedBiCo 2011 SSMMS Přímětice 4.2 20,000

Reicofil4S 2013 SSMMXS 6thofOctoberCity 4.2 20,000

Total Production Capacity 110,000

Customers

PEGAS’spositionasoneofthemarketleadersintheEMEAhygienenonwovensmarkethasenabledittodevelopcloseandlongstandingrelationshipswithcustomersthatareleadingproducersofdisposablehygieneproducts.PEGASintendstocontinuetostrengthenitsexistingcustomerrelationshipsfurtherbytakingadvantageofitsin-depthunderstandingofcustomerneeds,leveragingtechnologicalexpertiseandbyintroducingnewandimprovedproductsandtechnologies.PEGASworksinclosecooperationwithitscustomersaswellassuppliersinordertointroducenewandimprovedproductsandproductpropertiesthatprimarilyaddressspecificcustomerrequirementsforsoftnessandlowerbasisweights.

ThefactthattheCompanyisconstantlytryingtorespondtothedemandsofitscustomerswasconfirmedbythe„BusinessPartneroftheYearAward“receivedfromProcter&GambleCo.,thelargestproducerandsellerofconsumergoodsintheworld.In2016,only12ofthebestsuppliersintheworldweregiventhisprestigeousaward;selectedfromatotalof50,000companies.

TheCompany‘stopfivecustomersrepresentedan80.6%shareoftotalrevenuesin2016(79.8%in2015).TheCompany‘spresentcustomermixconcentrationreflectsthesituationinthehygienenonwoventextilemarket,whichisdividedamongasmallnumberofendproducers,eachhavingasubstantialmarketshare.


MANAGEMENT REPORT

suppliersThemainrawmaterialsusedfortheproductionofspunmeltnonwovensarepolymers,primarilypolypropylenefollowedbypolyethylene.In2016,theconsumptionofPPandPEaccountedfor81%(80%in2015)oftheCompany’stotaloperatingcosts(excludingdepreciationandamortisation).During2016,the

Companyhadsourcedpolymerrawmaterialsfromatotalofelevensuppliers.Thepolymerrawmaterialsarepurchasedunderbothoneyearandmulti-yearagreements.Thecompetitivenessofthesuppliersismaintainedbyon-goingbenchmarking.

Quality management and the Environment

PEGASisISO9001andISO14001certified.Itfirstreceivedthesequalitycertificationsin1997.InconnectionwiththeamendmentoftheISOstandardsofthe9001seriesin2000,theexistingsystemwaspartiallyrevisedandsubsequently,theQualityManagementSystemandEnvironmentalManagementSystemwereintegratedin2002.PEGAShasacertifiedintegratedsystemofqualityaccordingtoISO9001byCQS,IQNetandenvironmentalmanagementENISO14001byCQS,IQNet.Throughitsperformance,PEGASintendstokeepimprovinganddevelopingthisintegratedsystemwiththeultimategoalofalwaysachievingthehighestpossiblestandards.AllcertificateswererenewedinDecember2014andarecurrentlyvaliduntil2017.ThesecertificateswillberevalidatedandrenewedaccordingtonewISOstandardsISO9001:2015andISO14001:2015.

Quality Management System

Primarygoalsincludecustomersatisfactionandtheachievementofthehighestproductquality.

ThehighQMSandEMSstandardsandthequalityoftheproductsarebasedonthreefundamentalprinciples:• AdvancedTechnology• QualityManagementTools• Results

InadditiontothegeneralqualityrequirementsimposedbyISO9001,theCompanyisconstantlylookingtoimproveandadjustitsproductionprocessesandrelevantassetsinordertoprovidesuperioroutputquality.

InordertoenhancethecurrentQMS–ISO9001,themanagementoftheCompanydecidedtoimplementanextendedin-housequalitymanagementsystem–PQS(PEGASQualitySystem)basedonknowledgeandexperiencewithqualitymanagementtoolsthroughoutthewholeproductionchain.Thegoalofthisproject,whichhasalreadybeensuccessfullyimplemented,isnotjustthetrainingofemployeesbutalsochangingtheCompany’scultureandtheperceptionofthequalityasakeyfactorinachievingprosperityandguaranteeingconsistentlyhighproductquality.

Allproductionpremisesareequippedwithoverpressureaircontroltoeliminatetheriskofinsectscontaminatingtextilesduring

production.Cameradetectionsystemshavebeeninstalledonthehygieneproductionlinestomonitoralltypesofdefectsincludinganyexternalcontamination.Investmentsintothesesystemshavebeensubstantialandhaveledtoasignificantlydecreasednumberofcustomercomplaints.

WhenproductionstartedattheproductionplantinEgypt,thesamequalitymanagementsystemwasalsoimplementedatthisfacilityincomparablescopeasattheplantsintheCzechRepublic.TheEgyptianplanthasalsobeencertifiedaccordingtoENISO9001byTÜVNord.

CustomersatisfactionwiththeCompany’sproductsandservicesremainsoneofthekeyprioritiesforPEGASandtheCompanyisfullycommittedtoon-goingcooperationwithitscustomers.Thisdedicationisregularlyrewardedbycustomers.

Environmental Management System

EnvironmentalprotectionandthecreationofsafeandhealthyworkconditionsforemployeesoftheCompanyandtheirconstantimprovement,includingpollutionpreventionandcontinuouseffortstoreducethenegativeimpactoftheCompany‘sactivitiesontheenvironmentbelongtothehighestprioritiesoftheCompany.

PEGAShasimplementedandmaintainsanenvironmentalmanagementsystemtotakecareofallenvironmentalaspectsasrequiredbyISO14001.TheproductionprocessinvolvesthetransformationofPPorPErawmaterialsintotheformoffibresthroughtheapplicationofheatandpressure.Thisprocessresultsinminimalchemicalchangestothematerialandproducesonlylimitedatmosphericemissions.AllenvironmentalaspectsimplementedbytheCompanyaremonitoredandreviewed.

ThemanagementofthePEGASGrouphasadoptedkeyprinciplestomeetallenvironmentalrequirements.Allemployeesareawareofandrecognisetheirresponsibilityforthefulfilmentandobservanceoftheseprinciples.

DetailsrelatedtoenvironmentalactivitiesareavailableonPEGAS’swebsitewww.pegas.czorwww.pegas.lu.

13

Abo

ut C

ompa

nyCo

rpor

ate

Gov

erna

nce

Rep

ort

Fina

ncia

l par

t


MANAGEMENT REPORT

Man

agem

ent

Rep

ort

Research

Research and Technical Support

Thedevelopmentofnewapplications,productsandtechnologyoptimisationisoneofthemostimportantcomponentsofPEGAS’scurrentandfuturestrategicfocus.Thisplatformissupportedbyateamofengineers,whoarededicatedtothedevelopmentofanewproductbaseandtothecustomerandtechnicalsupportofourpartners.

Workteamsareactiveinseveraldifferentareas,whichareprincipallydividedintoindustrialandhygieneapplications,withthemainfocusonthehygienefieldasthekeydriverforthemostimportantprojectsattheCompany.

Fromthetechnologicalpointofview,thetechnicaldepartmenthastwomaingoals:a) toimprovequality,performanceandproductionefficiency

ofstandardproductsandb) todevelopproductswithaddedvalueusingbothcurrent

and/ornewtechnologiesincludingbi-cotechnology.

Bothobjectivesareachievedincooperationwithrawmaterialsuppliers,usingstandardandspecialnewpolymers,and/orwithmachinerysuppliers,allowingtheCompanytoprovideacompetitiveedgetoitscustomers.

Inthetechnologyfield,PEGAShasdevelopedanewtechnologyinclosecooperationwithitskeytechnologysupplier.Thisnewtechnologyiscalled„Compact“anditshouldfacilitateandspeeduptheCompany’spenetrationintonew,especiallydevelopingmarkets.Thesemarketscarryspecificrisksassociatedwith,forexample,thelevelofcapitalexpenditure,immediateselloutofthetotallinecapacityorcomplicationsrelatedtotheramp-upphase.Atthesametime,thisnewtechnologyshouldalsomaketechnologicallyadvancedproductsavailablefortheemergingmarkets.TheproductionplantinZnojmowasultimatelyselectedasthelocationforthefirstinstallationofthisnewtechnology,anditisplannedtobeputintooperationattheendofthesecondquarterof2017.Oncetheproductionparametersareverifiedinreal-worldconditions,thisnewtechnologypromisestoprovidetheCompanywithadditionalpotentialforfurtherpenetrationintonewregionsandtostrenghtenitspositionamongstglobaltechnologyleaders.

Apartfromthedevelopmentofnewtechnologies,PEGASisactivelycontributingtothedevelopmentofnonwoventextileswithexcellenttouch,bulkinessandsoftness.Thesematerialsarealreadysuccessfullycommercialisedandbringmanyadvantagestocustomers.Furtherdevelopmentinthisareaisongoingandinthefutureitwillbefocusedontheso-called3Dstructureofnonwoventextileswithpotentialvisualeffects.Thedirectionofdevelopment

isbasedonrequirementsofthekeycustomersandinmanycasesitistailor-madeforasinglecustomer.

AnotherkeyprojecthasbeenthecommercialisationofNanoMBtechnology.Attheendofyear2016,theCompanysuccesfullycompletedtheguaranteetests.Thenewtechnologyisnowvalidatedandreadyforqualificationbyselectedcustomers.Themainbenefitprovidedbynonwovenstextilesbasedonnanomeltblowntechnologyisasignificantimprovementinbarrierproperties,especiallyforapplicationsinthehygienesegment.

PEGAScooperateswithmanyinstitutionssuchasuniversitiesandR&Dcentres,mainlyintheCzechRepublicandSlovakia,butalsoinWesternEurope.TheseinstitutionsofferspecialsupporttotheCompanyinvariousspecialisedfieldsofresearch,includingtheprovisionofpilotlinesforproductdevelopmentandconsultancyinareassuchaspatentresearchandregistration,nonwoventextilestructuremodelling,resp.newtechnologyandrawmaterialstesting.

Researchcostsin2016wereEUR2.9million(EUR2.3millionin2015).

Intellectual Property

PEGAShaspatenteditstrademarksandlogosinkeycountriesinEurope,theAmericas,AfricaandAsiainordertoprovideprotectioninthemaininternationalmarkets.

TheCompanyhasfiledninepatentapplicationssince2010.SixofthesepatentapplicationsarearesultofCompany’sproprietaryresearchactivitiesandtheremainingthreeweredevelopedinaco-operationwithkeybusinesspartners.OneofthepatentapplicationscamefromresearchsupportedbytheCzechMinistryofIndustryandTrade.EachpatentapplicationwasfirstfiledintheCzechRepublic.Subsequently,theCompanyhasgraduallyfiledeachapplicationataninternationallevelinordertoprotectitsinterestsnotonlyinEuropebutalsoinAfrica,Asia,theAmericasandintheMiddleEast.Theproceedingsthatleadtothegrantingofapatenttakeanaveragethreetosevenyearsandarefiledseparatelyforeachcountry.

TheCompanyhasbeenawardedpatentsinseveralcountriesandistheownerofapatentprotectingaspunmeltnonwoventextilewithhighbarrierproperties(awardedintheCzechrepublic,Russia,SaudiArabia,UnitedstatesofAmerica,ChinaandalsoasaEuropeanpatentwithselectedprotectioninthemajoreuropeancountries).TheCompanyalsousesutilitydesignsinordertoquicklyprotectitsresearchresults.Forexample,autilitydesignprotectingaimproved


MANAGEMENT REPORT

barriernonwoventextilebasedonanadvancedlayercompositionhasbeenvalidintheCzechRepublicsince2015.

Incooperationwithitsbusinesspartners,theCompanyfilesso-called„sisterapplications“whereajointinventionisdividedintotwoindependentpatentapplicationsbasedontheareaofinterestofbothpartners.Forexample,apatentforsoftnonwoventextilesproductionisownedbyPEGASwhilethepatentforbabydiaperproductionusingthissoftnonwoventextileisownedbyabusinesspartner.Thisformofco-operationenablestheCompanytostayinaclosecontactwiththeresearchactivitiesofcustomers.Allthree

patentfillings,resultingfromjointdevelopment,havealreadybeenawardedapatentintheRepublicofSouthAfricaandtheoldestpatenthasnowbeenawardedaEuropeanpatent.

Litigation

Asoftoday,PEGASisnotawareofanypendingorthreateninglitigationorarbitrationproceedingsagainsttheGroupthatarelikelytohaveasignificanteffectonPEGAS’sfinancialpositionorresultsofoperations.

strategy

TheCompany’sstrategyintothefutureisto:1) developandtakeadvantageofgrowthopportunitiesto

strengthenitsmarketposition,2) maintainandextendtechnologicalexcellenceinspunmelt

nonwoventextilesfordisposablehygieneproductsintheEMEAregion,and

3) providesolidreturnstoshareholders.

PEGASintendstofulfilitsstrategyprincipallybyfocusingonthefollowingareas:

Continue Investing into Technologically Advanced Production Capacity:PEGASwillstrivetoinstallstate-of-the-artproductioncapacities.TheCompany‘slatestproductionlineinZnojmowasputintooperationinthesecondhalfof2011anditsnewEgyptianproductionlinestartedproductionin2013.TheCompanyconcludedacontractforthedeliveryofanewCompact-typeproductionline.ThenewlinerepresentsanothersignificantmilestoneintheCompany’shistorybecauseitisanentirelynewplatform,thefirstofitskindinthenonwoventextileindustry.Thistypeofaproductionline,withitsloweroverallinvestmentcosts,lowerdemandsoninfrastructureandlowercapacityisconsideredsuitableforpenetrationintonew,especiallydevelopingmarkets.

maintain Close Relationships with Customers and suppliers:PEGASwillcontinuetoworktogetherwithitsclients,machinerymanufacturersandrawmaterialsupplierstoresearch,developandimplementnewproductsaheadofthecompetition.PEGASwillendeavourtoremainattheforefrontoftechnicaldevelopmentsin

theindustry,supplyitscustomerswiththehighestqualityproductsandcontinuallydevelopnewmaterials.

focus on Technologically Advanced Products:PEGASisEMEA’slargestproducerofbi-componentspunmeltnonwovenswithextensiveexperienceinthedesignandproductionofultra-lightweightmaterials.Duringrecentyears,theCompanyhassuccessfullycommercialisedseveralnewmaterialswithuniqueproperties.

maintain good financial performance within the industry:PEGAS’sprincipalobjectivesaretocontinuetogrowwithitscoretargetmarket,deliverrevenuesinlinewiththisgrowthandmaintainhighoperatingmarginsrelativetoitscorecompetitors.PEGASiseffectiveatgeneratingsignificantlevelsofcash,whichissubsequentlyusedtosupportexpansion,reduceoutstandingdebtandenabledividendpayments.

monitoring investment opportunities:TheCompanywillcontinuetomonitorinvestmentopportunitiesoutsidetheCzechRepublic,whethertheseareacquisitionsortheconstructionofnewcapacitiesabroad.

15

Abo

ut C

ompa

nyCo

rpor

ate

Gov

erna

nce

Rep

ort

Fina

ncia

l par

t


MANAGEMENT REPORT

Man

agem

ent

Rep

ort

human Resources PEGASbenefitsfromaskilledandmotivatedworkforce,whichresultsinarelativelyhighprofitabilityperemployeeand

productivitygrowth.Thetablebelowindicatesthenumberandfunctionalbreakdownofemployees:

Number of employees As at 31 december

2014 2015 2016

Non-executiveDirectors 2 2 2

ExecutiveDirectors 3 3 3

Management 16 17 17

Specialists 72 81 71

LaboratoryStaff 61 59 59

Foremen 73 70 70

QualifiedWorkers 342 348 356

Total 569 580 578

Average no. of employees 566 565 568

PEGASprovidescontinuoustraining,someofwhichiscompulsory,inareassuchasworkplacesafety,computerskillsandforeignlanguages.

Theremunerationstructureishighlymotivational,withthefixedcomponentofthebasicsalaryrangingfromapproximately90%for

manualworkersanddowntoapproximately70%formanagement.Thesalaryofworkersvariesinrelationtothevolumeproducedinaspecificproductionplantandalsotakesintoaccountthequalityoftheproduct.

Corporate social Responsibility

PEGASismorethanjustamajormanufacturerandemployerintheZnojmoandVyškovregions.TheCompanyunderstandsitscommitmenttosocialresponsibilityinitsneighbourhood,thelocalcommunityandahealthyenvironment.

In2016,theCompanycontinuedinthesupportofanumberofcultural,socialandsportseventsintheseregions.

Children‘s Centre

In2009,PEGASbeganitscooperationwiththeChildren‘sCentreinZnojmo,whichprovidespaediatric,neurological,rehabilitation,psychological,educationalandsocialcareservicestothreatenedorhandicappedchildrenandtheirfamilies.Complexcareisprovidedintheformofward,stationaryandoutpatientcaretothreatenedorhandicappedchildrenuptotheageof15.

In2016,theCompanyfinancedanumberofholidaysandtripsforchildrenfromtheChildren’sCentre.EmployeesoftheCompanyhavebeenactivelyinvolvedinprovidingassistancetothechildren.

Zlín Film Festival for Children and Youth

TheZlínFilmFestivalforChildrenandYouthistheoldestandlargestchildren’sfilmfestivalofitskindintheworld.ThefestivalscreeningsareconductednotonlyinZlín,butalsoinmanyothertownsintheCzechRepublic.Eachyear,thefestivalscreensaround300filmsfrommorethan50countriesaroundtheworld.Since2010,thefestival‘sattendancehasexceeded95,000childrenandadults.PEGAShasbeenasupporteroftheZlínFilmFestivalforChildrenandYouthsince2013.


MANAGEMENT REPORT

Volleyball Club Znojmo – Přímětice

VKZnojmo-PříměticeistheonlyvolleyballclubintheZnojmoDistrictwithplayersinallagecategoriesinbothboy‘sandgirl‘sleaguesstartingwithprep,student,cadetandjuniorlevelteamsallthewayuptoadultmen‘sandwomen‘steams.InallthesecategoriestheclubranksamongthebestinCzechvolleyball.

PEGAShasbeenthegeneralpartnerofthevolleyballclubsince2010.

City of Bučovice

TheCompanysupportsculturalandsociallifeintheCityofBučovice,whereoneoftheproductionplantsislocated.Apartofthissupportgoestolocaleducationalandsportsinstitutions.

Comments on financial Results

Revenues, Costs and EBITDA

In2016,consolidatedrevenues(revenuesfromsalesofproducts)reachedEUR206.4million,downby10.0%yoy.Thedeclineinrevenueswasrelatedtothedevelopmentofpolymerprices,whichwhencomparedtotheprecedingyear,fellbymorethan10%.Onanannualcomparisonbasis,salesvolumesintonnagetermsremainedmoreorlessunchanged.

Totalconsolidatedoperatingcostswithoutdepreciationandamortisationwentdownby13.6%yoytoEUR159.7millionin2016.Theprimaryreasonfortheyear-on-yeardeclinewasthelowerpolymerpurchasepricecomparedtothepreviousyear.

In2016,EBITDAamountedtoEUR46.7million,upby5.3%yoy.ThisresultmeansthattheCompanyachieveditstarget,whichithadsetintherangeofEUR43.0–49.0million.Theyear-on-yeargrowthinEBITDAisrelatedinlargeparttotherevaluationoftheshareoptionplan,which,in2016,hadalessnegativeimpactthaninthepreviousyear.EBITDAadjustedforthiseffect,grewby1.4%toarecordEUR48.0million.TheincreaseinEBITDAwasalsosupportedbyrecordproductionvolumes,whichgrewby1.0%yoy.Ontheotherhand,inayear-on-yearcomparison,thepolymerpricepass-throughmechanismhadanegativeeffectonoperatingresults.

In2016,theEBITDAmarginwasatalevelof22.6%,whichis3.3percentagepointshighercomparedwith2015.

Operating Costs

TotalrawmaterialsandconsumablesusedlastyearamountedtoEUR143.9million,a14.3%yoydecrease.Theprimaryreasonfortheyear-on-yeardeclinewasthelowerpolymerpurchasepricecomparedtothepreviousyear.

In2016,totalstaffcostsreachedEUR12.6million,downby7.1%yoy.TotalstaffcostsadjustedfortherevaluationoftheshareoptionplanamountedtoEUR11.3million,anincreaseof6.7%.In2016,totalstaffcostsdenominatedinlocalcurrencies,i.e.inCzechcrownsandEgyptianpoundswithouttherevaluationoftheshareoptionplanincreasedby5.3%.

Otheroperatingexpenses(net)reachedEUR0.2millionin2016,comparedwithanexpenseofEUR1.1millionin2015.

17

Abo

ut C

ompa

nyCo

rpor

ate

Gov

erna

nce

Rep

ort

Fina

ncia

l par

t


MANAGEMENT REPORT

Man

agem

ent

Rep

ort

Depreciation and Amortisation

ConsolidateddepreciationandamortisationreachedEUR16.1millionin2016,upby0.3%yoy.

Profit from Operations

In2016,profitfromoperations(EBIT)amountedtoEUR30.6million,upby8.2%comparedwith2015.

Financial Income and Costs

In2016,foreignexchangechangesandotherfinancialincome/expense(net)representedalossofEUR3.2million,comparedwithagainofEUR8.7millionachievedin2015.ThisitemincludesrealisedandunrealisedFXgains/lossesandotherfinancialincomeandexpenses.Theyear-on-yearchangewasaffectednamelybyafurtherappreciationofthedollaragainsttheEuroattheendof2016,whichhadapositiveeffectonunrealisedexchangeratedifferencesrelatednamelytotherevaluationwithrespecttotheintra-companyloantothesubsidiaryinEgypt.Thispositiveeffectwas,however,compensatedforbythedevaluationoftheEgyptianpound,whichresultedinunrealisedforeignexchangelosseswithrespecttotheassetsoftheEgyptiansubsidiarydenominatedinthelocalcurrency.

Interestexpenses(net)relatedtodebtservicingamountedtoEUR7.3millionin2016,an8.8%decreasecomparedwith2015.Thereasonforthedeclineininterestexpenseswastheexpirationofinterestrateswapsrelatedtorefinancedbankloans.

Income Tax

In2016,theincometaxexpenseamountedtoEUR6.0million,upby49.9%over2015.CurrenttaxpayableamountedtoEUR4.2million,changesindeferredtaxrepresentedanexpenseofEUR1.8million.

Net profit

NetprofitreachedEUR14.1millionin2016,downby43.6%yoy.Thelowernetprofitwasrelatednamelytounrealisedforeignexchangechangesbookedinthecomparedperiods.

Investments

In2016,totalconsolidatedcapitalexpenditureamountedtoEUR21.0million,a124.9%yoyincrease.CapitalexpendituresrelatedtoexpansionofproductioncapacityrepresentedEUR16.5millionofthisamount.MaintenanceCAPEXconstitutedtheremainingEUR4.5million,upby22.0%comparedwiththepreviousyear.TheCompany,therefore,didnotexceeditsestimateofcapitalexpendituresfor2016,whichexpectedamaximumlevelofEUR25million.

Cash and Indebtedness

Theamountofnetdebtasat31December2016,wasEUR160.8million,downby1.8%comparedwiththelevelasat31December2015.NetdebttoEBITDAratioequatedto3.45.

Business Overview of 2016

Lastyear,thetotalproductionoutput(netofscrap)reached102,691tonnes,upby1.0%comparedwith2015.

In2016,theshareofrevenuesfromsalesofnonwoventextilesforthehygieneindustryconstitutedan86.0%shareoftotalrevenues,comparedwithan85.8%shareinthecomparableperiodintheprecedingyear.ThehighshareofproductsinthiscategoryconfirmstheimportantpositionthattheCompanyhasinthismarket.

In2016,revenuesfromsalesofnon-hygieneproducts(forconstruction,agriculturalandmedicalapplications)amountedtoEUR28.9million,whichrepresenteda14.0%shareoftotalrevenues.

Intermsofgeographicaldistribution,theCompanyconfirmeditssteadysalesfocusonthebroaderEuropeanareaanditsentryontothemarketsoftheMiddleEast.In2016,revenuesfromsalestoWesternEuropeamountedtoEUR80.5millionandrepresenteda39.0%shareoftotalrevenues.In2015,theyamountedtoEUR81.4million,correspondingto35.5%oftotalrevenues.

Inthisperiod,revenuesfromsalestoCentralandEasternEuropeandRussiaamountedtoEUR88.2millionandrepresenteda42.7%shareoftotalrevenues.In2015,thesesalesrevenuesreachedEUR94.3million,representinga41.1%share.


MANAGEMENT REPORT

RevenuesfromsalestootherterritoriesamountedtoEUR37.6millionandrepresentedan18.2%shareoftotalrevenues,comparedwithrevenuesofEUR53.5millionanda23.3%shareinthepreviousyear.

Guidance for 2017

Theagreementswithcustomersindicatethefullutilisationofourproductioncapacityin2017.

In2017,weexpectanincreaseinproductionvolumesasaresultofanewproductionlinethatisexpectedtobeinfullcommercialmodefromthestartofthesecondhalf2017.Theexpectedannualproductionofthisnewproductionlineisapproximately10,000tonnes.

Basedontheabovefactsandinformationknowntodate,theCompanysetsitsEBITDAguidanceintherangeofEUR43.0–50.0million.

TheCompanyisplanningfortotalCAPEXin2017nottoexceedEUR30.0millionlevel.

Czech Investment Incentives

Investment Incentives Granted to PEGAS

PEGAShasobtainedinvestmentincentivesfromtheCzechauthoritiesseveraltimes.RecipientsoftheexistinginvestmentincentivesaresubsidiariesPEGAS–NWa.s.andPEGAS–NSa.s.asspecialpurposecompaniestoaccommodateeachinvestment.TaxincentivesgrantedtoPEGAS–DSa.s.in1999expiredin2010andthissubsidiaryceasedtoexistfollowingitsmergerwithPEGASNONWOVENSs.r.o.witheffectfrom1January2011.TaxincentivesgrantedtoPEGAS–NTa.s.in2002expiredin2014.

PEGAS – NW a.s.

PEGAS–NWa.s.obtaineditsinvestmentincentivesbasedonthedecisionoftheCzechgovernmenton10June2005.Theincentiveconsistsofcorporateincometaxreliefforupto10years.Thetaxreliefmaynotexceed48%oftheeligibleinvestmentcosts(CZK1.021millionasat31December2016),andinanycasecannotexceedCZK573.6million.PEGAS–NWa.s.startedmakinguseoftheincentivesinfiscalyear2008.Thelastyear,inwhichPEGAS–NWa.s.willbeabletousetheinvestmentincentiveswillbe2017.

Accordingtothecorporatetaxestimateasof31December2016,ithasalreadyusedCZK112.8millionandCZK378.1millionstillremainstobeutilised.

PEGAS–NWa.s.receivedacommitmentofinvestmentincentivesfromtheMinistryofIndustryandTradeoftheCzechRepublicbasedonthedecisionfromOctober2016.Theincentiveconsistsofcorporateincometaxreliefof25%ofthetotaleligiblecostsandinanycasecannotexceedCZK148.05million.Theincometaxreliefmaybeexercisedforaperiodoftendirectlyconsecutivetaxationperiods.

PEGAS – NS a.s.

PEGAS–NSa.s.receivedacommitmentofinvestmentincentivesfromtheMinistryofIndustryandTradeoftheCzechRepublicbasedonthedecisiondated12January2009.

PEGAS–NSa.s.obtainedanapprovalofthefollowinginvestmentincentives:• corporateincometaxreliefforaperiodof10years;and• financialsupportforjobcreationintheZnojmoRegioninthe

amountofCZK200thousandforeverynewworkpositioncreated.

Thetotalamountofincentivesmaynotexceed30%oftheeligibleinvestmentcosts(CZK1,187millionasat31December2016).AtthesametimethetotalamountofthepublicgrantmaynotbehigherthanCZK403.5million.

TheCompanyhassofardrawnafinancialsupportforjobcreationintheamountofCZK9.6million.Basedonthecurrentestimateofthecorporateincometax,theCompanyexpectstoutilisetheinvestmentincentivesamountingtoCZK36.6millionasat31December2016.

19

Abo

ut C

ompa

nyCo

rpor

ate

Gov

erna

nce

Rep

ort

Fina

ncia

l par

t


MANAGEMENT REPORT

Man

agem

ent

Rep

ort

Investment in EgyptTheEgyptianproductionlinesuccessfullyraninstandardcommercialproductionmodefortheentireyear2016andmettheCompany’sexpectations.Intermsofoperatingparameters,theproductionlineisachievingparameterscomparabletotheproductionlinesintheCzechRepublic.In2016,therewerenomajorunexpectedinterruptionstoproduction.

InSeptember2015,theCompanyconcludedacontractwiththeproductiontechnologymanufacturer

ReifenhäuserReicofilGmbH&Co.KGthesubjectofwhichwasthedeliveryofthesecondproductionlinefortheEgyptianplant.InJune2016,theCompanydecidedtoredirectthenewproductionlinetotheCzechRepublic.Thisdecisionwasbasedonthecurrentproductmixanddemanddevelopment,andtookintoconsiderationthelackofproductioncapacityintheCzechRepublic.

Investment in the Republic of south Africa

InJune2016,theBoardofDirectorsannounceditsdecisiontoestablishasubsidiaryintheRepublicofSouthAfricaandtocommencenegotiationsrelatingtothepurchaseoflandforthepotentialfutureproductionsiteintheRepublicofSouthAfrica.Subsequently,inJuly2016,theCompanyestablishedasubsidiaryunderthebusinessnamePEGASNONWOVENSRSA(PTY)LTD.

Currently,theCompanyisconductingnegotiationsrelatingtothepurchaseoflandandisindiscussionswithpotentialcustomersthathaveexpressedaninterestincooperationinthisregion.TheCompanyisconsideringtheinstallationofthemostmodernproductionlinefromReifenhäuserReicofilbasedontheflatfloorconcept.

shareholder structure in 2016

ThetotalstakedirectlyheldbythemanagementoftheCompanyasof31December2016andasof31December2015was0.0%.

Thecompanydoesnothavepreciseinformationaboutthecompositionofitsshareholderstructure.Basedonthelistofshareholderspresentattheordinaryshareholdersmeetingheldon15June2016,themainshareholdersatthatdatewereWoodTextilesHoldingLimited(22.28%ofthesharecapitalandofthetotalvotingrights),FranklinTempletonInvestmentFundsandTempletonGlobalInvestmentTrust(together7.50%ofthesharecapitalandofthetotalvotingrights)andPKOTowarzystwoFunduszyInwestycyjnychSA(4.86%ofthesharecapitalandofthetotalvotingrights).TheCompanyhasreceivedthefollowingnotificationsfromtheshareholder(s)withrespecttotheirrespectiveparticipationintheCompanysincethedateoftheordinaryshareholdersmeeting.

OnJuly22,2016,theCompanyreceivedanotificationthatFranklinTempletonInvestmentManagementLimitedwasasofJuly21,2016holding435,201sharesintheCompany,constituting4.72%ofthesharecapitalandofthetotalvotingrightsattachedtotheshares

issuedbytheCompany.PriortoJuly21,2016,FranklinTempletonInvestmentManagementLimitedhadheld494,963sharesintheCompany,constituting5.36%ofthesharecapitalandvotingrightsattachedtothesharesissuedbytheCompany.

OnJanuary24,2017,theCompanyreceivedanotificationthatPKOTowarzystwoFunduszyInwestycyjnychSA,havingitsregisteredofficeatul.Chłodna52,00-872Warszawa,PolandwasasofJanuary20,2017holding466,526sharesintheCompany,constituting5.05%ofthesharecapitalandofthetotalvotingrightsattachedtothesharesissuedbytheCompany.PriortoJanuary20,2017,PKOTowarzystwoFunduszyInwestycyjnychSAhadheld460,937sharesintheCompany,constituting4.99%ofthesharecapitalandvotingrightsattachedtothesharesissuedbytheCompany.

Asaresultofthecompletedsharebuybackprogram,theCompanywasholding461,470ofitsownsharesasof31December2016,representing5.0%ofsharecapital.


MANAGEMENT REPORT

dividend PolicyTheAnnualGeneralMeetingofPEGASNONWOVENSSAheldon15June2016inLuxembourg,approvedtheproposedpayoutofadividendintheamountofEUR11,536,750,i.e.EUR1.25pershare.Thesourceofthedividendpayoutwas2015profitandretainedearningsofprioryears.Therecorddate(i.e.thedayattheendofwhichsharesentitledtoadividendareregisteredataccountsoftheentitledpersonsheldbythesettlementsystemsofCentrálnídepozitářcennýchpapírů,a.s,KrajowyDepozytPapierówWartościowychSpółkaAkcyjnaorbyotherrespectivesettlementsystems)wassetto14October2016andthedividendpaymentdatewassetto26October2016.

