Eucatex S A Indústria e Comercio : 4Q21 Earnings Release

4Q21 Earnings Release

Eucatex (B3: EUCA3 and EUCA4), one of the largest manufacturers of panels in Brazil, with operations also in the paint, varnish, laminated flooring, partitions and doors segments, announces today its results for the 4th quarter of 2021 (4Q21). The consolidated financial statements are presented in accordance with the International Financial Reporting Standards (IFRS). Except where stated otherwise, the amounts are in millions of Brazilian real (R$ million) and comparisons are with the same period the previous year.

Highlights

IR Contacts

José Antonio Goulart de Carvalho Executive Vice President and Investor

Relations Officer

Waneska Bandeira Investor Relations

[phone]/ri

Public Meeting

(Portuguese only)

March 31, 2022 11 a.m. (Brasília)

www.eucatex.com.br/ri

English transcript will be available after the event

4Q21

•Net revenue of R$709.6 million (+34.4%)

•Recurring EBITDA of R$147.0 million (+32.9%), with margin of 20.7%

•Recurring net income of R$156.0 million (+276.0%)

2021

•Net revenue of R$2,449.4 million (+36.3%)

•Recurring EBITDA of R$558.9 million (+55.5%), with margin of 22.8%

•Recurring net income of R$379.2 million (+300.2%)

Amounts in R$ million	4Q21	4Q20	Var. (%)	2021	2020	Var. (%)
Net Revenue	709.6	527.9	34.4%	2,449.4	1,797.6	36.3%
Gross Profit	247.5	161.0	53.7%	870.6	567.8	53.4%
Gross Margin (%)	34.9%	30.5%	4,4 p.p.	35.5%	31.6%	3,9 p.p.
EBITDA adjusted by non-cash events	105.1	42.9	144.9%	599.3	306.1	95.8%
EBITDA Margin (%)	14.8%	8.1%	6,7 p.p.	24.5%	17.0%	7,5 p.p.
Net Income (Loss)	128.4	38.1	236.9%	427.9	144.2	196.9%
Recurring Net Income (Loss)	156.0	41.5	276.0%	379.2	94.8	300.2%
Net Debt	380.8	414.7	-8.2%	380.8	414.7	-8.2%
Net Debt / EBITDA (LTM)	0.7	1.2	-41.5%	0.7	1.2	-41.8%
Recurring Adjusted EBITDA	147.0	110.6	32.9%	558.9	359.4	55.5%
Recurring Adjusted EBITDA Margin (%)	20.7%	20.9%	-0,2 p.p.	22.8%	20.0%	2,8 p.p.
Management Comments

The opening months of 2021 witnessed strong economic recovery, which benefited the Company's operating segments, which, however, lost momentum as the year progressed. In 4Q21, the harmful effects of high inflation were evident, which eroded the purchasing power of workers, resulting in interest rate hikes and the consequent decline in consumer confidence indices.

The disarray across supply chains caused by the pandemic, among other factors, curtailed supply and drove up the prices of diverse inputs used by the Company. At the same time, as mentioned earlier, several of the company's operating segments lost momentum, making it difficult for the company to pass on these cost increases to prices.

The relaxation of restrictive measures has helped diverse sectors that faced some kind of restriction in the last two years, especially benefiting the services sector. This recuperation of the services sector has in a way competed with the resources earlier allocated during the "home office" period, to investments in home improvement, thus reducing the demand for our products.

Demand for panels in the domestic and foreign markets slowed down and declined in relation to 4Q20 due to the normalization of inventories and the reduction of exports, mainly due to logistical difficulties and the cost of sea freight. Products intended for construction registered a decline in relation to 4Q20, though these indices increased in the year compared to 2020.

The ABRAMAT (Brazilian Construction Materials Industry Association) index, which measures the performance of construction materials industries, ended 2021 climbing 8.0%. Despite this important growth, the slowdown in 4Q21 is clear and the forecast for 2022 is growth of 3%.

Indicators for the panels market, which includes MDF/HDF/MDP/Fiberboard sales, according to IBÁ (Brazilian Tree Industry) and the Company's figures, showed that the domestic and external markets grew 15.1% and 1.4%, respectively, in 2021. However, the quarterly scenario was different, with decline of 2.0% in the domestic market and 9.3% in the export market compared to 4Q20.

Operating Performance and Results

Sales volume in the Company's Wood segment, considering both domestic and export markets, increased 6.3% in 4Q21 compared to the same period last year. The quarterly performance was impacted by the positive result in domestic sales (+10.9%) despite the decline in exports (-9.4%).

In 4Q21, there was a considerable delay in shipments to export markets, resulting in an increase in the Company's inventories. There is a shortage of containers and freight has increased considerably, especially to the United States, the Company's largest market. Among the measures taken by the Company to address this problem was once again shipping the goods as "loose cargo", a practice not used for many years, and chartering a ship to cut down the delays in shipments during 4Q21. For 2022, an agreement has already been signed to regularize the situation of container shipments, which is important for the Company's distribution logistics in the United States. According to experts, this scenario will improve only from 4Q22.

