P R O G N O Z A

Purchase of electronic components

from the Far East

Toruń, 21st June 2010

Import from Chinese People’s Republic to EU countries

74 63282 000

90 148106 220

128 590

160 327

194 932

232 620

247 916

7,5%8,4%

9,6%

11,4%

12,5%13,6%

14,4%

16,2%

17,4%

15,8%

0

50 000

100 000

150 000

200 000

250 000

300 000

2000

2001

2002

2003

2004

2005

2006

2007

2008

1H20

09

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Import value of EU countries from ChPR (m EUR) Share of import of EU countries from ChPR in total import (%)

Trade between Poland and Chinese People’s Republic in 2009 was in value of 11 bn EUR, where the import to Poland wa s in value about 10 bn EUR.

Increase of unit labour cost in the world

World market shares of high-tech products

Forecast of the share in the world PKB

Geographical structure of purchases

Total purchases of Grupa Apator in 2009 were 121 m P LN

Total purchases of Apator in 2009 were 40 m PLN

Europe24%

Home66%

Far East10%

Far East

15%

Home

63%

Europe

22%

Apator SA

Non-ferrous products

1%

Electronicts54%

Electrical engineering

41%

Plastic products2%

Other materials w ith products on

iron alloy2%

Share in purchases in the Far East

Grupa Apator

Non-ferrous products

23%

Electronics28%

Electrical engineering

21%

Plastic products

1%

Other materials

w ith products on

iron alloy27%

30%

40%

50%

60%

70%

80%

90%

100%

110%

kwiec

ień

200

5cz

erwiec

200

5sie

rpie

ń 2

005

paździe

rni k

200

5gr

udzie

ń 2

005

styc

zeń

200

6m

arzec

2006

maj

2006

lipiec

200

6wrz

esień

200

6lis

topa

d 20

06sty

cze ń

200

7m

arze

c 20

07m

aj 2007

lipi e

c 20

07wrz

esień

200

7lis

topa

d 200

7sty

czeń

200

8

GW 12EA5 - 1 fazowy GW 16EC3 - 3 fazowy

Changes in costs of materials of electronic elements for electronic electricity meters - GW type meters

GW type meter

till 07.2005 Memec’sdisplay was used

in 08.2005 chinese display was introduced

in 10.2005 1-circuit boardmeter was introduced

in 12.2005 meter with fieldsensor was introduced

40%

50%

60%

70%

80%

90%

100%

110%

mar

zec 2

008

kwi e

c ień 20

08m

aj 20

08

czer

wiec 2

008

lipiec

200

8

sierp

ień

200

8

wrzes

ień

200

8

paźdz

iern

ik 2

008

l istop

ad 2

008

grudz

ień

200

8sty

cze ń

200

9lu

ty 200

9m

arze

c 200

9

kwi e

c ień 20

09m

aj 20

09

czer

wiec 2

009

lipiec

200

9sie

rpie

ń 2

009

wrzes

ień

200

9

paźdz

iernik

200

9l is

topad

200

9

grudz

ień

200

9sty

cze ń

201

0lu

ty 201

0m

arze

c 201

0

kwiec

i eń

2010

GR 12EA5 - 1 fazowy GR 16EC3 - 3 fazowy

GR type meter

In II and III quarters of 2008 1-circuit board was introduced

Changes caused by exchangerate of EUR and USD at the turnof 2008

Changes in electronic material costs for electronic electricity meters – GR type meters

