Consolidated annual report for the year ended 31 …...Consolidated annual report 2018 5 Looking...

Note

The annual report has been prepared in the Czech language and in English. In all matters of interpretation of information, views

or opinions, the Czech version of the annual report takes precedence over the English version.

Consolidated annual report for the year ended 31 March 2018 Varroc Lighting Systems, s.r.o.

Consolidated annual report 2018 2

Company’s Identification Company name: Varroc Lighting Systems, s.r.o. („the Company“) Registered office: Šenov u Nového Jičína, Suvorovova 195, zip code 742 42 Incorporated: at Regional court of Ostrava section C insert 55719 Date of incorporation: 15 May 2012 Identification number: 243 04 450 Legal form: Limited Liability Company Primary business activity: Development and production of lighting systems for motor

vehicles Share capital: CZK 200,000 Definition of consolidation unit Consolidating entity: Varroc Lighting Systems, s.r.o., Czech Republic Consolidated entities: Varroc Lighting Systems Inc., US (100% of shares) (Subsidiaries) Varroc Lighting Systems GmbH, Germany (100% of shares) The Company has branches in France and in the United Kingdom. Independent Auditor’s report and consolidated financial statements, Auditor’s report and financial statements of the consolidating entity and Auditor’s report and report on relations of the consolidating entity are an integral part of the consolidated annual report. Vision, mission, values Vision

To be a €2 billion supplier of innovative lighting solutions for automobiles and 2-wheelers worldwide by 2022, contributing to ongoing improvement to safety, mobility, and style.

Be a partner of choice for vision and signalling systems to automotive manufacturers, to become the fastest growing global leader.

We are a Company that respects and rewards its customers and shareholders alike, while fostering an environment that empowers employees and encourages the constant pursuit of excellence.

Mission

We bring leading-edge technology to the mainstream automotive market with high-quality cost competitive solutions.

As the industry transforms, our success is based on speed, agility and creativity to deliver customized solutions with superior service.

Values Honesty … Act and do things from the heart. Humbleness … Having good relations with everyone. Integrity … Do the right things. Passion … Despite all the obstacles do not give up. Self-discipline … Ability to accomplish things.


History The history goes back to 1879 when Josef Rotter built a plant for the production of lighting systems for the automotive industry from a small workshop in Nový Jičín. The Company was brought to public awareness by the name Autopal, national enterprise. At that time, it was one of the largest companies in the Czech Republic. In 1993, Autopal was acquired by an owner of a global significance - Ford Motor Company. The Company was experiencing a major boom thanks to considerable investments in innovation in production technologies, research and development. This was followed by era of the Visteon brand, which was equally successful. Today, under the name Varroc Lighting Systems, s.r.o., the Company plays a leading role on the market of lighting technology for the automotive industry and represents Varroc Group worldwide as the global Centre of Excellence. Milestones Year 1879 From a small workshop in Nový Jičín Josef Rotter built a plant to produce lighting systems for the automotive industry under the brand Joro. Year 1950 Joro was renamed to Autopal, national enterprise. Year 1993 Autopal, national enterprise was bought by an American Company Ford Motor. Year 2000 Autopal became a part of Visteon Corporation. Year 2012 Lighting technology division of Visteon was acquired by Varroc Group and Varroc Lighting Systems, a Company with a new identity was established. Company’s profile The Company is a part of the international Varroc Group ("the Group"), which is owned by the Indian capital and acts as a global producer of components for the automotive market and the market for two-wheeled vehicles. On 1 August 2012, Varroc Group acquired the lighting technology division of Visteon Corporation and the new division operates as Varroc Lighting Systems, with the ultimate parent Company Varroc Engineering Private Limited, incorporated in India. Varroc Group with more than 5,000 employees operates its operations in America, Europe and Asia and it is building a new plant in Morocco. International structure of production plants prepared conditions for the planned growth of the Group in the next few years. Worldwide strategy of Varroc Lighting Systems is built upon capable engineering teams. The strengthening of the global market position relies on them. Varroc Group operates six engineering centres around the world. The largest one, Global Centre for Research and Development, is located in Šenov u Nového Jičína and another one is in Ostrava. The centre plays the role of "a global centre of excellence" within the Varroc Lighting Systems division, and represents the key area of concentrated research and development for the entire Group. Global Centre for Research and Development is unique in size, not only in context of the Czech Republic but also in the world.


Varroc Lighting Systems, s.r.o. located in the Czech Republic is the largest Company in the entire Varroc Lighting Systems multinational division by the number of employees and production volume. The Company is a respected business with a strong tradition in the field, with a history of over 130 years. It belongs to major employers in the Moravian-Silesian region as well as in the Czech Republic. Varroc Lighting Systems, s.r.o. develops, produces and supplies lighting technology to the world’s leading car manufacturers including premium brands. The Company is constantly working on strong relationships with existing customers, and actively participating in international conferences and technical presentations it also strives to create new relationships. Customer satisfaction is the motivation for development and production of lights with impressive design and timeless technologies. Varroc Lighting Systems, s.r.o. comprises of production plants in Šenov u Nového Jičína and Rychvald, a tool room and two development centres in Šenov u Nového Jičína and Ostrava. It has two subsidiaries – Varroc Lighting Systems Inc. in the U.S. (100% of shares), Varroc Lighting Systems GmbH in Germany (100% of shares). Our customers are world leading automobile manufacturers. Brands such as Audi, Bentley, Buick, Cadillac, Citroën, Dodge, Eicher, Ford, GM, Haima, Chery, Chevrolet, Chrysler, Jaguar, Land Rover, Lincoln, Mahindra, Mercedes, Nissan, Opel, Peugeot, Škoda, Tata, Tesla, Volkswagen, Volvo and others are part of the Varroc Group customer portfolio. Foreword of Vice President Todd C. Morgan Dear Business Partners, Growth remains a key focus at Varroc Lighting Systems, and we have successfully completed one of the largest years for new business wins in our history. This is driven not only by new innovative technologies that we are bringing to the market, but also in adding new customers to our portfolio. With the announcement of the new plants being established in Morocco and Brazil, we have gained additional access to new markets, and customers have awarded an increased amount of business into our facilities in the Czech Republic. Our competitive advantage of having development, manufacturing and a tool shop within our scope of capabilities continues to play a major role in our growth achievements. Delivering a quality product at a competitive cost remains a mandatory requirement from our customers and we continue to exceed our customer’s expectations in this area as well. Our operations in Senov u Noveho Jicina and Rychvald have faced a significant challenge to deliver on major launches with all of our key customers this past year. Launching our first ever headlamps with matrix and LASER technology was a key milestone for Varroc Lighting Systems to continue our growth into the premium vehicle segment, with state of the art, and leading edge technology. Supporting our growth targets while making the most effective use of our capital investments require a close collaboration with our supply base. In addition, key suppliers are an important element in developing new innovative technologies and processes. A new expansion was completed in Rychvald allowing additional manufacturing capacity. Plans are in place for further expansions in both Senov u Noveho Jicina and Rychvald in the coming year. Our tool room has refocused its expertise to build tools for more specialized and proprietary processes and components to maintain its competitive advantage, and has made strategic investments in those chosen fields. In product development, the focus on the expansion of our engineering capability and capacity continues to be a priority for Varroc Lighting Systems. New expanded offices in Ostrava have allowed us to add electronics capability into our office in Ostrava, in addition to the Electronic Development Center that was opened last year in Novy Jicin. LED technology continues to be cascaded into every vehicle segment, and this continues to put pressure on us to expand our development capacity in electronics. Innovations in signal lighting are also progressed rapidly, including the introduction of Surface-LED, which is a cost effective and more reliable alternative to OLED technology.


Looking forward, bringing innovation to the mainsteam market remains a key strategic focus for Varroc Lighting Systems. This can only be achieved by listening to our customers’ requirements, reacting quickly and ensuring a close collaboration between our engineering, manufacturing and toolshop teams. It is critical for us to maintain and grow a highly motivated and talented workforce, and ensure that we offer a safe and healthy environment for them to work in. Our talented and highly capable teams are indeed the formula for success not only this past year, but also for many years to come. Products development, production and quality Research and application development Our products at Varroc Lighting Systems continue to become increasingly complex to keep up with the increasing demands from our customers in terms of performance and design. Electronic content is typically the largest portion of the cost of our lighting products today and therefore we continue in investing into new equipment, test facilities and people in this field. Software is also becoming a more significant element in the development of lighting products with the new requirements for personalization and animation headlamps and rear lamps. New signal lighting innovations, like Surface-LED, which allow our customers to achieve an appearance similar to OLED technology at a much lower cost and improved reliability, has gained significant customer interest. The successful launch of LASER and Matrix headlamps, which provide unparalleled visibility and safety for the driver, was a major milestone for Varroc Lighting Systems. This required close collaboration with our advanced core applications and electronic teams during the development and new innovative processes from our manufacturing teams. Engineering capabilities are still very important for Varroc, and the new expansion of our office in Ostrava has been another step forward in this area. In Nový Jičín, there is now an extensive reconstruction of the main administrative building, which will provide our employees with new modern offices. Close cooperation with several universities and business partners is an important element in attracting and retaining key talents in our organization. The opening of new development centres in Krakow, Poland, which will require close cooperation and support from our global centre of excellence in the Czech Republic, will allow us to increase our capacity at a rapid pace. In addition, it will offer our employees, at the time when our organizations are rapidly expanding, new job opportunities and the ability to travel and work on new global projects. Production Production technology and product portfolio of Varroc Lighting Systems is appreciated by customers throughout the world for its superior design and first-class quality. Produced headlamps and reflectors are used by the end customers often in extreme conditions. During the final control, maximum attention is devoted to thorough examination of all functional parameters (leaks, electrical and optical functions) as well as visual defects. Compliance with all relevant international standards and requirements of customers is the foundation of all internal and external activities of the Company. The deciding factor of the customer satisfaction is the quality of the products. Production of headlamps and rear lamps at Varroc Lighting Systems includes: Serial production (injection moulding, surface processing, final product assembly). Design and production of tools. Servicing and spare parts. The role of the tool room starts before the production itself. The main activities include:

Design and production of moulds for injection moulding. Design and production of progressive tools (Fe, stainless steel, Al). Design and production of measuring equipment.


Quality Application of quality systems and methods. Testing and validation. Analysis of warranty claims.

Preparation of prototypes

Fully equipped prototype workshop. Visual prototypes. Preparation of prototypes for verification of functionality and performance of lights. Demonstrations of the latest technologies.

