ANNUAL REPORT 2017 CUSTOMERS IN FOCUS

Transcription

1 ANNUAL REPORT 2017 CUSTOMERS IN FOCUS

2 KEY PERFORMANCE INDICATORS (KPIs) (unaudited) 3W POWER AEG POWER SOLUTIONS GROUP December 31 (unaudited pro forma) 1 December 31 (reported) 1 in millions of euros % change % change Backlog % % Orders % % Revenue % % Book to Bill % % EBITDA (1.1) (7.3) (0.8) % of revenue 5.8% -0.7% -5.7% -0.5% Normalized EBITDA 2 (6.9) (2.9) (5.0) (2.5) % of revenue -4.8% -1.8% -3.9% -1.6% Adjusted EBIT 2 (10.3) (8.4) -22.3% (7.4) (7.7) 4.5% % of revenue -7.2% -5.1% -5.7% -4.9% Reported EBIT (7.4) (17.3) 57.2% (11.1) (11.9) -6.7% % of revenue -5.2% -10.5% -8.6% -7.5% Net income (25.9) (23.1) -12.2% 8.3 (50.3) Adjusted net loss 2 (33.2) (15.3) (20.2) (15.5) Share of net profit of associate and result from reconsolidation/deconsolidation AEG PS GmbH (31.3) Results from discontinued operations (0.4) (0.1) (0.4) (0.1) Earnings per share (in euros) (0.31) (0.28) 0.10 (0.60) Adjusted earnings per share (in euros) (0.40) (0.18) (0.24) (0.19) Cash used in operating activities (21.6) (10.5) (22.0) (17.8) Cash (used in)/from investing activities (0.2) Working capital Cash Net (debt) 2 (77.6) (46.0) (77.6) (58.7) 1 unaudited pro forma includes full consolidation of AEG PS GmbH for 2016 and 2017; reported includes consolidation of AEG PS GmbH until November 22, and as from May 1, For explanations on the alternative perfomance measurements we refer to note 34 of the consolidated financial statements and the Appendix. 3W POWER AEG POWER SOLUTIONS INDUSTRIAL PRODUCTS AND SERVICES (IPS) December 31 (unaudited pro forma) December 31 (reported) in millions of euros % change % change Backlog % % Orders % % Revenue % % Book to bill % % EBITDA (2.2) 3.8 % of revenue 10.1% 2.2% -1.7% 2.4% Normalized EBITDA (2.3) 1.1 (0.7) 1.4 % of revenue -1.6% 0.7% -0.6% 0.9% Reported EBIT 0.5 (7.5) (5.3) (6.9) 23.5% % of revenue 0.3% -4.5% -4.1% -4.4%

3 3W POWER AEG POWER SOLUTIONS ORDERS AND REVENUE BY GEOGRAPHICAL AREA (IPS) December 31 (unaudited pro forma) December 31 (reported) Orders Revenue Orders Revenue in millions of euros Europe excluding Germany Germany Asia Africa/Middle East Rest of the world Total Of which Products Of which Services ORDERS BY VERTICAL/PRODUCT GROUP in millions of euros pro forma Total reported Total pro forma Total reported Total Data & IT Grid and Storage Compact UPS Transportation General Industry Power Generation Oil, Gas & Petrochemical Services REVENUE BY VERTICAL/PRODUCT GROUP in millions of euros pro forma Total reported Total pro forma Total reported Total Data & IT Grid and Storage Compact UPS Transportation General Industry Power Generation Oil, Gas & Petrochemical Services %-changes are not shown if considered not to be helpful in the understanding of the KPIs. Due to rounding, numbers presented throughout this and other documents may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. CONTENTS 2 CHAIRMAN S REVIEW 4 LETTER TO STAKEHOLDERS 5 OUR SHARES 8 DIRECTORS REPORT 26 RESPONSIBILITY STATEMENT 27 FINANCIAL STATEMENTS 100 APPENDIX 101 CONTACTS

4 2 CHAIRMAN S REVIEW CHAIRMAN S REVIEW FROM KLAUS SCHULZE, CHAIRMAN OF THE BOARD OF DIRECTORS OF 3W POWER l AEG POWER SOLUTIONS. DEAR SHAREHOLDERS AND STAKEHOLDERS OF 3W POWER AEG POWER SOLUTIONS, 2017 was another year shaped by major challenges and numerous developments. On an operational level, the adjustments we made to our cost structures clearly benefited the quality of our earnings. Our order situation was adversely affected in the wake of the protective shield proceedings, but we also saw positive developments in our turnover with new products and in new markets. Together with the progress made in consolidating and completing our management team, this makes us more confident about the future. In the year under review, the Board of Directors performed the tasks incumbent on it by law, the Company s Articles of Association and its own Code of Procedure. The Company s high level of debt and tense financing situation in particular made it necessary for us to accompany and monitor its business activities very closely. The relevant measures and decisions were critically reviewed, discussed and ultimately implemented in close cooperation with the Management. To this end, we held numerous Board meetings, amounting to 12 in total, in the year under report. Outside the meeting framework, we also remained in close contact with the Company s Management and employees. Klaus Schulze, Chairman of the Board of Directors of 3W Power AEG Power Solutions, leads the Company with his extensive experience and a strong focus on regaining profitability. It was apparent that, taken alone, the protective shield proceedings opened for our largest subsidiary, AEG Power Solutions GmbH in Warstein-Belecke, Germany, in early 2017 and already completed after three months would not be sufficient to secure the long-term stability needed for the Company. Further restructuring measures would also be required. These were compiled in September 2017 and subsequently adopted and approved. 3W Power AEG Power Solutions _ Annual Report 2017

