HWA : Half-Year Report 2022

HALF-YEAR REPORT 2022

HWA AG - Half-Year Report 2022

INTERIM MANAGEMENT REPORT

DEAR SHAREHOLDERS,

For HWA AG, as for many other companies, the first half of 2022 was dominated by the fact that a certain degree of normality has returned with regard to COVID-19, but there are now other challenges that must be faced. These particularly include the shortage of raw materials and the disrupted supply chains resulting from the Russia/Ukraine war. In particular, there have been effects in relation to the supply of materials to HWA AG and consequently also on HWA AG's vehicle production and the supply of corresponding components to customer and racing teams.

Since the beginning of the year, all customer sports activities have been taking place almost without restriction. The exception here is China. This has resulted in a further recovery of sales revenues in this area and contributed significantly to a further recovery in earnings in the first six months.

In addition, HWA AG's general cost-cutting programme is continuing at full steam, and its effects are also clearly visible. The savings here relate, for example, to optimizations in the IT infrastructure and software as well as general consulting support.

HWA AG has planned positive EBIT in the low single-digit millions for 2022 as a whole. We are pursuing this goal as a top priority and consider ourselves to be well on track - while of course keeping a necessary sharp eye on developments relating to the supply of materials.

For HWA AG, the first half of 2022 was dominated by activities in relation to M-AMG customer sports. Spare parts and service business for the M-AMG GT racing vehicles developed as expected in the first six months of 2022. The US market was particularly noteworthy here. Vehicle production has repeatedly been temporarily hampered by missing parts. Unfortunately, the start of some planned development projects, particularly in the area of M-AMG customer sports, could not be implemented as planned in the first half of the year, but these will now begin bindingly in the second half of 2022.

Capacity in HWA AG's vehicle production will also be fully utilised in the second half of the year, particularly due to the production of the M-AMG Track Series vehicles.

The drivetrains developed by HWA AG for the customer Pagani will also now be produced and delivered in 2022.

The same continues to apply to the APOLLO IE vehicles for the customer Apollo.

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HWA AG - Half-Year Report 2022

HWA AG still has the goal of starting and acquiring new development projects in the second half of 2022, and has so far succeeded in this with projects in M-AMG customer sports, among others. It thereby intends to achieve the earnings target for 2022.

In summary, we therefore currently still consider it realistic that we will achieve the sales revenue and earnings targets set for 2022 from our operating activities.

1. BACKGROUND INFORMATION ON THE GROUP

LEGAL AND ECONOMIC POSITION OF THE COMPANY IN 2022

HWA AG was founded in 1998 under the name H.W.A. GmbH. It became a stock corporation (AG) under German law in 2006. The shares of HWA AG have been traded on the Open Market segment of the Frankfurt Stock Exchange since 19 April 2007. The company operates in Germany as an individual entity.

As the parent company, HWA AG, Affalterbach, holds the majority of the voting rights in and exercises joint management over the following legal entities:

• HWA US Inc., Wilmington, Delaware, USA (100%)
• HWA AUS Pty Ltd., Mornington, Victoria, Australia (100%)
• HYRAZE GmbH, Affalterbach, Germany (100%)

The first two above-mentioned legal entities serve as sales and support companies for the respective local markets.

In the future, HYRAZE GmbH is to operate in the field of the development of manned and unmanned hydrogen-powered vehicles (particularly racing vehicles) and the development, marketing and implementation of manned and unmanned, real and virtual racing series and events. However, these activities are currently on hold.

As at the reporting date, there is a 20% stake in the following legal entity, which is included in the consolidated statements using the equity method:

• PACETEQ GmbH, Affalterbach (20%)

PACETEQ GmbH operates in the fields of software development and strategy services.

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HWA AG - Half-Year Report 2022

The parent company, the company HWA US Inc., the company HWA Pty Ltd. in Australia and HYRAZE GmbH are fully consolidated in the consolidated financial statements.

In the two segments in which it operates - Motor Racing and Vehicles/Vehicle Components - HWA AG develops, builds and produces high-performance technological products deployed in the respective racing series and provides extensive services.

In the Motor Racing segment, operations in the first half of 2022 mainly related to providing services for MBFE's Formula E activities.

The second segment, Vehicles/Vehicle Components, focuses on development, production and other services for the automotive industry and other customer groups. As a highly specialised service provider, HWA AG applies its specific racing expertise to carry out development and production orders for a variety of customers.

Spare parts and services continue to be provided at the Affalterbach location and worldwide on a localised basis.

There are no special aspects at present with regard to the HWA joint venture VYNAMIC.

RESEARCH AND DEVELOPMENT

Across all its activities and business areas, HWA AG has comprehensive resources at its disposal which it requires for the competitive development of racing vehicles, customer sports vehicles and small-scale series vehicles, as well as vehicle assemblies and components. For example, the use of cutting-edge IT solutions in simulation and design work ensures that all developments are state-of-the-art. The company also possesses comprehensive expertise and a wide range of resources for developing electrics and electronics in racing and small-scale series vehicles and vehicle components - specifically, independently and individually tailored to the intended application. This includes both creating and programming corresponding control electronics in addition to their simulation and analysis.

To be able to guarantee a suitable level of service for its global customers in the GT customer sports business, HWA AG has built up an excellent infrastructure which has worked superbly over the years and allows the thorough testing and maintenance of vehicles on the race track, in-house or directly on site.

HWA AG will be dedicating special attention to research and development in the future in order to open up new business areas and opportunities, also outside motor sports, so as to be able to uphold the high standard of all current and future products and the competitive edge this bestows.

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HWA AG - Half-Year Report 2022

One specific example of this is a research project together with the DLR to develop a drive axle with zero emissions and zero particulate matter. The prototype for this was presented to the public in Stuttgart on 28 September 2022 in the presence of the Baden-Württemberg Minister for Economic Affairs, and is intended to form the basis for further developments, possibly through to readiness for series production.

2. ECONOMIC REPORT

GENERAL ECONOMIC CONDITIONS

A tentative recovery in 2021 was followed by an increasingly gloomy development of the world economy in the first half of 2022. For example, global production contracted in the first half of this year due to declines in China and Russia, while consumer spending in the US fell short of expectations. The global economy, already weakened by the pandemic, was hit by several shocks: unexpectedly high worldwide inflation - particularly in the United States and the major European economies - caused the financial conditions to worsen.

In addition, the availability of semiconductors and other important industrial intermediate products, as well as the further development of the COVID-19 pandemic worldwide, including the effects of the zero-COVID strategy in China, are still contributing to a high level of uncertainty when it comes to assessing the risk and opportunity situation for 2022. The various effects of the Russia/Ukraine war (such as a potential freeze of gas supplies by Russia) also play a key role here.

AUTOMOTIVE MARKET AND OTHER RELEVANT MARKETS

There was a mixed picture overall on the international automotive markets in the first half of 2022. Disrupted value chains and logistics chains are still negatively impacting markets and production, with the semiconductor shortage in particular proving to be a limiting factor. The war in Ukraine is continuing to cause uncertainty. In addition, high price momentum in the US and Europe are also negatively impacting the markets.

In Europe, around 4.6 million new vehicles were registered from January to June, compared to the previous year's figure of around 5.4 million vehicles. The German market posted a year-on-year decline of around 11%. A total of 1.24 million new vehicles were registered in Germany.

The US market for passenger cars, for example, was around 18% lower than the level from the first half of 2021.

In China, approximately 10.2 million passenger cars were sold, corresponding to a year-on-year increase of around 4%.

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