Duroc : Interim Report 2Q 2022/23

INTERIM REPORT

JULY - DECEMBER 2022

DOUBLE-EDGED OUTLOOK - CONTINUED STRONG FINANCIAL POSITION

Second quarter, October 2022- December 2022

• Net sales increased by 6 percent to MSEK 876.6 (825.1). Organic growth stood at -2 percent.
• Adjusted EBITDA* decreased by 44 percent to a total of MSEK
• 1. (14.2), corresponding to an adjusted EBITDA* margin of
  1. percent (1.7).
• Adjusted EBIT totaled MSEK -20.6(-10.7). Adjusted EBIT regarding Griffine Enduction S.A. totaled MSEK -5.4(-20.7).
• Operating income (EBIT) totaled MSEK -220.7(-5.0). It was mainly the impairment of assets held for sale in the amount of MSEK 179.3 (in respect of Griffine Enduction S.A) and an impairment of a bad debt loss in Drake Extrusion of MSEK
• 1. that affected the operating income. However, these do not affect cash flow.
• Cash flow from operating activities totaled MSEK -4.7(-59.0).
• The loss after tax was MSEK -210.7(-4.8).
• Adjusted earnings per share totaled SEK -0.27(-0.27).
• Earnings per share totaled SEK -5.40(-0.12).
• Equity totaled MSEK 1,045.2 (1,108.5) and the equity/assets ratio was 51 percent (54).
• The subsidiary IFG Holdings Ltd's pension fund CPF purchased an annuity insurance from Aviva Life & Pensions UK LTD. The effect of this transaction is an annual reduction in expenditures of MSEK 6, and when a complete buy-out transfer to Aviva has been completed within 12-24 months, Duroc's obligation ceases. After the final buyout, CPF will be liquidated, and a surplus may occur at this time. If this is the case, part of this surplus may go to IFG.

First six-months, July 2022 - December 2022

• Net sales increased by 3 percent to MSEK 1,739.3 (1,690.3). Organic growth stood at -4 percent.
• Adjusted EBITDA* decreased by 61 percent to a total of MSEK
• 1. (61.5), corresponding to an adjusted EBITDA* margin of
  1. percent (3.6).
• Adjusted EBIT totaled MSEK -32.9 (11.8). Adjusted EBIT regarding Griffine Enduction S.A, totaled MSEK -12.6(-32.8).
• Operating income (EBIT) totaled MSEK -233.0 (17.5).
• Cash flow from operating activities totaled MSEK 127.2 (-21.7).
• The loss after tax was MSEK -221.7 (10.1).
• Adjusted earnings per share totaled SEK -0.55 (0.11).
• Earnings per share totaled SEK -5.68 (0.26).
• Cash and cash equivalents as of December 31 totaled MSEK
• 1. (35.9), and net debt excluding lease liabilities from IFRS 16 totaled MSEK 151.9 (202.3). Unutilized credit facilities totaled MSEK 250.0 (215.4)
• The impairment of assets held for sale in respect of Griffine Enduction S.A was made on the worst possible scenario of sale, in mind. Any potential purchase price, or alternatively, reclamation of receivables for which Duroc AB has lien in property and inventory, will be accounted for as operating profit and positive cash flow.

		2022/2023	2021/2022	2022/2023	2021/2022	2022/2023	2021/2022
Group (MSEK)	Q2	Q2	Q1-Q2	Q1-Q2		R12 DEC	JUL-JUN
Net sales	876.6	825.1	1,739.3	1,690.3	3,769.5	3,720.5
EBITDA	-12.8	19.9	3.1	67.1	135.4	199.4
Adjusted EBITDA*	8.0	14.2	23.9	61.5	154.5	192.1
Adjusted EBITDA*-margin, %	0.9	1.7	1.4	3.6	4.1	5.2
Operating profit/loss (EBIT)	-220.7	-5.0	-233.0	17.5	-167.5	83.0
Adjusted EBIT*	-20.6	-10.7	-32.9	11.8	24.6	90.1
Profit/loss after tax	-210.7	-4.8	-221.7	10.1	-166.8	64.9
Profit per share, SEK	-5.40	-0.12	-5.68	0.26		-4.28	1.67
Adjusted profit per share, SEK*
	-0.27	-0.27	-0.55	0.11	0.65	1.85
Cashflow from operating activities		-4.7	-59.0	127.2	-21.7	112.1	-36.8
Net debt excl. lease liability from IFRS 16		151.9	202.3	151.9	202.3	151.9	265.7
Net debt incl. lease liability from IFRS 16		280.2	336.1	280.2	336.1	280.2	396.0
Net debt/Equity ratio, %		27	30	27	30	27	32

*Adjusted for items affecting comparability. A reconciliation of amounts can be found on page 17.