Products development and production in the reporting period Products development – plant in Šenov u Nového Jičína This year, there was a significant number of newly launched projects. There was the introduction of 13 new programs across almost all customer groups (Ford, PSA, Škoda, JLR). All programs have been successfully deployed and deliveries to customers began as contracted. The growth in production and sales has resulted in an increase of the number of production workers to almost 2000. Concerning the labour market situation in the Czech Republic, we have established a cooperation with an agency that provides Polish workers, who are currently a significant part of the manufacturing staff. We are continually striving to improve the working environment for employees. Additional heat recovery units have been installed in the hall of the rear lamps to ensure a more stable temperature especially during the summer months. There was a complete replacement of the bridge crane in the hall of the headlights with a tonnage of 25 tons and the adjustment of the asphalt surfaces in the premises of the plant. Throughout the year, the company has been preparing a move to a new IATF 16949 standard in order to meet customer requirements and prepare for further new projects that will follow next year. Products development - plant in Rychvald Current financial year was a year of great growth. We introduced 4 headlamps (Bentley 634/5, Jaguar X540 and Land Rover L405 and L494). Thanks to this increase in production, our sales grew by almost 20%. The top-of-the-line L405 / 494 headlights feature built-in laser and matrix technology that were used within the VLS for the first time. Another major event was the completion of the MG hall. In this hall with an area of more than 5,000 square meters, we will produce headlights for customers Renault, VW and Škoda. Thanks to expanding production, we had to rent storage spaces outside of our plant. Overall, we can consider the fiscal year to be successful. The most significant customers include Land Rover, Jaguar, Ford, PSA and Bentley. Varroc Lighting Systems and safety and environmental protection Varroc Lighting Systems is committed to ensuring a safe and healthy work environment and protecting and preserving the environment. These basic values are included in all of our manufacturing operations, products and services. It expresses our obligation to be a responsible member of society. Achieving excellent results in health, safety and environmental protection is the global responsibility of the Company, which is covering all areas from research & development to production. Varroc has introduced an integrated environmental management system, which complies with the requirements of the international EN ISO 14 001 standard and, together with the safety management system and occupational health system, complies with OHSAS 18 001. The integrated EH&S system is designed to identify, evaluate and control key environmental aspects and safety risks. System is the base for continuous improvement in Varroc's plants and workplaces, in Company’s products and services. Continuous improvement is supported by setting annual targets and performance indicators that are regularly evaluated by the Company’s management.


Consolidated financial results of the Company Consolidated balance sheet Total assets of the Company increased by 9% compared to 31 March 2017, i.e. by CZK 979 million. The growth in total assets of the Company was mainly due to the growth of fixed assets and current assets, especially inventory related with the overall increase in the volume of orders. As at 31 March 2018, the Company’s equity increased by 19%, i.e. by CZK 677 million. The increase in equity was caused mainly by the net profit for the year ended 31 March 2018 which amounted to CZK 888 million. As at 31 March 2018, the Company's equity amounted to 36% of total equity and liabilities. Liabilities of the Company decreased by 18% compared to 31 March 2017, i.e. by CZK 1,180 million, which was mainly reflected in the trade payables and bank institutions. Consolidated income statement In the area of sales, there was a significant growth in the automotive market and series productions of new models. The accelerated growth of the Company and a stable customer portfolio enabled a long-term revenue growth trend. Revenues from own products and services compared to 2017 recorded a growth of 10%, i.e. by CZK 1,145 million. Most of the production was directed to the European Union, mainly to Great Britain and Germany. Among the most important brands for which the company supplies its products are Ford, Jaguar Land Rover, Peugeot, Citroen and the Volkswagen Group, which is represented by Škoda Auto in Czech. The most significant part of other operating income and expenses is represented by factoring of receivables. In the fiscal year, the Company generated operating profit of CZK 902 million, which represents an increase in profitability by 1 percentage point over the previous fiscal year. The company has been able to make savings in operating area and compensate costs associated with the introduction of new series production. The company achieved a total profit after tax of CZK 888 million, while in the previous year it generated a total profit after tax of CZK 772 million, which represents an increase of 15%. Outlook for the fiscal year 2018/2019 In the fiscal year 2019, the Company expects further growth in sales of its products and services mainly due to continued growth in the automotive industry and new projects with business partners, based on latest technologies. Due to growing competition in the automotive market, efforts will continue to be made to optimize and standardize not only the production processes in the Company, but also the development and research itself and other supporting activities such as own production and maintenance of tools and moulds. HUMAN RESOURCES The average recalculated number of employees at Varroc Lighting Systems, s.r.o. was 2,664 employees as at 31 March 2018. Education A total of CZK 6.8 million were spent for the training of employees between 1 April 2017 and 31 March 2018. In total, 14,328 participants were trained. Trainings took place in a number of areas:


In compliance with legal requirements, statutory compulsory training (OSH and OP, training for motor vehicle drivers, cranes, binders, platformers, welders etc.) was carried out. The professional courses focused on quality, new technological knowledge, and on software applications and design programs (MS Office, CATIA, etc.). Our company has received a training grant under Challenge 60, in particular CATIA, Plastics, and training for new robots of various types. Language teaching took place both in the form of classical courses according to the choice of the employee and in the form of eLearning. In the area of soft skills, Presentation Skills, Argumentation and Rhetoric, Time Management, Stress Management, Conflict Situations courses, etc. were implemented. For the new managers, an adaptation program was launched, containing both information on internal systems and processes, as well as basic managerial skills. Last but not least, this year we also launched the implementation of a new system of management and recording of educational activities of the KS Portal. Care of employees Between 1 April 2017 and 31 March 2018, Varroc Lighting Systems, s.r.o. continued to provide all the benefits that were provided to employees in the previous period. The company focused on the amount of reward for the candidate's recommendation, responding to the situation on the labour market, totalling over CZK 860,000. The Company continues to provide a contribution to supplementary pension insurance, which has doubled since January 2018, with an annual amount of almost CZK 15.5 million. Employees are also motivated by a system of rewards for performance and loyalty rewards at work and life anniversaries. The company also keeps improving the working environment of employees. A part of the social policy of the Company is also the care of pensioners, who are provided by contributions for lunch and cultural and sports activities of their club. Contributions are still made to staff meals, employee care through the social fund, and the provision of corporate kindergarten for children of employees. Nový Jičín, 20 July 2018 Tarang Jain Statutory Representative

Report on relations

of the company

Varroc Lighting Systems, s.r.o.

Pursuant to Section 82 of the Act on Corporations

for the accounting period from 1 April 2017 to 31 March 2018

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Executive Directors of Varroc Lighting Systems, s.r.o., with its registered office at Šenov u Nového Jičína, Suvorovova 195, zip code 742 42, identification number: 243 04 450, registered in the Commercial Register maintained by the Regional Court in Ostrava, Section C, File 55719 (in this Report also “Varroc CZ” or the “Company”), have prepared the following Report on Relations (the “Report”) pursuant to Section 82 of the Act No. 90/2012 Coll., the Act on Corporations, as amended (the "Act on Corporations”), for the accounting period, which begun on 1 April 2017 and ended on 31 March 2018 (the “Relevant Period”). 1. Structure of relations

1.1. According to the information available to the Executive Directors of the Company acting with due

managerial care, during the whole Relevant Period, the Company formed a part of a group in which the controlling entity is Varroc Engineering Limited (the “Group”). Information on the entities forming part of the Group is stated as at 31 March 2018 according to the information available to the Directors of the Company acting with due managerial care. The structure of relations within the Group is graphically illustrated in Annex 1 to this Report.

1.1.1. Controlling entity Varroc Engineering Limited, with its registered office in E-4 Midc Waluj, Aurangabad, zip code 431136, Maharashtra, Republic of India, identification number: 047335 (“Varroc India” or the “Controlling Entity”) indirectly controls the Company through the company VarrocCorp Holding B.V., with its registered office at Haaksbergweg 71, Amsterdam, zip code 1101BR, Kingdom of the Netherlands, identification number.: 54784891 (“Varroc BV”).

2. Role of the Company within the Group The Company operates research, application development and production of headlamps, rear lamps and electronic control units for the automotive industry. With more than 2,400 employees, it is one of the major employers in the Moravian-Silesian Region as well as in the whole Czech Republic. In the Czech Republic the Company conducts its business in two factories, a tool works and a global development centre in three locations. In addition to that, the Company also is present in the United Kingdom, France, Germany, and the United States of America, through its subsidiaries (Germany, the United States of America) and a branch office (France, the United Kingdom). Besides the French and the United Kingdom branch, the Company holds 100% of the ownership interest in the following subsidiaries: Varroc Lighting Systems GmbH, a research and development subsidiary in Germany; Varroc Lighting Systems Inc., a manufacturing subsidiary in the United States of America.

3. Methods and means of control

The Controlling Entity indirectly controls the Company through Varroc BV, which was the sole shareholder of the Company in the Relevant Period. The control of the Company occurred in particular through the decisions at the General Meeting.

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4. Mutual Agreements within the Group

4.1. Agreement concluded between the Company and the Controlling entity In the Relevant Period, no agreements were concluded between the Company and the Controlling Entity.

4.2. Agreements concluded between the Company and the other entities controlled by the Controlling Entity In the Relevant Period, the following agreements were in place and/or concluded between the Company and other entities controlled by the Controlling Entity: i. Technology Licence Agreement concluded between Varroc CZ

and Varroc TYC Auto Lamps Co. Ltd, Changzhou, China, on 1 April 2017; ii. Technology Licence Agreement concluded between Varroc CZ

and Varroc TYC Auto Lamps Co. Ltd, Chongqing, China, on 1 April 2017; iii. Intercompany Service Agreement concluded between Varroc CZ

and Varroc Lighting Systems Inc., the United States of America, on 1 August 2012; iv. Intercompany Service Agreement concluded between Varroc CZ

and Varroc Lighting Systems GmbH, Germany, on 1 November 2012; v. Loan Agreement concluded between Varroc CZ and Varroc Lighting Systems GmbH, Germany,

on 28 March 2013; Amendment no. 1 to the loan agreement dated 1 April 2015; vi. Service Agreement (Employees) concluded between Varroc CZ

and Varroc Lighting Systems (India) Pvt. Ltd., Republic of India; two amendments dated 29 September 2017.

vii. The Revolving Credit Agreement concluded between Varroc CZ and Varroc Lighting Systems S. de.R.L. de C.V. on 10 September 2015; Amendment no. 1 to the Revolving Credit Agreement dated 18 February 2016; Amendment no. 2 to the Revolving Credit Agreement dated 18 July 2016; Amendment no. 3 to the Revolving Credit Agreement dated 31 December 2016;

viii. Loan Agreement concluded between Varroc CZ and Varroc Lighting Systems Inc., United States of America, on 27 March 2018.

ix. The Revolving Credit Agreement concluded between Varroc CZ and Varroc Lighting Systems Morocco S.A. on 2 January 2018.

x. Loan Agreement concluded between Varroc CZ and Varroc Lighting Systems sp. z o.o. Poland on 1 March 2018.

xi. The security agreements securing the Loan Agreement of EUR 79,000,000 and CZK 110,000,000 (only pledge denominated in EUR to EUR 170,429 thousand was increased by the Amendment). The amount of above mentioned pledge in CZK remained unchanged. Pledge in the amount of EUR 480 million serves to cover all debts including administrative, legal and other costs resulting from the possible risk of termination or discontinuance of the Company’s activities), as amended by Amendments 1-3, concluded between Varroc CZ in favour of Komerční banka, based on the agreement regarding pledge of the trade plant. This agreement was concluded on 25 October 2016 between Varroc CZ, as a pledger and Komerční banka, a.s. as a lienholder with the purpose of ensuring all debts resulting from the Facility Agreement concluded on 6 November 2014 as amended by Amendments 1-3 (inter alia) between Komerční banka, a.s. as a lender, arranger, agent and agent for guarantee for Varroc CZ, being a debtor and VarrocCorp Holding B.V., being a guarantor (“Loan Agreement”), through which the whole Group is financed, are as following: 1. Agreement on security of receivables dated 25 October 2016 concluded between Varroc CZ

and Komerční banka, a.s., as amended by Amendment 1. This Amendment was concluded on 8 February 2018;

