Consolidated Financial Statements€¦ · Page 10 / 93 Lecta Group Annual Report 2018 CONSOLIDATED...

Page 1 / 93 Lecta Group Annual Report 2018

Consolidated Financial Statements

31 December 2018 Under IFRS



INDEPENDENT AUDITOR’S REPORT .................................................................................................................................... 6

GENERAL INFORMATION .................................................................................................................................................... 9

GENERAL INFORMATION .................................................................................................................................................... 9

CONSOLIDATED FINANCIAL STATEMENTS ........................................................................................................................ 10

NOTES ............................................................................................................................................................................... 15

1. Summary of significant accounting policies .............................................................................................................. 15 1.01. Basis of preparation ......................................................................................................................................... 15 1.02. Changes in accounting policies - New accounting standards .......................................................................... 15 1.03. Basis of consolidation ...................................................................................................................................... 16 1.04. Investment in associates ................................................................................................................................. 16 1.05. Interests in joint ventures ................................................................................................................................ 16 1.06. Glossary ........................................................................................................................................................... 17 1.07. Foreign currency transactions ......................................................................................................................... 17 1.08. Foreign currency translations - subsidiaries .................................................................................................... 17 1.09. Revenue recognition ........................................................................................................................................ 17 1.10. Property, plant and equipment ....................................................................................................................... 18 1.11. Maintenance .................................................................................................................................................... 18 1.12. Leases .............................................................................................................................................................. 18 1.13. Investment properties ..................................................................................................................................... 19 1.14. Business combinations and goodwill ............................................................................................................... 19 1.15. Other intangible assets .................................................................................................................................... 20 1.16. CO2 emission rights .......................................................................................................................................... 20 1.17. Green & White certificates .............................................................................................................................. 20 1.18. Financial assets ................................................................................................................................................ 21 1.19. Biological assets ............................................................................................................................................... 22 1.20. Non-current assets held for sale ...................................................................................................................... 22 1.21. Impairment of certain long-lived assets .......................................................................................................... 22 1.22. Inventories ....................................................................................................................................................... 23 1.23. Trade receivables ............................................................................................................................................. 23 1.24. Prepayments .................................................................................................................................................... 23 1.25. Other receivables ............................................................................................................................................. 23 1.26. Cash and cash equivalents ............................................................................................................................... 23 1.27. Financial liabilities ............................................................................................................................................ 24 1.28. Grants .............................................................................................................................................................. 24 1.29. Provisions ......................................................................................................................................................... 24 1.30. Employee benefits ........................................................................................................................................... 25 1.31. Income tax payable .......................................................................................................................................... 25 1.32. Deferred tax ..................................................................................................................................................... 25 1.33. Trade payables ................................................................................................................................................. 26 1.34. Other liabilities ................................................................................................................................................ 26 1.35. Options on Minorities of consolidated companies .......................................................................................... 26 1.36. Derivative hedging instruments ...................................................................................................................... 27 1.37. Derecognition of financial assets and liabilities ............................................................................................... 27 1.38. Future changes in accounting policies ............................................................................................................. 27

2. Lecta Group at 31 December 2018 ........................................................................................................................... 29 2.1. Organization Chart ............................................................................................................................................. 29 2.2. Consolidated subsidiaries .................................................................................................................................. 30 2.3. Interests in non-consolidated companies .......................................................................................................... 34

3. Lecta capital structure and Significant events of 2018 ............................................................................................. 35 3.1. Lecta capital structure ....................................................................................................................................... 35 3.2. Projects and plans .............................................................................................................................................. 35 3.3. Organization efficiency program ....................................................................................................................... 35 3.4. Mexican subsidiaries .......................................................................................................................................... 35 3.5. Acquisition of non-controlling interests in Cogeneración Sant Joan AIE ........................................................... 35


4. Significant events of 2017 ......................................................................................................................................... 36 4.1. Projects and plans .............................................................................................................................................. 36 4.2. Acquisition of Plot Service SrL ........................................................................................................................... 36 4.3. Refinancing of Alto Garda Power SrL debt ........................................................................................................ 36

5. Information by Operating Segment .......................................................................................................................... 37 5.1. Information about profit or loss ........................................................................................................................ 38 5.2. Information about geographical areas .............................................................................................................. 39

6. Personnel .................................................................................................................................................................. 39

7. Research and Development costs ............................................................................................................................. 40

8. Revenue .................................................................................................................................................................... 40

9. Depreciation ............................................................................................................................................................. 40

10. Amortization ........................................................................................................................................................... 40

11. Non-recurring items................................................................................................................................................ 41

12. Financial income (expense) .................................................................................................................................... 42

13. Income tax in the Income statement ...................................................................................................................... 42 13.1. Overview .......................................................................................................................................................... 42 13.2. Effective income tax rate ................................................................................................................................. 43

14. Earnings per share .................................................................................................................................................. 44

15. Dividends paid and proposed ................................................................................................................................. 44

16. Property, plant and equipment and Investment properties .................................................................................. 45 16.1. Property, plant and equipment ....................................................................................................................... 45 16.2. Investment properties ..................................................................................................................................... 47

17. Goodwill .................................................................................................................................................................. 48

18. Other intangible assets ........................................................................................................................................... 49

19. Unlisted securities .................................................................................................................................................. 50

20. Biological assets ...................................................................................................................................................... 51

21. Inventories .............................................................................................................................................................. 52

22. Trade receivables .................................................................................................................................................... 53

23. Prepayments ........................................................................................................................................................... 54

24. Other receivables .................................................................................................................................................... 55

25. Cash & cash equivalents ......................................................................................................................................... 56

26. Held for sale property ............................................................................................................................................. 57

27. Equity ...................................................................................................................................................................... 58 27.1. Paid-in capital and Share premium.................................................................................................................. 58 27.2. Net incomes (expenses) recognized directly through Equity .......................................................................... 59 27.3. Foreign currency translation............................................................................................................................ 59 27.4. Accumulated net profit (losses) ....................................................................................................................... 60

28. Interest-bearing borrowings ................................................................................................................................... 60 28.1. Overview .......................................................................................................................................................... 60 28.2. Floating and Fixed Rate Notes ......................................................................................................................... 60 28.3. Lease obligations ............................................................................................................................................. 61 28.4. Other borrowings ............................................................................................................................................ 61

29. Bank overdrafts....................................................................................................................................................... 62

30. Grants ..................................................................................................................................................................... 63

31. Provisions ................................................................................................................................................................ 64


32. Income tax in the Statement of financial position .................................................................................................. 65 32.1. Overview .......................................................................................................................................................... 65 32.2. Income tax receivable and payable ................................................................................................................. 66 32.3. Deferred income tax ........................................................................................................................................ 66 32.4. Tax-deductible carry forward amounts without deferred tax asset ................................................................ 68

33. Trade payables ........................................................................................................................................................ 69

34. Other Liabilities ....................................................................................................................................................... 70

35. Commitments and contingencies ........................................................................................................................... 71 35.1. Finance leases .................................................................................................................................................. 71 35.2. Operating leases .............................................................................................................................................. 71 35.3. Capital commitments....................................................................................................................................... 71 35.4. Other contracts ................................................................................................................................................ 72

35.4.1. Condat SAS contract with Périgord Énergies SNC..................................................................................... 72 35.4.2. Alto Garda Power SrL contract with Alto Garda Servizi Teleriscaldamento SpA ...................................... 72 35.4.3. Lecta annual commitments ...................................................................................................................... 72

35.5. Guarantees issued ........................................................................................................................................... 72 35.5.1. By Lecta Group .......................................................................................................................................... 72 35.5.2. By Alto Garda Power SrL ........................................................................................................................... 73

35.6. Lawsuits. .......................................................................................................................................................... 73 35.7. Challenge of 2010-2015 Green certificates by GSE. ........................................................................................ 73

36. Employee benefits .................................................................................................................................................. 73 36.1. Amounts recognized in Profit or Loss .............................................................................................................. 73 36.2. Amounts recognized directly through Equity .................................................................................................. 73 36.3. Short-term employee benefits ........................................................................................................................ 74 36.4. Defined contribution post-employment plans ................................................................................................ 76 36.5. Defined benefit post-employment plans ......................................................................................................... 79 36.6. Other long-term benefits ................................................................................................................................. 86 36.7. Termination benefits ....................................................................................................................................... 87

37. Related party disclosures ........................................................................................................................................ 87 37.1. Transactions with non-consolidated companies ............................................................................................. 87 37.2. Key management personnel compensation .................................................................................................... 87 37.3. Other related parties ....................................................................................................................................... 87

38. Financial instruments.............................................................................................................................................. 88 38.1. Equity derivatives ............................................................................................................................................ 88 38.2. Derivatives held for trading ............................................................................................................................. 88

38.2.1. Purchased call option agreement on the shares of SVL Pilote SAS .......................................................... 88 38.2.2. Purchased call option agreement on the tangible assets of Périgord Énergies SNC ................................ 88

38.3. Assignment of trade receivables ..................................................................................................................... 88 38.4. Derivatives on foreign currencies .................................................................................................................... 88 38.5. Hedging derivatives on interest rates .............................................................................................................. 89 38.6. Hedging derivatives on raw materials prices ................................................................................................... 89 38.7. Fair value of financial instruments .................................................................................................................. 90

39. Financial risk management objectives and policies ................................................................................................ 91 39.1. Customer credit risk......................................................................................................................................... 91 39.2. Liquidity risk ..................................................................................................................................................... 91 39.3. Future undiscounted contractual payments ................................................................................................... 91 39.4. Market risk ....................................................................................................................................................... 92 39.5. Interest rate risk .............................................................................................................................................. 92 39.6. Currency risk on transactions .......................................................................................................................... 92 39.7. Currency risk on investments .......................................................................................................................... 93 39.8. Currency risk on borrowings ............................................................................................................................ 93 39.9. Business risk ..................................................................................................................................................... 93 39.10. CO2 emission rights ........................................................................................................................................ 93

40. Events after the Statement of financial position date ............................................................................................ 93


GENERAL INFORMATION Lecta Group is engaged in the production and sale of Specialty papers and Coated Woodfree (“CWF”). Lecta Group has production sites in France, Italy and Spain and sells all around the world. It employed circa 3,238 FTE people in the year ended 31 December 2018. The parent company of the Lecta Group is Lecta SA, a limited company incorporated and domiciled in the Grand Duchy of Luxembourg. The address of its registered office is:

LECTA SA 20, rue de la Poste L-2346 Luxembourg The consolidated financial statements of Lecta Group for the year ended 31 December 2018 were authorized for issue in accordance with a resolution of the Board of Directors on 27 March 2019. They will be submitted to the annual shareholders’ meeting for approval. All the amounts in the present report are in thousands of euros (EUR K or k€) unless otherwise stated.

Million € in revenue Million € EBITDA FTE Employee

1,486 116 3,238


CONSOLIDATED FINANCIAL STATEMENTS

Consolidated income statementLecta Group

(in EUR K)

Notes Jan to Dec 2018 Jan to Dec 2017

% %

Revenue (8) 1,486,380 100 1,458,646 100

Changes in inventories of finished goods and

work in process 29,652 2 2,786 0

Raw materials and consumables used (793,413) (53) (749,751) (51)

Labor costs (36.1) (189,763) (13) (192,250) (13)

Other operating costs except non-recurring items (416,539) (28) (399,804) (27)

EBITDA (1.06) 116,318 8 119,627 8

Depreciation (9) (51,681) (3) (53,269) (4)

Amortization (10) 523 0 (246) (0)

Non recurring items (11) (5,367) (0) 466 0

Profit (loss) from operations 59,793 4 66,577 5

Financial income (12) 1,198 0 861 0

Financial expense (12) (62,989) (4) (62,743) (4)

Profit (loss) before tax (1,998) (0) 4,695 0

Income tax (13) (437) (0) (12,760) (1)

Profit (loss) after tax from continuing operations (2,435) (0) (8,065) (1)

Profit (loss) after tax from discontinued operations 0 0 0 0

Profit (loss) after tax (2,435) (0) (8,065) (1)

Attributable to:

Equity holders of the parent (3,862) (0) (12,212) (1)

Non-controlling interests 1,426 0 4,147 0

Earnings per share (in EUR)

Basic (14) (6.9) (21.8)

Diluted (14) (6.9) (21.8)

The accompanying Notes are an integral part of these Consolidated financial statements.


Consolidated statement of comprehensive income Lecta Group

(in EUR K)

Notes Jan to Dec 2018 Jan to Dec 2017

Profit (loss) for the period (2,435) (8,065)

Exchange differences on translation of foreign operations 120 (346)

Net (loss)/gain on cash flow hedges (24) & (34) 0 311 Income tax effect 0 (83)

0 229

Net (loss)/gain on unlisted securities (19) 0 0 Income tax effect 0 (2)

0 (2)

Net other comprehensive income to be reclassified to profit

or loss in subsequent periods

120 (119)

Actuarial gains (losses) on defined benefits plans (31) & (36.2) 307 1,702 Income tax effect (49) (1,039)

258 663

Net other comprehensive income not being reclassified to

profit or loss in subsequent periods

258 663

Other comprehensive income, net of tax 378 544

Total comprehensive income, net of tax (2,057) (7,521)

Attributable to:

Equity holders of the parent (3,483) (11,713)

Non-controlling interests 1,426 4,192



Consolidated statement of financial positionLecta Group

(in EUR K)

31 Dec 31 Dec 31 Dec

Notes 2018 2017 2016

ASSETS

Property, plant and equipment (16.1) 473,852 469,042 467,262

Investment properties (16.2) 1,363 1,363 1,363

Goodwill (17) 118,252 118,252 118,252

Other intangible assets (18) 6,203 3,227 2,559

Unlisted securities (19) 77 140 140

Biological assets (20) 284 284 282

Deferred income tax assets (32) 54,477 47,585 54,793

Other non-current receivables (24) 1,472 1,722 1,545

Non-current assets 655,981 641,616 646,195

Income tax receivable (32) 7,125 6,744 7,403

Inventories (21) 238,809 202,699 196,895

Trade receivables (22) 212,643 223,115 218,162

Prepayments (23) 666 396 1,342

Other current receivables (24) 8,788 11,254 7,001

Cash & cash equivalents (25) 107,227 141,062 134,360

Current assets 575,257 585,270 565,162

Non-current assets held for sale (26) 0 0 692

TOTAL ASSETS 1,231,239 1,226,886 1,212,050

EQUITY & LIABILITIES

Paid-in capital (27.1) 1,446 1,446 1,446

Share premium (27.1) 136,669 136,669 136,669

Net incomes (expenses) recognized

directly through Equity (27.2) (7,861) (7,896) (8,741)

Foreign currency translation (27.3) (1,329) (1,450) (1,103)

Accumulated net profits (losses) (27.4) (33,167) (34,760) (22,549)

Equity holders of the parent 95,757 94,008 105,721

Non-controlling interests 5,564 15,970 12,578

TOTAL EQUITY (27) 101,321 109,979 118,300

Interest-bearing borrowings (28) 606,945 605,960 618,051

Non-current grants (30) 8,674 10,620 12,168

Non-current provisions (31) 26,293 28,630 35,933

Deferred income tax l iabilities (32) 11,545 11,861 13,080

Other non-current l iabilities (34) 0 0 166

Non-current liabilities 653,457 657,072 679,398

Current portion of interest-bearing borrowings (28) 31,589 18,468 13,775

Bank overdrafts (29) 17,180 14,686 19,562

Current grants (30) 2,245 2,543 3,471

Current provisions (31) 8,940 4,961 4,736

Income tax payable (32) 1,235 3,219 1,982

Trade payables (33) 397,994 381,632 355,571

Other current l iabilities (34) 17,278 34,326 15,256

Current liabilities 476,460 459,836 414,353

TOTAL LIABILITIES 1,129,917 1,116,908 1,093,750

TOTAL EQUITY AND LIABILITIES 1,231,239 1,226,886 1,212,050



Consolidated cash flow statementLecta Group

(in EUR K)

Jan to Dec Jan to Dec

2018 2017

CASH FLOWS FROM OPERATING ACTIVITIES

Profit (loss) before tax (1,998) 4,695

Net finance costs 61,791 61,882

Non recurring items 5,367 (466)

Depreciation & Amortization 51,158 53,515

EBITDA 116,318 119,627

Inventories decrease (increase) (36,125) (5,764)

Trade receivable decrease (increase) 10,429 (4,988)

Prepayments decrease (increase) (269) 943

Trade payables increase (decrease) 16,473 25,901

Working Capital decrease (increase) (9,492) 16,091

Provisions increase (decrease) 4,699 2,236

GHG emission rights decrease (increase) (5,665) (3,290)

Proceeds (payments) related to non-recurring items (6,184) (8,542)

Income tax paid (10,203) (5,995)

Net cash flow (used in) / from operating activities 89,472 120,127

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from disposal of Property, plant and equipment 184 5,914

Purchase of property, plant and equipment (74,974) (38,669)

Receipt of Grants 2,917 (4,448)

Purchase of subsidiary, net of cash acquired (4,072) 65

Disposal of subsidiary, net of cash sold 0 0

Purchase of other assets (1) (176)

Proceeds from disposal of other assets 250 0

Net cash flow (used in) / from investing activities (75,696) (37,315)

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends paid to non controlling interest (2,300) (800)

Interest paid (59,996) (59,735)

Issue costs of Borrowings (80) (1,051)

Proceeds from Borrowings 83,448 34,739

Repayment of Borrowings (70,750) (43,749)

Payment of finance lease liabilities (596) (472)

Net cash flow (used in) / from financing activities (50,274) (71,068)

Net increase (decrease) in Cash & cash equivalents net

of Bank overdrafts (36,499) 11,744

Net foreign exchange difference 170 (166)

Cash & cash equivalents net of Bank overdrafts at 1 January 126,376 114,798

Cash & cash equivalents net of Bank overdrafts at 31 December 90,047 126,376

Of which Cash & cash equivalents 107,227 141,062

Of which Bank overdrafts (17,180) (14,686)



Consolidated statement of changes in equity(in EUR K)

Lecta Group

Paid-in

capital

Share

premium

Unlisted

securities

reserve

Cash flow

hedging

reserve

Actuarial gains

(losses) on

defined benefits

plans reserve

FTA

IFRS 9

Foreign

currency

translation

Accumulated

net profits

(losses)

Total Equity

holders of

the parent

Non-

controlling

Interest

TOTAL

EQUITY

AT 1 JANUARY 2017 1,446 136,669 (67) (184) (8,491) 0 (1,103) (22,549) 105,721 12,578 118,300

Profit for the period 0 0 0 0 (12,212) (12,212) 4,147 (8,065)

Other comprehensive income (loss) (2) 184 663 (346) 0 499 45 544

Total comprehensive income of the period 0 0 (2) 184 663 (346) (12,212) (11,713) 4,192 (7,521)

Variation of percentages of consolidation 0 0 0 0 0 0 (0) (0) 0 (0)

Entries in the perimeter (0) (0) 0 (0)

Variation of percentages of consolidation 0 0 0 0 0

AT 31 DECEMBER 2017 1,446 136,669 (69) 0 (7,828) (1,450) (34,760) 94,008 15,970 109,979

AT 1 JANUARY 2018 1,446 136,669 (69) 0 (7,828) 0 (1,450) (34,760) 94,008 15,970 109,979

Effect of adopting IFRS 9 (183) (183) 0 (183)

Profit for the period 0 0 0 0 (3,862) (3,862) 1,426 (2,435)

Other comprehensive income (loss) 0 0 258 120 0 378 0 378

Total comprehensive income of the period 0 0 0 0 258 (183) 120 (3,862) (3,666) 1,426 (2,239)

Variation of percentages of consolidation (See Notes 2.2 and 3.5)

5,067 5,067 (9,140) (4,073)

Entries in the perimeter (4,073) (4,073) 0 (4,073)

Variation of percentages of consolidation 0 9,140 9,140 (9,140) 0

Share capital increase (redemption) in subsidiaries by (to)

Minorities392 392 (392) 0

Reclassification 0 0 0 0 (40) 0 0 (40) 0 (40)

Dividends to non-controlling interests (2,300) (2,300)

AT 31 DECEMBER 2018 1,446 136,669 (69) 0 (7,610) (183) (1,329) (33,162) 95,762 5,564 101,326



NOTES

1. Summary of significant accounting policies

1.01. Basis of preparation The consolidated financial statements of Lecta Group have been prepared in accordance with the Standards and Interpretations adopted by the International Accounting Standards Board (IASB) and by the E.U. applicable as at 1 January 2017. They comprise:

• International Financial Reporting Standards (IFRS),

• International Accounting Standards (IAS),

• Interpretations originated by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC).

The consolidated financial statements have been prepared on an historical cost basis, except for the measurement at fair value of unlisted securities, Biological assets and Derivative financial instruments. The carrying values of recognized assets and liabilities that are hedged are adjusted to record changes in the fair values attributable to the hedged risks. In the process of applying Lecta Group’s accounting policies, Management made the following judgments:

• Each consolidated company has the ability to continue as a going concern.

• Recognition of risks through provisions (see Note 31).

• Choice of an accounting treatment when alternative methods are allowed by existing standards.

• Choice of an accounting treatment when insufficient guidance is provided by an existing standard (see Notes 1.16 and 1.17).

Management of Lecta Group has also made assumptions for the years to come. Where needed Management used assumptions (inflation, interest rates, exchange rates, prices, volumes…) to develop strategies and prepare plans. The assumptions and the resulting plans are used in preparing the financial statements (e.g. computation of impairment tests, recognition of deferred income tax assets...). Actual data may differ from these assumptions.

1.02. Changes in accounting policies - New accounting standards

• The accounting policies adopted are consistent with those of the previous financial year except for the following new and amended IAS, IFRS and IFRIC interpretations, published by the IASB and adopted by the European Union:

Effective date New standards IFRS 9 – Financial Instruments 1 January 2018 IFRS 15 – Revenue from Contracts with Customers 1 January 2018 Interpretations IFRIC 22 – Foreign Currency Transactions and Advance Consideration 1 January 2018

• In July 2014, the IASB completed the final element of its comprehensive response to the financial crisis by issuing IFRS 9 Financial Instruments (replacement of IAS 39). The package of improvements introduced by IFRS 9 includes a logical model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. The new Standard has come into effect on 1 January 2018. Lecta Group evaluated the effect of the above standard and concluded that its impact is limited to the application of the expected loss impairment model to its trade receivables. The increase in impairment of trade receivables at 1 January 2018 is EUR 0.2 M.