5 CHAIRMAN S REVIEW 3 With regard to the tense capital and financing structure, the Company found a solution which its bondholders and shareholders approved with large majorities at their respective meetings. Overall, this reduced significantly the Company s debt and interest change. Furthermore, it led to a delisting of the Company in May This in turn relieved the Company of the enormous input required to meet stock market disclosure requirements. Thanks to the support of our shareholders, creditors and employees in particular, our Company will be able to manage its business with more efficient and customer-focused structures in future. Our key focus here will be on continuously improving our work processes, further developing the functionality of our products and optimizing our costs. Our aim is to bind our customers even more closely to us, satisfy them with our services and secure our employees jobs. For this, we will continue to count on the involvement of our workforce will bring substantial improvements for our Company, but will involve challenges. As Chairman, I will continue to focus on guiding the Company towards a sustainably profitable future in the interests of all its shareholders, employees, customers and suppliers. In June 2017, we said goodbye to our retiring Board member Keith Corbin and thanked him for his commitment. We appreciate his nine years of work at the Company and his achievements. We are also very pleased that the Company managed to attract Paul van der Harten, who has extensive experience in the oil and gas industries and is also a seasoned finance specialist. We the Board of Directors are optimistic that, after all the measures taken, 3W Power AEG Power Solutions will now reach its objectives. We have taken the steps necessary to achieve a leaner organizational structure, improve the Company s cost base and enhance its products and services. I am pleased that many investors have underlined their trust in us by subscribing new shares and wish to accompany us in future as well. Their trust makes us all the more motivated! Yours faithfully, Klaus Schulze Chairman of the Board of Directors

6 4 LETTER TO STAKEHOLDERS LETTER TO STAKEHOLDERS FROM JEFFREY CASPER, CHIEF EXECUTIVE OFFICER OF 3W POWER l AEG POWER SOLUTIONS. DEAR SHAREHOLDERS, BONDHOLDERS, CUSTOMERS AND BUSINESS PARTNERS/SUPPLIERS, DEAR AEG POWER SOLUTIONS EMPLOYEES, Last year we overcame major challenges and found new opportunities that will greatly benefit the future direction of the business. We took steps to improve our financial and operational position and saw the first positive benefits of our steps to bring innovation to the market. In 2017, our team laid the operational foundation for profitable years to come. The conclusion of the protective shield proceedings in the Company s largest subsidiary in Germany on May 2, 2017, was an important step to increase efficiency and reduce some long-term obligations. One of the biggest issues which we have largely overcome is cultural and performancebased challenges resulting from the Company s legacy of maintaining separate geographic silos. In May, Paul van der Harten, a senior manager with 25 years of experience in various finance executive roles around the world, joined the top management team as CFO. Other positions improved our leadership in Product Management and Service. We maintain a focus on our strategic priorities which are to be world-class in industrial UPS, to grow service and to prioritize our customers and their needs. Our business activities at AEG Power Solutions and the German subsidiary have remained solid and the order backlog remained stable. Throughout the year, we released several new products including modular UPS Protect M400, M600 and Protect Plus S300. And in December 2017, we introduced our product Protect Flex, a new offer for the light industry market. In addition, new market dynamics in Grid & Storage bear exciting opportunities for us as we provide a range of unique solutions for this market. This was recently showcased with our success combining hybrid Battery Energy Storage Solution with a powerto-heat-module for a large utility in Germany. We expect strong growth in this market as Li-Ion battery prices are falling and renewable energy is becoming the dominant source of power. Our geographic coverage is broadly diversified and we operate in various end markets representing a stable order environment in our industrial core business. We value the appreciation our customers have shown for the quality of our solutions and technical capability of our employees especially in the service sector. On the financial side of the business, the Board of Directors, key financial stakeholders and the executive management initiated a comprehensive balance sheet restructuring. For years, the Company struggled with too much debt, unfavorable payment terms and limited access to working capital financing. On September 5, 2017, a non-binding memorandum of understanding was signed with key stakeholders to undertake the restructuring subject to the positive assessment of the Company s viability of its operational restructuring plans for the next three years. This was performed by a third-party expert on an arms-length basis and the outcome of their restructuring opinion was positive. On that basis, the Company had entered into agreements that substantially reduced company indebtedness, recapitalized the balance sheet, and took the Company private. The Company was supported by two main shareholders. To conclude, we have improved and simplified our core operations, introduced new promising products and agreed on steps that addressed our financial situation. We could realize this success thanks to our committed and hardworking employees and the confidence and loyalty of our customers, business partners and financial stakeholders. On behalf of the entire management team and the employees of AEG Power Solutions, I would like to thank all stakeholders for their contribution. Yours faithfully, Jeffrey Casper CEO Jeffrey Casper, Chief Executive Officer since November 2014 and Board Member since January In his function as CEO, Jeffrey Casper is the Chief Operating Decision Maker and heads the Company s overall development. 3W Power AEG Power Solutions _ Annual Report 2017