2. Agreement on pledge of movable property and inventory dated 25 October 2016 concluded between Varroc CZ and Komerční banka, a.s. in the form of a notarial act no. NZ 580/2016;

3. Agreement on pledge of factory dated 25 October 2016 concluded between Varroc CZ and Komerční banka, a.s. in the form of a notarial act dated no. 581/2016;

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4. Agreement on pledge of shares dated 25 October 2016 concluded between VarrocCorp Holding B.V. and Komerční banka, a.s.;

5. Agreement on pledge of receivables dated 25 October 2016 (Receivables resulting from intragroup loans) concluded between Varroc CZ and Komerční banka, a.s.;

6. Agreement on pledge of receivables dated 25 October 2016 (Receivables resulting from bank accounts) concluded between Varroc CZ and Komerční banka, a.s.;

7. Agreement on security of receivables dated 14 September 2016 concluded between Varroc CZ and Komerční banka, a.s.;

8. Declaration/Letter of Comfort dated 13 October 2016 to the creditors of Komerční banka a.s. and Raiffeisenbank a.s. from Varroc Engineering Pvt. Ltd.;

xii. Documentation of methods of price settlement between the related parties for the tax period from 1 April 2015 to 31 March 2018, which principles are applicable retroactively.

No other Agreements were concluded between the Company and other entities controlled by the Controlling Entity during the relevant period, business relationships are carried out based on orders.

5. Legal acts made at the instigation of or in the interest of the Controlling Party or other parties controlled by the Controlling Party During the Relevant Period, the Company did not make any legal acts and other measures at the instigation of the Controlling Party or other parties controlled by the Controlling Party, which would involve assets exceeding in value of CZK 339,733 thousand, which represents 10% of the Company‘s equity reported in the latest financial statements as at 31 March 2017.

6. Assessment of detriment and its compensation According to the information available to Directors of the Company acting with due managerial care, no detriment was suffered by the Company on the basis of the agreements entered into in the Relevant Period between the Company and other entities from the Group, other acts or measures which were implemented in the interest, or at the instigation of, of such entities by the Company in the Relevant Period. The above mentioned security documents were entered into in connection with the Facilities Agreement through which the entire Group is financed. Thus, it is commercially reasonable for the Company to provide the security because it was required by the financing banks as a condition precedent for the provision of loans under the Facilities Agreement.

7. Evaluation of relations and risks within the Group

7.1. Evaluation of advantages and disadvantages of relations within the Group In particular the following advantages arise from the participation within the Group to the Company: The Group is a world leading producer possessing a strong brand, strong financial background, access to the financing from which the Company benefits in particular during the entering into the transactions with its suppliers, customers, during negotiations with banks and other grantors of credits. No disadvantages arise from the participation within the Group to the Company, thus, overall, the participation of the Company within the Group is beneficial for the Company.

7.2. No risks arise from the relations within the Group to the Company.

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Nový Jičín, 20 July 2018

_______________________ ________________________

Tarang Jain Dita Stavělová

Statutory Representative Accounting and Finance Manager

Annex 1 – Overview of Varroc Lighting System Group structure in the Relevant Period

Translation note

This version of the financial statements is a translation from the original, which was prepared in the Czech language. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the Czech version of the financial statements takes precedence over this translation.

Varroc Lighting Systems, s.r.o.

Consolidated financial statements

31 March 2018

Varroc Lighting Systems, s.r.o. Consolidated financial statements for the year ended 31 March 2018

Consolidated statement of changes in shareholders’ equity for the year ended 31 March 2018

(CZK’000)

Share

capital

Statutory

and other

funds

Other

capital

funds

Net profit in

prior periods Net profit Total

As at 1 April 2016 200 19,384 814,703 1,196,540 683,578 2,714,405

Asset and liability revaluation

differences - - 74,690 (14,179) - 60,511

Transfer to retained earnings - - - 654,165 (654,165) -

Contributions to social fund - 29,413 - - (29,413) -

Drawing of social fund - (30,867) - (177) - (31,044)

Restatements of Retained

earnings - - - 108 - 108

Net profit

for the current period - - - - 771,515 771,515

As at 31 March 2017 200 17,930 889,393 1,836,457 771,515 3,515,495

Asset and liability revaluation

differences - - (227,422) 48,254 - (179,168)

Transfer to retained earnings - - - 733,526 (733,526) -

Contributions to social fund - 37,989 - - (37,989) -

Drawing of social fund - (32,000) - - - (32,000)

Net profit

for the current period - - - - 888,078 888,078

As at 31 March 2018 200 23,919 661,971 2,618,237 888,078 4,192,405


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1. Scope of consolidation The group of companies („the Consolidation Unit“ or „the Group“) comprises parent company Varroc Lighting Systems, s.r.o., („the Company” or „the Parent Company“) and companies over which the parent company has significant influence („the Subsidiary“). Definition of a subsidiary is stated below. 1.1. Subsidiary For the purpose of consolidation, a subsidiary is a company, over which the parent company has significant influence through: - direct or indirect exercise of more than 50% of voting rights in the company; or - demonstrable power to govern operational and strategic policies while the parent company

is also a shareholder in that company 1.2. Consolidation of foreign subsidiaries For the purposes of consolidation, individual balance sheets and income statements of foreign subsidiaries were translated using the exchange rate of the Czech National Bank as at the date of consolidated financial statements. 1.3. Definition of the Consolidation Unit The Parent Company Varroc Lighting Systems, s.r.o., is a limited liability company incorporated in the Commercial register kept by the Regional Court of Ostrava, the Czech Republic on 15 May 2012. The Company has its registered office in Šenov u Nového Jičína, Suvorovova 195, postal code 742 42. The Company’s identification number is 243 04 450. The parent company has a branch in France and in the United Kingdom. The parent company of the Varroc Group is Varroc Engineering Limited, incorporated in India. The Subsidiaries Varroc Lighting Systems Inc., is a limited liability company incorporated in the Register of Companies in the U.S. at Michigan Department of Licensing and Regulatory Affairs on 26 March 2013. The company has its registered office in the Unites States of America, Plymouth, MI 48170, 47828 Halyard Dr. The company’s identification number is 60652M. The sole shareholder is Varroc Lighting Systems, s.r.o. with 100% share of the company’s registered capital. Varroc Lighting Systems GmbH, is limited liability company incorporated in the United register of German federal states, Federal Republic of Germany, at North Rhine-Westphalia District Court Cologne, on 24 June 2014. The company’s registered office is situated in Federal Republic of Germany, 50858 Cologne, Toyota Allee 7. The company’s identification number is HRB 82206. The sole shareholder is Varroc Lighting Systems, s.r.o. with 100% share of the company’s registered capital. 1.4. Balance sheet date The parent company and subsidiaries of the Consolidation Unit prepared financial statements for the year ended 31 March 2018.


2

2. Accounting policies 2.1 Basis of preparation The consolidated financial statements of the Group are prepared for the year ended 31 March 2018 pursuant to the Act on Accounting, Regulation No. 500/2002 Coll. and with Czech accounting standard No. 20, which outline procedures for preparation of consolidated financial statements. 2.2 Consolidation method Direct consolidation has been applied under the provisions of Regulation No. 500/2002 Coll. Subsidiaries are fully consolidated. Intercompany receivables, liabilities, income and expenses are fully eliminated. The financial statements of all companies included in the consolidation have been prepared for period ended 31 March 2018. For the purposes of consolidation, significant accounting policies within the Consolidation Unit have been unified. These accounting policies, as used by individual companies, are described below. 2.3 General principles for preparation of consolidated financial statements Amounts in the consolidated financial statements and notes are presented in thousands of Czech crowns, unless stated otherwise. The actual implementation of the consolidation was performed by transforming data from individual financial statements into the consolidated financial statements line items. 2.4 Intangible and tangible fixed assets All intangible (and tangible) assets with a useful life longer than one year and a unit cost of more than CZK 60 thousand (CZK 40 thousand) are treated as intangible (and tangible) fixed assets. All intangible assets with a unit cost of less than CZK 60 thousand are expensed upon acquisition. Tangible fixed assets with a unit cost more than CZK 5 thousand and less than CZK 40 thousand are treated as inventory and are expensed upon consumption. Purchased intangible and tangible fixed assets are initially recorded at cost, which includes all costs related to its acquisition. All research costs and development cost are expensed. Own work capitalized is recorded at cost that includes direct materials and direct wages. Intangible and tangible fixed assets, except for land and artworks, which are not depreciated, are depreciated applying the straight-line method over their estimated useful lives as follows:

Intangible fixed assets Estimated useful life

Software 4 years

Patents 10 years

Tangible fixed assets Estimated useful life

Buildings and constructions 30 - 45 years

Plant, machinery and equipment 4 - 30 years

Furniture and fittings 4 - 15 years

Motor vehicles 4 - 8 years

The depreciation plan is updated during the useful life of the intangible and tangible fixed assets based on the expected useful life. The Consolidation Unit uses annual depreciation rates which differ from those allowable for tax purposes. A provision for impairment is established when the carrying value of an asset is greater than its estimated recoverable amount. The estimated recoverable amount is determined based on expected future cash flows generated by the certain asset.


3

Repairs and maintenance expenditures of tangible fixed assets are expensed as incurred. Technical improvements of intangible and tangible fixed assets are capitalised. Tangible fixed assets, with a unit cost of less than CZK 40 thousand are treated as inventory and are expensed upon acquisition. The Company decided to capitalise newly acquired computers with cost up to CZK 40 thousand to deferred cost. Their cost will be depreciated applying the straight-line method over 4 years period, except computers purchased as part of the production lines with which they form one technical and economic unit. 2.5 Tooling Tooling is used by the Consolidation Unit in production. Tooling is recognised according to the agreement with the customer as either tangible fixed asset (tools are added into the Company’s assets and are depreciated applying the straight line method over the expected length of production in accordance with respective order) or as inventory (tooling is manufactured or purchased and subsequently sold to the customer). A provision for impairment is recorded when the carrying value of tooling is greater than its estimated recoverable amount. 2.6 Inventories Purchased inventories are stated at the lower of cost and net realisable amount. Cost includes all costs related with its acquisition (mainly transport costs, customs duty, etc.). The actual costs method is applied for all disposals. Inventories generated from own production, i.e. work-in-progress and finished goods, are stated at the lower of production cost and estimated net realisable amount. Production cost includes direct and indirect materials, direct and indirect wages and production overheads. A provision is created for slow-moving and obsolete inventory based on an analysis of turnover and individual evaluation of inventories. 2.7 Receivables Receivables are stated at nominal value less a provision for doubtful amounts. A provision for doubtful amounts is created on the basis of an ageing analysis and an individual evaluation of the credit worthiness of the customers. Receivables from related parties have not been provided for.


