ANNUALREPORT2013

ANNUAL REPORT 2013

PPS Group a.s.

CONTENTS

General manager’s foreword 3

Company’s profile 4

History and nowadays 4

Company’s targets and key principles 5

Company’s targets 5

Company’s strategic intention 5

Company’s principles 5

Company’s general characteristics 6

Basic information 6

Company’s main lines of business 6

Proprietors structure 7

Management Board 7

Supervisory Board 7

Ownership interests in partnerships 8

Development of commercial activities and marketing 8

Marketing and project management 9

Human resources and OSH 12

Employee number development 2013 13

Internal communication 13

Development and education 14

Employee structure according to gender in % 14

Employee structure according to age 15

Educational composition of employees 15

Care of employees 16

OSH 17

Injury rate development 18

Investments 18

Integrated quality management system 21

Environment 22

Analysis of financial results 22

COMPANY´S PROFILE

The history of the company began in 1950 when the foundation stone of a company creating part of the Tatra Kopřivnice national enterprise was laid. The first product – an excavator Škoda D500 left the enterprise in 1954. The production program was gradually stabilised and involved constructional machinery production and special technique production. January 1st, 1955 is considered for the official date of the life as a stand-alone company when, based on the decision of the Ministry of Engineering of ČSR, it began to act under the name Podpolianske strojárne (PPS) with the seat in Detva.The history of the company’s new era begun in 2003. PPS Detva Holding a.s. „in bankruptcy proceeding“ became a property of a group of private Swiss and Czech investors and Slovak invest-ment group SITNO HOLDING, a.s. From September 2003, the company acts under the business name PPS Group a. s.

HISTORY AND NOWADAYS

MILSTONES OF MODERN HISTORY:

2003 – Atlas Copco as a customer has entered into PPS Group 2004 – Volvo: manufacturing of booms and arms 2007 – Detva Industrial Park - the strategic investment intention of the company was to create and gradually increase capacities particularly in the Detva Industrial Park situated directly in the PPS site.

2008 – Loader HON 200 was granted an award on the Interna-tional Engineering Trade Fair Agrokomplex in Nitra. 2010 – Enhancement of product portfolio – manufacturing of Siemens wagons.

Besides growth intended investments, the company invested significant amounts to progressive technologies intended for increasing the competitiveness. The company has implemented and maintained a quality management system according to EN ISO 9001:2008, a quality system in the field of welding EN ISO 3834-2 and DIN 18800-7, and others. For assuring better the quality of production, the company operates an accredited calibration laboratory.

The main production program of the company involves particu-larly complex welded structures for mining machinery, kinematics elements for constructional and manipulating machinery, protec-tion elements and frames for forest manipulation technique, welded structures for special technique and steel structures for railway vehicles. Company’s customers are for example Atlas Copco (through TSP), Volvo, Sennebogen, Komatsu-Hanomag, Caterpillar, Liebherr, John Deere, GHH Fahrzeuge, Montabert, even Siemens. In 2013, the company succeeded in starting co-operation with other companies as Kleemann, Krauss Maffei, Sandvik and Wirtgen.

5

COMPANY´S TARGETS

A company’s target is to have satisfied customers on the European and world market, and to be a reliable partner for employees and business partners.

Company’s target is:• to maximise a value offered to customer, built a long-term strategic partnership based on mutual confidence and respect,• to build pro-customer orientation,• to build a mutual partnership and win-win access,• to build a direct relation with customer,• to react flexible on customers requirements,• to exploit a human potential available for our company, which is a competitive advantage of a successful company

COMPANY´S STRATEGIC INTENTION

The main strategic intention of our company is to focus on the production of large welded structures, arms, booms and other components of kinematics mechanisms for famous producers.

COMPANY´S TARGETS AND KEYPRINCIPLES

6

COMPANY´S PRINCIPLES

Flexible processingof inquiries

Prototype aand seriesproduction

Deliveryaccuracy

above 95 %

Qualityevaluationmeasured

in PPM

Fastimplementation

of technicalchanges

Costreductionsolutions

Strongpartnership

andcommunication

abilities7

COMPANY´S GENERAL CHARACTERISTICS

9

PPS Group a.s. is a joint stock company registered in the Slovak Republic. The company is acting under the actual business name that has been adopted due to a decision of September 9th, 2003 of the General Assembly of a former company SEVIS reeng, a.s. that before September 17th, 2003 had existed under the business name ODIEN/SEVIS reeng, a.s.. The ODIEN/SEVIS reeng, a.s. company was founded on May 10th, 1996 and registered with a commercial register on October 14th, 1996 (Commercial Register of the District Court Banská Bystrica, section Sa, file No. 735/S). The company’s identification number (IČO) is 36 011 509.

The company’s „core business“, i.e. also its main line, is the production of steel structures particularly arms, booms and frames intended for the famous manufacturers of mining, manipulation, construction and transport technique.In the „non-core business“ line, the company provides a leasing of real estate and movable assets for companies seating within the PPS premises supplying them at the same time with heat, electricity, water and taking care of waste waters. A significant income is earned from services in the field of gauge calibration.In the field of waste economy, the company provides for dispos-ing metal waste for companies seating within the PPS premises.Of marginal importance can be considered business activities in the field of accommodation services, trading services, account-ing services and other services referred as lines of business in the sense of the entry in CR.