• On 22 September 2016, the European Union adopted IFRS 15 “Revenue from Contracts with Customers”, which is mandatory from 1 January 2018. The associated amendments, adopted on 31 October 2017 by the European Union, are applicable on the same date as IFRS 15. The standard establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. Lecta Group evaluated the effect of the above standard and concluded that its impact is immaterial.


1.03. Basis of consolidation The consolidated financial statements comprise the financial statements of the parent company Lecta SA and its subsidiaries as at 31 December each year. Subsidiaries are entities in which Lecta Group has the sole power to exercise control over their operations. All the consolidated subsidiaries are listed in Note 2.2. Certain subsidiaries of Lecta Group are however not consolidated on the basis of immateriality (see Note 2.3). Subsidiaries are consolidated from the date on which control is transferred to Lecta Group and cease to be consolidated from the date on which Lecta loses control. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

• Exposure, or rights, to variable returns from its involvement with the investee;

• The ability to use its power over the investee to affect its returns. Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• The contractual arrangement with the other vote holders of the investee;

• Rights arising from other contractual arrangements;

• The Group’s voting rights and potential voting rights. All inter-company transactions, balances and unrealized gains and losses on transactions between Lecta Group companies are eliminated on consolidation. Where local accounting policies followed by subsidiaries differ significantly from those adopted for the purpose of the consolidated financial statements, appropriate adjustments are made in order to achieve a consistent basis of accounting.

1.04. Investment in associates An Associate is an entity, including an unincorporated entity such as a partnership, over which Lecta Group has significant influence but which it does not control. It is neither a subsidiary nor a joint venture. An associate is accounted for under the equity method of consolidation. The investment in associate is initially recognized at cost and adjusted thereafter for the post-acquisition changes in Lecta Group’s share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment. The Income statement of Lecta Group includes Lecta Group’s share of the profit or loss after tax of the associate. After application of the equity method, Lecta Group determines whether it is necessary to recognize an additional impairment loss on the Group’s investment in its associates. Lecta Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, Lecta Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, and recognizes the amount in the line “Share of results in associates” of the Income statement. Lecta Group does not consolidate any associate.

1.05. Interests in joint ventures A Joint venture is a contractual arrangement whereby Lecta Group and one or more third parties undertake an economic activity that is subject to joint control. A jointly controlled entity is accounted for under the equity method. Refer to Note 1.04 for a description on the equity method. Lecta Group does not have any joint venture, which requires consolidation.


1.06. Glossary EBITDA: Earnings before depreciation, amortization, non-recurring items, finance costs, net income from associates and income tax. It includes non-cash (expenses) incomes, consisting of variations of inventories and operating provisions. This aggregate is a key performance indicator for Lecta Group and the paper industry. Non-recurring items: Profits, losses or costs isolated for a better understanding of the business performance. This heading comprises essentially:

• The profit and losses on disposals or impairments of Investment in associates (see Note 1.04), Unlisted securities (see Note 1.18), and certain long-lived assets including Goodwill (see Note 1.21),

• The costs of restructuring and material reorganization,

• The acquisition costs in relation with business combinations, and the profit following the immediate recognition of negative goodwill (see Note 1.14).

1.07. Foreign currency transactions The presentation currency of Lecta Group is the euro (EUR). For each entity of Lecta Group, transactions in foreign currencies are recorded in their functional currency at the exchange rate prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate prevailing at the year-end closing date. Exchange differences are taken to the Income statement: Foreign exchange differences for operating business items are recorded in the line “Other operating costs except non-recurring items ”, and financial items are recorded in the lines “Financial income” and “Financial expense”. An exception to the above would be the case of a foreign currency borrowing that would provide a hedge against a net investment in a foreign entity. Lecta Group does not have such borrowing.

1.08. Foreign currency translations - subsidiaries The Income statements of the non-euro consolidated subsidiaries are translated into euro at the weighted average exchange rates for the year. Their assets and liabilities are translated into euro at the exchange rate prevailing at the year-end closing date. The exchange differences are taken directly to Equity. On disposal of the entity, the exchange differences accumulated are included in the line “Non-recurring items” in the Income statement as a component of the gain or loss on disposal. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are stated in the currency of the acquired entity at the date of the acquisition. Lecta Group doesn't have any entity within the group which operates in a hyper-inflationary economy.

1.09. Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to Lecta Group and the revenue can be reliably measured. The following specific recognition criteria must be met before revenue is recognized:

• Sales of goods: Revenue is recognized when goods leave the warehouses of the Group or those of the consignees, or when, the goods being ready on the contractual date, their delivery is postponed following the customer's request. This method enables a reliable measurement of revenue. It acknowledges that the control of the goods has been transferred either to the buyer or to the transporter.

• Sales of energy: Revenue is recognized when the energy is effectively supplied to the buyer.

• Sales of services: Revenue is recognized over time in proportion of the services rendered to the buyer. It acknowledges that the buyer receives and consumes the benefits provided by the Group.

• Interest: Revenue is recognized as interest accrues.

• Dividends: Revenue is recognized when the shareholders’ right to receive the payment is established.


1.10. Property, plant and equipment Property, plant and equipment purchased by the Lecta Group’s companies are stated at historical cost, increased where appropriate by terminal environmental reinstatement costs (none in Lecta Group). When acquired through a business combination, the assets are stated at their fair value at the date of acquisition. The Property, plant and equipment present in Lecta Group at First Time Adoption of IFRS as at 1 January 2004, were subject to specific rules: those of Cartiere del Garda SpA were fair valued and these fair values were used as deemed cost at that date, while the values of property, plant & equipment of all other companies used under the previous GAAP were maintained. At closing date, Property, plant and equipment are stated at the above-mentioned gross value less accumulated depreciation and any impairment. Depreciation is calculated on a straight-line basis over the following estimated useful lives:

1.11. Maintenance Maintenance costs relating to an existing tangible asset are capitalized, if and only if it has a useful life of more than one year and if it replaces an identifiable component of the existing tangible asset. The cost represents a new component which will be depreciated individually. The depreciation will not exceed the remaining useful life of the existing tangible asset except when it extends its useful life. This capitalization also translates into derecognizing the replaced component. For any given plant, the maintenance of existing Safety and Environment installations may be necessary to continue to obtain the future economic benefits from the other assets of this plant dedicated to production. Under such circumstances, they may qualify for recognition as Property, plant and equipment. Should they not meet the above criteria, these costs are expensed. Recurring maintenance or day-to-day servicing costs (outside contractors, felt & wires…) are always expensed. The overhauls of gas turbines of cogeneration plants are capitalized as Property, plant and equipment and depreciated over 3 to 6 years.

1.12. Leases Leases, which transfer to Lecta Group substantially all the risks and rewards incidental to ownership of the leased item, are classified as finance leases. Leases where the lessor retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Finance leases are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are included in the line “Finance costs” of the Income statement. The lease liability is included in the line “Interest-bearing borrowings” of the Statement of financial position. If there is a reasonable certainty that Lecta Group will obtain ownership by the end of the lease term, the capitalized leases follow the same depreciation policy than the similar owned assets. Otherwise, they are depreciated over the shorter of the estimated useful life of the asset or the lease term. In both cases, the depreciation is included in the line “Depreciation” of the Income statement.

Land No depreciation

Road, railways and car parks 20 to 40 years

Buildings 30 to 40 years

Plant and machinery 10 to 20 years

Quality control systems 5 to 10 years

Forklifts 3 to 8 years

Motor vehicles 3 to 7 years

Hardware and office equipment 3 to 5 years

R&D equipment 6 to 10 years

Furniture, fixtures and fittings 5 to 10 years


Operating lease payments are recognized as an expense in the line “Other operating costs except non-recurring items” of the Income statement in accordance with the terms of the lease.

1.13. Investment properties Investment properties consist of land or buildings, held to earn rentals or capital appreciation. Investment properties purchased by Lecta Group’s companies are stated at historical cost, increased where appropriate by terminal environmental reinstatement costs (none in Lecta Group). When acquired by Lecta Group through a business combination, they are stated at their fair value at the date of acquisition. At closing date, investment properties are stated at the above-mentioned gross value less accumulated depreciation and any impairment. Depreciation is calculated on a straight-line basis over the following estimated useful lives:

Investment properties in Lecta Group consisted of plots of land in Amorebieta/Carmen mill closed in 2009, and in Sarrià del Ter mill closed in 2014 (see Note 16.2).

1.14. Business combinations and goodwill Business combinations from 1 January 2009 (prospective application) Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed in the line “Non-recurring items” (see Notes 1.06 and 11). When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, are recognized in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity. Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference (formerly known as negative goodwill) is recognized in profit or loss in the line “Non-recurring items” of the Income statement. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Business combinations prior to 1 January 2009 In comparison to the above-mentioned requirements, the following differences applied: Business combinations were accounted for using the purchase method. Transaction costs directly attributable to the acquisition formed part of the acquisition costs. The non-controlling interest (or non-controlling interest ) was measured at the proportionate share of the acquiree’s identifiable net assets. Business combinations achieved in stages were accounted for as separate steps. Any additional acquired share of interest did not affect previously recognized goodwill. Contingent consideration was recognized if, and only if, the Group had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognized as part of goodwill.

Land No depreciation

Buildings 30 to 40 years


1.15. Other intangible assets Other intangible assets acquired separately are recognized at cost. Intangible assets acquired as part of a business combination are recognized separately from Goodwill if the fair value can be measured reliably on initial recognition, subject to the constraint that, unless the asset has a readily ascertainable market value. The carrying values of intangible assets with definite useful lives are tested for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying values of intangible assets with indefinite useful lives are tested for impairment on a yearly basis. Research and Development costs are expensed when incurred, except for certain development costs that are recognized when it is probable that the project will generate future economic benefits, and the costs can be measured reliably. Other internally generated intangible assets are not capitalized, but expensed against profit in the year the costs were incurred. Other intangible assets are amortized on a straight-line basis, over the shortest period between their own legal duration and the useful life of the assets to which they benefit. In Lecta Group, this heading comprises essentially:

1.16. CO2 emission rights In order to comply with the Kyoto protocol, the European Union has set up the CO2 (or Greenhouse Gas) emission rights scheme. Lecta Group elected to use the implicit rule of IAS 20 “Accounting for government grants and disclosure of government assistance” to account for the CO2 emission rights. This rule is sometimes referred to as “net liability method”:

• According to the “net liability method”, the rights that have been granted free of charge by each National Authority are not recognized. A provision at fair value is recognized for the tonnes of CO2 emitted in excess of the rights granted by each National Authority.

• Purchased rights are initially recognized at cost in the line “Other intangible assets” of the Statement of financial position.

• After initial recognition, the purchased rights that are not in excess of the above-mentioned provisioned tonnes are measured at fair value.

• The rights in excess are kept at their historical cost, unless the market price drops below this cost. In such a case, these rights are impaired.

• All the movements in the Income statement are reported in the line “Other operating costs except non-recurring items”.

These rules are implemented separately for each Subsidiary, because National Authorities grant the rights to single companies.

1.17. Green & White certificates On top of selling steam and electricity to Garda mill, excess electricity to the national grid, Alto Garda Power SrL sells hot water to the local urban heating network. This gives Alto Garda Power SrL title to the grant of Green certificates for a period of eight years starting in January 2010. No obligation is attached to these Green certificates. Lecta Group elected to use the implicit rule of IAS 20 “Accounting for government grants and disclosure of government assistance” to account for the Green certificates. They are recognized as an intangible asset, initially at nominal value, until they are sold to a third party. Following a change in Italian regulation dated 6 July 2012, the

Patents 3 to 5 years

Customer portfolio 7 years

Trademarks 3 to 5 years

Non-competition clause 2 years

Development costs 2 to 5 years

Rights to connect to the electricity network 10 years

CO2 emission rights (see Note 1.16) No amortization

Green & White certificates (see Note 1.17) No amortization


Green certificates are recognized as a non-monetary government grant, which corresponds to GSE (Gestore dei Servizi Energetici) guaranteed price. An additional profit can be recognized in the line “Other operating costs except non-recurring items” of the Income statement upon the sale of Green certificate if the actual sales price is higher than the guaranteed one. Thanks to its savings in the consumption of natural gas, Alto Garda Power SrL is entitled to a grant of White certificates for a period of ten years starting in January 2012. No obligation is attached to these White certificates. Lecta Group elected to use the implicit rule of IAS 20 “Accounting for government grants and disclosure of government assistance” to account for the White certificates. They are recognized as a non-monetary government grant, which corresponds to GSE (Gestore dei Servizi Energetici) guaranteed price. An additional profit can be recognized in the line “Other operating costs except non-recurring items” of the Income statement upon the sale of Green certificate if the actual sales price is higher than the guaranteed one.

1.18. Financial assets Initial recognition and measurement Financial assets are classified at initial recognition, as subsequently measured, by considering the four categories defined by IFRS 9 Financial instruments: A) Financial assets at amortized cost (debt instruments) B) Financial assets at fair value through OCI (debt instruments), C) Financial assets designated at fair value through OCI (equity instruments), D) Financial assets at fair value through profit or loss. Purchases or sales of financial assets that require delivery of assets within the timeframe generally established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e. the date the Group commits to purchase or sell the asset. A) Financial assets at amortized cost (debt instruments) This category is the most relevant to the Group. The Group measures financial assets at amortized cost if both of the following conditions are met: - The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and - The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding Financial assets at amortized cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognized in the Income statement when the asset is derecognized, modified or impaired. In Lecta Group, this category includes:

• The Trade receivables (see Note 1.23);

• The financial investments originated by the group reported in the line “Other non-current assets” in the Non-current assets of the Statement of financial position (see Notes 1.25 and 1.34): ▪ Deposits, ▪ Guarantees, ▪ Loans to non-consolidated companies or third parties.

B) Financial assets at fair value through OCI (debt instruments) The Group measures debt instruments at fair value through OCI if both of the following conditions are met: - The financial asset is held within a business model with the objective of both holding to collect contractual cash flows and selling; and - The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognized in the Income statement and computed in the same manner as for financial assets measured at amortized cost. The remaining fair value changes are recognized in OCI. Upon derecognition, the cumulative fair value change recognized in OCI is recycled to profit or loss. Lecta Group does not hold such investments.


C) Financial assets designated at fair value through OCI (equity instruments) Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis. Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as other income in the income statement when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment. Lecta Group elected to classify irrevocably one of its investments under this category: its participation in Promotora del Ulla SA (see Notes 2.3 and 19). D) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortized cost or at fair value through OCI, as described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch. Financial assets at fair value through profit or loss are carried in the Statement of financial position at fair value with net changes in fair value recognized in the Income statement. In Lecta Group, this category includes: - Money market funds used to safely invest temporary excess cash reported in the line “Cash and cash equivalents”, in the Current assets of the Statement of financial position; - Non-listed equity investments reported in the line “Unlisted securities”, in the Non-current assets of the Statement of financial position. Impairment See Note 1.23. Derecognition See Note 1.37.

1.19. Biological assets In Lecta Group, biological assets are limited to standing timber. The latter is exclusively dedicated to internal consumption for the production of pulp. They are reported in the line “Biological assets”, under Non-current assets of the Statement of financial position. They are measured at fair value.

1.20. Non-current assets held for sale A non-current asset is held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets and its sale must be highly probable. The non-current assets classified as held for sale are measured at the lower of their carrying amount and their fair value less costs to sell. They are not depreciated any more. They are presented separately from the other assets in the Statement of financial position.

1.21. Impairment of certain long-lived assets Property, plant and equipment, Investment properties and Other intangible assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. This review is done each year


for the Goodwill and other indefinite life intangible assets. Where the carrying values exceed the estimated recoverable amount, the asset or the associated cash-generating unit is written down to its recoverable amount. The recoverable amount is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in the line “Non-recurring items” in the Income statement.

1.22. Inventories Inventories are stated at the lower of cost and net realizable value. Cost includes materials, direct labor and an attributable proportion of manufacturing overheads based on normal levels of activity. Cost is computed according to the weighted average cost method. Net realizable value is based on estimated selling price, less further costs expected to be incurred to completion and disposal. Given the lack of meaningful market references, the inventoried spare parts are impaired in accordance with slow moving rules reflecting their obsolescence.

1.23. Trade receivables Specific allowance Trade receivables are recognized and carried at original invoice amount less an allowance for uncollectable amounts. An estimate for doubtful debts is made when collection of part or all of a receivable is no longer probable. Bad debts are written off when identified. General allowance The Group also recognizes an allowance for expected credit losses (ECLs). It has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

1.24. Prepayments This heading comprises payments to trade or other payables for future benefits such as insurance premiums, maintenance expenses and rents. Prepayments are stated at their nominal value.

1.25. Other receivables This heading comprises:

• Loans,

• Deposits and guarantees,

• Grants receivables,

• Capital receivables on the sale of long-lived assets,

• Shareholders receivables (e.g. on capital increase),

• Dividends receivables,

• Favorable options on non-consolidated companies,

• Favorable currency hedging,

• Favorable interest rate hedging,

• Favorable energy price hedging,

• Miscellaneous other receivables (e.g. expected reimbursement through an insurance contract).

1.26. Cash and cash equivalents This heading comprises:

• Cash in hand,

• Cash in banks’ current accounts,

• Short-term deposits and certificates of deposit with an original maturity of three months or less,


• Marketable securities (Government bonds, Treasury bills and similar short-term securities). Any gains and losses on Cash and cash equivalents are recognized in the Income statement, under the lines “Financial income” and “Financial expense”. Note: In the Cash flow statement, the analysis is focused on variation of Cash and cash equivalents net of Bank overdrafts.

1.27. Financial liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition, as Financial liabilities at fair value through profit or loss, Loans and borrowings, Payables, or Derivatives designated as hedging instruments in an effective hedge. All financial liabilities are recognized initially at fair value and, in the case of Loans and borrowings and Payables, net of directly attributable transaction costs. A) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include (a) financial liabilities held for trading and (b) financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognized in the lines “Financial income” and “Financial expense” of the Income statement. In Lecta Group, no financial liabilities were designated as at fair value through profit or loss. B) Loans and borrowings This is the category most relevant to the Group. After initial recognition, loans and borrowings are subsequently measured at amortized cost using the effective interest rate (EIR) method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the Income statement. In Lecta Group, this category applies to Interest-bearing borrowings, and Bank overdrafts. Derecognition See Note 1.37

1.28. Grants Grants constitute deferred income related to Property, plant and equipment, or Borrowings with off-market interest rates. Grants are recognized at their fair value. They are released on a straight-line basis in the line “Depreciation” of the Income statement, over the expected useful life of the relevant asset.

1.29. Provisions Provisions are recognized when:

• Lecta Group has a present obligation (legal or constructive) as a result of a past event; and

• It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and

• A reliable estimate of the amount of the obligation can be made. Where Lecta Group expects the impact of a provision to be neutralized, for example under an insurance contract, a separate asset is recognized when it is virtually certain.


If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the change of the provision due to the time value of money is recognized in the lines “Financial income” or “Financial expense” in the Income statement.

1.30. Employee benefits Lecta Group’s employees take advantage of various benefits schemes:

• Short-term employee benefits: These include wages, salaries, paid holidays, social contributions, sick leave, compensated absences, bonuses, profit sharing and non-monetary benefits, all paid within 12 months after service is rendered.

• Defined contribution post-employment plans: The cost to the employer is fixed and predictable. The charge for the period is the contribution due in respect of the service rendered during the period. Payments in advance are reported in the line “Prepayments” of the Statement of financial position. Payments in arrears are reported in the line “Trade payables” of the Statement of financial position. Any accrual that does not fall due within 12 months beyond Statement of financial position date is discounted and recognized at its present value.

• Defined benefit post-employment plans: The employer retains a risk of additional contributions to be paid. The plan is valued in the Statement of financial position at the present value of the obligation less the fair value of any plan assets legally separate from the employer. Any unrecognized past service costs, is immediately recognized. All actuarial gains or losses are immediately recognized. For any curtailment, plan amendment or settlement, the resulting change is immediately recognized.

• Other long-term benefits: These include long-service or jubilee benefits. All actuarial gains or losses and any past service costs are immediately recognized.

• Termination benefits: These include early retirement schemes or redundancy programs. They are recognized as a liability and an expense when and only when a company of Lecta Group is demonstrably committed to terminate the employment of a group of employees before the normal retirement date or provide termination benefits as a result of an offer made to encourage voluntary redundancy.

Lecta Group employees do not benefit from Equity compensation benefits plan or share based payments plan. The employee benefits may be funded, resulting in a debt obligation with financial institutions, or unfunded, resulting in the booking of a provision. Independent qualified actuaries review any material long-term obligation of Lecta Group. The costs are accounted for as follows:

• The actuarial gains and losses of Defined benefit post-employment plans are directly recognized in the lines “Net incomes (expenses) recognized directly through Equity” and “Deferred tax” of the Statement of financial position.

• All the other costs are recognized in the Income statement, in the following lines: ▪ Costs related to active employees: “Labor costs”. ▪ Costs related to retired people: “Other operating costs except non-recurring items ”. ▪ Costs due to the time value of money: “Financial expense”.

1.31. Income tax payable Income tax payable includes withholding tax.

1.32. Deferred tax Deferred tax is provided, using the liability method, on all temporary differences at the Statement of financial position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.


Deferred tax liabilities are recognized for all taxable temporary differences (e.g. accelerated tax depreciation, deductible legal revaluation), except (i) where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss, or (ii) in respect of taxable temporary differences that will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences (e.g. employee benefits paid to financial institutions for which the deductibility is deferred), carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available to use these assets. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the Statement of financial position date. Deferred tax relating to items recognized outside the Income statement is also recognized outside the Income statement, i.e. in the Statement of comprehensive income or directly in Equity in the Statement of financial position. Deferred tax assets and liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

1.33. Trade payables This heading comprises:

• Trade payables,

• Employees and social charges,

• VAT and other taxes except Income tax and withholding tax,

• Any accruals on the above.