4

2.8 Foreign currency translation Transactions denominated in a foreign currency are translated and recorded at the rate of exchange determined by the Company for the first day of the month. Cash, receivables and liabilities balances denominated in foreign currencies have been translated at the exchange rate published by the Czech National Bank as at the balance sheet date. All exchange gains and losses on cash, receivables and liabilities balances are recorded in the income statement. Investments in subsidiaries and associates denominated in a foreign currency are translated at the period-end exchange rate as published by the Czech National Bank. Any translation difference is recognised in equity. The Company does not treat advances paid for the acquisition of fixed assets or inventories as receivables and therefore these assets are not translated as at the balance sheet date. Balances of accrued expenses and accrued income denominated in foreign currencies have been translated at the exchange rate published by the Czech National Bank as at the balance sheet date. 2.9 Provisions Provisions are recognised when the Consolidation Unit has a present obligation, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. 2.10 Employee benefits The Consolidation Unit recognizes a provision relating to untaken holidays. A provision is also created for payment of jubilees in case of reaching the labour or life anniversary or in case of retirement. The Consolidation Unit recognises an estimated payable relating to rewards and bonuses of employees. The Consolidation Unit recognizes a provision relating to special bonuses and remuneration of top managers. Regular contributions are made to the state to fund the national pension plan. The Consolidation Unit also provides its employees with contributions to defined contribution plans operated by independent pension funds and life insurance. 2.11 Revenue recognition Sales of products and goods are recognised upon the delivery of products and goods and customer acceptance and are stated net of discounts and value added tax. Tools that are paid by the customer are invoiced based on the contractual agreement with customer. However, sales are recognised after the customer’s acceptance of completed tool. Engineering services that are part of the product cost are included in the invoice for the product during the course of the project. Cost of sales are accrued and accounted for monthly according to the estimated useful lives of the project. Engineering services that are not part of the product cost are billed on the basis of a contractual agreement with the customer and are accrued. The revenues are recognised upon completion of the project. Sales of services are recognised as at the date the services are rendered and are stated net of discounts and value added tax.


5

2.12 Related parties The Company’s related parties are considered to be the following: parties, which directly or indirectly control the Company, their subsidiaries and associates; parties, which have directly or indirectly significant influence on the Company; members of the Consolidation Unit’s Company or parent company’s statutory and supervisory boards

and management and parties close to such members, including entities in which they have a controlling or significant influence.

Material transactions and outstanding balances with related parties are disclosed in Note 12. 2.13 Changes of accounting policies and corrections of prior period errors Changes to accounting policies (inclusive of deferred tax impact) and corrections of errors arising from incorrect accounting or unrecorded expenses and income in prior periods, if material, are recorded on financial statements line Restatements of retained earnings. 2.14 Leases The costs of assets held under both finance and operating leases are not capitalised as fixed assets. Lease payments are expensed evenly over the life of the lease. Future lease payments not yet due are disclosed in the notes to the consolidated financial statements but not recognised in the balance sheet. 2.15 Factoring The Group uses external financing through the factoring. Depending whether factor (a bank) overtakes the rights and risks of the ceded claims, the Group recognizes factoring in the balance sheet (so called the management of credit) or in the income statement (so called set-off/ sale of receivables recorded within other operating costs and income accounts). Interests related to factoring are expensed. 2.16 Interest expense Interest expenses on borrowing costs are expensed. 2.17 Deferred tax Deferred tax is recognised on all temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. Deferred tax asset is recognised if it is probable that sufficient future taxable profit will be available against which the asset can be utilised. 2.18 Cash and cash equivalents The Consolidation Unit has prepared a Cash-flow statement using the indirect method. Cash equivalents are short-term highly liquid investments that can be exchanged for a predictable amount of cash. 2.19 Subsequent events The effects of events, which occurred between the balance sheet date and the date of preparation of the financial statements, are recognised in the financial statements in the case that these events provide further evidence of conditions that existed as at the balance sheet date. Where significant events occur subsequent to the balance sheet date but prior to the preparation of the consolidated financial statements, which are indicative of conditions that arose subsequent to the balance sheet date, the effects of these events are quantified and disclosed, but are not themselves recognised in the consolidated financial statements.


6

3. Intangible fixes assets

(CZK‘000)

1 April 2017

Additions /

transfers

Disposals

31 March 2018

Cost

Patents 246,769 - - 246,769

Software 419,311 (12,593) - 406,718

Licences 123,455 27,708 - 151,163

Emission allowances 2,325 499 (823) 2,001

Advances granted for long-term intangible

assets and unfinished intangible fixed assets 10,042 (144) - 9,898

Total 801,902 15,470 (823) 816,549

Accumulated amortisation

Patents 115,159 24,677 - 139,836

Software 323,276 32,720 - 355,995

Licences 52,520 18,268 - 70,789

Total 490,955 75,665 - 566,620

Net book value 310,947 249,929

(CZK‘000)

1 April 2016

Additions /

transfers

Disposals

31 March 2017

Cost Patent 246,769 - - 246,769

Software 465,426 (45,789) (326) 419,311

Licences - 123,455 - 123,455


Intangible fixed assets in the course of

construction 13,104 (2,902) (160) 10,042

Total 727,729 75,348 (1,175) 801,902

Accumulated amortisation Patents 90,482 24,677 - 115,159

Software 257,032 66,570 (326) 323,276

Licences - 55,444 (2,924) 52,520

Total 347,514 146,691 (3,250) 490,955



7

4. Tangible fixed assets

(CZK’000) 1 April 2017

Additions /

transfers Disposals 31 March 2018

Cost

Buildings, halls and other constructions 276,399 292,368 (185) 568,582

Equipment 6,588,266 855,548 (150,922) 7,292,892

Other tangible fixed assets 94 - - 94

Advances granted for long-term tangible

assets and unfinished tangible fixed assets 799,826 (238,065) - 561,761

Total 7,664,585 909,851 (151,107) 8,423,329

Accumulated depreciation


Equipment 5,558,892 278,782 (143,587) 5,694,087

Total 5,576,042 286,738 (143,772) 5,719,008

Net book value 2,088,543 2,704,321

(CZK’000) 1 April 2016

Additions /


Cost Buildings, halls and other constructions 136,346 140,053 - 276,399

Equipment 6,211,005 424,654 (47,393) 6,588,266


Tangible fixed assets in the course of

construction 176,056 616,935 - 792,991

Advances paid for tangible fixed assets 23,034 (16,199) - 6,835

Total 6,546,535 1,165,443 (47,393) 7,664,585


Buildings, halls and other constructions 9,953 7,197 - 17,150

Equipment 5,337,443 265,763 (44,314) 5,558,892

Total 5,347,396 272,960 (44,314) 5,576,042

Net book value 1,199,139 2,088,543

Exchange rate differences arising on the basis of the different USD and EUR exchange rates between the reported periods in consolidated subsidiaries are included in the "Additions / transfers”. The information on operating and finance lease commitments is disclosed in Note 9.

5. Inventories The Company created a provision for inventories as at 31 March 2018 of CZK 12,309 thousand (as at 31 March 2017: CZK 10,165 thousand).


8

6. Receivables and accrued income (CZK’000) 31 March 2018 31 March 2017

Trade receivables - current 1,842,908 1,764,983

- overdue 401,698 1,068,840

Total trade receivables 2,244,606 2,833,823

Other receivables - current 1,374,297 1,480,614

Total other receivables 1,374,297 1,480,614

Provision for doubtful receivables (22,271) (17,981)

Net book value of short-term receivables 3,596,632 4,296,456

Unsettled receivables have not been secured and none of them are due after more than 5 years. In order to pay receivables to selected customers through factoring, the Company signed agreements with banks on assignment of receivables. More detailed information is stated in the Note 10 – Liabilities to bank institutions. More details about the trade receivables can be found in the Note 12 – Related parties transactions. (CZK’000) 31 March 2018 31 March 2017

Prepaid expenses 436,650 325,689

Complex prepaid expenses 465,377 271,096

Accrued income 4,672 7,376

Total prepayments and accrued income 906,699 604,161

Prepaid expenses as at 31 March 2018 include prepaid leased land, buildings and halls in Nový Jičín and Rychvald from Hanon Systems Autopal s.r.o. and Hanon Systems Autopal Services s.r.o. from 2 August 2012 for the 12 years period in the amount of CZK 160,346 thousand (as at 31 March 2017: CZK 183,477 thousand) and payments to customers for Group nomination for future projects. More information is stated in the Note 4 – Tangible fixed assets. Complex prepaid expenses include the engineering costs of the projects. IC overdue receivables as at 31 March 2018 are amounted to CZK 193,783 thousand (as at 31 March 2017: CZK 718,159 thousand). Trade receivables have not been covered by guarantees and none of them are due after more than 5 years. The Company has no receivables nor provided any guarantees which are not included in the balance sheet. Based on the Group's management decision, all receivables in the Group will be repaid. Therefore, the Company does not make a provision for receivables in the Group. A tax asset or liability is recognised in the balance sheet as "State - tax receivables" or "State - tax liabilities and subsidies" according to the nature of the balance. In the previous years, the liability was recognised as a provision in the balance sheet line "Income tax provision".


9

7. Equity The Company is fully owned by VarrocCorp Holding B.V., incorporated in the Kingdom of the Netherlands (market share: 100%). The ultimate parent company of the group is Varroc Engineering Limited, incorporated in the Republic of India. To the business share of VarrocCorp Holding B.V. in the Company a security has been pledged in favour of Komerční banka a.s. based on agreement on establishment of security from 25 October 2016 concluded between VarrocCorp Holding B.V. (as provider of the security) and Komerční banka, a.s. to secure claims arising from the credit agreement concluded as at 6 November 2014 (as amended by Appendix no. 1 from 13 May 2015, Appendix no. 2 from 29 February 2016 and Appendix no. 3 from 13 October 2016) between, besides others, Varroc Lighting Systems, s.r.o. (as a debtor) and VarrocCorp Holding B.V. (as guarantor) and Komerční banka, a.s. (as lending party, agent for securing) up to EUR 79,000 thousand and CZK 110,000 thousand (the appendices were increased only by security denominated in EUR to EUR 170,429 thousand. The amount expressed in CZK remained unchanged). A lien of EUR 480 million is used to cover all debts (including administrative, legal and other costs) arising from the potential risk of termination or discontinuance of the Company's business. The Company Varroc Lighting Systems, s.r.o. with the registered office at Suvorovova 195, Šenov u Nového Jičína, prepares the consolidated financial statements of the smallest group of entities of which the Company forms a part as a parent company. The Company Varroc Engineering Limited with the registered office in India prepares the consolidated financial statements of the largest group of entities of which the Company forms a part as a subsidiary.