BASIC INFORMATION

Business name: Seat:Premises:Company ident. number:DIČ (tax ID number): :IČ DPH (VAT ID number): : CR entry:Number of issued shares:Nominal share value:Share class:Share type:Share form:Share capital:Transferability limitation: Transferability limitation:Date of origin:

PPS Group a.s.Tajovského 7, 962 12 Detva

Areál PPS, 962 12 Detva 36 011 509

2020447891SK 2020447891

Distric Court B. Bystrica, Section: Sa, file 735/S16 000

332 EUR (10.000 Sk)ordinary

paperregistered

5.312.000 EUR (160 000 000 Sk)GA consent with share transfer

10.5.199614.10.1996

COMPANY´S MAIN LINES OFBUSINESS

The PPS Group a.s. company is the consolidating accounting entity for a consolidated entity consisting of PPS NTS s.r.o., PPS Logistic s.r.o., PPS Personálne služby s.r.o., 1. Strojárenská s.r.o., and DETVA ASSETS MANAGEMENT, a.s. Consolidated financial statements are available in the registered seat of the PPS Group a.s. company, Tajovského 7, Detva and they are also filed with the collection of deeds held with the Commercial Regis-ter of the District Court Banská Bystrica, Skuteckého 28.

OWNERSHIP INTERESTS IN PARTNERSHIPS

Company %-share Share on voting rights

PPS Personálne služby s.r.o. 100 100

1.Strojárenská s.r.o. 24 24

PPS NTS s.r.o. 100 100

DETVA ASSETS MANAGEMENT a.s. 99,69 99,69

PPS Logistic s.r.o. 100 100

Ownership interests in partnerships as of December 31st, 2013:

The company has no organisational entity in abroad.

The company has neither proprietary nor personal relationship with its customers in abroad.

10

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Having finished the year 2012, which was accompanied with a decrease of volumes particularly in the fourth quarter, the PPS Group a.s. company started the year 2013 with doubts about the next development of volumes. However, the uncertainty was soon away, and volumes started to rise right from the start of 2013 particularly in the field of the mining segment. Increased volumes of 2013 and employee dismissals in the end of 2012 caused problems to the company at fulfilling deliveries accurately that persisted almost until the end of 2013.

On the other hand, 2013 was a year of successful prototype production and commercial partnership development. We succeeded in entering into co-operation with new customers particularly from the German construction market in the field of manufacturing of crusher frames and road milling machines. In 2013, we managed successfully prototype production and series production as well. The company was awarded also contracts for producing other components for the mining industry, and the portfolio of our customers grew up.

The enhancement of our customer portfolio by new customers had a positive effect on the amount of revenue from sales with an increase of 856 thousands euros in 2013, which the business plan 2013 didn’t expected.

During 2013, market and the development of demand for compo-nents typologically suitable for PPS Group a.s. appeared to be very conservative, and it was reflected also in the sentiment within the PPS Group a.s. Signals from market indicated always an instability and threat of finance crisis. The business plan 2013 represented a volume of 46.9 mil. euros, and the company exceeded it successfully thanks particularly to customers from the mining industry .

With regard to the development of revenue from sales during 2013 we can speak about a seasonal variation in the engineering sector we could observe also in previous years. It is character-ised by increasing volumes in the spring and autumn parts of year and decreases in summer months and pre-Christmas time. This course of development of revenue from sales appears with the most of our customers, and PPS Group a.s. can expect it more or less also in the next periods.

DEVELOPMENT OF COMMERCIAL ACTIVITIES AND MARKETING

Mining industry

Construction industry

Forest technique

Speciál

-159

130

651

2722Difference between reality andBP 2013 in thousands euros

0

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7 000

Development of revenue from sales 2013in thousands EUR

January

FebruaryMarch April May

June

July

August

September

October

November

December

MARKETING AND PROJECTMANAGEMENT

The office of marketing and project management with its activity within the department of Commercial relation development represents a driving force in developing new commercial oppor-tunities. The PPS Group a.s. company is aware of its market position and business environment influences as well, therefore it focuses intensive on developing its segment diversification. It observes active market trends and uses gained information at taking strategic decisions.

In 2013, the biggest expectations appeared on the world market of construction industry, manipulation and forest technique. It resulted particularly from the development of projects and infrastructure in developing countries and China. The mining industry showed signs of instability and prudence particularly due to the economic and political situation in the strategic locations of exploitation. A likewise trend is expected also for the next year.

The company succeeded in entering into initial negotiations with a German multinational company engaged in the manufacturing of injection moulding machines. The successful completion of these negotiations could represent a potential of revenue increase for our company by 3-5 mil. euros/year within the next 2-3 years and strengthen its position with regard to the segment diversification. The first prototypes of injection moulding machines frames were successfully accepted by the customer in 2013. The company continues further also in co-operation with companies in the railway industry and have received positive signals from the field of manufacturing of special technique.

The most of inquiries came from customers from the German, Poland, French markets and from the Scandinavian market. The inquiring activity of 2013 exceeded the one of the previous year, and the PPS Group a.s. company has good chances to partici-pate in more projects. The most inquiries were submitted for producing products for the railway and construction industry, plastic machinery industry, and for manipulation technique, and it is in a good compliance with signals from markets.

13

The wood-processing segment is part of the company’s essential product portfolio already from 2007. In 2012, the wood-processing segment was the first one indicating signals of volume decrease. The business plan 2013 for this segment expected revenue from sales in an amount of 1.7 mil. euros. However, the final revenue from sales 2013 was figured in an amount of 2.35 mil. euros that represented an increase by 38% (+651 thousands euros). The positive result reflected the successful realisation of customer order.

On the other hand, we have been advised that the production of front and rear frames will be terminated in the beginning of 2014, as the life cycle of these products is over.

With regard to the future, the given segment can be considered for a one of stabile eventually growing potential.

The company strives for enhancing co-operation in this segment with the target to maintain eventually increase its share on the total revenue of the company from sales to a level of 5-10 %. PPS Group a.s. has successfully run up also co-operation aimed at entering the agricultural segment.

The wood-processing segment along with agriculture segment represent an important sector the importance of which will rise due to population growth.