1.34. Other liabilities This heading comprises:

• Capital payables following the purchase of long-lived assets,

• Shareholders payables (e.g. on capital redemption),

• Dividends payables,

• Options on Minorities of consolidated companies (see Note 1.35),

• Unfavorable options on non-consolidated companies,

• Unfavorable currency hedging,

• Unfavorable interest rate hedging,

• Unfavorable energy price hedging,

• Miscellaneous other payables (non-recurring items ).

1.35. Options on Minorities of consolidated companies Options on Minorities of consolidated companies currently held by Lecta are Equity derivatives. A premium paid or received on equity derivatives at inception is recorded in Equity in a specific line “Equity derivatives". Up to now, Lecta Group did not pay such premiums. The discounted value of the exercise price of a sold option or a firm commitment, at inception and at each year-end, is recorded in the line “Other payables” against the line “Non-controlling interests”. Since 1 January 2009 and in accordance with IAS27 (revised), when a sold option or a firm commitment on minorities is exercised, the amount in Other payables is reversed against Cash, and the remaining balances of non-controlling interests and Equity derivatives are reversed against Equity.


1.36. Derivative hedging instruments Lecta Group uses derivative instruments to hedge foreign currency, interest rate and energy price fluctuations. Such derivative instruments are stated at their fair values as communicated by the financial institutions and the energy companies that are the counterparties to these transactions. For accounting purposes, derivative instruments are classified in the three following categories:

• Fair value hedges: to cover the exposure to changes in the fair value of a recognized asset or liability. In Lecta Group, these are forward agreements on realized day-to-day sales and purchases in non-euro currencies. Any gain or loss from re-measuring the hedging instrument at fair value is recognized in the line “Other operating costs except non-recurring items ” of the Income statement against “Trade receivables” or “Trade payables”.

• Cash flow hedges: to cover the exposure to variability in cash flows that is attributable to a particular risk associated with a forecast transaction. In Lecta Group, these could be the interest rate, exchange rate and energy price swaps, caps, floors, collars, options. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized directly in the line “Net incomes (expenses) recognized directly through Equity” of the Statement of financial position against “Other receivables” or “Other payables”. It is removed from Equity when the hedged item affects the Income statement. The ineffective portion of gain or loss is immediately recognized in the line “Non-recurring items ” of the Income statement.

• Hedges of net investments in foreign entities denominated in a non-euro currency: In Lecta Group, there is no such instrument. The accounting treatment is the same as for Cash flow hedges.

1.37. Derecognition of financial assets and liabilities Financial assets A financial asset (or, where applicable, a part of a financial asset or part of group of similar financial assets) is derecognized when: - The rights to receive cash flows from the asset have expired; or - The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass through’ arrangement; and either (i) has transferred substantially all the risks and rewards of the asset, or (ii) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognize the transferred asset to the extent of its continuing involvement. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. 1.38. Future changes in accounting policies

• IFRS 16 "Leases" was issued in January 2016. It replaces IAS 17 “Leases”. The major change introduced by the new Standard is that leases will be brought onto companies' balance sheets, increasing the visibility of their assets and liabilities. IFRS 16 removes the classification of leases as either operating leases or finance leases (for the lessee - the lease customer), treating all leases as finance leases. The new standard will be applicable for annual periods beginning on or after 1 January 2019.

Lecta Group will adopt IFRS 16 on 1 January 2019, using the modified retrospective approach and therefore the comparative information will not be restated and continue to be reported under IAS 17 and IFRIC 4 “Determining Whether an Arrangement Contains a Lease“.


The effect of the initial application of IFRS 16 is expected to be as follows: - In the Statement of financial position, the lease liabilities are measured at the present value of the remaining lease payments, discounted at the incremental borrowing rates of the lessees, and the Right-Of-Use (“ROU”) assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments. The Group allocates the consideration in the contract to each lease component and separates non-lease components if these are identifiable. The impact of implementing IFRS 16 at 1 January 2019 indicates that a ROU asset and a lease liability of circa EUR 24.8 M are recognized. - In the Income statement, the Other operating costs except non-recurring items decrease by circa EUR 5.5 M, while the Depreciation and the Financial expense increase by circa EUR 5.0 M and EUR 0.9 M respectively. - In the Cash flow statement, the Cash flow from operating activities increases and the Cash flow from financing activities decreases, as most of the lease payments are reported in Cash flow from financing activities, with no additional impact to Total cash flow.

• IFRIC 23 "Uncertainty over Income Tax treatments". It may be unclear how tax law applies to a particular transaction or circumstance, or whether a taxation authority will accept a company’s tax treatment. IAS 12 “Income Taxes” specifies how to account for current and deferred tax, but not how to reflect the effects of uncertainty. IFRIC 23 provides requirements that add to the requirements in IAS 12 by specifying how to reflect the effects of uncertainty in accounting for income taxes. This interpretation will be applicable for annual periods beginning on or after 1 January 2019.

Lecta Group evaluated the effect of the above standard and concluded that its impact is not material.


2. Lecta Group at 31 December 2018

2.1. Organization Chart

LECTA SA(previously New Lecta SA)

Holding incorporated in Luxembourg on 14/10/1999

Luxembourg

(EY)

100% from 11/05/2012

SUB LECTA SA(previously Sub New Lecta SA, then Sub Lecta 2 SA)

mergers of Sub Lecta 2 SA, Sub Lecta 1 SA, Sub Lecta 3 SA,

and Sub Lecta 4 SA on 03/08/2015

Holding incorporated in Luxembourg on 14/10/1999

Luxembourg

(EY)

100% from 26/11/2008 (first 95.048600% acquired on 14/12/1999)

TORRASPAPEL SAmergers of Torraspapel SA and Sarriopapel y Celulosa SA on 01/12/2014,

and Lecta HQ SA (previously Nueva Organización SA, then Torraspapel

Holding SA) on 29/09/2015

Production of pulp and paper

Spain - Almazán / Barcelona / Leitza / Madrid / Motril / Sant Joan / Zaragoza

(EY)

100% from 08/06/2012 LECTA PAPER UK Ltd LECTA NORTH AMERICA Inc

CARTIERE DEL GARDA SpA (100% acquired on 02/10/1997) (previously Torras Paper UK Ltd) (previously Torraspapel USA Inc)

merger of Cartiere del Garda SpA and Torraspapel Italia SrL on 01/01/2012 Distribution of paper 100% 100% Commercial agent

Production of paper UK - Milton Keynes USA - Purchase (NY)

Italy - Riva del Garda / Milano (EY) ( - )

(EY)

LECTA MAROC Sàrl TORRASPAPEL PORTUGAL UNIPESSOAL Lda

POLYEDRA SpA ALTO GARDA POWER SrL (previously Torraspapel Maroc Sàrl) (merger of Sarriopapel Distribuçao (Portugal) Lda and

merger of Polyedra SpA and 100% from 80% Cogeneration Commercial agent 100% Torras Papel Lda)

Carthago SrL on 01/01/2013 02/07/2012 incorporated on 11/09/2006 Morocco - Casablanca 100% Distribution of paper

Distribution of paper (acquisition) Italy - Riva del Garda ( - ) Portugal - Lisboa

Italy - Settimo Milanese (EY) (EY)

(EY) 100%

0.00005% LECTA MÉXICO S. de R.L. de C.V.

100% from 09/05/2017 (acquisition) (previously Torraspapel México S. de R.L. de C.V.)

PLOT SERVICE SrL Commercial agent - in liquidation

Digital printing technical assistance 99.99995% Mexico - Mexico city

and provider of consumables 99.99995% ( - )

Italy - Rozzano TORRASPAPEL SERVICIOS MÉXICO

(-) S. de R.L. de C.V. 0.20% LECTA BENELUX SA

Administration services to Lecta - in liquidation (previously Condat Benelux SA)

Mexico - Mexico city 0.00005% 99.80% Commercial agent

100% from 27/07/2016 ( - ) Belgium - Brussels

CONDAT SAS (-)

mergers of Condat Holding SAS and Condat SAS on 31/12/2018, COGENERACIÓN MOTRIL SA

renamed Condat SAS on 31/12/2018; Cogeneration 100% 100% LECTA DEUTSCHLAND GmbH

Secmar SAS was merged into Condat Holding SAS on 08/12/2008, Spain - Motril (previously Torraspapier GmbH)

and Lecta Europe Sàrl was merged into Condat Holding SAS on 01/01/2015. (EY) merger of Torras Papier GmbH and

Production of paper and Administration & Finance services to Group Lecta Deutschland GmbH on 10/06/2016

France - Le Lardin St Lazare / Le Plessis Robinson COGENERACIÓN SANT JOAN AIE Commercial agent

(EY) (previously IDAE Sant Joan AIE) 100% Germany - München

Cogeneration ( - )

100% Spain - Barcelona

TORRASPAPEL MALMENAYDE SAS (EY)

mergers of Torraspapel France Sàrl and Malmenayde SAS on 01/12/2011,

and Nord Papier SA on 30/06/2015 Consolidated subsidiaries (fully, on a proportional basis or through equity method).

Distribution of paper

France - Le Plessis Robinson Non consolidated company. Only strategic company is presented here.

(EY)

Address of registered offices in bold characters.

(Statutory auditors).

TORRASPAPEL DISTRIBUCIÓN SA

(previously Dispap SA)

Distribution of paper

Spain - Madrid

(EY)


2.2. Consolidated subsidiaries

1997 1998 Sub Lecta 1 SA Condat Holding SAS Lecta Europe Sàrl Sub Lecta 1 SA was incorporated in Luxembourg on 11 August 1997. On 2 October 1997, Sub Lecta 1 SA acquired Cartiere del Garda SpA, an Italian producer of coated woodfree paper, from Bertelsmann Group

Condat Holding SAS was set up by Cartiere del Garda SpA and incorporated in France on 4 November 1998. On 13 November 1998, Condat Holding SAS acquired Condat SAS, a French producer of coated woodfree paper, from Jefferson Smurfit Group.

Lecta Europe Sàrl, in charge of administration and finance for the Group was set up by Condat Holding SAS and incorporated in France on 30 November 1998

Subsidiaries Activity

Country of

incorporation Interest Control

Consol.

MethodAlto Garda Power SrL Cogeneration Italy 80% 80% Full

Cartiere del Garda SpA

(absorbed Torraspapel Italia SrL)

Production of woodfree coated paper Italy 100% 100% Full

Cogeneración Motril SA Cogeneration Spain 100% 100% Full

Cogeneración Sant Joan AIE

(previously IDAE Sant Joan AIE)

Cogeneration Spain 100% 100% Full

Condat SAS

(previously Condat Holding SAS; absorbed Secmar SAS,

Lecta Europe Sàrl, and Condat SAS)

Production of woodfree coated paper,

Administration & Finance services to

Group

France 100% 100% Full

Lecta Benelux SA

(previously Condat Benelux SA)

Commercial agent Belgium 100% 100% Full

Lecta Deutschland GmbH

(previously Torras Papier GmbH)

Commercial agent Germany 100% 100% Full

Lecta Maroc Sàrl

(previously Torraspapel Maroc Sàrl)

Commercial agent Morocco 100% 100% Full

Lecta México S. de R.L. de C.V.

(previously Torraspapel México S. de R.L. de C.V.)

Commercial agent - in liquidation Mexico 100% 100% Full

Lecta North America Inc

(previously Torraspapel USA Inc)

Commercial agent USA 100% 100% Full

Lecta Paper UK Ltd

(previously Torras Paper UK Ltd)

Distribution of paper UK 100% 100% Full

Plot Service SrL Digital printing technical assistance and

provider of consumables

Italy 100% 100% Full

Polyedra SpA

(absorbed Carthago SrL)

Distribution of paper Italy 100% 100% Full

Sub Lecta SA

(previously Sub New Lecta SA, then Sub Lecta 2 SA;

absorbed Sub Lecta 4 SA, Sub Lecta 3 SA, and Sub Lecta 1

SA)

Holding and

IP management

Luxembourg 100% 100% Full

Torraspapel Distribución SA

(previously Dispap SA; spin-off of the distribution

activity from Torraspapel SA)

Distribution of paper Spain 100% 100% Full

Torraspapel Malmenayde SAS

(merger of Torraspapel France Sàrl and Malmenayde

SAS, absorbed Nord Papier SA)

Distribution of paper France 100% 100% Full

Torraspapel Portugal Unipessoal Lda

(merger of Sarriopapel Distribuiçao (Portugal) Lda and

Torras Papel Lda)

Distribution of paper Portugal 100% 100% Full

Torraspapel Servicios México S. de R.L. de C.V. Provider of administration services - in

liquidation

Mexico 100% 100% Full

Torraspapel SA

(absorbed Sarriopapel y Celulosa SA and Lecta HQ SA;

spin-off of the distribution activity to Torraspapel

Distribución SA)

Production of pulp and paper Spain 100% 100% Full


1999 Sub Lecta 2 SA Lecta HQ SA Lecta HQ SA Sub Lecta 2 SA was incorporated in Luxembourg on 14 October 1999

Lecta HQ SA (previously called Torraspapel Holding SA), incorporated in Spain on 24 September 1999, became a subsidiary of Sub Lecta 2 SA on 28 October 1999

On 14 December 1999, Lecta HQ SA acquired 95.05% of Torraspapel SA, a Spanish paper merchant and producer of pulp and paper, from Grupo Torras SA and Paltor ApS, two companies under the control of Kuwait Investment Authority.

2002 2004 Lecta SA Torraspapel SA Torraspapel Servicios México S.

de R.L. de C.V. The parent company Lecta SA was incorporated in Luxembourg on 14 October 1999. On 13 December 1999, the shares of Sub Lecta 1 SA and Sub Lecta 2 SA were contributed to Lecta SA. Consequently, the above subsidiaries have been consolidated since 1 December 1999

On 13 December 2002, Torraspapel SA acquired 25.59% of Sub Lecta 1 SA. Due to the presence of non-controlling interests in Torraspapel SA, this acquisition resulted in non-controlling interests in Sub Lecta 1 SA and its subsidiaries

Torraspapel Servicios México S. de R.L. de C.V. was set up by Dispap SA and incorporated in Mexico on 6 October 2004. It is a provider of administration services to Lecta México S. de R.L. de C.V.. It started its activities in 2005. It is consolidated since 01 January 2005.

2006 2007 Sarriopapel Distribuiçao (Portugal) Lda

Alto Garda Power SrL Cogeneración del Ter SL

On 1 July 2006, Sarriopapel Distribuiçao (Portugal) Lda absorbed Torras Papel Lda and was renamed Torraspapel Portugal Lda. Both companies were consolidated before the merger.

On 11 September 2006, Alto Garda Power SrL was incorporated in Italy. It is 80% owned by Cartiere del Garda SpA and 20% by Alto Garda Servizi SpA, a local utility controlled by the City of Riva del Garda. This company’s purpose is to own and operate a cogeneration plant and provide steam and electricity to its shareholders and the market.

Cogeneración del Ter SL is a cogeneration plant located in Sarrià de Ter (Spain). It was 70% owned by Torraspapel SA and 30% by La Energía SA, a subsidiary of energy services Gas Natural Group when it was consolidated from 1 July 2007.

2008 IDAE Sant Joan AIE Lecta North America Inc. Dispap SA On 11 December 2007, IDAE Sant Joan AIE was incorporated in Spain. It is 51% owned by Torraspapel SA and 49% by Instituto para la Diversificación y Ahorro de la Energía (IDAE) the Spanish Institute for Energy Diversification and Saving. This company’s purpose is to own and operate a cogeneration plant and provide steam and electricity to Torraspapel SA and the market.

On 1 January 2008, Lecta North America Inc, the 100% owned commercial agent in North America for Lecta Group, was included in the consolidation perimeter.

On 1 January 2008, Dispap SA, a paper distributor in Spain having no more operating activity, was excluded from the consolidation perimeter.


Torraspapel SA Torraspapel SA Lecta HQ SA On 6 May 2008, Torraspapel SA acquired 100% of Secmar SAS. Secmar SAS was a French company holding 100% of Malmenayde SAS and 66% of Nord Papier SA, two French paper merchants

On 3 November 2008, Torraspapel SA contributed Secmar SAS to Condat Holding SAS and received in return a 23.17% interest in that company

On 26 November 2008, Lecta HQ SA acquired 4.95% non-controlling interests in Torraspapel SA following the exercise of a put option, negotiated in December 1999 at the time of the acquisition of Torraspapel SA. It now holds 100% in Torraspapel SA

2009 2010 Secmar SAS Torraspapel SA Lecta Deutschland GmbH On 8 December 2008, Secmar SAS was merged into Condat Holding SAS. Malmenayde SAS and Nord Papier SA became direct subsidiaries of Condat Holding SAS.

On 18 December 2009, Torraspapel SA acquired an additional 5% in Cogeneración del Ter SL. It now holds 75% in Cogeneración del Ter SL.

On 1 January 2010, Lecta Deutschland GmbH, the 100% owned commercial agent in Germany for Lecta Group products, was included in the consolidation perimeter.

2011 Lecta Benelux SA Torraspapel SA Malmenayde SAS On 1 January 2010, Lecta Benelux SA, the 100% owned commercial agent in Benelux for Condat products, was included in the consolidation perimeter.

On 26 July 2011, Torraspapel SA acquired 24% additional equity in Cogeneración Motril SA to increase its participation to 75%.

On 1 December 2011, Malmenayde SAS was merged into Torraspapel France Sàrl, and the resulting entity was named Torraspapel Malmenayde Sàrl.

2012 Torraspapel SA Torraspapel Italia SrL Sub Lecta 3 SA On 5 December 2011, Torraspapel SA acquired 6% additional equity in Cogeneración Motril SA. It now holds 81% in Cogeneración Motril SA.

On 31 December 2011, Torraspapel Italia SrL, the commercial agent in Italy for Torraspapel products was excluded from the consolidation perimeter. On 1 January 2012, Torraspapel Italia SrL was merged into Cartiere del Garda SpA.

On 26 April 2012, Sub Lecta 3 SA was incorporated in Luxembourg. It is 100% owned by Sub Lecta 1 SA. Its purpose is to be a holding company.

2013 Cartiere del Garda SpA Condat Holding SAS Carthago SrL On 2 July 2012, Cartiere del Garda SpA acquired 100% of Polyedra SpA. Polyedra SpA is an Italian paper merchant who in turn holds 100% of Carthago SrL, another Italian paper merchant.

On 25 September 2012, Condat Holding SAS acquired 34% non-controlling interests in Nord Papier SA. It now holds 100% in Nord Papier SA.

On 1 January 2013, Carthago SrL was merged into Polyedra SpA.

2014 Sub Lecta 4 SA Torraspapel SA Cogeneración del Ter SL On 29 November 2013, Sub Lecta 4 SA was incorporated in Luxembourg. It is 100% owned by Sub Lecta 3 SA. Its purpose is to be a holding company.

On 10 December 2013, Torraspapel SA and Sarriopapel y Celulosa SA sold 100% of their participation in the Argentinean paper distributor Torraspapel Argentina SA.

On 23 October 2014, following the permanent closure of the paper mill located in Sarrià de Ter, the liquidation of Cogeneración del Ter SL was initiated.


2015 Sarriopapel y Celulosa SA Lecta Europe Sàrl Nord Papier SA On 1 December 2014, Sarriopapel y Celulosa SA was merged into Torraspapel SA. Following this merger, Torraspapel SA directly holds 100% in Torraspapel Portugal Lda and Torras Papier GmbH.

On 1 January 2015, Lecta Europe Sàrl was merged into Condat Holding SAS.

On 30 June 2015, Nord Papier SA was merged into Torraspapel Malmenayde SAS.

Cogeneración Motril SA Sub Lecta 4 SA, Sub Lecta 3 SA

and Sub Lecta 1 SA Lecta HQ SA

On 6 July 2015, the shareholders meeting of Cogeneración Motril SA, decided a share capital decrease to 0€ against losses, immediately followed by a capital increase of 2.6M€. The majority shareholder of 81% (Torraspapel SA) subscribed to the capital increase for an amount of 2.1M€, while the minority shareholders of 19% did not take part to the capital increase. This operation was delivered to the Registry of the Commercial Court (“Registro Mercantil”) in October 2015.

On 3 August 2015, Sub Lecta 4 SA, Sub Lecta 3 SA and Sub Lecta 1 SA were merged into Sub Lecta 2 SA and the resulting entity was renamed Sub Lecta SA on 17 August 2015.

On 29 September 2015, Lecta HQ SA was merged into Torraspapel SA (reverse merger).

2016 Torraspapel SA Dispap SA Lecta Deutschland GmbH On 16 November 2015, Torraspapel SA acquired 25% additional equity in Cogeneración del Ter SA, en liquidación (liquidation initiated on 23 October 2014), against 1€ cash payment to increase its participation to 100%.

On 1 January 2016, Dispap SA a holding company having no operating activity was included in the consolidation perimeter (See Note 2.3).

On 10 June 2016, Lecta Deutschland GmbH was merged into Torras Papier GmbH and the resulting entity was renamed Lecta Deutschland GmbH.

2017 Cogeneración del Ter SA Plot Service SrL Torraspapel Distribución SA On 13 June 2016, Cogeneración del Ter SA was liquidated.

On 9 May 2017, Polyedra SpA acquired 100% of Plot Service SrL. Plot Service SrL is specialized in technical assistance for professional large format graphic peripherals.

On 15 December 2017, the distribution activity in Spain was spin-off from Torraspapel SA to Dispap SA. Torraspapel SA also assigned its participation in Torraspapel Portugal Unipessoal Lda to Dispap SA. The latter was renamed Torraspapel Distribución SA.


2018 Lecta México S. de R.L. de C.V. and Torraspapel Servicios México S. de R.L. de C.V.

Cogeneración Sant Joan AIE Condat SAS

On 30 November 2018, the two Mexican subsidiaries, Lecta México S. de R.L. de C.V. and Torraspapel Servicios México S. de R.L. de C.V. were put into liquidation (see Notes 3.4 and 27.3).

On 21 December 2018 Torraspapel SA acquired the 49% non-controlling interests in IDAE Sant Joan AIE, and the company was renamed Cogeneración Sant Joan AIE. (see Note 3.5).

On 31 December 2018, Condat SAS was merged into Condat Holding SAS and the resulting company was renamed Condat SAS.

2.3. Interests in non-consolidated companies

In italic: Non-strategic companies. Other companies are considered as strategic, even if they are not consolidated because of the following reasons: (a) Lecta Group has no control and no significant influence in these companies. (b) Immateriality. Other comments

• On 29 May 2017, Condat Energie Biomasse SAS was incorporated in France. Its sole activity until today was the presentation on 1 June 2017 of a proposal in response to a public tender organized by the French Authorities for biomass energy. This public tender was cancelled in 2018.

