Work Service Buy · E-mail: [email protected], [email protected] Website: We initiate...

Firing on all cylinders

Analyst: Piotr Drozd, Piotr Bogusz Warsaw: +48 22 222 1547E-mail: [email protected], [email protected] Website: www.wood.cz

We initiate coverage on Work Service with a BUY rating and targetprice of PLN 16.6/share, implying 28% upside. Work Service is aleading player in the CEE human resources services market, with aNo.1 position in Poland and an increasing footprint in Germany andRussia. We expect Work Service to fire on all cylinders this year asan M&A-driven earnings surge meets a combination of highlysupportive cyclical and secular 2014E growth drivers. We believeCEE’s accelerating GDP growth will boost demand for the macro-sensitive staffing and outsourcing services within the company’score markets in 2014E. On top of the cyclical upturn, we see strongsecular growth potential, driven by the increasing popularity oftemporary staffing services in CEE, still largely underused versusdeveloped, Western European markets. Against the cyclical andsecular tailwinds, coupled with successful M&A-driven expansion,we expect Work Service to deliver net profit growth of 108% yoyin 2014E, and EPS CAGR for 2013E-2020E of 28%. In light of thecompelling growth prospects, we view the company’s currentvaluation of 14.3 and 10.3 on P/E and EV/EBITDA, at respective19% and 1% discounts to industry peers as a BUYing opportunity.

Completed acquisitions boost 2014E earnings, further upside fromthe pending German acquisition. Work Service closed three out offour targeted acquisitions in late 2013, bringing in a PLN 453m boostto 2014E sales, we estimate, and expanding its share within the CEEmarkets. Together with the pending German acquisition, which weexpect to be the key positive share price catalysts, we estimate theM&A’s positive impact at PLN 599m on the top line (37% of 2014Esales) and PLN 25.6m on reported EBIT (30% of our forecasts). Weview Work Service’s strong M&A track record with historicacquisition multiples in the 7.0-8.0x EV/EBIT range, as well asPineBridge’s involvement in the M&A process (Work Service’s 23%shareholder) as a strong argument supporting the company’sinternational expansion-oriented business model.

Secular earnings growth boosted by the cyclical uptrend. On top ofthe M&A angle, we see two key growth drivers supporting WorkService’s earnings expansion: 1) the forecasted 2013E-2016E 6.5%CEE temporary staffing market CAGR supported by the markets’convergence to Western European levels (1.9% temporary staffingmarket penetration vs. 1.0% in Poland in 2011, 0.4% in 2009), and2) continued revival of regional macroeconomic conditions withPolish 2014E GDP growth of 3.2% stimulating demand from WorkService’s pro-cyclical client base (automotive, FMCG, industrials).

Valuation. Work Service is currently traded at a 2014 P/E andEV/EBITDA of 14.3x and 10.3x, respectively, at 1-19% discounts toindustry peers. In light of the company’s growth profile andsupportive market environment, we view these levels as attractive.Risks to our positive stance include M&A failure, regulatory changes,increased market competition, lower-than-expected pace of themacroeconomic revival in Germany and CEE.

Expected Events

4Q13 results 21 Mar 2014

Key Data

Market Cap PLN 776.3 m Free Float 31 % Shares outstanding 60 m Average daily volume PLN 0.54 m Majority Shareholder Prologics UK LLP (32.4%) Bloomberg Code WSE PW WIG Index 51,284

Price Performance

52-w range (PLN) 6.84 — 12.95 YTD PLN Performance 3.6 % Relative YTD PLN Performance 4.0 %

Work Service price performance

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WSE PW EquityWIG Index

EQUITY

RESEARCH

Services, Poland February 6, 2014

Price: PLN 12.95Price target: PLN 16.6

Initiation of coverage

BuyWork Service

Year Revenues EBIT Net Profit EPS EPS P/E EV/EBITDA PBV Div ROEPLNm PLNm PLNm PLNm YoY (x) (x) (x) yield

2015E 1,985 109.9 70.9 1.18 30.7% 10.9 7.8 2.0 2.3% 18.3%

2014E 1,623 85.6 54.2 0.90 108.3% 14.3 10.3 2.5 1.7% 17.1%

2013E 893 47.8 26.0 0.43 2.3% 29.8 16.3 3.1 0.0% 10.3%

2012 727 39.1 20.4 0.42 3.8% 30.5 16.9 5.1 0.0% 16.6%

2011 618 31.1 21.6 0.41 NM 31.7 21.7 8.6 0.7% 27.2%

2010 499 26.0 15.3 0.30 NM NM NM 8.1 0.0% 18.7%

Work Service 2 WOOD & COMPANY

Contents

Contents ............................................................................................................ 2

Investment summary ......................................................................................... 3

Valuation ........................................................................................................... 8

Acquisitions drive the 2014E earnings surge .................................................... 11

Shifting business mix to support margins ......................................................... 14

Organic growth driven by highly supportive market trends ............................ 17

Forecast summary ............................................................................................ 22

Financials ......................................................................................................... 26

Appendix 1: Market overview .......................................................................... 29

Closing Prices as of February 5, 2014 © 2014 by WOOD & Company Financial Services, a.s. All rights reserved. No part of this guide may be reproduced or transmitted in any form or by any means electronic or mechanical without written permission from WOOD & Company Financial Services, a.s. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published without written permission from WOOD & Company Financial Services, a.s. Requests for permission to make copies of any part of the book should be mailed to: WOOD & Company Financial Services a.s. Palladium, Namesti Republiky 1079/1a, 110 00 Prague 1 — Czech Republic tel.: +420 222 096 111 fax: +420 222 096 222 http//: www.wood.cz


Investment summary We initiate coverage on Work Service with a Buy rating and a price target of PLN 16.6/share, implying 28% upside potential to the current price. Work Service is a leading player in the CEE personnel staffing and outsourcing market, with a No.1 position in Poland and an increasing footprint in German and Russia. We expect the company to fire on all cylinders in 2014, boosted by sizable M&A transactions completed in late 2013 as well as a combination of highly supportive cyclical and secular earnings drivers. With a PLN 599m boost from the acquisition-driven business portfolio expansion this year, we expect M&As coupled with continued organic growth to drive 82% growth in Work Service’s top line in 2014E, translating into EBIT growth of 79% yoy. Beyond the M&A-driven growth, supported by Work Service’s shareholder and advisor — PineBridge Investments, we see a bright future for the CEE staffing and outsourcing markets driven by both by cyclical and secular factors. We expect CEE’s macroeconomic uptrend and accelerating GDP growth to boost demand for the macro-sensitive staffing and outsourcing services within the company’s core markets. On top of the cyclical upturn, we expect to see further growth driven by the increasing popularity of temporary staffing services in CEE, still largely underused versus developed, Western European markets. Against the cyclical and secular tailwinds, coupled with successful M&A-driven international expansion, we expect Work Service to deliver 108% yoy net profit growth in 2014E and 2013E-2020E EPS CAGR of 28%. Against the growth prospects, we view the company’s current valuation of 14.3 and 10.3 on P/E and EV/EBITDA, at respective 19% and 1% discounts to industry peers as a BUYing opportunity.

Polish market leader with increasing regional ambitions

Poland’s No.1 HR market player with a strong foothold in CEE and appetite for more. With a 23% share in the Polish temporary employee services market, Work Service is Poland’s largest temporary staffing agency, overtaking international heavyweights such as Randstad, Manpower and Adecco. While Poland accounts for c.80% of Work Service’s 2013E revenues, we expect the company’s 2013 acquisitions (Hungarian ProHuman, Antal and Work Express both with international exposure) and the pending German acquisition to reduce Poland’s share to 66% in 2014E. Work Service’s core client portfolio is represented by cyclical industries including: the automotive industry (24% of sales), call centres, FMCG companies, industrials and financials. Work Service’s growth strategy assumes further M&A-driven expansion into neighbouring markets and building a strong international franchise along the Berlin-Moscow-Istanbul triangle.

Building on two business pillars — temporary staffing and outsourcing. The temporary staffing segment is Work Service’s main revenue driver with a 65% share in the 2013E top line, followed by outsourcing services (34% share) and personnel counselling (1%). However, as a higher-margin business, outsourcing services account for 65% of EBIT in 2014E, on our estimates, and we expect this share to gradually increase to 69% in 2020E on the back of a growing revenue stream from the higher value-added services.

M&A-driven earnings expansion to surface in 2014E

Acquisitions completed in late 2013 drive 2014E earnings growth. In 2013, Work Service closed three transactions acquiring: 1) Antal International (paying PLN 27.1m), 2) Work Express (PLN 41.2m), and 3) ProHuman (PLN 75m, 3rd largest player in the Hungarian temp staffing market), and is on the brink of closing an acquisition in Germany (we expect it to be consolidated in 2HY 2014). We forecast PLN 599m top line and PLN 25.6m EBIT contribution from the acquisitions in 2014E and a further PLN 8.7m EBIT boost in 2015E (full-year consolidation of the German company). We expect the German acquisition, the value of which we estimate at PLN 57m, to contribute EBIT of PLN 7.4m in 2014E and PLN 17.4m in 2015E, i.e. 8.7% and 15.9% of our consolidated forecasts, respectively. We perceive the closing of the German transaction as the key positive share price catalyst in the near term and, accordingly, as the greatest single short-term risk factor.

Proven track record. Our positive stance on the financial contribution of the acquired entities stems from Work Service’s proven M&A track record (acquisition of Exact Systems, Proservise, Sellpro, Zak and IT Kontrakt). In light of Work Service’s 2008-2012 average acquisition price of 7.0x on EV/EBIT and with the support of PineBridge, Work Service’s


23% shareholder and M&A advisor (lock up until 2018), we believe in the successful integration of the acquired business, and see further M&A-driven growth potential. On the back of the investment agreement with PineBridge, Work Service has earmarked PLN 250m for acquisitions until the end of 2015E. Against the PLN 143m spent to date, this implies a further PLN 50m to be spent on top of the PLN 57m German transaction included in our financial forecasts (our estimates based on a 7.5x EV/EBIT multiple, 2014E EBIT of PLN 14.9m and a 51% stake). Work Service’s acquisitions are financed by three key sources: 1) PineBrigde’s PLN 105m investment made in January 2013, 2) Q-series bonds issuance of PLN 55m in 4Q 2013, and 3) operating cash flows.

Organic growth underpinned by highly supportive market trends

Work Service well-positioned to ride Poland’s growing temporary staffing penetration rate trend. Based on market forecasts, we expect the CEE temporary staffing market to grow at a 6.5% CAGR over 2013-16E, while Poland should see 5.5% CAGR. Poland’s temporary employment penetration rate rose from 0.37% in 2009 to the level of 0.98% in 2011 vs. an Western European average of 1.9%. The convergence to levels more in tune with the European average has accelerated in 2010 with the introduction of supportive temporary employment laws. We expect the penetration rates to continue to expand, driving market growth and reaching 1.3% in 2016E, as forecasted by market consultants. As the market leader in HR services with a c.22% market share, we expect Work Service to be the main beneficiary of the secular growth trend.

Poland’s attractiveness as an outsourcing destination enhances staffing market growth. Highly qualified labour force priced at a discount to Western Europe, a stable regulatory environment, and proximity to the EU15 markets are among the key factors contributing to Poland’s attractiveness as a business process outsourcing (BPO) destination. According to the Tholon’s, Eastern Europe ranks among the world’s top three outsourcing destinations with Polish cities such as Krakow ranked 9th out of 100 listed cities globally. We expect the BPO market to continue to expand, benefiting both temporary staffing but also Work Service’s outsourcing services, as more simple client services are gradually replaced by more advanced, value-added services requiring more specialised staff.

Macro environment to amplify secular trends in 2014E

Compelling Polish macro outlook supports our positive stance. The demand for staffing services strongly correlates with the general employment trends and thus GDP dynamics, as evidenced by a 0.73 2001-11 correlation between the Polish temporary staffing penetration (share in total employment) to falling unemployment rates. With Poland accounting for around two-thirds and CE3 making up more than 75% of our 2014E revenue forecasts, we see Work Service as a play on the Polish/CE3 GDP rebound story on top of the secular staffing market growth. Leading indicators remain supportive to our bullish case as Polish and Czech PMI indices have improved significantly over the past few months, following the German trend. Polish PMI reached 55.4 in January, with further upside as indicated by the ZEW expectations index, reaching the highest level on record in December and declining only slightly in January.