Thedividendwasnotpaidouton461,470oftheCompany‘sownshares,thatitheldattherecorddateforthedividendpayout,i.e.on14October2016.Therefore,thetotaldividendpayoutamountedtoEUR10,959,912.

Subjecttomaintainingsatisfactoryfinancialperformanceandtheabsenceofotherattractiveopportunities,PEGASwillendeavourtocontinuewithaprogressivedividendpolicy.NospecificpayoutratiointermsofnetprofitorananticipateddividendyieldhasbeensetbytheCompany.

Other Information Required by Legislation

PEGAS shareholding information

InformationonsharesandshareholdersisdescribedinchapterInvestorInformation.

Declaration on Management and Corporate Governance

DeclarationonManagementandCorporateGovernanceisdetailedinchapterCorporateGovernanceReportandchapterManagementreport–BasicInformationontheCompany.

Principal risks and uncertainties faced by the Company

DescriptionofprincipalrisksanduncertaintiesfacedbytheCompanycanbefoundinchapterCorporateGovernanceReport–RiskFactors.

Financial Instruments

FinancialInstrumentsaredescribedindetailinthenotestotheconsolidatedfinancialstatementsinnote5aa).

The objectives and policies of the Company’s financial risk management and exposure of the risks

TheobjectivesandpoliciesoftheCompany’sfinancialriskmanagementandexposureofthegivenrisksaredetailedinthenotestotheconsolidatedfinancialstatementsinnote4.

The existence of branches of PEGAS and the PEGAS Group entities

Subsidiariesincludedintheconsolidatedentityaredescribedinthenotestotheconsolidatedfinancialstatementsinnote5cc).

Information in respect of the acquisitions of own shares

BasedontheauthorisationbytheGeneralMeetingoftheCompanyheldon15June2011,theBoardresolvedtoimplementtheacquisitionofownsharesbytheCompanyon31July2015.ThepurposewastoreducethecapitaloftheCompanyand/ortomeetobligationsarisingfromdirectorandemployeeshareoptionprogrammesorotherallocationsofsharestodirectorsandemployeesoftheCompanyorofanassociatecompany.Maximumnumberofsharestobeacquiredamountedto5%ofthebasiccapitaloftheCompany,i.e.461,470shares.Thesharescouldbeacquiredupuntil14June2016foramaximumconsiderationofCZK1,000.

Asof8February2016,theCompanyhadcompletedtheacquisitionofitsownshareswithinthecourseofthesharebuybackprogram.Tothatdate,theCompanyboughtback461,470ofitsownsharesattotalacquisitioncostsofCZK370.0millionrepresenting5%oftheCompany’sbasiccapital.

Conflict of interest

During2016,nodecisionoftheboardofdirectorswastakenwhereadirectorwouldhaveaconflictofinterest.

21

Abo

ut C

ompa

nyCo

rpor

ate

Gov

erna

nce

Rep

ort

Fina

ncia

l par

t


MANAGEMENT REPORT

Man

agem

ent

Rep

ort

Internal control and risk management organisation

TheManagementoftheCompanyisresponsiblefortheestablishmentandmaintenanceofaninternalcontrolsystemattheCompanyanditsefficiencyintheprocessofpreparingfinancialstatements.TheinternalcontrolsystemcoverstheentirescopeofactivitiesoftheCompany.TheCompanyhasestablishedacontinuousprocessforidentifyingandmanagingvariouspotentialrisksfacedbytheCompany,andconfirmsthatallappropriateactionshavebeentaken,orarebeingtaken,toaddressanyissue.Financialstatements,bothforinternalandexternalreportingpurposes,arepreparedbyhighlyskilledprofessionalsandreviewedbyotherindependentpersonnel.Theannualfinancialstatements,bothstandaloneandconsolidated,aresubjecttotheindependentexaminationbytheexternalauditor.

Other corporate information (related to the Article 11 of the Law on Takeover Bids)

TheissuedcapitaloftheCompanyamountstoEUR11,444,456,beingdividedinto9,229,400shareswithaparvalueofEUR1.24each.

TherulesofappointmentanddismissalofthemembersoftheBoardofDirectorsaredescribedinArticle8oftheArticlesofAssociationoftheCompany.TherulesontheamendmentsofthearticlesofassociationaregovernedbystandardLuxembourglawprovisions.

InaccordancewiththeresolutionNr.9ofAnnualGeneralMeetingheldinJune2011,theBoardofDirectorshasbeenauthorisedtodecideontheacquisitionofupto922,940oftheCompany‘sownsharesbytheCompany,i.e.10%ofthebasiccapital.Basedonthisauthorisation,theBoardresolvedtoimplementtheacquisitionofownsharesbytheCompanyon31July2015intheamountof5%ofthebasiccapital(seeparagraphInformationinrespectoftheacquisitionsofownshares).

InaccordancewithresolutionNo.5oftheExtraordinaryGeneralMeetingheldinJuly2014,theBoardofDirectorshasbeenauthorisedtoincreasethesharecapitaloftheCompanyoneormoretimesbytotalamountofEUR1,716,668.40representedby1,384,410shareswithanominalvalueofEUR1.24eachuptoamaximumamountofsharecapitalEUR13,161,124.40byissuingsharesand/orgrantingrightstosubscribeforortoconvertanyothersecuritiesintosharesinthesharecapitaloftheCompany.Theauthorisationisvalidforaperiodoffiveyears.During2016,theBoardofDirectorshasnotusedthisautorisation.

InaccordancewithresolutionNo.11oftheAnnualGeneralMeetingheldinJune2016,theBoardofDirectorshasbeenauthorisedtodecideontheacquisitionofupto922,940ownsharesbytheCompany,i.e.10%ofthebasiccapital.Basedonthisauthorisationandinconnectionwiththeintentiontowithdrawsharesfrom

tradingontheWarsawStockExchange,theBoardresolvedtoannouncetheoffertobuyback434,531sharesthatwereacquiredonthebasisoftransactionsconcludedwithinthescopeoftradingonaregulatedmarketinPoland,whilstbeingrecordedonthesecuritiesaccountsheldatthePolishNationalSecuritiesDepository(KrajowyDepozytPapierówWartościowychSpółkaAkcyjna)on8January2017.Inthisregard,theCompanyeventuallyacceptedtherequestsandreacquired4,071sharesinMarch2017.

TheCompanyisnotapartytoanysignificantagreementwhichtakeseffect,altersorterminatesuponachangeofcontroloftheCompanyfollowingatakeoverbid.ThesubsidiaryoftheCompany,PEGASNONWOVENSs.r.o.,isapartytoacreditagreement,whichmaybeterminateduponachangeofcontrolofPEGASNONWOVENSs.r.o.ortheCompany.

AllsharesissuedbytheCompanyhaveonevoteandcarryequalvotingdividendrights,therearenoshareswithspecialcontrolrightsorlimitationsontheirtransfer.Therearenorestrictionsonvotingrights.

TherightsofaholderofsharestoparticipateinageneralmeetingofshareholdersandtoexercisevotingrightsshallbedeterminedbytheregistrationofsuchholderofsharesintheregisterofsharesoftheCompanyandbywayofnotificationofintentiontoparticipateatandbyagivenrecorddateinaccordancewiththeprovisionsofLuxembourglaw.

TherearenoagreementsbetweenshareholdersknowntotheCompany,whichmayresultinrestrictionsonthetransferofsecuritiesand/orvotingrights.

TheCompanyandtheoperatingcompanieshavenotcreatedanddonotcurrentlyintendtocreateashareoptionplanforthebenefitoftheiremployeesotherthanthosedescribedinchapterRemunerationofDirectorsandManagement.

TheCompanyispartytoserviceagreementswithitsexecutivedirectors,whichprovideforcompensationiftheexecutivedirectorismaderedundantforotherreasonsthanforbreachofhisobligations.EachexecutivedirectorisentitledtoreceivefromtheCompanyhismonthlyremuneration(butnotbonus)whichhewouldbeentitledtoreceivefromallcompaniesoftheGroupunderallserviceagreementsintheyearprecedingtheyearwhenallsuchserviceagreementswereterminated,untiltheearlierof(i)theexpiryoftheperiodofthreeyearsfollowingthedateofsuchterminationand(ii)thedateoftheexecutivedirectorenteringintoanyformofemployment,directorship,orotherformofservicerelationshipwithathirdparty.

TheCompanyisnotapartytoanyotheragreementswithitsBoardmembersoremployeesprovidingforcompensationiftheyresignoraremaderedundantwithoutvalidreasonoriftheiremploymentceasesbecauseofatakeoverbid.


MANAGEMENT REPORT

bond issueDuringtheyear2016,theCompanydidnotissueanybonds.

material subsequent Events

OnJanuary5,2017,theBoardofDirectorsoftheCompanyapprovedtheintentiontodelistCompany‘ssharesfromtradingontheWarsawStockExchange.ThisdecisionwastakenonthegroundsofverylowtradingvolumesoftheCompany’ssharesontheWarsawStockExchangethatdonotjustifythecostsofthelisting.OnJanuary23,2017,thePolishsupervisoryauthority,approvedtheTenderOfferthattheCompanysubmittedinconnectionwithitsintention.TheperiodfortheregistrationofrequestsfortheacceptanceoftheTenderOfferendedon24February2017.Inthisregard,theCompanyeventuallyacceptedtherequestsandreacquired4,071sharesinMarch2017,representing0.04%ofthesharecapitalandvotingrightsoftheCompany.ThedelistingfromtradingontheWarsawStockExchangeisnowpendingtheapprovalofthePolishsupervisoryauthority.Inaccordancewiththerequiredprocedure,oncetheapprovalisissued,theCompanyshallsubsequentlyrequesttheWarsawStockExchangetoalsoapprovethedelistingofsharesfromtrading.ItisexpectedthattheCompany‘ssharesshallceasetobetradedontheWarsawStockExchangeduringthefirsthalf2017.

OnJanuary20,2017,companyPEGASNONWOVENSs.r.o.issuedprivateseniorunsecuredbondspursuanttoCzechlawinthenominalamountofEUR50million.Thebondissuebearsafixedinterestrateof1.875%p.a.andisrepayableonJanuary20,2024.TheproceedsfromthebondissuewillbeusedprimarilyfortherefinancingofthepublicbondissueinNovember2018.

ThemanagementoftheGroupisnotawareofanyothereventsthathaveoccurredsince31December2016thatwouldhaveanymaterialimpactontheCompany.

23

Abo

ut C

ompa

nyCo

rpor

ate

Gov

erna

nce

Rep

ort

Fina

ncia

l par

t


MANAGEMENT REPORT

Man

agem

ent

Rep

ort

PEGAS’s Shares and Share Capital

shareholders as of 31 december 2016

InstitutionalandRetailInvestors(togetherfreefloat) 100%

OfwhichManagementoftheCompany 0,0%

Source:CompanyData

InDecember2006,PEGAScompletedanIPOofitssharesatapriceofCZK749.20(EUR27).TheIPOconsistedoftheofferof5,042,750sharesintotal,including1,810,000sharesnewlyissuedintheCompany’ssharecapitaland3,232,750sharesofferedbythesellingshareholderPamplonaCapitalPartnersI,LP(“Pamplona”).

SharesofPEGASNONWOVENSSAwerelistedonthePragueStockExchangeandontheWarsawStockExchangeinDecember2006.PEGAShasoneseriesofshares.Allshareshaveonevoteandcarryequaldividendrights.ThesharesareinregisteredformandareenteredintothedepositorysystemofClearstreamBank.ThenominalvalueofoneshareisEUR1.24.TheaggregatenominalvalueoftheissuedsharecapitalisEUR11,444,456andnumberofissuedshareis9,229,400.

On4July2007,theprincipalshareholderofPEGASNONWOVENSSA,Pamplona,announceditsintentiontosellpartoritsentirestakeheldinPEGAS.Pamplonaplaceditsentire43.4%stakeon10July2007viaanacceleratedbook-buildonthePragueandWarsawStockExchangesatthepriceofCZK780orPLN102.493.ThesharesweresoldprimarilytoEuropeaninstitutional/portfolioinvestorsandtheplacementwasnottargetedtoretailinvestors.

ThesharesaretradedonthePragueStockExchangeunderISINLU0275164910BAAPEGASandontheWarsawStockExchangeunderPGS.ThesharesofPEGASNONWOVENSSAareasof19March2007partofthePXindex,whichcoversthesharesofallmajorissuersonthePragueStockExchange.

3 DuetotheexecutionoftheplacementonthestockexchangesinPragueandWarsaw,thereisnoofficialpriceinEUR.TheCZK/EURFXratefrom10July2007was28.601.

OnJanuary5,2017,theBoardofDirectorsoftheCompanyapprovedtheintentiontodelistCompany‘ssharesfromtradingontheWarsawStockExchange.ThisdecisionwastakenonthegroundsofverylowtradingvolumesoftheCompany’ssharesontheWarsawStockExchangethatdonotjustifythecostsofthelisting.OnJanuary23,2017,thePolishsupervisoryauthority,approvedtheTenderOfferthattheCompanysubmittedinconnectionwithitsintention.TheperiodfortheregistrationofrequestsfortheacceptanceoftheTenderOfferendedon24February2017.Inthisregard,theCompanyeventuallyacceptedtherequestsandreacquired4,071sharesinMarch2017,representing0.04%ofthesharecapitalandvotingrightsoftheCompany.ThedelistingfromtradingontheWarsawStockExchangeisnowpendingtheapprovalofthePolishsupervisoryauthority.Inaccordancewiththerequiredprocedure,oncetheapprovalisissued,theCompanyshallsubsequentlyrequesttheWarsawStockExchangetoalsoapprovethedelistingofsharesfromtrading.ItisexpectedthattheCompany‘ssharesshallceasetobetradedontheWarsawStockExchangeduringthefirsthalf2017.

Share Price Development and Trading Activity in 2016

During2016,PEGASsharesweretradedforatotalvalueofCZK1.3billiononthePragueStockExchangeandforatotalvalueofPLN5.24millionontheWarsawStockExchange.ThelowesttradingpriceduringtheyearwasCZK685andPLN111.60andthehighesttradingpricewasCZK839andPLN137.90onthePragueandWarsawStockExchangesrespectively.

Theclosingpriceon30December2016wasCZK769onthePragueStockExchangeandPLN122.85ontheWarsawStockExchangeandthemarketcapitalisationofPEGASreachedCZK6.7billion(basedonthePragueStockExchangequote).

INVEsTOR INfORmATION


MANAGEMENT REPORT

share price development 1/1/2016–31/12/2016

PEGAS’s Investor Relations Commitment

IntheperiodsincetheIPO,PEGAShasfocusedondevelopingresearchcoveragefortheCompany,developingrelationshipswithanalystsandsettingupinvestorrelationscommunicationsaccordingtothebestmarketstandards.Atpresent,theCompanyhassevensell-sideanalystswhopublishresearchontheCompanyandanumberofothercommentinganalystsfrombothinternationalinvestmentbanksandlocalCzechfinancialinstitutions.

PEGASisdedicatedtoopenandpro-activecommunicationswithitsshareholdersandhasimplementedascheduleofinvestorcommunicationsevents,whichisfullycompliantwithmarketstandardsforlistedcompanies.

Financial Results Calendar for 2017

11 may 2017 Q12017UnauditedConsolidatedFinancialResultsofPEGASNONWOVENSSAinaccordancewithIFRS

15 June 2017 AnnualGeneralMeetingofShareholders

24 August 2017 HalfYearReportforthe1stHalfof2017.1stHalf2017UnauditedConsolidatedFinancialResultsofPEGASNONWOVENSSAinaccordancewithIFRS

16 November 2017 Q1–Q32017UnauditedConsolidatedFinancialResultsofPEGASNONWOVENSSAinaccordancewithIFRS

IR Contact Details

Investor Relations

Address: Přímětická3623/86,66902Znojmo,CzechRepublic

Phone number: +420515262408

fax number: +420515262505

e-mail: [email protected]

website: www.pegas.cz,www.pegas.lu

Janu

ary

Febr

uary

Mar

ch

Apr

il

May

June July

Aug

ust

Sept

embe

r

Oct

ober

Nov

embe

r

Dec

embe

r

850

825

800

775

750

725

700

675

650

Source:PSE

25

Abo

ut C

ompa

nyCo

rpor

ate

Gov

erna

nce

Rep

ort

Fina

ncia

l par

t


MANAGEMENT REPORT

Man

agem

ent

Rep

ort

1.30 EUR dIVIdENd PER shARE PROPOsEd

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tFi

nanc

ial p

art

Corp

orat

e G

over

nanc

e R

epor

t

Organisational structure ThediagrambelowrepresentsthecurrentstructureoftheGroupasat31December2016:

Source:CompanyData

CORPORATE gOVERNANCE REPORT

PEGAS NONWOVENS SA

PEGAS NONWOVENSinternational s.r.o.PEGAS NONWOVENS s.r.o.

PEGAS-NT a.s.

PEGAS – NW a.s.

PEGAS – NS a.s.

PEGAS NONWOVENSEGYPT LLC

PEGAS NONWOVENSRSA (PTY) LTD

100%

100%

100% 100%

0.3%

99.7%

100%

100%


CORPORATE GOVERNANCE REPORT

PEGASNONWOVENSSA,Luxembourg,parentholdingcompany,isa100%owneroftheoperatingsubsidiaryPEGASNONWOVENSs.r.o.basedinZnojmo,CzechRepublic.PEGASNONWOVENSs.r.o.owns100%ofthecapitalofitsthreeoperatingsubsidiarieswhichareincorporatedintheCzechRepublic.

AlloftheoperatingassetsintheCzechRepublicareownedbyPEGASNONWOVENSs.r.o.andits3subsidiaries:PEGAS-NTa.s.,PEGAS–NWa.s.andPEGAS–NSa.s.

TheCompany’srelationswithsuppliersandcustomersarecarriedoutbyPEGASNONWOVENSs.r.o.

In2010,PEGASNONWOVENSInternationals.r.o.wasestablishedasaspecialpurposevehiclefortherealisationofpotentialinvestmentopportunities.In2011,PEGASNONWOVENSEGYPTLLCwasestablishedinordertocarryouttheGroup’sinvestmentsinEgypt.InJuly2016,PEGASNONWOVENSRSA(PTY)LTDwasestablishedtopursuetherealisationoftheinvestmentprojectintheRepublicofSouthAfrica.

general meeting of shareholders

Theoperationof,andthemainpowersof,thegeneralmeetingofshareholders,andshareholders‘rightsandconditionsforexercisingtheserightsareregulatedbytheCompany’s

articlesofassociation(seeinparticulararticles17,18,7and6)andapplicableLuxembourglaw.

board of directors

TheCompanyisadministeredandmanagedbyaBoardofDirectors.TheBoardofDirectorsisvestedwiththebroadestpowerstoperformallactsofadministrationanddispositionintheCompany’sinterest.AllpowersnotexpresslyreservedbyLuxembourglawortheCompany’sArticlesofAssociationtothegeneralmeetingofshareholdersfallwithinthepowersoftheBoardofDirectors.

Thedirector(s)oftheCompanyareappointedbyaGeneralMeetingofShareholdersforatermwhichmaynotexceedsixyears.Thedirector(s)maybedismissedatanytimeandatthesolediscretionofaGeneralMeetingofShareholders,andmaybereappointedwithoutrestrictions.

Members of the Board of Directors

ThefollowingtablesetsoutinformationwithrespecttoeachofthemembersoftheCompany‘sBoardofDirectorsandtheirposition/swithintheCompany:

board of directors

Name Position/function business Address function period in 2016

FrantišekŘezáč Executivedirector Přímětická86,66902,Znojmo,Českárepublika 1.1.2016–31.12.2016

FrantišekKlaška Executivedirector Přímětická86,66902,Znojmo,Českárepublika 1.1.2016–31.12.2016

MarianRašík Executivedirector Přímětická86,66902,Znojmo,Českárepublika 1.1.2016–31.12.2016

MarekModecki Non-ExecutiveDirector,ChairmanoftheBoard

68-70,boulevarddelaPétrusse,Luxembourg,L-2320,GrandDuchyofLuxembourg

1.1.2016–31.12.2016

JanSýkora Non-ExecutiveDirector 68-70,boulevarddelaPétrusse,Luxembourg,L-2320,GrandDuchyofLuxembourg

1.1.2016–31.12.2016

29

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tFi

nanc

ial p

art



Corp

orat

e G

over

nanc

e R

epor

t

Brief biographical and professional details concerning the Company‘s directors are set forth below:

františek Řezáč,aged43,isagraduateoftheLawFacultyofMasarykUniversityinBrno.HejoinedPEGASin1996whilestillstudyingatuniversityandthenworkedinvariousmanagerialpositionsattheCompany.HeheldthepositionoftheLegalandHumanResourceDepartmentDirectorandfrom2004hewastheSalesDirector.HebecameCEOinOctober2008.HehasbeenExecutiveDirectoroftheholdingcompanyPEGASNONWOVENSSAsinceNovember2006.MrŘezáčisamemberoftheYoungPresidents’Organization.

františek Klaška,aged60,wasappointedasanexecutivedirectoroftheCompanyinNovember2006.Mr.KlaškahasbeenwiththeCompanysince1991,havingpreviouslyworkedfor5yearsinZbrojovkaBrno,adiversifiedengineeringcompany.HewaspromotedtohiscurrentpositionofTechnicalandDevelopmentDirectorofPEGASNONWOVENSs.r.o.in2001.Mr.KlaškaisagraduateoftheCzechTechnicalUniversity.

marian Rašík,aged45,wasappointedasanexecutivedirectorasof1March2010.InDecember2009,hewasappointedastheCFOofPEGASNONWOVENSs.r.o.PriortojoiningPEGAS,heworkedasadirectoratafinancialadvisoryfirmCorpinPartners.In2003–2005hewasaCFOatVítkoviceStrojírenstvía.s.InthepasthealsoworkedwithVÚBBankinthePraguebranch,ABNAMROandhestartedhisprofessionalcareerasanauditorwithCoopers&Lybrand.MarianRašíkgraduatedfromtheEconomicsFacultyoftheTechnicalUniversityinOstrava.

marek modecki,aged58,wasappointedasanon-executivedirectorinApril2008.HeiscurrentlyaManagingpartnerat21Concordia,aprivateequityinvestmentcompanybasedinWarsawwithofficesinParisandMilan.In2006–2008heworkedasaSeniorBankerforConcordiaEspiritoSantoInvestment,ajointventurebetweenConcordiaandthePortugueseEspiritoSantoGroup.Mr.ModeckiholdsaMasterinLawfromtheUniversityofWarsaw.HealsostudiedInternationalLawattheMaxPlanckInstituteandLawattheUniversityofHamburg.

Jan sýkora,aged45,wasappointedasanon-executivedirectorinMay2012.Mr.SýkoraiscurrentlyservingasaChairmanofWood&Company,aleadingindependentCentralandEasternEuropeaninvestmentbankwhichhejoinedin1994.Healsoservesonvariousboardsofbothpublicandnotforprofitcompanies(PragueStockExchange,InternationalSchoolofPragueandYoungPresidents’Organization).Mr.SýkoraobtainedhisMBAfromtheRochesterInstituteofTechnology.



The Company‘s directors (left to right) JanSýkora,MarekModecki,FrantišekŘezáč,MarianRašík,FrantišekKlaška.

31

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tFi

nanc

ial p

art



Corp

orat

e G

over

nanc

e R

epor

t

Changes to the Board of Directors in 2016

TheAnnualGeneralMeetingofShareholders(hereinafter“theMeeting”)on15June2016resolvedtoratifytheirco-optationforanotherthreeyearsoftwoexecutivemembersoftheBoardofdirectors,Mr.FrantišekŘezáčandMr.FrantišekKlaška,dated1December2015andfinallyratifiedtheirappointmentforatermendingon30November2018.

Asat29February2016,thetermoftheexecutivememberoftheBoardofdirectors,Mr.MarianRašík,ended.OnMarch1,2016,theBoardofDirectorsresolvedtoratifyhisco-optationforaterm

endingon28February2019.ThisresolutionwasfinallyratifiedbytheMeetingon15June2016.

TheMeetingfurtherresolvedtore-appointtwonon-executivedirectors,Mr.MarekModeckiandMr.JanSýkora,foratermendingatthegeneralmeetingofshareholdersofPEGAStobeheldin2018.

Thefollowingtablesetsoutpastandcurrentdirectorshipsheldbythedirectorsinthepastfiveyears.OtherdirectorsthanthosestatedbelowdonotholdordidnotholdanydirectorpositionsoutsidetheCompany.

Name Positions held

marek modecki former directorships:

SupervisoryBoardmemberofConcordiaEspiritoSantoInvestmentLtd.

SupervisoryBoardmemberofProkomSoftwareSA

SupervisoryBoardmemberofMetalexportSA

SupervisoryBoardmemberPetrolinvestSA

SupervisoryBoardmemberPolnordSA

Non-executivedirectorAblonGroupPlc

SupervisoryBoardmemberEmpikMedia&FashionSA

Non-executivememberoftheManagementBoardofImmobelSA

MemberoftheSupervisoryBoardofSMTS.A.

Current directorships:

ManagingPartnerof21ConcordiaLtd.

MemberoftheSupervisoryBoardofHollywodS.A.

MemberoftheSupervisoryBoardofMoneviaLtd.

Jan sýkora former directorships:

AmRest–MemberoftheSupervisoryBoard

WindowHoldingLimited–Director

GrumanHoldingLimited–Director

SUNCOREENERGY,a.s.–ChairmanoftheSupervisoryBoard

Current directorships:

WOOD&Company–ChairmanoftheBoard

InternationalSchoolofPrague–MemberoftheBoardofTrustees

TheDukeofEdinbourghsInternationalAwardCzechRepublicFoundation,o.p.s.–ChairmanoftheSupervisoryBoard

PragueStockExchange–MemberoftheSupervisoryBoard

All-StarHoldingLimited–Director

Casiana,s.r.o.–ExecutiveHead

CDESTATES,s.r.o.–ExecutiveHead

RenaissancefinanceS.A.–Director

InternationalGoldEvent2017,z.s.–ChairmanoftheBoard



AtthedateoftheAnnualReport,nomemberoftheBoardofDirectorshas,inthepreviousfiveyears,(i)beenconvictedofanyoffencesrelatingtofraud;(ii)heldanexecutivepositionatanycompanyatthetimeoforimmediatelyprecedinganybankruptcy,receivershiporliquidation;(iii)beensubjecttoanyofficialpublicsanctionbyanystatutoryorregulatoryauthority(includinganydesignatedprofessionalbody),or(iv)beenthesubjectofanyofficialpublicincriminationorbeendisqualifiedbyacourtfromactingasamemberoftheadministrator,managementorsupervisorybodiesofacompanyorfromactinginthemanagementorconductoftheaffairsofanycompany.Exceptasdisclosedinthisreport,nomemberoftheBoardofDirectorshasaconflictofinterest

(actualorpotential)betweenhisprivateinterestsandhisdutiestotheCompany.

NomemberoftheBoardofDirectorsholdsasupervisoryoranon-executivepositioninanotherlistedcompanyorcarriesonprincipalactivitiesoutsidetheCompanywhicharesignificantwithrespecttotheCompany.

Changes in the senior management in 2016

EffectiveasofJune6,2016,Ms.RenataKouřilováwasappointedintotheseniormanagementoftheCompanyastheQualityDirector.

Internal control and risk management organisation

TheManagementoftheCompanyisresponsiblefortheestablishmentandmaintenanceofaninternalcontrolsystemattheCompanyanditsefficiencyintheprocessofpreparingfinancialstatements.TheinternalcontrolsystemcoverstheentirescopeofactivitiesoftheCompany.TheCompanyhasestablishedacontinuousprocessforidentifyingandmanagingvariouspotentialrisksfacedbytheCompany,andconfirmsthatallappropriate

actionshavebeentaken,orarebeingtaken,toaddressanyissue.Financialstatements,bothforinternalandexternalreportingpurposes,arepreparedbyhighlyskilledprofessionalsandreviewedbyotherindependentpersonnel.Theannualfinancialstatements,bothstandaloneandconsolidated,aresubjecttotheindependentexaminationbytheexternalauditor.

Remuneration of directors and management

TheobjectiveoftheCompany’sremunerationpolicyistoprovideacompensationprogrammethatallowsthecompanytoattract,retainandmotivatethemembersoftheBoardofDirectorsandotherGroupmanagerswhohavethecharactertraits,skillsandbackgroundtosuccessfullyleadandmanagetheCompany.

TheremunerationcommitteewasestablishedbyaresolutionoftheBoardofDirectorsinJuly2008.Currently,membersoftheRemunerationandAuditcommitteesareMarekModeckiandJanSýkora.

33

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tFi

nanc

ial p

art



Corp

orat

e G

over

nanc

e R

epor

t

(inEUR) Remuneration Total

PEgAs NONWOVENs sA Other group Companies

Pecuniary Income Pecuniary Income Received in kind

members of the board of directors

BoardRemuneration 329,967 555 -- 330,522

Salariesandothersimilarincome

-- 290,153 25,737 315,890

ManagementBonus -- 102,416 -- 102,416

Warrants 1,423,553 -- -- 1,423,553

Total 1,753,520 393,124 25,737 2,172,381

management of the group Companies*

Salariesandothersimilarincome

-- 780,142 67,016 847,158

ManagementBonus -- 161,609 -- 161,609

BoardRemuneration(incl.SupervisoryBoard)

-- 59,305 -- 59,305

Total 0 1,001,056 67,016 1,068,072

Total 1,753,520 1,394,180 92,753 3,240,453

*Incompliancewiththedefinitionof“personsdischargingmanagerialresponsibilitieswithinanissuer”accordingtotheDirective596/2014oftheEuropeanParliamentandoftheCouncilof16April2014oninsiderdealingandmarketmanipulation(marketabuse).Totalnumberofpersonsincluded18.

Information on Shares Held by the Management

Asof31December2016,BoardmembersofPEGASdirectlyheldnosharesofPEGAS.

Inadditiontodirectpersonalholdingsoftheboardmembers,Mr.JanSýkoraisoneofthecontrollingpersonsofWOOD&CompanyFinancialServices,a.s.,whichisappointedasaninvestmentmanagerofcertainsub-fundsofWOOD&CompanyFundsSICAVP.l.c.(Malta)thatheldtogether2,155,718sharesofPEGAS,representing23.36%ofaggregatevotingrightsasat31December2016.

Personsdischargingmanagerialresponsibilitieswithinanissuerheldasof31December2016nosharesofPEGAS.

Cash-settled Share-based Payment for Executive and Non-executive Directors

In2007,theCompanyenteredintoaSharepricebonusschemeforitsSeniorManagementandBoardMembers.TheschemeisrealisedthroughPhantomoptions.

TheAnnualGeneralMeetingheldon15June2007approvedthegrantofanaggregateamountof230,735phantomoptionstosixseniorexecutivemanagersandtwonon-executivedirectors,fornoconsideration.TheGrantdateofthephantomoptionswas24May2007.Eachphantomoption,whenexercised,grantedthemanagertherighttoreceivecashcalculatedastheclosingpriceofoneCompanyshareonthePraguestockexchange(thePSE)(orothermarketifthePSEtradingisdiscontinued)onthedayprecedingthedayofexerciseofthephantomoptionlessCZK749.20representingtheofferpriceatthetimeoftheinitialpublicoffering

ofthesharesofPEGASNONWOVENSS.A.(theIPOprice).25%ofthephantomoptionsvestedyearly,withthefirstoptionsvestingfrom18December2007andthelastoptionsvestingfrom18December2010.Thegivenpartofphantomoptionsmaybeexercisedonorafterthevestingdate.TheparticipantshallprovideservicetotheGroupatthevestingdatetobeeligibleforthegivenphantomoptionsseries.

On15June2010,theAGMapprovednewprinciplesofthesharepricebonusplanformembersoftheseniormanagementandthemembersoftheBoardofDirectors.ThegoalofthenewprogrammewastoenhanceitsmotivationfunctionandtoextendittothenewmembersoftheseniormanagementandtheBoardofDirectors.Therefore,theAGMMeetingresolvedtoissueanaggregateamountof230,735phantomoptions(representing2.5%ofsharecapitalofPEGASNONWOVENSSA)tothedirectorsandseniormanagementofPEGASand/oritsaffiliates,againstnoconsideration.Eachphantomoption,whenexercised,willgrantthedirectortherighttoreceiveaphantomshare,i.e.therighttoreceiveincashanamountequaltothedifferencebetweenCZK473.00representingthePEGAS’ssharepriceonthePragueStockExchange(the“PSE”)asof15December2009increasedby10%,andtheclosingpriceofonePEGAS’sshareonthedayprecedingthedayofexerciseofthephantomoptiononthePSE(orothermarketifthePSEtradingisdiscontinued).25%ofphantomoptions(i.e.57,684options)willvestyearly,withthefirstoptionsvestingon18December2010andthelastoptionsvestingon18December2013,whereasthefirstoptionsvestingon18December2010fullyreplacedthelastoptionsofcurrentsharepricebonusplan,approvedattheAGMin2007,vestingatthesamedate.Therefore,therightfortheremaining34008options(withvestingdateon18December2010)grantedin2007andapprovedbytheAnnualGeneralMeetingheldon15June2007wasabandoned.



