Rába Jármûipari : Quarterly Report of Rába Plc. for Q1-Q4 of 2021

Quarterly Report of Rába Plc. for Q1-Q4 of 2021

Unaudited, consolidated quarterly report

according to the International Financial Reporting Standards (IFRS)

Company:	RÁBA Automotive Holding Plc.
Company address:	H-9027 Győr, Martin u. 1.
Sector:	Machine industry
Period:	Q1-Q4 of 2021
E-mail:	[e-mail]
Investors relations:	Ádám Steszli

MANAGEMENT REPORT

MAIN RESULTS OF THE COMPANY

• There were no signs of normalisation in Q4 of 2021 in terms of the market disturbances, capacity issues and increasing purchase prices. In addition to extraordinarily high purchase prices on the steel market, the crisis on the European energy market resulted in drastically exploding prices during Q4 and in the highest energy procurement prices of the past decade. All of this, coupled with the still considerable consumer demand-side activity, exerted substantial inflationary pres- sure on the economic environment. Supply difficulties are yet to be overcome and the result of global monetary policy answers are yet to be manifest, thus future outlooks suggest that infla- tionary pressure could become an overall market factor.
• In Q4 of 2021, there was still substantial business activity on the truck and agricultural vehicle markets, the passenger vehicle segment, however, was characterised by a substantial decline due to the disturbances in supply. The impacts of the COVID-19 pandemic on the base period should be taken into consideration when evaluating both sales and financial data. In Q1-Q4 of 2021, Group-level sales increased by 19.8 per cent benefiting from the activity in market de- mand, the amount of sales revenue achieved was HUF 46.4 billion. Q4 sales amounted to HUF
• 1. billion, with a 20.2 per cent increase in sales, which is the highest Q4 sales revenue of the past five years. The Axle businesses unit contributed to the outstanding Group-level sales in Q4 by an outstanding 66.9 per cent increase in sales. In Q4, the Components business unit regis- tered a decline in sales by 10.7 per cent due to the decline in demand on the passenger vehicle market. The sales figures of the Vehicle business unit were characterised by a decrease by 55.0 per cent, explained primarily by the fact, that as a result of the crisis management measures introduced in 2020, the production of steel structures for civilian applications was transferred from the Vehicle business unit to the Axle business unit. The contribution to the increase in sales revenue for the cumulative period was a 48.6 per cent and 17.0 per cent increase in sales in the Axle and Components business unit respectively, whereas the Vehicle business unit contributed a decline in sales by 62.3 per cent due to the reorganisation and the streamlining of the portfolio. In terms of the exchange rate environment, in the exchange rates of the USD representing a lesser portion in the company's foreign exchange turnover, there was a decline by 1.5 per cent, and in the EUR, representing a more substantial portion of FX sales, there was an increase by
  1. per cent compared to the levels of the previous year.
• Base material supply linked to the stable increase in demand within the heavy vehicle sector was secured through a substantial increase in delivery lead times and upon continuously in- creasing steel prices. The relaunch of steel manufacturing capacities operated only partially for various company-specific reasons or withdrawn from production during the COVID-19 pan- demic, is done in a phased fashion only. The situation was further deteriorated by the funda- mental changes in supply and demand relations on the global market and in the Chinese trading position.
• 
  As a result of the above, the steel market was, from November 2020 until the end of the first 6 months of 2021, characterised by steadily growing prices, triggering a 50-100 % base price increase on the world market varying depending on the product segment, which is reflected in

RÁBA Plc's consolidated report for Q1-Q4 of 2021 in acc ordance with the IFRS

metal products to a varying extent, depending on their complexity. In terms of procurements the second half of the year, further drastic price increases were felt.

The above substantial increase in costs is passed on by the Rába Group to its trading partners as per the terms of the existing agreements and as a result of negotiations, with a quarterly delay in the case of the majority of the products and with a 6-month delay for more complete products and for products with orders fixed in the longer-term. These two factors, namely that in 2021, base material prices have shown a steadily increasing tendency and that the cost increase can be passed on to the customers with a time lag only, have a negative impact on the profit positions and margins of the group of companies in 2021.

It is Rába's firm objective to neutralise these neg ative impacts as soon as possible, following the stabilisation of world market purchase prices through the enforcement in sales prices of the increase of purchase costs.