CE3 on the growth path, Poland in the lead. Based on the leading indicators, we expect growth to continue to recover in CE3 in 2014E, in line with the positive quarterly GDP trend already visible in 2013. Based on our in-house forecasts, we expect Germany’s economy to continue to recover in 2014E and to expand at a 2.2% rate vs. 0.6% in 2013E. Within CE3 we expect Poland to post the most dynamic growth rates with GDP expanding at a 3.2% rate yoy in 2014E driven by pre-election spending, more investments by companies and higher private consumption. The Czech Republic should follow with 2.5% growth and Hungary with 2.3%. We are less constructive on Russia, where we expect only 2.0% yoy GDP growth in 2014E.

Firing on all cylinders: earnings set to surge 108% in 2014E

Top line growth of 82% yoy to drive 79% EBIT and 108% net profit expansion in 2014E. Incorporating the positives, including M&As, cyclical and secular growth drivers, we expect Work Service to post PLN 1,623m in revenues in 2014E (up 82% yoy) of which PLN 599m added by completed / pending (Germany) M&A transactions. This translates into PLN 85.6m in 2014E EBIT and PLN 54.2m in net profit, up 79% and 108% yoy, respectively. With two out of the four companies to be consolidated in 2014E focusing


primarily on temporary staffing, we expect this segment is marginally increasing its share in 2014E. In 2015E, the first year of full consolidation of the German subsidiary (outsourcing accounts for 60% of the business), we expect the share of outsourcing to rebound and continue to expand, driven by supportive market trends, cross-selling opportunities.

German acquisition accounts for 24% of our M&A-driven top line growth in 2014E and 40% in 2015E. While the completion of the German acquisition is pending as details are being worked out, based on the management’s high conviction we estimate the probability of the deal going through is very high. In our modelling, we assume a transaction price of PLN 57m for the German unit and revenue contribution of PLN 146m in 2014E (half year) and PLN 336m in 2015E. This translates in to additional PLN 7.4m in EBIT in 2014E and PLN 17.4m in 2015E, i.e. 8.7% and 15.9% of our consolidated forecasts, respectively. We expect the deal to be closed at an EV/EBIT multiple of 7.5, in line with management expectations.

Work Service: Wood revenue forecasts, PLNm Revenue split by segments over 2011-20E

Source: Company data, Wood Research

Shifting business mix to support consolidated margins. With outsourcing generating margins at 2-3x the level of temporary staffing on the gross profit level, we expect Work Service’s gradual shift towards outsourcing to benefit blended margins going forward. Our forecasts assume EBIT margin expansion from 5.4% in 2013E to 6.5% in 2020E. We note that our margin forecasts remain conservative versus the targets in the management motivational plan, which assume EBIT profitability to reach 7.7% in 2017E.

Work Service gross margin breakdown by segments* Margins evolution over 2011-20E

Source: Company data, Wood Research, *gross profit excluding overhead costs

Wood vs. management’s motivational targets. Work Service’s motivational programme assumes issuance of up to 291 warrants converted into shares annually (1.5m in total, potential 1.8% dilution) contingent on reaching at least 85% of a pre-set EBIT level for each year from 2013E to 2017E. While our revenue forecasts stand 28% above management’s 2014E target of PLN 1,243m, we note that we are 5-10% below the PLN 1,700-1,800 range considered achievable by management, in light of the completed acquisitions. We remain more conservative on the EBIT margins, however, which implies that the 2013E-2017E EBIT targets will be exceeded in 2015E-2017E, implying issuance of 1,350k out of the 1,500k warrants envisaged in the motivational programme.

727 887 1,024 1,147 1,263 1,368 1,479 1,600 1,7336

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2012 business portfolio 2013 acquisitions German acquisition

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Motivation programme assumptions vs. Wood results forecasts, PLNm*

Source: Company data, Wood Research, *does not fully account for positive impact of M&A, management sees potential for PLN 1.7-1.8bn in 2014E sales

Wood vs. consensus estimates. We note that Work Service remains an under-covered name, with forecasts provided by only two brokers and hence comparison to consensus figures may easily be tainted by e.g. infrequent updates, outliers. Nonetheless, our figures currently stand broadly at par with consensus on 2013E revenues, but 8.1% below on net profit due to: 1) more conservative 2013E margin assumptions, and 2) transaction costs booked in 4Q and related to the acquisition of Work Express and ProHuman. On 2014E numbers are 9.0% above consensus on sales and 3.9% on net profit, but we are more upbeat on 2015E figures with revenues of PLN 1,985m and net profit of PLN 70.9m, respectively, 18.0% and 14.4% above consensus.

Wood vs. consensus estimates, PLNm

Source: Bloomberg Finance LP, Wood Research

WS Target Wood WS Target Wood WS Target Wood WS Target Wood WS Target Wood

PLNm 2013 2013E 2014* 2014E 2015 2015E 2016 2016E 2017 2017E

Revenue 1,118.4 892.6 1,242.6 1,622.6 1,374.5 1,984.5 1,516.3 2,204.6 1,809.9 2,393.3

EBIT 76.9 47.8 87.7 85.6 98.6 109.9 113.8 126.3 139.3 141.7

EBIT margin 6.9% 5.4% 7.1% 5.3% 7.2% 5.5% 7.5% 5.7% 7.7% 5.9%

Wood fcast vs. target EBIT 62.2% 97.6% 111.5% 111.0% 101.8%

Reported Wood ConsensusWood vs

consensusWood Consensus

Wood vs


Wood vs

consensusPLNm 2012 2013E 2013E diff % 2014E 2014E diff % 2015E 2015E diff %

Revenues 727.4 892.6 904.0 -1.3% 1,622.6 1,489.0 9.0% 1,984.5 1,682.0 18.0%

EBITDA 43.3 53.2 53.3 -0.3% 93.3 90.7 3.0% 119.5 105.0 13.8%

EBIT 39.1 47.8 48.3 -1.0% 85.6 82.3 4.0% 109.9 96.3 14.1%

Pre-tax profit 24.8 33.4 35.2 -5.1% 73.3 69.9 4.9% 95.8 83.0 15.4%

Net profit 20.4 26.0 28.4 -8.1% 54.2 52.2 3.9% 70.9 62.0 14.4%


Valuation and risks

Attractive valuation implies further upside potential. While Work Service has been a strong performer in 2013 (+94%), we believe that the market has not yet fully priced in the company’s earnings growth prospects in 2014E and beyond. Against the secular, cyclical and M&A-related growth drivers, we continue to see upside to our and consensus forecasts stemming from: 1) strong M&A track record coupled with the not full utilisation for the PLN 250m M&A budget, 2) sizable cross-selling potential implying margin upside, and 3) the increasingly supportive CEE macro backdrop as gauged by both GDP dynamics and the leading macro indicators. Work Service is currently traded at 2014E P/E and EV/EBITDA multiples of 14.3x and 10.3x, respectively, at 1-19% discounts to industry peers, at levels which we continue to find attractive, and recommend to BUYing into the HR market growth story.

Historical performance vs. the WIG index 2014E valuation multiples vs. industry peers


Share price performance geared to macro expectations. We note that the EUR-based stock prices performance of major European temporary staffing players has been largely correlated over the past two years. Due to the strong gearing of temporary staffing demand to the macroeconomic environment, the share price performance of the leading staffing peers has closely reflected economic expectations, as represented by the ZEW Eurozone index. While we consider the macro trends to be a prime driver of share performance, we expect Work Service’s underlying secular earnings expansion combined with M&A activity to provide and additional share price stimulus on top of the cyclical trend.

Staffing peer share price performance, EUR, rebased Peer price performance (rebased) vs. ZEW index


Risks. The key risks to our positive stance include: 1) delays in the German acquisition, which accounts for 8.7% of our 2014E and 15.9% of our 2015E EBIT forecasts; 2) general acquisition processes failure, including delays, integration issues, inflated acquisition multiples; 3) unfavourable changes in the labour market regulations, 4) increased market competition both in Poland and the foreign markets leading to margins erosion; and 5) lower-than-expected pace of the macroeconomic revival in Germany and CEE.’

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Work ServiceAdeccoRandstadManpowerHaysCPL Resources

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Eurozone ZEW index (rhs) Adecco (lhs)Randstad (lhs) Manpower (lhs)Hays (lhs) CPL Resources (lhs)


Valuation

Setting our target price at PLN 16.6/share

We set our 12-month PT on Work Service at PLN 16.6/share, and we initiate our coverage on the stock with a Buy rating. Our PT is based on the respective, 50:50 weighted average returned by our DCF model and peer multiples.

Valuation summary

Source: Wood Research

Our DCF-based valuation returns PLN 17.8/share

Our DCF model operates on the following assumptions:

We expect Work Service’s temporary staffing to deliver 87% top-line growth in 2014E and 15% in 2015E. We pencil in PLN 599m positive top-line contribution from the consolidation of Antal, ProHuman and WorkExpress as well as the to-be-acquired German company (HY 2014E). Over 2014E-2020E, we forecast the segment’s revenues to expand at a 9% CAGR driven primarily by organic growth and cross-selling of services within the core markets. Our forecasts assume 285% temporary staffing EBIT growth in 2014E and a 13% EBIT CAGR over 2014E-2020E.

We expect Work Service’s specialised outsourcing segment to grow revenues by 71% in 2014 and expand at 2014E-2020E CAGR of 15%. We expect outsourcing to grow its share in consolidated revenues from 31% in 2014E to 39% in 2020E, supporting Work Service’s 1.1ppt EBIT margin improvement over the forecast period.

Overall, we forecast 82% yoy sales growth in 2014E, which, as we estimate, should translate into a roughly 79% expansion of EBIT and 108% net profit growth. In 2015E, we expect sales to expand by 22% yoy, EBIT by 28% and net profit by 31%, to PLN 1,985m, PLN 110m and PLN 70.9m, respectively.

We assume capex of PLN 92m in 2013E (including the costs of Antal International, Work Express acquisitions and first instalment for ProHuman). In 2014E, we expect capex of PLN 122m, including the acquisition of a 51% stake in German company and remaining payment for ProHuman (PLN 50m).

Our model operates on a WACC of 9.9-10.5%, RFR of 4.5%, ERP of 5.0% and leveraged beta of 1.2, in order to reflect the higher risk profile of the personnel staffing market. We assume a TGR of 3.0%.

According to the agreement, up to 6.2m share could be issued if no acquisitions were made in 2013E, resulting in a large EBIT miss vs. a pre-approved target. As this is not the case, against our pro-forma EBIT forecasts for 2013E, we expect a total of only 200k to be issued in 2014E, in line with management expectations.

Methodology Equity value, PLNm PLN/share % weight

DCF valuation 1,073 17.8 50%

Peer multiple valuation 921 15.3 50%

12 M target price 16.6

Current price, PLN/share 12.95

Price upside/downside 28.0%


Work Service: DCF valuation


PLNm 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Revenues 727.4 892.6 1,622.6 1,984.5 2,204.6 2,393.3 2,590.7 2,806.2 3,041.8

YoY 17.7% 22.7% 81.8% 22.3% 11.1% 8.6% 8.2% 8.3% 8.4%EBITDA 43.3 53.2 93.3 119.5 137.2 154.1 170.6 189.6 210.1

EBITDA margin 6.0% 6.0% 5.8% 6.0% 6.2% 6.4% 6.6% 6.8% 6.9%D&A 4.2 5.4 7.7 9.6 10.9 12.4 12.4 12.9 12.8

EBIT 39.1 47.8 85.6 109.9 126.3 141.7 158.3 176.7 197.3

EBIT margin 5.4% 5.4% 5.3% 5.5% 5.7% 5.9% 6.1% 6.3% 6.5%Tax on EBIT 2.7 5.3 9.0 11.6 13.2 14.7 16.4 18.2 20.3

NOPLAT 36.4 42.5 76.6 98.3 113.1 127.0 141.9 158.5 177.0

CAPEX 53.1 91.8 121.5 9.6 10.9 12.4 12.4 12.9 12.8

Increase in WC 31.1 25.9 45.1 30.3 24.4 23.9 25.8 28.5 31.4

D&A -3.6 -5.4 -7.7 -9.6 -10.9 -12.4 -12.4 -12.9 -12.8

Net investment 80.6 112.3 158.9 30.3 24.4 23.9 25.8 28.5 31.4

FCF -69.9 -82.4 68.0 88.7 103.1 116.1 130.0 145.5

WACC 9.9% 9.9% 10.1% 10.3% 10.5% 10.5% 10.5%Discount ratio 91.0% 82.8% 75.2% 68.2% 61.7% 55.8% 50.5%

PV FCF -75.0 56.3 66.7 70.3 71.7 72.6 73.5

WACC 10.0%

Cost of debt 8.0%Risk Free 4.5%Debt risk premium 3.5%Effective tax rate 12.0%

Cost of equity 10.5% Sensitivity analysis Beta

Equity risk premium 5.0% 1.00 1.10 1.20 1.30 1.40

Beta 1.20 2.0% 18.6 17.2 15.9 14.8 13.8

2.5% 19.8 18.2 16.8 15.6 14.5

g 3.0% g 3.0% 21.2 19.4 17.8 16.5 15.2

Terminal value (TV) 1,615 3.5% 22.9 20.8 19.0 17.4 16.1

PV TV 816 4.0% 24.8 22.4 20.3 18.6 17.1

PV of FCF 249

Enterprise value (EV) 1,065

Net debt 79.0

Minorities 23.2

Equity value 963

# of shares 60.1

Value per share (PLN) 16.0

12M cost of equity 11.4%Target price 17.8


Peer comparison implies a valuation of PLN 15.3/share

We base our peer valuation on the consensus P/E and EV/EBITDA multiples of global personnel staffing peers.