8. Provisions

(CZK’000) Liabilities to employees

Provision for guarantees

and trade risks Total

Closing balance as at 31 March 2017 192,066 209,616 401,682


Some companies in the Consolidation Unit contribute their employees into independent pension schemes. As at 31 March 2018 provisions include CZK 191,533 thousand of defined benefit obligation (31 March 2017: CZK 178,607 thousand), compensated by CZK 110,990 thousand of pension assets (31 March 2017: CZK 98,636 thousand). For an analysis of the income tax, see Note 15 – Income tax.


10

9. Commitments, contingent liabilities and deferred income (CZK’000) 31 March 2018 31 March 2017

Trade payables - current 3,008,509 2,979,758

- overdue 56,720 376,591

Total trade payables 3,065,229 3,356,349

Estimated payables 646,267 573,834

Other payables 224,908 162,089

Total short-term liabilities excluding

liabilities to credit institutions 3,936,404 4,092,272

(CZK’000) 31 March 2018 31 March 2017

Deferred income 2,043,836 562,107

Total prepayments and accrued income 2,043,836 562,107

Trade and other payables have not been secured against any assets of the Consolidation Unit and are not due after more than 5 years. The Group did not provide any material guarantees that would not be recognized in the balance sheet. The estimated payables are mainly accruals for unbilled supplies and annual employee remuneration. More details about trade payables and other payables are disclosed in Note 12 – Related party transactions. The deferred income line is accounted for deferred income arising from instruments financed by the Company's customers and engineering. The Consolidation Unit companies do not have any overdue payables related to social or health insurance or any other overdue payables to tax authorities or other state institutions. The management of the Company is not aware of any significant unrecorded contingent liabilities as at 31 March 2018 and as at 31 March 2017, except for information disclosed in Note 10 – Liabilities to bank institutions. Capital commitments contracted by the Company were CZK 419,750 thousand as at 31 March 2018 (as at 31 March 2017: CZK 573,954 thousand). Furthermore, the Consolidation Unit companies have the following commitments in respect of operating leases of rent and logistics services: (CZK’000) 31 March 2018 31 March 2017

Current within one year 178,618 192,547

Due after one year but within five years 845,320 1,053,110

Total commitments in respect of operating leases and rent 1,023,938 1,245,657

The Company uses assets under finance lease contracts that are recorded as tangible fixed assets in the financial statements after the expiration of the lease and ownership transfer.


11

10. Liabilities to bank institutions Bank loans of Varroc Lighting Systems s.r.o.

Short-term

and long-term

bank loans and

overdrafts

Interest

rate (%)

Validity of the

agreement

The limit in

thousands

Agreement

no.

Balance as at

31 March 2018

in original

currency

in thousands

Balance as at

31 March

2018

(CZK’000)

Komerční banka +

Raiffeisenbank

long-term bank loan

(Facility A)

3M EURIBOR

+

1.1% p.a.

Till full

repayment of the

loan,

but no later than

30 September

2021 EUR 30,000

Agreement

from

13 October

2016 EUR 15,000 381,485

Komerční banka +

Raiffeisenbank

- short-term multi-

currency revolving

bank loan

(Facility B1)

1M EURIBOR

1M PRIBOR

+

1% p.a.

Till full

repayment

of the loan,

but no later than

30 September

2021 EUR 60,000

Agreement

from

13 October

2016 - -

Komerční banka +

Raiffeisenbank

- short-term multi-

currency revolving

bank loan

(Facility B2)

1M EURIBOR

1M PRIBOR

+

1.5% p.a.

Till full

repayment of the

loan,

but no later than

30 September

2019 EUR 25,000

Agreement

from

13 October

2016 - -

Komerční banka +

Raiffeisenbank

- overdraft

(Facility C)

1M PRIBOR

+

1.08% p.a.

Till full

repayment of the

loan,

but no later than

30 September

2021 CZK 110,000

Agreement

from

13 October

2016 - -

Komerční banka +

Raiffeisenbank

- short-term multi-

currency revolving

bank loan

(Facility D)

PRIBOR

EURIBOR /

LIBOR

+

1.38% p.a.

Till full

repayment of the

loan,

but no later than

30 September

2021 EUR 14,000

Agreement

from

13 October

2016 - -

Komerční banka +

Raiffeisenbank

- long-term multi-

currency bank loan

(Facility E)

3M PRIBOR

EURIBOR

+

1.15% p.a.

Till full

repayment of the

loan,

but no later than

30 September

2021 EUR 50,000

Agreement

from

13 October

2016 EUR 24,270 617,161

Total short-term and long-term

bank loans and overdrafts EUR 39,270 998,646


12

Short-term

and long-term

bank loans and

overdrafts

Interest

rate (%)

Validity of the

agreement

The limit in

thousands

Agreement

no.

Balance as at

31 March 2017

in original

currency

in thousands

Balance as at

31 March 2017

(CZK’000)

Komerční banka +

Raiffeisenbank

long-term bank loan

(Facility A)

3M

EURIBOR +

1.1% p.a.

Till full

repayment of the

loan,

but no later than

30 September

2021 EUR 30,000

Agreement

from

13 October

2016 EUR 19,285 521,216

Komerční banka +

Raiffeisenbank

- short-term multi-

currency revolving

bank loan

(Facility B1)

1M EURIBOR

1M PRIBOR

+

1% p.a.

Till full

repayment

of the loan,

but no later than

30 September

2021 EUR 60,000

Agreement

from

13 October

2016 EUR 10,000 270,279

Komerční banka +

Raiffeisenbank

- overdraft

(Facility B2)

1M PRIBOR

1M

PRIBOR

+

1.5% p.a.

Till full

repayment of the

loan,

but no later than

30 September

2019 EUR 25,000

Agreement

from

13 October

2016 CZK - -

Komerční banka +

Raiffeisenbank

- short-term multi-

currency revolving

bank loan

(Facility C)

1M PRIBOR

+

1.08% p.a.

Till full

repayment of the

loan,

but no later than

30 September

2021 CZK 110,000

Agreement

from

13 October

2016 CZK - -

Komerční banka +

Raiffeisenbank

- long-term multi-

currency bank loan

(Facility D)

PRIBOR

EURIBOR/

LIBOR

+

1.38% p.a.

Till full

repayment of the

loan, but no later

than 30

September 2021 EUR 14,000

Agreement

from

13 October

2016 EUR - -

Komerční banka +

Raiffeisenbank

- long-term multi-

currency bank loan

(Facility E)

3M PRIBOR

+

1.15% p.a.

Till full

repayment of the

loan, but no later

than 30

September 2021 EUR 50,000

Agreement

from

13 October

2016 EUR 26,000 702,713


bank loans and overdrafts EUR 55,285 1,494,208


13

Bank loans of Varroc Lighting Systems, Inc.

Short-term

and long-term

bank loans and

overdrafts

Interest

rate (%)

Validity of the

agreement

The limit in

thousands

Agreement

no.

Balance as at

31 March 2018

in original

currency

in thousands

Balance as at

31 March 2018

(CZK’000)

Stratasys 4.7 % p.a.

30 September

2020 USD 88

Agreement

from

6 November

2014 USD 63 1,301


bank loans and overdrafts

USD 63 1,301

Short-term

and long-term

bank loans and

overdrafts

Interest

rate (%)

Validity of the

agreement

The limit in

thousands

Agreement

no.

Balance as at

31 March 2017

in original

currency

in thousands

Balance as at

31 March 2017

(CZK’000)

Citibank N.A.

2.93%

($10M)

1M LIBOR

+

1.75% p.a. 12 October 2017 USD 20,000

Agreement

from

13 October

2016 USD 20,000 506,640

Stratasys 4.7 % p.a.

30 September

2020 USD 88

Agreement

from

6 November

2014 USD 88 2,225


bank loans and overdrafts

USD 20,088 508,865

As at 25 October 2016, in order to secure bank loans, the Company has pledged most of the Company's assets. This loan is also secured by patronage statement of the Varroc group parent company. Loans are associated with contractual conditions related to standalone financial statement of the Company as well as to consolidated financial statement of VarrocCorp Holding B.V. These conditions were fulfilled as at 31 March 2017. On 8 October 2015, VarrocCorp Holding B.V. granted security in order to secure a loan provided to Varroc Lighting Systems, Inc. by Comerica Bank up to the undrawn portion of the credit limit of CZK 20,000 thousand. Based on the agreements from 8 October 2015 and 13 October 2016 amended as at 13 October 2017, Varroc Lighting Systems, Inc. as at 31 March 2018 and 31 March 2017 pledged all assets with the exception of deferred tax receivable in order to secure the provided bank loans.


14

11. Revenue analysis Revenue analysis:

(CZK’000)

Year ended

31 March 2018

Year ended

31 March 2017

- restated

Sales of headlamps and lamps - foreign 10,424,076 9,863,457

- domestic 1,199,632 705,758

Sales of tools - foreign 87,021 104,128

- domestic 24,961 80,582

Sales of engineering and other services - foreign 543,491 391,323

- domestic 35,784 24,336

Total sales of own products and services 12,314,965 11,169,584

Sales of goods – tools - foreign 470,465 519,925

- domestic 114,353 234,786

Sales of goods

- foreign 6,460,478 8,584,376

Total sales of goods 7,045,296 9,339,087

Sale of fixed assets 1,598 169

Sale of material 105,865 78,844

Other revenues 9,383,040 6,945,755

Total revenue from operating activities 28,850,764 27,533,439

In the financial statements for the year ended 31 March 2018, the Company specified classification of sales to its subsidiary Varroc Lighting Systems Inc. to row sales of goods in amount CZK 7,045,296 thousands and related costs incurred in the amount CZK 6,050,712 thousands to cost of goods sold, which more accurately describe the nature of the transactions. For this reason, the financial statements were also modified for the comparable period ended 31 March 2017 in amount CZK 9 339 087 thousands., which were reclassified from the sales of products and services to sales of goods and related costs incurred to cost of goods sold amounting to CZK 8,355,183 thousand.

12. Related party transactions The Group participated in the following significant related party transactions:

(CZK’000) Year ended

31 March 2018 Year ended

31 March 2017

Sales of products and services 322,492 314,233

Interest income 62,871 107,957

Total sales 385,363 422,190

Purchase of raw material and services 5,690,173 8,241,951

Assets acquisition 1,650 -

Total purchases 5,691,823 8,241,951

(CZK’000) 31 March 2017 31 March 2016

Trade receivables and estimated receivables 352,750 748,328

Short-term loans including outstanding interest 741,053 811,430

Total receivables 1,093,803 1,559,758

Trade receivables and estimated payables 66,442 846,125

Total liabilities 66,442 846,125

The loans receivable and payable bear interest at market interest rates.


15

No loans, credits, deposits, advances, collaterals or other benefits were provided to Statutory Representatives as at 31 March 2018 and 2017. At the same time, no remuneration was provided to the Statutory Representatives. Company cars are made available for use by the management.

13. Fees paid and payable to the audit company The information relating to the fees paid and payable for services performed by the audit company PricewaterhouseCoopers Audit, s.r.o. is included in the consolidated financial statements of VarrocCorp Holding B.V.