Duroc acquires, develops and manages companies with a focus on trade and industry. Using their profound knowledge of technology and markets, the Group's companies aim to achieve leading positions in their respective industries. As the owner, Duroc actively contributes to their development. Duroc is listed on Nasdaq Stockholm (short name: DURC). www.duroc.se

D URO C IN T E RIM RE PO RT Q 2 2 02 2 /2 02 3	2 ( 1 9 )

CEO'S COMMENT

The second quarter continued in the same pattern as the first, i.e., good demand and earnings trends in the portfolio companies related to industrial trading and mechanical engineering industry. Portfolio companies linked to heavy, energy-intensive production in the plastic industry burdened the Group's earnings through reduced volumes, as did exceptional cost increases for energy and labor in relation to the year-over- year quarter. Historically, fiber-related business has always displayed a volatile nature and at the end of the quarter we glimpsed rising volumes in individual segments such as the automotive and furniture industries.

Second quarter, July 2022 - December 2022

Net sales increased by 6 percent to MSEK 876.6 (825.1). Adjusted EBIT totaled MSEK -20.6(-10.7). Excluding Griffine, the French part of Cotting Group, adjusted EBIT totaled MSEK -15.2 (10.0). Industrial trading and mechanical engineering showed strong trends while plastic-related portfolio companies burdened earnings.

Volumes in IFG, Duroc's biggest portfolio company, fell by 14 percent, among other things driven by customer expectations for prices to stabilize at a lower level. At the same time, energy prices increased by around 80 percent. Statutory adjustments to payroll expenses primarily in Belgium contributed to a labor cost increase of around 20 percent despite the workforce having been tailored to suit lower demand. In part, we have not yet passed on these costs on to our customers.

Demand at Drake in the USA was good in respect of staple fibers and there was a parallel increase in yarn volumes. The harsher economic market has led a major American customer to file for restructuring, which has resulted in a bad debt loss of around MSEK 21. The operations have been taken over by another company and Drake continues to supply with stricter credit conditions. Prices for PP raw material leveled off in Europe during the quarter, while a price fall continued in the USA, which will benefit margin trends moving forward.

The unfavorable factors that have befallen our operations are by no means limited to Duroc. Other players with similar operations report the same challenges. However, energy prices have fallen considerably, and this is expected to have a positive impact on earnings for all energy-intensive units in the Group.

DMT increased net sales by 50.3 percent to MSEK 165.7 (110.2), and while there may be greater hesitancy in investment decisions compared to the previous quarter, there are no signs of a recession. An order book of MSEK 232 promises positive development during the next quarter. The Smaller Company Portfolio showed the same positive pattern where both sales and earnings improved markedly.

Cresco increased sales by 2.8 percent driven by a major project with deliveries of climate screens and products for mushroom cultivation. In general, the European market was characterized by uncertainty with ongoing war and heavy inflation. Cresco is well positioned for the long- term with climate screen products whose properties are energy-saving.

Cotting Group increased sales by 27.7 percent through rising volumes and price adjustments. Earnings were however, burdened by poor volumes in Griffine, the French unit. The disposal of Griffine, which in the calendar year of 2022 burdened the operating profit with MSEK - 65 is proceeding according to plan and the goal is to conclude the transaction in the immediate future. In accordance with Duroc's prudent financial approach, impairment of Griffine's net assets has been performed in full. This means the Group's equity cannot be affected negatively in the future due to the disposal.

First six-month period, July 2022 - 2022

Net sales increased by 3 percent to MSEK 1,739.3 (1,690.3). Adjusted EBIT totaled MSEK -32.9 (11.8). Excluding Griffine adjusted EBIT totaled MSEK -20.4 (44.5).