Personnel staffing peer valuations: prices as of 5 February 2014


Peer comparison: prices as of 5 February 2014

Source: Wood Research

Key risks to our valuation and recommendation

Macroeconomic demand drivers. Demand for personal staffing services is strongly correlated to the labour market conditions and the macroeconomic backdrop. Work Service’s clients represent macro-sensitive industries, including the automotive and FMCG sectors. Hence deceleration in Polish/CEE GDP growth rates could negatively affect the company’s growth rates and increase market competition.

Changes in regulatory environment. Amendments to the labour law could influence both the margins as well as the demand for temporary staffing solutions. Further liberalisation of permanent employment regulations may negatively affect the relative attractiveness of temporary staffing negatively affecting Work Service’s revenue growth rates.

Integration of acquired businesses. Work Service’s earnings growth strategy hinges on successful integration of the acquired companies as well as further acquisitions within the key markets. Risks include: 1) delays in finalising the German acquisition; 2) overpaying for the acquired companies; 3) integration issues including decreased motivation of previous business owners/management; 4) delays in the finalisation of the acquisition in Germany; and 5) lower-than-expected results achieved by the acquired companies. We expect the involvement of PineBridge to be a supportive factor in this respect, however.

Competition with the new markets. New entrants in the Polish market and/or more aggressive sales strategies of international competitors may undermine Work Services leading position in the Polish market and negatively affect the company’s expansion plans in the core CEE, German and Russia markets.

Company Ticker

2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E

Michael Page MPI LN Equity 15.3 12.2 9.3 30.5 24.1 18.2 6.9 5.9 5.1

CPL Resources CPL ID Equity 14.7 13.1 10.8 20.2 17.6 15.0 NA NA NA

Hays HAS LN Equity 13.1 12.1 9.9 25.9 22.7 17.7 8.3 6.9 5.5

Adecco ADEN VX Equity 12.5 10.4 8.7 18.4 15.2 12.9 3.4 3.1 2.8

Randstad RAND NA Equity 13.3 10.1 8.2 20.9 16.3 13.7 2.8 2.6 2.3

Robert Half RHI US Equity 11.3 9.5 8.0 21.2 18.7 16.3 5.7 4.8 3.9

Manpower MAN US Equity 8.3 6.6 5.4 17.4 15.2 13.4 2.1 1.8 1.7

Staffing agencies peers Median 13.1 10.4 8.7 20.9 17.6 15.0 4.5 4.0 3.4

EV/EBITDA (x) P/E (x) P/BV (x)

Company Ticker Price Weighted

local 2014E 2015E 2014E 2015E valuation

Work Service WSE PW 10.3 7.8 14.3 10.9

Temporary staffing agencies 10.4 8.7 17.6 15.0

Premium/discount vs. staffing agencies -1% -11% -19% -27%

778 887 956 1,063

Weight 25% 25% 25% 25% 921

P/E (x)

Implied equity valuation, PLNm

Peer-based valuation

EV/EBITDA (x)


Acquisitions drive the 2014E earnings surge

M&A plays a key role in Work Service’s growth strategy

Cornerstones of Work Service’s strategy. Work Service’s business growth strategy assumes continued expansion within the CEE, German, Russian and Turkish markets coupled with a focus on sustaining organic growth and profitability within the core business. The company’s strategic initiatives include:

Maintaining growth of the core business. Work Service aims to continuously expand its client base as well as focus on cross-selling outsourcing services to existing temporary staffing clients.

Profitability improvement via diversification into more value-added services. On top of the cross-selling efforts, management is looking to increase the company’s profitability via buying into higher value-added businesses including BPO and personnel counselling (e.g. represented by Antal International).

Tapping into the fragmented agency market in Poland by building and expanding a proprietary franchise network. Work Service intends to remain a consolidator of the Polish agency market by launching a franchise network built around the company’s business infrastructure.

Strengthening the footprint in Germany, Russia and Turkey. The management continues to increase its foreign market presence with the aim of becoming the leader in HR services in the broader region defined as the “the Berlin-Moscow-Istanbul axis”. Furthermore, the company is looking to expand operations in the Romanian market by means of business acquisition.

Compelling M&A track record, 2013 acquisitions to shine in 2014E/15E

Historic acquisitions transactions closed at attractive valuations… Based on the reported data, the acquisitions completed by Work Service in 2008-2012 were closed at valuations ranging from 4.8x-12.3x EV/EBIT (IT Kontrakt — high margin outsourcing business) with an average valuation level of 7.2x EV/EBIT (one-year forward, where available). We find this attractive in light of Work Service’s 2014E EV/EBITDA multiple of 10.3x.

Summary of Work Service’s completed M&A transactions


CompanyCountries of

operations

Year of

transaction

Acquired

stake

Price,

PLNmYear EBIT

EV/EBIT

multiplesBusiness description

ProService Worldwide Russia 2008 100% 73.8 2008 11.0 6.7x

2009 15.4 4.8x

Sellpro Poland 2009 100% 7.4 2009 0.4 18.5x

2010 1.3 5.6x

Exact Systems 2009 76% 12.0 2009 2.0 8.0x

2010 2.5 6.2x

Poland 2010 100% 8.0 2009 -0.6 n.a.

2010 -1.8 n.a.

IT Kontrakt Poland 2012 75% 57.1 2011 11.2 6.8x

2012 6.2 12.3x

Antal International 2013 100% 27.1 2011 1.7 15.5x

2012 2.2 12.6x

Work Express 2013 80% 41.2 2011 6.2 8.4x

2012 1.1 45.2x

ProHuman Hungary 2013 75% 75.0 2011 1.2 82.2x

2012 4.8 21x

Żak System

(now Medi Staff)

Comprehensive cleaning services for

healthcare facilities, other public

facilites and private sector institutions.

3rd largest temporary staffing agency in

Hungary

Outsourcing of sales, merchandising and

logistics processes.

Supporting services for sales and

merchandising processes.

Poland, The

Czech Republic,

Germany, Russia

Specialized services in personnel

outsourcing for quality control of

automotive components and consumer

electronics.

Outsourcing of: IT specialists, systems

testing, IT projects, IT recruitment

Poland, The

Czech Republic,

Personnel counselling concentrated on

recruitment process of mid- and high

level employees.

Poland, Belgium,

France, Germany

and UK

Cross-border exchange of temporary

employees.


…2013 acquisitions will exhibit true earnings potential in 2014E/2015E. According to Work Service, the company targets acquisition multiples of 7.0x-8.0x on EV/EBIT. In 2013 Work Service closed three deals involving Antal International, Work Express and ProHuman. Against the lack of reported 2013 data, we present the prices paid for the three entities against 2011 and 2012 earnings. While on 2012 figures the multiples paid are in the double-digit territory, we expect the earnings growth profile of the acquired businesses to bring valuations down to 7.4x in the case of Antal (high-margin, personnel counselling), 9.0x for ProHuman (at a discount to the listed international temporary staffing peers), but more than 15.0x EV/EBIT for Work Express.

We expect the acquired companies’ profitability to improve over 2014E/15E, supported by revenue synergies (access to new markets, cross-selling existing multi-national clients). In order to minimise integration risks, WS typically aims to acquire a sub-100% stake in the target company — allowing the previous owners to retain minority stakes and incentivising them to maintain an active role in the day-to-day management of the acquired business. This approach has allowed WS to build up a successful acquisition track record which, in our view, positively reflects on the company’s growth prospects.

Supported by PineBridge’s equity investment

M&A-driven expansion continued… In 2007 Work Service acquired a controlling stake in Exact Systems — the market leader in quality control outsourcing services in Poland, Germany, Czech Republic, Russia and Slovakia. In 2008 the company took over ProService, a leading player in the Russian logistics, merchandising and marketing outsourcing market. Over the next years WS successfully completed a number of acquisitions including Sellpro (2009), Medi Staff (2010), IT Kontrakt (2012), Antal International, Work Express and ProHuman (2013).

…now with the aid of Work Service’s equity investor - PineBridge. Listed on the Warsaw Stock Exchange since April 2012, in 2013 Work Service gained an important shareholder and M&A advisor — PineBridge Investments. In January 2013, PineBridge acquired a 20.02% stake in Work Service for PLN 105m (12k shares at PLN 8.75/share) with a lock-up expiring in 2018. The fund currently holds a 22.9% stake in Work Service. We view PineBridge’s involvement in the company as a strong argument in support of Work Service’s M&A execution, strategic focus, managerial support and transaction know-how. Based on the investment agreement, PineBrigde nominated two out of nine Supervisory Board Members. The fund also introduced a management motivational programme including annual financial targets set for 2013E-2017E (please see financial forecast section for details).

Acquisitions are the cornerstone of 2014E earnings growth

Four acquisitions should add c.PLN 599m to the top line in 2014E driving 79% yoy EBIT growth. We expect the three acquisitions closed in 2HY 2013 as well as the prospective acquisition in Germany to be the key earnings growth drivers in 2014E. We factor in PLN 453m in additional revenues from the three acquired entities (Antal, Work Express, ProHuman) and PLN 18m EBIT contribution this year (48% of our 2014E EBIT growth forecast). With a fourth deal nearing completion (undisclosed German company) and to be finalised in 1HY 2014E, we factor in an additional earnings stream starting in 2HY 2014E from the new German operations. Incorporating both organic growth and the acquisitions completed in 2013 as well as the German purchase, we expect Work Service to grow its operating profit by PLN37.8m, in 2014E (+79% yoy), of which PLN25.6m driven by takeovers.


Acquires companies’ estimated revenue split* Operating profit (PLNm) and margins, 2014E

Source: Company data, Wood Research *German acquisition pending

More acquisitions to come

PLN 250m earmarked for acquisitions by the end of 2015E. According to the three-year investment plan accepted by PineBridge, Work Service is to devote PLN 250m on M&As by the end of 2015E. Against the PLN 143m spent in 2013, and PLN 57m to be spent on the German company (based on our assumptions), this implies a further PLN 50m to be devoted to M&A over this and next year. While we do not include any further transactions in our forecasts, we note that based on the management target of 7.0-8.0 EV/EBIT transaction price range, this would imply a further PLN 6.3-7.1m boost to Work Service’s consolidated EBIT on an annual basis (c.8% of our 2014E EBIT forecast).

M&A financed by bonds, PineBridge investment, operating cash flows. Work Service’s sources of M&A funding include 1) PineBrigde’s PLN 105m investment made in January 2013, 2) Q-series bonds issuance of PLN 55m in 4Q 2013, and 3) cash generated by the business itself.

Proven ability to expand both within as well as beyond CEE

Successful expansion within the Polish market… Since being established in 1999 in Wroclaw, Poland, Work Service has demonstrated an ability to manage both organic as well as M&A-driven growth, becoming Poland’s largest temporary staffing agency and surpassing leading international competitors including Randstad, Addeco in terms of the Polish market share. After attracting the first large client in 2000 (Praktiker Poland), the company has continued adding new accounts (e.g. TPSA and Volkswagen Motor Poland in 2003).

…followed by bolder moves into CEE, Germany, Russia. In 2004 Work Service launched its first foreign operations entering the Czech and Russian markets. In 2005, WS launched its German operations and continued its expansion into Slovakia (2006), Ukraine and Romania (2007). International expansion was accompanied by the introduction of new business solutions and services (payroll, logistics and warehouse processes outsourcing).

Work Service’s presence in CEE Work Service’s milestones developments

Source: Company data

10%

90% 95%

40%

10% 5%

60%

90%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Antal International Work Express ProHuman German company


3.63.2

11.2

14.9

12.1%

1.8%

4.6%5.1%

0%

2%

4%

6%

8%

10%

12%

14%

0

2

4

6

8

10

12

14

16

Antal International Work Express ProHuman German company

EBIT (PLNm, lhs) EBIT margin (in %, rhs)


Shifting business mix to support margins

Increasing revenue stream diversification…

2013 acquisitions strengthen contribution from higher-margin business segments. Temporary staffing business accounts for around two-thirds of Work Service’s consolidated revenues, followed by outsourcing services (around one-third of sales) and personnel counselling (marginal contribution). Due to the lower margins achieved in the staffing business (8.7% on the gross profit level excl. overhead costs) vs. outsourcing and personnel counselling (29.6%), temporary staffing accounted for only 37% of the 9M 2013 consolidated gross profit. In 2014E, we expect the share of the higher-margin business lines to inch down by 3ppt to 31%, driven by the full-year contribution of the subsidiaries acquired in 2013. In 2015E, with the full-year contribution of the German entity (which we expect to be added in 2HY ’14E) we expect the share of temporary staffing to ease to 59% of sales benefiting Work Service’s consolidated margins.