TheExtraordinaryGeneralMeetingheldon21July2014resolvedtoconvert230,735phantomoptionsgrantedin2010–2013into230,735warrants.Eachwarrant,whenexercised,willgranttheholdertherighttoreceive(i)oneshareinPEGASforastrikepricecorrespondingtoCZK473.00representingthePEGAS’ssharepriceonthePSEasof15December2009increasedby10%,or(ii)apaymentincashamountingtothefinalpriceofoneshareofPEGASonthePSEonthebusinessdayprecedingtheexercisedate,lessCZK473.00.Allthewarrantswillvestimmediatelyfromtheirgrantingdateandwillhavethesameexerciseperiodthatwasinitiallyplannedforthephantomoptions.

TheExtraordinaryGeneralMeetingheldon21July2014resolvedtoissue230,735newwarrants(representing2.5%ofthePEGAS’ssharecapital)tothedirectorsandseniormanagementofPEGASand/oritsaffiliatescollectively,foramarketpricesetbyanexpertvaluationintheamountofCZK5.89pernewwarranttobepaidincashbythedirectors,itbeingunderstoodthattheBoardofDirectorsofPEGASwilldecidehowthenewwarrantswillbedividedamongthedirectorsandseniormanagementofPEGASand/oritsaffiliates.Eachnewwarrant,whenexercised,willentitletheholdertoeitherreceive(i)oneshareinPEGASforastrikepricecorrespondingtoCZK588.16(representingtheaverageofPEGAS’ssharepriceonthePSEfrom1October2013to31December2013)lessallthedividendswhichhavebeenvalidlydeclaredbyPEGAS,perPEGAS’sshare,fortherelevantfinancialyear(s)(i.e.thefinancialyear2014forthenewwarrantstobevestedin2014,thefinancialyears2014and2015forthenewwarrantstobevestedin2015andthefinancialyears2014,2015and2016forthenewwarrantstobevestedin2016),or(ii)apaymentincashamountingtothefinalpriceofoneshareofPEGASonthePSEonthebusinessdayprecedingtheexercisedate,plusallthedividendswhichhavebeenvalidlydeclaredbyPEGAS,perPEGAS’sshare,fortherelevantfinancialyear(s)(i.e.thefinancialyear2014forthenewwarrantstobevestedin2014,thefinancialyears2014and2015forthenewwarrantstobevestedin2015andthefinancialyears2014,2015and2016forthenewwarrantstobevestedin2016),lessthestrikepriceofCZK588.16(representingtheaverageofPEGAS’ssharepriceonthePSEfromOctober1,2013toDecember31,2013).

OnOctober17,2016,theCompanyreceivedanannouncementfrompersonsdischargingmanagerialresponsibilitieswithintheissuerabouttransactionswithfinancialinstruments,thevalueofwhichisderivedfromthesharepriceoftheCompany.Thesubjectofthetransactionwastheexerciseof153,824warrantsawardedbasedonacontractdated22September2014withastrikepriceofCZK588.16.TheclosingpriceoftheCompany’ssharesasatthedaypreceedingtheexerciseamountedto792.00CZK.

Totalnumberofissuedvirtualoptionsandwarrantswas146,215asof31December2016(300,039asof31December2015).Thenumberofvirtualoptionsandwarrantsasof31December2016consistsof53,840virtualoptionswithastrikepriceofCZK749.20,15,464virtualoptionswithastrikepriceofCZK473and76,911warrantswithastrikepriceofCZK588.16.

Management Bonus Scheme

Theprinciplesofthebonusschemefor2008andforthefollowingfinancialyearstargetedtotheseniormanagementofPEGASGroupwereapprovedbytheAGMin2008.

Thekeyelementsofthebonusschemeareasfollows:• Theschemewasdesignedtoensurethatseniormanagement

isfocusedondeliveringtheCompany’sbudgetedeconomicresultsrepresentedbytheBudgetedEBITDAandisvalidfortheaccountingyearsof2008andonwards.

• BasisforthebonuscalculationistheGroup’sEBITDAcalculatedinaccordancewithIFRSastheconsolidatedprofitfortheGroupadjustedforcertainextraordinaryitemsandgainsorlosses.

• IfachievedEBITDAisequaltoBudgetedEBITDA,thepaidbonuswillbetheTargetbonus.IftheachievedEBITDAisbeloworabovetheBudgetedEBITDA,theamountofthetargetbonuswillbedecreasedorincreaseduptotheamountofamaximumbonusinaccordancewithcriteriasetforeachyearbytheBoardofDirectors.

Remunerations of Persons Discharging Managerial Responsibilities

PersonsdischargingmanagerialresponsibilitiesareentitledtothemanagementbonuswhichispartlybasedontheBudgetedEBITDAandisdeterminedbythesameprinciplesastheabovementionedmanagementbonusscheme.Inaddition,thesecondpartofthepersonsdischargingmanagerialresponsibilitiesbonusisbasedontheappraisalofthesuperior.

35

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tFi

nanc

ial p

art



Corp

orat

e G

over

nanc

e R

epor

t

Corporate governancePursuanttotheWarsawStockExchangeBy-laws,andinconnectionwiththelistingoftheCompany’ssharesontheWarsawStockExchange,theCompanyisrequiredtodeclarewhichofthePolishprinciplesofcorporategovernancecontainedintheWSECorporateGovernanceRulesitintendstocomplywith,aswellastoenumeratetheprincipleswhichitdoesnotintendtocomplywithandtostatethereasonsforthenon-compliance.TheoriginalWSECorporate

GovernanceRulesadoptedbytheCompanyduringtheIPOwereamendedbasedonResolutionNo.13/1171/2007oftheWarsawStockExchangeSupervisoryBoarddated4July2007concerningamendmentoftheWSERules.

TheCompanyhasdecidedtoobservethemajorityoftheWSECorporateGovernanceRulesasstatedindetailbelow.

sTATEmENT ON WARsAW sTOCK ExChANgE CORPORATE gOVERNANCE RULEs

Recommendations for best Practice for Listed Companies

1. Acompanyshouldpursueatransparentandeffectiveinformationpolicyusingbothtraditionalmethodsandmoderntechnologiesandlatestcommunicationtoolsensuringfast,secureandeffectiveaccesstoinformation.Usingsuchmethodstothebroadestextentpossible,acompanyshouldinparticular:• maintainacompanywebsitewhosescopeandmethodofpresentationshouldbebasedonthemodelinvestorrelationsserviceavailable

athttp://naszmodel.gpw.pl/;• ensureadequatecommunicationwithinvestorsandanalysts,andusetothispurposealsomodernmethodsofInternetcommunication.

2. [deleted]

3. AcompanyshouldmakeeveryefforttoensurethatanycancellationofaGeneralMeetingorchangeofitsdateshouldnotpreventorrestricttheexerciseoftheshareholders’righttoparticipateinaGeneralMeeting.

4. Wheresecuritiesissuedbyacompanyaretradedindifferentcountries(orindifferentmarkets)andindifferentlegalsystems,thecompanyshouldstrivetoensurethatcorporateeventsrelatedtotheacquisitionofrightsbyshareholderstakeplaceonthesamedatesinallthecountrieswheresuchsecuritiesaretraded.

5. Acompanyshouldhavearemunerationpolicyandrulesofdefiningthepolicy.Theremunerationpolicyshouldinparticulardeterminetheform,structure,andlevelofremunerationofmembersofsupervisoryandmanagementbodies.CommissionRecommendationof14December2004fosteringanappropriateregimefortheremunerationofdirectorsoflistedcompanies(2004/913/EC)andCommissionRecommendationof30April2009complementingthatRecommendation(2009/385/EC)shouldapplyindefiningtheremunerationpolicyformembersofsupervisoryandmanagementbodiesofthecompany.

6. AmemberoftheSupervisoryBoardshouldhaveappropriateexpertiseandexperienceandbeabletodevotethetimenecessarytoperformhisorherduties.AmemberoftheSupervisoryBoardshouldtakerelevantactiontoensurethattheSupervisoryBoardisinformedaboutissuessignificanttothecompany.

7. EachmemberoftheSupervisoryBoardshouldactintheinterestsofthecompanyandformindependentdecisionsandjudgments,andinparticular:• refusetoacceptunreasonablebenefitswhichcouldhaveanegativeimpactontheindependenceofhisorheropinionsandjudgments;• raiseexplicitobjectionsandseparateopinionsinanycasewhenheorshedeemsthatthedecisionoftheSupervisoryBoardiscontrarytotheinterestthe

company.

8. Noshareholdermaybegivenunduepreferenceoverothershareholderswithregardtotransactionsandagreementsmadebythecompanywithshareholdersandtheirrelatedentities.

9. TheWSErecommendstopubliccompaniesandtheirshareholdersthattheyensureabalancedproportionofwomenandmeninmanagementandsupervisoryfunctionsincompanies,thusreinforcingthecreativityandinnovationofthecompanies’economicbusiness.

10. Ifacompanysupportsdifferentformsorartisticandculturalexpression,sportactivities,educationalorscientificactivities,andconsidersitsactivityinthisareatobeapartofitsbusinessmissionanddevelopmentstrategy,impactingtheinnovativenessandcompetitivenessoftheenterprise,itisgoodpracticetopublish,inamodeadoptedbythecompany,therulesofitsactivityinthisarea.

11. Aspartofalistedcompany’sduecarefortheadequatequalityofreportingpractice,thecompanyshouldtakeaposition,expressedinacommunicationpublishedonitswebsite,unlessthecompanyconsidersothermeasurestobemoreadequate,whereverwithregardtothecompany:• publishedinformationisuntrueorpartlyuntruefromthebeginningoratalatertime;• publiclyexpressedopinionsarenotbasedonmaterialobjectivegroundsfromthebeginningorasaresultoflatercircumstances.Thisruleconcernsopinionsandinformationexpressedpubliclybycompanyrepresentativesinthebroadsenseorbyotherpersonswhosestatementsmayhaveanopinion-makingeffect,whethersuchinformationoropinionscontainsuggestionsthatareadvantageousordisadvantageoustothecompany.

12. AcompanyshouldenableitsshareholderstoexercisethevotingrightduringaGeneralMeetingeitherinpersonorthroughaplenipotentiary,outsidethevenueoftheGeneralMeeting,usingelectroniccommunicationmeans.



No. RULE YEs / NO COmmENT Of PEgAs NONWOVENs sA

best Practice for management boards of Listed Companies

1 Acompanyshouldoperateacorporatewebsiteandpublishonit,inadditiontoinformationrequiredbylegalregulations:

1) basiccorporateregulations,inparticularthestatutesandinternalregulationsofitsgoverningbodies;

YES

2) professionalCVsofthemembersofitsgoverningbodies; YES

2a) onanannualbasis,inthefourthquarter–informationabouttheparticipationofwomenandmenrespectivelyintheManagementBoardandintheSupervisoryBoardofthecompanyinthelasttwoyears;

NO Partiallycomplyingwiththerule.TheCompanypublishessuchinformationonannualbasis,typicallyasapartoftheannualreport.

3) currentandperiodicreports; YES

4) [deleted]

5) wheremembersofthecompany’sgoverningbodyareelectedbytheGeneralMeeting–thebasisforproposedcandidatesforthecompany’sManagementBoardandSupervisoryBoardavailabletothecompany,togetherwiththeprofessionalCVsofthecandidateswithinatimeframeenablingareviewofthedocumentsandaninformeddecisiononaresolution;

YES

6) annualreportsontheactivityoftheSupervisoryBoardtakingaccountoftheworkofitscommitteestogetherwiththeevaluationoftheworkoftheSupervisoryBoardandoftheinternalcontrolsystemandthesignificantriskmanagementsystemsubmittedbytheSupervisoryBoard;

NO WeareunabletocomplywiththisruleasthereisasingleboardstructureintheCompany–thereisnoSupervisoryBoard.

7) shareholders’questionsonissuesontheagendasubmittedbeforeandduringaGeneralMeetingtogetherwithanswerstothosequestions;

YES NosuchissuesontheagendahavebeensubmittedduringprecedingGeneralMeetings.

8) informationaboutthereasonsforcancellationofaGeneralMeeting,changeofitsdateoragendatogetherwithgrounds;

YES SuchsituationshavenotoccurredwithrespecttoprecedingGeneralMeetings.

9) informationaboutbreaksinaGeneralMeetingsandthegroundsofthosebreaks; YES NosuchbreakshavebeentakenduringprecedingGeneralMeetings.

9a) arecordoftheGeneralMeetinginaudioorvideoformat; NO ThewrittenminutesfromtheGeneralMeetingarepublishedonthewebsite.ThepossibilityofthesoundrecordfromtheGeneralMeetingisunderreviewbythemanagementoftheCompany.

10) informationoncorporateeventssuchaspaymentofthedividend,orothereventsleadingtotheacquisitionorlimitationofrightsofashareholder,includingthedeadlinesandprinciplesofsuchoperations.Suchinformationshouldbepublishedwithinatimeframeenablinginvestorstomakeinvestmentdecisions;

YES

11) informationknowntotheManagementBoardbasedonastatementbyamemberoftheSupervisoryBoardonanyrelationshipofamemberoftheSupervisoryBoardwithashareholderwhoholdssharesrepresentingnotlessthan5%ofallvotesatthecompany’sGeneralMeeting;

NO WeareunabletocomplywiththisruleasthereisasingleboardstructureintheCompany–thereisnoSupervisoryBoard

12) wherethecompanyhasintroducedanemployeeincentiveschemebasedonsharesorsimilarinstruments–informationabouttheprojectedcosttobeincurredbythecompanyfromtoitsintroduction;

YES

13) astatementoncompliancewiththecorporategovernancerulescontainedinthelastpublishedannualreport,aswellasthereportreferredtoin§29.5oftheExchangeRules,ifpublished;

YES

14) informationaboutthecontentofthecompany’sinternalruleofchangingthecompanyauthorisedtoauditfinancialstatementsorinformationabouttheabsenceofsuchrule.

YES

2 AcompanyshouldensurethatitswebsiteisalsoavailableinEnglish,atleasttotheextentdescribedinsectionII.1.

YES

3 Beforeacompanyexecutesasignificantagreementwitharelatedentity,itsManagementBoardshallrequesttheapprovalofthetransaction/agreementbytheSupervisoryBoard.Thisconditiondoesnotapplytotypicaltransactionsmadeonmarkettermswithintheoperatingbusinessbythecompanywithasubsidiarywherethecompanyholdsamajoritystake.Forthepurposeofthisdocument,relatedentityshallbeunderstoodwithinthemeaningoftheRegulationoftheMinisterofFinanceissuedpursuanttoArticle60.2oftheActonPublicOffering,ConditionsGoverningtheIntroductionofFinancialInstrumentstoOrganisedTrading,andPublicCompanies(Dz.U.No.184,item1539,asamended).

NO WearepartiallyunabletocomplywiththisruleasthereisasingleboardstructureintheCompany–thereisnoSupervisoryBoard.

37

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tFi

nanc

ial p

art



Corp

orat

e G

over

nanc

e R

epor

t


4 AmemberoftheManagementBoardshouldprovidenotificationofanyconflictsofinterestwhichhavearisenormayarise,totheManagementBoardandshouldrefrainfromtakingpartinthediscussionandfromvotingontheadoptionofaresolutionontheissuewhichgivesrisetosuchaconflictofinterest.

YES

5 [deleted]

6 AGeneralMeetingshouldbeattendedbymembersoftheManagementBoardwhocananswerquestionssubmittedattheGeneralMeeting.

YES

7 AcompanyshallsettheplaceanddateofaGeneralMeetingsoastoenabletheparticipationofthehighestpossiblenumberofshareholders.

YES

8 Ifacompany’sManagementBoardisinformedthataGeneralMeetinghasbeensummonedpursuanttoArticle399§2–4oftheCodeofCommercialPartnershipsandCompanies,thecompany’sManagementBoardshallimmediatelyperformtheactionsitisrequiredtotakeinconnectionwithorganisingandconductingaGeneralMeeting.ThisruleshallalsoapplyifaGeneralMeetingissummonedonthebasisofauthorisationgivenbytheregistrationcourtpursuanttoArticle400§3oftheCodeofCommercialPartnershipsandCompanies.

NO Article399§2–4oftheCodeofCommercialPartnershipsandCompaniesdoesnotapplytoourcompanyasitisregisteredinLuxembourg.However,therearesimilarprovisionsunderLuxembourglawandourArticles.

best Practices of supervisory boards

1 InadditiontoitsresponsibilitieslaiddowninlegalprovisionstheSupervisoryBoardshould:1) onceayearprepareandpresenttotheOrdinaryGeneralMeetingabriefassessment

ofthecompany’sstandingincludinganevaluationoftheinternalcontrolsystemandthesignificantriskmanagementsystem;

2) /deleted/3) reviewandpresentopinionsonissuessubjecttoresolutionsoftheGeneralMeeting.

NO AsthereisnoSupervisoryBoardintheCompany,weareunabletocomplywiththisrule.

2 AmemberoftheSupervisoryBoardshouldsubmittothecompany’sManagementBoardinformationonanyrelationshipwithashareholderwhoholdssharesrepresentingnotlessthan5%ofallvotesattheGeneralMeeting.Thisobligationconcernsfinancial,family,andotherrelationshipswhichmayaffectthepositionofthememberoftheSupervisoryBoardonissuesdecidedbytheSupervisoryBoard.

YES UnderArticle9.16oftheArticlesofAssociation,adirectorhavingapersonalinterestcontrarytothatoftheCompanyinamattersubmittedtotheapprovaloftheBoardofDirectorsshallbeobligedtoinformtheBoardofDirectorsthereofandtohavehisdeclarationrecordedintheminutesofthemeeting.HemaynottakepartintherelevantproceedingoftheBoardofDirectors.AtthenextGeneralMeeting,beforevotesaretakenonanyothermatter,theshareholdershallbeinformedofthosecasesinwhichadirectorhadapersonalinterestcontrarytothatoftheCompany.

3 AGeneralMeetingshouldbeattendedbymembersoftheSupervisoryBoardwhocananswerquestionssubmittedattheGeneralMeeting.


4 AmemberoftheSupervisoryBoardshouldnotifyanyconflictsofinterestwhichhavearisenormayarisetotheSupervisoryBoardandshouldrefrainfromtakingpartinthediscussionandfromvotingontheadoptionofaresolutionontheissuewhichgivesrisetosuchaconflictofinterest.

YES UnderArticle9.16oftheArticlesofAssociation,adirectorhavingapersonalinterestcontrarytothatoftheCompanyinamattersubmittedtotheapprovaloftheBoardofDirectorsshallbeobligedtoinformtheBoardofDirectorsthereofandtohavehisdeclarationrecordedintheminutesofthemeeting.HemaynottakepartintherelevantproceedingoftheBoardofDirectors.AtthenextGeneralMeeting,beforevotesaretakenonanyothermatter,theshareholdershallbeinformedofthosecasesinwhichadirectorhadapersonalinterestcontrarytothatoftheCompany.

5 AmemberoftheSupervisoryBoardshouldnotresignfromthisfunctionifthisactioncouldhaveanegativeimpactontheSupervisoryBoard’scapacitytoact,includingtheadoptionofresolutionsbytheSupervisoryBoard.





6 AtleasttwomembersoftheSupervisoryBoardshouldmeetthecriteriaofbeingindependentfromthecompanyandentitieswithsignificantconnectionswiththecompany.TheindependencecriteriashouldbeappliedunderAnnexIItotheCommissionRecommendationof15February2005ontheroleofnon-executiveorsupervisorydirectorsoflistedcompaniesandonthecommitteesofthe(supervisory)board.Irrespectiveoftheprovisionsofpoint(b)ofthesaidAnnex,apersonwhoisanemployeeofthecompanyoranassociatedcompanycannotbedeemedtomeettheindependencecriteriadescribedintheAnnex.Inaddition,arelationshipwithashareholderprecludingtheindependenceofamemberoftheSupervisoryBoardasunderstoodinthisruleisanactualandsignificantrelationshipwithanyshareholderwhohastherighttoexerciseatleast5%ofallvotesattheGeneralMeeting.


7 [deleted]

8 AnnexItotheCommissionRecommendationof15February2005ontheroleofnon-executiveorsupervisorydirectors…shouldapplytothetasksandtheoperationofthecommitteesoftheSupervisoryBoard.


9 Executionbythecompanyofanagreement/transactionwitharelatedentitywhichmeetstheconditionsofsectionII.3requirestheapprovaloftheSupervisoryBoard.


best Practices of shareholders

1 PresenceofrepresentativesofthemediashouldbeallowedatGeneralMeetings. NO ThewrittenminutesfromtheGeneralMeetingarepublishedonthewebsite.

2 TherulesofGeneralMeetingsshouldnotrestricttheparticipationofshareholdersinGeneralMeetingsandtheexercisingoftheirrights.AmendmentsoftherulesshouldtakeeffectattheearliestasofthenextGeneralMeeting.

YES

3 [deleted]

4 AresolutionoftheGeneralMeetingconcerninganissueofshareswithsubscriptionrightsshouldspecifytheissuepriceorthemechanismofsettingitorobligatethecompetentbodytosetitbeforethedateofsubscriptionrightswithinatimeframeenablinganinvestmentdecision..

YES

5 ResolutionsoftheGeneralMeetingshouldallowforasufficientperiodoftimebetweendecisionscausingspecificcorporateeventsandthedateofsettingtherightsofshareholderspursuanttosuchevents.

YES

6 Thedateofsettingtherighttodividendandthedateofdividendpaymentshouldbesetsotoensuretheshortestpossibleperiodbetweenthem,ineachcasenotlongerthan15businessdays.Alongerperiodbetweenthesedatesrequiresdetailedgrounds.

YES

7 AresolutionoftheGeneralMeetingconcerningaconditionaldividendpaymentmayonlycontainsuchconditionswhosepotentialfulfilmentmusttakeplacebeforethedateofsettingtherighttodividend.

YES

8 [deleted]

9 AresolutionoftheGeneralMeetingtosplitthenominalvalueofsharesshouldnotsetthenewnominalvalueofthesharesatalevelwhichcouldresultinaverylowunitmarketvalueoftheshares,whichcouldconsequentlyposeathreattothecorrectandreliablevaluationofthecompanylistedontheExchange.

YES

10 AcompanyshouldenableitsshareholderstoparticipateinaGeneralMeetingusingelectroniccommunicationmeansthrough:1) real-lifebroadcastofGeneralMeetings;2) real-timebilateralcommunicationwhereshareholdersmaytakethefloorduring

aGeneralMeetingfromalocationotherthantheGeneralMeeting.

NO UnderreviewbythemanagementoftheCompany.

39

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tFi

nanc

ial p

art



Corp

orat

e G

over

nanc

e R

epor

t

Risk factorsTheCompany’sbusiness,resultsofoperationsandfinancialconditionmaybeadverselyaffectedbythefollowingrisks:

Marketing and Sales

PEGASoperatesinahighlycompetitivemarketandtheemergenceofnewcompetitorsorintroductionofnewcapacitiesbyoneoftheexistingcompetitorsinthehygienesectorcouldadverselyaffectsalesandmargins.

Ahighconcentrationofcustomersaccountsforasignificantpercentageofthetotalsales,andthelossofoneormoreofthemcouldsignificantlyaffecttheCompany’srevenuesandprofitability.

Achangeinthedemandofend-usersofhygieneproductsandashiftoftheirpreferencesforcheaperproductscouldleadtoachangeintheproductmixatPEGASandaffecttheCompany’srevenuesandprofitability.

Production

AnydisruptiontoPEGASproductionfacilitieswouldhaveamaterialadverseeffectontheCompany’sbusiness.PEGASisdependentononemanufacturerfortheequipmentandtechnicalsupportforitsproductionlines.ThereisariskthatPEGASmaynotbeabletoreconfigureproductionlinesonatimelybasisinordertorespondtochangingdemandforparticularkindsofspunmeltnonwovens.MachineryfromotherproducersmayprovemoreefficientanddevelopfasterthanthemachineryofthesupplierofPEGAS.

TheCompany’scompetitorsmayhaveaccesstomoreandcheapersourcesofcapitalallowingthemtomoderniseandexpandtheiroperationsmorequickly,thusgivingthemasubstantialcompetitiveadvantageoverPEGAS.

ThesteadysupplyandtransportationofproductsfromPEGAS’splantstothecustomersaresubjecttovariousuncertaintiesandrisks.

PEGASdependsonexternalsuppliersforkeyrawmaterials,thereforeincreasesinthecostofrawmaterials,electricityandotherconsumablescouldhaveamaterialadverseimpactontheCompany’sfinancialconditionandresultsofoperations,althoughpolymerpricemovementsarebylargetransferredtocustomerprices.

Research and Development

TheCompany’scompetitorsmaydevelopnewmaterialsdemandedbycustomersandgainacompetitiveadvantage,whichcouldadverselyaffecttheCompany’ssalesandmargins.

Potential Expansion

PEGASisfacingrisksassociatedwithpotentialacquisitions,investments,strategicpartnershipsorotherventures,includingopportunityidentification,riskofthecompletionofthetransactionandtheintegrationoftheotherpartiesintoPEGAS’sbusiness.

Legal and Intellectual Property

PEGAS’soperationsareexposedtofinancialandoperatinguncertaintyandaresubjecttogovernmentlawsandregulationsthatmayadverselyaffectresultsofoperationsandfinancialconditions.

PEGASmaybeinbreachofintellectualpropertyrightsofothers.

AdverseoutcomesinlitigationtowhichPEGASmightbeapartycouldharmthebusinessanditsprospects.

Finance

TheindebtednessofPEGAScouldadverselyaffectthefinancialconditionandresultsofoperations.ThereisariskthatinterestratesonoutstandingexternaldebtcouldbereassessedbythebanksandpotentiallyincreasedandthereforehigherinterestcostscouldaffecttheCompany’sprofitability.

Thecurrentlevelofindebtednessandconditionsimposedonexternaldebt(covenants)maypotentiallyleadtoamodificationofthecurrentprogressivedividendpolicyoftheCompany.

ThereisariskthatthefluctuationsinthevalueoftheCzechkorunaandUSdollaragainsttheEurocouldadverselyaffecttheCompany’sprofitability.PEGAS’soperatingsubsidiariesavailthemselvesoftaxbenefitsofferedbytheCzechgovernment.Hence,theCompany’sprofitabilitycoulddecreaseowingtoanyadversechangeingeneraltaxpoliciesorifthetaxbenefitswerereducedorwithdrawn.



Thefluctuationofthepolymerprices,whicharepassedontothecustomerswithsomedelaymayonashorttermbasisaffecttheCompany’srevenuesandprofitability.

TheinsurancecoveragemaynotadequatelyprotectPEGASagainstpossibleriskofloss.

Security, Environment and Safety

Compliancewith,andchangesin,safety,healthandenvironmentallawsandregulationsmayadverselyaffecttheCompany’sresultsofoperationsandfinancialconditions.

Key Personnel and Technical Expertise

ThelossoftheservicesofkeymanagementpersonnelcouldadverselyaffecttheCompany’sbusiness.

PEGASmaynotbeabletohireandretainsufficientnumbersofqualifiedprofessionalpersonnelbecausethesepersonnelarelimitedinnumberandareinhighdemand.

Ownership Changes

PEGASis100%freefloatanditsownershipstructureisveryfragmentedanddividedamongmanyshareholders.ApotentialentryofamajorityinvestorintotheCompanycouldresultin

asuddenchangeofthelongtermstrategyandimpactvalueoftheshares.

Risk Factors Relating to the Investment in Egypt

InvestinginemergingmarketssuchasEgypt,generallyinvolvesahigherdegreeofriskthaninvestmentsinmoredevelopedcountries.Thesehigherrisksinclude,butarenotlimitedtochangesinthepoliticalenvironment,transferofreturns,expropriationorpoliticallymotivatedviolentdamage.TheEgyptianeconomyissusceptibletofutureadverseeffectssimilartothosesufferedbyotheremergingmarketcountries.

Egyptislocatedinaregionwhichhasbeensubjecttoongoingpoliticalandsecurityconcerns,especiallyinrecentyears.Incommonwithothercountriesintheregion,Egypthasexperiencedoccasionalterroristattacksinthepast.TherecanbenoassurancethatextremistsorterroristgroupswillnotescalateorcontinueoccasionalviolentactivitiesinEgyptorthatthegovernmentwillcontinuetobegenerallysuccessfulinmaintainingtheprevailinglevelsofdomesticorderandstability.

AlthoughPEGASenteredintoaninsurancecontractwithEGAPforthecoverageofrisksconnectedwithitsinvestmentinEgypt,whichincludeinsuranceoftheinvestmentagainsttheriskofpreventionofthetransferofreturns,expropriationorpoliticallymotivatedviolentdamage,thereisariskthattheinsurancecoveragemaynotadequatelyprotectPEGASagainstallpossiblelossesrelatedtoitsinvestmentinEgypt.

Information disclosed in the management Report

PEGASshareholdinginformation,DeclarationonManagementandCorporateGovernanceandInternalcontrolandriskmanagementorganisationaredisclosedinchapterManagementReport,sectionOtherInformationrequiredbylegislation.

41

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tFi

nanc

ial p

art



Corp

orat

e G

over

nanc

e R

epor

t

EbITdA AmOUNTEd TO

EUR 46.7 mILLION

PROdUCTION OUTPUT REAChEd

102,691 TONNEs

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort

Fina

ncia

l par

t

Consolidated financial statements of PEgAs NONWOVENs sA

fortheyearended31December2016andIndependentAuditor’sReport

TotheShareholdersofPEGASNONWOVENSS.A.68-70,boulevarddelaPétrusseL-2320Luxembourg

deloitte AuditSociétéaresponsabilitélimitée560,ruedeNeudorfL-2220LuxembourgB.P.1173L-1011Luxembourg

Phone:+352451451Fax:+352451452992www.deloitte.lu

REPORT OF THE RÉVISEUR D’ENTREPRISES AGRÉÉ

Report on the consolidated financial statementsWehaveauditedtheaccompanyingconsolidatedfinancialstatementsofPEGASNONWOVENSS.A.,whichcomprisetheconsolidatedstatementoffinancialpositionasatDecember31,2016,andtheconsolidatedstatementofcomprehensiveincome,statementofchangesinequityandconsolidatedstatementofcashflowfortheyearthenended,andasummaryofsignificantaccountingpoliciesandotherexplanatoryinformation.

Responsibility of the Board of Directors for the consolidated financial statementsTheBoardofDirectorsisresponsibleforthepreparationandfairpresentationoftheseconsolidatedfinancialstatementsinaccordancewithInternationalFinancialReportingStandardsasadoptedbytheEuropeanUnion,andforsuchinternalcontroltheBoardofDirectorsdeterminesisnecessarytoenablethepreparationofconsolidatedfinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.

Responsibility of the réviseur d’entreprises agrééOurresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedonouraudit.WeconductedourauditinaccordancewithInternationalStandardsonAuditingasadoptedforLuxembourgbytheCommissiondeSurveillanceduSecteurFinancier.Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperformtheaudittoobtainreasonableassurancewhethertheconsolidatedfinancialstatementsarefreefrommaterialmisstatement.

Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresintheconsolidatedfinancialstatements.Theproceduresselecteddependontheréviseurd’entreprisesagréé’sjudgementincludingtheassessmentoftherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,theréviseurd’entreprisesagrééconsidersinternalcontrolrelevanttotheentity’spreparationandfairpresentationoftheconsolidatedfinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.AnauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebytheBoardofDirectors,aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.

CONsOLIdATEd fINANCIAL sTATEmENTs


FiNANciAL PART

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

OpinionInouropinion,theconsolidatedfinancialstatementsgiveatrueandfairviewoftheconsolidatedfinancialpositionofPEGASNONWOVENSS.AasatDecember31,2016,andofitsfinancialperformanceanditsconsolidatedcashflowsfortheyearthenendedinaccordancewithInternationalFinancialReportingStandardsasadoptedbytheEuropeanUnion.

Other informationTheBoardofdirectorsisresponsiblefortheotherinformation.TheotherinformationcomprisestheinformationincludedinthemanagementreportandtheCorporateGovernanceStatementbutdoesnotincludetheconsolidatedfinancialstatementsandourreportofRéviseur d’Entreprises Agrééthereon.

Ouropinionontheconsolidatedfinancialstatementsdoesnotcovertheotherinformationandwedonotexpressanyformofassuranceconclusionthereon.

