FY 2022: Financial results

Press Release | FY 2022 Financial Results

Regulated Information

Wednesday March 1, 2023 at 7:00h CET

Third consecutive year of record EBITDA

Sales +16.2% Adj.EBITDA +4.6%

Sales € 974.1m (€ 838.1m LY)

Adj. EBITDA € 102.3m (€ 97.7m LY)

Net Result € 7.6mNet Debt € 88.3m (€ 37.2m LY) (€ 61.9m LY)

Executive Summary

• - Sales in 2022 rose by 16.2% to reach a new record of € 974.1m, mainly driven by price increases to compensate the effect of inflationary pressure on raw materials, energy, salaries and transportation.

• - Lower volumes in all regions are in line with the slowdown of the residential construction and renovation activity due to the challenging market environment caused by high inflation, increasing interest rates and lower consumer confidence. Market share remained stable.

• - The Adj. EBITDA (€ 102.3m, +4.6% vs 2021) reached a new record for the third consecutive year and rose above € 100m for the first time in the company's history, driven by price increases to mitigate the effect of cost inflation.

• - Net profit decreased from € 37.2m in 2021 to € 7.6m in 2022. The main reasons for this decrease are the impact of the implementation of IAS 29 Hyperinflation Accounting (€ 20.4m), the full impairment of Deceuninck's property, plant and equipment in Russia (€ 7.9m) and higher income taxes (€ 8.7m in 2022 vs € 2.5m in 2021). These drivers are all non-cash.

• - The decrease in EPS (€ 0.04 vs € 0.25 in 2021) is largely due to the impact of IAS 29 Hyperinflation Accounting and is more than compensated by an increase in the book value per share (€ 2.22 vs € 1.83 in 2021).

• - The Board of Directors will propose to the General Assembly on 25 April 2023 to pay out a dividend over 2022 of € 0.07 per share, representing an increase of 16.7% over the dividend of €0.06 paid over fiscal year 2021.

Quote of the CEO, Bruno Humblet

"The world has seen highly turbulent times in recent years, and it is fair to say that 2022 continued on this trend. War in Ukraine, soaring energy prices and unseen levels of inflation combined with the aftermath of the covid-19 pandemic caused global supply chain issues and challenging labor markets. By consequence 2022 was again a very challenging business environment to operate in.

Under these circumstances, Deceuninck was able to reach record results, for the third consecutive year. Our turnover grew to € 974.1m, up by 16.2% as compared to 2021. On top of that, for the first time in 85 years of Deceuninck, we are announcing a 3-digit adjusted EBITDA. This makes us immensely proud."

Implementation of IAS 29: Financial Reporting in Hyperinflationary Economies

• - As cumulative inflation in Turkey over the last three years has exceeded 100%, IAS 29 ('Financial Reporting in Hyperinflationary Economies') has been applied to the consolidation of the Turkish subsidiaries.

• - This has resulted in a positive impact on Sales (€ +22.3m) as inflation (+64%) throughout the year has been higher than devaluation (-32%).

• - The impact on Gross Profit (€ -1.0m) and Adj. EBITDA (€ +1.5m) was small because the impacts of IAS 29 on income and costs largely offset each other. The limited negative impact on EBIT (€ -3.2m) was mainly due to higher depreciations following the higher value of property, plant and equipment in Turkey recognized at initial application of IAS 29.

• - As a result of the requirement by IAS 29 to reflect the reduced purchasing power of the net monetary assets as a separate item in the income statement, an amount of € (17)m was booked in financial result as monetary loss. However, as the balance sheet as of 31/12/2022 already reflects the current purchasing power correctly, this impact was reversed in Other Comprehensive Income (part of Equity).

• - The impact from IAS 29 on Equity has been € 43.9m positive, stemming from the (one-off) initial revaluation of mainly fixed assets in Turkey to today's real asset value and the (recurring) effect of applying the general price index on mainly fixed assets throughout the year.

• - Considering the above, the implementation of IAS 29 has resulted in a negative accounting impact on Deceuninck's net result of € 20.4m, which has been more than offset by a positive adjustment for IAS 29 of € 43.9m in equity. On a per share basis, IAS 29 has had a negative impact on EPS (€ 0.04 vs € 0.17), but a positive impact on the book value per share (€ 2.22 vs € 1.94).

• - The implementation of IAS 29 has no cash impact.

Summary of consolidated Income Statement

Summary of consolidated Balance Sheet

Sales evolution by region

(in € milion)	FY 2021	Volum e FXPrice / Mix	FY 2022	% y-o-y
Europe	411,4	-9,4% 1,3% 19,5%	458,3	11,4%
North America	183,2	-9,3% 13,4% 18,2%	224,1	22,3%
Turkey & EM	243,5	-5,8% -92,9% 118,5%	291,8	19,8%
Total	838,1	-8,2% -23,4% 47,9%	974,1	16,2%

Management comments

Business development

The overall business environment in Europe has been severely impacted by the invasion of Ukraine. This has not only triggered extremely high energy prices, but it has also caused falling consumer confidence. In combination with high costs for building materials and higher interest rates, this has caused many end customers to postpone new build or renovation projects, resulting in lower volumes in the region. An exception has been Italy, where subsidy initiatives by the government to accelerate the renovation of the housing stock has led to a double-digit volume increase.