7 OUR SHARES 5 OUR SHARES SHARE PRICE PERFORMANCE The DAX surged to ever new record highs in In the first quarter already, the upward market trend was driven above all by improvements in the labor market and the election results in France and the Netherlands. These developments enabled the DAX to exceed its previous record high several times. Stock markets were temporarily affected by uncertainties surrounding the economic policy to be pursued by the new US government, election results in Europe and international events. In the second quarter, however, the DAX reached an all-time high of 12,921 points. This, just the first of the highs achieved in 2017, was mainly due to the positive interest rate decision expected from the US Federal Reserve. This trend suffered a setback in the summer, albeit only briefly, before the DAX returned to its former course and headed to a new record high in the fourth quarter. November brought a second all-time high of 13,525 points, a level which nevertheless did not last long. The upward trend in the DAX which has lasted for more than seven years now has been supported above all by the loose monetary policies adopted by the ECB. The global euphoria for bonds and real estate already apparent in the past thus spilled over to the third investment class as well. Notwithstanding political uncertainties, the DAX finished 2017 up 12.5%. This growth was promoted by positive economic data from the US and Europe, as well as by persistently low interest rates. The TecDAX, which comprises Germany s 30 largest listed technology companies, showed a similar performance. However, this index did not witness any notable downturns during the year. As a result, it rose by 27.2 % and even outperformed the DAX.

8 6 OUR SHARES ORDER VOLUMES ( 000) AND SHARE PRICE (EUR) DEVELOPMENT XETRA INDEXED SHARE PRICE DEVELOPMENT (%) 3W POWER AGAINST TECDAX 3,500 3,000 2,500 PRICE XETRA ORDERS XETRA W POWER INDEXED (XETRA) TECDAX INDEXED 2,000 1, , Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec EUR % Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec From January 1 to December 31, 2017 The shares of 3W Power were unable to participate in the market performance outlined above. Due to uncertainties arising from its restructuring measures, the Company s share price performance fell short of expectations in Once the protective shield proceedings were lifted in May, the share reached a high of (Xetra) on May 12, but quickly returned to the level seen in the first quarter. Investor demand declined and this also reduced the number of share orders. The share price continued to decrease and was also adversely affected by a deterioration in the market climate at the end of the third quarter. In September, the announcement of the final round of necessary Group restructuring measures led the share price to fall to a low level at which it remained until the end of the year. The Group restructuring involves substantially reducing its debt and requires balance sheet restructuring. This should facilitate measures to improve liquidity, the Group s operative financing and thus operating business growth. On December 28, the share price fell to its annual low of (Xetra). However, it made up some of its losses in the final days of the year, closing at (Xetra) on December 29. The rapid fall in the share price in December was due, in particular, to investors reacting to the decision taken by the Company to implement an extensive balance sheet restructuring measure for 3W Power S.A. This requires the bonds to be restructured, thus also making it necessary to restructure the shares. Based on the resolution adopted by the Annual General Meeting on May 9, 2018, the share price of 3W Power was reduced to 0 and the Company was delisted from the stock exchange. RESTRUCTURING MEASURES In November 2016, the Board authorized the Company to file for protective shield proceedings for its largest subsidiary, the loss-making subsidiary AEG Power Solutions GmbH, Warstein- Belecke (Germany). These proceedings were opened on February 1, The protective shield proceedings offered the opportunity to implement additional restructuring measures needed at the German subsidiary. These are intended to further streamline the subsidiary s business activities, raise its profitability and restructure its assets and liabilities. By May 2017, all objectives stipulated in respect of the protective shield proceedings were met and the process was completed. In September 2017, the Company announced further balance sheet restructuring measures, in which the secured 2014/2019 bond (DE000A1ZJZB9) and subordinate 2015/2020 convertible bond (DE000A1Z9U5) were to be further downgraded. It was therefore already apparent in mid-2017 that the Company would be unable to make repayments on the secured bond and the 2015/2020 convertible bond, thus making it necessary to restructure the bonds. The downgrading in the bonds to 1% of the nominal amount is accompanied by option rights to subscribe new shares at a subscription price of 1. The interest and principal payments for issued bonds have priority over dividend obligations and shares and are thus assessed as subordinate. 3W Power AEG Power Solutions _ Annual Report 2017

9 OUR SHARES 7 SHARE INFORMATION ISIN LU Stock exchange Frankfurt Stock Exchange, Xetra (Deutsche Börse AG), Frankfurt/Main, Germany Symbol 3W9K Reuters symbol 3W9K.F Designated sponsor ODDO SEYDLER BANK AG High in (May 12, 2017) Low in (December 28, 2017) Closing price on December 29, Market capitalization on December 30, million Number of shares outstanding 83,703,703 Source: Bloomberg As the bond has priority over the share, the restructuring of the bonds was simultaneously accompanied by a restructuring of the shares. With the approval of capital providers, the share of 3W Power (ISIN: LU ) and thus the Company s share capital was reduced to 0. By law, this full write-down of share capital will result in the Company being delisted from the stock market in At the same time, the Company executed a capital increase by issuing 7,970,787 new shares at a share price of 1 each. It is not planned to have the shares admitted to stock market trading. The funds gained from the capital increase are primarily to be used to repay the bridge loan of 5.0 million. Any surplus cash funds remaining thereafter are to be used to settle transaction costs and for the operative financing of new projects. The respective resolutions were adopted at the extraordinary General Meeting of 3W Power on May 9, 2018, and approved with a majority of around 98%. The business activities of AEG Power Solutions and its subsidiary were upheld throughout the entire 2017 financial year. INVESTOR RELATIONS 3W Power is in permanent dialogue with its shareholders and the capital markets. Particularly important topics in the year under report included the ongoing restructuring measures and in-depth communications with concerned bond creditors and shareholders. The IR activities ensure that information about developments relevant to the Company s financial performance are published at all times and that all necessary information is presented in the same way to institutional and retail investors. 3W Power aims to inform all of its stakeholders about all major developments in its performance and strategy. The Investor Relations staff is therefore always available to answer questions and act as a key interface between the Company s Management and the capital markets. To enhance readers understanding of the Company, the disclosures made in these annual financial statements and in previously published reports go beyond the minimum disclosures required by law. On its website, 3W Power provides extensive up-to-date information, including news for investors, current and previous reports, market information about its share and bond, and presentations and information for analysts. The Investor Relations section can be found at

