STS : Combined Management and Group Management Report

STS GROUP

ANNUAL REPORT 2022

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SUMMARISED MANAGEMENT REPORT AND GROUP MANAGEMENT REPORT

BASIS OF THE GROUP

BUSINESS MODEL

STS offers its customers a wide range of system solutions and components for the interior and exterior panelling of vehicles. STS components enhance the visual appearance of the vehicle design, contribute to the aerodynamics of the vehicle and ensure a significant reduction in weight thanks to their lightweight construction. Due to its high level of vertical integration, STS is able to map the complete manufacturing process of each component from the idea to the finished product. As a one-stop-shop provider with many years of expertise, the Executive Board sees a clear competitive advantage. Production facilities and logistics are mainly designed for small and medium-sized series, as is typical for light to heavy commercial vehicles, but also for special models and electromobility or weight-optimised plastic solutions, as is increasingly the case in the passenger car sector.

The STS production facilities are located close to the respective customer plant sites. This makes all aspects of co-operation simpler, more efficient and more sustainable. Headquartered in Germany, the Group operates a global network in all key markets. At the end of the financial year, STS had twelve plants in five countries on three continents.

STS combines the production technologies of injection moulding and hot and compression moulding of composites. It manufactures the semi-finished products and composite materials itself and can therefore react flexibly to customer-specific requirements.

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The Group produces parts and systems for trucks, commercial vehicles and cars. Its customer base includes well-known commercial vehicle and car manufacturers, including many market leaders. Numerous manufacturers also rely on STS Group's expertise in the rapidly growing electric vehicle market. The Group has three research and development centres, two in France and one in China, for rapid product development and innovation.

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BUSINESS ACTIVITY

STS Group's business activities are managed partly according to product types and partly according to geographical aspects. This principle is reflected in the following segmentation of business activities:

Plastics: This segment manufactures a wide range of exterior body parts and interior modules for trucks, other commercial vehicles and passenger cars. It includes hard trim products made from injection moulding and composite materials such as SMC (Sheet Moulding Compound), glass fibre-reinforced thermoset semi-finished products. The semi-finished product plays an important role in automotive production thanks to its numerous positive properties, such as high rigidity and heat resistance. It often replaces metal structural parts and makes an important contribution to covering battery systems in electric vehicles. The Plastics segment has production facilities in Europe and Mexico, as well as the new plant in the USA. Customers in North America are supplied from Mexico and the USA.t. Hard trim systems are used in commercial vehicles, e.g. for exterior parts (front modules, roof modules and other aerodynamic panelling) or interior modules ("bunk box" under the driver's bed and shelving elements) and in passenger cars, e.g. for structural parts (tailgate). The segment also has its own capacities for painting plastics.

China: Activities in the Chinese market are bundled in this segment. These include supplying customers with plastic parts for the exterior panelling of vehicles, primarily for the cabins of commercial vehicles, but increasingly also for passenger cars. The product range offers solutions and components for commercial vehicles such as bumpers, front panelling, deflectors, roofs, mudguards and entrances as well as parts for passenger cars, such as battery covers for electric vehicles, through to complex structural parts, such as tailgates for SUVs. Composite moulding processes and injection moulding technology are used here. The segment also has its own capacities for painting plastics.

Materials: This segment comprises the development and production of semi-finished products (Sheet Molding Compound - SMC), fibre molding compounds (Bulk Molding Compound - BMC) and advanced fibre molding compounds (Advanced Molding Compound - AMC). The semi- finished products are used both within the Group for hard trim applications and supplied to external third parties. As part of the development of these base materials, it is already possible to influence key parameters of the end product.

