Balta : 2021 Q2 Results

LSF9 Balta Issuer S.à.r.l

Senior Secured Notes due 2024

Q2 2021 - Period ended June 30, 2021

2021

QUARTERLY REPORT

Registered office: 15, Boulevard Friedrich Wilhelm Raiffeisen, L-2411 Luxembourg R.C.S. Luxembourg: B 198084

Table of Contents
1.	KEY FIGURES ..........................................................................................................................................................	3
2.	MANAGEMENT DISCUSSION AND ANALYSIS OF THE RESULTS................................................................................	4
2.1.	GROUP FINANCIAL HIGHLIGHTS .........................................................................................................................	4
2.2.	BUSINESS UPDATE..............................................................................................................................................	4

2.3. CYRILLE RAGOUCY, CEO AND CHAIRMAN OF THE BOARD OF BALTA SAID,.........................................................4

3. OPERATING REVIEW PER SEGMENT .......................................................................................................................	5
3.1. REVENUE AND ADJUSTED EBITDA PER SEGMENT ...............................................................................................	5
3.1.1.	Q2 2021 ..........................................................................................................................................................	5
3.1.2.	H1 2021 ..........................................................................................................................................................	5
3.2.		RUGS ..................................................................................................................................................................	6
3.3.		COMMERCIAL.....................................................................................................................................................	6
3.4.		RESIDENTIAL ......................................................................................................................................................	6
4. OTHER FINANCIAL ITEMS REVIEW..........................................................................................................................	7
4.1. INTEGRATION AND RESTRUCTURING EXPENSES.................................................................................................	7
4.2.		NET FINANCING EXPENSES .................................................................................................................................	7
4.3.		TAXATION ..........................................................................................................................................................	7
4.4.		EARNINGS PER SHARE ........................................................................................................................................	7
4.5. CASHFLOW AND NET DEBT.................................................................................................................................	7
5.	RISK FACTORS ........................................................................................................................................................	7
6. CONSOLIDATED INTERIM FINANCIAL STATEMENTS................................................................................................	8
6.1. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ..............................................................................	8
6.2. CONSOLIDATED STATEMENT OF FINANCIAL POSITION.......................................................................................	9
6.3. CONSOLIDATED STATEMENT OF CASH FLOWS .................................................................................................	10
6.4. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY......................................................................................	11
6.5. SELECTED EXPLANATORY NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS .....	12
6.5.1.	SIGNIFICANT ACCOUNTING POLICIES............................................................................................................	12
6.5.2.	SEGMENT REPORTING ..................................................................................................................................	13
6.5.3. INTEGRATION AND RESTRUCTURING EXPENSES...........................................................................................	14
6.5.4.	GOODWILL ...................................................................................................................................................	14
6.5.5.	NET DEBT RECONCILIATION ..........................................................................................................................	14
6.5.6.	RELATED PARTY TRANSACTIONS ..................................................................................................................	15
6.5.7.	COMMITMENTS............................................................................................................................................	15
6.5.8. EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE...................................................................	15
6.5.9.	GOING CONCERN..........................................................................................................................................	15
7.	GLOSSARY: ALTERNATIVE PERFORMANCE MEASURES .........................................................................................	16

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1. Key Figures

(€ thousands)	H1 2021	H1 2020
Results
Revenue	318,306	266,382
Adjusted EBITDA	44,168	18,209
Adjusted EBITDA Margin	13.9%	6.8%
Integration and restructuring expenses	(10,955)	(2,618)
EBITDA	33,213	15,591
Depreciation / amortisation	(19,234)	(19,877)
Operating profit / (loss) for the period	13,979	(4,286)
Net finance expenses	(15,709)	(13,720)
Income tax benefit / (expense)	(1,599)	1,138
Profit/(loss) for the period	(3,329)	(16,869)
Cash flow
Cash at beginning of period	106,289	19,241
Net cash generated / (used) by operating activities	17,391	20,140
Net cash used by investing activities	(12,936)	(11,806)
Net cash generated / (used) by financing activities	(23,276)	59,929
Cash at end of period	87,469	87,504

Financial position

In relation to Balta's financing agreements, the documentation provides for the effect of changes in accounting standards to be neutralized. As such, the application of IFRS 16 had no consequence for the Group's financing.

(€ thousands)	H1 2021	H1 2020
Net debt1	260,274	277,233
Leverage	3.0	5.9

Note 1: IFRS 16 effect is excluded from the leverage comparison (see glossary)

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2. Management discussion and analysis of the results 2.1. Group Financial Highlights

• H1 consolidated Revenue of €318.3m (+19.5% YoY)

1. Organic revenue improved by 21.7%, while FX reduced by 2.2%

• 1. Revenue growth by division: Rugs +48.0%, Residential +27.0%, Commercial -7.4%
• H1 Adjusted EBITDA improved significantly to €44.2m (+142.2% YoY) and Adjusted EBITDA margin of 13.9% (6.9% in H1 2020)
• 1. Rugs +€20.1m YoY

• 1. Residential +€4.9m YoY o Commercial +€1.1m YoY
• While the magnitude of the improvement versus H1 2020 is influenced by the extraordinary impact of COVID-19 on Q2 2020, H1 2021 Adjusted EBITDA is also 18.6% stronger than in H1 2019.
• Net Debt increased slightly by 0.7% to €294.9m at H1 2021 compared to Q1 2021. Driven by the strong Adjusted EBITDA results, Leverage at Q2 2021 decreased to 3.0x (from 4.0x at Q1 2021).
• Total available liquidity amounted to €98.3m at Q2 2021, comprising cash of €87.5m and €10.8m headroom under revolving credit facilities.