The Company's Paint sales in 4Q21 dropped 17.9% when compared to 3Q20, while the Paints Market declined 14.5% in the period.

Costs remained under heavy pressure in 4Q21, which, due to the unprecedented decision by market leaders to not transfer costs to prices, posed a formidable challenge to other players in the sector.

While the market has yet to normalize, the Company has been working on new formulations, developing new alternatives with its suppliers and prospecting new raw materials in order to recover its margins.

In 2021, Paint sales fell 8.9% in relation to 2020. According to the Brazilian Paint Manufacturers Association (ABRAFATI), the market grew 5.8% in 2021 compared to the previous year.

Operating Performance basis 100 - 2005

Physical Sales

4Q21

4Q20

Var. (%)

2021

• 2020 Var. (%)

• Wood Panels (DM)

  Wood Panels (EM)

  Paints

  153 338 326

  138 373 398

  10.9% -9.4% -17.9%

  149 279 386

• 139 6.9%

• 248 12.4%

• 424 -8.9%DM - Domestic Market / EM - Export Market

Net Revenue

Net Revenue Breakdown (R$ million)

4Q21

4Q20

Var. (%)

2021

2020 Var. (%)

Wood Segment

• 527.4 412.9 27.7%

  1,939.5

  • 1,367.4 41.8%

    Paint Segment Other

• 122.2 115.6 5.7%

  441.5

  • 403.5 9.4%

• 60.1 (0.5) 11376.5%

  Net Revenue

• 709.6 527.9 34.4%

68.5 2,449.4

• 26.7 156.8% 1,797.6 36.3%

(*) Metal profiles, land and energy sales

Total net revenue in 4Q21 came to R$709.6 million, compared to R$527.9 million in 4Q20, up 34.4%. In 2020, total net revenue was R$2,449.4 million, as against R$1,797.6 million in 2020, growing 36.3%.

In the Wood Segment, revenue grew 27.7% from 4Q20, mainly reflecting the increase in sales prices in both the domestic and export markets. Net Revenue in 2021 was 41.8% higher than in previous year, reflecting the variation in sales prices and the increase in volume since, in 2Q20, the Company had scaled down production at its plants.

In 4Q21, the Paint segment increased its share of Net Revenue by 5.7% in relation to the same period the previous year, as a result of the increase in sales prices, which offset, albeit partially, the increase in costs. In 2021, revenue from paints grew 9.4% in relation to 2020.

Recurring Cost of Goods Sold (COGS)

COGS increased 32.0% in 4Q21 compared to 4Q20. In the 12-month comparison between December 2020 and December 2021, the prices of a few commodities used to produce important inputs varied significantly: Urea 100%, Melamine - 96%, Paraffin - 46%, Butyl Acrylate - 241% and Petroleum - 49% among others. These increases, combined with the weaker Brazilian real, significantly affected the cost of goods sold.

We foresee a still highly unstable and unpredictable scenario that should also be affected significantly by the war in Ukraine, especially regarding fertilizers.

Fair Value of Biological Assets

In 4Q21, the fair value of biological assets was R$29.3 million, affected by the expansion of planted areas in the quarter and by the changes in the assumptions used, such as costs, prices and fees.

The price studies used by the Company to calculate the fair value of biological assets indicate that wood prices in the state of São Paulo continue to rise.

Recurring Gross Profit and Gross Margin

Gross profit amounted to R$247.5 million in 4Q21, as against R$161.0 million in 4Q20, up 53.7%, due to the increase in the fair value of biological assets, chiefly caused by the increase in wood prices. The variation in the Cost of Goods Sold shows the hike in the prices of raw materials, especially those related to commodities. Gross profit in 2021 was R$870.6 million, an increase of 53.4% from R$567.8 million in 2020.

Recurring Operating Expenses

Breakdown of Expenses (R$ million)	4Q21	4Q20	Var. (%)	2021
General and Administrative	(20.9)	(18.6)	12.4%	(78.2)	(66.8)	17.0%
Selling	(80.7)	(74.5)	8.3%	(292.9)	(254.9)	14.9%
Total Operating Expenses	(101.6)	(93.1)	9.1%	(371.1)	(321.7)	15.3%
% Net Revenue	14.3%	17.6%	-3,3 p.p.	15.1%	17.9%	-2,8 p.p.
Other Operating Income and Expenses	3.9	0.4	798.3%	9.8	1.7	476.7%

2020 Var. (%)

In 4Q21, operating expenses corresponded to 14.3% of Net Revenue, declining 3.3 p.p. In nominal terms, operating expenses increased 9.1% in 4Q21 compared to 4Q20, due to the lower increase in expenses in relation to Net Revenue, especially considering that the positive performance in 4Q21 is largely influenced by price increase. In 2021, operating expenses corresponded to 15.1% of Net

Revenue, down 2.8 p.p. from 2020.