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In December 2016, the Group acquired the truck business of French automotive supplier Mecaplast France SAS (now Novares France), thereby entering the hard trim business. With the acquisition of the commercial vehicle supplier business of the Plastic Omnium Group in June 2017, STS significantly expanded its product portfolio with semi-finished composite products and composite components for exterior parts for truck cabins and light commercial vehicles as well as structural parts for passenger cars (tailgate). In the fourth quarter of 2018, the Group established a new headquarters in Wuxi for the Chinese market, which also bundles local development activities. In April 2019, STS opened its third production facility in China in Shiyan. The Group is also represented in Qingdao and Jiangyin. As part of its growth strategy for North America, STS opened its first production site in the USA in March 2023 in the city of Salem in the US state of Virginia. The first prototypes rolled off the production line in 2023 and series production is scheduled to start in the first half of 2024. The plant will be operated as a separate company STS Group North America Inc. as a subsidiary of STS Group AG and within BU Plastic and will supply the truck assembly of one of the larger commercial vehicle manufacturers as well as other truck and car plants throughout the Midwest and Southeast of the USA.

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The STS Group is pursuing the strategic goal of further expanding its promising lightweight solutions for commercial and electric vehicles. As the new majority shareholder, the Adler Pelzer Group1 was able to lay the essential foundations for expanding the STS Group's position as one of the leading system suppliers in the automotive industry, even in these challenging times. Thanks to the Adler Pelzer Group's existing presence in North America, profitability in Mexico was significantly strengthened and expansion in the US market was also driven forward. As of 31 December 2023, Adler Pelzer Group holds 74.42% of the shares in STS Group AG.

1 The Adler Pelzer Group refers to Adler Pelzer Holding GmbH and all of its subsidiaries.

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GROUP STRATEGY AND MANAGEMENT

GOALS AND STRATEGY

STS Group AG is one of the leading suppliers of components and systems for the commercial vehicle and automotive industry. The aim is to expand this position. The focus is on components made from composite materials and injection moulding, from the initial idea to the finished product. The corporate strategy continues to focus on the future markets of lightweight components and e-mobility.

STS products are designed to make vehicles fit for the future by making a significant contribution to reducing weight and thus CO2 emissions. STS products also improve the look, feel and functionality of vehicles.

STS Group's growth strategy is based on process optimisation through increased automation of manufacturing processes on the one hand, and on addressing technological trends such as autonomous driving and e-mobility on the other. STS also supports customers in the commercial vehicle sector in the development of CO2 -efficient and innovative trucks.

In order to expand its competitive position and achieve sustainable profitability, the Group focuses on four strategic pillars: "market leadership", "technology leadership", "customer proximity" and "operational excellence".

CONTROL SYSTEM

All business units and subsidiaries report monthly on their earnings, financial position and net assets, which are included in the company's half-year and annual reports. In addition, the business units provide a monthly assessment of current and expected business development and the business unit managers present monthly variance analyses of certain key operating figures (including productivity, absenteeism rates, rejects) to the Executive Board.

In addition, the following components essentially ensure compliance with the internal control system:

• Regular Management Board and Supervisory Board meetings
• Regular shareholders' meetingsn at the subsidiaries
• Risk and opportunity management
• Liquidity planning
• Management reporting

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FINANCIAL AND NON-FINANCIAL PERFORMANCE INDICATORS

The Group's key financial performance indicators include, in particular, sales, earnings before interest, taxes, depreciation and amortisation (EBITDA) and adjusted EBITDA (adjusted for extraordinary expenses in connection with restructuring costs and non-operatingone-off expenses). No extraordinary expenses were incurred in the 2023 financial year, meaning that EBITDA corresponded to adjusted EBITDA. There were also no extraordinary expenses in the previous year, meaning that EBITDA already corresponded to adjusted EBITDA in 2022.

Adjusted EBITDA is used to measure and assess operating performance - excluding special effects. The reconciliation of adjusted EBITDA to EBITDA and earnings before taxes (before earnings from discontinued operations) is as follows as follows:

EUR million

Adjusted EBITDA Group

Management adjustments (netted)

EBITDA Group

Depreciation and amortization expenses

Earnings before interest and income taxes (EBIT)

Interest and similar income

Interest and similar expenses

Finance result

Earnings before income taxes

2023

20,5

0,0

20,5 -13,8 6,8 0,2 -6,5

-6,3

0,5

2022

9,6

0,0

9,6 -16,2-6,6 0,3 -2,8

-2,5

-9,1

The STS Group does not have any significant non-financial performance indicators that are used for internal management or are relevant to remuneration.

