Ercros S A : obtains EUR 45 million ebitda and EUR 16 million profit

NOTE ON ERCROS FINANCIAL RESULTS

FIRST HALF OF 2023

(26/07/2023)

Ercros obtains EUR 45 million ebitda and EUR 16 million profit

• In the first semester of 2023, Ercros obtained a contribution of EUR 145 million, an ebitda of EUR 45 million and a profit of EUR 16 million.
• These results comply with the forecast issued by Ercros on June 14 and have been achieved despite a European demand for chemical products that continues to show signs of weakness, with very volatile markets, subject to increasing competition and in full downward adjustment of prices and volumes.
• Ercros maintains a solid financial situation, with EUR 130 million of liquidity.
• We forecast a second half of 2023 weaker than the first. The consensus of the specialized publications is that the progress of the European chemical industry in 2023 will be weaker than that observed in 2022, a situation that should be corrected in 2024.
• In any case, Ercros will continue executing the 3D Plan, will maintain its presence in all the markets in which it operates and will take advantage of the opportunities that may present to defend its margins.

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1. KEY EVENTS IN THE FIRST HALF OF 2023

1. Although the tons sold in the second quarter of 2023 increased compared to the previous quarter, the half year cumulative calculation confirms the downward adjustment of volumes that we had already been observing since mid-2022. In the first half of 2023 (1H23) Ercros sold 520 thousand tons of products compared to 588 thousand tons in the same period of 2022 (1H22): a drop of 11.6%.

2. The total amount of product sales in 1H23 amounted to EUR 419.52 million compared to EUR 531.86 million reached in 1H22: a decrease of EUR 112.34 million, equivalent to a fall of 21.1%. In percentage terms, sales fell more than tons, which anticipates a significant negative price effect.

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3. Indeed, of the EUR 112.34 million in which sales decreased, the fall in the average price per ton sold explains EUR 57.53 million (51.2%) and the lower volume of tons sold explains EUR 61.46 million (54.7%). The weakness of demand observed in 1H23 has reduced sales revenue both through a lower average price of the products and through the tons sold, and the extent of both effects has been similar.

4. The contribution generated by the sales of products and the provision of services rose in 1H23 to EUR 144.88 million, compared to EUR 177.90 million reached in 1H22; a decrease of EUR 33.02 million, equivalent to -18.6%. This reduction occurs because the negative effect of the drop in sales (and provision of services) exceeds the positive effect caused by the drop in variable costs.

Contribution: (sales of products + provision of services - provisions - supplies + variation in stocks).

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5. As regard the contribution, the best way to identify the net effect of prices and costs is by contrasting the effect of the average price of the products sold with the unit variable cost (UVC) incurred in the manufacture of these products. In 1H23, the negative price effect of EUR -60.56 million exceeded, in absolute terms, the positive UVC effect of EUR 46.47 million. The net effect of price and UVC amounts to EUR -14.09 million and explains 42.7% of the EUR -33.02 million in which the contribution varies. The remaining 57.3% is explained by the volume effect of EUR -20.56 million (62.3%) and the mix effect of EUR 1.63 million (-4.93%).

6. The contribution margin (contribution divided by the sum of product sales plus the provision of services) increased from 32.6% reached in 1H22 to 33.8% in 1H23. A variation of 1.2 percentage points, due to the reduction in variable costs, which in 1H22 represented 67.4% of sales (plus the provision of services) and in 1H23 represented 66.2%, mainly due to the reduction in energy costs.

Contribution margin: contribution / (product sales + provision of services).

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7. Adjusted ebitda for 1H23 was EUR 45.22 million compared to EUR 80.41 million in 1H22; a reduction of EUR 35.19 million, equivalent to -43.8%. The EUR 35.19 million drop in adjusted ebitda largely reflects the EUR 33.02 million drop in contribution. The EUR 2.17 million additional drop in ebitda reflects, among other things, the higher cost of personnel and other operating expenses.

Adjusted ebitda: ebitda excluding atypical items. See the "Ebitda reconciliation" table in Section B of this results note.

8. Compared to 1H22, the variation in adjusted ebitda for 1H23 of EUR -35.19 million is mainly due to the reduction in the contribution, which in the following graph is represented by the price, UVC, volume and mix effects, with a net effect on ebitda of EUR -33.02 million, which explains 93.8% of the fall in ebitda. The average price has fallen more than the UVC and, in addition, the tons sold have decreased. The rest of EUR -2.17 million, which explains 6.2% of the fall in ebitda, includes the net effect of the variation in other expenses and income.

Other: variation in the provision of services, other income, fixed and atypical costs.