14. Employees Year ended 31 March 2018 Year ended 31 March 2017

Average number of

employees

Personal costs

(CZK‘000)

Average number

of employees Personal costs

(CZK‘000)

Emoluments to members

of management of the parent

company and subsidiaries 43 257,307 46 320,030

Wages and salaries

to other employees 2,779 1,530,271 2,571 1,394,416

Social security costs 2,822 463,874 2,617 415,467

Other social costs 2,822 45,009 2,617 40,170

Wages and salaries total 2,822 2,296,461 2,617 2,170,083

The Company’s management includes directors and senior staff members directly reporting to them. Other Company’s management includes senior staff members directly reporting to the statutory body. Other transactions with the Company’s management are described in Note 12 - Related party transactions.


16

15. Income tax The income tax expense includes:

(CZK’000)

Year ended

31 March 2018

Year ended

31 March 2017

Current tax expense 192,259 77,764

Deferred tax expense (155,441) (91,705)

Adjustment of prior year tax expense based on final CIT return 7,694 (36,994)

Total income tax expense 44,512 (50,935)

The current tax analysis:

(CZK’000)

Year ended

31 March 2018

Year ended

31 March 2017

Net profit before taxation 932,590 720,580

Tax non-deductible costs, tax-free income and gifts (79,295) 88,524

Net taxable profit 853,295 809,104

Corporate income tax 232,348 149,515

Adjustment related to usage of tax incentives (99) (120,771)

Other adjustments (39,990) 49,020


The deferred tax asset/ (liability) analysis:

(CZK’000)

Year ended

31 March 2018

Year ended

31 March 2017

Deferred tax liability arising from: - difference between accounting and tax net book value of fixed assets (161,571) (182,361)

- unbilled receivables for engineering services capitalization (4,785) (66,713)

- engineering services capitalization (2,344) (9,202)

- other (1,967) -

Total deferred tax liability (170,667) (258,276)

Deferred tax asset arising from: - provisions and allowances 83,595 154,994

- transfer of net operating loss - 73,699

- deferred compensations to employees 9,581 4,997

- relieves from investment incentives applicable in the following years: 319,196 110,582

- other 474 742

Total deferred tax asset 412,846 345,014

Net deferred tax asset 242,179 86,738

The deferred tax was calculated at 19% for the Czech Republic, 32.31% for Germany and 25% for the United States.


17

16. Cash-flow statement Cash and cash equivalents disclosed in the Cash-flow statement can be analysed as follows:

(CZK’000) 31 March 2018 31 March 2017

Cash on hand and cash in transit - 1

Cash at banks 754,352 1,162,728

Total cash and cash equivalents 754,352 1,162,729

Cash balances of the Company are deposited with credit banks. The concentration risk associated with high balances on accounts with a small number of banks is regularly monitored and evaluated. At the end of the year, Komerční banka a.s. long-term rating was A2 and Raiffeisenbank a.s. was Baa1.

17. Contingent liabilities The management of the Consolidation Unit is not aware of any contingent liabilities as at 31 March 2018 and 2017.

18. Subsequent events Based on the Interim financial statements and in accordance with the Sec. 40 (2) of Act on Corporations, the Company’s Executive Director approved as at 13 April 2018 the advance payment on profit of the Company in the amount of EUR 6,000 thousand. The payment was executed as at 19 April 2018. No events have occurred subsequent to year-end that would have a material impact on the financial statements as at 31 March 2018. Nový Jičín, 20 July 2018 Tarang Jain Dita Stavělová Statutory Representative Accounting and Finance Manager

Translation note

This version of the financial statements is a translation from the original, which was prepared in the Czech language. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the Czech version of the financial statements takes precedence over this translation.

Varroc Lighting Systems, s.r.o. Financial statements – Standalone 31 March 2018

Varroc Lighting Systems, s.r.o. Financial statements for the year ended 31 March 2018

Statement of changes in shareholders’ equity for the year ended 31 March 2018

(CZK’000)

Share

capital

Statutory

and other

funds

Other

capital

funds

Net profit

in prior

periods Net profit Total

As at 1 April 2016 200 19,384 367,948 1,666,550 484,832 2,538,914

Asset and liability revaluation differences 46,088 46,088

Transfer to retained earnings 455,419 (455,419) -

Contributions to social fund 29,413 (29,413) -

Drawing of social funds (30,867) (177) (31,044)

Contribution to share capital -

Restatement of Retained Earnings 108 108

Net profit for the current period 843,264 843,264

As at 31 March 2017 200 17,930 414,036 2,121,900 843,264 3,397,330

Asset and liability revaluation differences (140,299) (140,299)

Transfer to retained earnings 805,275 (805,275) -

Contributions to social fund 37,989 (37,989) -

Drawing of social funds (32,000) (32,000)

Net profit for the current period 598,240 598,240

As at 31 March 2018 200 23,919 273,737 2,927,175 598,240 3,823,271

Varroc Lighting Systems, s.r.o. Notes to the Financial statements for the year ended 31 March 2018

1

1. General information 1.1. Introductory information about the Company Varroc Lighting Systems, s.r.o. (“the Company”) was incorporated on 15 May 2012 by the Regional Court in Ostrava, Section C, Insert 55719 and has its registered office at Suvorovova 195, Šenov u Nového Jičína, zip code: 742 42. The Company’s primary business activities are manufacture, sale and repair of accessories and parts of motor vehicles and machinery. The Company's identification number is 243 04 450. The Company updated its Articles of Association that are now fully governed by the new Corporations Act. This fact became effective as at the date of its registration in the Commercial Register, specifically on 14 May 2014. The Company is not a shareholder having unlimited liability in any undertaking.

2. Accounting policies 2.1. Basis of preparation The financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the Czech Republic relevant for large companies and have been prepared under the historical cost convention as standalone. The Company also prepares consolidated financial statements, including the Company's subsidiaries. 2.2. Intangible and tangible fixed assets All intangible (and tangible) assets with a useful life longer than one year and a unit cost of more than CZK 60 thousand (CZK 40 thousand) are treated as intangible (and tangible) fixed assets. Purchased intangible and tangible fixed assets are initially recorded at cost, which includes all costs related with its acquisition. All research and development costs are expensed. Own work capitalized is recorded at cost that includes direct materials and direct wages. Intangible fixed assets are amortised applying the straight-line method over their estimated useful lives as follows: Intangible fixed assets Estimated useful life

Software 4 years

Patents 10 years

All intangible assets with a unit cost of less than CZK 60 thousand are expensed upon acquisition. Tangible fixed assets, except for land and artworks, which are not depreciated, are depreciated applying the straight-line method based on their acquisition cost and estimated useful lives as follows: Tangible fixed assets Estimated useful life

Buildings and constructions 30 - 45 years

Plant, machinery and equipment 4 - 30 years

Furniture and fittings 4 - 15 years

Motor vehicles 4 - 8 years

The depreciation plan is updated during the useful life of the intangible and tangible fixed assets based on the expected useful life. The Company uses annual depreciation rates which differ from those allowable for tax purposes.


2

A provision for impairment is created when the carrying value of an asset is greater than its estimated recoverable amount. The estimated recoverable amount is determined based on expected future cash flows generated by the certain asset. Repairs and maintenance expenditures for tangible fixed assets are expensed as incurred. Technical improvements of tangible fixed assets are capitalised. Tangible fixed assets, with a unit cost of less than CZK 40 thousand are treated as inventory and are expensed upon acquisition. The Company decided to capitalise newly acquired computers with cost up to CZK 40 thousand to deferred cost. Their cost will be depreciated applying the straight-line method over 4 years period, except for computers purchased as part of the production lines with which they form one technical and economic unit. 2.3. Tooling Tooling is used by the Company in production. Tooling is recognized according to agreement with the customer either as tangible fixed asset (tools are added into the Company’s assets and depreciated applying the straight-line basis over the expected length of production in accordance with respective order) or as inventory (tooling is manufactured or purchased and subsequently sold to customer). A provision for impairment is created when the carrying value of tooling is greater than its estimated recoverable amount. 2.4. Investments in subsidiaries Investments in subsidiaries represent ownership interests in enterprises that are controlled by the Company (“the subsidiary”). Investments in subsidiaries are recorded at cost less a provision for diminution in value. 2.5. Inventories Purchased inventories are stated at the lower of cost and net realisable amount. Cost includes all costs related with its acquisition (mainly transport costs, customs duty, etc.). The standard costs method with adjusted variances is applied for all disposals. Inventories generated from own production, i.e. work-in-progress and finished goods, are stated at the lower of production cost and estimated net realisable amount. Production cost includes direct and indirect materials, direct and indirect wages and production overheads. A provision is created for slow-moving and obsolete inventory based on an analysis of turnover and individual evaluation of inventories. 2.6. Receivables Receivables are stated at nominal value less a provision for doubtful amounts. A provision for doubtful amounts is created on the basis of an ageing analysis and an individual evaluation of the credit worthiness of the customers. Receivables from related parties have not been provided for. 2.7. Foreign currency translation

Transactions denominated in a foreign currency are translated and recorded at the fixed exchange rate determined by the Company as at the first day of the month.


3

Cash, receivables and liabilities balances denominated in foreign currencies have been translated at the exchange rate published by the Czech National Bank as at the balance sheet date. All exchange gains and losses on cash, receivables and liabilities balances are recorded in the income statement and presented net. Investments in subsidiaries and associates denominated in a foreign currency, which are translated at the period-end exchange rate as published by the Czech National Bank. Any translation difference is recognised in equity. The Company does not treat advances paid for the acquisition of fixed assets or inventories as receivables and therefore these assets are not translated as at the balance sheet date. Balances of accrued expenses and accrued income denominated in foreign currencies have been translated at the exchange rate published by the Czech National Bank as at the balance sheet date. 2.8. Changes of accounting policies and corrections of prior period errors Changes to accounting policies (inclusive of deferred tax impact) and corrections of errors arising from incorrect accounting or unrecorded expenses and income in prior periods, if material, are recorded on financial statements line Restatements of Retained Earnings. 2.9. Provisions Provisions are recognised when the Company has a present obligation, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made.

2.10. Employment benefits The Company recognises a provision relating to untaken holidays. The Company also creates provision for payment of jubilees in case of reaching the labour or life anniversary or in case of retirement. The Company recognises an estimated payable relating to rewards and bonuses of employees Regular contributions are made to the state to fund the national pension plan. The Company also provides contributions to life insurance and to defined contribution plans operated by independent pension funds. 2.11. Revenue recognition Sales of products and goods are recognised upon the delivery of products and customer acceptance and are stated net of discounts and value added tax. Tools that are paid by the customer are invoiced based on the contractual agreement with customer. However sales are recognised after the customer’s acceptance of completed tool. Engineering services that are part of the product cost are included in the invoice for the product during the course of the production program. Cost of sales are accrued and accounted for monthly according to the estimated useful lives of the production program. Engineering services that are not part of the product cost are billed on the basis of a contractual agreement with the customer and are accrued. The revenues are recognized upon completion of the project. Sales are recognised as at the date the services are rendered and are stated net of discounts and value added tax.


