Masterplast : Half-yearly Report

MASTERPLAST PLC. HALF-YEARLY REPORT 2023

27 July 2023

MASTERPLAST PLC.

HALF-YEARLY REPORT

Consolidated, non-audited

According to International Financial and Reporting Standards (IFRS)

27 July 2023

MASTERPLAST NYILVÁNOSAN MŰKÖDŐ RÉSZVÉNYTÁRSASÁG

The main activity areas of Masterplast (later: "Group", "Masterplast", "Company"), founded in 1997, are production and sales of building insulation materials and systems in construction industry, complemented by the production and sale of healthcare textile and hygiene products. The international Group, which headquarter is based in Hungary, has its own active subsidiary companies in 10 European countries, where 8 different production plant units are operated. The Group represents itself with its construction industry products on thermal insulation system, heat, sound and water insulation, roofing and on dry construction market, furthermore the Company participates with hygiene products on healthcare market. The international and domestic manufacturing bases ensure competitiveness to deliver the products of the Group to the European markets and markets outside Europe, via its subsidiaries and partners. The aspects of sustainability, energy efficiency and environment protection are considered by Masterplast as high importance in the internal processes, as in production and innovation.

1. SUMMARY

The decline in the construction market intensified in the second quarter, as a result of the lower demand the Company's revenue decreased by 34% compared to the base period. During this quarter, the Company sold most of its stocks manufactured from raw materials previously purchased at a higher price, which continued to negatively impact profitability in a highly competitive environment with shrinking margins. Adapting to the changed market conditions, the Company focused on reducing operating costs, optimizing production capacities and inventory levels, with the focus on efficient energy cost management. The Company made more efficient and restructured the operation of the management, revised the processes and the number of employees in both production and operation. As a result of these actions, the Company's EBITDA loss was significantly smaller in the second quarter compared to previous quarter (EUR -463 thousand, -1,2% EBITDA margin, cumulative EUR -2 493 thousand, -3,3% EBITDA margin). Unfavorable exchange rate effects for the Group resulted lower profitability, so the Company closed the second quarter with a loss after tax of EUR 3 475 thousand, and the loss after tax for the first six months of the year was EUR 9 311 thousand. Due to the delay in building energy renovation programs, a wait-and-see attitude is common in the market, and low demand is expected at least until the start of these programs. However, the implemented efficiency measures, strict cost management and the run-out of raw materials purchased at high prices are already predicting positive EBITDA results.

With the measures on the table to meet the EU energy policy objectives (REPowerEU plan; "Fit for 55%" package of measures), the Company's medium-term business outlook in the insulation market remains positive. According to the Company's updated medium-term profit forecast, Masterplast could return to its original growth path from 2024, and annual profit after tax could exceed EUR 30 million by 2026. Relying on these factors, the Company - with intention to maintain its current production capacities - continues to implement the intensive investment strategy that lays the foundation for the growth path, including the elements of stone and glass wool production projects launched together with strategic partners.

Data in 1000 EUR	Q2 2023		Q2 2022		H1 2023		H1 2022
Sales revenues		37 812		57 597		75 414	109 107
EBITDA		-463		8 400		-2 493	13 634
EBITDA ratio		-1,2%		14,6%		-3,3%	12,5%
Profit/loss after taxation		-3 475		8 258		-9 311	11 477
Net income ratio		-9,2%		14,3%		-12,3%	10,5%

Source: consolidated non-audited report of the Group on 30th of June 2023 and non-audited report on 30th of June 2022 based on IFRS accounting rules, as well as the non-audited data from the Group's management information system

• Due to high inflation and the unfavorable interest rate environment recession of construction industry is typical on the markets where Company operates. The European market for new constructions is declining spectacularly, and there is also a significant decline in the renovation segment, the wait-and-see attitude is common on the market driven by the expiration of subsidized building renovation programs and the delay in the start of new programs. The supply chain difficulties typical of previous periods no longer exist, the supply of goods is not

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MASTERPLAST NYILVÁNOSAN MŰKÖDŐ RÉSZVÉNYTÁRSASÁG

interrupted. As a result of sharp competition developed in the construction industry, prices have fallen significantly.