Work Service revenue forecast Sales breakdown by business segments, 2015E


Work Service revenue CAGR by business segments Segment sales contribution


Outsourcing sector growth to aid revenue stream diversification. Based on our M&A and organic growth assumptions, we expect Work Service’s outsourcing revenues to grow 66% and 38% yoy in 2014E and 2015E, respectively. According to the Polish Association of Business Leaders (ABSL), the average yoy growth in annual employment growth in the BPO sector (business process outsourcing) in Poland reached c.20% in 2013, at par with the level observed over the past three years. We expect this trend to be sustained, creating additional cross-selling opportunities for Work Service. On the back of our assumptions, we expect the revenue share of outsourcing and counselling services, represented primarily by IT Kontrakt, Exact, ProService, MediStaff and the German subsidiary (acquisition pending) to gradually increase from 31% in 2014E to 39% in 2020E.

727 887 1,024 1,147 1,263 1,368 1,479 1,600 1,7336

453501

555600

644692

743

146

336387

425468

515566

0

500

1,000

1,500

2,000

2,500

3,000

2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

2012 business portfolio 2013 acquisitions German acquisition

62.6%

37.0%

0.4%

Temporary staffing

Outsourcing

Personnel counselling

2014E sales split excl. 2013/14E acquisitions

67.3%

30.8%

2.0%

2014E sales split incl. 2013/14E acquisitions

21% 18%22% 21%

112%

32%

0%

20%

40%

60%

80%

100%

120%

1 2


2010‐2013E CAGR 2013E‐2020E CAGR

65% 67% 65% 67% 63% 62% 62% 61% 60% 59%

35% 33% 34% 31% 35% 36% 36% 37% 38% 39%

0% 1% 1% 2% 2% 2% 2% 2% 2% 2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E



…should support margin expansion

Temporary staffing profitability at low single-digit levels, in line with industry peers. Work Service achieved average 2008-2012 consolidated EBIT margins of 4.5% on the consolidated level. While this places the company in the mid-range of the profitability posted by international peers, we note that the comparison is distorted by the large margin differential between temporary staffing services (a low margin business) and higher value added services e.g. outsourcing. As set against margins generated on the pure temporary staffing business (represented primarily by Grupa Polska — Work Service’s polish operations), Work Service (1.5% EBIT margin, 1.9% in 2011) ranked behind both Randstad (3.1%) and CPL Resources (2.4%) which, in our view, may be a reflection of the lower-margin environment in Poland (Randstad’s Polish subsidiary generated a 0.9% margin in 2011).

Average 2008-2012 industry peers’ EBIT margins* 2012 temporary staffing margin comparison**

Source: Company data, Wood Research *consolidated, excluding 2009 in Kelly Services (negative margin) **staffing segment only

Consolidated profitability driven by business mix. Due to the larger value-added nature and tailored approach of the outsourcing business compared with temporary staffing, the margin differences between the two segments reported by Work Service are quite pronounced, reaching as much as 20ppt on the gross profit level (excl. overhead costs). This margin differentiation is well depicted by the profitability of Work Service’s subsidiaries, as presented below. In 2012 WS’s subsidiaries with focus on outsourcing, i.e. Exact Systems, IT Kontrakt, ProService, Antal achieved EBIT margins ranging from 10.7-16% vs. 1.5% achieved by Grupa Polska (primarily temp staffing operations).

Work service gross margin breakdown by segments* Work service subsidiaries EBIT margin comparison

Source: Company data, Wood Research, *gross profit excluding overhead costs

Consolidated margins to be supported by shifting revenue structure. On the back of our sales structure assumptions, we expect WS’s operating margins to expand from 5.4% in 2013E to 5.5% in 2015E, supported by the addition of Antal (outsourcing/counselling accounts for 75% of revenues) and the German subsidiary (60%). We also view WS’s increased presence in foreign markets as a positive catalyst for margin development in light of: 1) greater regional brand recognition, 2) outsourcing cross-selling opportunities, and 3) increased credentials essential in attracting large-scale and high-margin contracts.

8.1%

5.9%5.3%

4.5%4.0%

3.3%

1.9%

1.0% 0.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Michael Page

Robert Half

Hays

Work Service

Cpl Resources

Adecco

Manpower

Randstad

Kelly Services

1.5%

2.4%

3.1%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Work Service (Grupa Polska) CPL Resources Randstad

12%

7%8% 9% 9% 9%

24%

34%

38%

22%

29% 30%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2008 2009 2010 2011 2012 9M2013

Staffing Outsourcing & counselling

1.9%

7.3%

21.2%

18.7%

13.4%

5.1%

1.4%1.5%

16.0%

13.7%

10.7%11.6%

0.8%

4.6%

0%

5%

10%

15%

20%

25%

Grupa Polska

Exact System

s

ProService

Group

IT Kontrakt

Antal

International

Work Express

ProHuman

2011 2012


On the back of our forecasts of continued outsourcing revenue growth, supported by positive market trends and cross-selling opportunities, we expect the outsourcing segment to achieve a 39% share in Work Service’s consolidated sales driving the consolidated EBIT margin up to 6.5% in 2020E, from 5.4% in 2013E.

Margin comparison — Polish market Hungarian market

Source: EMIS database, Company data, Wood Research, *comprised of six Polish subsidiaries, **Work Service subsidiary

PLNm 2008 2009 2010 2011 2012 HUFm 2009 2010 2011 2012

Work Service (Polish Group*) ProHuman**

Revenue n.a. n.a. n.a. 463.4 495.2 Revenue 2,892 3,329 5,720 7,213

EBIT n.a. n.a. n.a. 8.6 7.2 EBIT 59.6 73.1 82.5 329.7

EBIT margin n.a. n.a. n.a. 1.9% 1.5% EBIT margin 2.1% 2.2% 1.4% 4.6%

Randstad Sp. z o.o. Trenkwalder Kft.

Revenue 308.1 321.5 394.2 446.4 n.a. Revenue 14,767 19,489 22,805 21,365

EBIT 4.2 5.7 -0.3 3.8 n.a. EBIT 161.9 334.7 -89.1 -407.4

EBIT margin 1.4% 1.8% -0.1% 0.9% n.a. EBIT margin 1.1% 1.7% -0.4% -1.9%

Mnapower Group Sp. z o.o. Adecco Kft.


EBIT -7.3 -4.6 17.1 4.0 n.a. EBIT 0.0 255.1 30.4 62.8

EBIT margin -4.3% -2.4% 5.8% 1.2% n.a. EBIT margin 0.0% 1.8% 0.2% 0.8%

Adecco Poland Sp. z o.o. Pannonjob Human


EBIT 4.9 4.7 7.8 7.6 n.a. EBIT 136.0 182.4 102.9 89.4

EBIT margin 2.1% 2.2% 2.8% 2.4% n.a. EBIT margin 2.8% 2.5% 2.4% 2.1%

LeasingTeam Polska Work Force

Revenue n.a. 59.9 108.8 147.2 172.6 Revenue 1,008 2,415 3,018 3,770

EBIT n.a. 2.5 2.0 3.4 3.6 EBIT 25.8 145.3 96.8 104.7

EBIT margin n.a. 4.1% 1.9% 2.3% 2.1% EBIT margin 2.6% 6.0% 3.2% 2.8%

Start People Sp. z o.o.

Revenue 128.7 93.0 135.7 149.0 140.0

EBIT 1.8 -3.6 -0.6 -0.1 -0.1

EBIT margin 1.4% -3.9% -0.4% -0.1% -0.1%


Organic growth driven by highly supportive market trends

Secular growth ahead

Positive CEE staffing market momentum continued. We expect Work Service’s organic earnings growth to be strongly supported by the underlying CEE market expansion. According to market analysts, the CEE temporary staffing market is to expand at a 6.5% CAGR over 2013E-2016E (up to 10% in Slovakia). Poland alone should see 5.5% annual growth over the period, with the key growth drivers including the engineering, automotive, telco and administration sectors. In 2013E the CEE staffing market value reached EUR 1,750m (+4.1% yoy), according to data compiled by Work Service, of which Poland accounted for EUR 870m (+4.8% yoy).

Temporary Staffing Market in CEE5*… …and in Poland over 2009-16F, EURm

Source: Company data, *Poland, Czech Rep., Slovakia, Romania

Poland and CEE still have much catching up to do — low temporary labour penetration rates vs. Western Europe imply strong growth prospects. Based on data compiled by Ciett, i.e. the Confederation of Private Employment Agencies, Poland’s temporary employment penetration rate (defined as the ratio of temporary labour hours worked vs. total hours of labour) stood at 0.98% in 2011 (latest data) vs. an average of 1.90% for developed European markets. Assuming gradual convergence to the Western European average, this implies c.0.9ppt long term upside to the penetration rate, or 94% market growth potential from the 2011 levels. Based on market consultant’s forecasts, Poland’s penetration rate should reach 1.3% in 2016E, i.e. up 28.3% vs. 2011. We note that the low base remains a common feature within CEE, with the Czech Republic serving as a prime example.

Penetration rate in selected countries in Europe Penetration rate and FTE in Poland

Source: Ciett, Wood Research

Poland’s penetration rate continues its secular uptrend following the 2009 dip. The Polish penetration rate more than doubled in the 2009-2011 period. With total employment relatively stable over this time-frame, the surge in the penetration rate was mainly driven by an increase in FTEs (measurement of temporary labour force presented in the equivalent of full-time employees) from 72k in 2009 to 161k in 2011, up 123%. The dynamic FTE growth was driven by both the introduction of new labour regulations in 2010 as well as

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2009 2010 2011 2012 2013 2016E

CAGR 2013E‐2016E: 6.5%

CAGR 2009‐2013E: 7.7%

400

500

600

700

800

900

1,000

1,100

2009 2010 2011 2012 2013 2016E

CAGR 2013E‐2016E: 5.5%

CAGR 2009‐2013E: 7.9%

1.0%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

UK

Netherlands

Ireland

Fran

ce

Germany

Belgium

Austria

Switzerland

Portugal

Swed

en

Finland

Italy

Poland

Norw

ay

Macedonia

Czech Rep

ublic

Estonia

Spain

Lithuania

Greece

avg: 1.90%161

0.98%

0

50

100

150

200

250

2003

2004

2005

2006

2007

2008

2009

2010

2011

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%FTE (in thousand, lhs)

Penetration rate (in %, rhs)


the greater appeal of temporary employment solutions, which has surfaced during the 2009 economic downturn, and which includes:

- greater elasticity of employment in light of economic uncertainty; - reduced amount of paperwork and more relaxed legal frames of employment; - a time and cost-efficient way of filling short term staffing needs, especially in

cyclical/seasonal businesses; - dividing the workload among permanent and temporary employees during peak

periods; - an efficient method in tapping into a talent pool, hiring specialists required to conduct

specific projects; and

- a cost-efficient employee recruiting tool allowing for a trial period before offering a permanent contract.

Work Service is well-positioned to ride Poland’s growing penetration trend. As the Polish temporary staffing market leader, we expect Work Service to be the key beneficiary of the secular growth trend. Work Service held a 17% share in the Polish temporary staffing market in 2012 (pro-forma including 2013 acquisitions), overtaking the leading international competitors including Randstad (16.6% market share), Manpower Group (10.9%) and Adecco (9.0%). To date, not only is the company the largest player within the Polish staffing market, but is also a leading player in the Polish specialised outsourcing and personnel counselling market segments, which translates into a 21.7% market share in the broader HR services market.

Polish temporary staffing market and… …and HR services market shares in 2012*

Source: Company data, Wood Research, *pro-forma including Antal and Work Express

Positively geared to the Polish / CEE GDP recovery

Work Service continues to increase its regional footprint, but Poland remains main earnings driver. Poland accounted for 79.4% of WS’s 2012 revenues, followed by Russia (12.6%), and Slovakia (3%). While the consolidation of ProHuman, Hungary’s third largest player in the temp staffing market and the pending acquisition in Germany will further increase foreign exposure in 2014E, we expect Poland’s role in revenue generation to remain dominant with a c.65% top line share in 2014E. We like Work Service’s Polish exposure and expect Poland’s ongoing economic recovery to amplify the secular growth trends in the temporary staffing markets.

