KHD Humboldt Wedag International : AG Group Annual Report 2023

Innovation by tradition

Group

Annual

Report

2023

khd.com

Table of Contents

03

TO OUR SHAREHOLDERS

14

COMBINED MANAGEMENT REPORT

Key Figures	03
Facts & Figures	04
Foreword of the Management Board	06
Report of the Supervisory Board	08
Members of the Supervisory Board	13

Fundamental Principles of the KHD Group	14
Business Model	14
Corporate Governance	18
Objectives and Strategies	18
Management and Control System	19
Research and Development	20
Economic Report	22
Macroeconomic and sector-related Conditions	22
Overall Assessment of the Results of	23
Operations and Economic Position
Business and Earnings Position	25
Financial Position and Net Assets	28
Non-financial Performance Indicators	32

For the sake of improved readability, in this report KHD may occasionally make reference to people using grammatically masculine terminology. These references to persons in general apply to all genders equally: masculine, feminine, or other.

55

GROUP FINANCIAL STATEMENTS

OTHER INFORMATION

Table of contents

Financial Statements of	33
KHD Humboldt Wedag International AG
Disclosures pursuant to Section 315a	39
of the German Commercial Code (HGB)
Compensation Report	40
Report on Events after the Reporting Period	40
Risk and Opportunities Report	41
Outlook	51

Group Income Statement	55
Group Statement of Comprehensive Income	56
Group Balance Sheet	57
Group Statement of Cash Flows	59
Group Statement of Changes in Equity	61
Notes to the Consolidated Financial Statements	62
Responsibility Statement	117
Independent Auditor's Report	118

List of Abbreviations

127

Please note that rounding differences can result from the use of rounded amounts and percentages in accordance with commercial rounding practices.

Key figures at a glance

in € million	2023	2022
Ordner intake	198.4	218.6
Revenue	224.7	210.4
Adjusted gross profit	32.0	27.6
Adjusted gross profit margin (in %)	14.2	13.1
Adjusted EBIT	2.3	-0.9
Adjusted EBIT margin (in %)	1.0	-0.4
Earnings before taxes (EBT)	6.4	2.2
Group net profit	4.3	0.3
EPS (in €)	0.09	0.01
Operating cash flow	16.7	-22.0
Cash flow from investing activities	17.2	-0.4
Cash flow from financing activities	-27.2	-2.2

in € million	2023	2022
Equity	95.0	92.4
Equity ratio (in %)	40.0	36.4
Cash and intercompany loans *	126.2	137.0
Net working capital **	-29.2	-16.6
Order backlog	219.5	254.6
Employees	880	791

• Including intercompany loan of 35 million € with entitlement to call for early repayment by giving 30 days' notice
• Balance of current assets (less cash and cash equivalents and current loans granted) and current liabilities (less current borrowings

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Facts & figures

Order intake	Order backlog
in € million	in € million

198.4 219.5

Key Figures

• Order intake not fully satisfactory due to customers' reluctance to invest
• Further improvements in gross profit result in positive operating result (EBIT)
• Sustained solid liquidity and equity ratio

Revenue

Adjusted gross profit

							32.0
300				30		27.6		15
250	226.3	210.4	224.7	25			14.2%	13
	32.1			19.3
200		57.2	20	13.1%		11
46.8
150				15				9
100	194.2	163.6	167.5	10	8.5%			7
50				5				5
0				0				3
€ million	2021	2022	2023	€ million	2021	2022	2023	margin in %

Capex

Plant Services

Adjusted GP in € million

Adjusted GP margin in %

Employees by region

234	Europe	880	India
26	Americas		China
		worldwide

597

23

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5

Foreword by the Management Board

Dear shareholders, customers, business partners, and friends of KHD,

As good news at the beginning: In 2023, KHD achieved a positive operating result (EBIT) for the first time since the 2013 financial year! After achieving positive earnings before taxes (EBT) since the 2021 financial year, the positive operating result is another milestone in KHD's sustainable economic recovery.

Despite all the joy about our success, we have to admit that order intake - with the exception of the Indian market region - fell short of our expectations. Together with the persistently high pressure on margins, this means that we have to issue a cautious earnings forecast for the 2024 financial year.

The 2023 financial year was particularly affected by geopolitical uncertainties, price increases on the procurement markets and inflation and the resulting reluctance of customers to make investment decisions. However, the Indian market, which is very important for us and where we were able to further expand our position as market leader, once again showed what will be possible for KHD in other markets in the future.

Overall, KHD's business development in 2023 was not fully satisfactory in terms of the key performance indicator of order intake. With a volume of € 198.4 million (€ 157.6 million for Capex and € 40.8 million for Plant Services), order intake in the 2023 financial year was below our expectations. Despite the lower order backlog at the end of 2023, we continued to strengthen our workforce in a targeted manner. With 880 employees, we have the highest number of employees since many years. When building up our workforce, we always take into account the necessary balance between securing technological expertise at our headquarters in Cologne and expanding our capacities in India and China in an economically viable manner.