4

2.12. Related parties The Company’s related parties are considered to be the following: parties, which directly or indirectly control the Company, their subsidiaries and associates; parties, which have directly or indirectly significant influence on the Company; members of the Company’s or parent company’s statutory and supervisory boards and management

and parties close to such members, including entities in which they have a controlling or significant influence;

subsidiaries and associates and joint-venture companies. Material transactions and outstanding balances with related parties are presented in Note 14. 2.13. Leases The costs of assets held under both finance and operating leases are not capitalised as fixed assets. Lease payments are expensed evenly over the life of the lease. Future lease payments not yet due are disclosed in the notes but not recognised in the balance sheet. 2.14. Interest expense All borrowing costs are expensed. 2.15. Factoring The Company uses external financing through the factoring. Depending whether factor (a bank) overtakes the rights and risk of the ceded claims, the Company recognises factoring in the balance sheet (so called management of receivables) or in the income statement (so called transfer/sale of receivables in other operating expense and income). Interest related to factoring are expensed. 2.16. Deferred tax Deferred tax is recognised on all temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. Deferred tax asset is recognised if it is probable that sufficient future taxable profit will be available against which the asset can be utilised. 2.17. Cash and cash equivalents The Company has prepared a Cash-flow statement using the indirect method. Cash equivalents are short-term highly liquid investments that can be exchanged for a predictable amount of cash. 2.18. Subsequent events The effects of events, which occurred between the balance sheet date and the date of preparation of the financial statements, are recognised in the financial statements in the case that these events provide further evidence of conditions that existed as at the balance sheet date. Where significant events occur subsequent to the balance sheet date but prior to the preparation of the financial statements, which are indicative of conditions that arose subsequent to the balance sheet date, the effects of these events are quantified and disclosed, but are not themselves recognised in the financial statements.


5

3. Intangible fixed assets

(CZK‘000) 1 April 2017Additions /


Cost

Patents 246,769 - - 246,769

Software 251,875 15,514 - 267,389

Licenses 6,104 - - 6,104


Intangible fixed assets in the course of construction 1,972 2,430 - 4,402

Total 509,045 18,443 (823) 526,665


Patents 115,159 24,677 - 139,836

Software 220,265 22,285 - 242,550

Licenses 305 611 - 916

Total 335,729 47,573 - 383,302


(CZK‘000)

1 April 2016

Additions /

transfers Disposals

31 March 2017

Cost

Patents 246,769 - - 246,769

Software 249,074 3,127 (326) 251,875

Licenses - 6,104 - 6,104


Intangible fixed assets

in the course of construction 2,132 (160) - 1,972

Total 500,405 9,655 (1,015) 509,045


Patents 90,482 24,677 - 115,159

Software 164,056 56,534 (325) 220,265

Licenses - 305 - 305

Total 254,538 81,516 (325) 335,729



6

4. Tangible fixed assets

(CZK‘000) 1 April 2017

Additions /


Cost


Equipment 6,327,772 888,514 (124,415) 7,091,871


Tangible fixed assets in the course

of construction 786,504 (238,851) - 547,653

Total 7,374,696 944,805 (124,600) 8,194,901



Equipment 5,396,071 277,243 (124,169) 5,549,145

Total 5,404,036 284,417 (124,354) 5,564,099

Impairment - -

Net book value 1,970,660 2,630,802

(CZK‘000) 1 April 2016

Additions /


Cost


Equipment 5,975,352 399,813 (47,393) 6,327,772


Advances paid for tangible fixed assets

and tangible fixed assets in the course

of construction

189,937

596,567

-

786,504

Total 6,287,242 1,134,847 (47,393) 7,374,696



Equipment 5,216,490 226,829 (47,248) 5,396,071

Total 5,220,521 230,763 (47,248) 5,404,036

Net book value 1,066,721 1,970,660

The Company leases lands, building and halls in Nový Jičín and Rychvald from Hanon Systems Autopal s.r.o. and Hanon Systems Autopal Services s.r.o. in the total amount of USD 14,600 thousand from 2 August 2012 for 12 years period with the purchase possibility at the end of lease. More details can be found in the Note 8 – Receivables, prepayments and accrued income. The information on operating and finance lease commitment is disclosed in Note 11.


7

5. Investments in subsidiaries

31 March 2018

Nominal

value (’000

currency)

Cost

(CZK’000)

Carrying

value

(CZK’000)

% of share

capital

2017/2018

net profit*

(CZK’000)

Net assets*

(CZK’000)

Foreign entities

Varroc Lighting Systems Inc.,

USA* USD 30,222 623,806 623,806

100

270,961 1 011 495

Varroc Lighting Systems GmbH,

Germany* EUR 25 636 636

100

18,877 (17,918)

Total 624,442 624,442

* Unaudited, recognized in accordance with Czech accounting standards

31 March 2017

Nominal

value (’000

currency)

Cost

(CZK’000)

Carrying

value

(CZK’000)

% of share

capital

2016/2017

net profit*

(CZK’000)

Net assets*

(CZK’000)

Foreign entities

Varroc Lighting Systems Inc.,

USA* USD 30,222 764,065 764,065 100 (85,685) 906,852

Varroc Lighting Systems GmbH,

Germany* EUR 25 676 676 100 13,939 (24,028)

Total 764,741 764,741

* Unaudited, recognized in accordance with Czech accounting standards

There are no differences between the percentage of ownership and the percentage of voting rights in any subsidiary. Transactions and balances with subsidiaries are disclosed in Note 14.

6. Other long-term and short-term financial assets The Company acquired a 1% of share of Varroc Lighting Systems sp. z o.o. in the value of 306 CZK.

7. Inventories The Company created a provision for inventories as at 31 March 2018 of CZK 12,309 thousand (as at 31 March 2017: CZK 10,165 thousand).

8. Receivables and accrued income (CZK’000) 31 March 2018 31 March 2017

Trade receivables - current 927,783 695,333

- overdue 259,210 382,454

Total trade receivables 1,186,993 1,077,787

Other receivables - current 1,643,134 1,278,343

Total other receivables 1,643,134 1,278,343

Provision for doubtful receivables (20,663) (8,449)

Net book value of short-term receivables 2,809,464 2,347,681

Unsettled receivables have not been secured and none of them are due after more than 5 years. Receivables have not been covered by guarantees and none of them are due after more than 5 years. The Company has no receivables nor provided any guarantees which are not included in the balance sheet.


8

In order to pay receivables to selected customers through factoring, the Company signed agreements with banks on assignment of receivables. More detailed information is stated in the Note 12 – Liabilities to bank institutions. More details about the trade receivables can be found in the Note 14 – Related parties transactions.

(CZK’000) 31 March 2018 31 March 2017

Prepaid expenses 378,600 270,421

Complex prepaid expenses 455,999 247,502

Accrued income 4,672 7,376

Total prepayments and accrued income 839,271 525,299

Prepaid expenses as at 31 March 2018 mostly include prepaid leased land, buildings and halls in Nový Jičín and Rychvald from Hanon Systems Autopal s.r.o. and Hanon Systems Autopal Services s.r.o. from 2 August 2012 for the 12 years period in the amount of CZK 160,346 thousand (as at 31 March 2017: CZK 183,477 thousand) and amounts paid to customers for nominations on future projects, which will be then released based on realization of revenues arising from those projects. More information is stated in the Note 4 – Tangible fixed assets. Complex prepaid expenses include the engineering costs of the projects. Based on the Group's management, all receivables in the group will be redeemed. Therefore, the Company does not make a provision for receivables in the group. Overdue receivables within the group as at 31 March 2018 amounted to CZK 96,883 thousand (as at 31 March 2017: CZK 252,272 thousand). Advances for income tax of CZK 75,469 thousand paid by the Company as at 31 March 2018 (as at 31 March 2017: CZK 78,791 thousand) are netted off with the provision for income tax of CZK 74,059 thousand as at 31 March 2018 (as at 31 March 2017: CZK 77,410 thousand). A tax asset or liability is recognised in the balance sheet as "State - tax receivables" or "State - tax liabilities and subsidies" according to the nature of the balance.

9. Equity The Company is owned by VarrocCorp Holding B.V., registered in the Kingdom of the Netherlands (business share: 100%). The ultimate parent company of the group is Varroc Engineering Limited, incorporated in India. To the business share of VarrocCorp Holding B.V. in the Company a security has been pledged in favour of Komerční banka a.s. based on pledge agreement from 25 October 2016 concluded between VarrocCorp Holding B.V. (as provider of the security) and Komerční banka, a.s. to secure claims arising from the credit agreement concluded as at 6 November 2014 (as amended by Appendix no. 1 from 13 May 2015, Appendix no. 2 from 29 February 2016 and Appendix no. 3 from 13 October 2016) between, besides others, Varroc Lighting Systems, s.r.o. (as a debtor) and VarrocCorp Holding B.V. (as guarantor) and Komerční banka, a.s. (as lending party, agent for securing) up to EUR 79,000 thousand and CZK 110,000 thousand (the appendices were increased only by security denominated in EUR to EUR 170,429 thousand. The amount expressed in CZK remained unchanged). A lien of EUR 480 million is used to cover all debts (including administrative, legal and other costs) arising from the potential risk of termination or discontinuance of the Company's business. The Company Varroc Lighting Systems, s.r.o. with the registered office at Suvorovova 195, Šenov u Nového Jičína prepares the consolidated financial statements of the smallest group of entities of which the Company forms a part as a parent company.


9

The Company Varroc Engineering Limited with the registered office at E-4, MIDC Waluj, Aurangabad, 431136, India prepares the consolidated financial statements of the largest group of entities of which the Company forms a part as a subsidiary. The general meeting of shareholders approved the financial statements for the period ended 31 March 2017 and decided about the allocation of profit earned of CZK 843,264 thousand to retained earnings in the amount of CZK 805,275 thousand and to statutory and other funds in the amount of CZK 37,989 thousand on 4 December 2017.

10. Provisions

(CZK’000)

Liabilities to

employees

Provision

for guarantees and

trade risks Total


Charge 44,378 175,615 219,993

Usage (9,957) (104,283) (114,240)


Charge 70,787 96,286 167,073

Release - (13,602) (13,602)

Usage (59,660) (126,336) (185,996)


For an analysis of the current and deferred income tax, see Note 17 – Income tax.

11. Payables, commitments, contingent liabilities and deferred income

(CZK’000) 31 March 2018 31 March 2017

Trade payables - current 3,031,030 2,600,665

- overdue 41,974 10,606

Total trade payables 3,073,004 2,611,271

Estimated payables 531,769 386,789

Other payables 162,262 128,673

Short-term advances received 5,109 6,257

Total short-term payables excluding bank loans

and overdrafts 3,772,144 3,132,990

(CZK’000) 31 March 2018 31 March 2017

Deferred income 2,042,752 562,107

Total deferred income 2,042,752 562,107

Trade and other payables have not been secured against any assets of the Company and are not due after more than 5 years. The estimated payables are mainly accruals for unbilled supplies and annual employee remuneration. More details about trade payables and other payables are disclosed in Note 14 – Related party transactions. The deferred income line is accounted for deferred income arising from instruments financed by the Company's customers and engineering. The management of the Company is not aware of any significant unrecorded contingent liabilities as at 31 March 2018 and 2017, except for information disclosed in Note 12 – Liabilities to bank institutions.