Revenue breakdown by markets, PLNm


39.7%

6.9%

9.0%

10.9%

16.6%

16.9%

0% 10% 20% 30% 40% 50%

Other

Trenkwalder

Adecco

Manpower Group

Randstad

Work ServiceWork Service;

21.7%

Randstad; 15.1%

Manpower Group; 10.4%Adecco; 8.2%

Trenkwalder; 6.1%

Other; 38.4%

CAGR

2010 2011 2012 9M'12 9M'13 2010 2011 2012 9M'13 2011 2012 9M'13 '10-'12

Poland 414.7 490.6 577.9 430.5 510.0 83.1% 79.4% 79.4% 78.6% 18% 18% 18% 18%

Russia 59.2 87.0 91.6 67.1 61.7 11.9% 14.1% 12.6% 9.5% 47% 5% -8% 24%

Germany 1.3 4.5 17.5 11.0 27.1 0.3% 0.7% 2.4% 4.2% 237% 291% 146% 263%

Czech Rep. 14.0 20.7 17.8 15.0 25.0 2.8% 3.3% 2.4% 3.8% 48% -14% 66% 13%

Slovakia 9.8 15.2 22.2 16.4 23.6 2.0% 2.5% 3.0% 3.6% 55% 46% 44% 51%

Turkey 0.0 0.0 0.5 0.1 1.6 0.0% 0.0% 0.1% 0.2% NM NM NM NM

Total 499.0 617.9 727.4 540.2 649.0 100% 100% 100% 100% 24% 18% 20% 21%

Revenues PLNm Share % yoy growth (%)


Top-line geared to macro-sensitive industries. Work Service’s clients represent a wide range of sectors. The largely cyclical automotive sector represents the highest exposure, accounting for 24% of WS’s 2012 revenue stream. The top three business segments, representing more than 50% of revenues include also: call centres (15% share), and the FMCG sector — both geared to disposable income. Industrial clients (13% of sales) as well as financial services (9%) add to the top-line cyclicality. Against our expectations of accelerated GDP growth both in Poland and CEE, we expect the cyclical upturn in demand for temporary staffing as well as outsourcing services to provide a boost both to Work Service’s top and bottom line in 2014E and 2015E.

Revenue by sectors, PLNm Revenue split by industries in 2012


Work Service revenues by sectors


CEE macro rebound — adding a cyclical driver to secular growth

Temporary staffing services correlate positively with improving macro trends. The demand for temporary staff as well as other HR services strongly correlates with the general employment trends and thus GDP dynamics. Due to the higher elasticity of this form of employment implying lower risk of overstaffing in the early stage of the macro recovery, the positive GPD trends tend to be reflected more directly in temporary staffing FTEs (full time equivalent) as opposed to fixed employment contracts.

As charted against EU GDP dynamics, the change in hours of temporary labour in EU27 has directly reflected changes in macroeconomic conditions. At the same time, we note that the temporary staffing penetration (share in total employment) tends to reacted positively to falling unemployment rates, as evidenced by the 2001-2011 correlation of 0.73 for Poland and c.0.6 for the UK, France, and Germany.

0

20

40

60

80

100

120

140

160

180

200

Automotive

Other services

Call cen

tre

FMCG

Industry

Financial

Electronics

Administration

Med

ical services

Sales

Engineering

2010 2011 2012

Automotive; 24%

Call centre; 15%

FMCG; 13%

Industry; 13%

Financial and insurance

services; 9%

Electronics; 4%

Other services; 17%

Sectors 2010 2011 2012 2010 2011 2012 2011 2012

Automotive 128.5 185.0 176.6 25.7% 29.9% 24.3% 44% -4%

Other services 60.5 84.8 123.1 12.1% 13.7% 16.9% 40% 45%

Call centre 86.9 83.0 107.9 17.4% 13.4% 14.8% -5% 30%

FMCG 67.3 80.8 95.2 13.5% 13.1% 13.1% 20% 18%

Industry 56.6 58.6 91.1 11.3% 9.5% 12.5% 4% 55%

Financial and insurance 27.0 35.9 66.3 5.4% 5.8% 9.1% 33% 85%

Electronics 40.8 43.0 26.1 8.2% 7.0% 3.6% 5% -39%

Administration 12.6 14.1 14.2 2.5% 2.3% 2.0% 12% 1%

Medical services 12.5 12.2 9.7 2.5% 2.0% 1.3% -2% -20%

Sales and distribution 5.8 20.5 8.9 1.2% 3.3% 1.2% 254% -56%

Engineering 0.5 0.0 8.2 0.1% 0.0% 1.1% -93% NM

Total 499.0 617.9 727.4 100% 100% 100% 24% 18%

yoy changeRevenues PLNm Share %


Temporary employment vs. GDP dynamics Correlation: temp penetration vs. unemployment rates

Source: Ciett, Eurostat, Wood Research

Core Polish market: compelling macro outlook supports our positive stance. With Poland accounting for around two-thirds and CE3 making up more than 75% of our 2014E revenue forecasts, we see Work Service as a play on the Polish/CE3 GDP rebound story on top of the secular staffing market growth. Leading indicators remain supportive to our bullish case as Polish, Czech PMI indices have improved significantly over the past few months, following the German trend. The Polish PMI has reached 55.4 in January to-date, with further upside as indicated by the ZEW expectations index. The Polish ZEW index touched the highest level on record in December, reaching 64.7% and has declined only slightly in early January to 58.3%. Based on a survey of 80 financial experts, the ZEW index is a good indicator for economic growth and a good leading indicator of the PMI trends, in our view.

CE3 PMIs vs. Germany’s ZEW expectations suggests further upside to Polish PMIs


More growth for CE3. Based on the leading indicators, we expect growth to continue to recover in CE3 in 2014E, in line with the positive quarterly GDP trend already visible in 2013.

Wood GDP forecasts, real GDP yoy% 3Q GDP readings, yoy%


‐6%

‐4%

‐2%

0%

2%

4%

6%

‐35%

‐25%

‐15%

‐5%

5%

15%

25%

35%

45%

Q1 08

Q2 08

3Q 08

4Q 08

Q1 09

Q2 09

3Q 09

4Q 09

1Q 10

2Q 10

3Q 10

4Q 10

1Q 11

2Q 11

3Q 11

4Q 11

1Q 12

2Q 12

3Q 12

Change in FTEs (EU27 avg), lhs

EU27 GDP growth yoy, rhs

‐0.59

‐0.60

‐0.63

‐0.73

‐0.95

‐100% ‐80% ‐60% ‐40% ‐20% 0%

Germany

France

UK

Poland

Spain

Correlation of temporary work penetration (%) vs. unemployment rates (%) for 2001‐2011

40

45

50

55

60

65

Jan‐11 Jul‐11 Jan‐12 Jul‐12 Jan‐13 Jul‐13 Jan‐14

Polish PMI Czech PMI Hungary PMI

Russian PMI Germany PMI

35

40

45

50

55

60

‐80%

‐60%

‐40%

‐20%

0%

20%

40%

60%

80%

Jan‐08

Sep‐08

May‐09

Jan‐10

Sep‐10

May‐11

Jan‐12

Sep‐12

May‐13

Jan‐14

ZEW Polish economic expectations survey (lhs)

Poland PMI lagged 3 month (rhs)

1.4

‐1.0

0.5

1.5

2.5

3.5

0.6

‐0.3

3.2

2.52.3

2.0

2.7

3.6

2.2

1.2

3.22.6 2.7

2.5

3.2

4.2

2.5

1.8

‐2.0

‐1.0

0.0

1.0

2.0

3.0

4.0

5.0

Poland CzechRepublic

Hungary Russia Romania Turkey Germany EU

2013E

2014E

2015E

0.7

‐2.7

‐1.4

1.1

00.5

‐0.8

‐2.3

2.2

‐1.6

0.80.5

‐1.7

1.5

0.9

1.9 1.8

‐1.2

4.1

1.1

‐4

‐3

‐2

‐1

0

1

2

3

4

5

Poland Hungary Czech Rep. Romania Germany

4Q12 GDP yoy 1Q13 GDP yoy

2Q13 GDP yoy 3Q13 GDP yoy


Poland in the lead, accelerated growth in Germany to support CE3 growth dynamics. We expect Germany’s economy to continue to recover in 2014E and expand at a 2.2% rate vs. 0.6% in 2013E. Within CE3, we expect Poland to post the most dynamic growth rates with GDP expanding at a 3.2% rate yoy in 2014, driven by pre-election spending, more investments by companies, and higher private consumption. The Czech Republic should follow with 2.5% growth and Hungary with 2.3%, on our estimates. We are less positive on Russia, where we expect only 2.0% yoy GDP growth in 2014E.

Firing on all cylinders: cyclical, secular and M&A growth drivers meet in 2014E

Cyclical upswing combined with completed acquisitions to drive 82% yoy sales growth in 2014E. We expect the: 1) supportive macro environment, 2) continued secular temporary staffing market growth, and 3) acquisitions completed in December 2013 to drive a 82% top-line surge in 2014E. We expect growth to continue beyond 2014E driven by organic factors including cross-selling, continued diversification into outsourcing, personal counselling as well as expansion in foreign markets. We expect the company’s consolidated top line to expand at a 19% CAGR over 2013E-2020E, expanding from PLN 893m in 2013E to PLN 3,042 in 2020E, of which PLN 773m (25%) added by acquisitions and PLN 2,269m (75%) driven by organic growth.

Work Service sales vs. CEE5 market growth forecasts* Work Service: M&A vs. organic top line growth, PLNm

Source: Company data, Wood Research, *rebased to 100

100% 105% 112% 119% 128%

100%123%

223%

273%

303%

0%

50%

100%

150%

200%

250%

300%

350%

2012 2013 2014E 2015E 2016E

Personel Services market in CEE5 Work Service

699887

1,024

1,816

2,205

296

599

168

0

500

1,000

1,500

2,000

2,500

2012 2013 2014E 2015E 2016E

Existing business portfolio Acquisition‐driven revenue additions


Forecast summary 2014E earnings surge driven by completed M&A transactions, cyclical market rebound. Supported by the consolidation of the 2013-acquired companies, we expect Work Service to report PLN 54.2m in net profit in 2014E, up from PLN 26m in 2013E. In 2015E we see further earnings growth to PLN 70.9m, driven mainly by the full earnings contribution of the German company (acquisition pending), increased sales of outsourcing and personnel counselling services, and stable organic business growth. We forecast the top-line contribution of acquired companies at c.PLN 599m and c.PLN 837m in 2014E and 2015E, respectively. At the EBIT level, the acquired companies including Antal, ProHuman, Work Express to contribute PLN 18.0m in 2014E vs. only PLN 0.7m in 2013E (acquisitions largely finalised in December) and expect the German company to add PLN 7.4m in 2014E (added mid-year) and PLN 17.4m in 2015E (full-year contribution).

Financial forecasts, PLNm


Wood vs. consensus estimates. Our figures currently stand broadly at par with consensus on 2013E revenues, but 8.1% below on net profit due to: 1) more conservative 2013E margin assumptions, 2) transaction costs booked in 4Q and related to the acquisition of Work Express and ProHuman. Our 2014E numbers are 9.0% above consensus on sales and 3.9% on net profit, but we are more upbeat on 2015E figures, with revenues of PLN 1,985m and net profit of PLN 70.9m, respectively, 18.0% and 14.4% above consensus.

Wood vs. consensus estimates, PLNm


…and management motivation programme. On the back of the investment contract signed with PineBridge, in June 2013 Work Service announced a motivational programme for the years 2013E-2017E. The programme assumes issuance of up to 1.5m warrants converted into shares (upon the programme’s expiry) contingent on reaching financial targets defined as a pre-set EBIT level for each year. Assuming Work Service exceeds the EBIT targets in each and every year, the company may issue up to 291k warrants annually, each entitling to one share priced at PLN 0.1.share. No warrants are issued in a given year if WS’s reported EBIT falls below 85% of the target. When above 85%, warrants are issued proportionally to the realisation of the target.