Revenue amounted to € 224.7 million (previous year: € 210.4 million) and shows that we were able to drive forward execution progress on running projects as planned in close coordination with our customers. In the 2023 financial year, KHD achieved a positive operating result (EBIT) of € 1.9 million, thereby exceeding the forecast issued in March 2023. Earnings before taxes (EBT) improved again in the 2023 financial year and were clearly positive at € 6.4 million (previous year: € 2.3 million). Nevertheless, in our view profitability remained at a not fully satisfactory level. We remain committed to generating an improved return for our shareholders. Increasing the performance and competitiveness of all KHD companies therefore remains a top priority. KHD is continuously working on implementing the adjusted strategy presented for the first time at the 2023 Annual General Meeting:

1. Benefit from the "Green Transition";
2. Go China/India and improving our presence in selected markets;
3. EPC (engineering, procurement and construction) with strategic partners;
4. Expanding the service portfolio and digitization;
5. Improving cost competitiveness and operational excellence;
6. Modernization / upgrades of cement plants.

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We can only materialize our full potential if we not only improve what we have done so far, but also expand our business model creatively and courageously. Our clearly defined six areas of activity for strategy implementation give us the confidence that we can lead KHD into a successful future despite persistently challenging conditions.

KHD's equity ratio of 40% and high liquidity (including bank deposits and financial assets with affiliated companies) of € 126 million provide a good basis for the successful implementation of our strategy and thus for sustainable growth. Sales activities continue to focus on projects with new technology (e.g. clay calcination and oxyfuel) as well as on expanding our position in core markets. By increasing customer proximity, we are also aiming to improve our position in markets where KHD's presence has been rather weak to date. A balanced opportunity/risk profile for new projects and further improvements in all operating areas will remain our focus in the current 2024 financial year.

At KHD, we are proud of our process engineering expertise and our innovative strength. However, our engineering skills always serve one overarching goal: To be able to offer our customers solutions today that meet the challenges of tomorrow. The continuing high level of investment in research and development - € 4.1 million in the 2023 financial year - underpins our claim to be the technology leader in the cement industry. With innovative products and solutions, KHD helps the cement industry to meet the goals of reducing emissions, energy efficiency and operating costs. With innovative technologies such as oxyfuel and clay calcination, KHD can be a key enabler in the transformation of the cement industry towards climate neutrality.

We would like to thank our customers and business partners as well as our employees for their trust and support in the past 2022 financial year. Special thanks go to our shareholders - not least our majority shareholder AVIC - and the Supervisory Board.

As Management Board, we are committed to leveraging the potential for growth and profitability associated with sustainability!

Yours sincerely,

The Management Board - KHD Humboldt Wedag International AG

7

Report of the Supervisory Board

Dear Shareholders,

The 2023 financial year of KHD Humboldt Wedag International AG was a successful year full overall. Unfortunately, the geopolitical crises and uncertainties have by no means disappeared and have even escalated further in the Middle East. For the KHD Group, the geopolitical crises have had the effect of making some customers reluctant to invest.

The KHD Group is responding to the ongoing challenges with the six fields of action for strategy implementation, which the Management Board presented at the Annual General Meeting in May 2023. Especially in times of crisis, it becomes clear how important the efforts of the past were in terms of improving the economic situation and how much consistency and attention must be paid to the further implementation of our strategy.

In the 2023 financial year, the Supervisory Board of KHD Humboldt Wedag International AG comprehensively performed supervisory and advisory functions as required by law, the articles of association, and the rules of procedure. In doing so, the Supervisory Board was guided by the German Corporate Governance Code. It monitored and advised the Management Board on a continual basis and consulted with the Management Board in meetings and in numerous discussions outside of these meetings. The Supervisory Board requested the Management Board to report regularly, in a timely manner, and comprehensively, both in writing and verbally, about intended business policy and strategy, fundamental issues concerning financial, investment, and personnel planning, the course of business and the profitability of the Group and of the material Group companies. The Management Board also reported on the strategic alignment of the Group and the status of strategy implementation. In addition, information on sustainability issues is becoming increasingly important in discussions with the Management Board.

The Supervisory Board was involved in all decisions of fundamental importance to the KHD Group.

Cooperation between the Management Board and the Supervisory Board has always been constructive. The Chair of the Supervisory Board was in regular contact with the Management Board and particularly the Chief Executive Officer over and above the regular meetings and discussed the Group's strategy, risk situation, and risk management. The Chief Executive Officer immediately notified the Chair of the Supervisory Board of any important events, which were essential for assessing the situation and development of the KHD Group.

Changes to the Management Board

With effect from November 30, 2023, Mr. Tao Xing resigned from his position as Executive Vice President and member of the Management Board. The Supervisory Board is particularly indebted to Mr. Xing for the work he has done in recent years. Due to his expertise and enormous commitment, Mr. Xing made a significant contribution to our positive development, particularly in the successful execution of our major project Mitchell in the USA, in the coordinated use of our engineering resources throughout the KHD Group and in the improved utilization of the Chinese procurement market.

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