• In response to the changed circumstances, the Company's management developed an action plan for three areas. The decision-making and operational structure of the management was transformed, effective headcount optimization will reduce the Group's workforce by around 200 people and as part of further cost reduction plans, the defined goal is to achieve annual savings of EUR 2 million.
• The Group's sales revenue was EUR 37 812 thousand in Q2 2023, 34% lower than the base period.
• The revenue of the thermal insulation systems product group - representing the largest share (56%) and which mainly includes self-manufactured products - decreased by 32%. Sales also decreased in the Company's other product groups: roofing foils and accessories decreased by 7%, dry construction system product group by 43%, heat, sound and water insulation materials by 41%, building industry accessories by 18% and industrial applications product group by 60% compared to last year's second quarter base.
• The Company's turnover increased in Croatia (14%) and in Ukraine, which had a low base due to the start of the war (65%). In the most important Hungarian market, sales were 47% below the base level, and turnover decreased as well in Exports (-17%), Polish (-14%), Romanian (-24%), German (-21%), Italian ( -54%), Serbian (-37%), Slovak (-44%) and North Macedonian (-24%) markets as well.
• As a result of the lower revenue and raw materials purchased at a higher price, the gross margin was significantly below the base period value.
• In line with demand trends, production outputs at Serbia's EPS fiberglass mesh production plants decreased compared to a year earlier. Due to the lower capacity utilization, in the first half of this year the Company reduced the number of employees by approximately 105 people in its production facilities in Serbia. The output of the fleece production unit in Aschersleben also decreased compared to last year's base, where production has been suspended for shorter period due to reduced demand. At this plant, the German state provides partial wage compensation to the Company (Kurzarbeit) in order to compensate for lost incomes. At the same time, the output of diffusion roofing foil production in Sárszentmihaly increased, but it still generated loss. Due to low demand, only a small series of production took place in of healthcare finished products in the central site. In the Group's plant in Kál, the implementation of the equipment of the new EPS production line has been completed, but due to the drop in market demand, production in this plant is currently set to a single-shift work schedule. The XPS investment in Subotica has also been completed, where trial production started already in May.
• In June, the Company entered into a strategic partnership with the Polish Selena Group, according to which the companies plan to continue building the glass wool factory in Szerencs, which is already in advanced stages of preparation, together with a 50%-50% stake. The realization of the stone wool factory planned in Halmajugra together with the professional co-investor, Market Építő Zrt., is also underway. To carry out the joint partnership, on June 9, 2023, the Company acquired a 50% share in MIP Zrt., whose shareholder with an additional 50% ownership share is MARKET Építő Zrt. The start-up of factories producing prioritized mineral wool is expected in the first half of 2025.
• The cost of materials and services - including the change in the self-manufactured inventories as well - were 25% below the base level in the first quarter.
• Despite the wage increases, the Company's personnel expenses decreased by around 10% in the second quarter of 2023 compared to the base period. At the end of June 2023, the Group employed 1 316 people, compared to its 1 551 employees at the end of the base period. In both production and other operational areas, the Company reviewed its processes and started employee optimization, the impacts of which are expected to be visible in the second quarter.
• In terms of other operating results, the Company recorded a profit of EUR 384 thousand compared to the profit of EUR 1 005 thousand in the last year.
• The Group's EBITDA in Q2 2023 was a loss of EUR 463 thousand (-1,2% EBITDA ratio) compared to EUR 8 400 thousand (14,6% EBITDA ratio) in the base period. Considering the first six months of the year, the Group's EBITDA was a loss of EUR 2,493 thousand (-3.3% EBITDA) compared to a profit of EUR 13 634 thousand (12.5% EBITDA share) in the base period.

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MASTERPLAST NYILVÁNOSAN MŰKÖDŐ RÉSZVÉNYTÁRSASÁG

• Taking depreciation into account, the result of earnings before interest and taxes (EBIT) was a loss of EUR 2 115 thousand, compared to the base profit of EUR 7 047 thousand. The EBIT in the first half of the year was a cumulative loss of EUR 5 531 thousand, compared to the profit of EUR 10 954 thousand in the first half of last year.
• The Company's interest expenses increased moderately, and as a result of unfavorable exchange rate effects for the Group - strengthening HUF foreign exchange rate - the unrealized exchange rate loss resulting from the revaluation of foreign currency-based receivables and liabilities was also accounted for in the second quarter of 2023. The Company has mostly HUF-based bonds with favorable fixed interest rates (~2,15%) and euro-based loans with variable interest rates (~2,85%), so the deteriorating interest rate environment has a moderate impact.
• As a result of all these effects, the Company's net profit in Q2 2023 was a loss of EUR 3 475 thousand, compared to a profit of EUR 8 258 thousand a year earlier. At the first six months of the year, the Group's profit after tax was a loss of EUR 9 311 thousand compared to a profit of EUR 11 477 thousand in the base period.
• Due to the ongoing new CAPEX projects, the value of fixed assets at the end of June 2023 was EUR 137 184 thousand, EUR 39 301 thousand higher than at the end of the base period.
• The value of inventory was EUR 46 992 thousand at the end of June 2023, which - due to the initial effect of the actions introduced to optimize the inventory level - is 22% lower than the closing value of December 31, 2022, besides compared to the high base at the end of the second quarter, it decreased by EUR 23 637 thousand, by 33%. The inventory reduction program will continue in the following quarters.
• The Company's accounts receivable closed at the end of June 2023 at a lower level of 38%, i.e. EUR 11 605 thousand (EUR 19 266 thousand) compared to base period, in line with declined 34% revenue.
• The Group's cash balance was EUR 13 785 thousand at the end of June 2023, which is EUR 1 140 thousand lower than the balance at the end of the base period.
• As a result of the capital increase in October 2022, the value of the Company's equity on 30 June 2023 was EUR 70 824 thousand, which is EUR 14 381 thousand higher than the value of a year earlier.

2. Business Prospects

Due to the unfavourable interest rate and inflation environment and to the wait-and-see attitude, the downturn is larger than expected both in the housing market and in the renovation segment, not only in Hungary but also internationally. The European Council and Parliament have agreed on a significant reduction of the energy efficiency targets for 2030, which all Member States will have to meet by renewing their buildings at a certain pace (REPowerEU plan; "Fit for 55%" package of measures). This will entail changes in the regulations and the launch of renovation programmes in the Member States, which will lead to a significant increase in demand for insulation in the medium term, but in the short term, due to the wait-and-see attitude of the market, no significant recovery in demand is expected.

In response to the subdued market conditions, the Company's focus has shifted to optimising operations, production and inventory levels, as well as conscious energy management. The Company has restructured its management operations more efficient, reviewed its processes and and launched significant headcount optimization and cost reduction program both in the field of production and operations. The measures taken have already resulted in improvement in EBITDA levels in the second quarter. Continued cost management in line with the level of sales and the run-out of raw materials previously purchased at higher prices are already projecting positive EBITDA production from the second half of the year.

Based on the medium-term business prospects strengthened in the thermal insulation industrial market, the Company strives to maintain its current production capacities, strengthen its market positions, and continues to implement its investment strategy to support its growth path.

In recent years, the Group has made significant investments in production development. The Group has significantly increased its capacity in the production of fiberglass mesh and diffusion roofing foils, which enables it to serve the

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