10 8 DIRECTORS REPORT DIRECTORS REPORT THE DIRECTORS PRESENT THEIR REPORT ON THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS OF 3W POWER S.A. ( THE COMPANY ) FOR THE YEAR ENDED DECEMBER 31, THE COMPANY AND ITS CON SOLIDATED SUBSIDIARIES ARE COLLECTIVELY REFERRED TO AS THE GROUP. 3W Power AEG Power Solutions _ Annual Report 2017

11 DIRECTORS REPORT 9 CORPORATE EVENTS 3W Power S.A. was incorporated on May 21, 2008, in Guernsey as Germany1 Acquisition Ltd. The Company raised million through its initial public offering ( IPO ) on NYSE Euronext, Amsterdam on July 21, During the period from May 21, 2008 to September 10, 2009, the principal activity of the Company was that of a special acquisition vehicle with the purpose of acquiring one or more operating businesses through a merger, share purchase, asset acquisition, reorganization, capital stock exchange or similar transaction (a Business Combination ). On September 10, 2009, the Company acquired AEG Power Solutions B.V. ( AEG PS ) and all its subsidiaries. This marked the transition of 3W Power from an acquisition vehicle to the holding Company of a leading power electronics group. AEG PS is a world provider of power electronics. It offers product and services portfolios in uninterruptable power supply (UPS), power conversion and control, for customers spanning the infrastructure markets of oil and gas, transportation, power generation, data and IT, grid and storage solutions and general industrial sectors. On December 1, 2010, the Company successfully placed million of unsubordinated loan notes (the Notes ) at a coupon of 9.25% and due in December The Notes were traded on the Bondm segment of the Stuttgart stock exchange as well as on the Open Market of the Frankfurt stock exchange (FWB). On December 17, 2010, the Company s shares were admitted to trading on the Regulated Market of the Frankfurt stock exchange under the ticker symbol 3W9. December 13, 2013: Ripplewood with 30.2% of the total shares outstanding acting as the major shareholder of the Company sold its shares to several individual investors. Upon this change in the shareholding, four members were replaced on the Board of Directors (see Corporate Governance, section Board of Directors) and Mr. J. Casper was appointed Chief Restructuring Officer (CRO). On June 25, 2014, at the Annual General Meeting of the shareholders of 3W Power S.A., the shareholders approved to create a special reserve account and to reorganize and reduce the share capital from 12,520,006 to 50, The shareholders approved for this reduction a cancellation of four shares held by the Company, a reverse stock split (without capital reduction) of the issued shares by the Company by exchanging ten existing shares against one new share and consequently to exchange all of the 50,125,020 existing shares issued in the Company against 5,023,602 shares, and an allocation of 12,469, from the issued share capital account to the special reserve account. On August 26, 2014, the Company: increased its share capital with 25,109,731 new registered shares against 4.0 million contribution in cash from the existing shareholders and the implementation of a Management Incentive Program ( MIP ). Nominal value of the share is increased its share capital with 53,570,370 new registered shares against 19.3 million contribution in kind of a portion of the claims under the million of unsubordinated loan notes ( the Notes ). Nominal value of the share is On August 29, 2014, the Company: completed an exchange offer program. Approximately 82% of the creditors of the Notes exercised their rights to new shares and approximately 84% exercised their rights to new Notes. The acquisition period went from July 31, 2014, to August 22, The remaining shares and new Notes were offered to investors by way of an accelerated book building. The shares were sold for 0.26 per share and the Notes were sold for 70.0% of their nominal value. This translates into a value of per share subscription right and per bond subscription right not exercised. The proceeds were paid to the old bondholders who elected not to subscribe to the new debt and equity increase. issued a new bond 2014/2019 (ISIN DE000A1ZJZB9/WKN A1ZJZB) with a total volume of 50.0 million and a term of five years as well as an initial interest rate (to be paid semi-annually) of 4.0% per annum (first year of the term), which will increase by 2.0% per annum for each following year of the term, up to the maximum of 12.0%. The new shares were included in the existing listing for the Company s shares (ISIN LU ) on the Regulated Market (General Standard) of the Frankfurt Stock Exchange on August 29, The Notes of the new bond were included in trading on the Unregulated Market (Open Market) of the Frankfurt Stock Exchange on August 27, 2014, by way of trading on terms of issue.