The financial year was characterized by uneven Group earnings trends as a result of the consequences of war in Ukraine and the effects of inflation on input goods and labor costs. The heavy manufacturing companies have seen falling volumes and abnormally high costs, which they were unable to pass on to customers sufficiently quickly. Historically, the fiber business has shown great volatility with volumes falling for various reasons only to quickly rise again once stabilized again.

The industrial trading units, with their lighter balance sheets, have enjoyed stable development with strong demand for products and services. At the end of the second quarter, DMT and UPN (part of

Smaller Company Portfolio) noted sales records. Net debt decreased by MSEK 50.4 to 151.9. Central costs were reduced by 15 percent, equivalent to MSEK 3 on a full-year basis.

Outlook

The companies that developed positively during the first six months are considered to have good prospects for continuing in the same direction. If nothing further unforeseen occurs, the fiber-related units will probably see increasing volumes, and the effects of lower energy and raw material prices should lead to positive effects on operating income moving forward. Structural adjustments are under constant evaluation in case more positive market developments fail to take place. When summing up the previous financial year, an EBIT margin of almost 6 percent was noted for IFG, and a now well-invested Drake Extrusion, in a normal market, as good prospects for performing well beyond this level. The previously announced insurance solution for pension provisions in IFG will lead to cost reductions and an elimination of risk in respect of future pension obligations and will have a substantial positive future effect on day-to-day cash flow. Historically, IFG was burdened with around GBP 500,000 annually to hedge these future obligations, of which the major part burdened day-to-day earnings. Going forth, this cost is now fully eliminated. The planned sale of Griffine will also contribute significantly to increased earnings for the Group.

The 2022/23 financial year will be characterized by weak profitability arising from extraordinary events that have negatively impacted the major part of Duroc and other companies with similar operations. Meanwhile, and as a result of measures taken, other parts of the Group have developed particularly well and have thus created significant values for Duroc's shareholders.

To summarize, Duroc can be divided into two categories of companies with entirely different characters. One category consists of companies that are performing well, generating good earnings with low figures for capital tied up and with good returns on capital employed. The other category consists of capital-intensive companies that are burdening earnings in the short term, largely due to extraordinary circumstances in the world at large. All of the companies have established, long-term plans aimed at achieving significantly stronger earnings over time. The companies performing well are in the middle of executing these plans. The long-term plans of the capital-intensive companies remain established, but I believe the execution of said plans will be postponed around one year due to the negative events witnessed during the current financial year.

Despite circumstances, Duroc is in good shape. Net debt continues to be low, the equity/assets ratio good and the balance sheet predominantly consists of fixed, real assets. Thus, Duroc is in a position with a freedom of movement that would enable a strategic change of direction were any such opportunities considered favorable for shareholders in the long term.

John Häger, CEO

D URO C IN T E RIM RE PO RT Q 2 2 02 2 /2 02 3	3 ( 1 9 )

DEVELOPMENTS IN DUROC PORTFOLIO COMPANIES

Duroc's portfolio companies consist of International Fibres Group (IFG), Drake Extrusion, Cresco, Cotting Group, Duroc Machine Tool (DMT), Duroc Rail and Smaller Company Portfolio, which comprises Universal Power Nordic (UPN), Herber and Duroc Laser Coating (DLC). Set forth below are each individual portfolio company's share of net sales and adjusted EBIT for the past 12-month period, January 2022 - December 2022. Read more about developments company by company on pages 4-7 and in Duroc's segment report on page 16.

SHARE OF NET SALES (R12)

ADJUSTED EBIT PER PORTFOLIO COMPANY (R12)

Duroc Rail	Smaller
4%	Comp Portf
	5%

DMT Group

16% IFG

35%

Cotting

Group

14%

Cresco	Drake
Extrusion
7%
19%

60
40
20
0
IFG	Drake	Cresco	Cotting Group	DMT Group	Duroc Rail	Smaller
	Extrusion					Comp Portf
-20
-40
-60

Second quarter, October 2022 - December 2022

Net sales increased by 6 percent to MSEK 876.6 (825.1). Organic growth stood at -2 percent, where Cotting Group, DMT, Duroc Rail and Smaller Company Portfolio enjoyed increased sales. IFG and Drake Extrusion presented lower sales than the year-over-year quarter.