1. Business Update

• As of H1 2021, we have recorded four consecutive quarters of significant YoY revenue and margin recovery and growth since COVID-19 impacted our business.
• The improvements in H1 2021 versus prior year are based on stronger volumes, better prices and product mix, the lower cost of raw material purchased in H2 2020, as well as our NEXT initiatives. They were achieved despite adverse exchange rates and a normalisation of fixed expenses as temporary economical unemployment and other cost reduction measures expired.
• The recovery has been pronounced in and driven by our consumer-oriented Rugs and Residential divisions. Our Commercial and Non-Woven divisions are still due to normalize to pre-COVID-19 levels although, in the meantime, we have advanced their strategic positioning. For example, Modulyss has been awarded "Cradle to Cradle" Certified™ Gold and Silver certificates for an additional 51 sustainable products, bringing the total to 178.
• Our NEXT program continued to deliver strong results in H1 2021, contributing a material part of our margin improvement. Operational NEXT savings added another €4m of Adjusted EBITDA in H1 2021 versus 2020. Top-line NEXT initiatives realized €32m of incremental revenue in H1 2021 versus 2020. Overall, NEXT results are ahead of target.

1. Cyrille Ragoucy, CEO and Chairman of the Board of Balta
   said,

"Trading in the second quarter of 2021 added to the strong cycle over the last 12 months. Balta achieved healthy margin growth in the first half of 2021, supported by strong volume recovery, especially in the Rugs and Residential divisions. Commercial's revenues remained stable, but below pre-COVID-19 levels, as corporates are still investing cautiously and are yet to recover.

Our H1 2021 Adjusted EBITDA ended well above H1 2020 (and was also up against H1 2019), reflecting the strong volume performance. In addition, we benefited from the lower cost of raw materials purchased in H2 2020 as well as from our NEXT program, notwithstanding the impact of negative currency translation and certain remaining COVID-19 restrictions.

The recovery from COVID-19 doesn't come without challenges. Next to focussing on volume recovery, Balta has implemented price increases across all divisions in response to the sharp raw material and transportation cost increases during H1 2021. These price increases have already started to benefit Q2 2021 results, while - for accounting reasons - the cost increases will mainly impact H2 2021. We remain vigilant to ensure we continue to respond appropriately to the global macroeconomic uncertainties."

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3. Operating review per segment

3.1. Revenue and Adjusted EBITDA per segment

3.1.1. Q2 2021

	Q2	Q2		o/w organic	o/w
(€ million, unless otherwise mentioned)	2021	2020	% Change	growth	FX
Rugs	64.9	35.2	84.5%
Commercial	47.3	43.6	8.4%
Residential	49.3	25.8	91.2%
Non-Woven	4.2	2.1	105.0%
Consolidated Revenue	165.7	106.7	55.4%	58.2%	(2.9)%
Rugs	9.9	(3.2)	(407.4)%
Commercial	8.6	5.8	49.9%
Residential	4.2	(1.0)	(511.7)%
Non-Woven	0.3	(0.3)	(190.0)%
Consolidated Adjusted EBITDA	23.0	1.2	1866.0%	1925.7%	(59.7)%
Rugs	15.3%	(9.2)%
Commercial	18.2%	13.2%
Residential	8.5%	(3.9)%
Non-Woven	7.1%	(16.3)%
Consolidated Adjusted EBITDA Margin	13.9%	1.1%

Note: the segment table has been copied from the press release issued by Balta Group NV, where EBITDA is slightly higher than at LSF9 Balta Issuer level due to a markup on management services provided at level of Balta Group NV and then charged to LSF9 Balta Issuer and subsidiaries.

3.1.2.H1 2021

	H1	H1		o/w organic	o/w
(€ million, unless otherwise mentioned)	2021	2020	% Change	growth	FX
Rugs	124.8	84.3	48.0%
Commercial	93.1	100.5	(7.4)%
Residential	92.4	72.8	27.0%
Non-Woven	8.0	8.8	(8.7)%
Consolidated Revenue	318.3	266.4	19.5%	21.7%	(2.2)%
Rugs	21.1	1.0	1912.6%
Commercial	15.1	13.9	8.2%
Residential	8.0	3.1	158.1%
Non-Woven	0.1	0.2	(64.2)%
Consolidated Adjusted EBITDA	44.2	18.3	142.2%	148.4%	(6.2)%
Rugs	16.9%	1.2%
Commercial	16.2%	13.9%
Residential	8.6%	4.2%
Non-Woven	0.9%	2.3%
Consolidated Adjusted EBITDA Margin	13.9%	6.9%

Note: the segment table has been copied from the press release issued by Balta Group NV, where EBITDA is €0.04m higher than at LSF9 Balta Issuer level due to a markup on management services provided at level of Balta Group NV and then charged to LSF9 Balta Issuer and subsidiaries.

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