12 10 DIRECTORS REPORT On November 18, 2014, the Board of Directors announced the appointment of Jeffrey Casper as Chief Executive Officer of the Group. At the extraordinary General Meeting on May 19, 2015, the shareholders approved the renewal and the increase of the authorized share capital to the aggregate amount of 1.5 million represented by 150,000,000 shares with a nominal value of 0.01 each. On October 5, 2015, the bondholders approved a change in the terms and conditions of the 50.0 million corporate bond (DE000A1ZJZB9) with a majority of 99.97% to enable the issuance on November 9, 2015, of a 14.0 million convertible bond (ISIN DE000A1Z9U50), a five-year subordinated non-mandatory convertible at 0.60 with an annual coupon of 5.5%. It is subordinated to the 50.0 million senior secured bond payable in 2019 (ISIN: DE000A1ZJZB9). On April 15, 2016, the Company repurchased 4.7 million of the corporate bonds, reducing the bond payable to 45.3 million. On November 23, 2016, main shareholders, the bondholders of the convertible bond and the main bondholders of the 2014/2019 bond entered into a restructuring agreement. This restructuring agreement required principal shareholders and bondholders to be supportive to amendments to the terms and conditions of 3W Power s 2014/2019 bonds and the 2015/2020 convertible bond. On December 21, 2016, the noteholders of the 2015/2020 convertible bond (ISIN: DE000A1Z9U50) have agreed with the required majority to the amendments proposed by the Company to the bond s terms and conditions. Requests included (i) interest payments at the end of maturity date, (ii) approval of fresh capital, and (iii) other changes inclusive a temporary increase in interest to 9.5% for a one year period commencing November The noteholders of the 3W Power s 2014/2019 bonds approved on January 5, 2017, the above-mentioned amendments. On December 23, 2016, the Company entered into a working capital facility agreement of 7.5 million with Coltrane Master Fund L.P. and Prime Capital Debt SCS, SICAV-FIS-Robus Recovery Sub-Fund. This is a fully secured, super senior debt, short-term, interest is at 9.5% and is in arears monthly payable. During March 2017, the conditions (mainly additional security) of the super senior secured debt were amended to extend the credit line to 15.0 million of which 7.5 million was directly available to our German affiliate. On October 10, 2017, the Company entered into a working capital facility agreement Bridge Loan of 5.0 million with Coltrane Master Fund L.P. and Prime Capital Debt SCS, SICAV-FIS-Robus Recovery Sub-Fund. This is a fully secured super senior debt, interest is at 9.5% and is payable upon demand. On December 8, 2017, the Group signed a restructuring agreement between AEG Power Solutions GmbH (AEG PS GmbH), AEG PS B.V., 3W Power S.A., 3W Power Holdings B.V. and the stakeholders. The stakeholders are lenders under the super senior loan, holders of the secured bond, holders of the shares and holders of the convertible bond. On January 25, 2018, the bondholders approved the financial restructuring plan. On May 9, 2018, the shareholders approved in an extraordinary General Meeting the financial restructuring plan which comprises the followings steps: I) Share capital: The existing share capital of the Company in the amount of 837, (divided into 83,703,703 shares) shall be reduced to zero. The reduction to zero will result in a cold delisting of the Company and its shares ipso iure. Subsequently, it is intended to increase the share capital by way of cash increase up to an amount of 7,970,787 by issuance of up to 7,970,787 shares with a nominal amount of 1 each, while preferential subscription rights of shareholders shall be excluded. Contractual option rights to participate in the cash increase will be vested in noteholders of the Company s secured bond (up to 6,610,807 new shares; equals 82.94% (rounded)) and convertible bond (up to 959,980 new shares; equals 12.04% (rounded)) as well as presumably with a minimum investment commitment threshold of 100,000 per investor to shareholders (up to 400,000 new shares; equals 5.02% (rounded)). II) New shares: It is not intended that the new shares will be listed on any market (whether regulated, open or other). The articles of association shall be amended to inter alia include stipulations on rights of first refusal and drag and tag along rights. III) Use of cash proceeds: The proceeds from the cash increase shall be predominantly used to repay the 5 million bridge facility. The surplus will be used for transactional costs and operational financing of new projects. To secure the full cash increase amount, the Company achieved to retain a commitment from institutional investors to subscribe to any rump shares not acquired by option right holders under a non-exclusive back-stop undertaking. 3W Power AEG Power Solutions _ Annual Report 2017