• Gross margins at group level amounted to HUF 8,819 million with an efficiency of 19.0 per cent. The gross profit exceeding that of the base period by 9.8 per cent was achieved, owing to the increase in sales volume, upon improving capacity utilisation and at the same time under con- siderably increasing price pressure for all major cost elements. The Rába Group reacted to the volatility of customer demands and to the difficulties in the supply environment by increasing integrity and flexible adjustment of the operation. In spite of the steel prices stabilising at an unusually high level in Q4 and the considerably increased energy prices, the quarterly gross margin represented 20.6 per cent, amounting to a gross margin of HUF 2,719 million.
• The balance of other revenues and expenditures amounted to HUF 651 million in profit during the review period, against the loss of HUF 551 million during the same period of the previous year. The profit of other activities during the base period included a real estate transaction car- ried out during Q2, with an impact on profits of HUF 815 million. The result of other activity during the base period included a one-off, unplanned write-off in the amount of HUF 296 million due to the unsustainability in accounting terms of the Ministry of Defence capacities.
• To improve operating profitability, in addition to increasing the flexibility of the manufacturing activity, the Company implemented controls of the general and overhead costs. The indirect costs increased by a mere 3,3 per cent on a year/year basis, upon sales increasing by 19.8 per cent. In Q1-Q4 of 2021, the group-level profit from operations amounted to HUF 1,978 million, without the one-off adjustment items the operating profit was HUF 1,163 million. All business units made a positive contribution through profitable operation achieved through improving effi- ciency, to the group-level operating profit during the cumulative period. The operating profit of the Axle business unit was HUF 498 million in Q1-Q4 of 2021, the operating profit of the Com- ponents business unit was HUF 607 million, whereas the Vehicle business unit generated HUF 252 million in profits. The business activity of both the group and the subsidiaries was profitable in spite of the explosion in energy prices and overall inflationary pressures in Q4, as well as the production volume declines and outages in the passenger vehicle segment. Group-level profits amounted to HUF 552 million, to which the Axle business unit contributed HUF 148 million, the Component business contributed HUF 223 million and the Vehicle business unit contributed HUF 200 million in profits. The production of civilian applications of the Vehicle business unit was successfully integrated into the Axle business unit, the role and position of the Vehicle busi- ness unit within the new structure seem to be stabilised. Accordingly, their operating activity was profitable both on a quarterly and on a cumulative basis, albeit at a different level. A real estate sale concluded in Q2 also contributed to the Group-level operating profit during the cumulative period.
• In terms of cash generating efficiency, the EBITDA-level profit achieved during the review period exceeded HUF 4.3 billion, amounting to HUF 4,370 million. The EBITDA margin amounted to 9.4 per cent, 7.7 per cent excluding the one-off, adjustment items. All business units contributed to the considerable improvement compared to the base period in Group-level EBITDA by dras- tically increasing EBITDA-level results in 2021: EBITDA increased by 70.4 per cent within the Axle business unit, by 81.3 per cent within the Components business unit and by 144.2 per cent within the Vehicle business unit. Results in terms of cash-generating efficiency suggest not only that all members of the group reacted successfully to market challenges and difficulties caused

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RÁBA Plc's consolidated report for Q1-Q4 of 2021 in acc ordance with the IFRS

by inflationary pressures but also that reorganisations between the Vehicle and Axle business units were implemented successfully. In Q4, the Group-level EBITDA margin was at a level close to the industry benchmark, representing 8.7 per cent in spite of the explosion of energy prices and the substantially declining demand on the passenger vehicle market.

• The financial result in Q1-Q4 of 2021 amounted to HUF 208 million in losses, compared to the loss of HUF 900 million generated during the same period of the previous year. The financial performance was influenced by the realised exchange rate loss by HUF 139 million and the net interest burden of HUF 59 million.
• The total aggregate income and profit for Q1-Q4 of 2021 amounted to HUF 1,272 million.
• The financial situation of the Rába group was char acterised by a stable liquidity position in spite of the COVID-19 pandemic period and the challenges of the recovery period that followed. The net borrowings amounted to HUF 9.1 billion at the end of the review period, an increase by HUF 2.7 billion compared to the base period. Of the factors influencing the level of net borrowings, the profitable operating activity, the increase in working capital as a result of increasing produc- tion volumes and safety of supply, capital expenditures and the profit of the one-off real estate sale are noteworthy. The revaluation, due to exchange rate fluctuation, of loans, worth HUF 206 million, not involving cash movements, also contributed to the change in net borrowings.
• The shareholder's equity increased by 6.4 per cent compared to the same period of the previous year. The shareholder's equity per share reached HUF 1.571/share.