WOOD-PROCESSING SEGMENT

The production of welded components for construction mecha-nisms belongs among the traditional products of PPS Group, a.s. for more than 20 years.2013 was a very successful year in this segment for our company, as it succeeded in developing co-operation with a couple of customers in the field of production of frames for crushers and road milling machines. New productions were developed to the series production stage and influenced positive the revenue from sales 2013 by 698 thousands euros. The company succeeded in resuming co-operation with a former German customer in the field of production of frames and booms (traditional company’s assortment).

Generally from the view of construction segment, 2013 was a year of stabile even increasing volumes. On the other hand, we put ourselves at risk of loss of customer confidence in 2013 due to delays and low accuracy of deliveries.PPS Group a.s. in co-operation with customers strove for developing production processes and employee education.

The chances of the construction segment for the next period are favourable, and this segment should grow notwithstanding seasonal variations.

CONSTRUCTION SEGMENTAND MANIPULATIONTECHNIQUE SEGMENT

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2009 2010 2011 2012 2013 BP2014 2015

Revenues for wood processing segment in thousands EUR

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2009 2010 2011 2012 2013 BP2014 2015

Revenues for construction segment in thousands EUR

14

The mining segment of production of PPS Group a.s. company brings the largest share of the total company’s revenue already a longer time, it means, it is of key importance for the company. However, its share is gradually decreasing in favour of the construction segment. We can state that this appearance reflects the market condition. The mining segment shows signs of stagnation due to a political and economical instability in the world and development of commodity prices within this segment as well. The amount of revenue from sales for this segment decreased by almost 50% during last four years.

MINING SEGMENT

It was this segment where the biggest decrease of order volumes had happened in the end of 2012. However, the situation turned in our favour soon, and order volumes started to increase rapidly. The development of revenue from sales during 2013 was as expected, influenced by seasonal variation.

Another gain in 2013 was achieved by broadening successfully the co-operation with manufacturers of mining equipment to include also the production of other components due to which the revenue from sales increased by 143 thousands euros. Of course, we strive further for developing the co-operation in this sector. However, we don’t expect mining „boom“ in the next period.

48,5%

33,7%

12,9%0,2%

4,6%

Mining industry

Construction industry

Forest technique

Manipulation technique

Others

62%

22,4%

11,8%0,6%

3,3%

Revenue segmentation 2012 in %

Revenue segmentation 2013 in %

05000

100001500020000250003000035000400004500050000

2009 2010 2011 2012 2013 BP2014 2015

Revenues for mining segment in thousands EUR

15

HUMAN RESOURCES AND OSH

Our employees are the most valuable asset.Motivated and satisfied employees make possible to fulfil our business targets. We are striving for improvement of communica-tion within the company, regular education, incentive bonuses and for broadening social programs for our employees.

As of December 31st, 2013 the company had employed 1,295 employees, it means by 270 more than in January of the same year. Rationalisation measures taken in the end of 2012 reduced the number of company’s employees by almost 500. In the beginning of 2013, the volume of production increased and the company started to employ personnel, and, from May until December, the number of employees was kept on a level of 1,300.

Development of number of employees in 2013

1 025 1 056 1 166

1 247 1 313 1 348 1 341 1 347 1328 1308 1 301 1295

0

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400

600

800

1 000

1 200

1 400

1 600

1 2 3 4 5 6 7 8 9 10 11 12

TotalNumber of employees / month

17

Communication with personnel is successfully further developed through an internal newsletter. 4 issues of the newsletter were published in 2013. Other information was available for personnel through notice boards, production plan discussions, extended management meetings, and through other communication channels.

INTERNAL COMMUNICATION

18

In the field of human resources management the company pays attention to care of employees and their professional and personal development as well. Besides education the company is imposed to provide by law, it focuses also on developing the creative and working potential of employees through various seminars, training. The company strives for increasing the level of skills in the fields of foreign languages, IT technologies, communications, and for increasing the productivity and quality of work.

DEVELOPMENT AND EDUCATION

Employee structure accordingto gender in %

men 86%

women 14%

Employee structureaccording to age

61-70; 4%

51-60; 29%

41-50; 24%

31-40; 25%

18-30; 18%

Štruktúra vzdelaniazamestnancov

Elementarylevel,5 %

Secondaryvocationaleducation,45 %

Secondarycompletevocationaleducation, 40 %

Academiclevel,10 %

19

In the field of hiring new labour, the company focuses on training and educating new personnel particularly for welder and locksmith positions through an Adaptation centre.

ADAPTATION CENTRE

Month 1 2 3 4 5 6 7 8Periods 287 - 1 48 8 5 7 5 27 2 24Entry test 35 91 35 15 5 20Retraining 4 4 4 9 4 14 16 19Working tests 4 7 4 2 4 7TOTAL 52 16 51 111 46 56 27 70

9 10 11 12 TOTAL6 5 3 3 1408 209

19 16 16 16 1255 20 4 57

38 41 23 0 531

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100

1 2 3 4 5 6 7 8 9 10 11 12

Periods 287 - 1

Entry test

Retraining welders

Working tests

20

As in previous years a popular preferred sport – cultural event Detviansky zvar was held also in 2013, where 22 welders took part in a competition in welding and our employee was awarded the main award, a personal car. This event was accompanied with a rich cultural and entertaining program lasting during the entire day.

CARE OF EMPLOYEES

Use EUR Meal allowance 129 416,55 Anniversaries 19 367,42 Holiday allowance 14 983,2 Other use 8 792,45

0

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100000

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140000

Mealallowance

Anniversaries Holidayallowance

Other use

USE OF MEANS FROM SOCIAL FUND

USE OF MEANS FROM SOCIAL FUND IN EUROS

21

Tasks in the field of care of occupational safety and health are provided by both managing employees on all management levels within the scope of duties resulting from their functions and each employee on his/her workplace. All new employees undergo entry OSH training and a subsequent periodic OSH training every 1 – 2 years.