13 DIRECTORS REPORT 11 IV) Secured bond: The principal amount per note will be reduced from 500 (plus any accrued and capitalized interest) to 5. Each note will be vested with option rights to participate in the cash increase and to subscribe to 73 shares plus up to a maximum of 200 additional rump shares, not subscribed by other noteholders, against payment of a subscription price of 1 per new share. Any noteholder actively exercising the option rights waives its claim to receive the reduced principal amount for the note the exercised option rights are attached to. Noteholders not actively exercising the option rights will receive prepayment of the reduced principal amount for the relevant note promptly after expiration of the option exercise period. Until then, no interest accrues on the reduced principal amount. V) Convertible bond: The convertible bond will be restructured in a similar way to the secured bond. The principal amount per note will be reduced from 100,000 (plus any accrued and capitalized interest) to 100 and each note will be vested with option rights to 6,857 shares plus up to a maximum of 13,500 additional rump shares against payment of a subscription price of 1 per new share. VI) Super senior loan: The super senior loan after the envisaged repayment of the bridge facility amounting to 15 million shall be extended until January 2021, interest shall be reduced from a fixed interest rate of 9.5% to a Euribor rate plus a margin of 450 basis points p.a. and a pay as you can concept shall be introduced with regard to such reduced interest payments. OPERATING SEGMENTS The Group has one operating segment Industrial Products and Services (IPS), in combination with an unallocated segment (Unallocated) that represents non-business related expenses. Accordingly, the results of the Group are presented in these two segments which also reflect the presen tation of information to the Group s Executive Management, who have been identified as the Chief Operating Decision Maker ( CODM ). The Group is in the process of changing its structure from a product focus towards a vertical integrated Group, but full information on costs and asset allocations is currently not yet available. Due to the foreseen delisting of the Company, this topic will no longer be further disclosed in this set of financial statements. In addition to the IPS operating segment, the Group reviews its business activities through analyzing the key vertical markets and develops product and services offering to address these needs. The geographical allocation of customers location provides information on the demand side as well as on the underlying economic and political developments that may affect demand. This set of data will contribute to the Company s growth ambitions in the coming years. NON CURRENT ASSETS HELD FOR SALE/ DISCONTINUED OPERATIONS Included in results of discontinued operations is the subsequent loss resulting from the liquidation of AEG PS S.A.S. (Tours) France (July 16, 2014), the closing down of Richardson (April 2014) and the sale of the Indian subsidiary to TMEIC. On February 4, 2016, the Group completed the sale and purchase agreement for the sale of its small services companies Fluxpower GmbH and Primetech s.r.l. INVESTMENT IN ASSOCIATE As per November 22, 2016, the German entity was deconsolidated and reported as associate. The investment was re-measured to its fair value with the change in carrying amount recognized in profit or loss. The fair value becomes the initial carrying value for the purpose of subsequently accounting for the retained interest as an associate. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets and liabilities. On May 2, 2017, the local court of Arnsberg adopted the restructuring plan as approved by the Credit Committee and formally ended the protective shield proceeding. Following this expected positive court verdict, the Group re-obtained full control of the 100% shares in AEG PS GmbH and included the results of AEG PS GmbH in the consolidated numbers as from May 1, 2017 onwards. The income of 0.4 million for the period November 23 until December 31, 2016, and 12.1 million for the period January 1, 2017 until April 30, 2017, has been recognized in the share of net profit of associates for using the equity method. All other assets and liabilities which are directly related to the German business activity have been deconsolidated and were included in the loss from deconsolidation.

14 12 DIRECTORS REPORT GROUP AND SEGMENT FINANCIAL REVIEW (non-gaap measures are unaudited ) KEY FIGURES FOR THE YEAR ENDED DECEMBER 2017 (UNAUDITED PRO FORMA) 1 Orders Revenue Adjusted EBIT 2, 3 EBITDA 4 Normalized EBITDA in millions of euros Industrial Products and Services (IPS) (5.3) (4.4) (2.3) 1.1 % of revenue -3.7% -2.6% 10.1% 2.2% -1.6% 0.7% Unallocated (5.0) (4.1) (6.2) (4.7) (4.5) (4.0) Total (10.3) (8.4) 8.3 (1.1) (6.9) (2.9) % of revenue -7.2% -5.1% 5.8% -0.7% -4.8% -1.8% 1 unaudited pro forma includes full consolidation of AEG PS GmbH for 2016 and Earnings before interest and tax EBIT 3 The Group has significant non-cash charges resulting from the amortization of intangible assets arising on the acquisition of AEG PS. Therefore, in addition to EBIT and net income, the Group also reports adjusted EBIT and adjusted net income. Adjusted EBIT is EBIT adjusted for the amortization of intangibles on acquisition. Adjusted net income is net income adjusted for the amortization of intangibles on acquisition, the change in the value of warrants and the estimated tax effects of these (see Appendix page 100). 4 Earnings before interest, tax, depreciation and amortization EBITDA KEY FIGURES FOR THE YEAR ENDED DECEMBER 2017 (REPORTED) 1 Orders Revenue Adjusted EBIT 2, 3 EBITDA 4 Normalized EBITDA in millions of euros Industrial Products and Services (IPS) (2.6) (3.7) (2.2) 3.8 (0.7) 1.4 % of revenue -2.0% -2.4% -1.7% 2.4% -0.6% 0.9% Unallocated (4.8) (4.0) (5.1) (4.6) (4.3) (3.9) Total (7.4) (7.7) (7.3) (0.8) (5.0) (2.5) % of revenue -5.7% -4.9% -5.7% -0.5% -3.9% -1.6% 1 reported includes consolidation of AEG PS GmbH until November 22, 2016, for 2016 and as from May 1, 2017 onwards. 2 Earnings before interest and tax EBIT 3 The Group has significant non-cash charges resulting from the amortization of intangible assets arising on the acquisition of AEG PS. Therefore, in addition to EBIT and net income, the Group also reports adjusted EBIT and adjusted net income. Adjusted EBIT is EBIT adjusted for the amortization of intangibles on acquisition. Adjusted net income is net income adjusted for the amortization of intangibles on acquisition, the change in the value of warrants and the estimated tax effects of these (see Appendix page 100). 4 Earnings before interest, tax, depreciation and amortization EBITDA The Company ended the year with a reported order intake of million (2016: million), and on a pro forma basis million (2016: million). Reported revenue was million (2016: million); and on a pro forma basis revenue million (2016: million). The protective shield proceedings in Germany laid the foundation for an improved operational and commercial basis for the Group but during the proceedings and in the aftermath the underlying business was affected due to the disruptions caused by the re-organizations. Moreover, the process had done some damage to the short-term confidence of customers and suppliers in the financial viability of the Group which resulted into a drop of order intake and revenue recognition. For the reported period 2017, AEG PS GmbH was excluded for the first four months of 2017 from the 2017 consolidated numbers and its result was reported under result of associate. Approximately 37.1% of 2017 (2016: 31.5%) of the total order intake related to Services, in absolute numbers, Services realized a growth of 6 % in orders compared to Services is concentrated across Germany and the rest of Europe. In Asia Pacific and Africa/Middle East the Group continues re-enforcing its presence. Oil and Gas, Power Generation and Transportation remain by far our largest vertical segments. In 2017 these segments accounted for in orders 40.0% (2016: 41.9.%) and in revenue 40.3 % (2016: 42.3%). The total of restructuring measures taken resulted into a lower operating expense and therefore contributed to a significant reduction in EBITDA loss. 3W Power AEG Power Solutions _ Annual Report 2017