Inconnectionwithourauditoftheconsolidatedfinancialstatements,ourresponsibilityistoreadtheotherinformationand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththeconsolidatedfinancialstatementsorourknowledgeobtainedintheauditorotherwiseappearstobemateriallymisstated.If,basedontheworkwehaveperformed,weconcludethatthereisamaterialmisstatementofthisotherinformation,wearerequiredtoreportthisfact.Wehavenothingtoreportinthisregard.

Other matterTheCorporateGovernanceStatementincludesinformationrequiredbyArticle68bisparagraph(1)ofthelawof19December2002onthecommercialandcompaniesregisterandontheaccountingrecordsandannualaccountsofundertakings,asamended.

Report on other legal and regulatory requirementsTheconsolidatedmanagementreportisconsistentwiththeconsolidatedfinancialstatementsandhasbeenpreparedinaccordancewiththeapplicablelegalrequirements.

TheinformationrequiredbyArticle68bisparagraph(1)lettersc)andd)ofthelawof19December2002onthecommercialandcompaniesregisterandontheaccountingrecordsandannualaccountsofundertakings,asamendedandincludedintheCorporateGovernanceStatementisconsistentwiththeconsolidatedfinancialstatementsandhasbeenpreparedinaccordancewithapplicablelegalrequirements.

ForDeloitteAudit,Cabinet de révision agréé

Tom Pfeiffer,Réviseur d’Entreprises AgrééPartner

26April2017

45

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

Consolidated statement of Comprehensive IncomepreparedinaccordancewithInternationalFinancialReportingStandards(IFRS)asadoptedbytheEuropeanUnion

for the year ended 31 december 2016

inthousandsofEUR 2016 2015

Revenue 5a),b) 206,353 229,200

Rawmaterialsandconsumablesused 5c) (143,935) (167,855)

Staffcosts 5f),g) (12,646) (13,613)

Depreciationandamortisationexpense 5h) (16,107) (16,059)

Researchanddevelopmentexpense 5e) (2,918) (2,283)

Otheroperatingincome/(expense)net 5d) (186) (1,138)

Profit from operations 30,561 28,252

Foreignexchangegainsandotherfinancialincome 5i) 1,468 13,537

Foreignexchangelossesandotherfinancialexpenses 5j) (4,656) (4,817)

Interestincome 5k) 94 44

Interestexpense 5l) (7,367) (8,019)

Profit before tax 20,100 28,997

Incometaxexpense 5m) (6,021) (4,019)

Net profit after tax 14,079 24,978

Other comprehensive income

Netvaluegainoncashflowhedges (810) 3,404

Changesintranslationreserves 588 778

Total comprehensive income for the year 13,857 29,160

Net profit attributable to:

Equityholdersofthecompany 14,079 24,978

Total comprehensive income attributable to:

Equityholdersofthecompany 13,857 29,160

Net earnings per share 5 n)

Basicnetearningspershare(Euro) 1.61 2.74

Dilutednetearningspershare(Euro) 1.60 2.71

TheNotesareanintegralpartoftheseconsolidatedfinancialstatements.


FiNANciAL PART

Consolidated statement of financial PositionpreparedinaccordancewithInternationalFinancialReportingStandards(IFRS)asadoptedbytheEuropeanUnion

As at 31 december 2016

inthousandsofEUR 31 december 2016 31 december 2015

AssETs

Non-current assets

Property,plantandequipment 5o) 187,288 181,250

Intangibleassets 5p) 4,066 2,369

Goodwill 5p) 85,864 85,857

Total non-current assets 277,218 269,476

Current assets

Inventories 5q) 39,913 39,538

Tradeandotherreceivables 5r) 43,764 54,692

Incometaxreceivables 5s) 0 0

Cashandcashequivalents 5t) 24,220 28,082

Total current assets 107,897 122,312

Total assets 385,115 391,788

EQUITY ANd LIAbILITIEs

share capital and reserves

Sharecapital 5u) 11,444 11,444

Legalandotherreserves 5w) 1,999 9,451

Treasuryshares 5u) (13,672) (12,797)

Translationreserves 6,279 5,691

Cashflowhedgereserves 608 1,418

Retainedearnings 5v) 152,077 141,505

Total share capital and reserves 158,735 156,712

Non-current liabilities

Bankloans 5x) 0 0

Deferredtaxliabilities 5y) 20,067 17,440

Othernon-currentliabilities 5z) 185,034 184,806

Total non-current liabilities 205,101 202,246

Current liabilities

Tradeandotherpayables 5aa) 20,553 23,895

Taxliabilities 5bb) 726 1,824

Bankcurrentliabilities 5x) 0 7,111

Provisions 0 0

Total current liabilities 21,279 32,830

Total liabilities 226,380 235,076

Total equity and liabilities 385,115 391,788


47

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

Consolidated statement of Cash flowspreparedinaccordancewithInternationalFinancialReportingStandards(IFRS)asadoptedbytheEuropeanUnion


inthousandsofEUR 2016 2015

Profit before tax 20,100 28,997

Adjustmentfor:

DepreciationandAmortisation 5h) 16,107 16,059

Foreignexchangegains/losses 4,122 (23,399)

Interestexpense 5l) 7,367 8,019

Otherchangesinequity (810) 3,404

Otherfinancialincome/(expense) (252) 1,045

Cash flows from operating activities

Decrease/(increase)ininventories 183 4,701

Decrease/(increase)inreceivables 7,477 (9,677)

Increase/(decrease)inpayables (9,370) (10,538)

Incometax(paid)/received (1,906) (642)

Net cash from operating activities 43,018 17,969

Cash flows from investment activities

Purchasesofproperty,plantandequipment (21,078) (9,320)

Net cash flows from investment activities (21,078) (9,320)

Cash flows from financing activities

Increase/(decrease)inbankloans (7,108) (56,450)

Increaseinothernon-currentliabilities 5z) 228 95,769

Acquisitonofownsharesandotherchangesincapital 5u) (875) (12,797)

Distributionofdividends 5v) (10,960) (10,350)

Interestpaid (7,339) (5,374)

Otherfinancialincome/(expense) 252 (1,045)

Net cash flows from financing activities (25,802) 9,753

Net increase/(decrease) in cash and cash equivalents (3,945) 18,402

Cash and cash equivalents as at 1 January 28,082 8,962

Effectofexchangeratefluctuationsoncashheld 83 718

Cash and cash equivalents as at 31 december 5 t) 24,220 28,082



FiNANciAL PART

Consolidated statement of Changes in EquitypreparedinaccordancewithInternationalFinancialReportingStandards(IFRS)asadoptedbytheEuropeanUnion


inthousandsofEUR share capital Transl. reserves

Cash flow hedge

reserve

Legal and other

reserves

Treasury shares

Retained earnings

Total equity attributable

to equity holders of the

Company

balance at 31 dec 2014 Restated

11,444 4,913 (1,986) 9,187 -- 127,141 150,699

Distribution -- -- -- 264 -- (10,614) (10,350)

Othercomprehensiveincomefortheyear

-- 778 3,404 -- -- -- 4,182

Netprofitfortheyear -- -- -- -- -- 24,978 24,978

Acquisitionofownshares -- -- -- -- (12,797) -- (12,797)

Reservescreatedfromretainedearnings

-- -- -- -- -- -- --

balance at 31 dec 2015 11,444 5,691 1,418 9,451 (12,797) 141,505 156,712

Distribution -- -- -- 577 -- (11,537) (10,960)

Othercomprehensiveincomefortheyear

-- 588 (810) -- -- -- (221)

Netprofitfortheyear -- -- -- -- -- 14,079 14,079

Acquisitionofownshares -- -- -- -- (875) -- (875)

Reservescreatedfromretainedearnings

-- -- -- (8,030) -- 8,030 --

balance at 31 dec 2016 11,444 6,279 608 1,999 (13,672) 152,077 158,735

49

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

1. general information and definition of the consolidated entitydescription and principal activitiesPEGASNONWOVENSS.A.,originallyincorporatedunderthenamePamplonaPEHoldco2S.A.,isacommercialcompanyincorporatedinLuxembourgon18November2005,underthelegalformofa“Sociétéanonyme”.Theregisteredofficeisat68–70,boulevarddelaPétrusse,L-2320LuxembourgandtheCompanyisregisteredwiththeCommercialRegisterofLuxembourgundernumberB112.044.TheCompanyactsonlyasaholdingcompany.

On14December2005,PEGASNONWOVENSS.A.acquiredfullcontrolovertheactivitiesofPEGASa.s.(nowPEGASNONWOVENSs.r.o.)

PEGASNONWOVENSs.r.o.isincorporatedintheCzechRepublic.ItsregisteredofficeislocatedinZnojmo,Přímětická86,66902.PEGASNONWOVENSs.r.o.anditssubsidiaries(PEGAS-NTa.s.,PEGAS–NWa.s.,PEGAS–NSa.s.)areengagedintheproductionofnonwoventextiles.

Withinthescopeofinternationalexpansion,PEGASNONWOVENSS.A.establishedPEGASNONWOVENSInternationals.r.o.in2010.SubsequentlyPEGASNONWOVENSEGYPTLLC,whichinvestedintheEgyptianproductioncapacity,wasincorporatedinJune2011.InJuly2016,asubsidiaryPEGASNONWOVENSRSA(PTY)LTDwasestablishedforthepurposeofrealisationoftheinvestmentprojectintheRepublicofSouthAfrica.

TheconsolidatedfinancialstatementsofPEGASNONWOVENSS.A.asatandfortheyearended31December2016comprisetheCompanyanditssubsidiaries,seenote5cc),(togetherreferredtoas“PEGAS”,the“Company“orthe“Group”).

2. basis of preparation

a) Statement of complianceThesefinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandardsanditsinterpretationsasadoptedbytheEuropeanUnion(“IFRS”).

TheseconsolidatedfinancialstatementswereapprovedbytheBoardofDirectorsandauthorisedforissueon26April2017.

b) Presentation and functional currencyThefinancialstatementsandallamountsinthenotesarepresentedinthousandsofEuro(“TEUR”).TheunderlyingfunctionalcurrencyofPEGASNONWOVENSs.r.o.anditsCzechsubsidiariesistheCzechKoruna(“CZK”).CzechKorunaistheunderlyingfunctionalcurrencyofPEGASNONWOVENSInternationals.r.o.aswell.ThefunctionalcurrencyofPEGASNONWOVENSEGYPTLLCistheUnitedStatesDollar(“USD“).ThefunctionalcurrencyofPEGASNONWOVENSRSA(PTY)LTDistheSouthAfricanRand(“ZAR“).ThefunctionalcurrencyofPEGASNONWOVENSS.A.isEUR.Thefinancialstatementsweretranslatedfromthefunctionalcurrenciestothepresentationcurrency.

c) Basis of measurementTheconsolidatedfinancialstatementshavebeenpreparedonthehistoricalcostbasisexceptforderivativefinancialinstrumentsandsharebasedpaymentswhicharemeasuredatfairvalue.

NOTEs TO ThE CONsOLIdATEd fINANCIAL sTATEmENTs

preparedinaccordancewithInternationalFinancialReportingStandards(IFRS)asadoptedbytheEuropeanUnion

Fortheyearended31December2016(inthousandsofEUR)


FiNANciAL PART

d) Use of estimates and judgmentsThepreparationoffinancialstatementsincompliancewithIFRSrequiresmanagementtomakejudgments,estimatesandassumptionsthataffecttheapplicationofaccountingpoliciesandthereportedamountsofassetsandliabilities,incomeandexpenses.Theestimatesandassociatedassumptionsarebasedonhistoricalexperienceandvariousotherfactorsthatarebelievedtobereasonableunderthecircumstances,theresultsofwhichformthebasisformakingthejudgmentsaboutthecarryingvaluesofassetsandliabilitiesthatarenotreadilyapparentfromothersources.Theactualresultsmaydifferfromtheseestimates.

Theestimatesandunderlyingassumptionsarereviewedonanon-goingbasis.Revisionstoaccountingestimatesarerecognisedintheperiodinwhichtheestimateisrevisediftherevisionaffectsonlythatperiodorintheperiodoftherevisionandfutureperiodsiftherevisionaffectsboththecurrentandfutureperiods.

Themanagementusestheestimatesoffuturecashflowsforthepurposesofshortandlongtermbankloansclassificationandforthegoodwillimpairmenttesting.Theestimatesareappliedforthedeterminationofusefullifeofproperty,plantandequipmentinrespectoftheirdepreciation.Finishedproductsallocationofoverheadsbasedoncostcalculationissubjecttoestimatesaswell.

3. summary of significant accounting policies

TheaccountingpoliciessetoutbelowhavebeenappliedconsistentlytoallyearspresentedintheseconsolidatedfinancialstatementsandhavebeenappliedconsistentlybyGroupentities.

a) Consolidation methodsTheconsolidatedfinancialstatementsincorporatethefinancialstatementsofPEGASNONWOVENSS.A.andentitiescontrolledbytheCompany(itssubsidiaries).ControlexistswheretheCompanyisexposed,orhasrights,tovariablereturnsofanentityandhastheabilitytoaffectthosereturnsthroughitspowerovertheentity.

Assets,liabilitiesandcontingentliabilities,whichfulfilthecriteriaforaccountingrecognitionpursuanttoIFRS3,aremeasuredatfairvalueatthedateofacquisition.

Anyexcessofthecostofacquisitionoverthefairvalueofthenetidentifiableassetsacquiredisaccountedforasgoodwill.Anyexcessofthefairvalueofthenetidentifiableassetsacquiredoverthecostofacquisitionisaccountedforintheincomestatementintheaccountingperiodinwhichtheacquisitiontakesplace.

Asandwhennecessary,adjustmentsaremadetothefinancialstatementsofsubsidiariestobringtheiraccountingpoliciesinlinewiththoseusedbyothermembersoftheGroup.

Allgroupentitiesincludedinthenote5cc)arefullyconsolidated.

Allintra-grouptransactions,balances,income,expensesanddividendsareeliminatedonconsolidation.

b) Foreign currenciesInpreparingthefinancialstatementsofeachindividualgroupentity,transactionsincurrenciesotherthantheentity‘sfunctionalcurrency(foreigncurrencies)arerecognisedattheratesofexchangebasedonthenationalbankofficialratesforthelastworkingdayofthecalendarmonthtobeappliedtotransactionsrecordedduringthefollowingmonth.

Duringtheyear,exchangegainsandlossesareonlyrecognisedwhenrealisedatthetimeofsettlement.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesatthereportingdateareretranslatedtothefunctionalcurrencyattheexchangerateatthatdate.Foreigncurrencydifferencesarisingonretranslationarerecognisedinprofitorloss.

51

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

Forthepurposeofpresentingconsolidatedfinancialstatements,theassetsandliabilitiesareexpressedinEUR(whichisthefunctionalcurrencyoftheparentcompanyandpresentationcurrencyoftheGroup)usingexchangeratesrulingatthebalancesheetdate.Incomeandexpenseitemsaretranslatedattheaverageexchangeratesfortheperiod,unlessexchangeratesfluctuatedsignificantlyduringthatperiod,inwhichcasetheexchangeratesatthedatesofthetransactionsareused.

Exchangeratesused(source:officialratesoftheEuropeanCentralBank):

Period average (for statement of Comprehensive Income and Cash flow statement) Exchange rate

1January2015–31December2015 27.279EUR/CZK

1January2015–31December2015 1.1095EUR/USD

1January2016–31December2016 27.034EUR/CZK

1January2016–31December2016 1.1069EUR/USD

balance sheet date

Balancesheetasat31December2015 27.023EUR/CZK

Balancesheetasat31December2015 1.0887EUR/USD

Balancesheetasat31December2016 27.021EUR/CZK

Balancesheetasat31December2016 1.0541EUR/USD

ExchangedifferencesarisingfromtranslationtothepresentationcurrencyareclassifiedasequityandtransferredtotheGroup’stranslationreserve.

c) Revenue recognitionRevenuesarerecognisedatfairvalueoftheconsiderationreceivedortheconsiderationtobereceivedandrepresentreceivablesforgoodsandservicesdeliveredinthenormalcourseofbusiness,netofdiscounts,VATandothersales-relatedtaxes.

Revenuesfromthesaleofproductsarerecognisedwhenproductsaredeliveredandeitherthetitletotheproductshasbeenpassedtothecustomerortheriskstotheproductshavebeenpassedtothecarrier.Revenuesfromthesaleofservicesarerecognisedwhentheserviceisrendered.

d) Segment reportingIFRS8requiresoperatingsegmentstobeidentifiedonthebasisofinternalreportsaboutcomponentsoftheGroupthatareregularlyreviewedbythechiefoperatingdecisionmakerinordertoallocateresourcestothesegmentsandtoassesstheirperformance.BasedonanalysisofIFRS8,theGroupidentifiedoneoperatingsegment,theproductionofnonwoventextiles.

e) Research and developmentExpenditureonresearchactivities,undertakenwiththeprospectofacquiringnewscientificortechnicalknowledgeandunderstanding,isrecognisedintheincomestatementasanexpenseasincurred.

Expenditureondevelopmentactivitiesiscapitalisediftheproductorprocessistechnicallyandeconomicallyfeasible.Theexpenditurecapitalisedincludesthecostofmaterials,directlabouranddirectlyattributableoverheads.Otherdevelopmentexpenditureisrecognisedintheincomestatementasanexpenseasincurred.Capitaliseddevelopmentexpenditureisstatedatcostlessaccumulatedamortisationandimpairmentlosses.


FiNANciAL PART

f) Borrowing costsBorrowingcostsotherthanstatedbelowarerecognisedintheincomestatementintheperiodtowhichtheyrelate.

Borrowingcoststhatrelatetoassetsthattakeasubstantialperiodoftimetogetreadyforuseorsalearecapitalisedaspartofthecostofsuchassets.

g) TaxationThetaxexpenseintheincomestatementincludescurrentanddeferredtaxexpenses.

Current taxCurrentincometaxisbasedontaxableprofitandthetaxbase.Taxableprofitdiffersfromnetprofitasreportedintheincomestatementbecauseitexcludesitemsofincomeorexpensethataretaxableordeductibleinotherperiodsanditfurtherexcludesitemsthatarenevertaxableordeductible.TheGroup’sliabilityforcurrenttaxiscalculatedusingtaxratesthathavebeenenactedunderlocallegislationbythebalancesheetdate.

deferred taxDeferredtaxliabilitiesandassetsarisingfromdifferencesbetweenthecarryingamountsofassetsandliabilitiesinthefinancialstatementsandthecorrespondingtaxbasesoftheseassetsandliabilitiesusedinthecomputationoftaxableprofitareaccountedforusingthebalancesheetliabilitymethod.Deferredtaxliabilitiesaregenerallyrecognisedforalltaxabletemporarydifferencesanddeferredtaxassetsarerecognisedtotheextentthatitisprobablethattaxableprofitswillbeavailableagainstwhichdeductibletemporarydifferencescanbeutilised.

Thecarryingamountofdeferredtaxassetsisreviewedateachbalancesheetdateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitswillbeavailabletoallowallorpartoftheassettoberecovered.

Deferredtaxiscalculatedusingthetaxratesthatareexpectedtobeappliedintheperiodwhentheliabilityissettledortheassetrealised.Deferredtaxischargedorcreditedtotheprofitorlossaccountexceptfordeferredtaxderivedfromthehedgeeffectivepartofmark-to-marketrevaluationofcrosscurrencyrateswaps(CCRS).TheCompanydesignatestheCCRSsascashflowhedgeandthechangesinfairvaluerecognisesinequity.ThechangesindeferredtaxderivedfromthechangesinfairvalueoftheCCRSarerecognisedinequityaswell.

DeferredtaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttosetoffcurrenttaxassetsagainstcurrenttaxliabilitiesandwhentheyrelatetoincometaxesleviedbythesametaxationauthorityandtheGroupintendstosettleitscurrenttaxassetsandliabilitiesonanetbasis.

h) Government grantsTheCompanybenefitsfromthefollowinginvestmentincentivesgrantedbytheCzechGovernment:

grants and subsidies relating to employeesThegrantstotrainemployeesandsubsidiestoestablishnewjobsfromthegovernmentoftheCzechRepublicareaccountedforinthecomprehensiveincomestatementintheyearinwhichrelatedexpensesareincurred.

grants relating to income taxGrantsrelatingtoincometaxrepresentinvestmentincentives.TheGroupdoesnotaccountforatotaltaxliabilitybutrecordsitstaxliabilitylesstheexpectedamountofinvestmentincentives.

grants for R&d projectsTheCompanyissuccessfulinobtainingthegrantsforR&Dprojects.ThesegrantsaretenderedundertheresearchanddevelopmentsupportprogrammesbytheCzechMinistryofIndustryandTrade.ThegrantsforR&Dprojectsarerecognisedinthestatementofcomprehensiveincomeintheyearinwhichrelatedexpenseswereincurred.

Tax deductible itemsPEGASbenefitsfromreductionoftaxbasebytaxdeductibleitemsrelatedtoresearchanddevelopmentexpenses.

53

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

i) Property, plant and equipmentProperty,plantandequipmentisstatedatcost(includingcostsofacquisition)lessaccumulateddepreciationandanyrecognisedimpairmentloss.

Thecostofassets(otherthanlandandassetsunderconstruction)isdepreciatedovertheirestimatedusefullives,usingthestraight-linemethod,onthefollowingbasis:

major groups of assets Number of years

Productionlines 15–25

Factoryandofficebuildings 30–60

Carsandothervehicles 5–6

Thegainorlossarisingonthedisposalorretirementofanitemofproperty,plantandequipmentisdeterminedasthedifferencebetweenthesalesproceedsandthecarryingamountoftheassetandisrecognisedinprofitorloss.

j) Intangible assetsPurchasedintangibleassetsarestatedatcostlessaccumulatedamortisation.Theyareamortisedonastraight-linebasisovertheirestimatedusefullives.

Thecarryingamountsofintangibleassetsarereassessedtoidentifyimpairmentlosseswhereeventsorchangesoffactsindicatethatthecarryingamountofeachindividualassetexceedsitsrecoverableamount.

Intangibleassetsprimarilyincludesoftware,whichisamortisedonastraight-linebasisoveritsestimatedusefullife,whichiseightyears.Theitemcoverscapitalisedintangibleassetarisingfromdevelopmentaswell.

k) GoodwillGoodwillrepresentsapositivedifferencebetweenthecostofacquisitionandthefairvalueoftheacquiredinterestinnetidentifiableassetsandliabilitiesofasubsidiaryasatthedateofacquisition.Goodwillarisingonanacquisitionofsubsidiariesispresentedasseparateintangibleasset.Aftertheinitialrecognition,goodwillisstatedatcostlessanyimpairmentlosses.

l) Impairment of assets and goodwillAtleastateachbalancesheetdate,theGroupreviewsthecarryingamountsofitstangibleandintangibleassetstodeterminewhetherthereisanyindicationthatthoseassetshavesufferedanimpairmentloss.Ifanysuchindicationexists,therecoverableamountoftheassetisestimatedinordertodeterminetheextentoftheimpairmentloss(ifany).Whereitisnotpossibletoestimatetherecoverableamountofanindividualasset,theGroupestimatestherecoverableamountofthecash-generatingunittowhichtheassetbelongs.

Therecoverableamountisthehigheroffairvaluelesscoststosellandvalue-in-use.Inassessingthevalue-in-use,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheasset.

Iftherecoverableamountofanasset(orcash-generatingunit)isestimatedtobelessthanitscarryingamount,thecarryingamountoftheasset(cash-generatingunit)isreducedtoitsrecoverableamount.Animpairmentlossisrecognisedimmediatelyinprofitorloss.

Forthepurposesofimpairmenttesting,goodwillisanalysedannually.Iftherecoverableamountislessthanthecarryingamountoftheassets,theimpairmentlossisallocatedfirsttoreducethecarryingamountofthegoodwillandthentotheotherassetspro-rataonthebasisofthecarryingamountofeachasset.Animpairmentlossrecognisedforgoodwillisnotreversedinasubsequentperiod.

Themanagementhasdeterminedthatforgoodwilltestingpurposesallgoodsproducingsubsidiariesareconsideredasonecashgeneratingunit.Therecoverableamountisestablishedusingadiscountedcashflowmodel.


FiNANciAL PART

m) InventoriesInventoriesarestatedatthelowerofcostandnetrealisablevalue.Thecostcomprisesdirectmaterialsand,whereapplicable,directlabourcostsandthoseoverheadsthathavebeenincurredinbringingtheinventoriestotheirpresentlocationandcondition,basedonnormaloperatingcapacity,excludingfinancecosts.Thecostiscalculatedusingtheweightedaveragemethod.

Thenetrealisablevalueistheestimatedsellingpricelessallestimatedcostsofcompletionandcoststobeincurredinmarketing,sellinganddistribution.

n) Financial instrumentsFinancialassetsandfinancialliabilitiesarerecognisedintheGroup’sbalancesheetwhentheGroupbecomesapartytothecontractualprovisionsoftheinstrument.

Financialassetsareclassifiedintothefollowingspecifiedcategories:financialassets‘atfairvaluethroughprofitorloss‘(FVTPL)–derivativefinancialinstrumentsand‘loansandreceivables‘(tradereceivables).Financialliabilitiesareclassifiedaseitherfinancialliabilities‘atFVTPL‘(derivativefinancialinstruments)or‘otherfinancialliabilities‘(payables).

Theclassificationdependsonthenatureandpurposeofthefinancialinstrumentsandisdeterminedatthetimeofinitialrecognition.

Carryingamountofallfinancialinstrumentsapproximatestheirfairvalue.ThefairvalueisestablishedinaccordancewithIFRS13–Fairvaluemeasurement.

o) Derivative financial instrumentsTheGroup’soperatingactivitiesareprimarilyexposedtofinancialriskssuchaschangesinforeignexchangeratesandinterestrates.Wherenecessary,theGroupusesderivativefinancialinstrumentstocovertheserisks.

Derivativefinancialinstrumentsareinitiallymeasuredatfairvalueonthecontractdate,andareremeasuredtofairvalueatsubsequentreportingdates.Thederivativefinancialinstrumentsaredistinguishedinaccordancewith3-levelhierarchyidentifyingtheinputsusedincalculationoftheirfairvalue.

Aderivativeisafinancialinstrumentorothercontractwhichfulfilsthefollowingconditions:• itsvaluechangesinresponsetothechangeinaspecifiedinterestrate,financialinstrumentprice,commodityprice,foreignexchange

rate,indexofpricesorrates,creditratingorcreditindex,orothervariable,providedinthecaseofanon-financialvariablethatthevariableisnotspecifictoapartytothecontract;

• itrequiresnoinitialnetinvestmentoraninitialnetinvestmentthatissmallerthanwouldberequiredforothertypesofcontractsthatwouldbeexpectedtohaveasimilarresponsetochangesinmarketfactors;and

• itissettledatafuturedate.

TheGroupusesinterestrateswapstocovertheriskofchangesininterestrates,crosscurrencyrateswapsandFXforwardsandFXoptionstocovertheforeigncurrencyexposure.

DerivativefinancialinstrumentswhicharenotdesignatedashedginginstrumentsareinaccordancewithIAS39classifiedasheld-for-tradingandcarriedatfairvaluepresentedincurrentassets/liabilities,withchangesinfairvalueincludedinnetprofitorlossoftheperiodinwhichtheyarise.

55

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

hedge accounting – cash flow hedgesTheCompanyenteredintoonecrosscurrencyrateswapagreementinNovember2014(withmaturityinNovember2018)andtwocrosscurrencyrateswapagreementsinJuly2015(withmaturitiesinJuly2022andJuly2025).TheCompanydesignatestheseswapsascashflowhedges.Attheinceptionofthehedgerelationship,theCompanydocumentstherelationshipbetweenthehedginginstrumentandthehedgeditem.Furthermore,attheinceptionofthehedgeandonanon-goingbasis,theGroupdocumentswhetherthehedginginstrumentishighlyeffectiveinoffsettingchangesincashflowsofthehedgeditem.Theeffectiveportionofchangesinthefairvalueofderivativesthataredesignatedandqualifyascashflowhedgesisrecognisedinothercomprehensiveincome.Thegainorlossrelatingtotheineffectiveportionisrecognisedimmediatelyinprofitorloss.

Amountspreviouslyrecognisedinothercomprehensiveincomeandaccumulatedinequityarereclassifiedtoprofitorlossintheperiodswhenthehedgeditemisrecognisedinprofitorloss,onthesamelineastherecognisedhedgeditem.HedgeaccountingisdiscontinuedwhentheGrouprevokesthehedgingrelationship,whenthehedginginstrumentexpiresorissold,terminated,orexercised,orwhenitnolongerqualifiesforhedgeaccounting.Anygainorlossaccumulatedinequityatthattimeremainsinequityandisrecognisedwhentheforecasttransactionisultimatelyrecognisedinprofitorloss.Whenaforecasttransactionisnolongerexpectedtooccur,thegainorlossaccumulatedinequityisrecognisedimmediatelyinprofitorloss.

p) Cash-settled share-based paymentIn2007,theCompanyenteredintoaSharepricebonusschemeforitsSeniorManagementandBoardMembers.Theschemewasextendedin2010and2014.Theschemeisacombinationofcash-settledorstock-settledtransaction,inwhichtheCompanyacquiresservicesofkeypersonnelbyincurringliabilitiestothesupplierofthoseservicesforamountsthatarebasedonthepriceoftheCompany’sshares.Theschemeisrealisedthroughphantomoptionsandwarrants,whichvestannually.Theserviceperiodequalsthevestingperiodandtheservicesarecorrespondinglyaccountedforastheyarerenderedbythecounterpartyduringthevestingperiod.

TheCompanymeasurestheliabilityarisingfromthephantomoptionsandfromthewarrantsatfairvalueateachreportingdate.Thechangesinthefairvalueoftheseliabilitiesarerecognisedinthestatementofcomprehensiveincomefortheperiod.

Thefairvalueofthephantomoptionsisdeterminedby:• Pricingmodel• Expectedlifeassumption/participantbehaviour• Currentshareprice• Expectedvolatility• Expecteddividends• Risk-freeinterestrate

q) Trade and other receivablesTradereceivablesaremeasuredatamortisedcostusingtheeffectiveinterestmethod,lessanyimpairment.Interestincomeisrecognisedbyapplyingtheeffectiveinterestrate,exceptforshort-termtradereceivables(whichdonotcarryanyinterest)whentherecognitionofinterestwouldbeimmaterial.

r) Cash and cash equivalentsCashandcashequivalentscomprisecashonhand,bankaccountsandothershort-termhighlyliquidinvestmentsthatarereadilyconvertibletoaknownamountofcashandaresubjecttoaninsignificantriskofchangesinvalue.


FiNANciAL PART

s) Borrowings

Interest-bearing bank loans, other non-current liabilitiesInterest-bearingbankloans,overdraftsandothernon-currentliabilitiessuchasbondsareinitiallymeasuredatfairvalue,andaresubsequentlymeasuredatamortisedcost,usingtheeffectiveinterestratemethod.

Theissuancecostsanddiscountbelow,resp.premiumabovethenominalvalue,aretreatedasareductionof,resp.increaseinthenominalvalueoftheinstrumentissued.Theseamountsarerecognisedoverthetermoftheborrowingsonastraightlinebasis.

t) ProvisionsProvisionsarerecognisedwhentheGrouphasapresentobligationasaresultofapastevent,anditisprobablethattheGroupwillberequiredtosettlethatobligation,andareliableestimatecanbemadeoftheamountoftheobligation.Provisionsaremeasuredatthemanagement’sbestestimateoftheexpenditurerequiredtosettletheobligationatthebalancesheetdate,andarediscountedtothepresentvaluewheretheeffectismaterial.

u) Trade payablesTradepayablesareinitiallymeasuredatfairvalue,subsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod,exceptforshort-termtradepayables.

v) Own sharesTreasurysharesarepresentedinthebalancesheetasadeductionfromequityintheamountequaltotheiracquisitioncost.Theacquisitionoftreasurysharesisrecordedbasedonthetradedateandpresentedinthestatementofchangesinequityasareductioninequity.

w) Adoption of new and revised standards

standards and Interpretations effective in the current periodTheaccountingpoliciesadoptedareconsistentwiththoseofthepreviousfinancialyear,exceptforasfollows.TheGrouphasadoptedthefollowingamendmentstotheexistingstandardsissuedbyIASBandadoptedbytheEUasof1January,2016:• Amendments to IfRs 10 “Consolidated financial statements”, IfRs 12 “disclosure of Interests in Other Entities” and

IAs 28 “Investments in Associates and Joint Ventures”–InvestmentEntities:ApplyingtheConsolidationException–adoptedbytheEUon22September2016(effectiveforannualperiodsbeginningonorafter1January2016),

• Amendments to IfRs 11 “Joint Arrangements”–AccountingforAcquisitionsofInterestsinJointOperations–adoptedbytheEUon24November2015(effectiveforannualperiodsbeginningonorafter1January2016),

• Amendments to IAs 1 “Presentation of financial statements” –DisclosureInitiative–adoptedbytheEUon18December2015(effectiveforannualperiodsbeginningonorafter1January2016),

• Amendments to IAs 16 “Property, Plant and Equipment” and IAs 38 “Intangible Assets”–ClarificationofAcceptableMethodsofDepreciationandAmortisation–adoptedbytheEUon2December2015(effectiveforannualperiodsbeginningonorafter1January2016),

• Amendments to IAs 16 “Property, Plant and Equipment” and IAs 41 “Agriculture”–BearerPlants–adoptedbytheEUon23November2015(effectiveforannualperiodsbeginningonorafter1January2016),

• Amendments to IAs 19 “Employee benefits”–DefinedBenefitPlans:EmployeeContributions–adoptedbytheEUon17December2014(effectiveforannualperiodsbeginningonorafter1February2015),

• Amendments to IAs 27 “separate financial statements”–EquityMethodinSeparateFinancialStatements–adoptedbytheEUon18December2015(effectiveforannualperiodsbeginningonorafter1January2016),

• Amendments to various standards “Improvements to IfRss (cycle 2010–2012)”resultingfromtheannualimprovementprojectofIFRS(IFRS2,IFRS3,IFRS8,IFRS13,IAS16,IAS24andIAS38)primarilywithaviewtoremovinginconsistenciesandclarifyingwording–adoptedbytheEUon17December2014(amendmentsaretobeappliedforannualperiodsbeginningonorafter1February2015),

• Amendments to various standards “Improvements to IfRss (cycle 2012–2014)”resultingfromtheannualimprovementprojectofIFRS(IFRS5,IFRS7,IAS19andIAS34)primarilywithaviewtoremovinginconsistenciesandclarifyingwording–adoptedbytheEUon15December2015(amendmentsaretobeappliedforannualperiodsbeginningonorafter1January2016).