By means of regular Inspection activity and rectification of found imperfections we try to avoid occupational injuries and danger-ous events that could have a negative effect on the results of development of occupational injury rate. Notwithstanding realised activities, 14 occupational injuries and 24 minor injuries (incidents), which didn’t need absence due to incapability, were reported in our company in 2013.

OSH

OCCUPATIONAL INJURIESPREVENCY MEASURES

• informing employees about occurred occupational injuries and about increased attention at work,

more frequent training of occupational safety,

inspections of adherence to safety provisions,

inspections of use of personal protection working means, protective devices and other protective measures.

•

•

•

12 20

10 3 10 18

12 14

82

35 39

5 20 19

24 24

2006 2007 2008 2009 2010 2011 2012 2013

SUMMARY OF INJURY RATE IN PPS GROUP A.S.

Occupational injuries

Incidents

DEVELOPMENT OF INJURY RATE

Year 2008 2009 2010 2011 2012 2013 Average number of employees 1484,17 702,5 1121,5 1467,33 1482,25 1256,25 Injury rate 49 8 30 37 36 37 Share in % 3,30 1,14 2,67 2,52 2,43 2,95

25

INVESTMENTS

In carrying out investment activities in 2013, the company strove particularly for meeting targets set in the field of product sales – to retain competitive advantages and to contribute to the perma-nent growth of the company value.

Investments 2013 were directed particularly to the following fields: providing for the run up of new productions, increasing the productivity, improving the quality of products produced within the assortment, and property renovation.In 2013, for purchase and renovation of non-current tangible and intangible assets the company invested totally 3,564,579 €, thereof:

Designation / Name Price (EUR) new investments property renovation

Production technologies 2 107 166 1 785 690 321 476

Informatics 271 084 271 084

Power engineering 96 734 48 834 47 900

Environment 9 968 9 968

Quality 4 252 4 252 0

Buildings and constructions 541 005 423 732 117 273

Tooling and appliances 437 500 128 776 308 724Other 96 870 96 870

TOTAL 3 564 579 2 391 284 1 173 295

thereof

Production technologies

Informatics

Power engineering

Environment59,1%

Investments in 2013

7,6%

2,7%0,3%

0,1%

15,2%

12,3%2,7%

Quality

Buildings and constructions

Tooling and appliances

Other

27

MACHINING CENTRE FUQ 125 / VR7

LAQUERING AND DRYING CABIN BLOWTHERM V H9-L5

28

An investment plan for 2014, in a total amount of 1,985,550 € is with its structure and amount intended for providing for the run up of new productions, increasing productivity, increasing the quality of products produced within the assortment and increasing production capacities. Investments will be directed particularly to:

purchase of appliances for positioning workpieces in welding

new pressbrake 320 tonnes x 4 m

power engineering - energy dispatching

environment – split sewer system

purchase of tooling and special appliances

•

•

•

•

•

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7 000

8 000

2008 2009 2010 2011 2012 2013 2014 - plan

Investment amount (in thousands EUR)

29

INTEGRATED QUALITYMANAGEMENT SYSTEM

Quality is considered for one of the most important values for the company. Its importance is declared in the quality policy where the company has stated to be a competitive producer not only for its customers but also for its employees and shareholders. For maintaining the quality management system, the company improves permanently the management and function of its processes. In 2013, the company stated an environmental policy where it has defined the commitment: to produce safely, reliably, efficiently and competitive, sell and market engineering products with reducing permanently negative effects of production processes on the environment at the same time.

EN ISO 9001:2008 (quality management system)

EN ISO 14001:2004 (environmental management system)

EN ISO 3834-2 (quality system in welding)

DIN 15085-2 (welding of railway vehicles and their parts)

DIN 18800-7, DIN 15018, DIN 4132 (steel structures welding system

SOŠ AQAP 2120:2010 (production of products for defence purposes)

Accredited calibration and testing laboratory according to EN ISO 17025:2005 standard

•

THE COMPANY HAS IMPLEMENTEDAND CERTIFIED SYSTEMS:

•

•

•

•

•

•

31

2013 was declared as a year of quality for the company. An important step was getting the certificate ISO 14001:2004 environmental management system in the field: production of welded structures for mining machines, loaders and railway vehicles, production of special army technique, metrological services. The company was authorised for enhancing its testing laboratory for exercising methods for measuring on 3D co-ordinate-measuring machines. In August 2013, we have become a collective member of the Slovak Society for Quality and took part in the competition Slovak Republic National Quality Award where we were awarded for taking part in this competition. We took over the award on November 11th, 2013.In 2013, the company has been successfully re-certified accord-ing to standards EN ISO 9001:2008, SOŠ AQAP 2120:2010, EN ISO 3834-2, DIN 15085-2.

CERTIFICATES

32

ENVIRONMENT

The PPS Group a.s. company is aware of its responsibility for the environment. Fulfilling legislative requirements is considered for the basis of protection and creation of the environment. At exercising our activities, we strive for an active access and prevention of environmental problems.In 2013, the PPS Group a.s. company has implemented and certified an environmental management system in the sense of the EN ISO 14001:2004 standard. This certification was accom-plished by the QSCert, s.r.o. company that, when carrying out the audit, stated that the environmental management system is implemented in the company and functional, that no discrepan-cies was found between it and the standard requirements. The importance of the environmental management system lies in its ability to facilitate a company managing its environmental problems in a planned and systematic method, and to identify ways for improving permanently its environmental behaviour.

Having assessed environmental aspects, the company has determined targets particularly in two fields of environmental protection; namely in the field of water protection and waste economy management.