15 DIRECTORS REPORT 13 EBITDA for IPS was in million negative, (adjusted for one -time transactions negative 0.7 million), which is given the reduction in topline quite remarkable. In 2016 EBITDA for IPS was positively affected by the Capital gain of 4.9 million resulting from the sale of Fluxpower GmbH and Primetech s.r.l. and negatively impacted by restructuring measures (pro forma 1.6 million; reported 1.7 million) and the bad debt provision for a receivable on our South African partner caused by an irregular liquidity problem of an intermediate trading bank. EBITDA in 2017 for Unallocated was negative 5.1 million, compared to negative 4.5 million in 2016, which is on a normalized basis an increase of 0.6 million and is explained by the increase in costs of the executive management team. For 2017, the Group reports on a pro forma basis an adjusted EBITDA of negative 6.9 million, a 4.0 million increase in losses compared to Reduction in topline, change in product mix, significant reduction in operating expenses, offset by one-time restructuring cost are the main drivers. The table below summarizes the effects on EBITDA of one-time items as referred to earlier. REPORTED in millions of euros IPS Unallocated Group IPS Unallocated Group Reported EBITDA (2.2) (5.1) (7.3) 3.8 (4.5) (0.8) Capital gain (0.2) (0.2) (4.9) (4.9) One-time restructuring charges Other one-time gains/ charges EBITDA after adjustment (0.7) (4.3) (5.0) 1.4 (3.9) (2.5) The following table reports the 2016 operational results as if AEG PS GmbH would have been consolidated for the full year 2016 and 2017 ( pro forma ) and the effect of included in the consolidated numbers until November 22, 2016, and as from May 1, 2018 ( reported ). CONSOLIDATED STATEMENT OF INCOME in thousands of euros 2017 unaudited pro forma 2017 reported 2016 unaudited pro forma 2016 reported Revenue 143, , , ,789 Cost of sales (116,928) (105,275) (132,599) (126,308) Gross profit 26,544 24,125 32,513 31,481 % of revenue 18.5% 18.6% 19.7% 20.0% SG&A expenses (32,029) (27,703) (34,868) (33,637) R&D expenses (12,384) (5,000) (9,816) (9,308) Other income/(expense) 10,455 (2,486) (5,166) (408) EBIT (7,413) (11,064) (17,337) (11,872) Net finance (costs)/income (12,406) (12,037) (10,098) (10,050) Share of net profit of the associate/result from reconsolidation/deconsolidation of AEG PS GmbH 31,569 (31,287) (Loss)/income before tax (19,819) 8,468 (27,435) (53,209) Income tax (charge)/benefit (5,683) 249 4,321 3,027 (Loss)/income from continued operations (25,502) 8,717 (23,114) (51,182) Loss from discontinued operations (434) (434) (96) (96) Net (loss)/income (25,936) 8,283 (23,210) (50,278) Gross margin Group gross margin in 2017 was 18.5%, compared to 19.7% in The Group margin was impacted by the business mix. As earlier referred to, the Group had a significant increase in products sold to end customers in the Power Generation segment which contain a high battery content at lower margins. In general we do conclude that business in Middle East is quite suffering from price reductions following the heavy competition on critical infrastructure projects. In 2017, the sum of bad debt, warranty- and inventory provisions was negative 2.1 million compared to negative 1.1 million in The 2017 provision includes an excess inventory charge of 1.0 million.