Adjusted EBITDA totaled MSEK 8.0 (14.2) and the adjusted EBITDA margin was 0.9 percent (1.7), driven by lower gross earnings, which were affected by higher energy and labor costs.

Cotting Group, DMT, Duroc Rail and Smaller Company Portfolio presented improved EBITDA figures than the year-over-year quarter, mainly due to increased sales where cost increases could be passed on to the customer.

Adjusted EBIT totaled MSEK -20.6(-10.7) and operating income totaled MSEK -220.7(-5.0). Operating loss was primarily impacted by items affecting comparability, consisting of an impairment of assets held for sale in respect of Griffine Enduction S.A (within Cotting Group) totaling MSEK 179.3 and a bad debt loss at Drake Extrusion in the amount of MSEK 20.8.

The loss after tax was MSEK -210.7(-4.8).

First six-months, July - December 2022

Net sales increased by 3 percent to MSEK 1,739.3 (1,690.3). Organic growth stood at -4 percent, where Cotting Group, DMT and Smaller Company Portfolio showed increased sales. IFG and Drake Extrusion had lower sales than the year-over-year quarter.

Adjusted EBITDA totaled MSEK 23.9 (61.5) and the adjusted EBITDA margin was 1.4 percent (3.6), driven by lower gross earnings which were affected by inventory adjustments and higher costs for energy and labor.

Cotting Group, DMT, Duroc Rail and Smaller Company Portfolio presented better EBITDA figures than the year-over-year period, mainly due to increased sales where cost increases could be passed on to the customer.

Adjusted EBIT totaled MSEK -32.9 (11.8) and operating income totaled MSEK -233.0 (17.5).

The loss after tax was MSEK -221.7 (10.1).

DEVELOPMENT OF DUROC'S NET SALES

MSEK

1,000

900

800

700

600

500

400

300

200

100

0

Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
2019/2020		2020/2021			2021/2022		2022/2023

DEVELOPMENT OF DUROC'S OPERATING PROFIT/LOSS (EBIT)

MSEK

30

-20

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

2019/2020

2020/2021

2021/2022

-70

2022/2023

-120

-170

-220

Q3 2020/2021 was affected by restructuring costs totaling MSEK 35.5. Q2 2022/2023 was affected by an impairment of assets held for sale in the amount of MSEK 179.3; see also Note 8.

D URO C IN T E RIM RE PO RT Q 2 2 02 2 /2 02 3	4 ( 1 9 )

International Fibres Group (IFG) is one of	Share of Duroc's sales
Europe's leading manufacturers of	(R12)
polypropylene-based staple fibers, an input
product with reinforcing, insulating,
separating or draining properties. The fiber is
used in the production of e.g., flooring, rugs,	35%
furniture, filters, foodstuff packaging, car

interiors and nonwoven fabrics, which means a diversified customer portfolio. IFG has production facilities in Belgium, the United Kingdom and Austria.

• Net sales for the quarter decreased by 16 percent* compared to the year-over-year quarter, and 11 percent compared to the corresponding six months. Volumes for the quarter decreased by 14 percent and 15 percent compared to the first six months of the previous year. The market continued to hold back, mainly because PP prices continued to fall and because customers in general are holding lower stocks than before. The geotextiles and automotive segments continue to enjoy high order intakes.
• The effects of the macroeconomic situation with high energy prices, inflation and mandatory salary increases in Belgium and Austria, contributed to the company's EBITDA total of MSEK -16.5 (17.3). Energy costs increased by 78.2 percent compared to the year-over-year quarter, while salary cost increased by 20 percent.
• Active efforts to reduce capital tied up resulted in a net debt excluding IFRS 16 of MSEK 7.8 (40.1).
• The change management program implemented earlier this year with restructuring and a focus on niche products has proceeded according to plan. Specializing the product offering mitigated the decline in income during the quarter.