• On 27 June 2017, the shareholders meeting of Ecofolio SAS approved the merger by absorption of the company into Eco-Emballages SA. This merger was effective as of 1 September 2017. In accordance with the exchange parity Torraspapel Malmenayde SAS has 558 shares of the company representing 0.41% of its share capital. The resulting company is called SREP SA.

• On 17 December 2018, OpenText Corporation acquired Liaison Technologies Inc, of which the 0.1664% participation of Sub Lecta SA (see Notes 11 and 19).

Companies Activity

Country of

incorporation Interest Control CommentsCatalana d'Iniciatives CR SA In liquidation Spain 0.39% 0.39% (a)

Condat Energie Biomasse SAS Exploitation of

cogeneration assets

France 100% 100% (b)

Consorzio Nazionale Imballaggi Scarl Recovery

& Recycling

Italy 0.0075% 0.0075% (a)

Gas Intensive Scarl Purchase of methane by

Italian industries

Italy 0.52% 0.52% (a)

Promotora del Ulla SA No operating activity Spain 45.2% 45.2% (b)

SREP SA Recycling of packaging

and paper in France

France 0.41% 0.41% (a)

SVL Pilote SAS Logistics France 0% 0% (a)

SVS SAS Forwarding agent France 0% 0% (a)

SVT SAS Packing France 0% 0% (a)


3. Lecta capital structure and Significant events of 2018

3.1. Lecta capital structure On 27 July 2016, Lecta Group successfully completed its offering of EUR 600 M new notes (“2016 notes”):

• EUR 225 M of floating rate senior secured notes due 2022, bearing an interest rate of 3-month Euribor (with a floor at 0%) + 6.375%,

• EUR 375 M of fixed rate senior secured notes due 2023, bearing an interest rate of 6.500%, and the negotiation of a new EUR 65 M Revolving Credit Facility bearing an interest rate of 4% due 2022. The 2016 notes are listed on the Official List of the Luxembourg Stock Exchange and traded on the Euro MTF market.

3.2. Projects and plans Lecta has Board authorization to explore projects aimed at (i) the simplification of the Group structure from a corporate and tax standpoint, (ii) the optimization of the operating organization, (iii) the strengthening of its specialty papers and distribution operations, and (iv) the identification of exit opportunities.

3.3. Organization efficiency program The integration process covers Lecta industrial operations in Italy, France and Spain, as well as the paper distribution ones in the same countries and, additionally, Portugal. Within the Organization efficiency program, Lecta planned several cost reduction projects. For the twelve-month period ended 31 December 2018 the restructuring cash cost associated to Lecta efficiency programs was EUR (6.3) M, reported in the line “Non-recurring items” (see Note 11). Organization Efficiency Program allows Lecta to maintain the labor costs in spite of salary increases and new job positions in relation with the investments in Specialties.

3.4. Mexican subsidiaries On 30 November 2018, the two Mexican subsidiaries, i.e. Lecta México S. de R.L. de C.V. and Torraspapel Servicios México S. de R.L. de C.V. were put into liquidation (see Note 2.2). They served as Commercial agent for the manufacturing companies of the Lecta group. As part of the shift of Lecta group business into Specialties and given the decrease in margin of the sales in Mexico, it was considered more cost efficient to have the Mexican clients dealt with directly by the Central Overseas structure in Barcelona.

3.5. Acquisition of non-controlling interests in Cogeneración Sant Joan AIE On 21 December 2018 Torraspapel SA acquired the 49% non-controlling interests in IDAE Sant Joan AIE, and the company was renamed Cogeneración Sant Joan AIE (see Note 2.2). This acquisition was made through the exercise of the call option against a cash payment of EUR 4.1 M. As the Non-controlling interests in Cogeneración Sant Joan AIE were EUR 10.5 M, i.e. EUR 9.1 M until December 2017 and EUR 1.4 M from January to November 2018, this acquisition increased the Group's reserves by EUR 6.4 M, i.e. EUR 5.0 M until December 2017 and EUR 1.4 M from January to November 2018 (see Statement of changes in equity). In addition, the Group now has the control of the cash held by Cogeneración Sant Joan AIE.


4. Significant events of 2017

4.1. Projects and plans On 26 May 2017, Lecta announced its intention to offer newly issued ordinary shares in a private placement to institutional investors. Certain of Lecta’s shareholders also intended to sell part or all of their shares. The shares were expected to be admitted to trading on the Madrid, Barcelona, Bilbao and Valencia stock exchanges. On 21 June 2017, Lecta Board decided not to pursue a listing at this point despite the positive response shown by some potential investors, and to continue assessing all options to optimize value for all stakeholders.

4.2. Acquisition of Plot Service SrL On 9 May 2017, Lecta – through its subsidiary Polyedra SpA - completed the acquisition of 100% shares in Plot Service SrL. This company, headquartered in Rozzano (Milan), is specialized in technical assistance for professional large format graphic peripherals, such as plotters, digital printers, scanners and digitizers. Plot Service SrL has service centers located throughout the country with highly qualified and specialized technicians. This service network will complement the already extensive presence of Polyedra SpA throughout Italy. This acquisition reaffirms Lecta's desire to further strengthen its leading position in the Print & Communication, Sign & Display, and Packaging segments, progressively addressing the market more as a partner offering complete solutions to its customers’ communication needs. The cost of acquisition was EUR 13 K. As the part of equity purchased was also EUR 13 K, there was no Goodwill to be considered. The purchase price allocation has been performed, and the measurement period will be closed with the publication of 30 June 2018 accounts. At acquisition, Cash & cash equivalents net of Interest-bearing borrowings was EUR 39 K. The fees and expenses in relation with this acquisition amounted to EUR 4 K. The detail of assets and liabilities at acquisition date was as follows (in EUR K):

4.3. Refinancing of Alto Garda Power SrL debt On 1 March 2017, Alto Garda Power SrL refinanced its existing debt with a new borrowing having the following main features: - Amount 7,500,000€ - Duration 6 years - Amortization in 12 equal installments (principal and interest), the first one on 15 September 2017

ASSETSProperty, plant and equipment 14

Other intangible assets 0

Deferred income tax assets 0

Other non-current receivables 5

Non-current assets 20

Inventories 109

Trade receivables 130

Cash & cash equivalents 78

Current assets 317

TOTAL ASSETS 337

EQUITY & LIABILITIESPaid-in capital 10

Accumulated net profits (losses) 3

Equity holders of the parent 13

TOTAL EQUITY 13

Interest-bearing borrowings 39

Non-current provisions 47

Non-current liabilities 86

Income tax payable (0)

Trade payables 238

Current liabilities 238

TOTAL LIABILITIES 324

TOTAL EQUITY AND LIABILITIES 337


- Interest 6-month Euribor (with a floor at 0%) + 1.650% - Covenants: net equity of AGP has to be higher than two times outstanding debt at year-end; negative pledge in case of additional debt The existing hedging instrument, a Collar indexed to 6-month Euribor for the period from June 2007 to December 2018, was terminated on 28 February 2017 for a cost of 380k€ (see Notes 28.4 and 38.5).

5. Information by Operating Segment Lecta Group applied IFRS 8 “Operating Segments” as of 1 January 2009. The Chief Operating Decision Makers analyze the group activity through three lines of products and services, within a unique operating segment, “production and sale of paper” (see Note 17). The definition of products and services is:

• Coated Woodfree consists in the sale of fine paper manufactured by Lecta. The Coated Woodfree is quasi exclusively sold to third parties;

• Specialties consist in the sale of specialty papers manufactured by Lecta. The Specialties are quasi exclusively sold to third parties;

• Purchased Products consist in the sale of products purchased from third parties. For products and services reporting, definitions are as follows:

• Net sales of Paper consist of Revenue reported in the Income statement less Sales of energy (see Note 8).

• EBITDA is the EBITDA reported in the Income statement. There is no significant non-cash expense within the EBITDA.

• Non-current assets is the sum of Property, plant and equipment, Investment properties, Other intangible assets and Biological assets reported in the Statement of Financial Position. Following items are not included: Goodwill, Investment in associates, Unlisted securities, Deferred income tax assets, Non-current income tax receivable, Other non-current receivables and Non-current assets held for sale.

The intra-segment and inter-segment sales are made at market price. The reporting of “Operating Segment” has been modified to replace “Revenue” (Net Sales of Paper and Sales of Energy; see Note 8) with “Net Sales of Paper”. The rationale is that the activity of Lecta is to produce and sell paper. In this context, Lecta operates cogeneration plants that burn gas and produce electricity and steam. The production of steam is internally consumed, while the production of electricity can be internally consumed or sold to the grid. For “Operating Segment” reporting, the sale of electricity to the grid is not considered as revenue but as reduction in energy cost to produce paper.

(in EUR M)

Coated Woodfree 746 755

Specialties 468 433

Purchased products 176 177Net Sales of Paper 1.390 1.364

Sales of Energy 96 94

Revenue 1.486 1.459

2018 2017


5.1. Information about profit or loss The following table compares sales and profit information of the products and services for the year ended 31 December 2018, with the prior year. It considers the above definitions:

Breakdown of Net Sales of Paper and EBITDA by Product and Service:

Products & Services 31 Dec 31 Dec

(in EUR M) 2018 2017 absolute %

Coated Woodfree 746 755 -9 -1%

Specialties 468 433 +36 +8%

Purchased products 176 177 -1 -0%

Total 1,390 1,364 +26 +2%

Products & Services 31 Dec 31 Dec Change

(in EUR M) 2018 2017 absolute %

Coated Woodfree 46 61 -15 -25%

Specialties 63 50 13 +26%

Purchased products 7 8 -1 -11%

Total 116 120 -3 -3%

Products & Services 31 Dec 31 Dec

(in EUR M) 2018 2017

Coated Woodfree 6.1% 8.1%

Specialties 13.5% 11.6%

Purchased products 4.2% 4.7%

Total 8.4% 8.8%

Percentage points

Change

-2.0

+1.9

-0.4

-0.5

Change

Net Sales of Paper

EBITDA

EBITDA Margin

2018 2017 Change 2018 2017 Change

Coated Woodfree 54% 55% -2pp 39% 51% -12pp

Specialties 34% 32% +2pp 54% 42% +12pp

Purchased products 13% 13% -0pp 6% 7% -1pp

100% 100% 100% 100%

Net Sales of Paper EBITDA

2018 EBITDA

CWFSpec.

2017 EBITDA

Coated Woodfree

51%Specialties

42%

Purchased products

7%Coated

Woodfree

39%

Specialties 54%

Purchased products

6%


5.2. Information about geographical areas The following tables present Net Sales of Paper to third parties and Non-current assets of the Group’s products and services for the years ended 31 December 2017 and 2018:

Property, plant and equipment

6. Personnel The following schedule presents the number of employees at year-end, computed on a full-time equivalent basis. It includes permanent and temporary employees.

Geographical

location of customers 31 Dec 31 Dec

(in EUR M) 2018 2017

Europe 1,128 1,114

Americas 173 154

Rest of world 89 97

Total 1,390 1,364

Net sales of paper Geographical

location of assets 31 Dec 31 Dec

(in EUR M) 2018 2017

Luxembourg 0 0

Italy 78 84

France 41 48

Spain 366 342

Other 0 0

Total 485 474

Non-current assets

DEC DEC

Companies Reference 2018 2017

Lecta SA 0 0

Sub Lecta SA 0 0

Cartiere del Garda SpA 491 493

Alto Garda Power SrL 0 0

Polyedra SpA 173 180

Plot Service SrL a) 7 8

Condat Holding SAS 2 2

Condat SAS 482 495

Torraspapel Malmenayde Sàrl 96 113

Torraspapel SA 1,747 1,770

Torraspapel Distribución SA b) 127 126

Cogeneración Motril SA 0 0

IDAE Sant Joan AIE 0 0

Lecta Benelux SA 9 9

Lecta Deutschland GmbH 17 17

Lecta Maroc Sàrl 2 2

Lecta México S. de R.L. de C.V. 1 1

Torraspapel Servicios México S. de R.L. de C.V. 2 2

Lecta North America Inc 14 14

Torraspapel Portugal Unipessoal Lda 20 20

Lecta Paper UK Ltd 15 15

Total 3,205 3,266

a) On 9 May 2017 Plot Service SrL was acquired by Polyedra SpA (see Note 2.2).

b) Transfer on 19 December 2017 of the distribution business of Torraspapel SA to Torraspapel Distribución

SA (formerly Dispap SA). On 1 January 2016, Dispap SA a holding company having no operating activity

was included in the consolidation perimeter (See Note 2.2).


7. Research and Development costs

All these costs were expensed as incurred, in compliance with the accounting policy (see Note 1.15).

8. Revenue

9. Depreciation

10. Amortization

They income (expense) mainly consisted in:

• The rights to connect to the electricity network of the Spanish cogeneration plants were amortized straight line over a period of 10 years, with an impact of EUR (169) K in 2018 and EUR (187) K in 2017.

• The amortization of the Cogeneración Motril’s right to install its equipment on Torraspapel’s land was eliminated with an impact of EUR 696 K in 2018.

(in EUR K) 2018 2017

Costs 4,090 4,859

(in EUR K) 2018 2017

Net Sales of Paper 1,390,407 1,364,316

Sales of energy 95,974 94,330

Revenue 1,486,380 1,458,646

(in metric tonnes) 2018 2017

Volume sold of paper 1,426,907 1,533,099

(in MWh) 2018 2017

Volume sold of energy 1,100,794 1,145,201

(in EUR K) 2018 2017

Depreciation of Property, plant and equipment (53,926) (55,813)

Amortization of Grants 2,245 2,543

Income / (Expense) (51,681) (53,269)

(in EUR K) 2018 2017

Amortization of Other intangible assets 523 (246)

Income / (Expense) 523 (246)


11. Non-recurring items

Property, plant and equipment

2018 2017

The profit of EUR 112 K mainly consisted in a pre-tax capital gain of EUR 120 K on the sale of three properties in Bilbao by Torraspapel SA (see Note 16).

The profit of EUR 5,147 K consisted in a pre-tax capital gain on the disposal of a plot of land in Sarrià de Ter, a plant permanently closed in October 2014 (see Note 26).

Unlisted securities

2018 2017

There was a pre-tax capital gain of EUR 393 K on the disposal of the participation in Liaison Technologies Inc (see Notes 2.3 and 19).

Nothing to be reported.

Ineffective portion in the variation of Rate hedging derivatives

This line was the consequence of the introduction of IAS 32 & 39 (see Note 1.36).

Organization efficiency program (see Note 3.3)

The Organization efficiency program is a body of several plans, aimed at improving the group’s competitiveness. The charges of the year were as follows:

• In 2018: EUR (6,269) K cost included EUR (2,169) K of indemnities to redundant employees, EUR (1,478) K of loss on the disposal of Condat line 6 tangible assets and spare parts, and the balance of EUR (2,622] K consisting of projects cost aiming at improving the efficiency of the Group and simplifying its organization.

• In 2017: EUR (3,802) K cost more than offset by EUR 5,834 K release of an unused provision in relation with Torraspapel SA (it didn’t fulfill the requirements for the special contribution to be made to the social security following the 2014 social plan).

Other non-recurring items

2018 2017


In 2017, they mainly consisted in a project to offer newly issued ordinary shares in a private placement to institutional investors (see Note 4.1) for a cost of EUR 6.0 M.

(in EUR K)

Profit (Loss) on: 2018 2017

Property, plant and equipment 112 5.147

Unlisted securities 393 0

Ineffective portion in the variation of cash flow hedging derivatives 438 (627)

Organization efficiency program (6.269) 2.032

Other non-recurring items (41) (6.086)

Income / (Expense) (5.367) 466


12. Financial income (expense)

The lines "Amortization of Issue costs on borrowings” is a consequence of the application of the effective interest rate method (see Note 1.27). The line “Issue costs expensed as incurred” is a consequence of the refinancing process detailed in the Note 4.1.

13. Income tax in the Income statement

13.1. Overview

Deferred tax

2018 2017

The deferred tax profit of EUR 7,298 K was the result of:

• EUR 6,067 K of net deferred tax profit on tax losses to be used against future taxable profits less those used against 2018 taxable profits;

• EUR 1,231 K of deferred tax profit on temporary differences.

The deferred tax charge of EUR (4,866) K was the result of:

• EUR (4,462) K of net deferred tax charge on tax losses used against 2017 taxable profits;

• EUR (404) K of deferred tax charge on temporary differences.

(in EUR K) 2018 2017

Interest on Floating and Fixed Rate Notes (38,916) (38,917)

Amortization of issue costs on borrowings (2,014) (2,009)

S/T Floating and Fixed Rate Notes (40,930) (40,926)

Lease obligations (2) (10)

Interest on other long-term borrowings (2,039) (2,944)

Interest on rate hedging derivatives 0 (379)

Amortization of issue costs on borrowings 0 0

S/T Other long-term borrowings (2,039) (3,323)

Trade receivables: early payment discounts (14,632) (13,939)

Trade receivables: non-recourse assignment cost (1,331) (1,211)

Trade payables: discounts on anticipated payments 276 122

Finance cost in the provisions on employees benefits (295) (265)

Issue costs expensed as incurred (80) (309)

Other financial incomes 922 739

Other financial expenses (3,680) (2,760)

Income / (Expense) (61,791) (61,882)

(in EUR K) 2018 2017

Current tax (7,735) (7,894)

Deferred tax 7,298 (4,866)

Income / (Expense) (437) (12,760)

January to December


13.2. Effective income tax rate

2018 2017

(1) Impact of local tax rates:

• The local tax rates in the current year were generally lower than the Luxembourg actual nominal tax rate of 26.01%. Applied to the sum of locally computed profit (loss) before tax, negative in 2018, the difference in tax rates generated an impact of EUR 557 K;

(2) Adjustments on usable tax losses:

• Some deferred tax assets on tax losses were recognized for a total of EUR 3,254 K (see Note 13.1);

(3) Permanent differences on tax bases:

• Non-deductible depreciation generated an impact of EUR 2,360 K;

• Thin capitalization rules on Financial expense generated an impact of EUR 15,945 K;

• Other definitively non-taxable profits (intercompany dividends) or non-deductible expenses resulted in an impact of EUR (24,792) K;

(4) Other adjustments included:

• The IRAP (“Imposta Regionale sulle Attivita Produttive”) and the CVAE (“Cotisation sur la Valeur Ajoutée des Entreprises”) were computed on a larger base than the taxable earnings in Italy and France (see Note 32.3);

• Temporary differences.

(1) Impact of local tax rates:

• The local tax rates in the current year were generally lower than the Luxembourg actual nominal tax rate of 27.08%. Applied to the sum of locally computed profit (loss) before tax, positive in 2017, the difference in tax rates generated an impact of EUR (92) K;

(2) Adjustments on usable tax losses:

• Some deferred tax assets on tax losses were derecognized for a total of EUR (5,427) K (see Note 13.1);

(3) Permanent differences on tax bases:

• Non-deductible depreciation generated an impact of EUR (1,669) K;

• Thin capitalization rules on Financial expense generated an impact of EUR (7,675) K;

• Other definitively non-taxable profits (intercompany dividends) or non-deductible expenses resulted in an impact of EUR 2,025 K;

(4) Other adjustments included:

• The IRAP (“Imposta Regionale sulle Attivita Produttive”) and the CVAE (“Cotisation sur la Valeur Ajoutée des Entreprises”) were computed on a larger base than the taxable earnings in Italy and France (see Note 32.3);

• Temporary differences.

(in EUR K) 2018 2017

Profit (loss) before tax (1,998) 4,695

Nominal tax rate in Luxembourg 26.01% 27.08%

Tax at nominal tax rate 520 (1,271)

Impact of local tax rates (1): 557 (92)

In the current year 557 (874)

In the forthcoming years 0 782

Adjustments on usable tax losses (2): 3,297 (5,377)

Recognition (derecognition) of tax losses 3,254 (5,427)

Other adjustments 42 50

Permanent differences on tax bases (3) (4,943) (7,320)

Other adjustments (4) 132 1,301

P&L income tax (437) (12,760)

Effective tax rate (21.9)% 271.8 %


14. Earnings per share

“Basic earnings per share” were computed on the basis of the weighted average number of shares issued after deduction of the weighted average number of shares owned by Lecta Group consolidated companies (none for these two years). “Diluted earnings per share” took into account share equivalents having a dilutive effect after deduction of the weighted average number of share equivalents owned by Lecta Group consolidated companies. The dilutive effect of warrants was calculated using the notional investment method for which the Net earnings were adjusted to include a notional after tax interest income on proceeds coming from the sale of warrants.

Nota IAS 33 paragraph 43 requires that the diluted earnings per share does not assume conversion, exercise or other issue of potential ordinary shares that would have an anti-dilutive effect on earnings per share.

15. Dividends paid and proposed No dividend was paid nor proposed.

(in EUR K) 2018 2017

Profit (loss) after tax attributable to the

equity holders of the parent (in EUR K)

Income statement (3,862) (12,212)

Pro-forma interest on warrants (0) (0)

Total diluted (3,862) (12,212)

Weighted number of shares

Basic shares 560,366 560,366

Warrants 5,496 5,985

Total 565,862 566,351

Earnings per share (in EUR)

Basic (6.9) (21.8)

Diluted (6.9) (21.8)


16. Property, plant and equipment and Investment properties

16.1. Property, plant and equipment

The variation of Opening balance when applying the year-end exchange rate is isolated in “Exchange adjustments”

2017

The reclassification of EUR (55) K was related to a transfer to “Other Intangible assets” (See Note 18).