In the field of water protection, in 2013, a project of splitting the sewer network system has been prepared, its realisation is planned for the period 2014 till 2020. Financial means for this project are planned in a total amount of about 800,000 euros. As a prevention measure for ground water protection, there were carried out non-destructive test of tightness of capture systems under the substations, in the oils and solvents storehouse, and in the neutralising station in hall 9 as well.

In the field of waste economy, the company proceeds in compli-ance with the waste economy hierarchy – to avoid creation of waste, to recycle waste thoroughly, and to liquidate other waste in an environmental manner. For decreasing the amount of produced wastes, a separator of oil substances was purchased and installed in the compressor station which reduces signifi-cantly the amount of arising condensate polluted with oil. The company strives for increasing permanently the share of waste recovery particularly by implementing a thorough separation. In 2013, containers for collection of paper and plastics in the production area were colour distinguished and marked with a new identification and instructions for the proper separation of individual commodities, separated collection was spread also into offices where bins were purchased for collecting separately paper, plastics and glass.

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ANALYSIS OF FINANCIAL RESULTS

In the third quarter 2012, the PPS Group a.s. company registered the first stronger signals of negative development on European and world markets particularly in demand for mining machines. Our customers reduced significantly their orders that the management of our company responded by adopting reduction measures related particularly to reducing the employment rate, current assets and individual cost items. The negative trend of decreasing orders from the end of 2012 persisted also in the first quarter 2013. The revenue from sales reported by the company for the first quarter 2013 was by about 20% lower then for the same quarter a year ago. The sales performance rose gradually month-by-month until a month level of 6 million euros. The increasing sales volumes were positive reflected in the business results. In the first half-year 2013, the company achieved an operating profit of 3.3 mil. euros what represented the same amount as for the same period a year ago. Due to the gradually decreasing volume of orders the company wasn’t able to retain the positive trend of the first half-year that has a negative effect also on the business result. The operating profit achieved for the first half-year 2013 was reduced in the second half-year by a significant loss due to which the final business result from operat-ing activity decreased to a level of 1.2 mil. euros, i.e. by 0.3 mil. euros more than in 2012.

Due to the decrease of orders, the company took cost saving measures in the fourth quarter for reducing particularly costs of wages. With regard to information the company had available from customers about increased demand for the first quarter 2014, the company management decided not to decrease the number of employees but to adopt other measures (to reduce the shift rate, to use the flexikonto, to shorten the working week with a 60% wage redress), which made possible to maintain the employment rate and production efficiency on the required level. Now we know that these measures were correct and helped to achieve 100% accuracy of deliveries for the first quarter 2014.

Notwithstanding the negative conditions in the end of 2013, the company’s financial position remained stable. The company met its obligations towards financial institutes, administrative authori-ties and suppliers.

At preparing the business plan of 2013, the company expected a similar development like in 2012. The positive development during the first half-year was reflected also in fulfilling targets set in the business plan for 2013. However, the situation of 2012 repeated, and the decrease of order volume in the second half-year 2013 had a negative effect on the business economy and fulfilling financial indicators. Nevertheless, the company succeeded in revenues by meeting the business plan in this aspect to 112%, however, in 2013, the planned business result from operating activities exceeded the achieved result by 0.6 mil. euros.

At preparing the business plan of 2014, the company expected a similar development like in 2013. Our customers acknowledged volumes they had declared in the end of 2013. Actual forecasts indicate that the company meets the target set in the business plan 2014 for the volume of sales.

COMPANY´S ECONOMICAL DEVELOPMENT

BUSINESS PLAN ANDCOMPANY´S TARGETS

37

FINANCIAL ANALYSIS

0

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2010 2011 2012 2013 2014 - plan

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2010 2011 2012 2013 2014 - plan

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70 56

41 44 39

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Total liquidity (in thousands EUR)

Selected financial indicators UoM 2010 2011 2012 2013 2014 - planTotal revenues €1k 48 835 68 682 66 116 53 779 49 131Total revenues €1k 20 035 26 961 23 175 18 203 17 658EBT (Earnings before tax) €1k 3 614 5 124 667 843 1 704EBIT (Earnings before interest and taxes) €1k 3 949 5 462 912 1 104 1 896EBITDA (Earnings before interest, taxes, depreciation and amortization) €1k 6 847 8 160 4 107 4 280 4 853Total liquidity (3. degree) coeff. 0,92 1,27 0,92 0,85 0,93Inventory turnover period days 70 56 41 44 39

38

39

In 2013 the company achieved total revenues on a level of 57.1 mil. EUR, i.e. a 14% year-to-year decrease. The costs incurred by the company decreased year-to-year by 15%. Due to the from September gradually decreasing volume of orders from main customers and the decision to retain the employment rate and production efficiency (with regard to the expected increase of sales volumes in the first quarter 2014), the company achieved in 2013 from operating activity a business result of 1.2 mil. EUR only with revenues from the sales of own products and services in the amount of 53.3 mil. EUR.

REVENUES AND COSTS

Value % of C Value % of C Value % of C Value % of CTotal costs (including income tax) (C) 50 440 437 100,00% 68 443 826 100,00% 66 279 829 100,00% 56 455 573 100,00%Total costs (without income tax) 51 163 959 101,43% 67 441 284 98,54% 65 870 841 99,38% 56 297 505 99,72% Operating activity costs 50 689 140 100,49% 66 995 451 97,88% 65 528 872 98,87% 55 843 492 98,92% Goods costs 25 027 0,05% -23 736 -0,03% 76 905 0,12% 449 472 0,80% Production costs (production consumption) 32 148 362 63,74% 42 634 728 62,29% 40 464 000 61,05% 35 044 908 62,08% Personnel expenses 14 999 902 29,74% 21 008 790 30,69% 21 154 257 31,92% 15 426 271 27,32% Taxes and fees 86 368 0,17% 91 760 0,13% 95 465 0,14% 91 119 0,16% Depreciations 2 898 306 5,75% 2 698 730 3,94% 3 195 712 4,82% 3 176 232 5,63% Other items of operating costs 531 175 1,05% 585 179 0,85% 542 533 0,82% 1 655 490 2,93% Financial activity costs 474 819 0,94% 445 833 0,65% 341 969 0,52% 454 013 0,80% - cost interests 335 486 0,67% 337 829 0,49% 244 263 0,37% 260 705 0,46% Extraordinary costs 0 0,00% 0 0,00% 0 0,00% 0 0,00% Income tax -723 522 -1,43% 1 002 542 1,46% 408 988 0,62% 158 068 0,28% - from ordinary activity -723 522 -1,43% 1 002 542 1,46% 408 988 0,62% 158 068 0,28% - from extraordinary activity 0 0,00% 0 0,00% 0 0,00% 0 0,00%