	2022/	2021/	2022/	2021/	2022/
	2023	2022	2023	2022	2023
Amounts in MSEK	Q2	Q2	Q1-Q2	Q1-Q2	R12 DEC
Net Sales	246.4	293.9	561.5	632.6	1,313.8
Growth, Net Sales %	-16.2	22.6	-11.2	27.8	1.6
Organic growth %	-22.2	22.6	-16.0	27.9	-3.0
EBITDA	-16.5	17.3	-16.0	38.8	46.1
EBITDA margin %	-6.7	5.9	-2.9	6.1	3.5
Adjusted EBITDA	-16.5	11.6	-16.0	33.1	42.7
Adjusted EBITDA-margin, %	-6.7	3.9	-2.9	5.2	3.3
EBIT	-23.4	11.0	-29.8	26.2	20.9
EBIT margin %	-9.5	3.7	-5.3	4.1	1.6
Net Debt/Net Cash (-)	77.0	105.0	77.0	105.0	77.0
of which from leasing (IFRS 16)	69.3	65.0	69.3	65.0	69.3
Capital employed	460.5	454.2	460.5	454.2	460.5
ROCE %	4.3	8.2	4.3	8.2	4.3
Adjusted ROCE %	3.6	13.1	3.6	13.1	3.6

• Price mechanisms in customer agreements for polypropylene mean that sales increase as raw material prices rise, and decrease as prices fall. Because raw materials prices affect both the sales price and raw materials costs, gross profit remains unchanged, but with a certain lag.

Drake Extrusion is North America's leading producer of polypropylene-based colored filament yarn and staple fiber. Filament yarn is used mostly by customers who produce fabrics for the furniture industry. Staple fiber is used for production in a variety of areas including flooring, rugs, furniture, technical filters, car interiors and nonwoven fabrics. The business is located in Virginia, USA.

Share of Duroc's sales (R12)

19%

• During the quarter, a decrease in sales volumes of 6.4 percent and a -22.6 percent decrease in organic sales growth were due to lower raw materials prices, where price mechanisms in contracts cause sales prices to drop.
• Demand for staple fiber continued to be good, and the weakening filament segment recovered with higher sales volumes than anticipated.
• A major American customer filed for restructuring which resulted in a bad debt loss of MSEK 20.8. The operations have been taken over by another company and Drake's continued earnings potential is thus not affected.
• The labor situation continued to be stable but contributed to a higher cost base than the year-over-year comparison quarter. This, together with higher energy costs and reduced sales volumes, was a contributing factor in the company's adjusted EBITDA of MSEK 1.0 (3.0).

	2022/	2021/	2022/	2021/	2022/
	2023	2022	2023	2022	2023
Amounts in MSEK	Q2	Q2	Q1-Q2	Q1-Q2	R12 DEC
Net Sales	151.4	161.8	318.6	352.7	712.1
Growth, Net Sales %	-6.4	16.7	-9.7	24.8	2.9
Organic growth %	-22.6	7.3	-25.7	19.0	-13.0
EBITDA	-19.8	-4.1	-17.8	3.7	4.9
EBITDA margin %	-13.1	-2.5	-5.6	1.0	0.7
Adjusted EBITDA	1.0	-4.1	3.0	3.7	25.7
Adjusted EBITDA-margin, %	0.7	-2.5	0.9	1.0	3.6
EBIT	-29.3	-10.9	-36.6	-9.7	-30.8
EBIT margin %	-19.3	-6.7	-11.5	-2.7	-4.3
Net Debt/Net Cash (-)	26.5	34.7	26.5	34.7	26.5
of which from leasing (IFRS 16)	9.1	11.8	9.1	11.8	9.1
Capital employed	299.4	292.4	299.4	292.4	299.4
ROCE %	-9.6	-2.6	-9.6	-2.6	-9.6
Adjusted ROCE %	-3.1	-2.6	-3.1	-2.6	-3.1

D URO C IN T E RIM RE PO RT Q 2 2 02 2 /2 02 3	5 ( 1 9 )

Cresco develops, produces and sells textile-	Share of Duroc's sales
based solutions for the professional	(R12)

cultivation of crops and is one of the leading
players on the global market. The products
contribute to favorable environments in
greenhouses, mushroom farms and
composting installations. The most important	7%
product is a climate screen for greenhouses
that controls the cultivation climate,
contributing to a more efficient process with
lower energy consumption. Cresco's
production facility is in Belgium.