In 2013E the target assumes EBIT of PLN 76.9m. However, for the sake of the motivational plan, the reported 2013E results, according to management, are to be inflated by the addition of pro-forma results from Antal, Work Express and ProHuman, i.e. the companies acquired in late 2013E as well as the German company — the acquisition of which is to be finalised this year. Including the pro-forma results of these four companies, management

PLNm 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

Revenues 617.9 727.4 892.6 1,622.6 1,984.5 2,204.6 2,393.3 2,590.7

YoY 23.8% 17.7% 22.7% 81.8% 22.3% 11.1% 8.6% 8.2%

Gross profit 53.1 75.3 100.4 158.2 192.7 218.7 239.8 259.7

EBITDA 34.4 43.3 53.2 93.3 119.5 137.2 154.1 170.6

YoY 20.1% 25.9% 22.9% 75.4% 28.1% 14.8% 12.3% 10.7%

EBITDA margin 5.6% 6.0% 6.0% 5.8% 6.0% 6.2% 6.4% 6.6%

EBIT 31.1 39.1 47.8 85.6 109.9 126.3 141.7 158.3

YoY 19.5% 25.6% 22.4% 79.0% 28.3% 14.9% 12.2% 11.7%

EBIT margin 5.0% 5.4% 5.4% 5.3% 5.5% 5.7% 5.9% 6.1%

Net profit 21.6 20.4 26.0 54.2 70.9 85.8 100.8 116.1

YoY 41.4% -5.9% 27.9% 108.3% 30.7% 21.0% 17.5% 15.2%

Profit margin 3.5% 2.8% 2.9% 3.3% 3.6% 3.9% 4.2% 4.5%

Reported Wood ConsensusWood vs


Wood vs


Wood vs

consensusPLNm 2012 2013E 2013E diff % 2014E 2014E diff % 2015E 2015E diff %

Revenues 727.4 892.6 904.0 -1.3% 1,622.6 1,489.0 9.0% 1,984.5 1,682.0 18.0%

EBITDA 43.3 53.2 53.3 -0.3% 93.3 90.7 3.0% 119.5 105.0 13.8%

EBIT 39.1 47.8 48.3 -1.0% 85.6 82.3 4.0% 109.9 96.3 14.1%

Pre-tax profit 24.8 33.4 35.2 -5.1% 73.3 69.9 4.9% 95.8 83.0 15.4%

Net profit 20.4 26.0 28.4 -8.1% 54.2 52.2 3.9% 70.9 62.0 14.4%


expects revenues to reach PLN 1,300m in 2013 exceeding the 2013 target of PLN 1,118m. We expect this top-line beat to result in PLN 74.6m pro-forma EBIT and issuance of 232k warrants. According to the plan, the warrants are to be converted into shares and become tradable only after the program ends in 2018.

Motivation program assumptions vs. Wood results forecasts, PLNm

Source: Company data, Wood Research. *does not fully account for positive impact of M&A, management sees potential for PLN 1.7-1.8bn in 2014E sales. Number of issued warrants reflects pro-forma EBIT of PLN 74.6m vs. the target of PLN 76.9m.

More upbeat on sales… We set our 2014E revenue forecast at PLN 1,623m. Although our forecasts stand 31% above the 2014 management target, we note that according to management comments cited by Parkiet Daily (24 January 2014), sales revenues may exceed our forecasts reaching PLN 1,700-1,800m. The driver of this potential beat, according to management, is the more positive outlook on the revenue stream generated by the acquired companies based on the performance delivered in 2013.

…more conservative on consolidated EBIT margins. While we expect the management’s EBIT targets to be exceeded in 2014E-2017E, we take a more conservative approach on the business’s marginality. On the EBIT level, we expect Work Service to operate on 5.3-5.9% margins in 2014E-17E vs. the motivational target assumptions of 7.1-7.7%. We believe that the management’s more aggressive assumptions of the growth of the higher margin outsourcing and personnel counselling segment are among the key differentiating factors. Our EBIT forecasts over the 2013E-17E period imply that 1,350k out of the 1,500k warrants will be issued as part of the motivational programme in 2014E-18E (2.3% dilution vs. the current number of shares).

Segment summary

Temporary staffing — 2014E growth driven by completed acquisitions. We see two growth drivers in temporary staffing sales and EBIT in 2014E: 1) the macro-driven staffing rebound, and 2) completed M&A transactions in 2013 bringing in PLN 453m in revenues in 2014E — the first full year of consolidation. We expect Work Service to post PLN 1,092m in staffing revenues in 2014E (up 87% yoy) growing to PLN 1,801m in 2020E (8.7% CAGR) on the back of organic growth. At the same time, we expect temporary staffing margins to remain relatively stable over the forecast period, expanding from 1.8% in 2014E to 3.4% in 2020E on the EBIT level.

Outsourcing segment to grow 66% yoy in 2014E, dynamic growth continued in 2014E-2020E. We expect growth of WS’s outsourcing segment, represented by IT Kontrakt, ProService and Exact (automotive components quality control), to be supported by organic drivers including the expanding client base in Poland as well as entering new CEE markets. Furthermore, we expect outsourcing sales to be aided by the consolidation of the German company to be acquired this year and generating c.60% of its sales within the outsourcing market. Supported by the acquisitions, we expect Work Service’s outsourcing revenues to grow to PLN 499m in 2014E, up 66% yoy and 38% yoy to PLN 689m in 2015E. Our model assumes the segment’s revenues to expand at a 15.3% 2014E-2020E CAGR.

WS Target Wood WS Target Wood WS Target Wood WS Target Wood WS Target Wood

PLNm 2013 2013E 2014* 2014E 2015 2015E 2016 2016E 2017 2017E

Revenue 1,118.4 892.6 1,242.6 1,622.6 1,374.5 1,984.5 1,516.3 2,204.6 1,809.9 2,393.3

Costs -1,041.4 -844.8 -1,154.9 -1,536.9 -1,275.9 -1,874.6 -1,402.5 -2,078.3 -1,670.6 -2,251.6

EBIT 76.9 47.8 87.7 85.6 98.6 109.9 113.8 126.3 139.3 141.7

Financial cost/income -8.7 -14.4 -6.5 -12.3 -2.5 -14.1 3.1 -10.4 7.2 -5.5

Pre-tax profit 68.2 33.4 81.2 73.3 96.1 95.8 116.9 115.9 146.5 136.2

Income tax 3.8 4.0 4.5 8.8 5.4 11.5 6.6 13.9 8.2 16.3

Net profit 64.4 29.4 76.6 64.5 90.7 84.3 110.4 102.0 138.2 119.9

EBIT margin 6.9% 5.4% 7.1% 5.3% 7.2% 5.5% 7.5% 5.7% 7.7% 5.9%Pre-tax profit margin 6.1% 3.7% 6.5% 4.5% 7.0% 4.8% 7.7% 5.3% 8.1% 5.7%Net profit margin 5.8% 3.3% 6.2% 4.0% 6.6% 4.2% 7.3% 4.6% 7.6% 5.0%Wood forecasts vs. targets:

Revenue 79.8% 130.6% 144.4% 145.4% 132.2%EBIT 62.2% 97.6% 111.5% 111.0% 101.8%

Net Income 45.6% 84.2% 92.9% 92.4% 86.7%No of issued warrants 232 245 291 291 291


Personnel counselling — high margins, high growth but small scale. We expect counselling revenues to surge 233% yoy in 2014E to PLN 32m and 19% yoy to PLN 38m in 2015E. The dynamic growth stems chiefly from: 1) the contribution from Antal International acquired in 2013, contributing PLN 30m in sales in 2014E vs. PLN 24m in 2013E, and 2) the segment’s low-base effect (only 2% of consolidated sales). Likewise, in the outsourcing segment we see the opportunity of cross-selling in this personnel counselling. We assume gross margins of 27-29% in outsourcing / counselling within our forecast period vs. 9.5-10% in temporary staffing.

Sales mix and foreign business development will drive margin improvement, in our view. Based on our forecasts, we expect the high-margin outsourcing and counselling segments to account for 39% of Work Service’s 2020E revenues, vs. 34% in 2013E. This, coupled with continued expansion in foreign markets (cross-selling, gaining scales) we expect to drive an 1.1ppt improvement in the consolidated EBIT margin over the 2013E-2020E period, lifting Work Service’s margins from 5.4% to 6.5% in 2020E.

Revenue and gross profit by segments, PLNm


Wood forecast summary by subsidiary


Cost structure

Flexible cost base implies low operational leverage. Due to the fact that nearly 90% of WS’s costs are directly linked with revenues (employee wages), we view the company’s operational risk as limited, while continued revenue stream diversification into three revenue generators allows the company to minimalise business risk.

PLNm 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

Temporary staffing

Revenues 401.0 485.5 582.3 1,091.6 1,258.1 1,376.8 1,475.1 1,576.4

yoy % 20.4% 21.1% 19.9% 87.5% 15.3% 9.4% 7.1% 6.9%Gross profit 37.6 45.1 55.3 105.9 122.0 134.6 145.4 156.6

Gross margin, % 9.4% 9.3% 9.5% 9.7% 9.7% 9.8% 9.9% 9.9%Ousourcing

Revenues 215.0 238.2 300.7 499.2 688.6 782.9 869.0 960.2

yoy % 30.2% 10.8% 26.3% 66.0% 38.0% 13.7% 11.0% 10.5%Personnel counselling

Revenues 1.9 3.7 9.6 31.8 37.8 44.9 49.3 54.1

yoy % 85.8% 99.6% 158.1% 233.2% 18.9% 18.7% 9.7% 9.7%Outsourcing and Personnel

counselling

Gross profit 48.1 69.4 88.6 143.3 193.6 223.2 249.8 278.7

Gross margin, % 22.2% 28.7% 28.5% 27.0% 26.6% 27.0% 27.2% 27.5%

PLNm 2012 2013E 2014E 2015E 2016E 2017E 2018E PLNm 2012 2013E 2014E 2015E 2016E 2017E 2018E

Poland Group Work Express

Sales 495 594 654 706 762 808 857 Sales 180 198 218 235 249yoy % NA 20.0% 10.0% 8.0% 8.0% 6.0% 6.0% yoy % NA 10.0% 10.0% 8.0% 6.0%EBIT 7.2 10.4 13.2 15.4 17.9 20.4 23.0 EBIT 3.2 3.7 4.3 4.8 5.4yoy % NA 44.2% 26.8% 16.9% 16.2% 13.5% 13.0% yoy % NA 15.6% 15.3% 13.0% 10.6%EBIT margin 1.5% 1.8% 2.0% 2.2% 2.4% 2.5% 2.7% EBIT margin 1.8% 1.9% 2.0% 2.1% 2.2%

Exact Systems ProHumanSales 69 90 117 140 166 192 223 Sales 243 267 294 317 343yoy % NA 30.0% 30.0% 20.0% 18.0% 16.0% 16.0% yoy % NA 10.0% 10.0% 8.0% 8.0%EBIT 11.1 10.7 14.0 16.9 20.0 23.3 27.2 EBIT 11.2 12.3 13.5 14.6 15.8yoy % NA -3.2% 30.7% 20.6% 18.6% 16.6% 16.6% yoy % NA 10.0% 10.0% 8.0% 8.0%EBIT margin 16.0% 11.9% 12.0% 12.0% 12.1% 12.1% 12.2% EBIT margin 4.6% 4.6% 4.6% 4.6% 4.6%

ProService Group German companySales 90 117 152 183 201 221 239 Sales 146 336 387 425 468yoy % NA 30.0% 30.0% 20.0% 10.0% 10.0% 8.0% yoy % NA 15.0% 15.0% 10.0% 10.0%EBIT 12.4 16.2 21.2 25.6 28.3 31.3 34.1 EBIT 7.4 17.4 20.4 22.9 25.6yoy % NA 30.8% 30.8% 20.7% 10.7% 10.7% 8.7% yoy % NA 17.1% 17.1% 12.0% 11.9%EBIT margin 13.7% 13.8% 13.9% 14.0% 14.1% 14.2% 14.3% EBIT margin 5.1% 5.2% 5.3% 5.4% 5.5%

IT Kontrakt OtherSales 58 69 83 100 115 126 139 Sales 15 16 17 18 19 20 21yoy % NA 20.0% 20.0% 20.0% 15.0% 10.0% 10.0% yoy % NA 5.0% 10.0% 5.0% 5.0% 5.0% 5.0%EBIT 6.2 7.5 9.2 11.3 13.3 14.9 16.8 EBIT 2.2 2.3 2.6 2.7 2.8 3.0 3.1yoy % NA 21.0% 23.0% 22.9% 17.7% 12.5% 12.4% yoy % NA 5.0% 10.0% 5.0% 5.0% 5.0% 5.0%EBIT margin 10.7% 10.8% 11.1% 11.3% 11.6% 11.8% 12.1% EBIT margin 14.8% 14.8% 14.8% 14.8% 14.8% 14.8% 14.8%

Antal Internaitonal ConsolidatedSales 6 30 36 43 48 52 Sales 727 893 1,623 1,985 2,205 2,393 2,591yoy % NA 25.0% 20.0% 20.0% 10.0% 10.0% yoy % NA -69.3% -54.6% 22.3% 11.1% 8.6% 8.2%

EBIT 0.7 3.6 4.6 5.7 6.5 7.4 EBIT 39.1 47.8 85.6 109.9 126.3 141.7 158.3yoy % NA 30.4% 24.9% 24.7% 14.1% 13.9% yoy % NA -69.4% -55.2% 28.3% 14.9% 12.2% 11.7%EBIT margin 11.6% 12.1% 12.6% 13.1% 13.6% 14.1% EBIT margin 5.4% 5.4% 5.3% 5.5% 5.7% 5.9% 6.1%


Cost split: pie chart Cost split, stacked column yoy


4Q 2013E results preview

Business seasonality — 4Q earnings boost. While Work Service’s revenues seasonality is quite limited, the company does exhibit stronger profitability on the EBITDA level in the last quarter of the year. This is driven by the margin differentials between temporary staffing and the higher-margin specialised outsourcing services for which demand typically increases in 4Q as companies finalise budgets special projects. Historically, Work Service’s 4Q EBITDA accounted for 34-36% of the annual total.