Value % of R Value % of R Value % of R Value % of RTotal revenues (R) 54 777 592 100,00% 72 565 104 100,00% 66 538 232 100,00% 57 140 360 100,00% Operating activity revenues 54 692 937 99,85% 72 543 493 99,97% 66 423 120 99,83% 57 053 838 99,85% Revenues from merchandise 17 956 0,03% 29 026 0,04% 84 019 0,13% 460 138 0,81% Revenues from production 52 190 434 95,28% 69 543 462 95,84% 63 632 054 95,63% 53 237 292 93,17% - revenues from sales of products 48 817 102 89,12% 68 652 712 94,61% 66 031 551 99,24% 53 318 434 93,31% Real estate-for-sale revenues 2 037 010 3,72% 2 579 309 3,55% 2 508 410 3,77% 3 168 144 5,54% Other items of operating activity revenues 447 537 0,82% 391 696 0,54% 198 637 0,30% 188 264 0,33% Financial activity revenues 84 655 0,15% 21 611 0,03% 115 112 0,17% 86 522 0,15% - revenues from sales of securities and shares 61 100 0,11% 1 793 0,00% 0 0,00% 21 256 0,04% Extraordinary revenues 0 0,00% 0 0,00% 0 0,00% 0 0,00%

Revenue structure2010

Cost structure2010 2013

2013

2012

2012

2011

2011

INCOME STATEMENT = PROFIT/LOSS STATEMENT

Items Nr. 2010 2011 2012 2013Revenue from the sale of merchandise (604) 01 17 956 29 026 84 019 460 138Cost of merchandise sold (504,505A) 02 25 027 -23 736 76 905 449 472Trade margin 03 -7 071 52 762 7 114 10 666Production 04 52 190 434 69 543 462 63 632 054 53 237 292Revenue from the sale of own products and services 05 48 817 102 68 652 712 66 031 551 53 318 434Changes in internal inventory 06 3 331 441 718 252 -2 494 635 -290 758Own work capitalized 07 41 891 172 498 95 138 209 616Production consumption 08 32 148 362 42 634 728 40 464 000 35 044 908Consumed raw materials, energy consumption, and consumption of other non- 09 26 600 536 35 288 182 33 262 020 25 907 690Services 10 5 547 826 7 346 546 7 201 980 9 137 218Added value 11 20 035 001 26 961 496 23 175 168 18 203 050Personnel expensesl 12 14 999 902 21 008 790 21 154 257 15 426 271Wages and salaries 13 10 664 710 14 870 143 14 484 479 10 662 855Remuneration of board members of company or cooperative 14 0 0 0Social security expenses 15 3 698 144 5 105 262 5 026 624 3 810 264Social expenses 16 637 048 1 033 385 1 643 154 953 152Taxes and fees 17 86 368 91 760 95 465 91 119Amortization and value adjustments to non-current intangible assets and 18 2 898 306 2 698 730 3 195 712 3 176 232Revenue from the sale of non-current assets and raw materials 19 2 037 010 2 579 309 2 508 410 3 168 144Carrying value of non-current assets sold and raw materials sold 20 445 428 353 820 355 424 1 319 021Creation and reversal of value adjustments to receivables 21 -68 624 4 348 8 331 662Other operating income 22 447 537 391 696 198 637 188 264Other operating expenses 23 154 371 227 011 178 778 335 807Transfer of operating income 24 0 0 0Transfer of operating expenses 25 0 0 0PROFIT/LOSS FROM OPERATIONS 26 4 003 797 5 548 042 894 248 1 210 346Revenue from the sale of securities and shares 27 61 100 1 793 0 21 256Securities and shares sold 28 75 415 0 0 121 508Income from non-current �nancial assets 29 15 361 0 61 833 0Income from securities and ownership interests in a subsidiary and in a 30 15 361 0 61 833 0Income from other long-term securities and shares 31 0 0 0Income from other non-current �nancial assets 32 0 0 0Income from current �nancial assets 33 0 0 0Expenses related to current �nancial assets 34 0 0 0Gain on revaluation of securities and income from derivative transactions 35 242 1 227 4 144Loss on revaluation of securities and expenses related to derivative transactions 36 6 684 407 1 206 6 102Creation and reversal of value adjustments to �nancial assets 37 0 0 0Interest income 38 2 980 4 627 16 237 5 858Interest expense 39 335 486 337 829 244 263 260 705Exchange rate gains 40 5 214 14 949 35 815 30 996Exchange rate losses 41 28 806 44 359 51 984 32 748Other income from �nancial activities 42 0 0 24 268Other expenses related to �nancial activities 43 28 428 63 238 44 516 32 950Transfer of �nancial income 44 0 0 0Transfer of �nancial expenses 45 0 0 0PROFIT/LOSS FROM FINANCIAL ACTIVITIES 46 -390 164 -424 222 -226 857 -367 491PROFIT/LOSS FROM ORDINARY ACTIVITIES BEFORE TAX 47 3 613 633 5 123 820 667 391 842 855Income tax on ordinary activities 48 -723 522 1 002 542 408 988 158 068- current 49 470 467 38- deferred 50 -723 522 1 002 072 408 521 158 030PROFIT/LOSS FROM ORDINARY ACTIVITIES AFTER TAX 51 4 337 155 4 121 278 258 403 684 787Extraordinary income 52 0 0 0Extraordinary expenses 53 0 0 0PROFIT/LOSS FROM EXTRAORDINARY ACTIVITIES BEFORE TAX 54 0 0 0Income tax on extraordinary activities 55 0 0 0- current 56 0 0 0- deferred 57 0 0 0PROFIT/LOSS FROM EXTRAORDINARY ACTIVITIES AFTER TAX 58 0 0 0PROFIT/LOSS FOR THE ACCOUNTING PERIOD BEFORE TAX 59 3 613 633 5 123 820 667 391 842 855Transfer of net pro�t/net loss shares to partners 60 0 0 0PROFIT/LOSS FOR THE ACCOUNTING PERIOD AFTER TAX 61 4 337 155 4 121 278 258 403 684 787