57

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

TheadoptionoftheseamendmentstotheexistingstandardshasnotledtoanymaterialchangesintheGroup’sfinancialstatements.

standards and Interpretations issued by IAsb and adopted by the EU but not yet effectiveAtthedateofauthorisationofthesefinancialstatementsthefollowingnewstandardsissuedbyIASBandadoptedbytheEUwereinissuebutnotyeteffective:• IfRs 9 “financial Instruments” –adoptedbytheEUon22November2016(effectiveforannualperiodsbeginningonorafter

1January2018),• IfRs 15 “Revenue from Contracts with Customers”andamendmentstoIFRS15“EffectivedateofIFRS15”–adoptedbytheEU

on22September2016(effectiveforannualperiodsbeginningonorafter1January2018).

IfRs 9 “financial Instruments” issuedon24July2014istheIASB‘sreplacementofIAS39FinancialInstruments:RecognitionandMeasurement.IFRS9includesrequirementsforrecognitionandmeasurement,impairment,derecognitionandgeneralhedgeaccounting.

Classification and measurement–IFRS9introducesnewapproachfortheclassificationoffinancialassets,whichisdrivenbycashflowcharacteristicsandthebusinessmodelinwhichanassetisheld.Thissingle,principle-basedapproachreplacesexistingrule-basedrequirementsunderIAS39.Thenewmodelalsoresultsinasingleimpairmentmodelbeingappliedtoallfinancialinstruments.

Impairment–IFRS9hasintroducedanew,expected-lossimpairmentmodelthatwillrequiremoretimelyrecognitionofexpectedcreditlosses.Specifically,thenewstandardrequiresentitiestoaccountforexpectedcreditlossesfromwhenfinancialinstrumentsarefirstrecognisedandtorecognisefulllifetimeexpectedlossesonamoretimelybasis.

hedge accounting–IFRS9introducesasubstantially-reformedmodelforhedgeaccounting,withenhanceddisclosuresaboutriskmanagementactivity.Thenewmodelrepresentsasignificantoverhaulofhedgeaccountingthatalignstheaccountingtreatmentwithriskmanagementactivities.

Own credit–IFRS9removesthevolatilityinprofitorlossthatwascausedbychangesinthecreditriskofliabilitieselectedtobemeasuredatfairvalue.Thischangeinaccountingmeansthatgainscausedbythedeteriorationofanentity’sowncreditriskonsuchliabilitiesarenolongerrecognisedinprofitorloss.

TheGroupanticipatesthattheadoptionofIFRS9willhaveanimpactontheclassificationandmeasurementoftheCompany−sfinancialassetsandliabilities.TheCompanyiscurrentlyassessingtheimpactofIFRS9.

IfRs 15 “Revenue from Contracts with Customers”issuedbyIASBon28May2014(on11September2015IASBdeferredeffectivedateofIFRS15to1January2018andon12April2016IASBmadeclarificationstothisstandard).IFRS15specifieshowandwhenanIFRSreporterwillrecogniserevenueaswellasrequiringsuchentitiestoprovideusersoffinancialstatementswithmoreinformative,relevantdisclosures.ThestandardsupersedesIAS18“Revenue”,IAS11“ConstructionContracts”andanumberofrevenue-relatedinterpretations.ApplicationofthestandardismandatoryforallIFRSreportersanditappliestonearlyallcontractswithcustomers:themainexceptionsareleases,financialinstrumentsandinsurancecontracts.Thecoreprincipleofthenewstandardisforcompaniestorecogniserevenuetodepictthetransferofgoodsorservicestocustomersinamountsthatreflecttheconsideration(thatis,payment)towhichthecompanyexpectstobeentitledinexchangeforthosegoodsorservices.Thenewstandardwillalsoresultinenhanceddisclosuresaboutrevenue,provideguidancefortransactionsthatwerenotpreviouslyaddressedcomprehensively(forexample,servicerevenueandcontractmodifications)andimproveguidanceformultiple-elementarrangements.

TheGroupiscurrentlyassessinghowtheadoptionofIFRS15wouldaffecttherevenues.Theimpactwillultimatelydependonthespecifictermsandconditionsofthecontractswithcustomers.TheCompanyisplanningtoadoptIFRS15ontherequiredeffectivedate.


FiNANciAL PART

standards and Interpretations issued by IAsb but not yet adopted by the EUEuropeanCommissionhasnotadoptedasatdateoftheapprovaloftheseFinancialStatementsthefollowingnewstandards,amendmentstotheexistingstandardsandnewinterpretation:

Standards:• IfRs 14 “Regulatory deferral Accounts”(effectiveforannualperiodsbeginningonorafter1January2016)–theEuropean

Commissionhasdecidednottolaunchtheendorsementprocessofthisinterimstandardandtowaitforthefinalstandard,• IfRs 16 “Leases”(effectiveforannualperiodsbeginningonorafter1January2019).

Amendments:• Amendments to IfRs 2 “share-based Payment” –ClassificationandMeasurementofShare-basedPaymentTransactions

(effectiveforannualperiodsbeginningonorafter1January2018),• Amendments to IfRs 4 “Insurance Contracts”–ApplyingIFRS9FinancialInstrumentswithIFRS4InsuranceContracts(effective

forannualperiodsbeginningonorafter1January2018orwhenIFRS9“FinancialInstruments”isappliedfirsttime),• Amendments to IfRs 10 “Consolidated financial statements”andIAS28“InvestmentsinAssociatesandJointVentures”–

SaleorContributionofAssetsbetweenanInvestoranditsAssociateorJointVentureandfurtheramendments(effectivedatedeferredindefinitelyuntiltheresearchprojectontheequitymethodhasbeenconcluded),

• Amendments to IfRs 15 “Revenue from Contracts with Customers”–ClarificationstoIFRS15RevenuefromContractswithCustomers(effectiveforannualperiodsbeginningonorafter1January2018),

• Amendments to IAs 7 “statement of Cash flows”–DisclosureInitiative(effectiveforannualperiodsbeginningonorafter1January2017),

• Amendments to IAs 12 “Income Taxes”–RecognitionofDeferredTaxAssetsforUnrealisedLosses(effectiveforannualperiodsbeginningonorafter1January2017),

• Amendments to IAs 40 “Investment Property”–TransfersofInvestmentProperty(effectiveforannualperiodsbeginningonorafter1January2018),

• Amendments to various standards “Improvements to IfRss (cycle 2014–2016)”resultingfromtheannualimprovementprojectofIFRS(IFRS1,IFRS12andIAS28)primarilywithaviewtoremovinginconsistenciesandclarifyingwording(amendmentstoIFRS12aretobeappliedforannualperiodsbeginningonorafter1January2017andamendmentstoIFRS1andIAS28aretobeappliedforannualperiodsbeginningonorafter1January2018).

Interpretation:• IfRIC 22 “foreign Currency Transactions and Advance Consideration”(effectiveforannualperiodsbeginningonor

after1January2018).

TheGroupanticipatesthattheadoptionoftheabovementionedstandards,amendmentstotheexistingstandardsandinterpretationwillhavenomaterialimpactonthefinancialstatementsoftheGroupintheperiodofinitialapplication.

59

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

4. financial risks, investment risks and capital managementTheCompanyisexposedtothefinancialrisksconnectedwithitsoperationsasfollows:• creditrisk,regardingitsnormalbusinessrelationswithcustomers;• liquidityrisk,withparticularreferencetotheavailabilityoffundsandaccesstothecreditmarket;• marketrisk(primarilyrelatingtoforeignexchangeandinterestrates),sincetheCompanyoperatesataninternationallevelindifferent

currenciesandusesfinancialinstrumentsdependingoninterestrates.

Whenmanagingitsfinancialrisks,theGroupconcentratesontheunpredictabilityoffinancialmarketsandendeavourstominimisepotentialnegativeeffectsontheresultsofoperations.

ThefollowingparagraphsprovidequalitativeandquantitativedisclosureonpotentialeffectsoftheserisksupontheCompany.

Credit riskThevastmajorityofsalesareoncredittocustomers.Risksarisingfromtheprovisionofcreditarefullycoveredbyinsurancepoliciesinrespectofindividualcustomers’receivablesorbyreceivingadvancepaymentsfromcustomers.

ThemaximumcreditrisktowhichtheGroupistheoreticallyexposedisrepresentedbythecarryingamountsstatedfortradeandotherreceivablesinthebalancesheet,totallingTEUR43,764asat31December2016(TEUR54,692asat31December2015),ofwhich73%representstradereceivables(69%asat31December2015).

Overviewoftradeandotherreceivablesaccordingtoduedate

2016 2015

% of total % of total

Notyetoverdue 40,806 93.2% 51,002 93.2%

Overduelessthan1month 2,246 5.2% 3,050 5.6%

Overduemorethan1month 712 1.6% 640 1.2%

Total 43,764 100.0% 54,692 100.0%

In2016,theCompanycreatedaprovisionforoverduereceivablesintheamountof8thousandEUR(noprovisionwascreatedin2015).

ThepresentcustomermixconcentrationoftheCompanyreflectsthesituationinthefinalconsumermarket,whichisdividedamongasmallnumberofendproducers,eachhavingasubstantialmarketshare.Thetopfivecustomersrepresenteda81%shareoftotalrevenuesin2016(80%in2015).Thetradereceivablesoftopfivecustomersasat31December2016amountedto84%ofalltradereceivables(89%asat31December2015).

In2016,thelargestcustomeraccountedfor50%oftheCompany’stotalsales(48%sharein2015).Thesecondlargestcustomeraccountedfor16%oftheCompany’stotalsales,comparedwitha16%sharein2015.Therewerenoothercustomerswithmorethan10%shareontotalsales.

TheCompanydidnotchangeanyobjectives,policiesandprocessesformanagingthecreditriskin2016.

Liquidity riskLiquidityriskarisesiftheCompanyisunabletoobtainthefundsneededtocarryoutitsoperationsundercurrenteconomicconditions.

Inordertoreducetheliquidityrisk,theCompanyoptimisesthemanagementoffundsasfollows:• maintaininganadequatelevelofavailableliquidity;• obtainingadequatecreditlines;• monitoringfutureliquidityonthebasisofbusinessplanning.


FiNANciAL PART

Liquidity risk AnalysisThefollowingtablesdetailtheGroup’sexpectedmaturityforitsnon-derivativefinancialassetsandremainingcontractualmaturityforitsnon-derivativefinancialliabilities.ThetableshavebeendrawnupbasedontheundiscountedcontractualmaturitiesofthefinancialassetsincludinginterestthatwillbeearnedonthoseassetsandbasedonundiscountedcashflowsoffinancialliabilitiesbasedontheearliestdateonwhichtheGroupcanberequiredtopay.Thefinancialliabilitiespartofthetableincludesbothinterestandprincipalcashflows.

2016 Interest rate as at

31 december

Less than 6 months

6 months— 1 year

1 year— 2 years

2 years— 5 years

5+ years Total

financial assets:

Non-interestbearing -- 32,026 -- -- -- -- 32,026

financial liabilities:


Variableinterestrateinstrument

6MPRIBOR+2,0%

251 251 502 1,505 27,099 29,608

Bonds 2.92% -- 4,672 89,865 6,732 80,773 182,042

Otherfixedinterestrateinstrument

2.8% 4,958 -- -- -- -- 4,958

2015 Interest rate as at

31 december

Less than 6 months

6 months— 1 year

1 year— 2 years

2 years— 5 years

5+ years Total

financial assets:


financial liabilities:


Variableinterestrateinstrument

6MPRIBOR+2,0%

502 502 1,003 3,011 30,108 35,126

Bonds 2.92% -- 4,672 4,672 94,347 83,013 186,704

Otherfixedinterestrateinstrument

4% 5,260 5,260

Weightedaveragepaymentdaysofissuedinvoiceswere63daysin2016(58daysin2015).Correspondingdaysofreceivedinvoiceswere16daysin2016(22daysin2015).

ManagementbelievesthatthefundsandavailablecreditlinesdescribedinNote5x)and5z),inadditiontothefundsthataregeneratedfromoperatingactivities,willenabletheCompanytosatisfyitsrequirementsresultingfromitsinvestmentactivitiesanditsworkingcapitalneeds.

61

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

ThefollowingtabledetailstheGroup’sliquidityanalysisforitsderivativefinancialinstruments.Thetablehasbeendrawnupbasedontheundiscountednetcashinflows/(outflows)onthederivativeinstrumentthatsettleonanetbasis.Whentheamountpayableorreceivableisnotfixed,theamountdisclosedhasbeendeterminedbyreferencetotheprojectedinterestratesasillustratedbytheyieldcurvesexistingatthereportingdate.

2016 Less than 6 months

6 months— 1 year

1 year— 2 years

2 years— 5 years

5+ years

Netsettled:

Interestrateswaps -- -- -- -- --

Crosscurrencyrateswap 251 (965) 1,219 (1,630) (1,372)

FXForwards -- -- -- -- --

2015 Less than 6 months

6 months— 1 year

1 year— 2 years

2 years— 5 years

5+ years

Netsettled:

Interestrateswaps (1,056) -- -- -- --

Crosscurrencyrateswap 251 (965) (714) 125 (1,921)

FXForwards -- -- -- -- --

TheCompanydidnotchangeanyobjectives,policiesandprocessesformanagingtheliquidityriskin2016.

Market RiskMarketriskistheriskthattheCompany’sincomeorthevalueofthefinancialinstrumentsheldareaffectedbychangesinmarketprices,suchasforeignexchangerates,interestratesandequityprices.

TheCompanyisexposedtomarketrisksfromfluctuationsinforeigncurrencyexchangeandinterestrates.

Currency riskEventhoughtheGroupcarriesoutitsproductionactivitiesonlyintheCzechRepublicandinEgypt,itconductsbusinessonaninternationallevel,whichresultsintheexposuretocurrencyrisksinrespecttobothitsoperatingandfinancialactivities.ThefunctionalcurrencyofPEGASNONWOVENSs.r.o.anditsCzechsubsidiariesistheCzechKoruna(CZK).TheCzechKorunaistheunderlyingfunctionalcurrencyofPEGASNONWOVENSInternationals.r.o.aswell.ThefunctionalcurrencyofPEGASNONWOVENSEGYPTLLCistheUnitedStatesDollar(USD).ThefunctionalcurrencyofPEGASNONWOVENSRSA(PTY)LTDistheSouthAfricanRand(ZAR).TheunderlyingfunctionalcurrencyofPEGASNONWOVENSS.A.isEUR.ThepresentationcurrencyofPEGASNONWOVENSS.A.’sfinancialstatementsisEUR.ThemajorityofoperatingactivitiessuchasrevenuesandoperatingcostsarecarriedoutinEUR.Themajorityoffinancialactivities(suchasrepaymentofloansandinterest)arealsocarriedoutinEUR.PresentationcurrencyoftheconsolidatedfinancialstatementsisEURasdescribedinNote3b).

Ingeneral,theCompanyisexposedtoexchangeraterisksimpactingincomeandcashflows.

Income statementTradingInrespecttoprofitandlosscurrencyexposure,theCompanyaimstonaturallyhedgetheincomeandexpensesinthegivencurrencies.Despitethenaturalhedging,thereissomedisproportionalitybetweenincomeandexpensesforcertaincurrencies(mainlyCZKandEGP)representingtheprofitandlossexposuretocurrencyrisk.ThiseffectispresentedintheCurrencyrisksensitivityanalysisunderlineTrading.

FX Forwards and OptionsThecompanydidnothaveanyopenpositionsinFXforwardsasat31December2016inordertocoverTradingFXexposuredescribedabove.


FiNANciAL PART

Asat31December2016,theCompanyheldanopenpositioninaforeigncurrencyoptionstructurethatwasconcludedbytheCompanyinMarch2016andisclassifiedasheld-for-trading.TherevaluationofthisstructureisaffectedbythedevelopmentintheFXrateofCZKagainstEURandisfullyreflectedintheincomestatement.

Depreciation and amortisationThedepreciationandamortisationiscarriedinCZKandinUSD,subsequentlyimpactingtheIncomestatementresultspresentedinEUR.

Financial resultTheCompanyiscurrentlyexposedtopotentialchangesintheincomestatementmainlyduetounrealisedforeignexchangegainsandlossesresultingfromtherevaluationofbalancesheetitems(bondnominal,bankloans,intercompanyloans,cash,taxandtradereceivablesortradepayables).Thereisnocashflowimpactoftheunrealisedforeignexchangegainsandlosses.

TheCompanyisexposedtoforeignexchangerateriskresultingfromthebondissueinthenominalamountof2.5billiondenominatedintheCzechkoruna.Thebondsbearafixedinterestrateof2.85%.In2015,thecompanyissuedtwoprivatebondissuesinthenominalamountof1.08billion,resp.678millionwhicharedenominatedintheCzechkoruna.Thebondsbearafixedrateof2.646%,resp.aflotingrateof6MPRIBOR+2%.InordertomanagetheforeignexchangerateriskwithrespecttothebondissuesdenominatedintheCzechkoruna,theCompanyhasconcludedcrosscurrencyrateswaps(CCRS).FordetailsrefertoNote5aa).

Corporate income taxUnrealisedforeignexchangegainsandlossesaretaxableinboththeCzechRepublicandEgypt.

Cash flowTrading MajorityofsalesandpurchasesarepaidinEURorUSD.ServicingofbankdebtisrealisedinEUR.Thebondsissuedin2014and2015aredenominatedinCZK,however,virtuallytheissueswereswappedintoEURdenominatedpaymentsusingcrosscurrencyrateswaps.ThisresultsinnaturalhedgingoftheGroup’sactivitiesbycashflowsinthesecurrencies.Despitethenaturalhedging,thereissomedisproportionalitybetweeninflowsandoutflowsforcertaincurrencies(mainlyCZKandEGP)representingthecashflowexposuretocurrencyrisk.

FX Forwards and OptionsTheimpactofFXforwardsandoptionsontheincomestatementmentionedaboveinfluencesthecashflowssimilarly.

Corporate income taxTheimpactofcorporateincometaxontheincomestatementmentionedaboveinfluencesthecashflowssimilarly.

Overviewofincomestatementitemsbycurrencyin2016

EUR CZK Usd Other

Revenue 91% 0% 7% 2%

Operatingexpenses(excl.depreciationandamortisation) 77% 10% 10% 3%

Depreciationandamortisation 0% 82% 18% 0%

Financecosts 98% 2% 0% 0%

Corporateincometax 0% 100% 0% 0%

Overviewofincomestatementitemsbycurrencyin2015

EUR CZK Usd Other

Revenue 95% 0% 4% 1%

Operatingexpenses(excl.depreciationandamortisation) 75% 12% 11% 2%

Depreciationandamortisation 0% 81% 19% 0%

Financecosts 98% 2% 0% 0%

Corporateincometax 0% 100% 0% 0%

63

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

TheCompanyisexposedmainlytotheriskoffluctuationintheEUR/CZK,EUR/USDandUSD/EGPexchangerates.ChangesinotherexchangerateswouldhavenomaterialimpactontheCompany.

Currency risk sensitivity analysisPotentialimpactfrominstantaneousappreciationordepreciationofCZKagainstEURby10%isdetailedinthefollowingtable.

Appreciation of CZK against EUR by 10% 2016 2015

Cash flow statement

Trading (1,862) (2,087)

FXforwards -- --

Corporateincometax* (923) (603)

Total (2,785) (2,690)

Income statement

Trading (1,862) (2,087)

FXforwards -- --

Depreciation (1,289) (1,285)

UnrealizedFXgainsfrombalancesheetrevaluation 6,718 5,261

Corporateincometax* (923) (603)

Total 2,644 1,286

depreciation of CZK against EUR by 10% 2016 2015

Cash flow statement

Trading 1,573 1,763

FXforwards -- --

Corporateincometax* 746 483

Total 2,318 2,246

Income statement

Trading 1,573 1,763

FXforwards -- --

Depreciation 1,055 1,051

UnrealizedFXlossesfrombalancesheetrevaluation (5,498) (4,305)

Corporateincometax* 746 483

Total (2,124) (1,007)

*CorporateincometaxcalculationexcludesimpactofchangesinTradingduetoinvestmentincentives.


FiNANciAL PART

PotentialimpactfrominstantaneousappreciationordepreciationofUSDagainstEURby10%isdetailedinthefollowingtable.

Appreciation of Usd against EUR by 10% 2016 2015

Cash flow statement Trading (514) (577)

Corporateincometax -- --

Total (514) (577)

Income statement Trading (514) (577)

Depreciation (452) (499)

UnrealizedFXgainsfrombalancesheetrevaluation 7,069 7,542


Total 6,103 6,466

depreciation of Usd against EUR by 10% 2016 2015

Cash flow statement Trading 389 438


Total 389 438

Income statement Trading 389 438

Depreciation 370 409

UnrealizedFXlossesfrombalancesheetrevaluation (6,395) (6,824)


Total (5,636) (5,978)

PotentialimpactfrominstantaneousappreciationordepreciationofEGPagainstUSDby10%isdetailedinthefollowingtable.

Appreciation of EgP against Usd by 10% 2016 2015

Cash flow statement Trading (469) (254)


Total (469) (254)

Income statement Trading (469) (254)

Depreciation -- --

UnrealizedFXgainsfrombalancesheetrevaluation 629 --


Total 160 (254)

depreciation of EgP against Usd by 10% 2016 2015

Cash flow statement Trading 349 224


Total 349 224

Income statement Trading 349 224

Depreciation -- --

UnrealizedFXlossesfrombalancesheetrevaluation (515) --


Total (166) 224

65

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

Interest rate riskTheCompanyisexposedtointerestrateriskresultingfromaprivatebondissueintheamountofCZK678millionbearingavariableinterestrateof6MPRIBOR+2%.Inordertomanagetheinterestraterisk,theCompanyhasconcludedacrosscurrencyswap(CCRS),wheretheCompanyreceivesavariableinterestrateof6MPRIBOR+2%andpaysafixedrate.Theinterestrateriskisthusfullyeliminated.AlltheotherbondissuesbearfixedinterestratesandthusdonotexposetheCompanytointerestraterisk.FordetailsrefertoNote5aa).

TheCompanydidnotchangeanyobjectives,policiesandprocessesformanagingthemarketriskin2016.

Investment risksTheCompanyoperatesaproductionlineinEgypt.InvestinginemergingmarketssuchasEgypt,generallyinvolvesahigherdegreeofriskthaninvestmentsinmoredevelopedcountries.Thesehigherrisksinclude,butarenotlimitedtochangesinthepoliticalenvironment,transferofreturns,expropriationorpoliticallymotivatedviolentdamage.TheEgyptianeconomyissusceptibletofutureadverseeffectssimilartothosesufferedbyotheremergingmarketcountries.

Egyptislocatedinaregionwhichhasbeensubjecttoongoingpoliticalandsecurityconcerns,especiallyinrecentyears.Incommonwithothercountriesintheregion,Egypthasexperiencedoccasionalterroristattacksinthepast.TherecanbenoassurancethatextremistsorterroristgroupswillnotescalateorcontinueoccasionalviolentactivitiesinEgyptorthatthegovernmentwillcontinuetobegenerallysuccessfulinmaintainingtheprevailinglevelsofdomesticorderandstability.

InordertoeliminatethepotentialriskfactorsconnectedwiththeinvestmentinEgypt,PEGASenteredintoaninsurancecontractwiththeExportGuaranteeandInsuranceCorporation(hereafter„EGAP“).Theinsurancecontractincludesinsuranceoftheinvestmentagainsttheriskofpreventionofthetransferofreturns,expropriationorpoliticallymotivatedviolentdamage.EGAPis100%ownedbytheCzechRepublicanditsprimarypurposeisthesupportofexportsandtheprovisionofinsuranceservicestoexportersofCzechproducts,servicesandinvestments.

AlthoughPEGASenteredintoaninsurancecontractwithEGAPforthecoverageofrisksconnectedwithitsinvestmentinEgypt,thereisariskthattheinsurancecoveragemaynotadequatelyprotectPEGASagainstallpossiblelossesrelatedtoitsinvestmentinEgypt.

Capital managementTheCompany’sobjectiveswhenmanagingcapitalare:• tosafeguardtheentity’sabilitytocontinueasagoingconcern,sothatitcancontinuetoprovidereturnsforshareholdersandbenefits

forotherstakeholders,and• toprovideanadequatereturntoshareholderscommensuratelywiththelevelofrisk.

TheCompanymanagestheamountofcapitalandcapitalstructure,andmakesadjustmentstoitinthelightofchangesineconomicconditionsandtheriskcharacteristicsoftheunderlyingassets.Inordertomaintainoradjustthecapitalstructure,theCompanymayadjusttheamountofdividendspaidtoshareholders,returncapitaltoshareholders,issuenewshares,orsellassetstoreducedebt.

TheCompanydoesnotdefineanylevelofcapital,howevermanagementcloselymonitorstherisksinconnectionwithcapitalinadequacyandispreparedtochangethelevelofcapitalasstatedabove.

Thecompanyisnotsubjecttoexternallyimposedcapitalrequirements.


FiNANciAL PART

5. Notes to the consolidated financial statements

a) Revenue

Product groups 2016 2015


Hygiene 177,410 86.0 196,696 85.8

Non-hygiene 28,943 14.0 32,504 14.2

Total sales 206,353 100.0 229,200 100.0

In2016,theCompanymaintaineditshighshareofproductssalesinHygienecategoryandconfirmedtheimportantpositionthatithasinthismarket.

b) Segment reportingBasedonanalysisofIFRS8,theGroupidentifiedoneoperatingsegment,theproductionofnonwoventextiles.

Geographicaldistributionofrevenueisdefinedasfollows:

Region 2016 2015


WesternEurope 80,540 39.0 81,440 35.5

Central,EasternEuropeandRussia 88,190 42.7 94,260 41.1

Others 37,623 18.3 53,500 23.4

Total 206,353 100.0 229,200 100.0

Inpresentinginformationonthebasisofgeographicaldistributionofrevenue,revenueisbasedontheplaceofactualdeliveryofthegoods.

c) Raw materials, consumables and services used

2016 2015

Rawmaterialsconsumed 127,302 148,006

Consumedsparepartsandrepairs 3,843 5,033

Energyconsumed 8,447 10,305

Otherconsumables 804 855

Otherservices 3,539 3,656

Total raw materials and consumables used 143,935 167,855

“Rawmaterialsconsumed”represent88.4%ofthetotalamountofrawmaterials,consumablesandservicesusedin2016(88.2%in2015).

67

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

d) Other operating income/(expense) net

2016 2015

(Loss)/Gainonthesaleofequipment (315) (543)

Insuranceproceeds 364 676

Insurancecost (986) (912)

Provisionsforoverduereceivables (8) --

Otherincome/(expense) 759 (359)

Other operating income/(expense) net total (186) (1,138)

In2016,theCompanycreatedaprovisionforoverduereceivablesintheamountof8thousandEUR(noprovisionswascreatedin2015).

e) Research and developmentIn2016,theGroupinvestedTEUR2,918inresearch(TEUR2,283in2015).

f) Average number of employees, executive and non-executive directors of the Group and expenses

2016 Average number of

employees

Total Wages and salaries

Remuneration of board

members

Cash-settled share-based

payments

social security

and health insurance expenses

social expenses

Employees 563 10,493 7,761 0 0 2,534 199

ExecutivesandNon-executives

5 2,153 433 330 1,318 72 0

Total 568 12,646 8,194 330 1,318 2,605 199

2015 Average number of

employees

Total Wages and salaries

Remuneration of board

members

Cash-settled share-based

payments

social security

and health insurance expenses

social expenses

Employees 560 10,418 7,371 -- 490 2,371 186

ExecutivesandNon-executives

5 3,195 292 329 2,504 70 0

Total 565 13,613 7,663 329 2,994 2,441 186

Threeexecutivedirectors,Mr.Řezáč,Mr.KlaškaandMr.Rašík,andtwonon-executivedirectors,Mr.ModeckiandMr.Everitt,weremembersoftheCompany’sboardasat31December2016andasat31December2015.

ExecutivedirectorsmayusetheCompany’scarsforprivatepurposes.

Apartfromphantomshareoptions/warrants,theBoardmembersdidnotreceiveanyloans,advancesoranyotherbenefitinkindinboth2016and2015.


FiNANciAL PART

g) Cash-settled share-based payment for executive managers and non-executive directorsTheAnnualGeneralMeetingheldon15June2007approvedthegrantofanaggregateamountof230,735phantomoptionstosixseniorexecutivemanagersandtwonon-executivedirectors,fornoconsideration.TheGrantdateofthephantomoptionswas24May2007.Eachphantomoption,whenexercised,willgrantthemanagertherighttoreceivecashcalculatedasclosingpriceofonecompanyshareonthePraguestockexchange(thePSE)(orothermarketifthePSEtradingisdiscontinued)onthedayprecedingthedayofexerciseofthephantomoptionlessCZK749.20representingtheofferpriceatthetimeoftheinitialpublicofferingofthesharesofPEGASNONWOVENSS.A.(theIPOprice).25%ofthephantomoptionsvestyearly,withthefirstoptionsvestingonthe1stanniversaryoftheIPO,i.e.on18December2007andthelastoptionsvestingonthe4thanniversaryoftheIPO.Thegivenpartofphantomoptionsmaybeexercisedonorafterthevestingdate.TheparticipantshallprovideservicetotheGroupatthevestingdatetobeeligibleforthegivenphantomoptionsseries.

TheAnnualGeneralMeetingheldonJune15,2010approvedthegrantofanaggregateamountof230,735phantomoptions(representing2.5%ofthePEGAS’ssharecapital)tothedirectorsandseniormanagementoftheCompanyand/oritsaffiliates,againstnoconsideration.Eachphantomoption,whenexercised,willgrantthedirectortherighttoreceiveincashanamountequaltothedifferencebetweenCZK473.00representingthePEGAS’ssharepriceonthePSEasof15December2009increasedby10%,andtheclosingpriceofonePEGAS’sshareonthedayprecedingthedayofexerciseofthephantomoptiononthePSE(orothermarketifthePSEtradingisdiscontinued).25%ofphantomoptions(i.e.57,684options)vestedyearly,withthefirstoptionsvestingonDecember18,2010andthelastoptionsvestedonDecember18,2013.ThefirstoptionsvestingonDecember18,2010fullyreplacedthelastportionofoptionsofthefirstsharepricebonusplan,approvedattheAnnualGeneralMeetingheldonJune15,2007,vestingatthesamedate.Thereforetherightforremaining34,008options(withvestingdateonDecember18,2010)grantedin2007andapprovedbytheAnnualGeneralMeetingheldonJune15,2007wasabandoned.

TheExtraordinaryGeneralMeetingheldon21July2014resolvedtoconvert230,735phantomoptionsgrantedin2010–2013into230,735warrants.Eachwarrant,whenexercised,willgranttheholdertherighttoreceive(i)oneshareinPEGASforastrikepricecorrespondingtoCZK473.00representingthePEGAS’ssharepriceonthePSEasof15December2009increasedby10%,or(ii)apaymentincashamountingtothefinalpriceofoneshareofPEGASonthePSEonthebusinessdaypreceedingtheexercisedate,lessCZK473.00.Allthewarrantswillvestimmediatelyfromtheirgrantingdateandwillhavethesameexerciseperiodthatwasinitiallyplannedforthephantomoptions.