	thousand HUF		Q1-Q4	Q1-Q4		Change		Q4	Q4		Change
		2020	2021			2020	2021
	Sales revenue	38 754 451	46 435 610	19.8%		10 990 612	13 208 788	20.2%
	Gross profit	8 032 365	8 819 049	9.8%		2 891 514	2 718 795	-6.0%
	Gross margin	20,7%	19,0%		-1.7%p	26,3%	20,6%		-5.7%p
	EBITDA	2 567 552	4 370 186	70.2%		1 865 754	1 147 135	38.5%
	EBITDA level	6,6%	9,4%		2.8%p	17,0%	8,7%		-8.3%p
	Operating profit	226 697	1 977 787	772.4%		1 263 860	552 197	-56.3%
	Net financial profit/loss	-899 760	-207 620	76.9%		3 864	-253 081	-6649.6%
	Profit after tax for the current year	-1 030 404	1 271 978	223.4%		1 138 154	111 338	-90.2%
	Total comprehensive income	-1 030 404	1 271 978	223.4%		1 138 154	111 338	-90.2%

GOAL AND STRAGY OF THE BUSINESS

"In spite of the multiple economic constraints, our Company has concluded last year with outstanding results and financial indicators, owing to its fast responsiveness and flexible customer service. The year 2021 presented the economy with a number of adverse surprises and these impacts have not spared Rába either. As the year progressed, new dif ficulties emerged, while earlier burdens were being dealt with. The disturbances in the supply chain and the increases in raw material prices have become constant phenomena, compounded by energy price increases in the second half of the year, reaching drastic magnitudes in Q4, thus exerting considerable pressure on the economic environ- ment. Rába successfully handled the challenges and launched its production, corporate management and organisational restructuring. A major modernisation and capital expenditure programme has been devised to facilitate future efficiency improvement", stressed Béla Hetzmann, Chairman- CEO of Rába Automotive Holding Plc.

BUSINESS ENVIRONMENT OF THE ENTERPRISE

• In terms of sales, the considerable demand activity in 2021 can be considered a positive envi- ronmental factor. A substantial increase in customer demand was manifest in the commercial vehicle markets of Rába, providing favourable condi tions for sales growth. A new economic phe- nomenon in 2021 was that the disturbances in the supply chains are increasingly manifest in various levels and sectors. Inflationary pressures across the board became considerable in all cost areas, fundamentally affecting the company's profitability. The most significant economic occurrence of 2021, in a negative sense, is the European energy crisis that caused a drastic price explosion and a three-fold increase in purchase prices by Q4.

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RÁBA Plc's consolidated report for Q1-Q4 of 2021 in acc ordance with the IFRS

• Demand on the commercial vehicle market in Q4 was largely similar to the earlier periods of the year: market activity was downright conducive to the increase in sales. The high demand for shipping and the resulting high shipping tariffs provided a solid basis for the expansion and re- newal of commercial vehicle fleets. Parallel to the renewal of vehicle fleets, used vehicles con- tinued to be present, which means that there is a strong demand for spare parts. Accordingly, in Q1-Q4 of 2021, market demand on all of Rába' princi pal markets substantially exceeded the level of the previous year, impacted by the economic effects of the COVID-19 pandemic.
• In Q1-Q4 of 2021, the European truck market exceeded the level of a year earlier by 19 per cent, Market outlooks for next year do not project similar growth. The North American truck market expanded by 15 per cent compared to the base period in 2020. There was a significant demand for Rába's agricultural products compared to the ba se year 2020 affected by the shut down due to COVID-19: sales increased by 63 per cent in 2021. The Russian truck market grew spectac- ularly in months 1-12 of 2021: 31 per cent more new trucks were produced than during the base period a year earlier. The Russian bus market was also characterised by an increase in demand, albeit of a lesser extent during the review period: the sales of new buses exceeded the 2020 sales volume by 4 per cent. On the European passenger vehicle market the growth during Q1- Q3 still exceeded 6 per cent, in line with the earlier forecasts, though, supply chain problems in the automotive industry however, fundamentally impacted the sales figures of Q4. In the last quarter of 2021, new car registrations in Europe were 23 per cent below the level of the previous year. Combined with the decline in Q4, demand for the entire year was 2 per cent below the level of the base period.
• Capacity shortages in the procurement channels have led to increasing purchase prices upon uncertain supply conditions in 2021. The considerable increase in steel base material prices, characteristic for Q3 continued in Q4, thus production activity was negatively impacted in H2 of 2021 by the highest price level of the past decade. The price increase during the review period on a quarterly basis amounted to 48.8 per cent, which led to an annual average steel price in- crease of 36.1 per cent.
• The increase in human resource expenses was 8.7 per cent in Q1-Q4 of 2021, which exerts considerable pressure on operating activities. Improving operating efficiency and implementing it within production technology, to cover the continuously increasing wage costs is increasingly challenging for the Company.
• In Q2 of 2021, purchase prices of energy costs also started to increase drastically, followed in Q3 and Q4 by dramatic price increases as a result of the crisis on the European energy market. In Q3 the annual price increase was 48.7 per cent, followed by continued drastic increase in prices in Q4, reaching 198.9 per cent. In total, average energy purchase prices in 2021 increased by 62.7 per cent in a year. All this meant that the highest energy purchase prices of the last decade had a negative impact on the profitability of production.
• With regard to the exchange rate environment, a decrease by 1.5 per cent occurred in the case of the USD, representing a lesser proportion in the FX turnover of the company, whereas for the EUR, representing more substantial weight in the FX turnover, an increase by 2.1 per cent was seen in Q1-Q4 of 2021 compared to the levels of the previous year.1