40

41

BALANCE SHEET

Items (netto) Nr. 2010 2011 2012 2013

TOTAL ASSETS 001 38 284 639 42 064 695 37 398 865 36 363 814 A. NON-CURRENT ASSETS 002 18 679 302 20 421 939 22 801 465 22 369 804 A.I NON-CURRENT INTANGIBLE ASSETS 003 123 045 86 771 215 490 261 849 A.I.1 Capitalised development costs 004 0 0 0 0 2 Software 005 114 775 68 479 211 111 254 997 3 Valuable rights 006 0 0 0 2 512 4 Goodwill 007 0 0 0 0 5 Other non-current intangible assets 008 7 112 4 530 1 684 4 340 6 Acquisition of non-current intangible assets 009 1 158 13 762 2 695 0 7 Advance payments made for non-current intangible assets 010 0 0 0 0 A.II PROPERTY, PLANT AND EQUIPMENT 011 18 004 917 19 690 555 22 409 172 21 680 458 A.II.1 Land 012 589 643 589 643 589 643 862 988 2 Structures 013 4 831 462 4 994 485 5 407 653 5 170 834 3 Individual movable assets and sets of movable assets 014 10 638 667 11 764 666 14 761 496 14 019 816 4 Perennial crops 015 0 0 0 0 5 Livestock 016 0 0 0 0 6 Other property, plant and equipment 017 1 894 607 1 691 327 1 549 548 1 307 587 7 Acquisition of property, plant and equipment 018 3 000 6 240 87 235 157 930 8 Advance payments made for property, plant and equipment 019 47 538 644 194 13 597 161 303 9 Value adjustment to acquired assets 020 0 0 0 0 A.III NON-CURRENT FINANCIAL ASSETS 021 551 340 644 613 176 803 427 497 A.III.1 Shares and ownership interests in a subsidiary 022 159 329 146 646 114 359 426 776 2 Shares and ownership interests with significant influence over 023 392 011 497 967 62 444 721 3 Other long-term shares and ownership interests 024 0 0 0 0 4 Intercompany loans 025 0 0 0 0 5 Other non-current �nancial assets 026 0 0 0 0 6 Other non-current �nancial assets 027 0 0 0 0 7 Acquisition of non-current �nancial assets 028 0 0 0 0 8 Advance payments made for non-current �nancial assets 029 0 0 0 0 B CURRENT ASSETS 030 19 524 723 21 587 149 14 516 783 13 913 437 B.I INVENTORY 031 9 354 560 10 482 525 7 427 723 6 506 084 B.I.1 Raw material 032 3 237 671 3 529 545 3 036 383 2 461 008 2 Work in progress and semi-�nished products 033 5 401 012 5 030 778 3 336 275 3 233 696 3 Finished goods 034 621 747 1 701 769 899 612 706 275 4 Animals 035 0 0 0 0 5 Merchandise 036 13 669 54 347 49 314 99 210 6 Advance payments made for inventory 037 80 461 166 086 106 139 5 895 B.II NON-CURRENT RECEIVABLES 038 1 143 524 339 179 316 528 244 484 B.II.1 Trade receivables 039 0 0 0 0 2 Net value of contract 040 0 0 0 0 3 Receivables from a subsidiary and a parent 041 0 0 0 0 4 Other intercompany receivables 042 0 0 0 0 5 Receivables from participants, members, and association 043 0 0 0 0 6 Other receivables 044 0 0 0 0 7 Deferred tax asset 045 1 143 524 339 179 316 528 244 484 B.III CURRENT RECEIVABLES 046 7 269 358 7 858 581 5 625 933 7 092 527 B.III.1 Trade receivables 047 7 013 018 7 461 701 5 540 261 6 322 939 2 Net value of contract 048 0 0 0 0 3 Receivables from a subsidiary and a parent 049 0 0 0 293 573 4 Other intercompany receivables 050 0 0 0 0 5 Receivables from participants, members, and association 051 0 0 0 0 6 Social security 052 0 0 0 0 7 Tax assets and subsidies 053 121 116 376 0 453 033 8 Other receivables 054 256 219 280 504 85 672 22 982 B.IV FINANCIAL ACCOUNTS 055 1 757 281 2 906 864 1 146 599 70 342 B.IV.1 Cash on hand 056 10 601 5 184 4 821 8 535 2 Bank accounts 057 1 742 551 2 834 745 1 038 661 21 925 3 Bank accounts with notice period exceeding one year 058 0 0 0 0 4 Current �nancial assets 059 4 129 66 935 103 117 39 882 5 Acquisition of current �nancial assets 060 0 0 0 0 C ACCRUALS/DEFERRALS 061 80 614 55 607 80 617 80 573 C.1 Prepaid expenses - long-term 062 0 8 13 745 16 494 2 Prepaid expenses - short-term 063 16 231 23 265 39 271 64 079 3 Accrued income - long-term 064 0 0 0 0 4 Accrued income - short-term 065 64 383 32 334 27 601 0