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EMPLOYEES

Motivated employees expect an attractive and fair working environment in which they can work independently, contribute their ideas and develop further. The key to successful and respectful cooperation is the joint development of an STS culture and its anchoring in everyday interaction.

STS continues to attach great importance to accident prevention and health promotion. This is reflected, among other things, in accident prevention measures such as employee training, conducting safety audits, sharing best practices across locations, improved process monitoring and technical measures for machine safety. STS promotes health through a variety of local initiatives: there are free vaccinations for employees, cancer screenings and training courses on mindfulness. In addition, the external audits of operational measures addressed in the previous year are being continued. The main individual companies are certified in accordance with ISO 45001 (occupational health and safety).

• Protecting employees from infection remained a key priority in the past financial year, and the hygiene, distancing and protective measures introduced were continued at all locations. In the indirect functions, working from home has become part of the working model.

Due to the wide range of HR requirements and laws, HR work is managed at country level and implemented locally as required. In order to strengthen development and career prospects, managers hold regular appraisal interviews with employees to discuss the issue of future opportunities within and outside the company. The results of these discussions form the basis for individual development plans and the further training measures derived from them. The results of the employee appraisals are supported by regular performance reviews, which are intended to help harmonise the employees' self-assessment and external assessment and define appropriate measures to develop their skills.

As of 31 December 2023, the Group employed a total of 1,392 people (2022: 1,422).

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RESEARCH AND DEVELOPMENT

Innovative products are a cornerstone of the Group's strategy and should contribute to achieving the medium-term goals of profitable and sustainable growth. Despite a lower R&D budget in 2022 and 2023 and a continued uncertain situation due to the Ukraine / Russia conflict, important new projects were acquired at the turn of the year 2022 / 2023. This mainly concerns the STS plants in France. The STS Group's strategy was to use the available resources of the development centres to successfully implement innovation programmes.

Our three research and development centres in France and China continue to pool their expertise and exploit synergy effects. Finite element analyses and thermoplastic rheology are carried out internally by the Chinese development centre in Wuxi, and the rheology for SMC composites is developed by the French team. This strengthens our simulation capabilities. In addition, further synergies could arise in the future from cooperation with the Adler Pelzer Group's development centres.

Further successful projects for new product lines were realised thanks to R&D activities:

• A sustainable plastic has reached market maturity, which opens up the possibility of introducing other sustainable plastics. This development is currently in progress.
• The integration of LCA principles into the RFI/RFQ phase is now taking place in accordance with the Ecodesign Guidelines (not yet fully finalised).

As an important key partner of a major OEM, the approach of integrating sustainable plastics into production is the subject of a joint development project and has been certified/labelled by CARA, the European cluster for mobility solutions.

The innovative projects on the topics of electric lorries, safety, attractiveness of transport and differentiation will also be continued:

• Backlit prototypes for the interior panelling and bodywork
• Composite module for hydrogen-powered commercial vehicles
• Joint development of a heat shield to protect occupants in the event of a fire
• Development of an interior module to increase driver comfort on board long- distance lorries

Our vertical integration - materials are developed in-house - allows us to quickly turn ideas into opportunities. The expertise of the research and development team and our well-equipped development centres and prototyping facilities enable us to offer innovative and reliable solutions for these new opportunities.

At the end of the year, 40 people were employed in the STS Group's research and development centres worldwide (compared to 49 in 2022).

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Development costs totalled EUR 2.9 million in the reporting period (2022: EUR 2.5 million). At EUR 0.9 million, non-capitalised development costs were significantly below the previous year's level (2022: EUR 1.4 million). In the reporting period, development costs of EUR 2.0 million (31 December 2022: EUR 1.1 million) were capitalised and no amortisation was were recognised.