Work Service: revenue seasonality Work Service EBITDA seasonality


Wood’s 4Q 2013E earnings forecast. We expect Work Service to post PLN 19m in EBIT, up 35% yoy in 4Q on the back of PLN 244m sales (30% yoy increase). With high margin outsourcing services seasonally accounting for a larger slice of the quarterly revenue pie in 4Q, we expect to see 7.8% EBIT margins in 4Q vs. 4.7% in 3Q and 7.5% in 4Q 2012. We expect Antal International, acquired in 3Q 2013 to add PLN 0.7m to the 4Q EBIT. At the same time, we expect the 4Q bottom line to be weighed down by transaction costs booked in 4Q on the acquisition of Work Express and ProHuman.

4Q earnings preview


Wages73.6%

Social security and other

employee costs13.7%

Services7.7%

Energy & materials0.8%

D&A0.6%

Taxes & fees0.1%

Other3.5%

0

100

200

300

400

500

600

700

800

2008 2009 2010 2011 2012

OtherTaxes & feesD&AEnergy & materialsServicesSocial security and other employee costsWages

20%

24%

27%29%

23%24%

26%

28%

23%25% 26% 26%

0%

5%

10%

15%

20%

25%

30%

35%

1Q 2Q 3Q 4Q

2010 2011 2012

16%

21%

28%

36%

18%21%

27%

34%

20%22% 22%

36%

0%

5%

10%

15%

20%

25%

30%

35%

40%

1Q 2Q 3Q 4Q

2010 2011 2012

PLNm 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 3Q 13 4Q 13E 4Q yoy 2012 2013E yoyRevenues 170.6 182.8 186.7 187.3 188.7 221.4 238.9 243.7 30.1% 727.4 892.6 22.7%EBIT 7.7 8.4 8.9 14.1 9.1 8.5 11.2 19.0 34.8% 39.1 47.8 22.4%EBIT margin % 4.5% 4.6% 4.8% 7.5% 4.8% 3.9% 4.7% 7.8% 5.4% 5.4%Net profit 3.9 3.4 2.0 11.0 5.7 2.5 4.4 13.4 21.2% 20.4 26.0 -36.2%Net profit margin % 2.3% 1.9% 1.1% 5.9% 3.0% 1.1% 1.9% 5.5% 2.8% 2.9%


Financials

Work Service: P&L


PLNm 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Revenues 499 618 727 893 1,623 1,985 2,205 2,393 2,591 2,806 3,042

COGS 449 565 652 792 1,464 1,792 1,986 2,154 2,331 2,525 2,739

Gross profit 49.8 53.1 75.3 100.4 158.2 192.7 218.7 239.8 259.7 280.8 302.7

SG&A expenses 24.4 22.0 36.4 51.8 73.4 84.4 97.1 106.5 115.1 124.4 134.5

Other operating income/expenses 0.6 0.0 0.1 -0.8 0.9 1.6 4.6 8.5 13.6 20.3 29.1

EBIT 26.0 31.1 39.1 47.8 85.6 109.9 126.3 141.7 158.3 176.7 197.3

Financing income/expense -9.7 -8.5 -14.2 -14.4 -12.3 -14.1 -10.4 -5.5 -1.4 1.2 1.9

Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Pre-tax profit 16.4 22.6 24.8 33.4 73.3 95.8 115.9 136.2 156.9 177.9 199.2Tax -0.8 -0.3 -1.8 -4.0 -8.8 -11.5 -13.9 -16.3 -18.8 -21.3 -23.9

Minority interests -0.3 -0.7 -2.7 -3.3 -10.3 -13.4 -16.2 -19.1 -22.0 -24.9 -27.9

Net profit 15.3 21.6 20.4 26.0 54.2 70.9 85.8 100.8 116.1 131.6 147.4

D&A expenses 2.6 3.3 4.2 5.4 7.7 9.6 10.9 12.4 12.4 12.9 12.8

EBITDA 28.6 34.4 43.3 53.2 93.3 119.5 137.2 154.1 170.6 189.6 210.1

Shares at year-end (m) 51.3 52.9 47.9 59.9 60.1 60.4 60.7 61.0 61.3 61.3 61.3

EPS 0.3 0.4 0.4 0.4 0.9 1.2 1.4 1.7 1.9 2.2 2.5

DPS 0.0 0.1 0.0 0.0 0.2 0.3 0.4 0.8 1.0 1.1 1.1

Revenues YoY 38.4% 23.8% 17.7% 22.7% 81.8% 22.3% 11.1% 8.6% 8.2% 8.3% 8.4%

EBIT YoY 130.1% 19.5% 25.6% 22.4% 79.0% 28.3% 14.9% 12.2% 11.7% 11.7% 11.6%

EBITDA YoY NM 20.1% 25.9% 22.9% 75.4% 28.1% 14.8% 12.3% 10.7% 11.1% 10.8%

Net profit YoY 112.1% 41.4% -5.9% 27.9% 108.3% 30.7% 21.0% 17.5% 15.2% 13.4% 12.0%

Gross profit margin 10.0% 8.6% 10.4% 11.3% 9.7% 9.7% 9.9% 10.0% 10.0% 10.0% 10.0%

EBIT margin 5.2% 5.0% 5.4% 5.4% 5.3% 5.5% 5.7% 5.9% 6.1% 6.3% 6.5%

EBITDA margin 5.7% 5.6% 6.0% 6.0% 5.8% 6.0% 6.2% 6.4% 6.6% 6.8% 6.9%

Net profit margin 3.1% 3.5% 2.8% 2.9% 3.3% 3.6% 3.9% 4.2% 4.5% 4.7% 4.8%

ROA 6.2% 8.1% 5.7% 5.0% 7.3% 8.4% 9.8% 10.6% 11.6% 11.8% 11.8%

ROE 18.7% 27.2% 16.6% 10.3% 17.1% 18.3% 18.1% 17.6% 17.6% 17.4% 17.0%


Work Service: balance sheet


PLNm 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

ASSETS 245.6 268.6 355.4 516.9 741.0 840.9 876.6 950.7 1,002.9 1,118.1 1,245.6

Fixed assets 117.6 126.8 184.8 271.3 385.1 385.1 385.1 385.1 385.1 385.1 385.1Property, plant and equipment 8.3 7.6 14.9 27.9 45.0 45.0 45.0 45.0 45.0 45.0 45.0

Intangible assets 3.1 3.4 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2

Goodwill 102.6 111.3 155.9 229.4 326.2 326.2 326.2 326.2 326.2 326.2 326.2

Other 3.5 4.5 8.8 8.8 8.8 8.8 8.8 8.8 8.8 8.8 8.8

Current assets 128.0 141.8 170.6 245.6 356.0 455.9 491.6 565.6 617.8 733.0 860.5Inventories 0.3 1.4 5.3 9.0 9.9 10.9 12.0 13.2 14.5 15.9 17.5

Trade receivables 74.5 77.4 72.2 98.2 178.5 218.3 242.5 263.3 285.0 308.7 334.6

Other 49.6 57.7 84.2 97.1 157.7 187.8 206.1 221.7 238.1 256.0 275.6

Cash and equivalents 3.6 5.4 8.8 41.3 9.8 38.9 31.0 67.4 80.2 152.4 232.8

EQUITY AND LIABILITIES 249.2 268.6 355.4 516.9 741.0 840.9 876.6 950.7 1,002.9 1,118.1 1,245.6

Equity 81.6 79.6 122.5 253.2 317.7 388.5 472.8 571.2 658.8 757.3 866.8Share capital 5.3 4.3 4.8 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0

Other 76.3 75.3 117.7 247.2 311.7 382.5 466.8 565.2 652.8 751.3 860.8

Long-term liabilities 16.3 29.6 43.8 73.9 129.6 114.6 59.6 19.6 4.6 4.6 4.6Loans 0.3 13.9 14.3 14.3 70.0 55.0 55.0 15.0 0.0 0.0 0.0

Bonds 11.6 14.1 23.4 55.0 55.0 55.0 0.0 0.0 0.0 0.0 0.0

Other 4.4 1.5 6.2 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6

Current liabilities 151.3 159.5 189.1 189.8 293.7 337.9 344.3 359.9 339.5 356.2 374.2Loans 30.2 34.3 50.5 51.0 51.0 51.0 36.0 36.0 0.0 0.0 0.0

Bonds 14.0 0.0 18.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Trade payables 13.3 10.8 14.6 17.8 32.0 38.8 42.6 45.8 49.1 52.7 56.5

Taxes, duties and employee cos 50.3 61.5 65.2 71.4 123.3 143.3 151.2 155.9 160.4 165.0 169.9

Other 43.5 52.8 40.5 49.6 87.4 104.8 114.4 122.1 130.0 138.5 147.7

Debt 42.1 62.4 88.2 120.3 176.0 161.0 91.0 51.0 0.0 0.0 0.0

Net Debt 38.4 57.0 79.4 79.0 166.2 122.1 60.0 -16.4 -80.2 -152.4 -232.8


Work Service: cash flows


Price multiples


Work Service: shareholder structure


PLNm 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Operating cash flows -12.3 4.9 6.8 10.5 34.4 67.3 90.8 110.2 126.6 143.1 159.0PBT 16.4 22.6 24.8 33.4 73.3 95.8 115.9 136.2 156.9 177.9 199.2

D&A expenses 2.6 3.3 4.2 5.4 7.7 9.6 10.9 12.4 12.4 12.9 12.8

Working capital -35.0 -6.4 5.1 -26.5 -127.6 -34.1 -21.4 -18.8 -19.7 -21.6 -23.7

Other 3.8 -14.5 -27.4 -1.8 80.9 -4.2 -14.7 -19.6 -22.9 -26.1 -29.3

Investing cash flows -6.1 2.2 -53.1 -91.8 -121.5 -9.6 -10.9 -12.4 -12.4 -12.9 -12.8 CAPEX -6.8 -2.6 -56.2 -91.8 -121.5 -9.6 -10.9 -12.4 -12.4 -12.9 -12.8

Equity investment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 2.0 3.0 4.0

Other 0.7 4.8 3.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Financing cash flows 17.7 -5.3 49.8 113.8 55.7 -28.6 -87.7 -61.4 -101.4 -58.0 -65.8Share issue 14.2 -11.1 39.9 99.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Debt 38.2 -7.7 62.0 14.0 55.7 -15.0 -70.0 -40.0 -51.0 0.0 0.0

Dividend (buy-back) 0.0 0.0 -4.8 0.0 0.0 -13.6 -17.7 -21.4 -50.4 -58.0 -65.8

Other -34.6 13.5 -47.4 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Change in cash -0.7 1.7 3.5 32.4 -31.4 29.0 -7.9 36.4 12.8 72.2 80.4Cash at end of period 3.6 5.4 8.8 41.3 9.8 38.9 31.0 67.4 80.2 152.4 232.8

2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020EP/E NM 31.7 30.5 29.8 14.3 10.9 9.0 7.7 6.7 5.9 5.3

P/BV 8.1 8.6 5.1 3.1 2.5 2.0 1.7 1.4 1.2 1.0 0.9

EV/EBIT NM 23.7 19.1 15.3 10.1 8.8 7.4 6.3 5.3 4.5 3.8

EV/EBITDA 25.7 21.7 16.9 16.3 10.3 7.8 6.5 5.4 4.6 3.9 3.3

DPS (PLN) 0.00 0.09 0.00 0.00 0.23 0.30 0.36 0.84 0.97 1.10 1.10

Div yield 0.0% 0.7% 0.0% 0.0% 1.7% 2.3% 2.8% 6.5% 7.5% 8.5% 8.5%

Shareholder # shares (m) % stake

Prologis UK LPP 19.4 32.4%

WorkSource Investments S. aR. L 13.7 22.9%

Mizyak Investment Fund LTD 5.1 8.5%

Doyon Holdings LTD 3.1 5.1%

Others 18.6 31.0%

Total 59.9 100%


Appendix 1: Market overview

Competitive environment in the Polish temporary staffing market

A relatively concentrated market with a long tail of small agencies. The Polish market for temporary staffing agencies is relatively concentrated, with the leading three players accounting for 47% of the market, and the ten top agencies adding up to 79%. The remaining 21% of the market is broken down into nearly 4,000 small-scale agencies with only local reach and a business model based largely on personal relationships. While over the last five reported years the number of temporary employees per agency has remained relatively stable (133 on average) suggesting little market consolidation, the number of hours worked by a single temporary employee has more than doubled since 2008, suggesting that this form of employment is becoming more widely recognised.