three phase meters

80,00

100,00

120,00

140,00

160,00

180,00

200,00

220,00

240,00

260,00

280,00

1Q20

052Q

2005

3Q20

054Q

2005

1Q20

062Q

2006

3Q20

064Q

2006

1Q20

072Q

2007

3Q20

074Q

2007

1Q20

082Q

2008

3Q20

084Q

2008

1Q20

092Q

2009

3Q20

094Q

2009

1Q20

10

Prices of GW and GR type electronic electricity meters

one phase meters

40,00

50,00

60,00

70,00

80,00

90,00

100,00

110,00

1Q20

05

2Q20

05

3Q20

05

4Q20

05

1Q20

06

2Q20

06

3Q20

06

4Q20

06

1Q20

07

2Q20

07

3Q20

07

4Q20

07

1Q20

08

2Q20

08

3Q20

08

4Q20

08

1Q20

09

2Q20

09

3Q20

09

4Q20

09

1Q20

10

max price of competition min price of competition price of Apator

0,0

0,2

0,4

0,6

0,8

1,0

1,2

1,4

1,6

1,8

1-2Q2008 1-3Q2008 1-4Q2008 1Q2009 1-2Q2009 1-3Q2009 1-4Q2009

12EA5 GR 16EC3 GR

Changes in profitability of technical manufacturing costs of GW and GR type meters

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

8,0

9,0

10,0

1Q2005 1-2Q2005 1-3Q2005 1-4Q2005 1Q2006 1-2Q2006 1-3Q2006 1-4Q2006 1Q2007 1-2Q2007 1-3Q2007 1-4Q2007 1Q2008

12EA5 GW 16EC3 GW

Quality problems and economizing on purchasing in the Far East

Since 2007 occurred some quality problems of the di splays being delivered from Chinese manufacturer. Those displays were installed in mete rs since the August 2005 and they were delivered by the Polish distributor JM Elektronik in G liwice. The seller in the reference list informed that the Chinese manufacturer also had manufactured the displays for Citroen, Bosch, Samsung and Mitsubishi.In 2008 Apator SA brought a case to a court in ord er to get the compensation of the costs of repairs from JM Elektronik (latent defect). The witnesses we re examined and expert were selected by the court (from Warsaw University of Technology). In Ju ne 2010 experts took samples of the displays in order to give expert opinion.

6 113

10 303

4 000

5 000

6 000

7 000

8 000

9 000

10 000

11 000

2005 - 2009

Cost of the replacement of the displaysEconomizing on components

Purchasing process of electronic components

Preventive actions:

• quality control by reliability testing of the produ cts-procedure;

• auditing of manufacturers of electronic subassembli es – introduction of the complete identification of the components from the suppliers by bar coding (for instance Hanza, Sims);

• delivery of critical elements only from famous man ufacturers (for instance Texas Instruments, STMicroelectronics, Microchips T echnology Inc.)

The rules of cooperation with the Far East:

• the representative in Chinese People’s Republic whos e role is to make contacts with manufacturers and quality control of their pro ducts;

• the departure twice a year to audit the manufactur ers of subassemblies

Procedure of reliability testing of products and components

Reliability test procedure is used for:

• electronic components being used in electronic metering equipment,

• printed circuit boards being used in electronic metering equipment

Procedure defines detailed rules and

mode of proceeding in case of :

• acceptance of a new product for manufacturing,

• acceptance of substitute of electronic component for manufacturing,

• definition of requirements regarding reliability tes ting and additional special ones for selected electronic components,

• definition of the schedule for testing,

• statistic reliability testing for products

Procedure of reliability testing of products and components

1. Acceptance of a new product in respect of manufa cturing:• manufacturing the batch of samples in quantity defi ned by development department and subject them to routine testing and reliability tes ting;• manufacturing of pilot batch in quantity defined by salesmen and design engineers and subject them to reliability testing

2. Implementation of substitute – critical element:• acceptance by design engineers of technical paramet ers of components presented in catalogues ;• manufacturing the batch of samples: 10 units of the product and subject them to routine testing and reliability testing;• manufacturing of the pilot batch: 100 – 1 000 units of the product with components from the batch made by the supplier later than the batch for sample series and subject them to routine testing and reliability testing;• manufacturing of considerable manufacturing batch o f 1 001 – 10 000 units with components from the batch made by the supplier late r than the batch for sample/pilot series and subject them to routine testing and reliability testing

Products and components are subject to:

• testing according to the standard PN-ISO 2859-1:200 3,

• reliability testing according to PN-EN 62059-31-1 i ncluding testing of critical elements

Procedure of reliability testing of products and components

3. Implementation of substitute – standard component :• acceptance of technical parameters of components by design engineers presented in catalogues ;• design engineers make the decision whether it is ne cessary to carry out single electrical testing and what is to be the scope. After the acc eptance of components by design engineers the components are allowed to be used in serial ma nufacturing. However, the earliest possible time the components should be mounted in 3-5 pieces of the product and subject to reliability testing – negative result of reliability testing means the withdrawal the consent to use that component..