• Net sales increased by 2.8 percent during the second quarter. Organic growth was -5.2 percent.
• A certain hesitant approach by the market due to the macroeconomic situation was observed in the operation during the second quarter. Fewer major project inquiries led to a change in the product mix that has resulted in slightly lower margins. The lower production rate and resultant efficiency losses together with statutory salary increases also contributed to a poorer EBIT margin.
• However, order intake improved significantly in December following poor developments during the first months of the quarter. Order intake increased by 4 percent compared to the previous year.
• The EU gas price cap agreement concluded in December is expected to benefit Cresco moving forward through greater market stability and an improved investment appetite in conjunction with lower energy price volatility.
• The current energy crisis is expected to boost demand for sustainable, energy-efficient solutions and lead to increased demand for Cresco's products as they contribute to a more efficient cultivation process with lower energy consumption.

	2022/	2021/	2022/	2021/	2022/
	2023	2022	2023	2022	2023
Amounts in MSEK	Q2	Q2	Q1-Q2	Q1-Q2	R12 DEC
Net Sales	73.0	71.0	146.5	140.0	282.8
Growth, Net Sales %	2.8	4.3	4.7	2.9	-6.0
Organic growth %	-5.2	5.8	-1.5	4.5	-10.0
EBITDA	4.9	5.5	6.5	14.3	27.7
EBITDA margin %	6.7	7.7	4.4	10.2	9.8
EBIT	3.5	4.1	3.6	11.6	22.1
EBIT margin %	4.7	5.8	2.5	8.3	7.8
Net Debt/Net Cash (-)	30.3	25.5	30.3	25.5	30.3
of which from leasing (IFRS 16)	4.4	5.6	4.4	5.6	4.4
Capital employed	221.3	182.9	221.3	182.9	221.3
ROCE %	10.6	24.1	10.6	24.1	10.6

Cotting Group has been established in the international coated textiles market for more than 60 years. Its products consist of PVC and PU coated fabrics that are used in a variety of areas, including the fashion industry, protective clothing, hospital beds, car interiors, dental chairs, furniture and wall coverings. Cotting has production facilities in France and Belgium.

Share of Duroc's sales (R12)

14%

• Net sales increased by 27.7 percent during the quarter and organic growth by 18.6 percent, thanks to increased sales volumes and price adjustments to the customer. Cotting Group continues to be heavily affected by Griffine's lower volumes especially in automotive, which remain at a lower level due to the semiconductor shortage.
• EBIT for the quarter totaled MSEK -14.8(-22.1), related to low sales volumes in the French operation and increasing energy costs and salary costs in the Belgian operation.
• The effect of cost-cutting measures together with raised prices to customers to compensate for increased raw materials prices helped dampen the losses, but as of yet the price increases have not fully taken effect. High energy prices and volumes that remain unsatisfactory in the French part continue to be a challenge.
• Efforts to dispose Griffine, the French operation, continues and are expected to result in significantly increased profitability for the Duroc Group.

• The table on the right is not adjusted for IFRS 5 effects as Griffine is classified as an asset intended for sale in the Group's consolidated accounts. See also Note 8.

	2022/	2021/	2022/	2021/	2022/
	2023	2022	2023	2022	2023
Amounts in MSEK*	Q2	Q2	Q1-Q2	Q1-Q2	R12 DEC
Net Sales	142.7	111.7	268.5	208.5	538.7
Growth, Net Sales %	27.7	-27.6	28.8	-23.4	14.2
Organic growth %	18.6	-26.6	21.4	-22.2	9.0
EBITDA	-10.3	-17.3	-12.8	-23.6	-42.3
EBITDA margin %	-7.2	-15.5	-4.8	-11.3	-7.9
Adjusted EBITDA	-10.3	-17.3	-12.8	-23.6	-40.6
Adjusted EBITDA-margin, %	-7.2	-15.5	-4.8	-11.3	-7.5
EBIT	-14.8	-22.1	-21.9	-33.2	-76.0
EBIT margin %	-10.4	-19.8	-8.2	-15.9	-14.1
Net Debt/Net Cash (-)	181.2	100.0	181.2	100.0	181.2
of which from leasing (IFRS 16)	1.8	3.8	1.8	3.8	1.8
Capital employed	326.0	312.1	326.0	312.1	326.0
ROCE %	-24.1	-14.6	-24.1	-14.6	-24.1
Adjusted ROCE %	-19.0	-12.5	-19.0	-12.5	-19.0