Number of temporary staffing agencies… …and temporary employees in Poland

Source: Ministry of Labour and Social Policy, Ciett, Wood Research

Nearly 4.0k small-scale agencies operating within the Polish market — a potential business opportunity for WS? Three key trends may be drawn from the data provided by the Polish Ministry of Labour and Social Policy and Ciett.

First, the number of agencies has been growing rapidly at a 2004-2012 CAGR of 21%. While the macro slump of 2009 wiped out c.23% of the agencies in operation in 2008, growth continued in 2010 and the number of agencies in 2012 was 4% above the 2008 level.

Second, the market has seen little concentration as measured by the number of temporary employees per agency with the 2012 level at 128 per agency, at par with 2009, but down from 144 in 2011.

Third, FTEs continued to expand at a rate exceeding the growth of the number of temporary employees. In 2009-2012, the number of temporary employees increased at a 10% CAGR vs. a 41% CAGR in FTEs. This has been possible due to the labour law amendments of 2010, but also suggest more hours worked per employee under temporary arrangements and greater employee specialisation.

Being the market leader and a successful business integrator Work Service sees growth opportunities in tapping into the fragmented market segment occupied by the small-scale agencies by offering franchise arrangements. As this initiative is still at a nascent stage, we do not include franchise revenues in our forecasts, but given the management’s know-how in business integration and brand recognition, we believe the franchise roll-out could prove highly successful, implying upside to our earnings forecasts.

Poland remains an attractive market in terms of relative labour costs

Labour costs in Poland remain 68% below the EU27 average. According to Eurostat data, in Poland labour costs stood at EUR 7.4 per hour in 2012 vs. the EU27 average hourly rate of EUR 23.4. While Polish wage costs at EUR 6.2/hour stand 65% below the EU levels, the non-wage charges amplify the differentials. With non-wage cost at 16.7% of Polish hourly labour costs (EUR 1.2/hour), Poland’s non-wage employee expenses are 22% the EU average of EUR 5.5/hour (31% of the EU hourly rate). Against the labour cost differential, Poland’s qualified and low cost workforce continues to incentivise foreign investments,

867

1,9791,637

3,132

3,811

2,941 2,998

3,538

3,971

100

150

200

250

300

350

400

450

500

550

600

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2004 2005 2006 2007 2008 2009 2010 2011 2012

Number of temporary staffing agencies (lhs)

Number of temporary employees, '000 (rhs)

32

168

207

288

487 475

379

433

499509

0

50

100

150

200

250

0

100

200

300

400

500

600

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Number of temporary employees, '000 (lhs)

Temporary labour in full‐time equivalents, '000 (rhs)


stimulating demand for temporary staffing. We see a similar driver for the remaining CEE markets, including Hungary and Romania.

Labour costs per hour EUR in2012 - whole economy… …and the industrial and construction sectors

Source: Eurostat

Poland remains a highly attractive outsourcing destination

Attracting multinationals... The relatively highly qualified labour force priced at a discount to Western Europe as well as a stable regulatory environment have been key factors contributing to Poland’s attractiveness as a business process outsourcing (BPO) destination. Over the past year, Poland attracted among others Amazon, which aims to launch a distribution centre with 6.0k employees, and Procter&Gamble (logistics centre, 500 employees). We expect a high double-digit growth in BPO employment to be sustained over 2014-2015E, in light of the numerous projects to be launched. These include two-to-three call centres hiring more than 500 employees (among others Mars, Owen-Illinois). According to press reports (Rzeczpospolita, 5 February 2014), Poland may attract further large investments from Bank of America, Morgan Stanley, and JP Morgan, which are all considering outsourcing back office functions to Poland.

…as one of the world’s top outsourcing destination. According to the Tholons 2014 top 100 outsourcing destinations report, Eastern Europe, together with Southeast Asia and South America, rank among the top three regions of greatest appeal and outsourcing demand growth. Based on the report, Eastern Europe, characterised by a cost-efficient, technically skilled labour pool, should continue to attract high value services. Three Polish cities have been ranked in the Top 100 list of global outsourcing destination by attractiveness, of which Krakow was ranked 9th, Warsaw ranked 32nd and Wroclaw 65th. Among other CEE countries, Prague was ranked 16th, Bratislava 47th and Bucharest 40th.

BPO to boost demand for temporary staffing as well as higher-value added HR services. We expect business process outsourcing to continue to support employment and human resources services in Poland. Based on data compiled by the Association of Business Service Leaders, business centres financed by foreign capital had over 120k employees in 2012 (1.4% of the Polish labour force). This figure may reach 140k in 2014E and 200k in 2015-2016E, according to an analysis by Rzeczpospolita Daily. We expect the BPO market to continue to increase its value as Poland continues to increase the range of client services in terms of processes, market segments and geographic scope replacing simple tasks by more advanced, value-added services requiring more specialised staff.

Temporary labour market regulations support market growth

2010 amendments to temporary staffing regulations stimulate market growth... Poland passed the first comprehensive regulations concerning the temporary labour market in June 2003. In January 2010 the government amended the 2003 regulations introducing the following changes:

Extension of the maximum timeframe of providing temporary services to one employer within the past 36 months in order to qualify as a temporary employee (increased from 12 to 18 months of temporary work).

More simplistic regulations regarding the issuance of certificates of employment. Prior to the amendments, temporary staff agencies were required to issue certificate of employment following the termination of every temporary employment contract.

23.4

7.4

0

5

10

15

20

25

30

35

40

45Sw

eden

Denmark

Belgium

Luxembourg

France

Netherlands

Finland

Austria

Germany

Ireland

Italy

EU27

United Kingdom

Spain

Cyprus

Slovenia

Malta

Czech Rep

ublic

Estonia

Slovakia

Hungary

Poland

Latvia

Lithuania

Roman

ia

Bulgaria

wage costs non‐wage costs

24.2 & 21.0

7.4 & 6.3

0

5

10

15

20

25

30

35

40

45

50

Swed

en

Belgium

Den

mark

France

Germany

Finland

Austria

Luxembourg

Ireland

Italy

EU27

United Kingdom

Spain

Cyprus

Slovenia

Malta

Czech Rep

ublic

Slovakia

Estonia

Hungary

Poland

Latvia

Lithuania

Romania

Bulgaria

Industry Construction


Currently, agencies may issue bulk, annual certificates of employment summarising all the temporary contracts completed by the employee during the year.

Cancelling a former regulation forbidding the employment of temporary staff by companies that have conducted collective redundancies within the previous six months.

…while the 2013 amendments to labour law introduce greater elasticity of permanent contracts. In September 2013, Poland introduced amended labour laws regulating permanent employment introducing a more elastic definition of the work schedule for permanent contracts and allowing for wider freedom in setting the frames of a pre-agreed working day (in terms of the hours and the days of the week when the labour is provided). This increase in elasticity in permanent employment contracts may suggest a marginally lower benefit from temporary work arrangements, which provide a greater degree of elasticity. However, against the benefits of simpler contract termination and lower costs of increasing/decreasing employment via temporary staffing, we do not believe that the impact of the 2013 regulations on the temporary staffing market growth should be overemphasised, especially in light of CEE’s still low penetration vs. developed EU peers.

Introduction of first labour regulations vs. penetration rate in selected countries

Source: Ciett, Wood Research

Poland remains in the early stage of the temporary staffing market development. As gauged by the timing of the introduction of the first temporary employment market regulations, CEE’s experience with temporary staffing is of a short tenure. Poland, as well as the Czech Republic, Slovakia and Slovenia introduced comprehensive regulations only after 2003, as compared to e.g. Germany, France the UK, which introduced such laws in the 1970s. As presented above, the temporary staffing market penetration correlates positively with the country’s experience with this form of employment, suggesting further upside to the CEE markets over the next decade, in our view.

SlovakiaPoland

Greece

Italy

Spain

Sweden

PortugalAustria

UK

FranceGermany

Netherlands

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

196519701975198019851990199520002005


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CEZ 5

Erste Group Bank 5

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S.C. Fondul Proprietatea S.A. 4, 5

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CONTACTS Czech Republic Poland UK Rupert Wood Namesti Republiky 1079/1a Skylight Zlote Tarasy 2nd floor, suite 208 Head of Equities Palladium Zlota 59 68 Lombard Street +44 20 3530 0691 110 00 Praha 1 00 120 Warszawa London EC3V 9LJ [email protected] Czech Republic Poland Tel +420 222 096 111 Tel +48 22 222 1530 Tel +44 20 3530 0691 Bloomberg page Fax +420 222 096 222 Fax +48 22 222 1531 WUCO www.wood.com

Research

Head of Research Head of Research Poland Head of Energy Head of Turkish Equities

Patrick Shields Marta Jezewska-Wasilewska Robert Rethy Haluk Akdogan +44 20 3530 0623 +48 22 222 1548 +420 222 096 369 +44 20 3530 0625 [email protected] [email protected] [email protected] [email protected]

Consumer/Industrials Chemicals/Agrichemicals Utilities/Mining/Pharma Strategy

Erik Hegedus Piotr Drozd Bram Buring Carsten Hesse +420 222 096 256 +48 22 222 1547 +420 222 096 250 +44 20 3530 0624 [email protected] [email protected] [email protected] [email protected]

Consumer/Industrials Real Estate Energy Strategy

Gabriela Burdach Jakub Caithaml Yuriy Kukhtanych Mateusz Zawada +48 22 222 1545 +420 222 096 481 +420 222 096 452 +44 20 3530 0622 [email protected] [email protected] [email protected] [email protected]

Poland Romania Telecoms, Media & Technology

Piotr Bogusz Lucian Albulescu Tibor Bokor +48 22 222 1549 +420 222 096 273 +44 20 3530 0621 [email protected] [email protected] [email protected]

Sales

Head of Sales

Kristen Andrasko Jan Jandak Sean Callahan Lukasz Godek +420 222 096 253 +420 222 096 363 +44 203 530 0688 +48 22 222 1611 [email protected] [email protected] [email protected] [email protected]

Jan Koch Piotr Kopec Sebastien Leon Ioana Pop +48 222 221 616 +48 602 440 933 +420 222 096 866 +44 20 3530 0693 [email protected] [email protected] [email protected] [email protected]

Grzegorz Skowronski Michal Skowronski Markus Ulreich +48 22 222 1559 +48 22 222 1563 +421 2 3240 9046 [email protected] [email protected] [email protected]

Sales-Trading and Execution Services

Ashley Keep Zuzana Hronska Martin Stuchlik Vladimir Vavra +44 20 3530 0683 +420 222 096 283 +420 222 096 374 +420 222 096 397 [email protected] [email protected] [email protected] [email protected]

RECENTLY PUBLISHED REPORTS Date Company Title Analyst 04/02/14 The Rear-View Mirror CEE Markets — False start in 2014 Research Team 03/02/14 Energy biweekly CEEMEA Energy biweekly Robert Rethy, Yuriy Kukhtanych 31/01/14 EME Strategy Fund Flows: Turkish investors bet on equities despite FX meltdown Mateusz Zawada, Carsten Hesse 31/01/14 Oriflame Wounded beauty and the FX beast Erik Hegedus 30/01/14 OTE Cash-rich asset in recovering economies Tibor Bokor and Ondrej Cabejsek 29/01/14 Polish Banks 4Q previews Marta Jezewska-Wasilewska 28/01/14 PKN Orlen Sliding, but not yet there — no change in view Robert Rethy 24/01/14 EME Strategy Fund Flows: Preference for Developed Markets continues Mateusz Zawada, Carsten Hesse 23/01/14 WesternZagros All bets are on Yuriy Kukhtanych, Robert Rethy 20/01/14 EME Strategy Polish and Romanian pension funds update Mateusz Zawada, Carsten Hesse 17/01/14 EME Strategy Polish pension fund holdings data Mateusz Zawada, Piotr Bogusz 17/01/14 EME Strategy Fund Flows: Poland and Turkey still in the spotlight Mateusz Zawada, Carsten Hesse Although the information contained in this report comes from sources Wood & Company believes to be reliable, we do not guarantee its accuracy, and such information may be incomplete or condensed. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice. This report is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

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