1 The average exchange rates were calculated based on the official FX exchange rates of the MNB. Source: http://www.mnb.hu/arfolyam-lekerdezes

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RÁBA Plc's consolidated report for Q1-Q4 of 2021 in acc ordance with the IFRS

	Q1-Q4	Q1-Q4		Change		Q4	Q4		Change
	2020	2021			2020	2021
EURHUF - average	351.2	358.5	2.1%		360.6	364.4	1.0%
EURHUF - end of period	365.1	369.0	1.1%		365.1	369.0	1.1%
USDHUF - average	307.9	303.3	-1.5%		302.5	318.7	5.4%
USDHUF - end of period	297.4	325.7	9.5%		297.4	325.7	9.5%
Changes in raw material prices*	106%	144%	36.1%		106%	158%	48.8%
Wage level**	399.3	433.8	8.7%		417.8	456.8	9.3%
Changes in energy prices***	207%	337%	62.7%		199%	595%	198.9%

*Rába indices - own calculation - base: 2007. Q1; a verage values for the period

**KSH (Central Statistical Office) national gross average wage (thousand HUF/month) -based on 01-08. 2021. data

***Rába indices - own calculation - base: Dec. 2004 .; average values for the period

SUMMARY OF RESULTS ACHIEVED DURING THE REVIEW PERIOD

Rába Axle Ltd.

The sales revenue of Rába Axle Ltd. in Q1-Q4 of 202 1 amounted to HUF 30.5 billion compared to HUF 20.6 billion achieved during the base period of 2020. This corresponds to an increase of 48.6 per cent.

On the American market the sales revenue in the reporting period was USD 8.7 million, compared to the USD 9.1 million in Q1-Q4 of 2020. This corresponds to a decrease by 4.4 per cent.

On the EU market Rába Axle Ltd.'s sales figures in HUF terms increa sed by 67.0 per cent, amounting to HUF 25.1 billion, compared to HUF 15.0 billion during the base period.

European exports in Q1-Q4 of 2021 exceeded the level of the base period by 75.2 per cent, amounting to EUR 55.7 million, against EUR 31.8 million in Q1-Q4 of 2020. Sales figures are fundamentally influenced by the reorganisation of the civilian applications of the Vehicle business unit to the activities of the Axle business unit as a result of the crisis management measures of 2020.

Domestic sales before consolidation amounted to HUF 5,098 million, which represents an increase by 32.5 per cent compared to the HUF 3,848 million of the base period.

On the CIS and East-European markets the export sales revenues achieved by Rába Axle Ltd. in Q1-Q4 of 2021 were 43.2 per cent lower than the base period in 2020, decreasing from EUR 4.4 million in the base period to EUR 2.5 million.

In the other markets. the sales revenue during the reporting period amounted to EUR 5.3 million, which was 55.9 per cent higher than the EUR 3.4 million turnover of the 2020 base period.

The operating result of the Company in Q1-Q4 of 2021 was a profit of HUF 498 million, compared to HUF 6 million profit during the same period of the previous year.

At EBITDA level, the operating profit of the Axle business unit was HUF 2,144 million compared to HUF 1,258 million registered a year earlier.

	million HUF		Q1-Q4	Q1-Q4		Change		Q4	Q4		Change
		2020	2021			2020	2021
	America	2 802	2 649	-5.5%		605	1 021	68.8%
	EU - export	11 171	19 984	78.9%		3 521	5 634	60.0%
	EU - domestic	3 848	5 098	32.5%		932	1 483	59.1%
	CIS	1 552	903	-41.8%		245	446	82.0%
	Other	1 184	1 906	61.0%		215	623	189.8%
	Total sales revenue	20 558	30 539	48.6%		5 518	9 208	66.9%
	EBITDA	1 258	2 144	70.4%		624	559	-10.4%
	Operating profit	6	498	8200.0%		292	148	-49.3%

Rába Automotive Components Ltd.

The sales revenue of Rába Automotive Components Ltd . amounted to HUF 14.6 billion in Q1-Q4 of 2021, which is a 17.0 per cent increase compared to the base period.

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