10

Capital commitments contracted by the Company were CZK 419,750 thousand as at 31 March 2018 (as at 31 March 2017: CZK 573,954 thousand). The Company has the following commitments in respect of operational leases, rental and logistics services: (CZK’000) 31 March 2018 31 March 2017

Due within one year 167,239 184,434

Due after one year but within five years 784,932 1,052,417

Total commitments in respect of operational leases

and rental 952,171 1,236,851

12. Liabilities to bank institutions

Short-term and long-term bank loans and overdrafts

Interest rate (%)

Validity of the agreement

The limit in thousands Agreement no.

Balance as at

31 March 2018 in original

currency in thousands

Balance as at

31 March 2018

(CZK’000)

Komerční banka + Raiffeisenbank Long-term bank loan (Facility A)

3M EURIBOR

+ 1.1% p.a.

Till full repayment of the

loan,but no later

than 30 September 2021 EUR 30,000

Agreement from13 October 2016 EUR 15,000 381,485

Komerční banka + Raiffeisenbank - short-term multi-currency revolving bank loan (Facility B1)

1M EURIBOR

1M PRIBOR +

1% p.a.


loan,but no later


Agreement from13 October 2016 - -

Komerční banka + Raiffeisenbank - short-term conditioned multi-currency revolving bank loan (Facility B2)

1M EURIBOR

1M PRIBOR+

1.5% p.a.


loan,but no later



Komerční banka + Raiffeisenbank - overdraft (Facility C)

1M PRIBOR 1.08% p.a.


loan,but no later

than 30 September 2021 CZK 110,000


Komerční banka + Raiffeisenbank - long-term multi-currency bank loan (Facility D)

PRIBOR EURIBOR /

LIBOR 1.38% p.a.


loan,but no later



Komerční banka + Raiffeisenbank - long-term multi-currency bank loan (Facility E)

3M PRIBOR EURIBOR 1.15% p.a.


loan,but no later


Agreement from13 October 2016 EUR 24,270 617,161

Total short-term and long-term bank loans and overdrafts EUR 39,270 998,646


11

Short-term

and long-term

bank loans

and overdrafts

Interest rate

(%)

Validity

of the

agreement

The limit

in thousands Agreement no.

Balance

as at

31 March 2017

in original

currency

in thousands

Balance

as at

31 March

2017

(CZK’000)

Komerční banka +

Raiffeisenbank

Long-term bank

loan (Facility A)

3M EURIBOR

+

1.1% p.a.

Till full

repayment of the

loan,

but no later than

30 September

2021 30,000 EUR

Agreement from

13 October 2016 EUR 19,285 521,216

Komerční banka +

Raiffeisenbank

- short-term multi-

currency revolving

bank loan (Facility

B1)

1M EURIBOR

1M

PRIBOR +

1% p.a.

Till full

repayment of the

loan,

but no later than

30 September

2021 EUR 60,000

Agreement from

13 October 2016 EUR 10,000 270,279

Komerční banka +

Raiffeisenbank

- overdraft (Facility

B2)

1M

PRIBOR

1M

PRIBOR +

1.5% p.a.

Till full

repayment of the

loan,

but no later than

30 September

2019 EUR 25,000

Agreement from

13 October 2016 CZK nil -

Komerční banka +

Raiffeisenbank

- short-term multi-

currency revolving

bank loan (Facility

C)

1M

PRIBOR +

1.08% p.a.

Till full

repayment of the

loan,

but no later than

30 September

2021 CZK 110,000

Agreement from

13 October 2016 CZK nil -

Komerční banka +

Raiffeisenbank

- long-term multi-

currency bank loan

(Facility D)

PRIBOR

EURIBOR/

LIBOR +

1.38% p.a.

Till full

repayment of the

loan,

but no later than

30 September

2021 EUR 14,000

Agreement from

13 October 2016 EUR nil -

Komerční banka +

Raiffeisenbank

- long-term multi-

currency bank loan

(Facility E)

3M

PRIBOR +

1.15%p.a.

Till full

repayment of the

loan,

but no later than

30 September

2021 EUR 50,000

Agreement from

13 October 2016 EUR 26,000 702,713

Total short-term and long-term bank loans and overdrafts EUR 55,285 1,494,208

On 25 October 2016, in order to secure bank loans, the Company has pledged most of its assets. This loan is also secured by patronage statement of the Varroc group parent company. Loans are associated with contractual conditions related to standalone financial statement of the Company as well as to consolidated financial statement of VarrocCorp Holding B.V. These conditions were fulfilled as at 31 March 2018.


12

13. Revenue analysis Revenue analysis:

(CZK’000)

Year ended

31 March 2018

Year ended

31 March 2017

Sales of headlamps and lamps

- foreign 10,457,282 10,000,450

- domestic 1,199,632 705,758

Sales of tools

- foreign 87,021 104,128

- domestic 24,961 80,582

Sales of engineering and other services

- foreign 543,491 391,323

- domestic 35,784 24,335

Total sales of own products and services 12,348,171 11,306,576

Sales of goods – tools

- foreign 412,022 388,936

- domestic 114,353 234,786

Total sales of goods 526,375 623,722

Sales of fixed assets 891 169

Sales of material 105,865 78,844

Other revenues 9,347,032 6,432,476

Total revenue from operating activities 22,328,334 18,441,787

Other operating revenues contain mainly revenues from cession of receivables based on factoring contracts with banks.

14. Related party transactions Only material transactions with the related parties are presented in this note.

(CZK’000)

Year ended

31 March 2018

Year ended

31 March 2017

Revenues

Sales of own products and services 354,953 365,293

Interest income 22,564 30,486

Total 377,517 395,779

(CZK’000)

Year ended

31 March 2018

Year ended

31 March 2017

Costs

Purchase of raw material and services 744,428 632,283

Assets acquisition 2,912 -

Total 747,340 632,283

Purchase of services includes fees for administration, IT services, engineering and other services.


13

The following related party balances were outstanding as at:

(CZK’000)

Year ended

31 March 2018

Year ended

31 March 2017

Receivables

Trade receivables including prepayments and accrued income 219,769 309,059

Short-term loans including outstanding interest 1,035,963 812,281

Long-term loans 18,049 -

Total receivables 1,273,781 1,121,340

(CZK’000)

Year ended

31 March 2018

Year ended

31 March 2017

Liabilities

Trade payables including prepayments and accrued income 111,039 93,965

Total liabilities 111,039 93,965

The loans receivable and payable bear interest at market interest rates. Based on the partial loan agreements, the Company provided loans to the subsidiary Varroc Lighting Systems GmbH, Germany and the sister company Varroc Lighting Systems, Mexico. The current part of loans due within one year including unpaid interest as at 31 March 2018 amounted to CZK 1,035,963 thousand (as at 31 March 2017: CZK 812,282 thousand) has been recognised as short-term receivables from shareholders. The long-term part of the loan as at 31 March 2018 amounted to CZK 18,049 thousand (as at 31 March 2017: CZK nil thousand) has been recognised on the financial statement line Intra-group loans - subsidiaries and controlling parties, associates within long-term investments. The amount of interest income to those loans is listed above. No loans, credits, deposits, advances were provided to Statutory Representatives as at 31 March 2018 and 2017. No remuneration was paid to the Statutory Representatives. Company cars are made available for use by management.

15. Fees paid and payable to the audit company The information relating to the fees paid and payable for services performed by the audit company PricewaterhouseCoopers Audit, s.r.o. is included in the consolidated financial statements of VarrocCorp Holding B.V.

16. Employees Year ended 31 March 2018 Year ended 31 March 2017

number (CZK’000) number (CZK’000)

Wages and salaries to other management 6 20,824 5 19,841

Wages and salaries to other employees 2,658 1,268,168 2,458 1,090,479

Social security costs 2,664 435,566 2,463 379,747

Other social costs 2,664 41,441 2,463 33,772

Total staff costs 1,765,999 1,523,839

The Company’s management includes senior staff members directly reporting to the statutory body. Other transactions with the Company’s management are described in Note 14 - Related party transactions.


14

17. Income tax The income tax expense analysis:

(CZK’000)

Year ended

31 March 2018

Year ended

31 March 2017

Current tax expense (19%) 74,059 77,410

Deferred tax expense (198,229) (46,568)

Adjustment of prior year tax expense based on final CIT return 197 (572)

Total income tax expense (123,973) 30,270

The current tax analysis:

(CZK’000)

Year ended

31 March 2018

Year ended

31 March 2017

Net profit before taxation 474,267 873,534

Tax non-deductible costs, tax-free income and gifts (70,750) 91,885

Net taxable profit 403,517 965,419

Corporate income tax at 19% 76,668 183,430

Adjustment related to usage of tax incentives (1,963) (105,654)

Other adjustments (646) (366)


The deferred tax was calculated at 19%. The deferred tax asset/ (liability) analysis: (CZK’000) 31 March 2018 31 March 2017

Deferred tax liability arising from:

difference between accounting and tax net book value of fixed assets (127,274) (108,950)

Total deferred tax liability (127,274) (108,950)

Deferred tax asset arising from:

provisions and allowances 53,304 60,479

relieves from investment incentives applicable in the following years 319,196 95,468

Total deferred tax asset 372,500 155,947

Net deferred tax asset/ (liability) 245,226 46,997

Based on a decision of the Ministry of Trade and Industry of the Czech Republic no. 211/2013 on an investment incentive issued on 2 January 2014, the Company has received investment incentive in the form of income tax credit. The total of investment incentive of CZK 511,680 thousand, in the form of income tax credit, must not exceed 40 % of the total cost of the investment. The tax credit can be claimed over a period of ten years. In the fiscal year ended 31 March 2015, the conditions for the utilization of tax relief have been met. The total value of eligible costs as at 31 March 2018 amounted to CZK 1,279,200 thousand (as at 31 March 2017: 716,427 thousand). Company claimed a tax credit in the amount of CZK 192,484 thousand from the incentive (2017: CZK 191,103 thousand).


15

18. Cash-flow statement Cash and cash equivalents disclosed in the Cash-flow statement can be analysed as follows:

(CZK’000) 31 March 2018 31 March 2017

Cash at banks 529,136 1,059,943

Total cash and cash equivalents 529,136 1,059,943

Cash balances of the Company are deposited with credit banks. The Company regularly monitors and evaluates the concentration risks that could threaten the Company. Currently, there is no risk of concentration risk associated with high account balances. During the fiscal year, the Company held low balances on current accounts and tried to effectively manage their use. At the end of the year, Komerční banka, a.s. long-term rating, was A2 and Raiffeisenbank a.s. was Baa2. (Moody's agency).

19. Subsequent events On 13 April 2018 the statutory representative approved the payment of an advance on the payment of the share profit to the sole shareholder amounting to EUR 6 000 thousand based on interim financial statements and in accordance with section 40, paragraph 2 of the Act on Commercial Corporations. Advance was paid on 19 April 2018. No events have occurred subsequent to year-end that would have a material impact on the financial statements as at 31 March 2018. Nový Jičín 20 July 2018 Tarang Jain Dita Stavělová Statutory Representative Accounting and Finance Manager

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