4. Testing of current manufacturing:• subject to testing of random selected samples not r are than once per month suitable to thesales volume and subject them to routine testing and reliability testing.

5. Elimination of critical elements of high mortali ty:• process engineers provide with complete identificat ions of critical elements being used in manufacturing of the products and therefore the dat a are archived: manufacturer of the component used,, number of batch, date of manufactu re, date of receipt to the warehouse, number of manufacturing batch of the products;• quality control personnel based on received quality claims and reliability testing carried out regularly inform design engineers and procurement p ersonnel about mortality of particular critical elements;• design engineers make the analysis of the mortality of critical elements and the reasons of their damages. Based on it they replace the critica l elements being used to those of higher parameters or they apply to procurement personnel t o change the supplier.

Control system - management

Integrated management system is based on the follow ing standards:

• PN-EN ISO 9001:2009 – quality,

• PN-EN ISO 14001:2005 – environment,

• PN-N-18001:2004 – Safety and Health at Work

Control system - MID

Possibility of certification of own products accord ing to Directive MID by the entities of Grupa that manufacture electricity meters:

• Pafal SA:

• since July 2008 - module B for 3-phase post paid me ters,

• since October 2008 – module D for 3-phase post paid meters,

• since April 2009 – module B for single phase post p aid meters,

• since February 2010 – module D for single phase pos t paid meters;

• Apator SA:

• since September 2009 – module B for single phase pr e-paid meters,

• since December 2009 – module D for single phase pre -paid meters,

• planned date of the audit for modules B and D for 3 -phase pre-paid meters is

September 2010Granting of module D gives the following possibilit ies:• Independent assessment on compliance of metrologic al and quality requirements of the meter being man ufactured without participation of Central Measurement Office (home sale) and to the countries of European Union ). This fact means the prestige and financial benefit since ther e are lack of fees for legalization taken by Central Measurement Office that reduce considerably the cost of manufac turing of the product.• Sale of certified product on all markets of the Eur opean Union without necessity to comply with additi onal requirements of the local measurement offices. The effect is also minimization of the time necessary t o comply all formal requirements in case of the export to Europe an Union countries.

Ratio of faults – manufacturers of electricity meters in Grupa Apator

0,32%

0,15%

0,30%

0,16%

0,11%

0,26%

0,05%0,11%

0,32%

0,19%

0,38%0,38%

0,21%

0,25%

0,27%

0,00%

0,05%

0,10%

0,15%

0,20%

0,25%

0,30%

0,35%

0,40%

2005 2006 2007 2008 2009

Metering equipment of Apator SA Total Apator SA Total Pafal SA

Ratio is calculated as the relation of the costs of manufacturing faults to revenues on sales

Organization structure of the quality control in Apator SA

Quality of Products Team of Inspectors1) checking the compliance with technical and design requirements:- in input warehouse ,- in manufacturing area of the parts,- in assembly area of electronic parts and switchgear ,- in warehouse for finished products

Measurements Team1) checking the compliance of the product,subassembly or part with the assumptions of:- obligatory regulations,- technical specifications,- design;2) verification of new suppliers

Product Testing Team1) quality verification of products and new suppliers by:- reliability testing ,- testing of current products;2) Testing of the software of the equipment;3) Testing of finished product

Calibration and Legalization Section1) checking of metrological compliance with the Regulation of Ministry of Economy

Service Team1) remedy of damages2) making motions regarding operation 3) taking quality (corrective) actions

Managing Director of Apator SA

Quality and Service Management Department

P R O G N O Z A Thank you for your attention

Toruń, 21st June 2010