Additions

(in EUR K)

Land &

Building

Plant &

machinery

Motor

vehicles

Fixtures

& fittings

Work in

progress

Motor

vehicles

Fixtures

& fittings TOTAL

At 1 January 2017

Cost 240,880 1,315,101 7,571 99,715 22,217 3,408 272 1,689,163

Depreciation & Impairment (114,474) (1,016,773) (7,036) (81,287) 0 (2,059) (272) (1,221,902)

Net carrying amount 126,405 298,327 536 18,428 22,217 1,349 0 467,262

Additions 838 11,275 15 4,745 40,758 82 0 57,712

Depreciation charge (5,545) (46,226) (207) (2,931) 0 (456) 0 (55,813)

Impairment losses charged 0 (5) 0 0 0 0 0 (5)

Disposals (63) (2) 0 (0) 0 (5) 0 (70)

Reclassification in / (out) (2,839) 2,313 247 3,126 (3,013) 1 0 (55)

Exchange adjustments 0 0 0 (1) 0 0 0 (1)

At 31 December 2017

Cost 237,172 1,323,451 10,357 108,546 59,961 2,925 269 1,742,682


Net carrying amount 118,795 265,684 591 23,378 59,961 971 0 469,042

Additions 350 21,788 8 7,962 28,405 296 0 58,807

Depreciation charge (4,122) (44,322) (133) (4,824) 0 (341) 0 (53,926)

Impairment losses charged 0 0 0 0 0 0 0 0

Disposals (7) (30) (10) (25) 0 0 0 (72)

Reclassification in / (out) 1,933 51,532 (51) 2,016 (55,819) (133) 0 0

Exchange adjustments 0 0 0 0 (0) 0 0 0

At 31 December 2018

Cost 245,022 1,351,815 9,081 95,721 32,547 2,454 263 1,736,903


Net carrying amount 116,949 294,652 404 28,507 32,547 793 0 473,852

Purchased Leased

(in EUR K) 2018 2017

Major paper machine rebuilds 9,482 19,529 Cost reduction and productivity improvement 20,523 4,624

Maintenance 9,100 16,084

Information technology 10,136 5,774

Environment and safety 9,567 11,702

Total Capex = Additions 58,807 57,712


2018 2017

Major paper machine rebuilds Capex was allocated as follows:

• EUR 9.5 M in Spain, of which EUR 9.3 M for the new Leitza Thermal paper kitchen;

Cost reduction and productivity improvement Capex were allocated as follows:

• EUR 0.7 M in Italy, of which EUR 0.6 M for a new digital sheeter;

• EUR 19.8 M in Spain, of which EUR 13.1 M for the Almazán Self-adhesive hot-melt phase 1, EUR 1.3 M for the modification of the Zaragoza paper machine n°4, and EUR 5.9 M for improvements in other machines involved in the production of paper;

Maintenance Capex was allocated as follows:

• EUR 1.8 M in Italy, of which EUR 0.4 M for the Finishing department (rolls), EUR 0.2 M for the overhaul of the cogeneration,

• EUR 1.2 M in France for several maintenance capex in production lines 4 and 8;

• EUR 6.1 M in Spain, of which EUR 1.2 M for the overhaul of the cogeneration plants;

Information Technology Capex amounted to EUR 10.1 M. They included EUR 8.3 M for ERP implementation actions and EUR 0.4 M for the renovation of the central computer; Environment and safety Capex was allocated as follows:

• EUR 0.3 M in Italy;

• EUR 0.4 M in France;

• EUR 8.8 M in Spain, of which EUR 7.1 M for the cogeneration turbines.

Major paper machine rebuilds Capex was allocated as follows:

• EUR 19.5 M in Spain, of which EUR 18.5 M for the new Leitza Thermal paper kitchen;

Cost reduction and productivity improvement Capex were allocated as follows:

• EUR 0.4 M in France for improvements of production lines 4 and 8;

• EUR 4.2 M in Spain, of which EUR 1.4 M for a new digital sheeter, EUR 0.6 M for winder machines and EUR 2.2 M for improvements in other machines involved in the production of paper;

Maintenance Capex was allocated as follows:

• EUR 3.6 M in Italy, of which EUR 0.3 M for the overhaul of the cogeneration, EUR 0.3 M for the air filtration in the gas turbine, and EUR 0.2 M for an additional auxiliary boiler;

• EUR 1.9 M in France for several maintenance capex in production lines 4 and 8;

• EUR 10.6 M in Spain, of which EUR 1.2 M for the overhaul of the cogeneration plants;

Information Technology Capex amounted to EUR 5.8 M. They included EUR 4.4 M for ERP implementation actions and EUR 0.4 M for the renovation of the central computer;

Environment and safety Capex was allocated as follows:

• EUR 0.6 M in Italy;

• EUR 0.2 M in France;

• EUR 10.9 M in Spain, of which EUR 8.7 M for the cogeneration turbines.


16.2. Investment properties

As at 31 December 2018, the detail of Purchased Investment properties was as follows:

2018 2017

• Nothing to be reported.

• Nothing to be reported.

Purchased Leased

(in EUR K)

Investment

properties

Investment

properties TOTAL

At 1 January 2017

Cost 1,363 0 1,363

Depreciation & Impairment 0 0 0

Net carrying amount 1,363 0 1,363

Disposals 0 0 0

Reclassification in / (out) 0 0 0

At 31 December 2017

Cost 1,363 0 1,363



Disposals 0 0 0

Reclassification in / (out) 0 0 0

At 31 December 2018

Cost 1,363 0 1,363



Depreciation Net carrying Fair(in EUR K) Cost & Impairment amount valuePlot of land in Amorebieta/Carmen 540 0 540 1,254 Plot of land in Sarrià del Ter 823 0 823 823

Total 1,363 0 1,363 2,077

At 31 December 2018


17. Goodwill

Impairment test of Goodwill: In consideration of the integrated organization of Lecta focused on production and sale of paper only, the volume of intragroup transactions, the interchangeability of products between mills, Lecta considers one cash-generating unit. Consequently, goodwill was tested for impairment at Group level only. This is consistent with the Note 5 prepared in accordance with IFRS 8 “Operating Segments”. The recoverable amount of this cash-generating unit has been determined based on value-in-use calculation (see Note 1.21). This was produced based upon 2019 to 2022 cash-flow projections part of Lecta financial plan, as approved by Lecta Group Management. As mentioned in Note 1.01, Lecta Group Management made assumptions for the years to come. Conservative assumptions on the annual growth rate were applied to the cash flow projections beyond 2022. The WACC rate applied to cash flow projections was 9.5% (against 9.8% in 2017). On 31 December 2018, the impairment test was successfully passed and no impairment was recognized. A sensitivity analysis showed that:

• An increase of 100 bps of the WACC rate applied to cash flow projections, from 9.5% to 10.5%, everything else being equal, has an unfavorable impact of EUR 102 M. This WACC increase would not result in impairment of the Goodwill.

• A reduction of 10% in EBITDA applied to the period 2019 to 2022 and beyond, everything else being equal, has an unfavorable impact of EUR 79 M. This EBITDA reduction would not result in impairment of the Goodwill.

(in EUR K)

At 1 January 2017

Gross amount 190,141

Impairment (65,179)

Reduction (6,710)

Net carrying amount 118,252

At 31 December 2017


Impairment (65,179)

Reduction (6,710)


At 31 December 2018


Impairment (65,179)

Reduction (6,710)



18. Other intangible assets

The CO2 emission rights ("ER") reported in Other intangible assets only consist in purchased CER (Certified Emission Reduction) as the EUA (EU Allowance) are granted for free (see Note 1.16). In 2017, the variation of ER was as follows:

As at 31 December 2017, the Net carrying amount of EUR 3,282 K consisted of 318,114 tonnes of EUA, i.e. 311,000 tonnes purchased in 2017 plus 7,114 tonnes excess coming from 2016. In 2018, the variation of ER was as follows:

As at 31 December 2018, the Net carrying amount of EUR 5,735 K consisted of 347,980 tonnes of EUA, i.e. 325,000 tonnes purchased in 2018 plus 22,980 tonnes excess coming from 2017. The associated liability is reported in Provision (see Note 31). The reclassification of EUR (2,432) K in 2017 and EUR (3,212) K in 2018 in “CO2 emissions rights” is the counterpart of the reclassification reported in Provision (see Note 31). It consists in the surrender of non-granted ER against the extinguishment of the deficit of 2016 and 2017 respectively. The reclassification of EUR 55 K in 2017 in “Other” was related to a transfer from “Property, plant and equipment” (see Note 16.1).

(in EUR K) CO2 Other TOTAL

At 1 January 2017

Gross amount 2,424 8,188 10,612

Amortization & Impairment (8,053) (8,053)


Additions 2,011 0 2,011

Amortization charge (246) (246)

Var.of fair value through Income statement 1,280 1,280

Reclassification in / (out) (2,432) 55 (2,377)

At 31 December 2017

Gross amount 3,282 9,110 12,392 Amortization & Impairment (9,165) (9,165)

Net carrying amount 3,282 (56) 3,227

Additions 7,833 0 7,833

Amortization charge 523 523

Var.of fair value through Income statement (2,168) 0 (2,168)

Reclassification in / (out) (3,212) (0) (3,212)

At 31 December 2018

Gross amount 5,735 9,109 14,845

Amortization & Impairment (8,642) (8,642)


(in tonnes)

Emissions Grants Excess/(Deficit)

Estimated Net

position as at

Complementary

Excess/(Deficit) Purchases

Net position as

at

in 2017 in 2017 in 2017 31 Dec 2016 in 2016 in 2017 31 Dec 2017

(832,458) 537,324 (295,134) 6,489 625 311,000 22,980

(in tonnes)Estimated

Emissions Grants

Estimated

Excess/(Deficit)

Estimated Net

position as at

Complementary

Excess/(Deficit) Purchases

Estimated Net

position as at

in 2018 in 2018 in 2018 31 Dec 2017 in 2017 in 2018 31 Dec 2018

(809,552) 462,738 (346,814) 22,980 (0) 325,000 1,166


19. Unlisted securities

2018 2017

The Disposal of EUR (64) K corresponds to the net book value of the participation in Liaison Technologies Inc sold in December 2018 (see Notes 2.3 and 11).


At 31 December 2018, the detail of the unlisted securities was as follows:

(in EUR K)

At 1 January 2017

Fair value 140

Additions 0

In(de)creases of fair value through Equity 0

Reclassification in / (out) 0

Merger 0

At 31 December 2017

Fair value 140

Additions 1

In(de)creases of fair value through Equity 0

Impairment profit (charge) 0

Disposals (64)


At 31 December 2018

Fair value 77

Companies Control

Fair

value Revenue

Profit (loss)

after tax Equity

Borrowings

(Cash)

Closing date

of latest

available

accounts

Catalana d'Iniciatives CR SA (in liquidation) 0.39% 0 0 -0 -13 12 31.12.2017

Condat Energie Biomasse SAS 100% 0 0 (10) (10) 1 31.12.2017

Consorzio Nazionale Imballaggi Scarl 0.0075% 0 27,094 2,003 24,252 (27,495) 31.12.2017

Gas Intensive Scarl 1% 2 151,100 (2,438) 2,057 (3,041) 31.12.2017

Promotora del Ulla SA 45.2% 73 0 0 148 (64) 31.12.2017

SREP SA 0.41% 2 690,542 0 500 (148,343) 31.12.2017

SVL Pilote SAS 0.0% 0 6,817 136 740 (141) 31.12.2017

SVS SAS 0.0% 0 586 6 84 (165) 31.12.2017

SVT SAS 0.0% 0 2,176 (26) 21 38 31.12.2017

77


20. Biological assets

Biological assets only consisted of standing timber.

(in EUR K)

At 1 January 2017

Fair value 282

Changes of fair value 2

Decrease due to harvest 0

At 31 December 2017

Fair value 284

Changes of fair value 0

Decrease due to harvest 0

At 31 December 2018

Fair value 284


21. Inventories

Wood is used for the production of pulp, which in turn is the main component in the production of paper. Base paper is employed for the production of Specialties. Other Raw materials mainly consist of coatings and chemicals used in the production process. Finished goods consist of paper produced and ready for sale, while Purchased products consist of paper purchased from third parties and ready for trading. Other inventories include spare parts for the maintenance of plant & machinery, felts and wires.

2018 2017

The positive impact in the line “Impairment” of EUR 683 K mainly consisted in the reversal of a depreciation of the Condat Line 6 stock of spare parts (EUR 702 K).

The positive impact in the line “Impairment” of EUR 1,135 K mainly consisted in the release of EUR 1,190 K provision for the Torraspapel mills inventory of spare parts.

(in EUR K)

Wood /

Pulp /

Base Paper

Other

Raw

materials

Work

In

Process

Finished

goods

Purchased

products

Other

inventories TOTAL

At 1 January 2017

Cost 43,001 5,291 18,903 79,908 27,005 35,347 209,455

Impairment 0 0 0 (1,547) (1,391) (9,623) (12,561)

Net carrying amount 43,001 5,291 18,903 78,361 25,614 25,724 196,895

Movements 1,311 462 3,534 115 577 (687) 5,312

Impairment 0 0 0 (733) 50 1,135 452

Exchange adjustments 0 0 0 0 (68) 0 (68)

At 31 December 2017

Cost 44,311 5,753 22,437 80,024 27,620 34,660 214,805

Impairment 0 0 0 (2,280) (1,338) (8,488) (12,106)


Movements 5,011 4,848 3,298 32,158 (5,164) (3,990) 36,160

Impairment 0 0 0 (515) (203) 683 (35)

Exchange adjustments 0 0 0 0 (16) 0 (16)

At 31 December 2018

Cost 49,322 10,601 25,735 111,829 22,793 30,670 250,949

Impairment 0 0 0 (2,795) (1,540) (7,805) (12,140)



22. Trade receivables

The Financial instruments on Trade receivables are detailed in Note 38. The positive impact in the line “Impairment” of EUR 804 K consisted in the reversal of a specific bad debt provision. The variation of Opening balance when applying the year-end exchange rate is isolated in “Exchange adjustments”.

(in EUR K)

At 1 January 2017

Cost 234,693

Impairment (16,531)


Non-current 0

Current 218,162

Movements 4,617

Impairment 372

Exchange adjustments (165)

At 31 December 2017

Cost 239,278

Impairment (16,162)


Non-current 0

Current 223,115

Movements (11,234)

Impairment 804


At 31 December 2018

Cost 228,001

Impairment (15,358)


Non-current 0

Current 212,643


23. Prepayments

This caption included prepayments of insurance premiums, maintenance expenses and rents. The variation of Opening balance when applying the year-end exchange rate is isolated in “Exchange adjustments”.

(in EUR K)

At 1 January 2017

Cost 1,342

Impairment 0


Non-current 0

Current 1,342

Movements (943)


At 31 December 2017

Cost 396

Impairment 0

Net carrying amount 396

Non-current 0

Current 396

Movements 269

Exchange adjustments 1

At 31 December 2018

Cost 666

Impairment 0


Non-current 0

Current 666


24. Other receivables

2018 2017

As at 31 December 2018, EUR 8,326 K of “Grants receivables” consisted of: - EUR 5,189 K of Green certificates granted for the years 2016 (EUR 687 K) and 2017 (EUR 4,502 K), - EUR 2,212 K of White certificates granted for the years 2017 (EUR (646) K) and 2018 (EUR 2,858 K), both in AGP (see Note 1.17), and - EUR 924 K in Torraspapel.

As at 31 December 2017, EUR 11,242 K of “Grants receivables” consisted of: - EUR 8,305 K of Green certificates granted for the years 2016 (EUR 3,803K) and 2017 (EUR 4,502 K), - EUR 2,937 K of White certificates granted for the year 2017 both in AGP (see Note 1.17).

Options on non-consolidated companies are detailed in Note 38.2. Their value was null as at 31 December 2018. Currency hedging is detailed in Note 38.4. Interest rate hedging is detailed in Note 38.5. Raw materials price hedging is detailed in Note 38.6. There was none as at 31 December 2018. The variation of Opening balance when applying the year-end exchange rate is isolated in “Exchange adjustments”

(in EUR K)

Deposits

and

guaranties

Grants

receivables

Capital

receivables

Currency

hedging

Interest

rate

hedging TOTAL

At 1 January 2017

Cost or fair value 1,549 6,726 0 233 38 8,546

Impairment 0 0 0 0 0 0

Net carrying amount 1,549 6,726 0 233 38 8,546

Non-current 1,544 0 0 0 1 1,545

Current 5 6,726 0 233 37 7,001

Movements 175 4,516 0 0 (31) 4,660

Var.of fair value through Income statement 0 0 (233) (0) (233)

Decreases of fair value through Equity 0 0 0 0 0

Exchange adjustments (2) 0 0 0 0 (2)

At 31 December 2017




Non-current 1,722 0 0 0 0 1,722

Current 5 11,242 0 0 7 11,254

Movements (250) (2,917) 457 0 (7) (2,716)

Var.of fair value through Income statement 0 0 0 0 0

Decreases of fair value through Equity 0 0 0 0 0

Exchange adjustments 0 0 0 0 0 0

At 31 December 2018




Non-current 1,472 0 0 0 0 1,472

Current 5 8,326 457 0 0 8,788


25. Cash & cash equivalents

Marketable securities are Government bonds, Treasury bills and similar short-term securities highly liquid that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. The variation of Opening balance when applying the year-end exchange rate is isolated in “Exchange adjustments”

(in EUR K)

At 1 January 2017 134,360

Cash in hand 31

Current accounts 131,929

Deposits 2,062

Certificates of deposits 0

Marketable securities 338

Movements 6,889


At 31 December 2017 141,062

Cash in hand 27


Deposits 65



Movements (33,853)

Exchange adjustments 18

At 31 December 2018 107,227

Cash in hand 20


Deposits 58




26. Held for sale property

2018 2017


In January 2017, a plot of land in Sarrià de Ter of EUR 692 K was sold (see Note 11).

(in EUR K)

At 1 January 2017

Cost 692

Depreciation & Impairment 0



Disposals (692)

At 31 December 2017

Cost 0




Disposals 0

At 31 December 2018

Cost 0




27. Equity

27.1. Paid-in capital and Share premium

All the shares have a par value of EUR 2.58. Each of the 19 classes of shares has its own rights to the appropriation of profit and in case of dissolution or liquidation of the company. Lecta SA was incorporated on 14 October 1999 with a share capital composed of 12,015 shares with a par value of EUR 2.58 representing EUR 31 K. On 13 December 1999, Lecta SA increased its share capital by the issuance of 416,296 new shares with a par value of EUR 2.58 representing EUR 1,074 K, of which EUR 85 K were not called for payment. The premium attached to each new share issued amounted to EUR 362.5448 totaling EUR 150,926 K. This share capital increase was paid in kind by the contribution of the entire share capital but one share of Sub Lecta 1 SA valued at EUR 151,915 K. On 13 December 1999, Lecta SA increased its share capital by the issuance of 112,685 new shares with a par value of EUR 2.58 representing EUR 291 K. The premium attached to each new share issued amounted to EUR 450.4794 totaling EUR 50,762 K. This share capital increase was paid in kind by the contribution of the entire share capital but one share of Sub Lecta 2 SA valued at EUR 51,053 K. On 31 December 1999, the subscribed Share capital was composed of 540,996 shares with par value of EUR 2.58 representing EUR 1,396 K, of which EUR 85 K were not called for payment. During the period 01 January 2000 to 31 December 2003, several share capital increases took place by the issuance of 23,316 new shares representing a total par value of EUR 60 K and a total premium of EUR 855 K. On 13 December 2002, all the 9,700 class K preferred shares were redeemed representing a total par value of EUR 25 K and a total premium of EUR 65,924 K. On 12 December 2004, EUR 85 K (consisting of 75% of 43,688 shares of class C) were called for payment. Therefore, all the shares were fully paid.

Paid-in capital New shares authorized Paid-in capital

Class Rights, preferences and restrictions Number EUR Number EUR

A1 ordinary 113,852 293,738.16

A2 preferred without voting right 113,858 293,753.64

B ordinary 22,460 57,946.80

C1A ordinary 15,752 40,640.16

C1B ordinary 16,323 42,113.34

C2A ordinary 2,682 6,919.56

C2B ordinary 2,765 7,133.70

C3A ordinary 5,500 14,190.00

C3B ordinary 5,670 14,628.60

D ordinary 1,453 3,748.74 1,184 3,054.72

E ordinary 468 1,207.44

G1 ordinary 12,296 31,723.68 4,312 11,124.96

G2 ordinary 11,020 28,431.60

I ordinary 750 1,935.00

J1 ordinary 100,000 258,000.00

J2 preferred without voting right 15,000 38,700.00

X1 preferred with voting right 90,361 233,131.38

X2 preferred without voting right 30,121 77,712.18

Y preferred without voting right 35 90.30

560,366 1,445,744.28 5,496 14,179.68

2018


On 28 October 2008, the share capital was increased by the issuance of 5,004 new shares of class C with a par value of EUR 2.58 representing EUR 13 K. On 18 December 2009, the share capital was increased by the issuance of 750 new shares of class I with a par value of EUR 2.58 representing EUR 2 K. On 31 December 2018, the subscribed Share capital was composed of 560,366 shares with a par value of EUR 2.58 representing EUR 1,446 K, all shares being fully paid. The Board of Directors is authorized, during a period of five years ending on 22 April 2023, to increase once or several times the subscribed Share capital within the limits of the authorized Share capital up to an amount of EUR 1,665 K, i.e. by the issuance of up to 85,082 new shares all with a par value of EUR 2.58, representing EUR 220 K. The Board of Directors is authorized, within the authorized Share capital, to issue and sell 90,399 warrants entitling the holders to subscribe for up to 90,399 new shares. At 31 December 2018, 90,378 warrants had been issued and sold, of which 69,878 had expired, 8,004 had been exercised, and 7,000 had been waived. The remaining 5,496 warrants had different rights of conversion, subject to conditions precedent, entitling holders to subscribe up to 5,496 shares. After the creation of the Lecta Group, certain employees bought shares and warrants at fair value price. The Lecta Group’s objectives when managing capital is to increase the unit value of the shares by increasing the fair value of the commercial and industrial subsidiaries.