In North America, higher mortgage rates have led to lower volumes, especially for new build. Renovation has held up relatively well, although we have seen a slowdown of the activity there as well. Although the US labour market is still very tight, turnover of blue-collar workers at our plants has been much lower than in 2021, which had a positive effect on profitability.

Despite sky high inflation, volumes in Turkey have upheld well. People continued to invest in real estate in order to protect themselves against inflation. In addition, the Turkish government has supported the economy by increasing the minimum wages and the salaries of civil servants, by pledging energy subsidies and by increasing its own spending on infrastructure projects.

Income Statement

Consolidated sales in 2022 increased to a new record level of € 974.1m, up 16.2% from € 838.1m in 2021, with price increases to compensate for higher raw material prices and for cost inflation as the main driver.

The Adj. EBITDA increased to a new record as well. For the first time in the history of the company, an Adj. EBITDA of more than one hundred million euro, more specifically € 102.3m (vs € 97.7m in 2021), was achieved.

The Adj. EBITDA-margin in 2022 was 10.5%, which is 1.2 percentage point lower than in 2021 (11.7%). Price increases have offset higher production costs including raw material costs, labour and energy. Higher fixed costs due to inflation and higher provisions for doubtful debtors however impacted overall profitability. In Europe, the Adj. EBITDA-margin was additionally impacted by efficiency losses and higher logistics costs, mainly caused by costs for the transition to the new platform. In North America however, the Adj. EBITDA-margin recovered, despite very low volumes, reflecting manufacturing efficiency improvements helped by a lower turnover of blue-collar workers.

Adj. EBITDA-items (difference between EBITDA and Adj. EBITDA) amount to € 4.9m (vs € 4.9m in 2021) and include mainly costs related to the transition to Elegant.

The financial result decreased from € (14.6)m in 2021 to € (30.9)m in 2022 which is fully explained by the implementation of IAS 29.

Depreciations and amortizations increased from € 38.6m in 2021 to € 50.1m in 2022, primarily as a result of higher depreciations following the implementation of IAS 29 and the impairment of property, plant and equipment in Russia (€ 7.9m).

Despite lower Earnings before taxes, Income taxes have risen from € (2.5)m in 2021 to € (8.7)m in 2022. The lower Earnings before taxes reflect the impairment of fixed assets in Russia and the impact of IAS29, both of which are not tax deductible. In addition, taxes in 2021 were helped by the additional recognition of deferred tax assets.

As a result of the above, net profit decreased from € 37.2m in 2021 to € 7.6m in 2022 and Earnings per Share attributable to ordinary shareholders decreased from € 0.25 to € 0.04.

Cash Flow and Balance sheet

Capex in 2022 amounted to € 48.4m (vs € 43.6m in 2021) and includes on top of € 20-25m recurring capex for maintenance and replacement of extrusion tools also € 20-25m expenditures to support our growth and strategy.

The Net Financial Debt increased from € 61.9m on 31 December 2021 to € 88.3m on 31 December 2022, causing leverage to increase slightly from 0.6x to 0.9x.

Working capital increased from € 84.3m to € 115.6m in line with sales growth.

Equity has increased from € 258.9m to € 319.6m propelled by the net result (€ 7.6m) and the impact of IAS 29 (€ 43.9m).

Outlook

We confirm our ambition to deliver another growth year in Sales and EBITDA while further improving Free Cash Flow generation.

In Europe, margin recovery is expected versus H2 2022 thanks to higher operating efficiency. Mid-term, we expect the market to rebound driven by the structural shortage of qualitative housing and by renovation supported by the EU Green Deal. Further investments planned to double the recycling capacity and increase the use of recycled material in our products.

In North-America the market is expected to improve as from H2 2023. The structural shortage of qualitative housing provides a strong growth perspective.

In Turkey, market momentum remains strong with more uncertainty expected after the elections. The devastating earthquake had no direct impact on our people or infrastructure. Measures have been taken by our local teams to support the victims in the region.

Emerging Markets will continue to move more towards higher quality windows and doors.

Annex 1: Consolidated Income Statement

(in € milion)

Sale s

Cost of goods sold Gross profit

Marketing, sales and distribution expenses Research and development expenses Administrative and general expenses Other net operating result

Share of the result of a joint venture Operating profit (EBIT)

Costs related to the derecognition of accounts receivable Interest income (expense)

Foreign exchange gains (losses) Other financial income (expense) Monetary gains (losses)

Profit / (loss) before taxes (EBT)

Income taxes

Net profit / (loss) Adj. EBITDA

EARNINGS PER SHARE DISTRIBUTABLE TO THE SHAREHOLDERS OF THE PARENT COMPANY (in €):

Basic earnings per share Diluted earnings per share