0 0 0 0

Items (netto) Nr. 2010 2011 2012 2013 TOTAL EQUITY AND LIABILITIES 066 38 284 639 42 064 695 37 398 865 36 363 814 A EQUITY 067 15 500 127 18 497 105 14 489 699 14 259 461 A.I SHARE CAPITAL 068 5 312 000 5 264 583 1 675 841 613 167 A.I.1 Share capital 069 5 312 000 5 312 000 5 312 000 5 312 000 2 Own shares and own ownership interests 070 0 -47 417 -3 636 159 -4 698 833 3 Change in share capital 071 0 0 0 0 4 Receivables related to unpaid share capital 072 0 0 0 0 A.II CAPITAL FUNDS 073 298 257 408 596 -74 240 218 205 A.II.1 Share premium 074 0 0 0 0 2 Other capital funds 075 0 0 0 0 3 Legal reserve fund (Non-distributable fund) from capital 076 0 0 0 0 4 Di�erences from revaluation of assets and liabilities 077 273 992 384 331 -98 505 218 205 5 Investment revaluation reserves 078 24 265 24 265 24 265 0 6 Di�erences from revaluation in the event of a merger 079 0 0 0 0 A.III FUNDS CREATED FROM PROFIT 080 1 062 205 1 109 817 4 698 559 5 761 233 A.III.1 Legal reserve fund 081 1 062 205 1 109 817 4 698 559 5 761 233 2 Non-distributable fund 082 0 0 0 0 3 Statutory funds and other funds 083 0 0 0 0 A.IV NET PROFIT/LOSS OF PREVIOUS 084 4 490 510 7 592 831 7 931 136 6 982 069 A.IV.1 Retained earnings from previous years 085 10 751 600 13 853 921 14 192 226 13 243 159 2 Accumulated losses from previous years 086 -6 261 090 -6 261 090 -6 261 090 -6 261 090 A.V NET PROFIT/LOSS FOR THE ACCOUNTING PERIOD AFTER 087 4 337 155 4 121 278 258 403 684 787 B LIABILITIES 088 22 580 413 23 407 740 22 721 682 21 982 069 B.I PROVISIONS 089 1 073 046 1 333 582 722 397 968 949 B.I.1 Legal provisions - long-term 090 0 0 0 0 2 Legal provisions - short-term 091 686 032 683 447 398 999 517 401 3 Other long-term provisions 092 151 475 295 871 299 662 312 434 4 Other short-term provisions 093 235 539 354 264 23 736 139 114 B.II NON-CURRENT LIABILITIES 094 1 574 161 1 316 130 2 246 425 2 270 888 B.II.1 Non-current trade liabilities 095 0 0 0 0 2 Net value of contract 096 0 0 0 0 3 Unbilled long-term supplies 097 0 0 0 0 4 Non-current liabilities to a subsidiary and a parent 098 0 0 0 0 5 Other non-current intercompany liabilities 099 0 0 0 0 6 Long-term advance payments received 100 0 0 0 0 7 Long-term bills of exchange to be paid 101 0 0 0 0 8 Bonds issued 102 0 0 0 0 9 Liabilities related to social fund 103 54 145 93 240 107 167 71 498 10 Other non-current liabilities 104 613 972 136 841 655 078 633 657 11 Deferred tax liability 105 906 044 1 086 049 1 484 180 1 565 733 B.III CURRENT LIABILITIES 106 9 095 676 10 187 853 5 568 011 7 131 176 B.III.1 Trade liabilities 107 7 243 419 8 152 664 3 047 261 5 421 552 2 Net value of contract 108 0 0 0 0 3 Unbilled supplies 109 33 403 102 940 7 958 7 895 4 Liabilities to a subsidiary and a parent 110 0 0 0 22 563 5 Other intercompany liabilities 111 0 0 0 0 6 Liabilities to partners and association 112 10 300 12 429 9 000 30 436 7 Liabilities to employees 113 815 992 986 604 1 345 340 675 360 8 Liabilities related to social security 114 620 341 627 627 616 389 435 997 9 Tax liabilities and subsidies 115 237 396 137 488 262 126 86 780 10 Other liabilities 116 134 825 168 101 279 937 450 593 B.IV SHORT-TERM FINANCIAL ASSISTANCE 117 0 0 0 0 B.V BANK LOANS 118 10 837 530 10 570 175 14 184 849 11 611 056 B.V.1 Long-term bank loans 119 0 3 975 298 4 340 622 2 705 947 2 Current bank loans 120 10 837 530 6 594 877 9 844 227 8 905 109 C ACCRUALS/DEFERRALS - TOTAL 121 204 099 159 850 187 484 122 284 C.1 Accrued expenses - long-term 122 0 0 0 0 2 Accrued expenses - short-term 123 0 0 0 0 3 Deferred income - long-term 124 76 445 89 912 83 091 76 270 4 Deferred income - short-term 125 127 654 69 938 104 393 46 014

42

STATEMENTS AND NOTICES

Areál PPS Group a.s.

Tajovského 7

962 12 DETVA

Tel: +421 45 52 19 202

Fax: +421 45 52 19 110

E-mail: pps@ppsgroup.sk

Web: www.ppsgroup.sk

Annual Report 2013 is a public document. Its paper copy is available on request in the company’s seat.Its electronical copy in the PDF file format is available for downloading on the web site www.ppsgroup.sk/documents, where also the archive of deeds of previous years is situated.