27.2. Net incomes (expenses) recognized directly through Equity The origin of this reserve was as follows:

27.3. Foreign currency translation This unrealized loss of EUR (1,329) K as at 31 December 2018 was the consequence of the consolidation of subsidiaries for which the transactions, assets and liabilities are not recorded in euro (see Note 1.07):

• Lecta North America Inc (USD),

• Lecta Paper UK Ltd (GBP),

• Lecta Maroc Sàrl (MAD),

(in EUR K)

At 31

December

2018

At 31

December

2017

At 31

December

2016

Unlisted securities, adjustment at fair value

(see Note 19) (136) (136) (136)

Cash flow hedging of currencies, effective part of fair value

(see Note 38.4) 0 0 0

Cash flow hedging of interest rates, effective part of fair value

(see Note 38.5) 0 0 (311)

Cash flow hedging of raw materials prices, effective part of fair value

(see Note 38.6)

0 0 0

Actuarial gains (losses) on defined benefit plans

(see Notes 31 and 36.2) (10,184) (10,492) (12,194)

Deferred tax on the above items

(see Note 32.3) 2,641 2,731 3,854

First time adoption of IFRS 9 (see Note 1.38) (183) 0 0

Options on minorities

(see Note 38.1) 0 0 0

Total (7,861) (7,896) (8,787)

Group (7,861) (7,896) (8,742)

Non-Controlling interest 0 0 (45)


• Lecta México S. de R.L. de C.V. (MXN),

• Torraspapel Servicios México S. de R.L. de C.V. (MXN). The two Mexican subsidiaries were put into liquidation on 30 November 2018 (see Notes 2.3 and 3.4).

27.4. Accumulated net profit (losses) The breakdown of this reserve was as follows:

28. Interest-bearing borrowings

28.1. Overview

The borrowings were essentially denominated in Euro. In 2017 the Variation of percentage of consolidation is in relation with the acquisition of Plot Service SrL (Note 4.2). The variation of Opening balance when applying the year-end exchange rate is isolated in “Exchange adjustments”

28.2. Floating and Fixed Rate Notes

(in EUR K)

At 31

December

2018

At 31

December

2017

At 1

January

2017

Legal reserve of Lecta SA 145 145 145

Other reserves from Lecta SA (15,665) (20,199) (27,807)

Reserves Group generated by the consolidation process (17,642) (14,706) 5,114

Total (33,162) (34,760) (22,549)

(in EUR K)

Floating and

Fixed

Rate Notes

Lease

obligations Other TOTALAt 1 January 2017 600,527 1,212 30,087 631,826 Non-current 589,735 687 27,628 618,051 Current 10,792 525 2,459 13,775

Increase of principal 0 (271) 35,795 35,524

Capitalized issue costs 133 133 Repayment of principal 0 (119) (43,749) (43,868) Variation of interests (271) 0 (965) (1,235) Amortization of issue costs 1,954 55 2,009 Variation of percent of consolidation 0 0 39 39 Exchange adjustments 0 0 0 0

At 31 December 2017 602,343 822 21,262 624,428 Non-current 591,811 416 13,733 605,960 Current 10,533 406 7,529 18,468

Increase of principal 0 51 83,448 83,499

Capitalized issue costs 0 0 Repayment of principal 0 (351) (70,750) (71,101) Variation of interests (0) 0 (306) (306) Amortization of issue costs 2,014 0 2,014 Variation of percent of consolidation 0 0 0 0 Exchange adjustments 0 0 0 0

At 31 December 2018 604,357 522 33,654 638,533 Non-current 593,824 251 12,870 606,945 Current 10,533 271 20,784 31,589


On 27 July 2016, Lecta Group refinanced its EUR 590 M 2012 notes through the issuance of EUR 600 M 2016 notes, leading to a net increase of principal of EUR 10 M. The capitalized costs associated to this 2016 issuance amounted to EUR (13.2) M. The extinguishment of 2012 notes led to the immediate amortization of the balance of capitalized costs associated to the 2012 issuance for an amount of EUR 8.4 M. The 2016 notes and the refinancing operations of 27 July 2016 are fully described in Note 3.1.

28.3. Lease obligations Reconciliation between lease obligation present value and future minimum leases payments is provided in Note 35.1.

28.4. Other borrowings At 31 December 2018, “Other” of EUR 33,654 K borrowings consisted of:

Borrowings in Torraspapel SA Borrowings in Alto Garda Power SrL Borrowings in Torraspapel SA granted in 2012 and 2013 by public institutions to encourage environmental friendly installations and innovation. Their duration is 10 years. Interest rate is between 3.95% and 4.925%.

On 1 March 2017, Alto Garda Power SrL refinanced its existing debt with a new borrowing having the following main features: - Amount EUR 7,500 K€ - Duration 6 years - Amortization in 12 installments, the first one on 15 September 2017 - Interest 6-month Euribor (with a floor at 0%) + 1.650% - Covenants: net equity of AGP has to be higher than two times outstanding debt at year-end; negative pledge in case of additional debt.

At 31 December 2018, the principal and accrued interests were EUR 3,410 K.


Multicurrency Revolving Facility agreement Borrowings in Polyedra SpA. Committed RCF line of EUR 65 M bearing an interest rate of 4% due 2022 (see Note 3.1).

(a) Since October 2017, EUR 2.0 M borrowing with 1-month Euribor + 1.7% interest. Equal quarterly installments of principal and interest to be paid until April 2019 (b) Since June 2018, EUR 4.0 M borrowing with 1-month Euribor +1.55% interest. Equal quarterly installments of principal and interest to be paid until June 2022.



6,754

8,820

3,4104,236

10,116

Borrowing in Alto Garda Power SrL

Borrowing in Cartiere del Garda SpA

Borrowings in Torraspapel SA

Borrowings in Polyedra SpA

Borrowing in IDAE Sant Joan

Borrowings with a rate of 0%

Multicurrency Revolving Facility agreement

Miscellaneous


Borrowings in Cartiere del Garda SpA Since 26 October 2017, EUR 5.0 M borrowing with 2.75% fixed interest. Equal monthly installments of principal and interest to be paid until 31 October 2020. Since 29 June 2018, EUR 3.0 M borrowing with 3-month Euribor + 2.35% interest. Equal quarterly installments of principal and interest to be paid until 29 June 2023. Debt on assigned receivables 3-month Euribor + 2.8% interest.

At 31 December 2018, the principal and accrued interests were EUR 5,936 K and the debt on assigned receivables was EUR 2,884 K.

29. Bank overdrafts

2018 2017

The variation of bank overdrafts included an increase of EUR 7,204 K in Polyedra SpA and a reclassification to borrowings of EUR (4,710) K in Cartiere del Garda SpA (see Note 28.4).

The variation of bank overdrafts included a reduction of EUR (8,312) K in Polyedra SpA and an increase of EUR 3,436 K in Cartiere del Garda SpA.

(in EUR K)

At 1 January 2017 19,562

Movements -4,876

At 31 December 2017 14,686

Movements 2,494

At 31 December 2018 17,180


30. Grants

2018 2017

The breakdown of EUR 10,919 K Grants net of amortization as at 31 December 2018 was as follows:

• EUR 8,841 K in Torraspapel Group;

• EUR 1,398 K in Alto Garda Power SrL;

• EUR 680 K in Condat SAS.

The breakdown of EUR 13,164 K Grants net of amortization as at 31 December 2017 was as follows:

• EUR 10,210 K in Torraspapel Group;

• EUR 2,238 K* in Alto Garda Power SrL;

• EUR 715 K in Condat SAS.

* In December 2012, Alto Garda Power SrL collected a grant of EUR 9,706 K. This grant had a subsequent condition that was met: Cartiere del Garda SpA has to keep the control of Alto Garda Power SrL until 31 December 2018. Other grants related to Property, plant and equipment or Borrowings with off-market interest rates may be subject to a unique subsequent condition: keep the granted investments running for a minimum period of five years.

(in EUR K)

At 1 January 2017


Non-current 12,168

Current 3,471

Movements 68

Amortization (income) (2,543)

At 31 December 2017


Non-current 10,620

Current 2,543

Movements 0

Amortization (income) (2,245)

At 31 December 2018


Non-current 8,674

Current 2,245


31. Provisions

Provision for “Other social commitments” was composed of (see Note 36):

“Organization efficiency program” is further explained in Note 3.3. "Other operating provisions” consisted of:

This Deficit of CO2 emission rights is partly offset by an associated asset (see Note 18). The reclassification of EUR (3,212) K in “Other” is the counterpart of the reclassification of “CO2 emission rights” reported in Other intangible assets (see Note 18). It consists in the surrender of non-granted ER against the extinguishment of the deficit of 2017.

(in EUR K)

Other

social

commitments

Organization

efficiency

program Other TOTAL

At 1 January 2017 27,733 5,834 7,102 40,669

Non-current 26,331 5,774 3,828 35,933

Current 1,401 60 3,274 4,736

Additional 121 610 7,653 8,384

Utilized (534) (60) (5,004) (5,598)

Unused reversed 0 (5,774) 0 (5,774)

In(de)creases of fair value through Equity (1,702) (1,702)

Reclassification in / (out) 0 0 (2,432) (2,432)

At 31 December 2017 25,663 610 7,319 33,592

Non-current 24,439 610 3,581 28,630

Current 1,224 0 3,738 4,961

Additional 132 0 9,804 9,936

Utilized (1,861) 279 (3,197) (4,779)

Unused reversed 0 0 (184) (184)

In(de)creases of fair value through Equity (307) (307)

Reclassification in / (out) 1 0 (3,212) (3,211)

At 31 December 2018 23,627 889 10,713 35,228

Non-current 21,354 469 4,465 26,288

Current 2,273 420 6,248 8,940

(in EUR K)

At 31 December

2018

At 31 December

2017

Cartiere del Garda SpA 4,855 5,597

Polyedra SpA 1,870 1,969

Plot Service SrL 52 43

Condat SAS 14,680 15,555

Condat Holding SAS 82 463

TPM SAS 1,524 1,532

Torraspapel SA 8 9

Lecta Deutschland GmbH 556 495

Total 23,627 25,663

(in EUR K)

At 31 December

2018

At 31 December

2017

Deficit of CO2 emission rights 5,863 3,209

Social security, redundancies, overtime 1,387 1,442

Litigations with suppliers, penalties 627 411

Tax control 550

Miscellaneous 2,286 2,256

Total 10,713 7,319


32. Income tax in the Statement of financial position

32.1. Overview

French Tax-pooling Group Spanish Tax-pooling Group Italian Tax-pooling Group Luxembourg Tax-pooling Group

As at 31 December 2018, following the acquisitions and mergers described in Note 2.2, the French tax-pooling group consisted in Condat SAS (formerly Condat Holding SAS), and Torraspapel Malmenayde SAS. The French tax-pooling group (minimum control of 95%) was created by Condat Holding SAS on 1 January 1999, with two subsidiaries, Condat SAS and Lecta Europe Sàrl. Malmenayde SAS joined this tax-pooling group as of 1 January 2008 and left it as at 1 January 2011. Torraspapel Malmenayde Sàrl and Nord Papier SA joined the tax-pooling group as of 1 January 2013.

As at 31 December 2018, following the acquisitions and mergers described in Note 2.2, the Spanish tax-pooling group consisted in Torraspapel SA, Torraspapel Distribución SA (formerly Dispap SA), and Cogeneración Motril SA. On 1 January 2001, Lecta HQ SA was the parent company of the Spanish tax-pooling group (under Spanish Law regulating the taxation of consolidated income of groups of companies, minimum control of 75%). Other members of the group were Torraspapel SA, Sarriopapel y Celulosa SA, Torraspapel Distribución SA (formerly Dispap SA), Cogeneración del Ter SL (since 1 January 2010), and Cogeneración Motril SA (since 1 January 2012).

As at 31 December 2018, following the acquisitions and mergers described in Note 2.2, the Italian tax-pooling group consisted in Cartiere del Garda SpA, Alto Garda Power SrL, and Polyedra SpA. The Italian tax-pooling group (minimum control of 50.1%), was created by Cartiere del Garda SpA on 1 January 2007 with Alto Garda Power SrL. Since 1 July 2012, there was a second Italian tax-pooling group consisting in Polyedra SpA and Carthago SrL. Polyedra SpA joined the Italian tax-pooling group led by Cartiere del Garda SpA as of 1 January 2013.

As at 31 December 2018, the Luxembourg tax-pooling group consisted of Lecta SA and Sub Lecta SA. The Luxembourg tax-pooling group (minimum control of 95%) was created retroactively as of 1 Jan 2016 and for the 5-year period 2016-2020.

(in EUR K)

Income

tax

receivable

Income

tax

payable

Deferred

tax

assets

Deferred

tax

liablities

TOTAL

assets

(liabilities)

At 1 January 2017 7,403 1,982 54,793 13,080 47,134

Non-current 0 0 54,793 13,080 41,713

Current 7,403 1,982 5,422

Variations through income statement 0 7,894 (6,085) (1,219) (12,760)

Increases of fair value through Equity 6 (0) 6

Decreases of fair value through Equity (1,130) (0) (1,130)

Payments (661) (6,656) 5,995

Exchange adjustments (0) (3) 0 0 2

At 31 December 2017 6,744 3,219 47,585 11,861 39,249

Non-current 0 (0) 47,585 11,861 35,724

Current 6,744 3,219 3,525

Variations through income statement 0 7,735 6,982 (316) (437)

Increases of fair value through Equity 14 0 14

Decreases of fair value through Equity (63) 0 (63)

Payments 392 (9,811) 10,203

Variation of percent of consolidation 0 0 0 0 0

Exchange adjustments 0 (0) 0 0 0

At 31 December 2018 7,125 1,235 54,477 11,545 48,822

Non-current 0 (0) 54,477 11,545 42,932

Current 7,125 1,235 5,890


32.2. Income tax receivable and payable EUR 7,125 K of income tax receivable included EUR 1,648 K in Torraspapel tax group, EUR 1,110 K in Cartiere del Garda tax group, and EUR 4,175 K in Condat tax group because of CICE. EUR 1,235 k of income tax payable consisted in tax credits or income tax advance payments. Condat SAS can use CICE tax credits against income tax payment or collect them after a cooling off period of three years. Cartiere del Garda SpA can recover IRES advance payments against future IRES payments, while each company of the tax group can recover IRAP advance payments against future IRAP or VAT payments. The variation of Opening balance when applying the year-end exchange rate is isolated in “Exchange adjustments”

32.3. Deferred income tax The following schedule details the deferred income tax assets and liabilities by nature.

The variation of Deferred tax in the income statements is a profit of EUR 7,298 K in 2018 (see Note 13.1)

31 Dec 31 Dec

(in EUR K) 2018 2017 Income stat. Equity Income stat. Equity

Loss to be carried forward up to 5 years 0 0 0 0 0 0



Loss to be carried forward indefinitely 32,635 26,568 6,067 0 (4,462) 0

S/T Tax losses 32,635 26,568 6,067 0 (4,462) 0

Provision for early retirement scheme 43 45 (2) 0 (5) 0

Charges for other social commitments 4,442 4,499 (57) 0 (132) 0

Non-deductible provisions 3,880 4,818 (937) 0 (302) 0

Deductible legal revaluation in Italy 0 0 0 0 0 0

Net expenses recognized directly through Equity 2,641 2,731 0 (89) 0 (1,124)

Other deferred tax assets 10,836 8,924 1,912 0 (1,184) 0

S/T Temporary differences 21,842 21,017 915 (89) (1,623) (1,124)

Deferred tax assets 54,477 47,585 6,982 (89) (6,084) (1,124)

Accelerated tax depreciation 3,475 3,779 304 0 1,498 0

Tangible assets revaluation at acquisition 652 690 38 0 160 0

Deductible legal revaluation in Italy 3,807 2,840 (967) 0 (601) 0

Net incomes recognized directly through Equity (0) (0) 0 0 0

Other deferred tax liabilities 3,611 4,552 941 0 162 0

S/T Temporary differences 11,545 11,861 316 0 1,219 0

Deferred tax liabilities 11,545 11,861 316 0 1,219 0

Net value 42,932 35,724 7,298 (89) (4,865) (1,124)

Variations 2018 through Variations 2017 through


French Tax-pooling Group Spanish Tax-pooling Group

Italian Tax-pooling Group Luxembourg Tax-pooling Group

There is no time limit to use the tax losses in France. The tax losses can be used to neutralize up to 50% of taxable income exceeding EUR 1 M in France. Condat tax group reported taxable losses in 2017 and 2018. As at 31 December 2018, the deferred tax asset on losses to be carried forward was EUR 5,327 K. Management, in view of the plan considered that these tax losses will be used against taxable profits within foreseeable future. In France, the 2010 finance law set up the CVAE (“Cotisation sur la Valeur Ajoutée des Entreprises”) as part of the new CET (“Contribution Economique Territoriale”). Lecta Group decided to report it as Income tax in line with the accounting treatment followed for similar taxes in other countries. Lecta Group has booked a net deferred tax liability of EUR 195 K for the temporary differences on CVAE as at 31 December 2018

There is no time limit to use the tax losses in Spain (it was limited to 18 years until 2014). The tax losses can be used to neutralize up to 25% of taxable income exceeding EUR 1 M in Spain. Torraspapel tax group reported taxable profits in 2017 and 2018. As at 31 December 2018, the deferred tax asset on losses to be carried forward was EUR 21,721 K. Management, in view of the plan considered that the tax losses will be used against taxable profits within foreseeable future

There is no time limit to use the tax losses in Italy (it was limited to 5 years until 2010). The tax losses can be used to neutralize up to 80% of taxable income. Cartiere del Garda tax group reported taxable profits in 2017 and 2018. As at 31 December 2018, there was no deferred tax asset on losses to be carried forward.

There is no time limit to use the tax losses in Luxembourg. The tax losses can be used to neutralize 100% of taxable income in Luxembourg Lecta tax group reported taxable profits in 2017 and 2018. As at 31 December 2017, the deferred tax asset on losses to be carried forward was EUR 5,587 K. Management, in view of the plan considered that these tax losses will be used against taxable profits within foreseeable future

The Income tax rates used for deferred tax purposes were as follows:

Country as at 31 Dec 2018 as at 31 Dec 2017

Belgium 29.58% 33.99%

France (a) 25.83% to 30.42% 25.83% to 30.42%

Germany 32.98% 32.98%

Italy (b) 24% to 27.9% 24% to 27.9%

Luxembourg 26.01% 27.08%

Mexico 30% 30%

Morocco 31% 31%

Portugal 25% 21%

Spain 25% 25%

UK 19% 19%

USA (1) 21%-34% 21%-34%

(1) In the basis of the average earnings of Lecta NA the tax is calculated in the basis of scale that goes from 21% to 34%


Nota (a) Corporate tax in France applies to Condat SAS (“Condat”) and Torraspapel Malmenayde SAS (“TPM”). It consists

in IS and CVAE. IS rate varied from 28% to 28.92% in 2018, and from 25% to 25.83% as of 2022. CVAE rate is 1.5%.. Only IS tax losses are recoverable. As at 31 December 2018, deferred tax on losses to be carried forward were computed with IS rate of 25.83%. As at 31 December 2018, deferred tax on temporary differences were computed with the rate of 30.42% (= 28.92% IS + 1.5% CVAE) for Condat, and 29.5% (= 28% IS + 1.5% CVAE) for TPM.

(b) Corporate tax in Italy applies to Cartiere del Garda SpA ("CdG"), Alto Garda Power SrL (“AGP”) and Polyedra SpA. It consists in IRES and IRAP. IRES rate was 24% in 2018and remains 24% in 2019. IRAP rates vary in function of the location and activity: for CdG, AGP and Polyedra, 2018 IRAP rates were 2.68%, 2.68% and 3.9% (average) respectively. Only IRES tax losses are recoverable. As at 31 December 2018, deferred tax on losses to be carried forward was computed with IRES rate of 24% (no application in 2018). As at 31 December 2018, deferred tax on temporary differences was computed with the rate of 26.68% (= 24% IRES + 2.68% IRAP) for CdG and AGP, and 27.9% (= 24% IRES + 3.9% IRAP) for Polyedra.

32.4. Tax-deductible carry forward amounts without deferred tax asset The Group did not record deferred tax assets on unused tax losses and unused tax credits under conservative valuation criteria. These unused tax losses and unused tax credits not considered for capitalization were in Condat Tax Group and amounted to EUR 86.5 M. If capitalized, they could be used without any time limitation and would lead to a total income tax saving of up to EUR 22.3 M in view of the above-mentioned income tax rates.


33. Trade payables

The Financial instruments on Trade payables are detailed in Note 38. The variation of Opening balance when applying the year-end exchange rate is isolated in “Exchange adjustments”

(in EUR K)

At 1 January 2017


Non-current 0

Current 355,571

Movements 25,901


At 31 December 2017


Non-current 0

Current 381,632

Movements 16,473


At 31 December 2018


Non-current 0

Current 397,994


34. Other Liabilities

Options on Minorities are detailed in Note 38.1. There was none as at 31 December 2018. Options on non-consolidated companies are detailed in Note 38.2. Their value was null as at 31 December 2018. Currency hedging is detailed in Note 38.4. Its value was null as at 31 December 2018. Interest rate hedging is detailed in Note 38.5. There was none as at 31 December 2018. Raw materials price hedging is detailed in Note 38.6. There was none as at 31 December 2018. Miscellaneous other payables consisted in issue costs payables on 2016 notes (see Notes 3.1 and 28.2).

(in EUR K)

Capital

payables

Options on

Minorities

Options on

non-consol.

companies

Currency

hedging

Interest

rate

hedging

Raw matls

price

hedging

Misc. other

payables TOTAL

At 1 January 2017

Net carrying amount 14,190 0 0 0 380 0 852 15,422

Non-current 0 0 0 0 166 0 0 166

Current 14,190 0 0 0 214 0 852 15,256

Movements 18,961 0 0 0 (23) 0 (138) 18,799

Var.of fair value through Income statement 0 0 0 438 (45) 0 0 393

Increases of fair value through Equity 0 0 0 0 2 0 0 2

Decreases of fair value through Equity 0 0 0 0 (313) 0 0 (313)

At 31 December 2017

Net carrying amount 33,151 0 0 438 (0) 0 737 34,326

Non-current 0 0 0 0 0 0 0 0

Current 33,151 0 0 438 (0) 0 737 34,326

Movements (16,463) 0 0 0 0 0 (147) (16,610)

Var.of fair value through Income statement 0 0 0 (438) 0 0 0 (438)

Increases of fair value through Equity 0 0 0 0 0 0 0 0

Decreases of fair value through Equity 0 0 0 0 0 0 0 0

At 31 December 2018

Net carrying amount 16,688 0 0 0 0 0 590 17,278

Non-current 0 0 0 0 0 0 0 0

Current 16,688 0 0 0 0 0 590 17,278


35. Commitments and contingencies

35.1. Finance leases Net carrying amounts by class of assets at year-end are part of Property, plant and equipment (see Notes 1.12 and 16).