TheExtraordinaryGeneralMeetingheldon21July2014resolvedtoissue230,735newwarrants(representing2.5%ofthePEGAS’ssharecapital)tothedirectorsandseniormanagementofPEGASand/oritsaffiliatescollectively,forasubscriptionpriceofCZK5.89pernewwarranttobepaidincashbythedirectors,itbeingunderstoodthattheBoardofDirectorsofPEGASwilldecidehowthenewwarrantswillbedividedamongthedirectorsandseniormanagementofPEGASand/oritsaffiliates.Eachnewwarrant,whenexercised,willentitletheholdertoeitherreceive(i)oneshareinPEGASforastrikepricecorrespondingtoCZK588.16(representingtheaverageofPEGAS’ssharepriceonthePSEfrom1October2013to31December2013)lessallthedividendswhichhavebeenvalidlydeclaredbyPEGAS,perPEGAS’sshare,fortherelevantfinancialyear(s)(i.e.thefinancialyear2014forthenewwarrantstobevestedin2014,thefinancialyears2014and2015forthenewwarrantstobevestedin2015andthefinancialyears2014,2015and2016forthenewwarrantstobevestedin2016),or(ii)apaymentincashamountingtothefinalpriceofoneshareofPEGASonthePSEonthebusinessdayprecedingtheexercisedate,plusallthedividendswhichhavebeenvalidlydeclaredbyPEGAS,perPEGAS’sshare,fortherelevantfinancialyear(s)(i.e.thefinancialyear2014forthenewwarrantstobevestedin2014,thefinancialyears2014and2015forthenewwarrantstobevestedin2015andthefinancialyears2014,2015and2016forthenewwarrantstobevestedin2016),lessthestrikepriceofCZK588.16(representingtheaverageofPEGAS’ssharepriceonthePSEfrom1October2013to31December2013).

On17October2016,theCompanyreceivedanannouncementfrompersonsdischargingmanagerialresponsibilitieswithintheissuerabouttransactionswithfinancialinstruments,thevalueofwhichisderivedfromthesharepriceoftheCompany.Thesubjectofthetransactionwastheexerciseof153,824warrantsgrantedonthebasisofacontractdated22September2014withastrikepriceofCZK588.16.TheclosingpriceoftheCompany’ssharesasatthedaypreceedingtheexerciseamountedto792.00CZK.

69

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

Summaryofthecontractualtermsofthephantomoptionandwarrantschemeasat31December2016:

grant date Vesting date

Option/ warrant

strike price (CZK)

Total number of

options/ warrants

granted

Number of options/

warrants granted to Executives

Number of options/

warrants granted to Non-

executives

fair value of options/

warrants granted

(TEUR)



(TEUR)



executives (TEUR)

24May2007 18Dec2007 Option 749.2 23,344 0 23,344 42 0 42

24May2007 18Dec2008 Option 749.2 18,960 0 18,960 39 0 39

24May2007 18Dec2009 Option 749.2 11,536 0 11,536 24 0 24

15June2010 18Dec2010 Warrant 473 7,732 0 7,732 85 0 85

15June2010 18Dec2011 Warrant 473 7,732 0 7,732 85 0 85

15June2010 18Dec2012 Warrant 473 0 0 0 0 0 0

15June2010 18Dec2013 Warrant 473 0 0 0 0 0 0

21July2014 18Dec2014 Warrant 588.16 0 0 0 0 0 0

21July2014 18Dec2015 Warrant 588.16 0 0 0 0 0 0

21July2014 18Dec2016 Warrant 588.16 76,911 52,137 24,774 784 531 253

Total 146,215 52,137 94,078 1,059 531 528


grant date Vesting date

Option/ warrant

strike price (CZK)

Total number of

options/ warrants

granted

Number of options/


Number of options/


executives


warrants granted

(TEUR)



(TEUR)



executives (TEUR)

24May2007 18Dec2007 Option 749.2 23,344 0 23,344 44 0 44

24May2007 18Dec2008 Option 749.2 18,960 0 18,960 39 0 39

24May2007 18Dec2009 Option 749.2 11,536 0 11,536 24 0 24

15June2010 18Dec2010 Warrant 473 7,732 0 7,732 74 0 74

15June2010 18Dec2011 Warrant 473 7,732 0 7,732 74 0 74

15June2010 18Dec2012 Warrant 473 0 0 0 0 0 0

15June2010 18Dec2013 Warrant 473 0 0 0 0 0 0

21July2014 18Dec2014 Warrant 588.16 76,913 52,137 24,776 348 236 112

21July2014 18Dec2015 Warrant 588.16 76,911 52,137 24,774 348 236 112

21July2014 18Dec2016 Warrant 588.16 76,911 52,137 24,774 213 144 69

Total 300,039 156,411 143,628 1,164 616 548

Thefairvalueofthephantomoptionsandwarrantsasat31December2016isTEUR1,059(TEUR1,164asat31December2015).Theexecutivedirectorsbenefitasat31December2016isTEUR531(TEUR616asat31December2015)ofthetotalamountandthenon-executivedirectorsbenefitisTEUR528(TEUR548asat31December2015)ofthetotalamount.


FiNANciAL PART

TheBlack-Scholespricingmodelwasusedtocalculatethefairvalueofthephantomoptionsandthewarrantswhichwereconvertedfromthephantomoptions.TheBlack-Scholespricingmodeladjustedfordividendswasusedtocalculatethefairvalueofthenewlyissuedwarrants.Theassumptionsusedinthemodelareasfollows:• PriceofPEGASNONWOVENSS.A.sharesquotedinPragueStockExchangeused(CZK769.00asat31December2016,CZK731.00asat

31December2015).• Theparticipantsareexpectedtoexercisethegivenpartofgrantedphantomoptionsandthewarrantswhichwereconvertedfromthe

phantomoptionswithintenyearsofvesting.• Theparticipantsareexpectedtoexercisethenewlyissuedwarrantsbefore15December2019.• RiskfreeinterestrateislinearlyinterpolatedfromCZKinterbankPRIBORrates(<12M)andCZKinterestrateswappoints(>12M).• Theexponentiallyweightedmovingaveragemethodisusedforthevolatilityofsharescalculation(18.77%in2016,21.68%in2015).• Dividendyieldof4.05%wasusedinvaluationofthenewlyissuedwarrants.

h) Depreciation and amortisation expense

2016 2015

Depreciationoftangibleassets 16,024 15,941

Amortisationofintangibleassets 83 118

Total 16,107 16,059

i) Foreign exchange gains and other financial income

2016 2015

Realisedandunrealisedforeignexchangegains 1,467 13,536

Otherfinancialincome 1 1

Total 1,468 13,537

j) Foreign exchange losses and other financial expenses

2016 2015

Realisedandunrealisedforeignexchangelosses 5,208 3,610

Otherfinancialexpense(income) (552) 1,207

Total 4,656 4,817

Otherfinancialexpenseincludesmainlybankfees.

k) Interest income

2016 2015

Interest income 94 44

Theitemincludesinterestincomeonbankaccountsandtermdeposits.

71

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

l) Interest expense

2016 2015

Interestanddebtsettlementexpensesonloansandborrowings 7,213 7,730

Interestonemployeedeposits 147 190

Other 7 99

Total 7,367 8,019

Noborrowingcostwerecapitalisedin2016and2015.Nocapitalisationrateusedtodeterminetheamountofborrowingcostseligibleforcapitalisationwascalculatedasthefundswereborrowedspecifically.

m) Income tax (expense)/income

2016 2015

Currentincometax (4,233) (3,312)

Deferredincometax (1,788) (707)

Total (6,021) (4,019)

ThechangesindeferredtaxaredescribedinNote5y).

Effective tax rate

2016 % of total 2015 % of total

Profit before income tax 20,100 28,997

Incometaxcalculatedusingtheenactedtaxrate 3,841 19% 5,509 19%

Effectoftaxincentives (2,133) (10.6%) (2,679) (9.2%)

Effectofunrecognizeddeferredtaxasset 22 0.1% (119) (0.4%)

EffectofdeferredtaxliabilityandlossinPegasEgypt

3,062 15.2% 0 0%

Effectofthedifferenttaxratesinthecountriesofoperations

230 1.1% 186 0.6%

EffectofconsolidationandIFRSadjustments 719 3.6% 768 2.6%

Othereffects 280 1.4% 353 1.2%

Total income tax/effective tax rate 6,021 30.0% 4,018 13.9%

FourcompaniesoftheGrouphavereceivedinvestmentincentivesintheCzechRepublic.PEGAS–DSa.s.(formersubsidiaryofPEGASNONWOVENSs.r.o.)wasgrantedinvestmentincentivesintheregimeprecedingtheActonIncentives,receivingagrantfromthestatetopayincometax.InvestmentincentivesforPEGAS–DSa.s.expiredin2010andthiscompanyceasedtoexistfollowingitsmergerwithPEGASNONWOVENSs.r.o.witheffectfrom1January2011.TheCompanydoesnotaccountforthetotaltaxliabilitybutreportsthetaxliabilitylesstheexpectedamountofthesubsidy.PEGAS-NTa.s.,PEGAS–NWa.s.andPEGAS–NSa.s.weregrantedaninvestmentincentiveaftertheeffectivedateoftheActonIncentives.PEGAS-NTa.s.startedmakinguseoftheincentivesinfiscalyear2005.Theyear2014wasthelastyear,inwhichPEGAS–NTa.s.usedtheinvestmentincentives.PEGAS–NWa.s.wasgrantedinvestmentincentivesin2005andstartedmakinguseofthemin2008.PEGAS–NWa.s.wasgrantedadditionalinvestmentincentivesin2016,forwhichtheinvestmentisstillinprogress.PEGAS–NSa.s.wasgrantedaninvestmentincentivesinJanuary2009andhasnotstartedtoutilisethemin2016.

Maximumpercentageofexpendedamountusedascorporatetaxreliefis48%forPEGAS–NWa.s.and30%forPEGAS–NSa.s.


FiNANciAL PART

TotranslatethemaximumandunusedamountsofinvestmentincentivesandunusedamountsintoEUR,theCZK/EUR27.021rateofexchangeeffectiveon31December2016wasused.

max. amount in million CZK

max. amount in million EUR

Unused amount as at

31 december 2016 in million CZK

Unused amount as at

31 december 2016 in million EUR

Corporate tax relief for

first year of usage of

corporate tax relief

PEGAS–NWa.s.* 573.6 21.2 378.1 14.0 10years 2008

PEGAS–NWa.s.** 148.1 5.5 n/a n/a 10years n/a

PEGAS–NSa.s. 403.5 14.9 319.6 11.8 10years 2016

* incentivesbasedonthedecisionoftheCzechgovernmentfrom10June2005** commitmentofinvestmentincentivesfromtheMinistryofIndustryandTradeoftheCzechRepublicbasedonthedecisionfromOctober2016

Investmentincentivesaretaxsavingsgrantedbythegovernmentprovidedthatcertainconditionsarefulfilled(suchasthelevelofincrementalinvestments)bytheGroup.Whenconsideringtheprincipleofprudenceandthefactthattheamountofasubsidydependsonactualeconomicperformance,thecompaniesdonotaccountforanydeferredtaxassetthatarisefrominvestmentincentivesandcorrespondtoincometaxsubsidies.Theestimateoftheunrecognisedassetwouldnotbereliable.

SincenearlyalltaxableincomewasgeneratedfromoperatingactivitiesintheCzechRepublic,thetaxrateof19%(19%in2015)intheCzechRepublicwasusedtocalculatethetotalincometax.

n) Earnings per shareThecalculationofbasicearningspershareasat31December2016wasbasedonthenetprofitattributabletoequityholdersofTEUR14,079andaweightedaveragenumberofordinarysharesin2016.Nochangestothenumberofsharesoccurredduringeither2016or2015.TheweightedaveragenumberofsharesusedincalculationofthebasicearningspersharereflectsthesharesboughtbackbytheCompanyduring2015and2016.

Dilutedearningspersharearecalculatedbasedonaweightedaveragenumberofsharesincirculation(determinedthesamewayasinthecaseofbasicearningspershare)adjustedbytheeffectoftheexpectedissueofallpotentialdilutivesecurities,i.e.warrantsinthecaseoftheGroup.Theadjustmentforthepotentialeffectofallwarrantsbeingexercisediscalculatedontheassumptionthattheproceedsfromthemwouldbereceivedattheaveragemarketpriceofordinarysharesduringtheperiod.

Weighted average number of ordinary shares

2016 Number of outstanding shares in 2016 Weighted average

January–December 9,229,400 8,768,470

2015 Number of outstanding shares in 2015 Weighted average

January–December 9,229,400 9,126,812

basic earnings per share

2016 2015

Netprofitattributabletoequityholders TEUR 14,079 24,978

Weightedaveragenumberofordinaryshares Number 8,768,470 9,126,812

basic earnings per share EUR 1.61 2.74

EarningsPerShare(EPS)iscalculatedasnetprofitfortheyearattributabletoequityholdersoftheCompanydividedbytheweightedaverageofthenumberofsharesexistingeachdayinthegivenyear.

73

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

diluted earnings per share

2016 2015

Netprofitattributabletoequityholders TEUR 14,079 24,978

Weightedaveragenumberofordinaryshares Number 8,820,440 9,227,785

diluted earnings per share EUR 1.60 2.71

DilutedEarningsPerShare(DilutedEPS)iscalculatedasnetprofitfortheyearattributabletoequityholdersoftheCompanydividedbytheweightedaverageofthenumberofsharesexistingeachdayinthegivenyearadjustedbytheeffectoftheexpectedissueofallpotentialdilutivesecurities.

o) Property, plant and equipment

Land and buildings

Production machinery

Other equipment

Under Construction

Pre-payments Total

Acquisition cost

balance at 31/12/2014 Restated 71,582 204,648 20,377 326 157 297,090

Additions 1,556 738 1,944 623 5,636 10,497

Disposals -- (109) (593) -- -- (702)

Transfers 6 -- (816) (324) (139) (1,273)

Exchangedifferences 2,866 5,912 1,284 (237) (144) 9,681

balance at 31/12/2015 76,010 211,189 22,196 388 5,510 315,293

Additions 8,617 260 1,592 1,149 13,072 24,689

Disposals -- (199) (466) -- (5,510) (6,175)

Transfers -- 604 198 (802) -- --

Exchangedifferences 1,202 (1,132) 2,150 -- -- 2,220

balance at 31/12/2016 85,829 210,722 25,670 735 13,072 336,027

Accumulated depreciation

balance at 31/12/2014 Restated 11,628 98,551 7,972 -- -- 118,151

Depreciationexpense 2,836 11,012 1,824 -- -- 15,672

Disposals 0 (109) (460) -- -- (569)

Exchangedifferences (100) 995 (106) -- -- 789

balance at 31/12/2015 14,364 110,449 9,230 -- -- 134,043

Depreciationexpense 2,130 11,775 1,841 -- -- 15,746

Disposals -- (199) (439) -- -- (638)

Exchangedifferences 527 (1,132) 193 -- -- (412)

balance at 31/12/2016 17,021 120,893 10,825 -- -- 148,739

Net book value

31/12/2014 Restated 59,954 106,097 12,405 326 157 178,939

31/12/2015 61,646 100,740 12,966 388 5,510 181,250

31/12/2016 68,808 89,829 14,845 735 13,072 187,288


FiNANciAL PART

Allnon-currentassetsarelocatedintheCzechRepublic,exceptofpropertyplantandequipmentlocatedinEgyptintheamountofTEUR74,465(TEUR81,248asof31December2015.Theyearonyeardecreaseofnon-currentassetsismainlyduetotheredirectionofaninvestmentintoanewproductionlinefromEgypttotheCzechRepublic.

p) Intangible assets and goodwill

software and other intangible assets

goodwill Assets under development

Total

Acquisition cost

balance at 31/12/2014 Restated 1,022 83,684 -- 84,706

Additions 976 -- 2 978

Disposals -- -- -- --

Transfers 1,273 -- -- 1,273

Exchangedifferences 9 2,173 -- 2,182

balance at 31/12/2015 3,280 85,857 2 89,139

Additions 2,014 -- -- 2,014


Transfers 2 -- (2) --

Exchangedifferences 43 7 -- 50

balance at 31/12/2016 5,339 85,864 0 91,203

Accumulated amortisation

balance at 31/12/2014 Restated 527 -- -- 527

Amortisationexpense 386 -- -- 386


Exchangedifferences -- -- -- --

balance at 31/12/2015 913 -- -- 913

Amortisationexpense 360 -- -- 360


Exchangedifferences -- -- -- --

balance at 31/12/2016 1,273 -- -- 1,273

Net book value

31/12/2014 Restated 495 83,684 -- 84,179

31/12/2015 2,367 85,857 2 88,226

31/12/2016 4,066 85,864 -- 89,930

On14December2005,theGroupacquiredfullcontrolovertheactivitiesofPEGASa.s.(nowPEGASNONWOVENSs.r.o.)anditssubsidiaries.

Thegoodwillarisingonthisacquisitionisattributableprimarilytocustomerrelationships,managementskills,theskillsandtechnicaltalentoftheacquiredworkforce,thereputationforqualityandtheanticipatedfutureprofitabilityofthecombinedgroup.Themanagementwasnotabletomeasurereliablythefairvalueofcustomerrelatedintangiblesduetothefactthatdemandfromindividualcustomerscannotbereliablypredicted.

75

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

TheCompanytestedthepossiblegoodwillimpairmentasat31December2016and2015.Themanagementhasdeterminedthatforgoodwilltestingpurposesallacquiredsubsidiariesareconsideredasonecashgeneratingunit.Therecoverableamountofthissinglecash-generatingunitisdeterminedbasedonavalue-in-usecalculationwhichusescashflowprojectionsbasedonfinancialbudgetsapprovedbythemanagementcoveringafour-yearperiod,andadiscountrateof9.3%perannum(2015:9.2%perannum).Cashflowprojectionsduringthebudgetperiodarebasedonpastexperience.Thecashflowsbeyondthatfour-yearperiodhavebeenextrapolatedusingaconservative0%(2015:0%)perannumgrowthrateandadiscountrateof9.3%perannum(2015:9.2%perannum).Theincreaseinthediscountrateusedreflectsmainlytheincreaseintheriskfreerate.Therecoverableamountissensitivetochangesinthediscountrate.Anincreaseofthediscountrateby1percentagepointwouldcauseadecreaseintherecoverableamountofapproximately31millionEURandviceversa.Thebreak-evenpointofthediscountrate,i.e.adiscountrateatwhichgoodwillimpairmentwouldberecorded,isapproximately18%.Thegrowthrateusedinthecalculationislowerthanthelong-termestimatedgrowthofthenonwovenmarketinEurope.Themanagementbelievesthatanyreasonablepossiblechangeinthekeyassumptionsonwhichtherecoverableamountisbasedwouldnotcausetheaggregatecarryingamounttoexceedtheaggregaterecoverableamountofthecash-generatingunit.

Thekeyassumptionsusedinthevalue-in-usecalculationsareasfollows:

Demandfromthecustomers–Inthepast,PEGASwasabletosell100%ofitsproductioncapacityrelatedtothecashgeneratingunit.Themanagementbelievesthattheplannedalmostfullutilisationoftheproductionfacilitiesforthenextfouryearsisreasonablyachievable.

Budgetedgrossmargin–For2017andonwardsmanagementconservativelyexpectsintermsofmarginsasimilarpatternasinthepast.

Basedontheabovementioned-calculation,noimpairmentofgoodwillwasrecognisedeitherin2016orin2015.

q) Inventories

2016 2015

Materials 14,355 15,078

Products 12,318 11,708

Semi-finishedproducts 1,208 569

Spareparts 7,468 6,915

Other 4,565 5,268

Total 39,913 39,538

Sparepartsincludeitemswithausefullifeshorterthanoneyearorofimmaterialindividualvalue.

r) Current trade and other receivables

2016 2015

Receivablesfromsalesofproducts 32,026 42,379

Advancepayments 293 431

Othertaxreceivables 7,877 8,394

Prepaidexpenses 323 199

Positivefairvalueofderivatives 3,088 2,838

Other 157 451

Total 43,764 54,692


FiNANciAL PART

s) Income tax receivables

2016 2015

Incometaxreceivables -- --

Thecorporateincometaxduefor2016isreportedinTaxliabilities–seenote5bb).

t) Cash and cash equivalents

2016 2015

Cashinhand 46 41

Currentaccounts 24,174 28,041

Total 24,220 28,082

u) Share capitalUntilNovember2006,theCompany’ssharecapitalconsistedof12,500sharesatEUR10pershare.InNovember2006,thisnumberwassplitinto100,806sharesatEUR1.24pershare.

Subsequently,on28November2006,theCompanyincreasedthesharecapitalbyEUR9,075,056.56byincorporationofdebtintocapitalandbyissuing7,318,594sharesatEUR1.24pershare.PamplonaCapitalPartnersI,LPacquired7,133,109sharesandsomeoftheGroup’smanagement185,485shares.

Withintheissueofsharesinthepublicmarket,inDecember2006theGroupissued1,810,000newordinaryshares.ThesenewlyissuedsharesweresubscribedbyinvestorsatEUR27pershare.

Thedifferencebetweenthesubscribedvalueofnewlyissuedshares(EUR27)andthenominalvalue(EUR1.24)wasrecordedinequityassharepremiuminthetotalamountofTEUR46,626.

Thetotalnumberofsharesasat31December2006was9,229,400sharesatEUR1.24pershare.

InJuly2007theCompany’sprincipalshareholderPamplonaCapitalPartnersI,LPplaceditswholestakeheldintheCompanytoqualifiedinvestorsonthePragueandWarsawStockExchanges.

Furthertotheextraordinarygeneralmeetingheldon21July2014,theshareholdersdecidedtograntwarrantstothedirectorsforasubscriptionpriceofCZK5.89perwarrant,totallingCZK1,359,029.15(EUR49,476.81)forthe230,735warrantsissued.Thisamountisbookedwithinequity.

Nochangestothenumberofsharesoccurredeitherin2016or2015.

BasedontheauthorisationbytheGeneralMeetingoftheCompanyheldon15June2011,theBoardresolvedtoimplementtheacquisitionofownsharesbytheCompanyon31July2015.ThepurposewastoreducethecapitaloftheCompanyand/ortomeetobligationsarisingfromdirectorandemployeeshareoptionprogrammesorotherallocationsofsharestodirectorsandemployeesoftheCompanyorofanassociatecompany.Maximumnumberofsharestobeacquiredamountedupto5%ofthebasiccapitaloftheCompany,i.e.461,470shares.Thesharescouldbeacquiredupuntil14June2016foramaximumconsiderationofCZK1,000.

77

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

Asof31December2015,theCompanyhasacquired428541ownsharesatatotalacquisitoncostof346.3mil.CZK(equivalentof12,797thousandEUR)whichconstitute4.64%ofthebasiccapital.During2016,withinthescopeofthesharebuybackprogramme,theCompanyboughtbackadditional32,929ofitsownsharesatatotalacquisitioncostofCZK23.6million(equivalentofEUR875thousand)whichconstitutes0.36%ofthebasiccapital.Thereby,asat31December2016,theCompanycompletedthesharebuybackprogrammeandheld461,470ofitsownsharesatatotalacquisitioncostofEUR13,671thousand,representing5%ofitsbasiccapital.InaccordancewiththeLuxembourglaw,theCompanyhascreatedanon-distributablereserveforanamountofEUR12,797thousandin2015anditsallocationwasratifiedbythegeneralmeetingoftheCompanyheldon15June2016.In2016,theCompanycreatedanon-distributablereserveofEUR875thousand.ThisreservewastakenoffthecurrentprofitoftheCompanyandtheboardwillproposetoratifythisallocationduringthenextgeneralmeetingoftheshareholders,i.e.on15June2017.

v) Retained earningsOn26October2016,theCompanydistributedEUR11,536,750orEUR1.25persharetoitsshareholdersasadividendpaidfrom2015netprofitandfromretainedearnings.Thedividendwasnotpaidouton461,470oftheCompany‘sownshares,thatitheldattherecorddateforthedividendpayout,i.e.on14October2016.Therefore,thetotaldividendpayoutamountedtoEUR10,959,913.

In2015,theCompanydistributedEUR10,613,810orEUR1.15pershare.Thedividendwasnotpaidouton229,558oftheCompany‘sownsharesandthetotaldividendpayoutthusamountedtoEUR10,349,818.

w) Legal and other reservesUnderLuxembourglawanamountequaltoatleast5%ofthenetprofitmustbeallocatedannuallytoalegalreserveuntilsuchreserveequals10%ofthesharecapital.Thisreserveisnotavailablefordividenddistribution.

Otherreservesincludedividendsnotpaidonownsharesandaredistributabletoshareholders.

2016 2015

Legalreserves 1,152 9,187

Otherreserves 841 264

Total 1,999 9,451

x) Bank overdrafts and loansOn6October2015,theCompanyconcludedacontractforanoverdraftfacility.Theoverdraftissecuredbyaguaranteefromtheparentcompanyonbehalfofitssubsidiarywhichisapartytothecontractwiththebank.Nocovenantsareattachedtotheoverdraftfacility.

2016 drawdown limit

bank loan liability

Arrangement fees

Carrying amount

Current Non-current Interest rate Interest rate at 31/12/2016

Overdraft 20,000 0 -- 0 0 -- 1DEURIBOR+0.75%

0.75%

Overdraft 15,000 0 -- 0 0 -- 1DEURIBOR+0.40%

0.40%

bank loans total 35,000 0 -- 0 0 --

2015 drawdown limit

bank loan liability

Arrangement fees

Carrying amount

Current Non-current Interest rate Interest rate at 31/12/2015

Overdraft 20,000 7,111 -- 7,111 7,111 -- 1DEURIBOR+0.75%

0.75%

bank loans total 20,000 7,111 -- 7,111 7,111 --

Thecarryingamountofthebankloansapproximatestheirfairvalue.Theoverdraftfacilityistreatedasabankcurrentliability.


FiNANciAL PART

y) Deferred taxDeferredtaxassetsandliabilities

Assets Liabilities Net

2016 2015 2016 2015 2016 2015

Property,plantandequipment -- -- (20,363) (20,426) (20,363) (20,426)

Inventories 278 208 -- -- 278 208

Other 18 2,778 -- -- 18 2,778

deferred tax asset/(liability) 296 2,986 (20,363) (20,426) (20,067) (17,440)

Offsetofdeferredtaxassetsandliabilities (296) (2,986) 296 2,986 -- --

deferred tax asset/(liability) -- -- (20,067) (17,440) (20,067) (17,440)

InaccordancewiththeaccountingpolicydescribedinNote3g),thedeferredtaxwascalculatedusingthetaxratesappliedfortheyearsinwhichthetaxassetwillberealisedorthetaxliabilitywillbesettled,i.e.at19%foryear2016onwardintheCzechRepublicand22.5%inEgypt(2015–19%intheCzechRepublicand22.5%inEgypt).

z) Other non-current liabilitiesTheCompanyisanissuerofpublicunsecuredbonds,issuedon14November2014,inthetotalnominalvalueofCZK2,500,000,000(twobillionfivehundredmillionCzechcrowns)maturingon14November2018withafixedinterestrateof2.85%p.a.

Inthethirdquarter2015,theCompanyboughtbackthesebondsinthenominalvalueofCZK198million.Theliabilityoutstandingfromthesebonds,whichisincludedinthebalanceofothernon-currentliabilities,ispresentedonanetbasis,i.e.theoriginalnominalissuedisreducedbythevalueofthebuy-back.

On14June2015,theCompanyissuedthreeprivateissuesofunsecuredseniorbondsinthetotalnominalvalueofapproximatelyEUR100million.

ThefirstissueintheamountofCZK678,000,000(sixhundredandseventy-eightmillionCzechcrowns)withanofferpriceof100%matureson14July2025andbearsavariableinterestrateof6MPRIBOR+2.00%p.a.

ThesecondissueintheamountofEUR35,000,000(thirty-fivemillioneuro)withanofferpriceof100%matureson14July2025andbearsafixedinterestrateof3.39%p.a.

ThemanagerofthefirstandsecondissuewasČeskoslovenskáobchodníbanka.

ThethirdissueintheamountofCZK1,080,000,000(onebillionandeightymillionCzechcrowns)withanofferpriceof101.594%matureson14July2022andbearsafixedinterestrateof2.646%p.a.ThemanageroftheissuewasČeskáspořitelna.

BothoftheissuesdenominatedinCzechcrownswerehedgedagainstforeignexchangerisksusingcross-currencyswaps.TheCompanyisthuseffectivelyafixedratepayerinEUR.Theproceedsfromtheissueswereusedfortherepaymentofbankloans,therealisationofthesharebuybackprogram,apartialbuybackofbondsmaturinginNovember2018andtheywillalsobeusedtofinancefurtherdevelopmentoftheCompany.

Issuancecostsincludeamountspaidinconnectionwiththebondissueforlegal,accountingandotherservicesaswellasthebondnominaldiscount/premium.Theseamountsareamortisedoverthetermofthebondissueonastraightlinebasis.

Theproceedsfromthethreeprivatebondissuesandthebuy-backofthepublicbondissuearereflectedonanetbasisinthecashflowstatement.

79

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

2016 2015

Bondnominal 185,254 185,245

Issuancecostsrelatedtothebondissue (220) (439)

Total 185,034 184,806

aa) Current trade and other payables

2016 2015

Tradepayables 10,278 14,444

Advancesreceived 19 9

Liabilitiestoemployees 6,998 6,314

Deferredincome 559 523

Negativefairvalueofderivatives 172 848

Taxclaim 805 0

Other 1,722 1,757

Total 20,553 23,895

Interest rate swapsTheGroupconcludedtwointerestrateswapsin2011whichmaturedon14June2016.UnderthesecontractstheCompanypaidastep-upfixedinterestrateandreceivedthefloatinginterestraterepresentedby3MEURIBOR.NotionalamountwasTEUR22,000until14December2012andTEUR98,000until14June2016.Thestructureoftheseswapsisshownbelow:

Period Notional amount fixed Interest Rate

14/09/2011–14/12/2011 22,000 1.32%

14/12/2011–14/3/2012 22,000 1.32%

14/3/2012–14/6/2012 22,000 1.32%

14/6/2012–14/9/2012 22,000 1.42%

14/9/2012–14/12/2012 22,000 1.42%

14/12/2012–14/3/2013 98,000 1.52%

14/3/2013–14/6/2013 98,000 1.52%

14/6/2013–14/9/2013 98,000 1.62%

14/9/2013–14/12/2013 98,000 1.62%

14/12/2013–14/3/2014 98,000 1.72%

14/3/2014–14/6/2014 98,000 1.72%

14/6/2014–14/9/2014 98,000 1.82%

14/9/2014–14/12/2014 98,000 1.82%

14/12/2014–14/3/2015 98,000 1.92%

14/3/2015–14/6/2015 98,000 1.92%

14/6/2015–14/9/2015 98,000 2.02%

14/9/2015–14/12/2015 98,000 2.02%

14/12/2015–14/3/2016 98,000 2.12%

14/3/2016–14/6/2016 98,000 2.12%


FiNANciAL PART

Fairvalueoftheswapsasat31December2016and2015wasasfollows:

Counterparty 2016 2015

Českáspořitelna -- (564)

ING -- (564)

Total in TEUR -- (1,128)

TheobjectiveoftheseswapswastohedgetheinterestrateriskresultingfromchangestointerestratesonbankloansprovidedtotheCompany.AsaresultoftherefinancingoftheCompanyandtherepaymentofbankloans,thesubjectofthehedgeceasedtoexist.Asofthenanduntilthepaymentdateoftheswapson14July2016,thechangesinthefairvalueoftheseswapswerebookedintheprofitandlossstatement.

Cross currency rate swapsAsat31December2016,theCompanyheldthreeopencrosscurrencyswaps.

ThefirstswapwasconcludedinNovember2014withatotalnominalvalueofCZK2,489,575thousand(receivingleg)againstEUR90,201thousand(payingleg)forthepurposeofhedgingtheriskoftheCZKdenominatedpublicbondsPegas2.85/2018.Theswapbearsafixedinterestrateof3.1%p.a.

ThesecondswapwasconcludedinJuly2015withatotalnominalvalueofCZK678,000thousand(receivingleg)againstEUR25,000thousand(payingleg)forthepurposeofhedgingthecurrencyriskoftheCZKdenominatedprivatebondissuematuringon14July2025withavariableinterestrateof6MPRIBOR+2.00%p.a.Theswapbearsafixedinterestrateof3.39%p.a.