16 14 DIRECTORS REPORT Research and Development (R&D) costs R&D costs were as follows: UNAUDITED PRO FORMA in millions of euros Gross R&D spending % of revenue 3.5% Capitalized amounts (0.7) Amortization and impairment on capitalized amounts Amortization and impairment of intangibles on acquisition Net R&D costs REPORTED in millions of euros Gross R&D spending % of revenue 3.4% Capitalized amounts (0.7) Amortization and impairment on capitalized amounts Amortization and impairment of intangibles on acquisition Net R&D costs The main focus was on the extension of the existing technology platforms in the industrial and Data and IT market as well as on the required cost reduction in our overall product portfolio. In order to achieve these objectives, the Group increased the number of product management functions. R&D efforts have been made on functions and features of the standardization and upgrade of the Protect 8 UPS and the Protect-RCS platforms, the high-power chargers and the M600 / M900 UPS range. Selling, general and administrative expenses (SG&A) SG&A expenses were reduced by 2.8 million on a pro forma basis, adjusted for the one-time accelerated amortization of 1.1 million, they were down by 11.3% year-on-year, through restructuring measures in the German subsidiary in Warstein- Belecke and the French subsidiary in Tours, elimination of central functions, lower bonuses and related social charges and savings from tariff negotiations with the unions in Warstein-Belecke. Other expense (net) On a pro forma basis, other expense increased from negative 5.2 million in 2016 to positive 10.5 million in included the gain of 23.5 million relating to outcome of the protective shield proceedings of AEG PS GmbH. 2016, a capital gain was recorded of 4.9 million following the sale of Fluxpower GmbH, 2017 included net restructuring costs of 8.5 million (2016: 1.6 million) of which 4.8 million is directly attributable to the German operation and the protective shield proceedings. In 2017 the Group incurred approximately 0.9 million one-time expenses relating to the financial restructuring. Amortization charges and accelerated amortization charges on intangibles from the acquisition of AEG PS in 2009 were 5.1 million in 2017 (2016: 2.2 million). In 2017 an accelerated amortization charge of 4.5 million was recognized on customer relations. Other expense for the year 2016 included a one-time accelerated amortization costs of 4.8 million in relation to the fair valuing of the building in Germany. Net financial income/(cost) In 2017, on a pro forma basis, the Company reported a net financial loss of 12.4 million compared to 10.0 million loss in The increase of 2.4 million financial costs relates for 2.2 million increase in Interest and Deferred financing fees on the 45.3 million Bond loan, on the 14.0 million convertible bond loan and to interest expense levied on to the super senor debt of 20.0 million (2016: 3.5 million). The Group recognized an one-time income of 1.1 million following the modification in the accounting treatment of the financial liability coming forth of the 15.0 million super senior secured debt. The Company has no foreign currency instruments in place to mitigate exposure to exchange rates. The change in value in foreign exchange income/losses is a non-cash item. It relates primarily to the revaluation of euro-denominated loan and non-trade intercompany balances between AEG Holding B.V. and non-euro affiliates. Compared to 2016, the Group had a net 1.1 million additional temporary exchange loss on transactions (2016: 0.4 million). The weak USD currency compared to the euro currency was the main driver of this temporary loss. 3W Power AEG Power Solutions _ Annual Report 2017

17 DIRECTORS REPORT 15 Taxation The reported tax benefit for 2017 of 0.2 million (2016: 3.0 million) comprises a 0.1 million tax benefit (2016: 0.4 million) and a 0.1 million benefit (2016: 2.6 million) in deferred tax. The tax benefit in 2017 is based on the reduction in deferred tax assets. The effective tax rate at which the Group recognizes and pays taxes depends on the profitability and tax rates in the countries in which the Group operates. In both years, the Group had significant unrecognized deferred tax assets in the form of unrecognized tax losses which impacted its high effective tax rate. Impact of deconsolidation of AEG PS GmbH The following table report the consolidation - and deconsolidation effect of AEG PS GmbH in the consolidated statement of financial position. STATEMENT OF FINANCIAL POSITION AEG PS GMBH In thousands of euros May 1 Dec 31 Nov 22 Total non-current assets 7,823 23,775 36,866 Cash and cash equivalents 6,612 7,312 5,285 Other current assets 30,765 27,817 56,216 Total current assets 37,377 35,129 61,501 Total assets 45,200 58,904 98,367 Equity 23,145 11,056 42,883 Total non-current liabilities 5,126 29,960 34,480 Total current liabilities 16,929 17,888 21,004 Total liabilities 22,055 47,848 55,484 Total equity and liabilities 45,200 58,904 98,367 The drop in equity of 32.2 million is driven by the fair value determination as per November 22, During the first four months 2017, AEG PS GmbH conducted several meetings with the Credit Committee that concluded into the approval of the insolvency agreement on April 6, 2017, comprising: a quota payment of the outstanding liabilities, a restructuring program with a redundancy of 74 FTE; and a related lay-off payment. The outcome of this restructuring process was a 12.1 million net income reported by the Group as share of net profit of associate accounted for using the equity method, reflecting the result of AEG PS GmbH for the period January 1 until April 30, This increased equity from 11.1 million to 23.1 million. In this four-months period, total revenue reported was 17.4 million, expenses 19.3 million, resulting into a loss before taxes of 2.2 million. The tax charge was 0.3 million reporting an operational loss of 2.5 million. The relating profit, net of tax, to the outcome of the insolvency proceedings was 14.6 million. Due to the pre-existing relationships between AEG PS GmbH and the Group, an income of 19.5 million was recognized as a result of the reconsolidation. The majority of this amount relate to Group payable balances from Anlagendesign GmbH (formerly known as 3W Power Holdings GmbH). As per May 1, the Group reconsolidated AEG PS GmbH and performed a purchase price allocation. The outcome of this analysis revealed that no step up was required and that the balance as per May 1 reflects the fair values. As a result, an amount of 23.1 million for investment accounted for using the equity method was derecognized and included as the new fair value of the business combination. As per November 22, 2016, AEG PS GmbH was deconsolidated for an amount of 42.9 million and subsequently reported as an associate as at December 31, AEG PS GmbH was recognized for a consideration value of 10.7 million and generated a profit of 0.4 million for the period until December 31, The investment was re-measured to its fair value with the change in its carrying amount of 32.2 million loss recognized in profit or loss of the Group as result from deconsolidation.