Finance leases in Lecta Group are hire-purchase contracts for buildings, personal computers, cars or forklifts.

• No subleasing is allowed.

• All these contracts are non-rescindable.

• No material issues relate to these contracts.

• There is no contingent rent.

35.2. Operating leases Operating leases are expensed in the line “Other operating costs except non-recurring items” of Income statement (see Note 1.12).

Operating leases in Lecta Group are commercial leases of office buildings, warehouses and small fittings (such as copy machines). It is not in the best interest of the Group to purchase these assets.

35.3. Capital commitments At 31 December 2018, Lecta Group had firm commitments due to purchase orders of Property, plant and equipment net of advances to suppliers of EUR 28 M. The breakdown of these commitments was:

• EUR 4.6 M in Italy, for Cartiere del Garda;

• EUR 1.1 M in France, of which EUR 0.5 M for Condat;

• EUR 22.3 M in Spain, of which EUR 4.5 M in Information technology, mainly for the new ERP (SAP project), EUR 3 M for the mill of Zaragoza, EUR 11 M for the plant of Almazán and EUR 2.1 M for the mill of Leitza.

At 31 December 2018 At 31 December 2017 At 31 December2016

(in EUR K)

Present

value

Interest

to be

paid

Future

minimum

payments

Present

value

Interest

to be

paid

Future

minimum

payments

later than five years 0 0 0 0 0 0

later than one year and not later than five years 251 20 271 416 33 450

not later than one year 271 5 277 406 19 425

Total 522 26 548 822 52 874

Future minimum payments

(in EUR K) 2018 2017

later than five years 6,021 2,379

later than one year and not later than five years 16,785 21,837

not later than one year 5,271 6,444

Total future minimum payments 28,076 30,659

Expense of the year 7,511 7,750


35.4. Other contracts 35.4.1. Condat SAS contract with Périgord Énergies SNC In order to realize savings on energy costs, Condat SAS entered into a contract to purchase steam from the cogeneration plant of Périgord Énergies SNC (see Note 38.2.2). For a period of twelve years ending on 30 March 2013, Condat SAS was committed to buy and use a minimum quantity of 224 GWh of steam throughout a 5-month Winter period (from November to March each year). A new contract was signed on 17 January 2014. It took effect retroactively from April 2013. Condat SAS has to communicate on a yearly basis the volume of gas to be purchased by Périgord Énergies SNC for the supply of steam needed by Condat's production of paper. To supply the steam, Périgord Énergies SNC operates the standard boilers of Condat SAS or its cogeneration. 80% of the profit made by Périgord Énergies SNC on the sale to the market of the electricity produced by the cogeneration (one of the two cogeneration-lines as from the 1 May 2014) is transferred to Condat SAS. If the actual volume of gas purchased is outside an agreed range, Condat SAS is committed to pay the penalties due to the gas supplier. Condat SAS is also committed to pay the fixed expenses of Périgord Énergies SNC to operate and maintain the standard boilers of Condat SAS, as well as the non-depreciated part of the capital expenditures agreed by the two parties. In 2018, Condat SAS paid a total of EUR 13.7 M to Périgord Énergies SNC for the supply of steam, the operating and maintenance expenses. This amount takes in consideration a gas reduction price during the year 2018 and several grants received in 2018 concerning the year 2017. 35.4.2. Alto Garda Power SrL contract with Alto Garda Servizi Teleriscaldamento SpA With effect from September 2008, Alto Garda Servizi Teleriscaldamento SpA, 20% shareholder of Alto Garda Power SrL, is committed to buy from the latter:

• A minimum quantity of 34,83 GWh of steam per year at an estimated price of 26.1 EUR/MWh; and

• A minimum quantity of 12 GWh of electricity per year at an estimated price of 83.9 EUR/MWh The estimated yearly revenue is EUR 1.9 M. 35.4.3. Lecta annual commitments Lecta negotiates annual commitments to purchase volumes of raw materials in order to benefit from favorable conditions. When there is a “take or pay” clause Lecta has the possibility to resell the non-consumed volumes at market price less a fee to the suppliers.

35.5. Guarantees issued 35.5.1. By Lecta Group Guarantees in favor of Lecta's RCF lenders and “2016 notes” holders. Lecta SA and certain of its subsidiaries guarantee the payment of amounts due under the RCF (multicurrency revolving facility agreement) and the “2016 notes”. Shares in the main subsidiaries of Lecta, Receivables of the main subsidiaries of Lecta, Credit rights deriving from certain bank accounts, and some intercompany loans have been pledged to secure the payment of amounts due under the RCF and the “2016 notes”.

Principal due as at

31 Dec 2018

(in EUR M)

RCF 10

Secured Floating Rate Notes 225

Secured Fixed Rate Notes 375


35.5.2. By Alto Garda Power SrL On 1 March 2017 with the new refinancing (Note 4.3) the assets of Alto Garda Power SrL pledged to guarantee its banks exposure up to EUR 95.0 M has been cancelled. 35.6. Lawsuits The Group is the subject of a number of lawsuits, which have arisen, in the normal course of business. While any litigation has an element of uncertainty, the management of the Group believes that the outcome of such lawsuits will not have a material adverse effect on its financial condition or operations. 35.7. Challenge of 2010-2015 Green certificates by GSE Alto Garda Power SrL, the Italian cogeneration plant of Lecta, was informed in a preliminary statement dated 14 July 2017 that the publicly owned company GSE SpA (Gestore dei Servizi Energetici) was challenging part of the Green certificates granted to it for the period 2010-2015. On 30 October 2017, GSE SpA claimed the reimbursement of EUR (5.2) M. In December 2017, Alto Garda Power SrL presented a claim against GSE petition in the administrative court of Rome. GSE SpA agreed with Alto Garda Power SrL to postpone the claimed reimbursement waiting for the decision of the court, and not to pay during this period a part of the green certificates granted for the years 2016-2017 and recognized in “Other receivables” (see Note 24). Alto Garda Power SrL is confident on the rightness of its position and reserves its rights to defend its own interests.

36. Employee benefits

36.1. Amounts recognized in Profit or Loss

36.2. Amounts recognized directly through Equity

(in EUR K) 2018 2017

Short-term employees benefits (182,853) (183,862)

Defined contributions post- (6,707) (7,891)

Defined benefit post-employment (202) (428)

Other long-term benefits 0 (69)

Termination benefits 0 0 Labor costs (189,763) (192,250)

Short-term employees benefits 0 0

Defined contributions post- (316) (337)

Defined benefit post-employment 21 0

Other long-term benefits 0 0

Termination benefits 0 0 Other operating costs except -296 (337)


Defined contributions post- 0 0

Defined benefit post-employment (288) (258)

Other long-term benefits (7) (7)

Termination benefits 0 0

Finance costs (295) (265)

(in EUR K) 2018 2017


Defined contributions post-employment plans 0 0

Defined benefit post-employment plans 307 1,702

Other long-term benefits 0 0

Termination benefits 0 0

Actuaries gains and losses 307 1,702


36.3. Short-term employee benefits Short-term employee benefits include wages, salaries, paid holidays, social contributions, sick leave, compensated absences, bonuses and variable remuneration, profit sharing and non-monetary benefits (medical care, housing, cars), all paid within 12 months after service is rendered. Hereunder are the main local specificities.

Belgium

• Social contributions and sick leave. The legal requirements are paid to "Sécurité Sociale".

• In case of hospitalization, a health insurance with the company DKV covers part of the cost not refunded by the personal obligatory mutual health insurance.

France • Paid holidays scheme may also include CET ("Compte Épargne Temps"), a spare time credit scheme in Condat

mill.

• Social contributions and sick leave.

• The legal requirements are paid to "Sécurité Sociale".

• Commitment for sick leave is in accordance with the collective labor agreement in force or is agreed at company level. The cost is shared between the company and “Sécurité Sociale” up to 6 months. Beyond 6 months, the risk is covered with a “Prévoyance” policy signed with the insurers Malakoff and AXA (see Note 36.4).

• "Ace Assistance" and “Axa Assistance” cover certain frequent travelers.

• Profit sharing - legal requirement ("Participation") based on taxable earnings applies to companies with 50 employees or more.

• Profit sharing - company commitment ("Intéressement”) of Condat SAS was closed on 31 December 2008. There is a new agreement to for the years 2015 and 2016 and 2017. A new agreement was signed from 2018 to 2020.

• Works Council - mandatory contribution applies to companies with 50 employees or more: In Condat up to 2.2% of gross salaries to Works Council (0.20% of operating costs and 2% of social, medical care, cultural contribution and meal tickets), In TPM up to 0.3% of gross salaries to Works Council (0.2% of operating costs and 0.1% of social and cultural contribution).

• Medical care for the employees: maybe managed outside the Works Council contribution for a company commitment of up to 67% of the cost.

• Meal tickets: company is committed for a contribution of up to 60% of the cost (Paris).

Italy • Social contributions and sick leave.

The legal requirements are paid to INPS ("Istituto Nazionale della Previdenza Sociale") and to INAIL ("Istituto Nazionale per l'Assicurazione contro gli Infortuni sul Lavoro"). Company commitment for sick leave is in accordance with the collective labor agreement CCNL ("Contratti Collettivi Nazionali di Lavoro") in Cartiere del Garda SpA. For blue collars the first 3 days are paid 100% by the company, from the 4th to 20st day the cost is paid 50% by the company and 50% by INPS, from the 21st day the cost is paid 33.34% by the company and 66.66% by INPS. For white collars and managers 100% of the cost is paid by the company. In Polyedra SpA sick leave cost is paid 100% (for the first 3 days), from the 4th to 20th day the cost is paid 50% by the company and 50% by INPS, from the 21st day the cost is paid 33.34% by the company and 66.66% by INPS for blue collars and white collars, for the managers 100% is paid by the company according with the “CCNL Dirigenti Commercio”..

• Canteen: companies are committed for a contribution of 60% of the cost or 5.74€ for every day actually worked for more than 6 hours. For Polyedra it applies for days with more than 4 worked hours, and a cost of 5,29€ for every day.

• Profit sharing - company commitment: a new Profit sharing scheme was agreed on 27 January 2016 replacing the old one dated 16 November 2010 extended then until current renewal. This agreement is in force until 2018. It is based on Cartiere del Garda and AGPower group EBITDA, number of claims and days of sickness, accident - safety evolution (frequency / severity rate). The renewal of the Profit sharing scheme for years 2019-2021 is under discussion. Medical care for the managers and their families is partially covered by insurance (FASI + UniSalute, or FASDAC + QUAS).


Germany

• Benefits include medical care, sick leave, unemployment and pensions for retirement. The cost is shared 50% / 50% between Lecta Deutschland GmbH and the employees. Each employee elects the entity he wants to receive the payment in a list of eight public entities and two private companies.

Mexico

• Social contributions and sick leave. The legal requirements are paid to “Instituto Mexicano del Seguro Social”.

Morocco

• Social contributions and sick leave. The legal requirements are paid to “Caisse Nationale de Sécurité Sociale”.

Portugal

• Social contributions and sick leave. The legal requirements are paid to “Instituto de Gestao Financeira da Segurança Social”.

Spain

• Social contributions and sick leave. The legal requirements are paid to “Tesorería General de la Seguridad Social”. The company pays a complement until 100% of the salary depending on the type of disease and the level of absenteeism in the workplace.

UK

• Social contributions are directly paid to “HMRC” (Her Majesty’s Revenue and Customs) and pensions for retirement are paid into a pension scheme.

USA

• Social contributions in relation with death and disability, pensions for retirement are paid to “Social Security”.

• Medical care and hospitalization is covered through medical insurance contracted with United Healthcare. Sick leave, defined as disability either short term (std) or long term (ltd), is covered through disability insurance contracted with Guardian.


36.4. Defined contribution post-employment plans Mandatory state (national) or multi-employers plans

Belgium France Germany Italy ONP (“Office Nationale des Pensions”).

“Sécurité Sociale”, Humanis Retraite (Fusion Arrco + Agirc).

BFA ("Bundesversicherungsanstalt für Angestellte").

Staff leaving indemnity TFR ("Trattamento Fine Rapporto"). It is an employees' deferred compensation. Employees receive a lump sum payment on the date of leave regardless of the reason for leaving. In 2007, the regulation changed for companies with more than 49 employees. Based on this new regulation the TFR is no longer a defined benefit plan but has become a defined contribution plan. While the TFR contribution amounts accrued until 31 December 2006 continues to be managed by the Company (see Note 36.5), the TFR amounts accrued from 1 January 2007 have to be paid monthly to an external pension fund, as social security contributions (no more subject to actuarial evaluation).

Mexico Morocco Portugal Spain UK USA IMSS ("Instituto Mexicano del Seguro Social")

CNSS ("Caisse Nationale de Sécurité Sociale").

IGFSS ("Instituto de Gestão Financeira da Segurança Social").

“Seguridad Social”.

NIC ("National Insurance Contribution") paid directly to HMRC.

“Social Security”.

Voluntary plans

Belgium France Lecta Benelux SA. Condat SAS Death and retirement plan The insurance company “Integrale” covers the risk of death for managers (“cadres”) in Belgium. The benefit is 200% of the annual salary, increased by 25% for each minor child. If the risk doesn’t materialize, a pension is paid to the beneficiaries when they retire. The cost of the premium is shared between the beneficiaries (1/3) and the company (2/3). For the Netherland employees the insurance company is Zwitserleven.

Death and disability plan The insurance company "Malakoff" covers the risks of death, permanent and temporary disability and serious illness for all employees. Aon manages this agreement of "Prévoyance".

• Death and disability: the minimum benefit is 230% of the annual salary (tranches A and B of "Sécurité Sociale"). This benefit is increased by 25% of the annual salary for each minor child.

• Pension for spouse and children.


France Torraspapel Malmenayde SAS Death plan The insurance companies “AXA” or “OMNIREP” cover all the employees. The benefit is between 110% and 500% of the annual salary (tranches A, B and C of "Sécurité Sociale") according to the family situation. This benefit may be increased by 25% to 100% of the annual salary for each minor child.

• If the death is due to an accident, the benefit is doubled.

• An additional insurance company OCIRP covers the managers (“cadres+ Art. 36”). Temporary disability plan The insurance companies “AXA” or “OMNIREP” cover all the employees. After 60 days or 90 days of consecutive absence, the daily allowance is between 75% and 90% of the annual salary (tranches A, B and C of "Sécurité Sociale") under deduction of Sécurité Sociale payments. Permanent disability plan The insurance company “AXA” covers all the employees. The benefit is between 45% and 90% of the annual salary (tranches A, B and C of "Sécurité Sociale") according to the level of permanent disability.

Germany Lecta Deutschland GmbH Death and disability plan The risks of death, permanent and temporary disability are covered with the insurance company AXA. Each employee would receive up to EUR 77 K, EUR 307 K and EUR 153 K respectively.

Italy Cartiere del Garda SpA Pension plan "Fondo Integrativo Laborfonds" for workers and salaried The supplementary pension is in accordance with the collective labor agreement CCNL ("Contratti Collettivi Nazionali di Lavoro” - Paper). The employees can voluntarily join the externalized pension fund "Laborfonds" managed at Regional level (Trentino Alto Adige) contributing 1% to 10% of their gross salary and TFR (see Note 36.5). For such employees, the company is obliged to contribute 1.2% of their gross salary (from 01.01.2012). Retirement plan "Previndai": the supplementary pension for managers is in accordance with CCNL Dirigenti Industria. The managers contribute part or total of their TFR plus 3 to 4% of their gross salary up to a cap. The company also contributes 4% of the gross salary up to a cap. Death and disability plan The risks of death, permanent and temporary disability and accident are covered for managers in accordance with CCNL, for middle managers in accordance with CCNL and company agreement. The insurance companies are MetLife Europe Limited and AXIS Ins. The insurance company MetLife Europe Limited and AXIS Ins. covers the risks only of death for all remaining employees. The company pays 50% of premiums and the employees pay the other 50%.


Italy Mexico Morocco Polyedra SpA Torraspapel Servicios México S.

de R.L. de C.V. and Lecta México S de R.L. de C.V.

Lecta Maroc Sàrl.

Pension Plan “Fondo Integrativo Fonte” For workers and salaried the supplementary pension is in accordance with the collective labor agreement CCNL ("Contratti Collettivi Nazionali di Lavoro” - Commerce). The employees can voluntarily join the pension fund "Fonte" contributing 0.55% max of their gross salary and TFR. For such employees, the company is obliged to contribute 1.55% of their gross salary. Retirement plan "Negri": The supplementary pension for managers is in accordance with CCNL Dirigenti Commercio. The managers contribute part or total of their TFR max 1% of their gross salary. The company also contributes 1.95% of the gross salary.

Death and disability plan The insurances companies (Allianz Mexico SA and MetLife Mexico SA) cover the employees. The benefit is equivalent to the annual salary of the employee. In case of accident, the benefit is twice the annual salary.

Death and disability plan The insurance company “Axa Maroc” covers all the employees. The benefit is equivalent to the annual salary of the employees.

Portugal Spain Torraspapel Portugal Lda.

Spanish companies of Torraspapel group

Death and disability plan the insurance company Vitória covers all the employees.

• Death and disability: the benefit is equivalent to the annual salary of the employee.

• In case of accident, the benefit is twice the annual salary of the employee.

Retirement plan: All the employees except those working in the mill of Leitza have a defined contribution plan. The companies and the employees respectively contribute 3.5% and 1% of a portion of the gross salary to VidaCaixa. On 20 May 2013 the company denounced the plan and stopped its contribution. A court ruling has been given in favor of the company. On 23 Oct 2016 the Supreme Court confirmed the sentence of the court, confirming the correct performance of the Company. BBVA covers the liabilities prior to 2001. Death and disability plan Vida Caixa covers:

• For employees under economic conditions of the “Convenio Colectivo Estatal de Pastas, Papel, y Cartón” this benefit is EUR 15 K, and EUR 30 K in case of accident. The premium is shared between the company (60%) and the employees (40%).

• For the administrative and blue collars of the mill of Leitza, the risk of death and disability is covered as follows: from EUR 13 K to EUR 26 K, depending on the kind of contingency. In this case, the premium is shared between the company (55%) and the employees (45%).

• For the other employees, this benefit is equivalent to the annual salary. In case of accident, the benefit is twice the annual salary.

• Vida Caixa covers on an individual basis ("Ad personam") the additional benefit for employees with higher historical rights (i.e. employees working for Torraspapel SA in 1995.


UK USA Lecta Paper UK Ltd. Lecta North America Inc. Retirement plan, individual and voluntary agreement The liability of the company is paid to an insurance company. Death plan The insurance company "UNUM" covers all the employees, who have been with the company over

6 months. The benefit is equivalent to four times the annual salary for TUPED employees, three times the annual salary for the employees who started to work in the company before December 1999 and two times the annual salary for all other employees.

Retirement plan On a voluntary basis, each employee may contribute part of his/her salary to the insurance company “ADP”, the company paying the same amount up to 3% of the annual employee salary. Death plan The insurance company "American Life Insurance” covers the employees up to USD 50 K or USD 100K in case of accident death.

36.5. Defined benefit post-employment plans

France Condat SAS and Condat Holding SAS

Retirement plan IFC (“Indemnités de Fin de Carrière”) It is a one-time payment made by the company when (and only when) the employee leaves the company for retirement. The obligation is regulated by the “Convention Collective Nationale des Industries Chimiques” nº3108 (“cadres”), and by the “Convention Collective Nationale de la transformation des papiers et cartons” (“non-cadres”). The benefit goes from 0 to 6 months (7.5 months for the managers only following the amendment of the “Convention Collective Nationale des Industries Chimiques” in November 2009) of gross salary depending on the seniority of the employee in the company. The Organization efficiency program caused a curtailment of EUR 1.5 M in 2013.

(in EUR K) 2018 2017

PRESENT VALUE

Opening balance 8,351 8,760

Current service cost 329 353

Interest cost 108 80

Actuarial gains and losses (152) (841)

Benefits paid (507) 0

Past service cost 0 0

Curtailments 0 0

Plan amendment (219) 0

Settlements 0 0

Merger 0 0

Acquisition of subsidiaries 0 0

Variation of percent of consolidation 0

0

Exchange adjustments 0 0

Closing balance 7,911 8,351

PROVISION

Present value of the plan 7,911 8,351

Net actuarial gains and losses not recognized in

the balance sheet 0 0

Past service cost not yet recognized in the

balance sheet 0 0

Provision 7,911 8,351


France Condat SAS

Retirement plan “Progil” Pension scheme supplementing the mandatory state (national) or multi-employers plans Sécurité Sociale, Arrco and Agirc (see Note 36.4) with an upper limit of 80% of the yearly gross salary. Since 01 July 2002, the plan is closed to new employees of the company. Part of this obligation is externalized with Eparinter. Since 30 September 2013, the plan is closed to active employees and remains open to retired people only. This denunciation caused a curtailment of EUR 8.0 M in 2013.

(in EUR K) 2018 2017

PRESENT VALUE


Current service cost (21) 0


Contributions by plan participants 0

0

Actuarial gains and losses 25 (487)

Benefits paid (401) (418)


Curtailments 0 0

Settlements 0 0

Merger 0 0



0



Funded 0 0 Unfunded 7,513 7,796

ASSETS "EPARINTER"


Expected return on plan assets 32

19

Contributions by the employer 0 0


0

Actuarial gains and losses 3 20

Benefits paid 0 0

settlements 0 0

Merger 0 0



0



PROVISION


Assets (2,222) (2,187)




balance sheet 0 0



France Condat SAS

Death and disability plan “Prévoyance” Malakoff (see Note 36.4). In case of anticipated termination of the agreement with the insurer, the company would bear the unfunded obligation related to social commitments created prior to 1990.

France Torraspapel Malmenayde SAS

Retirement plan IFC ("Indemnités de Fin de Carrière") It is a one-time payment made by the company when (and only when) the employee leaves the company for retirement. The obligation is regulated by the “Convention Collective Distribution et Commerce de Gros Papier et Carton” nº802 (“OETAM”) and 925 (“cadres”), and by the “Accord National Interprofessionnel des VRP” n°804. In case of voluntary retirement, the benefit goes from 0.2 to 6 monthly salaries depending on the seniority of the employee in the company. If the company makes employees take compulsory retirement, the benefit is increased by 20% to 30%, or from 0.05 to 0.35 months per year of seniority for the sales representatives (“VRP”).