ThethirdswapwasconcludedinJuly2015withatotalnominalvalueofCZK1,080,000thousand(receivingleg)againstEUR39,852thousand(payingleg)forthepurposeofhedgingthecurrencyriskoftheCZK-denominatedprivatebondissuematuringon14July2022withafixedinterestrateof2.646%p.a.Theswapbearsafixedinterestrateof3.15%p.a.

TheCompanyaccountsforthesecrosscurrencyswapsunderhedgeaccountingprinciples.Changesinthefairvalueoftheseswapsarereportedinequity.

Fairvalueoftheswapsasat31December2016and2015wasasfollows.ApositivevaluerepresentsareceivableoftheCompany,anegativevaluerepresentsapayableoftheCompany.


Českáspořitelna–EUR90.201mil. 3,226 2,984

ČSOB–EUR25mil. (195) 280

Českáspořitelna–EUR39.852mil (138) (145)

Total in TEUR 2,893 3,119

FairvalueoftheswapsisdeterminedbytheEURandCZKyieldcurveatthebalancesheetdateandthediscountedcashflowmethod.TheinputsusedinthefairvaluecalculationarecategorisedinaccordancewithIFRS7intolevel2offairvaluehierarchy.

Sensitivity of the fair value of cross currency swapsTheappreciationofCZKagainstEURby1%would,asat31December2016,increasethefairvalueofthecrosscurrencyswapsbyapproximatelyEUR1.6million.

ThedepreciationofCZKagainstEURby1%would,asat31December2016,decreasethefairvalueofthecrosscurrencyswapsbyapproximatelyEUR1.5million.

81

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

fx forwardsAsat31December2016and31December2015,theCompanydidnothaveanyopenFXforwards.

foreign currency optionsAsat31December2016,theCompanyheldanopenpositioninaforeigncurrencyoptionstructurethatwasconcludedbytheCompanyinMarch2016.TheobjectiveofthisforeigncurrencyoptionstructureistohedgecurrencyriskconnectedwithrevenuesinEURandtheirconversiontoCZKinapproximatelytheamountastheCompanyexpendseachmonthonthepaymentofwagesandsalaries.Basedonthisstructure,theCompanyhas,intheperiodfromJuly2016toJuly2019therighttosellEUR1.1millionandtopurchaseCZK29.348millionundertheconditionthattheEUR/CZKexchangerateasatthedateofthemonthlyexpirationislowerthan26.68.Concurrently,theCompanyhas,inthesameperiodtheobligationtosellEUR1.375millionandtopurchaseCZK36.685millionundertheconditionthattheEUR/CZKexchangerateasatthedateofthemonthlyexpirationishigherthan27.52.

TheCompanyaccountsforthisforeigncurrencyoptionstructureasheld-for-trading.Changesinthefairvalueofthestructurearereportedinprofitandloss.

Thefairvalueoftheforeigncurrencyoptionstructure,asat31December2016,ispresentedinthefollowingtable.ApositivevaluerepresentsareceivableoftheCompany,anegativevalueapayableoftheCompany.


Foreigncurrencyoptionstructure(inTEUR) 22 --

Sensitivity of the fair value of the foreign currency option structure TheappreciationofCZKagainstEURby5%would,asat31December2016,increasethefairvalueoftheforeigncurrencyoptionstructurebyapproximatelyEUR1.8million.

ThedepreciationofCZKagainstEURby5%would,asat31December2016,decreasethefairvalueoftheforeigncurrencyoptionstructurebyapproximatelyEUR1.6million.

bb) Tax liabilities and other tax liabilities

2016 2015

Employmenttax 205 110

Salestaxpayable 0 0

Corporateincometaxpayable 521 1,664

Othertaxespayable 0 50

Total 726 1,824

Asat31December2016thecorporateincometaxliabilityamountedto521TEURbasedondifferencebetweenadvancespaidandestimateforthecorporateincometaxexpensefor2016.Thecorporateincometaxliabilityasat31December2015amountedto1,664TEUR.


FiNANciAL PART

cc) EntitiesTotranslatetheregisteredcapitalofsubsidiaries,theEUR/CZK27.021andEUR/USD1.0541rateofexchangeeffectiveon31December2016wasused.

subsidiaries included in the consolidated entity

Company Acquisition date

share in the subsidiary

Registered capital TCZK/TUsd/ZAR

Registered capital TEUR

Number and nominal valueof shares

PEGASNONWOVENSs.r.o.* 5/12/2005 100% TCZK3,633 134 100%participationofTCZK3,633

PEGAS-NTa.s. 14/12/2005 100% TCZK550,000 20,355 54sharesatTCZK10,000pershareand10sharesatTCZK1,000pershare

PEGAS–NWa.s. 14/12/2005 100% TCZK650,000 24,055 64sharesatTCZK10,000pershareand10sharesatTCZK1,000pershare

PEGAS–NSa.s. 3/12/2007 100% TCZK650,000 24,055 64sharesatTCZK10,000pershareand10sharesatTCZK1,000pershare

PEGASNONWOVENSInternationals.r.o.**

18/10/2010 100% TCZK200 7 100%participationofTCZK200

PEGASNONWOVENSEGYPTLLC***

6/6/2011 100% TUSD23,000 21,820 100%participationofTUSD23,000

PEGASNONWOVENSRSA(PTY)LTD****

11/7/2016 100% ZAR100 0 100%participationofZAR100

* PEGASNONWOVENSs.r.o.wasregisteredon14November2003asELKINVESTMENTSs.r.oandchangeditsnametoPEGASNONWOVENSs.r.o.in2006.PEGASa.s.,thesubsidiaryofPEGASNONWOVENSs.r.o.,wasestablishedin1990.ItmergedwithPEGASNONWOVENSs.r.o.witheffectfrom1January2006andwasdeletedfromtheCommercialRegisteron12May2006.CEEEnterprisea.s.mergedwithPEGASNONWOVENSs.r.o.witheffectfrom1January2007andwasdeletedfromtheCommercialRegisteron20August2007.PEGAS–DSa.s.,formersubsidiaryofPEGASNONWOVENSs.r.o.,ceasedtoexistfollowingitsmergerwithPEGASNONWOVENSs.r.o.witheffectfrom1January2011.

** PEGASNONWOVENSInternationals.r.o.servesasaspecialpurposevehicleestablishedforthepurposeofmakingpotentialfutureinvestments.

*** PEGASNONWOVENSEGYPTLLCwasestablishedforthepurposeofexecutingtheconstructionandoperationofanewproductionplantinEgypt.

**** PEGASNONWOVENSRSA(PTY)LTDwasestablishedforthepurposeofrealisationoftheinvestmentprojectintheRepublicofSouthAfrica

6. Related parties transactions

ExceptfortheinformationprovidedunderNotes5f)and5g)therewerenoothertransactionsbetweentheGroupandtheexecutiveorthenon-executivedirectors.

7. Contingencies and commitments

TheGrouphasnomaterialcontingenciesorcommitmentswhichwouldnotbereportedinthebalancesheet.

83

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

8. subsequent eventsOn5January2017,theBoardofDirectorsoftheCompanyapprovedanintentiontodelisttheCompany‘ssharesfromtradingontheWarsawStockExchange.ThisdecisionwastakenonthegroundsofverylowtradingvolumesoftheCompany’ssharesontheWarsawStockExchangethatdonotjustifythecostsofthelisting.Subsequently,on23January2017,thePolishsupervisoryauthorityapprovedtheTenderOffersubmittedbytheCompanyinconnectionwiththisintention.TheperiodfortheregistrationofrequestsfortheacceptanceoftheTenderOfferendedon24February2017.Inthisregard,theCompanyeventuallyacceptedtherequestsandreacquired4,071sharesinMarch2017,representing0.04%ofthesharecapitalandvotingrightsoftheCompany.ThedelistingfromtradingontheWarsawStockExchangeisnowpendingtheapprovalofthePolishsupervisoryauthority.Inaccordancewiththerequiredprocedure,oncetheapprovalisissued,theCompanyshallsubsequentlyrequesttheWarsawStockExchangetoalsoapprovethedelistingofsharesfromtrading.ItisexpectedthattheCompany‘ssharesshallceasetobetradedontheWarsawStockExchangeduringthefirsthalf2017.

On20January2017,thecompanyPEGASNONWOVENSs.r.o.issuedprivateseniorunsecuredbondspursuanttoCzechlawinthenominalamountofEUR50million.Thebondissuebearsafixedinterestrateof1.875%p.a.andisrepayableon20January2024.TheproceedsfromthebondissuewillbeusedprimarilyfortherefinancingofthepublicbondissueinNovember2018.

ThemanagementoftheGroupisnotawareofanyothereventsthathaveoccurredsincethebalancesheetdatethatwouldhaveanymaterialimpactontheconsolidatedfinancialstatementsasat31December2016.

Date:26April2017

Signatureoftheauthorisedrepresentatives:

MemberoftheBoardofPEGASNONWOVENSSA MemberoftheBoardofPEGASNONWOVENSSAfrantišek Řezáč marian Rašík


FiNANciAL PART

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort

Fina

ncia

l par

t

stand-alone financial statements of PEgAs NONWOVENs sA

asatandfortheyearended31December2016andIndependentAuditor’sReport

TotheShareholdersofPEGASNONWOVENSS.A.68-70,boulevarddelaPétrusseL-2320Luxembourg

deloitte AuditSociétéaresponsabilitélimitée560,ruedeNeudorfL-2220LuxembourgB.P.1173L-1011Luxembourg

Phone:+352451451Fax:+352451452992www.deloitte.lu

REPORT OF THE RÉVISEUR D’ENTREPRISES AGRÉÉ

Report on the annual accountsWehaveauditedtheaccompanyingannualaccountsofPEGASNONWOVENSS.A.,whichcomprisethebalancesheetasatDecember31,2016andtheprofitandlossaccountfortheyearthenended,andasummaryofsignificantaccountingpoliciesandotherexplanatoryinformation.

Responsibility of the Board of Directors for the annual accountsTheBoardofDirectorsisresponsibleforthepreparationandfairpresentationoftheseannualaccountsinaccordancewithLuxembourglegalandregulatoryrequirementsrelatingtothepreparationoftheannualaccounts,andforsuchinternalcontrolastheBoardofDirectorsdeterminesisnecessarytoenablethepreparationofannualaccountsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.

Responsibility of the réviseur d’entreprises agrééOurresponsibilityistoexpressanopinionontheseannualaccountsbasedonouraudit.WeconductedourauditinaccordancewithInternationalStandardsonAuditingasadoptedforLuxembourgbytheCommissiondeSurveillanceduSecteurFinancier.Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperformtheaudittoobtainreasonableassurancewhethertheannualaccountsarefreefrommaterialmisstatement.

Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresintheannualaccounts.Theproceduresselecteddependontheréviseurd’entreprisesagréé’sjudgement,includingtheassessmentoftherisksofmaterialmisstatementoftheannualaccounts,whetherduetofraudorerror.Inmakingthoseriskassessments,theréviseurd’entreprisesagrééconsidersinternalcontrolrelevanttotheentity’spreparationandfairpresentationoftheannualaccountsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.AnauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebytheBoardofDirectors,aswellasevaluatingtheoverallpresentationoftheannualaccounts.

sTANd-ALONE fINANCIAL sTATEmENTs


FiNANciAL PART

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

OpinionInouropinion,theannualaccountsgiveatrueandfairviewofthefinancialpositionofPEGASNONWOVENSS.A.asatDecember31,2016,andoftheresultsofitsoperationsfortheyearthenendedinaccordancewithLuxembourglegalandregulatoryrequirementsrelatingtothepreparationoftheannualaccounts.

Other informationTheBoardofDirectorsisresponsiblefortheotherinformation.TheotherinformationcomprisestheinformationincludedinthemanagementreportandtheCorporateGovernanceStatementbutdoesnotincludetheannualaccountsandourreportofRéviseur d’Entreprises Agréé thereon.

Ouropinionontheannualaccountsdoesnotcovertheotherinformationandwedonotexpressanyformofassuranceconclusionthereon.

Inconnectionwithourauditoftheannualaccounts,ourresponsibilityistoreadtheotherinformationand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththeannualaccountsorourknowledgeobtainedintheauditorotherwiseappearstobemateriallymisstated.If,basedontheworkwehaveperformed,weconcludethatthereisamaterialmisstatementofthisotherinformation,wearerequiredtoreportthisfact.Wehavenothingtoreportinthisregard.

Other matterTheCorporateGovernanceStatementincludesinformationrequiredbyArticle68bisparagraph(1)ofthelawof19December2002onthecommercialandcompaniesregisterandontheaccountingrecordsandannualaccountsofundertakings,asamended.

Report on other legal and regulatory requirementsThemanagementreportisconsistentwiththeannualaccountsandhasbeenpreparedinaccordancewiththeapplicablelegalrequirements.

TheinformationrequiredbyArticle68bisparagraph(1)lettersc)andd)ofthelawof19December2002onthecommercialandcompaniesregisterandontheaccountingrecordsandannualaccountsofundertakings,asamendedandincludedintheCorporateGovernanceStatementisconsistentwiththeannualaccountsandhasbeenpreparedinaccordancewithapplicablelegalrequirements.

ForDeloitteAudit,Cabinet de révision agréé

Tom Pfeiffer,Réviseur d’Entreprises AgrééPartner

26April2017

87

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

balance sheetasatDecember31,2016(expressedinEUR)

AssETs Reference(s) 2016 2015

C. fixed assets:

III.Financialassets:

1.Sharesinaffiliatedundertakings 3 18,942,199.38 18,942,199.38

2.Loanstoaffiliatedundertakings 4 113,725,280.00 100,849,280.00

132,667,479.38 119,791,479.38

d. Current assets:

II.Debtors:

2.Amountsowedbyaffiliatedundertakings:

a)becomingdueandpayablewithinoneyear 4 24,301,241.75 10,662,692.33

4.Otherdebtors:

a)becomingdueandpayablewithinoneyear - 929,528.27

b)becomingdueandpayableaftermorethanoneyear 3,000.00 3,000.00

III.Investments:

2.Ownshares 5 13,672,184.55 12,797,243.86

IV.Cashatbankandinhand 1,075,831.14 24,097,183.29

32,052,257.44 48,489,647.75

E.Prepayments 7 608,623.05 917,339.45

172,328,359.87 169,198,466.58

Thenotesintheannexformanintegralpartoftheseannualaccounts.


FiNANciAL PART

balance sheet (continued)asatDecember31,2016(expressedinEUR)

CAPITAL, REsERVEs ANd LIAbILITIEs Reference(s) 2016 2015

A. Capital and reserves: 5

I. Subscribedcapital 11,444,456.00 11,444,456.00

II. Sharepremiumaccount 5,512,071.01 5,512,071.01

IV. Reserves:

1.Legalreserve 1,144,445.60 1,144,445.60

2.Reservesforownshares 13,672,184.55 12,797,243.86

4.Otherreserves,includingthefairvaluereserve

a)otheravailablereserves 840,829.20 263,991.70

V. Profitorlossbroughtforward 348,876.20 848,690.50

VI. Profitorlossforthefinancialyear 14,253,869.31 23,834,179.56

VII. Interimdividends (874,940.69) (12,797,243.86)

46,341,791.18 43,047,834.37

b. Provisions: 6

3.Otherprovisions 1,059,137.25 1,163,837.87

C. Creditors:

1.Debentureloans:

b)Nonconvertibleloans: 7

i)becomingdueandpayablewithinoneyear 800,842.91 800,783.65

ii)becomingdueandpayableaftermorethanoneyear 123,258,195.62 123,258,195.62

2.Amountsowedtocreditinstitutions: 8

a)becomingdueandpayablewithinoneyear 113,520.58 113,581.71

4.Tradecreditors:

a)becomingdueandpayablewithinoneyear 114,579.26 104,116.75

8.Othercreditors:

a)Taxauthorities 11 102,990.93 53,295.84

b)Socialsecurityauthorities 6,117.94 4,343.52

c)Othercreditorsbecomingdueandpayablewithinoneyear 29,294.18 59,695.72

124,425,541.42 124,394,012.81

D.Deferredincome 7 501,890.02 592,781.53

172,328,359.87 169,198,466.58

Thenotesintheannexformanintegralpartoftheseannualaccounts.

89

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

Profit and Loss accountFortheyearendedDecember31,2016(expressedinEUR)

Reference(s) 2016 2015

4.Otheroperatingincome 6 104,700.62 361,578.58

5.Rawmaterialsandconsumablesandotherexternalexpenses

b)Otherexternalexpenses 9 (471,945.33) (536,576.71)

6.Staffcosts

a)Wagesandsalaries (16,728.39) -

b)Socialsecurity

i.relatingtopensions (1,274.34) -

ii.othersocialsecuritycosts (837.55) -

8.Otheroperatingexpenses 6,10 (1,870,298.52) (475,767.45)

9.Incomefromparticipatinginterests

a)derivedfromaffiliatedundertakings 3 17,000,000.00 25,000,000.00

11.Otherinterestreceivableandsimilarincome

a)derivedfromaffiliatedundertakings 4 3,638,549.42 3,298,306.30

b)otherinterestandsimilarincome 7 91,368.92 42,465.92

14.Interestpayableandsimilarexpenses

a)otherinterestandsimilarexpenses 7,8 (4,150,890.53) (3,852,555.08)

15.Taxonprofitorloss 11 - (3,210.00)

16.Profitorlossaftertaxation 14,322,644.31 23,834,241.56

17.Othertaxesnotshownunderitems1to16 11 (68,775.00) (62.00)

18.Profitorlossforthefinancialyear 14,253,869.31 23,834,179.56

Thenotesintheannexformanintegralpartoftheseannualaccounts


FiNANciAL PART

NOTE 1 – gENERAL

PEGASNONWOVENSS.A.(the“Company”)isacommercialcompanyincorporatedinLuxembourgonNovember18,2005,underthelegalformofa“Sociétéanonyme”.TheregisteredofficeoftheCompanyisat68-70,boulevarddelaPétrusse,L-2320LuxembourgandtheCompanyisregisteredwiththeLuxembourgTradeandCompaniesRegisterunderthesectionBnumber112.044.

TheobjectoftheCompanyistotakeparticipationsandinterests,inanyformwhatsoever,inanycommercial,industrial,financialorother,Luxembourgorforeignenterprises;toacquireanysecuritiesandrightsthroughparticipation,contribution,underwritingfirmpurchaseoroption,negotiationorinanyotherwayandnamelytoacquirepatentsandlicences,andotherproperty,rightsandinterestinpropertyastheCompanyshalldeemfit,andgenerallytohold,manage,develop,sellordisposeofthesame,inwholeorinpart,forsuchconsiderationastheCompanymaythinkfit,andinparticularforsharesorsecuritiesofanycompanypurchasingthesame;toenterinto,assistorparticipateinfinancial,commercialandothertransactions,andtogranttoanyholdingcompany,subsidiary,orfellowsubsidiary,oranyothercompanyassociatedinanywaywiththeCompany,orthesaidholdingcompany,subsidiaryorfellowsubsidiary,inwhichtheCompanyhasdirectorindirectfinancialinterest,anyassistancesuchase.g.pledges,loans,advancesorguarantees;toborrowandraisemoneyinanymannerandtosecuretherepaymentofanymoneyborrowed;toborrowfundsandissuebondsandothersecurities;andtoperformanyoperationwhichisdirectlyorindirectlyrelatedtoitspurpose.TheCompanycanperformallcommercial,technicalandfinancialoperations,connecteddirectlyorindirectlyinallareasasdescribedaboveinordertofacilitatetheaccomplishmentofitspurpose.

TheCompanyalsopreparesconsolidatedfinancialstatements,whicharepublishedaccordingtotheprovisionsofthelaw,andareavailableattheregisteredoffice.

TheaccountingyearbeginsonJanuary1andendsonDecember31.

TheCompanyislistedonbothPragueStockExchange(PSE)andWarsawStockExchange(WSE)asfromDecember21,2006.

NOTE 2 – sUmmARY Of sIgNIfICANT ACCOUNTINg POLICIEs

TheCompanymaintainsitsbooksinEuro(“EUR”)andtheannualaccountshavebeenpreparedinconformitywithgenerallyacceptedaccountingprinciplesinLuxembourgandwiththelawofDecember19,2002asamended.FollowingthelawofDecember18,2015,amendingthelawofDecember19,2002,andtheGrand-DucalRegulationofDecember18,2015dealingwiththepresentationofthebalancesheetandprofitandlossaccount,thecomparativefigureshavebeenreclassifiedadequately.ThesignificantaccountingpoliciesoftheCompanyarethefollowing:

a) Financial assetsFinancialassetsarestatedathistoricalacquisitioncost.Write-downsarerecordedif,intheopinionofthemanagement,apermanentimpairmentinvaluehasoccurred.Valueadjustmentsarenotcontinuedifthereasonsforwhichtheyhavebeenrecognizedhaveceasedtoapply.

b) Foreign currency translationMonetaryassetsandliabilitiesstatedincurrenciesotherthanEURaretranslatedattheexchangeratesprevailingatthebalancesheetdate.Incomeandexpensesdenominatedinforeigncurrencyhavebeentranslatedattheexchangerateprevailingatthetransactiondate.Realizedandunrealizedexchangelossesandrealizedexchangegainsarerecordedintheprofitandlossaccount.

NOTEs TO ThE ANNUAL ACCOUNTs

asatDecember31,2016(expressedinEUR)

91

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

Longtermassetandliabilitiesaretranslatedattheexchangeratesprevailingatthedateofthetransaction.Write-downsarerecordedifapermanentimpairmentinvaluehasoccurred.

c) Debtors, cash at banks and creditorsDebtors,cashatbanksandcreditorsarerecordedattheirnominalvaluelessallowancefordoubtfulaccounts.

d) Cash-settled share-based paymentIn2007,theCompanyenteredintoaSharepricebonusschemeforitsSeniorManagementandBoardMembers.Theschemewasextendedin2010and2014.Theschemeisacombinationofcash-settledorstock-settledtransaction,inwhichtheCompanyacquiresservicesofkeypersonnelbyincurringliabilitiestothesupplierofthoseservicesforamountsthatarebasedonthepriceoftheCompany’sshares.Theschemeisrealizedthroughphantomoptionsandwarrants,whichvestannually.Theserviceperiodequalsthevestingperiodandtheservicesarecorrespondinglyaccountedforastheyarerenderedbythecounterpartyduringthevestingperiod.

TheCompanymeasurestheliabilityarisingfromthephantomoptionsandwarrantsatfairvalueateachreportingdate.ThechangesinthefairvalueoftheseliabilitiesarerecognizedintheprofitandlossaccountfortheperiodinlineitemOtheroperatingexpensesorOtheroperatingincome.

Thefairvalueofthephantomoptionsandwarrantsisdeterminedby:• Pricingmodel• Expectedlifeassumption/participantbehaviour• Currentshareprice• Expectedvolatility• Expecteddividends• Risk-freeinterestrate

e) Dividends receivedDividendsreceivablefromaffiliatedundertakingsarerecognisedintheperiodinwhichtheyaredeclaredbytheentity.

f) Derivative financial instrumentsDerivativefinancialinstrumentsusedashedginginstrumentsforlongtermliabilitiesarerecordedoffbalancesheetandthechangeintheirfairvalueisnotbookedintheprofitandlossaccount.

g) PrepaymentsPrepaymentsincludeexpendituresincurredduringthefinancialyearbutrelatingtoasubsequentfinancialyear.

h) Deferred incomeDeferredincomeincludesincomereceivedduringthefinancialyearbutrelatingtoasubsequentfinancialyear.

i) Own shares TheannualgeneralmeetingoftheshareholdersheldonJune15,2011resolvedtoauthorizetheBoardofDirectorstodecideontheacquisitionofownsharesbytheCompany.TheauthorizationtoacquireownsharesoftheCompanyhasbeenrenewedduringtheannualgeneralmeetingoftheshareholdersheldonJune15,2016withthefollowingmodalities:• Amaximumof10%ofthetotalnumberofsharesmaybeacquired,• TheacquisitionpriceshallrangebetweenCZK100andCZK1,500(ortheequivalentamountsinothercurrencies)pershare,• TheauthorizationhasbeengivenforaperiodoffiveyearsstartingfromJune15,2016.


FiNANciAL PART

Thepurposeistocanceltheshares(reducetheCompany’ssharecapital)and/ortomeetobligationsarisingfromdirectorsandemployeesshareoptionprogramsorotherallocationsofsharestodirectorsandemployeesoftheCompanyortoassociatecompanies.Theacquisitionoftheownsharesisrecordedbasedonthetradedatewhilethedividendonownsharesisrecordedbasedonthesettlementdate.Theownsharesaresubjecttoimpairmenttheextentofwhichshouldbedecidedbytheboardofdirectorsonlyincaseofapermanentdecreaseinvalue.

j) BondsThebondsissuedbytheCompanyarerecordedattheirnominalvalueandtranslatedattheexchangerateprevailingatthedateofthetransaction.

NOTE 3 – shAREs IN AffILIATEd UNdERTAKINgs

OnDecember5,2005,theCompanyacquired100sharesofCEEEnterprisea.s.,ajointstockcompanyincorporatedintheCzechRepublic,foranamountofCZK2,248,190(EUR78,737.44).

OnJanuary18,2006,theCompanydecidedtoincreasethesharecapitalofCEEEnterprisea.s.byanamountofCZK1,600,000bytheissuanceof1,600,000newshareswithanominalvalueofCZK1.00eachandalsodecidedtosubscribefor1,510,000sharesforanamountofCZK1,510,000(EUR51,855.29),theremaining90,000newsharesbeingsubscribedbysixnewshareholders.

OnNovember28,2006,theCompanyacquired90,000sharesofCEEEnterprisea.s.foranamountofEUR253,220.03.

During2007,PEGASNONWOVENSs.r.o.acompanyincorporatedintheCzechRepublic,whollyownedsubsidiaryofCEEEnterprisea.s.decidedtomergewithandabsorbCEEEnterprisea.s.witheffectonJanuary1,2007.

Duringtheyear2010,theCompanyacquired100%ofthesharesofPEGASNONWOVENSInternationals.r.o.acompanyincorporatedintheCzechRepublicforanamountofCZK200,000.00(EUR8,386.62).

OnSeptember22,2014,theCompanydecidedtoconverttheloansgrantedtoPEGASNONWOVENSInternationals.r.o.intocapitalforatotalamountofEUR18,550,000.00.

TheregisteredofficesofPEGASNONWOVENSs.r.o.andofPEGASNONWOVENSInternationals.r.o.areatPrimeticka3623/86,66902Znojmo,CzechRepublic.

AsofDecember31,2016,theCompanyheldthefollowingparticipations:

Name of the Company Country Percentage of ownership

Acquisition cost (EUR)

shareholders’ equity (ths.CZK)

Result for the year (ths.CZK)

PEGASNONWOVENSs.r.o. CzechRepublic 100.00% 383,812.76 1,478,781.00 370,592.00

PEGASNONWOVENSInternationals.r.o.

CzechRepublic 100.00% 18,558,386.62 611,515.00 (6,024.00)

18,942,199.38 2,090,296.00 364,568.00

Theshareholdersequityincludestheresultfortheyear.TheshareholdersequityandresultfortheyeararebasedontheauditedannualaccountsfortheyearendedDecember31,2016.

ThegeneralmeetingofPEGASNONWOVENSs.r.o.(theCompany’ssubsidiary)heldonMay20,2016decidedtodistributeadividendtotheCompanyforanaggregateamountofEUR17,000,000.00(2015:EUR25,000,000.00).

Intheopinionofthemanagement,nopermanentdiminutioninvaluehasoccurredasat31December2016.

93

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

NOTE 4 – AmOUNTs OWEd bY AffILIATEd UNdERTAKINgs

Loans granted to PEGAS NONWOVENS s.r.o.OnDecember13,2005,theCompanygrantedaloantoPEGASNONWOVENSs.r.o.foranamountofEUR39,768,950.Thisloanboreinterestatarateof10.00%perannumandwasrepayableonDecember14,2035atthelatest.OnNovember29,2006,theloanincludingaccruedinterestwasreplacedbyanewloangrantedbytheCompanytoPEGASNONWOVENSs.r.o.foranamountofEUR43,525,943.70.ThenewloangrantedbearsnointerestandisrepayableonDecember1,2056.

OnJanuary30,2007,theCompanygrantedanadditionalloantoPEGASNONWOVENSs.r.o.foranamountofEUR1,250,000.00.ThisloanbearsnointerestandisrepayableonJanuary30,2057orattherequestofthesubsidiaryconvertibleintosharesorfundsofthesubsidiaryasacontributionoutsidetheregisteredcapital.

OnOctober27,2014,theCompanygrantedanadditionalloantoPEGASNONWOVENSs.r.o.foranamountofEUR1,500,000.00.Thisloanbearsaninterestatarateof3.50%perannumandisrepayableonOctober27,2018,orearlieruponrequestbytheborrower.

OnNovember21,2014,theCompanygrantedanadditionalloantoPEGASNONWOVENSs.r.o.foranamountofEUR5,280,000.00.Thisloanbearsaninterestatarateof3.50%perannumandisrepayableonNovember21,2018,orearlieruponrequestbytheborrower.

OnFebruary26,2015,theCompanygrantedanadditionalloantoPEGASNONWOVENSs.r.o.foranamountofEUR700,000.00.Thisloanbearsaninterestatarateof3.50%perannumandisrepayableonFebruary26,2019,orearlieruponrequestbytheborrower.

OnAugust26,2015,theCompanygrantedanadditionalloantoPEGASNONWOVENSs.r.o.foranamountofEUR7,000,000.00.Thisloanbearsaninterestatarateof3.50%perannumandwasoriginallyrepayableonAugust26,2016.OnAugust25,2016,thematuritydateofthisloanhasbeenextendedtoAugust26,2017,orearlieruponrequestbytheborrower.

OnNovember9,2016,theCompanygrantedanadditionalloantoPEGASNONWOVENSs.r.o.foranamountofEUR10,000,000.00.Thisloanbearsaninterestatarateof3.50%perannumandisrepayableonNovember9,2017,orearlieruponrequestbytheborrower.

AsofDecember31,2016,theoutstandingprincipalamountoftheloansgrantedtoPEGASNONWOVENSs.r.o.amountedtoEUR34,830,000.00(2015:EUR24,830,000.00)ofwhichEUR17,000,000.00isshownundertheitem“Amountsowedbyaffiliatedundertakingsbecomingdueandpayablewithinoneyear”.TheaccruedandunpaidinterestamountingtoEUR946,114.08(2015:EUR379,339.67)areshownundertheitem“Amountsowedbyaffiliatedundertakingsbecomingdueandpayablewithinoneyear”ofthebalancesheet.Thetotalinterestincomefortheyear2016ontheseloansamountedtoEUR566,774.41(2015:EUR348,668.00)andisbookedinthelineitem“Otherinterestreceivableandsimilarincomederivedfromaffiliatedundertakings”oftheprofitandlossaccount.

Loans granted to PEGAS NONWOVENS International s.r.o.OnSeptember22,2014,theCompanydecidedtoconverttheloanspreviouslygrantedtoPEGASNONWOVENSInternationals.r.o.intocapitalforatotalamountofEUR18,550,000.00(seenote3).

OnNovember21,2014,theCompanygrantedaloantoPEGASNONWOVENSInternationals.r.o.foranamountofEUR77,000,000.00.Thisloanbearsaninterestatarateof3.50%perannumandisrepayableonNovember21,2018,orearlieruponrequestbytheborrower.

AsofDecember31,2016,theoutstandingprincipalamountoftheloansgrantedtoPEGASNONWOVENSInternationals.r.o.amountedtoEUR76,300,000.00(2015:EUR76,300,000.00).TheaccruedandunpaidinterestamountingtoEUR5,733,136.10(2015:EUR3,018,127.77)areshownundertheitem“Amountsowedbyaffiliatedundertakingsbecomingdueandpayablewithinoneyear”ofthebalancesheet.Thetotalinterestincomefortheyear2016ontheseloansamountedtoEUR2,715,008.33(2015:EUR2,711,197.21)andisbookedinthelineitem“Otherinterestreceivableandsimilarincomederivedfromaffiliatedundertakings”oftheprofitandlossaccount.

Loans granted to PEGAS-NS a.s.OnNovember21,2014,theCompanygrantedaloantoPEGAS-NSa.s.foranamountofEUR6,719,280.00.Thisloanbearsaninterestatarateof3.50%perannumandisrepayableonNovember21,2018,orearlieruponrequestbytheborrower.


FiNANciAL PART

AsofDecember31,2016,theoutstandingprincipalamountoftheloangrantedtoPEGAS-NSa.s.amountedtoEUR6,719,280.00(2015:EUR6,719,280.00).TheaccruedandunpaidinterestamountingtoEUR504,319.24(2015:EUR265,224.89)areshownundertheitem“Amountsowedbyaffiliatedundertakingsbecomingdueandpayablewithinoneyear”ofthebalancesheet.Thetotalinterestincomefortheyear2016onthisloanamountedtoEUR239,094.35(2015:EUR238,441.09)andisbookedinthelineitem“Otherinterestreceivableandsimilarincomederivedfromaffiliatedundertakings”oftheprofitandlossaccount.