(in EUR K) 2018 2017

PRESENT VALUE

Opening balance 537 561

Current service cost (17) (24)

Interest cost 0 0


Benefits paid 0 0


Curtailments 0 0

Settlements 0 0

Merger 0 0



0


Closing balance 520 537

PROVISION

Present value of the plan 520 537




balance sheet 0 0

Provision 520 537

(in EUR K) 2018 2017

PRESENT VALUE



Interest cost 20 15




Curtailments 0 0

Settlements 0 0


PROVISION





balance sheet 0 0



Germany Lecta Deutschland GmbH

Retirement plan Pension scheme supplementing the mandatory state plan (see Note 36.4). The plan benefits to 6 people and is closed to new employees since 1997. Part of this obligation is externalized with two insurance companies, “Landwirtschafliche Versicherung Münster” and “Hamburg Mannheimer”.

(in EUR K) 2018 2017

PRESENT VALUE


Current service cost 156 (2)

Interest cost 0 45

Contributions by plan participants 0 0


Benefits paid 89 (39)


Curtailments 0 0

Settlements 0 0

Merger 0 0


Variation of percent of

consolidation 0

0



Funded 0 0

Unfunded 1,516 1,271

ASSETS "LVM" & "HM"

Opening balance 796 798

Expected return on plan assets 0 0


Contributions by plan participants 0 0



Settlements 0 0

Merger 0 0


Variation of percent of

consolidation 0

0


Closing balance 953 796

PROVISION


Assets (953) (796)

Net actuarial gains and losses not

recognized in the balance sheet 0 0

Past service cost not yet recognized

in the balance sheet 0 0

Provision 564 475


Italy Cartiere del Garda SpA

Staff leaving indemnity TFR ("Trattamento Fine Rapporto") See Note 36.4. Since a regulation introduced in 2007, the TFR is no longer a defined benefit plan but has become a defined contribution plan. Nevertheless, the TFR contribution amounts accrued until 31 December 2006 continues to be managed by the Company and thus the related liability continues to be recorded in the financial statements as a long-term liability that has to be accounted for at its present value (subject to actuarial evaluation). The present value of the employee termination indemnity liability has been computed by an independent actuary considering the above-mentioned change in law. The effect as at 1 January 2007, deriving from the change in law, curtailment effect, amounts to EUR 1,015 K and has been recorded as a reduction of the said year personnel costs.

Italy Polyedra SpA (is consolidated since 1 July 2012)

Staff leaving indemnity TFR ("Trattamento Fine Rapporto").. The change in regulations described for Cartiere del Garda SpA also applies to Polyedra SpA.

(in EUR K) 2018 2017

PRESENT VALUE


Interest cost 68 54




PROVISION





balance sheet 0 0


(in EUR K) 2018 2017

PRESENT VALUE


Interest cost 9 8

Actuarial gains and losses (19) 80



PROVISION





balance sheet 0 0



Spanish companies of Torraspapel group Retirement plan For the employees of Torraspapel SA only, who were entitled to retire at the age of 60 at 31 December 1995, company's obligations agreed with the unions are externalized on a yearly basis in accordance with law “Ley de planes y fondos de pensiones 8/1987” of 8 June 1987 revised by “Ley de regulación de los planes y fondos de pensiones RD 1/2002” of 29 November 2002 and by “Reglamento 304/2004 de planes y fondos de pensiones” of 20 February 2004. In addition, the company has to cover the difference between the 6% rate agreed and the market interest rate. The pensions for the retired people of Torraspapel SA were externalized with BBVA and VidaCaixa in accordance with the above-mentioned law. The debt carries a 5.85% interest rate. Torraspapel SA continues to bear a limited liability in case Spanish inflation falls under 2%, while it benefits when inflation is over 2%. In addition, some pending amounts remain to be paid.

Nota Belgium, Mexico, Morocco, Portugal, UK and USA: No such plan


Total of defined benefit post-employment plans

(in EUR K) 2018 2017

PRESENT VALUE





0

Actuarial gains and losses (304) (1,682)

Benefits paid (1,688) (796)


Curtailments 0 0

Plan amendment (219) 0

Settlements 0 0

Merger 0 0



0



Funded 0 0 Unfunded 25,762 27,096

ASSETS


Expected return on plan assets 32

19



0



settlements 0 0

Merger 0 0



0



PROVISION


Assets (3,174) (2,983)




balance sheet 0 0

Provision 22,588 24,113


The principal assumptions used in determining the defined benefit post-employment obligations are as follows:

(1) Didn’t apply because the pension was based on the salary of each beneficiary at the age of 42. (2) Due to the change in TFR regulation, applied as of 2007, the future salaries were subject to monthly social security contributions only. A quantitative sensitivity analysis for the discount rate as at 31 December 2018 is shown below:

36.6. Other long-term benefits

France Condat SAS

Long service benefits “Médailles du travail” 1 month of gross salary after 18 years of seniority in the company or after 20, 30, 35 or 40 years as salaried employee.

Spain Torraspapel SA

Welfare plan of Motril The employees of the Motril plant have access to a plan set up in 1988. Single or periodical payments, loans with low rate are provided to them to cover social needs like births, weddings, mentally or physically handicapped people. On 1 August 2013 the company denounced the plan and stopped its contribution (EUR 32 K in 2013). The company's commitment is limited to the unused part of the cumulated available contributions accrued in favor of the employees.

Discount rate (varies with the duration of the commitment): 2018 2017

- IFC Condat SAS 1.50% 1.30%

- IFC Condat Holding SAS - 0.50%

- Progil Condat SAS 1.50% 1.50%

- IFC Torraspapel Malmenayde SAS 1.50% 1.30%

- Retirement Lecta Deutschland GmbH 3.21% 3.68%

- TFR Cartiere del Garda SpA 1.50% 1.30%

- TFR Polyedra SpA 0.80% 0.50%

Future salary increases: 2018 2017

- Condat SAS 1.00% 1.00%

- Condat Holding SAS - 1.00%

- Torraspapel Malmenayde SAS 1.00% 1.00%

- Lecta Deutschland GmbH NA (1) NA (1)

- Cartiere del Garda SpA NA (2) NA (2)

- Polyedra SpA NA (2) NA (2)

(in EUR M) -0.50% +0.50%

Impact on the net defined benefit post-employment

obligation+1.0 -1.0

Discount rate

(in EUR K) 2018 2017


(in EUR K) 2018 2017

Provision 0 29


36.7. Termination benefits The termination benefits are part of the “Organization efficiency program” (see Notes 3.3, 11 and 31).

37. Related party disclosures

37.1. Transactions with non-consolidated companies

These companies were non-consolidated because of absence of control or immateriality (see Note 2.3) All the transactions with related parties were made on an arm’s length basis.

37.2. Key management personnel compensation During the year ended 31 December 2018, the members of the Board of Directors, including executive officers, received remuneration. This remuneration was charged at an aggregate cost of EUR 1.5 M.

37.3. Other related parties Nothing to be reported.

(in EUR K)

Sales

to

related parties

(Purchases)

from

related parties

Finance (costs)

from

related parties

Amounts

owed by

related parties

Amounts

owed to

related parties

2017 0 0 0 0 0

2018 0 0 0 0 0

2017 0 (6,631) 0 0 1,328

2018 0 (6,595) 0 0 1,351

2017 0 (581) 0 0 106

2018 0 (581) 0 0 106

2017 0 (1,892) 0 0 357

2018 0 (1,209) 0 0 201 SVT SAS

Promotora del Ulla SA

SVL Pilote SAS

SVS SAS


38. Financial instruments

38.1. Equity derivatives Following the exercise of the Purchased call option on the shares of IDAE Sant Joan AIE (see Note 3.5),there was no more option on the minorities of a consolidated company.

38.2. Derivatives held for trading These are options on the shares or the assets of non-consolidated companies. 38.2.1. Purchased call option agreement on the shares of SVL Pilote SAS

Current shareholder

Private owner: 100% If the option was exercised, Condat SAS would acquire up to 100% of the shares.

At 31 December 2018, the minimum exercise price of the option was EUR 1.5 M. This price was considered as higher or equal to the fair value of the company. Therefore, nothing was disclosed in the Statement of financial position

38.2.2. Purchased call option agreement on the tangible assets of Périgord Énergies SNC

Current shareholder

• Engie Energy Services SA: 99.8%

• SETHELEC SNC: 0.2%

There was a contract between Périgord Énergies SNC and Condat SAS for the supply of steam (see Note 35.4.1). Three months before the end of this 12-year contract, i.e. on 31 December 2012, Condat SAS had to take the option to purchase 100% of the tangible assets of Périgord Énergies SNC or not. By means of a letter dated 21 December 2012, Condat SAS undertook to sign a new contract for the supply of steam for an additional period up to 31 December 2016 but decided not to purchase the tangible assets. The new contract was signed on 17 January 2014. It grants Condat SAS an option to purchase 100% of the tangible assets for a total price of EUR 5 M as at 31 December 2016, or for their Net Booked Value in case of early termination. An addendum was signed on 28 October 2016 to renew the contract for two years (until 31 December 2018) with the possibility for Condat SAS to terminate the contract and purchase the tangible assets before its new term if Condat SAS has an interest to purchase the cogeneration plant. A new addendum was signed on 3 July 2018 to renew the contract until 31 December 2020 and to act the replacement of one of the two turbines. The price of the tangible assets at the end of 2020 will be EUR 2.9 M (with the new turbine).

38.3. Assignment of trade receivables From time to time, Lecta Group assigns trade receivables to financial institutions through non-recourse agreements. Such operations are accounted for in conformity with the accounting policy described in Note 1.37.

• Factoring: The corresponding advance is accounted for in the other borrowings and disclosed in Note 28.4. There were EUR 2.9 M as at 31 December 2018.

• Non-recourse invoice discounting and factoring: The residual commitment computed using the continuous involvement methodology is accounted for in the borrowings and disclosed in Note 28.4. The face value of these discounted invoices was EUR 53.5 M as at 31 December 2018.

• Non-recourse assignment: In such case, there is no residual commitment.

38.4. Derivatives on foreign currencies


The Lecta Group operations are impacted by the fluctuations of the non-euro currencies, mainly USD and GBP. At 31 December 2018, ordinary sales and purchases were specifically hedged through:

• Forward agreements on realized sales in foreign currencies: EUR 39.3M

• Forward agreements on realized purchases in foreign currencies: EUR 24.0M The impact of these contracts has been accounted for as fair value hedging, hence recognized in the Income statement (see Note 1.36). At 31 December 2018, there were no options on future sales in foreign currencies and on future purchases in foreign currencies. Therefore, nothing had to be fair valued through Income statement. At 31 December 2018, there were no mid or long-term currency forward contracts for the purpose of hedging the fluctuation of exchange rate of USD against EUR of mid or long-term agreements. If any, the impact of such contracts would be accounted for as cash flow hedge. The intrinsic value, considered as effective, would be recognized directly in Equity while the time value would be considered as ineffective, and thus recognized in the Income statement (see Note 1.36).

38.5. Hedging derivatives on interest rates Alto Garda Power SrL: [1] On 5 September 2007, the interest rate of 50% of the forecast debt in Alto Garda Power SrL was hedged with a Collar indexed to 6-month Euribor for the period from June 2007 to December 2018. On 16 March 2010, the interest rate of 25% of the forecast debt was hedged with a Swap to exchange 6-month Euribor variable rate against fixed rate of 2.995% for the period June 2010 to December 2018. In December 2012, Alto Garda Power SrL voluntarily repaid EUR 12 M of its debt. Following this repayment, the notional amounts of the Collar and the Swap were higher than the debt. Consequently, the Collar and part of the Swap was considered as hedging instruments, while the balance of the Swap was no more considered as hedging instrument. On 18 December 2013, the Swap to exchange 6-month Euribor variable rate was terminated. On 28 February 2017, the Collar was also terminated (see Notes 4.3 and 28.4). Cogeneración Sant Joan AIE: [2] On 23 December 2015, the interest rate of 70% of the forecast debt in IDAE Sant Joan AIE (See Note 28.4) was hedged with a Cap indexed to 3-month Euribor for the period from June 2016 to September 2018. This Cap took effect 3 months after the termination of the prior interest rates hedge of the forecast debt in IDAE Sant Joan AIE (See [5]). The main characteristics of the above instruments are as follows:

The impact of these agreements has been accounted for as cash flow hedge, except for the balance of the Swap in Alto Garda Power SrL that was accounted for as fair value hedge as at 31 December 2012. For the cash flow hedge, the intrinsic value, considered as effective, was recognized directly in Equity while the time value was considered as ineffective, and thus recognized in the Income statement. For the fair value hedge, any gain or loss from re-measuring the hedging instrument at fair value is recognized in the Income statement (see Note 1.36).

38.6. Hedging derivatives on raw materials prices There was no hedging derivatives on raw materials prices.

(in EUR K)

Notional Premium Effective Termination Floor Cap

Instrument amount paid date date rate rate Strike Intrinsic Time Total

[1] Collar 6M Euribor Max 27.644 29/Jun/2007 28/Feb/2017 4.05% 5.75%

[2] Cap 3M Euribor Max 8,000 20 30/Jun/2016 30/Sep/2018 0.00% 0 0 0

Value at 31 Dec 2018


38.7. Fair value of financial instruments Fair value hierarchy Lecta Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1 Level 2 Level 3 Quoted (unadjusted) prices in active markets for identical assets or liabilities The fair value of 2016 notes was based on ex-coupon quotations. It should be considered with caution as the High Yield Bonds market has low liquidity

Other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly.

• For the hedging instruments, the inputs that have a significant effect on their fair value were observable.

• For the other items, of which Trade receivables and Trade payables, no valuation techniques had to be applied, as they were all short-term

Techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data. It applies to unlisted securities (see Note 19). The fair value consists in the historical cost less eventual impairment

As at 31 December 2018, Lecta Group held the following financial instruments:

At 31 December 2018

Carrying

amount

Fair

value

Carrying

amount

Fair

value

(in EUR K)

Unlisted securities Level 3 77 77 140 140

Trade receivables Level 2 212,643 212,643 223,115 223,115

Prepayments Level 2 666 666 396 396

Loans Level 2 (0) (0) (0) (0)

Capital receivables Level 2 457 457 0 0

Shareholders receivables Level 2 0 0 0 0

Dividends receivables Level 2 0 0 0 0

Options on non-consolidated companies Level 3 0 0 0 0

Grants Receivables - Green Certificates Level 2 5,189 5,189 8,305 8,305

Grants Receivables - White Certificates Level 1 2,212 7,930 2,937 10,896

Grants Receivables - Capital Investment Level 2 925 925 0 0

Currency hedging Level 2 0 0 0 0

Interest rate hedging Level 2 0 0 7 7

Energy price hedging Level 2 0 0 0 0

Miscellaneous other receivables Level 2 0 0 0 0

Cash and cash equivalents Level 1 107,227 107,227 141,062 141,062

Interest-bearing borrowings Floating rate senior secured notes Level 1 224,320 208,486 223,564 225,810

Interest-bearing borrowings Fixed rate senior secured notes Level 1 380,038 353,188 378,779 392,508

Interest-bearing borrowings except secured notes Level 1 34,176 34,176 22,084 22,084

Bank overdrafts Level 2 17,180 17,180 14,686 14,686

Trade payables Level 2 397,994 397,994 381,632 381,632

Capital payables Level 2 16,688 16,688 33,151 33,151

Shareholders payables Level 2 0 0 0 0

Dividends payables Level 2 0 0 0 0

Options on Minorities Level 3 0 0 0 0

Options on non-consolidated companies Level 3 0 0 0 0

Currency hedging Level 2 0 0 438 438

Interest rate hedging Level 2 0 0 (0) (0)

Energy price hedging Level 2 0 0 0 0

Miscellaneous other payables Level 2 590 590 737 737

At 31 December 2017

LIABILITIES

ASSETS


39. Financial risk management objectives and policies

39.1. Customer credit risk Lecta Group strictly monitors customer credit risk. In 2018, Lecta’s ten largest customers of paper account for circa 18% of its sales of paper. Credit insurance covers a large part of the Trade receivables. Lecta’s customers of energy are large multinational corporations.

The line “Impairment” includes a bad debt provision of EUR 9,341 K as at 31 December 2018 (EUR 9,652 K as at 31 December 2017) already booked at the time of Polyedra’s acquisition in 2012 (see Note 2.2). Its progressive reduction follows the conversion of the provision into a real bad debt charge, tax deductible or not.

39.2. Liquidity risk Since the Refinancing of 27 July 2016 (see Note 3.1), the liquidity risk can be considered as remote.

39.3. Future undiscounted contractual payments

31 Dec 31 Dec

(in EUR K) 2018 2017

Gross amount of Trade receivables 228,001 239,278

Impairment (15,358) (16,162)

Trade receivables as per Balance sheet 212,643 223,115

of which not past due 201,702 211,517

of which past due: 10,941 11,598

Amount covered by a credit insurance 9,636 9,835

Amount of recoverable VAT 119 296

Amount eligible to credit risk, 1,186 1,467

past due since less than one month 523 1,263

past due since more than one month but no later than three months 292 262

past due since more than three months but no later than one year 314 (58)

past due since more than one year but no later than five years 57 0

past due since more than five years 0

31 Dec 31 Dec

(in EUR K) 2018 2017

Financial l iabilities as per Balance sheet 1,070,396 1,054,335

Future interest, post Balance Sheet date 26 162

Reversal of non-cash liabilities (IFRS adjustments) 8,190 10,203

Adjusted financial liabilities 1,078,611 1,064,701

Due no later than one month 252,976 304,036

Due later than one month and no later than three months 208,966 138,694

Due later than three months and no later than one year 10,548 19,208

Due later than one year and no later than five years 230,598 227,763

Due later than five years 375,523 375,000

Undiscounted cash flows 1,078,610 1,064,700


39.4. Market risk Lecta Group profit is affected by cyclical changes in the overall economic activity and exposed to variations in the price of paper, raw materials and energy. To reduce their impacts:

• Lecta Group customer base is highly diversified in terms of geography and channels of sales.

• Lecta Group produces part of its needs of pulp (circa 35%) and base paper (circa 87%), the main raw materials used in the production of Coated Woodfree and Specialties. It also produces part of its energy requirement.

• Lecta Group signed multi-year contracts for pulp or other raw materials supply.

• Lecta Group signed multi-year contracts of energy supply. The table below illustrates how a change in selected factors (on the assumption that other factors are neutral) related to Lecta Group’s business may affect financial performances. Based on actual figures of 2018:

39.5. Interest rate risk Lecta Group’s profit before tax is exposed to the fluctuations of interest rate, as a vast proportion of its Borrowings is indexed to 3-month Euribor. Unfavorable impact on profit before tax of an increase of 1% (100 basis points) of 3-month Euribor [e.g. from -0.322% (average in 2018) to 0.678%], all other things being equal, based on actual figures of 2017, is:

Lecta Group hedges part of its Borrowings in order to reduce the impact of interest rate fluctuations (see Note 38.5). Lecta Group’s counterparts are leading financial institutions that had credit ratings equal to or better than A-2 short-term or BBB long-term ratings (or equivalent) when the hedging instruments were traded.

39.6. Currency risk on transactions Lecta Group’s EBITDA is exposed to the fluctuations of non-euro currencies on future sales and purchases. Favorable (unfavorable) impacts on EBITDA of a decrease of 0.01 of exchange rate [e.g. for USD/EUR from 1.18 (average in 2018) to 1.17, or for GBP/EUR from 0.88 (average in 2018) to 0.87], all other things being equal, based on actual figures of 2018, are:

Lecta Group covers the fluctuations of non-euro currencies, mainly USD and GBP, according to the following rules (see Note 38.4):

• Statement of financial position approach for trade receivables and payables: on a regular basis, the actual sales and purchases denominated in non-euro currencies are covered through forward agreements with fixed expiry dates consistent with those of the hedged items.

• Income statement approach for forecast incomes and expenses: on an occasional basis, a part of the future sales and purchases to be made in non-euro currencies may be covered through forward agreements or options for a maximum period of six months.

Changes

Estimated effect on

Lecta Group EBITDA

(in EUR M)

Paper prices +/- 10 EUR/t +/-14.3 M EUR

Pulp prices +/- 10 EUR/t -/+4.9 M EUR

Volume produced and sold +/- 10 kt +/-2.8 M EUR

Interest rate EUR M

3M Euribor 1.9

Currency

Estimated effect on

Lecta Group EBITDA

(in EUR M)

USD -1.7 M EUR

GBP 0.7 M EUR


39.7. Currency risk on investments Lecta Group has no significant investments in the non-euro zone.

39.8. Currency risk on borrowings The borrowings of Lecta Group are essentially denominated in euro.

39.9. Business risk Lecta Group negotiates insurance policies for major risks, such as property damage & business interruption, and general liability. Lecta Group also invests in the prevention and the protection of its assets following the recommendations by leading insurance companies.

39.10. CO2 emission rights Lecta Group emits more CO2 than the CO2 emissions rights (“ER”) granted for free. This deficit is covered with the purchases of ER from third parties +/- the stock of ER available at the end of the prior period (see Notes 18 and 31). The purchase price of ER is exposed to market fluctuations. Lecta Group did not acquire any derivative to cover the purchase price fluctuation of ER.

40. Events after the Statement of financial position date Lecta has announced the temporary shutdown of Line 8 production at its Condat’s mill from the end of April. The decision will be reevaluated in the following months depending on market developments. The decrease in CWF demand over the last several years resulted in overcapacity in the industry. The worsening of this trend observed in the last months is the main reason for the temporary Line 8 shutdown at the Condat’s mill. The Condat’s brand product range and service levels during this period are guaranteed due to efficiency improvements and streamlining on Condat’s Line 4 as well as through the contribution of the Group's other CWF paper mills. Despite the temporary shutdown, meeting the overall demand of Lecta's CWF customers is assured, given the Group's total production capacity of more than 850,000 tons per year. At the same time, Lecta continues working on a strategic transformation plan that will allow Condat to move forward with greater chances of success, although this project needs further definition over the next few months. This plan would entail the transformation of production Line 8 from manufacturing two-side CWF to manufacturing specialty papers for labels and flexible packaging, a market in which Lecta has extensive experience given its manufacturing operations in Spain and business operations worldwide.

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