Loans granted to PEGAS-NW a.s.OnSeptember26,2016,theCompanygrantedaloantoPEGAS-NWa.s.foranamountofEUR12,876,000.00.Thisloanbearsaninterestatarateof3.5%perannumandisrepayableonSeptember26,2021,orearlieruponrequestbytheborrower.

AsofDecember31,2016,theoutstandingprincipalamountoftheloangrantedtoPEGAS-NWa.s.amountedtoEUR12,876,000.00(2015:EUR0.00).TheaccruedandunpaidinterestamountingtoEUR117,672.33(2015:EUR0.00)areshownundertheitem“Amountsowedbyaffiliatedundertakingsbecomingdueandpayablewithinoneyear”ofthebalancesheet.Thetotalinterestincomefortheyear2016onthisloanamountedtoEUR117,672.33(2015:EUR0.00)andisbookedinthelineitem“Otherinterestreceivableandsimilarincomederivedfromaffiliatedundertakings”oftheprofitandlossaccount.

NOTE 5 – CAPITAL ANd REsERVEs

a) Subscribed capital and share premiumTheCompanywasincorporatedwithasharecapitalamountingtoEUR125,000representedby12,500shareswithaparvalueofEUR10.00each,fullypaid-in.

OnNovember28,2006,theshareholdersoftheCompanydecidedtosplittheexisting12,500shareswithaparvalueofEUR10.00eachinto100,806shareswithaparvalueofEUR1.24each.Consequently,thesharecapitaloftheCompanywasreducedbyanamountofEUR0.56whichwasallocatedtotheCompany’ssharepremiumaccount.

AlsoonNovember28,2006,theshareholdersoftheCompanydecidedtoincreasethesharecapitalbyanamountofEUR9,075,056.56togetherwithasharepremiumamountingtoEUR118.20,bytheissuanceof7,318,594shareswithaparvalueofEUR1.24each,bywayofacontributioninkind.

Duringtheissueofsharesinthepublicmarket,inDecember2006theGroupissued1,810,000newordinaryshares.ThesenewlyissuedsharesweresubscribedbyinvestorsatEUR27pershare.

Thedifferencebetweenthesubscribedvalueofnewlyissuedshares(EUR27)andthenominalvalue(EUR1.24)wasrecordedinequityassharepremiuminthetotalamountofEUR46,625,600.

FurthertotheextraordinarygeneralmeetingheldonJuly21,2014,theshareholdersdecidedtograntwarrantstothedirectorsforasubscriptionpriceofCZK5.89perwarrant,totallingCZK1,359,029.15(EUR49,476.81)forthe230,735warrantsissuedtobepaidonMarch31,2015.Thisamountisbookedinthelineitem“Sharepremiumandsimilarpremiums”.

AsaresultofthesharepremiumdistributionsmadeonSeptember27,2007,onSeptember25,2008,onSeptember24,2009,onOctober25,2010andonOctober24,2011foranaggregateamountofrespectivelyEUR7,014,344.00,EUR7,844,990.00,EUR8,306,460.00,EUR8,767,930.00andEUR9,229,400.00,andoftheissuanceofthewarrants,thesharepremiumaccountamountedtoEUR5,512,071.01asofDecember31,2016(2015:EUR5,512,071.01).

AsofDecember31,2016,thesharecapitaloftheCompanyamountedtoEUR11,444,456.00representedby9,229,400shareswithaparvalueofEUR1.24each,fullypaid-in.

95

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

subscribed capital

EUR

share premium account

EUR

Legal reserve

EUR

Reserve for own

sharesEUR

Other available reserves

EUR

Profit or loss

brought forward

EUR

Profit or loss for the

financial yearEUR

Interim divivends

EUR

TotalEUR

BalanceatJanuary1,2016

1,444,456.00 5,512,071.01 1,144,445.60 12,797,243.86 263,991.70 848,690.50 23,834,179.56 (12,797,243.86) 43,047,834.37

–Appropriationofprofitorloss

-- -- -- -- -- -- -- -- --

–Dividenddistributionin2016

-- -- -- -- -- (11,536,750.00) -- -- (11,536,750.00)

–Allocationofprioryearresult

-- -- -- -- -- 11,036,935.70 (23,834,179.56) 12,797,243.86 --

–ProfitfortheyearendedDecember31,2016

-- -- -- -- -- -- 14,253,869.31 -- 14,253,869.31

–Purchaseownshares -- -- -- 874,940.69 -- -- -- -- 874,940.69

–Dividendreceivedonownshares

-- -- -- -- 576,837.50 -- -- -- 576,837.50

–Interimdividends -- -- -- -- -- -- -- (874,940.69) (874,940.69)

balance at december 31, 2016

11,444,456.00 5,512,071.01 1,144,445.60 13,672,184.55 840,829.20 348,876.20 14,253,869.31 (874,940.69) 46,341,791.18

b) Legal reserveUnderLuxembourglawanamountequaltoatleast5%ofthenetprofitmustbeallocatedannuallytoalegalreserveuntilsuchreserveequals10%ofthesharecapital.Thisreserveisnotavailablefordividenddistribution.

AsofDecember31,2016,thelegalreserveamountedtoEUR1,144,445.60(2015:EUR1,144,445.60).

c) Reserve for own sharesDuringtheyear2016,theCompanypurchased32,929ofitsownsharesrepresenting0.36%ofthesharecapitaloftheCompany,foranamountofEUR874,940.70(2015:12,797,246.86).

Theseacquisitionsareshownunderthelineitem“Ownshares”ofthebalancesheetandarerecordedbasedonthetradedate.

AsofDecember31,2016theCompanyheld461,470ofitsownsharesrepresenting5%ofitssharecapital.

Inaccordancewiththelaw,theCompanyhascreatedanon-distributablereserveincludedinthelineitem“Reserveforownshares”foranamountofEUR13,672,184.55.ThisreservewastakenoffthecurrentprofitoftheCompanyandtheAnnualgeneralmeetingheldonJune15,2016ratifiedthecreationofanon-distributablereserveforanamountof12,797,243.86.Theboardwillproposetoratifytheallocationoftheamountof874,940.69duringthenextgeneralmeetingoftheshareholders.

TheaveragepurchasepriceoftheownsharesamountedtoEUR29.63whilethenominalvalueoftheshareamountedtoEUR1.24.

d) Other reservesDuringtheyear2016,theCompanyreceivedadividendonownsharesforanamountofEUR576,837.50(2015:263,991.70).TheCompanyhasdecidedtocanceltherighttothedividendonownsharesandthisamounthasbeenbookedinthelineitem“Otheravailablereserves”.Thedividendonownsharesisrecordedbasedonthesettlementdate.AsofDecember31,2016theamountaccumulatedinOtheravailablereservesrelatedtodividendsonownsharesamountedtoEUR840,829.20anditisavailablefordividenddistribution.


FiNANciAL PART

NOTE 6 – PROVIsIONsTheAnnualGeneralMeetingheldon15June2007approvedthegrantofanaggregateamountof230,735phantomoptionstosixseniorexecutivemanagersandtwonon-executivedirectors,fornoconsideration.TheGrantdateofthephantomoptionswas24May2007.Eachphantomoption,whenexercised,willgrantthemanagertherighttoreceivecashcalculatedasclosingpriceofonecompanyshareonthePraguestockexchange(thePSE)(orothermarketifthePSEtradingisdiscontinued)onthedayprecedingthedayofexerciseofthephantomoptionlessCZK749.20representingtheofferpriceatthetimeoftheinitialpublicofferingofthesharesofPEGASNONWOVENSS.A.(theIPOprice).25%ofthephantomoptionsvestyearly,withthefirstoptionsvestingonthe1stanniversaryoftheIPO,i.e.on18December2007andthelastoptionsvestingonthe4thanniversaryoftheIPO,i.e.on18December2010.Thegivenpartofphantomoptionsmaybeexercisedonorafterthevestingdate.TheparticipantshallprovideservicetotheGroupatthevestingdatetobeeligibleforthegivenphantomoptionsseries.

TheAnnualGeneralMeetingheldonJune15,2010approvedthegrantofanaggregateamountof230,735phantomoptions(representing2.5%ofthePEGAS’ssharecapital)tothedirectorsandseniormanagementoftheCompanyand/oritsaffiliates,againstnoconsideration.Eachphantomoption,whenexercised,willgrantthedirectortherighttoreceiveincashanamountequaltothedifferencebetweenCZK473.00representingthePEGAS’ssharepriceonthePSEasof15December2009increasedby10%,andtheclosingpriceofonePEGAS’sshareonthedayprecedingthedayofexerciseofthephantomoptiononthePSE(orothermarketifthePSEtradingisdiscontinued).25%ofphantomoptions(i.e.57,684options)vestedyearly,withthefirstoptionsvestingonDecember18,2010andthelastoptionsvestingonDecember18,2013.Thefirstoptionsofthisshareoptionplan(withthepossiblevestingdatefrom18December2010)fullyreplacedthepreviousoptionswithinthescopeofthesharebonusscheme,whichwereapprovedattheAnnualGeneralMeetingheldonJune15,2007(withthesamepossiblevestingdate).

Thereforetherightforremaining34,008options(withthevestingdateonDecember18,2010)grantedin2007andapprovedbytheAnnualGeneralMeetingheldonJune15,2007wasabandoned.

TheExtraordinaryGeneralMeetingheldon21July2014resolvedtoconvert230,735phantomoptionsgrantedin2010–2013into230,735warrants.Eachwarrant,whenexercised,willgranttheholdertherighttoreceive(i)oneshareinPEGASforastrikepricecorrespondingtoCZK473.00representingthePEGAS’ssharepriceonthePSEasof15December2009increasedby10%,or(ii)apaymentincashamountingtothefinalpriceofoneshareofPEGASonthePSEonthebusinessdaypreceedingtheexercisedate,lessCZK473.00.Allthewarrantswillvestimmediatelyfromtheirgrantingdateandwillhavethesameexerciseperiodthatwasinitiallyplannedforthephantomoptions.

TheExtraordinaryGeneralMeetingheldon21July2014resolvedtoissue230,735newwarrants(representing2.5%ofthePEGAS’ssharecapital)tothedirectorsandseniormanagementofPEGASand/oritsaffiliatescollectively,forasubscriptionpriceofCZK5.89pernewwarranttobepaidincashbythedirectors,itbeingunderstoodthattheBoardofDirectorsofPEGASwilldecidehowthenewwarrantswillbedividedamongthedirectorsandseniormanagementofPEGASand/oritsaffiliates.Eachnewwarrant,whenexercised,willentitletheholdertoeitherreceive(i)oneshareinPEGASforastrikepricecorrespondingtoCZK588.16(representingtheaverageofPEGAS’ssharepriceonthePSEfrom1October2013to31December2013)lessallthedividendswhichhavebeenvalidlydeclaredbyPEGAS,perPEGAS’sshare,fortherelevantfinancialyear(s)(i.e.thefinancialyear2014forthenewwarrantstobevestedin2014,thefinancialyears2014and2015forthenewwarrantstobevestedin2015andthefinancialyears2014,2015and2016forthenewwarrantstobevestedin2016),or(ii)apaymentincashamountingtothefinalpriceofoneshareofPEGASonthePSEonthebusinessdayprecedingtheexercisedate,plusallthedividendswhichhavebeenvalidlydeclaredbyPEGAS,perPEGAS’sshare,fortherelevantfinancialyear(s)(i.e.thefinancialyear2014forthenewwarrantstobevestedin2014,thefinancialyears2014and2015forthenewwarrantstobevestedin2015andthefinancialyears2014,2015and2016forthenewwarrantstobevestedin2016),lessthestrikepriceofCZK588.16(representingtheaverageofPEGAS’ssharepriceonthePSEfromOctober1,2013toDecember31,2013).

OnOctober17,2016,theCompanyreceivedanannouncementfrompersonsdischargingmanagerialresponsibilitieswithintheissuerabouttransactionswithfinancialinstruments,thevalueofwhichisderivedfromthesharepriceoftheCompany.Thesubjectofthetransactionwastheexerciseof153,824warrantsgrantedonthebasisofacontractdatedSeptember22,2014withastrikepriceofCZK588.16.TheclosingpriceoftheCompany’ssharesasatthedaypreceedingtheexerciseamountedto792.00CZK.Thetotalpayoutamountedto1,423,131.30EURandisreportedinOtheroperatingexpense.

97

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t


grant date Vesting date Option/ warrant

strike price (CZK)

Total number of

options/ warrants

granted

Number of options/


Number of options/


executives


warrants granted

(TEUR)



(TEUR)



executives (TEUR)

24May2007 18Dec2007 Option 749.2 23,344 0 23,344 43 0 43

24May2007 18Dec2008 Option 749.2 18,960 0 18,960 39 0 39

24May2007 18Dec2009 Option 749.2 11,536 0 11,536 24 0 24

15June2010 18Dec2010 Warrant 473 7,732 0 7,732 85 0 85

15June2010 18Dec2011 Warrant 473 7,732 0 7,732 85 0 85

15June2010 18Dec2012 Warrant 473 0 0 0 0 0 0

15June2010 18Dec2013 Warrant 473 0 0 0 0 0 0

21July2014 18Dec2014 Warrant 588.16 0 0 0 0 0 0

21July2014 18Dec2015 Warrant 588.16 0 0 0 0 0 0

21July2014 18Dec2016 Warrant 588.16 76,911 52,137 24,774 784 531 253

Total 146,215 52,137 94,078 1,059 531 528


grant date Vesting date Option/ warrant

strike price (CZK)

Total number of

options/ warrants

granted

Number of options/


Number of options/


executives


warrants granted

(TEUR)



(TEUR)



executives (TEUR)

24May2007 18Dec2007 Option 749.2 23,344 0 23,344 44 0 44

24May2007 18Dec2008 Option 749.2 18,960 0 18,960 39 0 39

24May2007 18Dec2009 Option 749.2 11,536 0 11,536 24 0 24

15June2010 18Dec2010 Warrant 473 7,732 0 7,732 74 0 74

15June2010 18Dec2011 Warrant 473 7,732 0 7,732 74 0 74

15June2010 18Dec2012 Warrant 473 0 0 0 0 0 0

15June2010 18Dec2013 Warrant 473 0 0 0 0 0 0

21July2014 18Dec2014 Warrant 588.16 76,913 52,137 24,776 348 236 112

21July2014 18Dec2015 Warrant 588.16 76,911 52,137 24,774 348 236 112

21July2014 18Dec2016 Warrant 588.16 76,911 52,137 24,774 213 144 69

Total 300,039 156,411 143,628 1,164 616 548

Thefairvalueofthephantomoptionsandwarrantsasat31December2016isTEUR1,059(TEUR1,164asat31December2015).Theexecutivedirectorsbenefitasat31December2016isTEUR531(TEUR616asat31December2015)ofthetotalamountandthenon-executivedirectorsbenefitisTEUR528(TEUR548asat31December2014)ofthetotalamount.

TheBlack-Scholespricingmodelwasusedtocalculatethefairvalueofthephantomoptionsandthewarrantswhichwereconvertedfromthephantomoptions.TheBlack-Scholespricingmodeladjustedfordividendswasusedtocalculatethefairvalueofthenewlyissuedwarrants.Theassumptionsusedinthemodelareasfollows:• PriceofPEGASNONWOVENSS.A.sharesquotedinPragueStockExchangeused(CZK769.00asat31December2016,CZK731.00

asat31December2015).• Theparticipantsareexpectedtoexercisethegivenpartofgrantedphantomoptionsandthewarrantswhichwereconvertedfromthe

phantomoptionswithintenyearsfromvesting.


FiNANciAL PART

• Theparticipantsareexpectedtoexercisethenewlyissuedwarrantsbefore15December2019.• RiskfreeinterestrateislinearlyinterpolatedfromCZKinterbankPRIBORrates(<12M)andCZKinterestrateswappoints(>12M).• Theexponentiallyweightedmovingaveragemethodisusedforthevolatilityofsharescalculation(18.77%in2016,21.68%in2015).• Dividendyieldof4.05%wasusedinvaluationofthenewlyissuedwarrants.

NOTE 7 – NON CONVERTIbLE LOANs

OnNovember14,2014,theCompanyissued50,000bondsforatotalamountofCZK2,500,000,000.00(equivalenttoEUR90,579,710.14)inthe“PragueStockExchange,RegulatedMarket(ISINCZ0000000559)ofwhich3,960havebeenreimbursedonAugust13,2015.Thebondshaveanannualcouponof2.85%andwillreachmaturityonNovember14,2018(the“Bonds1”).

OnJuly14,2015,theCompanyissuedprivatebonds(ISINCZ0000000658)foratotalamountofCZK1,080,000,000.00(equivalenttoEUR39,852,398.52).Thebondshaveanannualcouponof2.646%andwillreachmaturityonJuly14,2022(the“Bonds2”).

AstheissuancepriceoftheBonds2wasfixedaboveparat101.594%,theCompanyreceivedanexcesscashforanamountofCZK17,215,200.00(equivalenttoEUR635,247.24)whichwasbookedunderthelineitem“Deferredincome”ofthebalancesheetandisamortizedoverthelifetimeofthebonds.Theamortizationofthisexcesscashreceivedfortheyear2016amountingtoEUR90,891.51isclassifiedinthelineitem“Otherinterestreceivableandsimilarincome–otherinterestandsimilarincome”oftheprofitandlossaccount.

ThefeesandexpensesinconnectionwiththeBonds1andBonds2arerecordedasprepaymentsunderthelineitem“Prepayments”ofthebalancesheetandareamortizedoverthelifeofthebonds.Theamortizationofthesefeesandexpensesfortheyear2016amountingrespectivelytoEUR293,432.44(2015:316,991.80)andEUR3,652.98(2015:1,706.72)areclassifiedinthelineitem“Interestpayableandsimilarexpenses–otherinterestandsimilarexpenses”oftheprofitandlossaccount.

InaccordancewiththeCompany’saccountingpolicies,thebondsarevaluedattheirnominalvalueandtranslatedattheexchangerateprevailingatthedateofthetransaction,i.e.attheexchangerateof27.60EUR/CZKfortheBonds1and27.10EUR/CZKfortheBonds2.AsofDecember31,2016,theprincipaloftheBonds1translatedintoEURamountedtoEUR83,405,797.10(2015:83,405,797.10)andtheaccruedandunpaidinterestamountedtoEUR310,244.50(2015:310,221.54).TheprincipaloftheBonds2translatedintoEURamountedtoEUR39,852,398.52(2015:39,852,398.52)andtheaccruedandunpaidinterestamountedtoEUR490,598.41(2015:490,562.11).

ThetotalinterestontheBonds1andtheBonds2fortheyear2016amountingrespectivelytoEUR2,427,574.21(2015:2,564,963.01)andEUR1,056,518.98(2015:490,562.11)areclassifiedinthelineitem“interestpayableandsimilarexpenses–otherinterestandsimilarexpenses”oftheprofitandlossaccount.

NOTE 8 – fINANCIAL INsTRUmENTs

OnNovember14,2014,theCompanyenteredintoacross-currencyrateswapagreementwithafinancialinstitutionunderwhichtheCompanyswappedcashflowsrelatedtotheBonds1denominatedinCZKintocashflowsdenominatedinEUR(the“Swap1”).

AsofDecember31,2016thenotionalamountofthisswapagreementamountedtoEUR90,201,992.75(equivalentCZK2,489,575,000.00).Basedonthisswapagreement,theCompanypaysfixedrateinEURof3.10%andreceivesfixedrateinCZKof2.85%.

OnJuly14,2015,theCompanyenteredintoacross-currencyrateswapagreementwithafinancialinstitutionunderwhichtheCompanyswappedcashflowsrelatedtotheBonds2denominatedinCZKintocashflowsdenominatedinEUR(the“Swap2”).

AsofDecember31,2016,thenotionalamountofthisswapagreementamountedtoEUR39,852,398.52(equivalentCZK1,080,000,000.00).Basedonthisswapagreement,theCompanypaysfixedrateinEURof3.150%andreceivesfixedrateinCZKof2.646%.

ThetotalnetswapinterestpayableontheSwap1andtheSwap2fortheyear2016amountingtorespectivelyEUR170,880.35(2015:162,875.07)andEUR198,831.57(2015:91,781.08)areclassifiedintheline“interestpayableandsimilarexpenses–otherinterestandsimilarexpenses”oftheprofitandlossaccount.

99

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

AsofDecember31,2016,thefairvalueofSwap1andtheSwap2amountedtoagainofEUR3,225,567.85(2015:2,983,690.78)andalossofEUR137,631.51(2015:145,336.60)respectively.TheCompanyconsiderstheseswapsashedginginstrumentsforthebondsissueandthefairvalueoftheseswapsarethereforenotreflectedintheprofitandlossaccountinaccordancewiththeCompany’saccountingpolicies.

NOTE 9 – OThER ExTERNAL ExPENsEs

TheauditfeesamountedtoEUR19,850.96(2015:EUR19,465.94).

NOTE 10 – OThER OPERATINg ExPENsEs

TheotheroperatingexpensesaremainlymadeupofDirectors’feesforEUR329,967.19(2015:EUR360,579.46)andoftheamountofthepayoutrelatedtotheexerciseofwarrantsofEUR1,423,131.30(2015:0)(Note6).

NOTE 11 – TAxEs

TheCompanyissubjecttoallthetaxesapplicabletocommercialcompaniesinLuxembourg.

NOTE 12 – sUbsEQUENT EVENTs

On5January2017,theBoardofDirectorsoftheCompanyapprovedanintentiontodelisttheCompany‘ssharesfromtradingontheWarsawStockExchange.ThisdecisionwastakenonthegroundsofverylowtradingvolumesoftheCompany’ssharesontheWarsawStockExchangethatdonotjustifythecostsofthelisting.Subsequently,on23January2017,thePolishsupervisoryauthorityapprovedtheTenderOffersubmittedbytheCompanyinconnectionwiththisintention.TheperiodfortheregistrationofrequestsfortheacceptanceoftheTenderOfferendedon24February2017.Inthisregard,theCompanyeventuallyacceptedtherequestsandreacquired4,071sharesinMarch2017,representing0.04%ofthesharecapitalandvotingrightsoftheCompany.ThedelistingfromtradingontheWarsawStockExchangeisnowpendingtheapprovalofthePolishsupervisoryauthority.Inaccordancewiththerequiredprocedure,oncetheapprovalisissued,theCompanyshallsubsequentlyrequesttheWarsawStockExchangetoalsoapprovethedelistingofsharesfromtrading.ItisexpectedthattheCompany‘ssharesshallceasetobetradedontheWarsawStockExchangeduringthefirsthalf2017.

In2017,theloansgrantedtoaffiliatedundertakingswererepaidasfollows.TheprincipalintheamountofEUR32,449,000.00andassociatedinterestaccruedintheamountofEUR960,751.95wasrepaidbyPEGASNONWOVENSs.r.o.Theprincipalintheamountof4,500,000.00EURwasrepaidbyPEGASNONWOVENSinternationals.r.o.TheprincipalintheamountofEUR8,500,000.00wasrepaidbyPEGAS–NWa.s.TheprincipalintheamountofEUR6,719,280.00andassociatedinterestaccruedintheamountofEUR535,022.67wasrepaidbyPEGAS–NSa.s.

TheBoardoftheCompanyisnotawareofanyothereventsthathaveoccurredsincethebalancesheetdatethatwouldhaveanymaterialimpactontheannualaccountsasatDecember31,2016.

NOTE 13 – Off bALANCE shEET EVENTs

OnOctober6,2015,theCompanyissuedacorporateguaranteeuptoamaximumamountofEUR30,000,000.00fortherepaymentofallobligationsundertheOverdraftCreditFacilityprovidedbyCeskaSporitelna,a.s.toPEGASNONWOVENSs.r.o.

OnDecember22,2016,HSBCBankplc,actingthroughitsbranchHSBCBankplc–pobočkaPraha,issuedaguaranteenotexceedingthetotalofEUR13,500,000.00forthebenefitoftheCompany.TheguaranteeservesasacollateralforthepaymentfortheshareswhicharesubjecttotheTenderOfferinconnectionwiththeCompany’sintentiontodelistitssharesfromtradingontheWarsawStockExchange.


FiNANciAL PART

6th October City–isasatellitecitynearCairo,Egypt.Thecityhasapopulationofapproximatelyhalfamillionpeopleandmanycompanieshavetheirregionalheadquarterslocatedthere.

bi-Component fibre (bi-Co)–Man-madetextilefibreconsistingoftwoormorebasiccomponents(polymers).Typicalcrosssectionsoffibresare,forexample,sidebyside,coreandsheath(producedbyPEGAS),islandsinthesea,etc.

bučovice–AcityinMoraviaintheVyškovDistrictwithapproximately6,500inhabitants.PEGASoperatesthreeofitsproductionlineshere.

CEE–CentralandEasternEurope

Clearstream bank–ClearstreamisaleadingEuropeansupplierofpost-tradingservices,asubsidiaryofDeutscheBörse.ClearstreamInternationalwasformedinJanuary2000throughthemergerofCedelInternationalandDeutscheBörseClearing.

EdANA–EuropeanDisposablesandNonwovensAssociationistheEuropeanTradeAssociationforthenonwovensandhygieneproductsconvertersindustries,witharound200membercompaniesin28countries.

EgAP–istheExportGuaranteeandInsuranceCorporationfoundedinJune1992asastate-ownedexportcreditagency,insuringcreditsconnectedwithexportsofgoodsandservicesfromtheCzechRepublicagainstpoliticalandcommercialrisks.EGAP,nowpartofthestateexportsupportprogramme,providesinsuranceservicestoallexportersofCzechgoods.

EmEA–Europe,theMiddleEastandAfrica.

IfRs–InternationalFinancialReportingStandards.

IPO–InitialPublicOffering.

IRs–InterestRateSwap.Financialinstrumenthedginginterestraterisk.

meltblown Process–Technologicalprocessofproducingnonwovens.Apolymerisextrudedintoairgapnozzlesandthenblownintheformofverythinfibres(0.1–10microns)ontoabelt.

meltblown fabric–Textileproducedusingthemeltblownprocess.

Nonwoven Textile–Amanufacturedsheet,weborbatofdirectionallyorrandomlyorientedfibres,bondedbyfriction,and/orcohesionand/oradhesion,excludingpapersandproductswhicharewoven,knitted,tuftedorstitchbondedincorporatingbindingyarnsorfilaments,orfeltedbywetmilling,whetherornotadditionallyneedled.

Polymer–Substancecomposedofmoleculeswithlargemolecularmasscomposedofrepeatingstructuralunits,ormonomers,connectedbycovalentchemicalbonds,i.e.aplastic.

Polypropylene/Polyethylene–Thermoplasticpolymersconsistingoflongchainsofmonomers(propylene,ethylene),naturallyhydrophobic,resistanttomanychemicalsolvents,basesandacids.Producedmainlyfromcrudeoilbythechemicalindustryandusedinawidevarietyofapplications.

Přímětice–Formerlyanindependentvillage,currentlyasuburbofZnojmo.PEGASoperatesitsmainproductionfacilitiesthere.

PsE–PragueStockExchange,aregulatedmarketforsecuritiestradingintheCzechRepublic

Px–OfficialindexofbluechipstockofthePragueStockExchange.

Reicofil–Leadingnonwovenmachineryproducer.

Regranulation–Methodforrecyclingscraptextileintogranulatewhichcanthenbefullyreusedinthemanufacturingprocess.

gLOssARY

101

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

spunmelt Process–Technologicalprocessofproducingnonwovens.Hotmoltenpolymerisforcedthroughspinneretstoproducecontinuousfilamentsdrawnbyairtoreachtherequiredfibrediameter.

spunbond Textile–Textileproducedbyspunbond/spunmeltprocess.

WsE–WarsawStockExchange,aregulatedmarketforsecuritiestradinginPoland.

Alternative performance measuresInaccordancewiththeESMA(EuropeanSecuritiesandMarketsAuthority)directivesregardingtransparencyfortheprotectionofinvestorsintheEuropeanUnion,thisglossaryincludestheALTERNATIVEPERFORMANCEMEASURES(APMs),whichcorrespondtothosefinancialmeasuresthatareusedbutnotdefinedorexplainedintheapplicablefinancialinformationframework.Thedefinitionofthesemeasuresestablishesequivalenceswithaccountingitemsused,facilitatingtheinterpretationoftheinformation,whereappropriate.

Performance measure definition Purpose

budgeted EbITdA Afinancialmeasuredefinedasrevenueslesscostofgoodssoldandselling,general,andadministrativeexpensessetintheCompany’sbusinessplan.

Usedasabenchmarknumberforperformanceevaluationinthemanagementbonusscheme.

CAPEx Capitalexpenditureinintangibleassetsandproperty,plantandequipment,includingcapitalexpenditurefinancedbyleasing.

Displaystheamountoffundsinvestedintheoperationstosecurethelong-termearningpower.

EbIT (Profit from operations) – Earnings before Interest and Taxes

Afinancialmeasuredefinedasrevenueslesscostofgoodssoldandselling,general,andadministrativeexpenses,anddepreciationandamortisation.

UsedtopresenttheCompany’soperatingresultwhileeliminatingtheeffectsofdifferencesamonglocaltaxationsystemsanddifferentfinancingactivities.

EbITdA – Earnings before Interest, Taxes, depreciation and Amortisation

Afinancialindicatorwhichdeterminestheoperatingmarginofacompanypriortodeductinginterest,taxes,impairments,restructuringcosts,andamortisation.CalculatedasNetprofitbeforeincometax,interestexpense,interestincome,foreignexchangechanges,otherfinancialincome/expenseanddepreciationandamortisation.

Sinceitdoesnotincludefinancialandtaxindicatorsoraccountingexpensesnotinvolvingcashoutflow,itisusedbyManagementtoevaluatetheCompany’sresultsovertime.

EbIT margin PercentagemargincalculatedasEBIT/Revenues. UsedtoassesstheCompany’soperatingperformance.

EbITdA margin PercentagemargincalculatedasEBITDA/Revenues. Intendstodisplaytheprofitabilityofthebusiness.

Net debt AfinancialindicatorcalculatedasthesumofCurrentandNon-currentbankloansandOthernon-currentliabilitiesreducedbyCashandCashEquivalents.

Theindicatorshowsthelevelofcompany’sfinancialdebt,i.e.thenominalamountofdebtlesscashandcashequivalentsheldbytheCompany.TheindicatorisprimarilyusedtoassesstheoverallappropriatenessoftheCompany’slevelofdebt,i.e.forexampleinrelationtoprofitabilityorbalancesheetindicators.

Net debt/EbITdA NetDebt/EBITDA.WhereEBITDAistherunningtotalforthepast12months.

ThisratioindicatestheCompany’scapabilitytodecreaseandpaybackitsdebtaswellasitsabilitytotakeonadditionaldebttogrowitsbusiness.Theindicatorshowsapproximatelyhowlongitwouldtakeforacompanytopaybackitsdebtoutofitsprimarysourceofoperatingcashflows.

Net Profit margin Netprofitaftertaxdividedbytotalrevenues. UsedtoshowtheCompany’scapabilitytoconvertrevenueintoprofitsavailableforshareholders.


FiNANciAL PART

Marek Modecki, Chairman of the Board of PEGAS NONWOVENS SA

František Řezáč, Member of the Board of PEGAS NONWOVENS SA

herebydeclarethat,tothebestoftheirknowledge,thefinancialstatementspreparedinaccordancewiththeapplicablesetofaccountingstandardsgiveatrueviewofassets,liabilities,financialpositionandprofitorlossoftheCompanyandtheundertakingsincludedintheconsolidationtakenasawholeandthatthemanagementreportincludesafairviewofthedevelopmentandperformanceofthebusinessandthepositionoftheCompanyandtheundertakingsincludedintheconsolidationtakenasawhole,togetherwithadescriptionoftheprincipalrisksanduncertaintiestheyface.

marek modecki františek ŘezáčChairmanoftheBoardofPEGASNONWOVENSSA MemberoftheBoardofPEGASNONWOVENSSA

sTATEmENTs Of REsPONsIbLE PERsONs

103

Abo

ut C

ompa

nyM

anag

emen

t R

epor

tCo

rpor

ate

Gov

erna

nce

Rep

ort


FiNANCiAL PART

Fina

ncia

l par

t

NOTEs

©2017PEGASNONWOVENSSA

Design,production,print:ENTREs.r.o.

www.pegas.lu

Documents

PEgAs NONWOVENs sA ANNUAL REPORT 2016 Report 2016.pdf · PEGAS NONWOVENS SA (hereafter “PEGAS” or “the Company” or “Group”) is one of the leading producers of nonwoven