Nabaltec : Annual Report 2020 (ePaper)

SUSTAINABLE PRACTICES

Nabaltec products have an extremely diverse range of applications and are the preferred choice whenever utmost quality, safety, eco-friendliness and durability are required. The combination of these characteristics creates outstanding prospects for growth for Nabaltec's various specialty chemical products and is the basis for the company's many years of growing financial success.

Beyond economic aspects, however, Nabaltec also attaches particular importance to ecological and social responsibility. Over the years, a certified environmental management system, an occupational health and safety management system and an energy management system have been introduced.

EMPLOYEES

Sustainable employee development is important to Nabaltec AG in order to be prepared for future personnel challenges and in order to position itself as an attractive employer. As a family-friendly company which has been recognized multiple times, Nabaltec is committed to promoting young talent and values work/life balance.

INNOVATIONS

Nabaltec AG is regularly awarded national and international prizes and distinctions for innovation. 2020, for example, the company received once again the "Axia Best Managed Companies Award" for outstandingly managed mid-sized companies, due in part to its highly innovative practices.

Fourth quarter: markets rebounded and Nabaltec's revenues were up 7.7%

2020 was supposed to be a record year for Nabaltec, but then COVID-19 brought the world to a standstill and creating unfamiliar challenges for the economy and for Nabaltec as well. As the year went on, our business performance tracked very closely with the course of the pandemic: a modest first quarter was followed by a difficult second quarter, with revenues down 25.7% from the same quarter of last year. In the third quarter, our markets stabilized at a low level, and revenues were down by just 15.5%. Results in the fourth quarter demonstrated impressively that our markets are recovering and that Nabaltec is well-positioned with its existing product portfolio. Revenues were up 7.7% in the fourth quarter, a figure which was in line with the growth posted in the same period of last year.

But the pandemic had a clear if indirect negative impact on earnings. Triggered by the impairment test for our Nashtec subsidiary in the US, we were forced to write down some of the assets on our balance sheet. The 2020 results also included non-recurring effects because of our strategic decision to discontinue mullite production in the "Specialty Alumina"

product­ segment at our Schwandorf site. These non-recurring effects weighed down earnings by a grand total of EUR 25.3 million, although they did not affect cash flow. Adjusting for these non-recurring effects, EBIT amounted to EUR 9.4 million in 2020. This corresponds to an adjusted EBIT margin of 6.0%, which can be viewed as satisfactory in view of the challenging environment. Without adjusting for these effects, EBIT came to EUR -15.9 million, with a net loss of EUR 19.7 million.

In this difficult year, it was important for us to implement extensive new spending cuts at an early stage. To a large extent, these cuts were achieved through reductions in personnel expenses, e.g. by reducing working time and eliminating all profit shares for Financial Year 2020. Despite the very difficult conditions, all of our employees displayed outstanding commitment at all times: we would never have been able to overcome the COVID-19 crisis as well as we did without this special effort from our employees. Together, we were able to mitigate the impact of the pandemic as best we could in all areas, and we would like to extend our warmest thanks to our entire team of employees.

In addition to reductions in spending, the clear focus on cash flow and liquidity served to make our company as crisis-proof as possible. We were able to generate EUR 24.3 million in operating cash flow in 2020, up 8.5% from 2019. Our free cash flow increased to EUR 14.0 million in the reporting year, up from EUR 2.3 million in 2019. This improvement ­underscores our success in keeping the company strictly on course in terms of liquidity, even in a crisis year like 2020, while creating additional space for future alignment.

Boehmite, our product of the future, played a special role in 2020. Its primary application continues to be use in lithium ion batteries for electric vehicles, particularly in coating for separator film. Unaffected by the pandemic, we were once again able to generate outstanding revenue growth in this product range, with revenues up nearly 50%. Boehmite now accounts for around 10% of consolidated revenues. Once again, 100% of the boehmite sales volume was generated in Asia, which continues to lead the world in the production of lithium ion batteries. We have been able to expand our customer base in Asia, and we now supply customers in South Korea, Japan and China. We are especially proud of our successful entry into the Chinese market, with the aid of our Chinese subsidiary, Nabaltec (Shanghai) Trading. In early 2021, we were able to begin generating revenues in Europe from the coating of separator film. We are still operating on a small scale in this area, but we expect to see the emergence of a significant market here with the development of the European battery con- sortiums. We are making preparations for this growth, having taken measures to increase capacity in 2020, and we will make further investments in this direction in 2021 as well.

Our US operations are still an important part of our company's future: one shouldn't allow the write-downs to create the wrong impression. Our decision to bring US operations under our full control and to expand them significantly with the opening of a new plant in Chatta- nooga was made long before the COVID-19 pandemic. Given the pandemic and the current economic environment in the US, potential customers are unwilling to switch suppliers, which would require them to begin a usually somewhat protracted approval procedure with new partners. In addition, we are attempting to target new sectors in the US, where it will

EBIT of

EUR 9.4 million after adjusting for non-recurring effects

Nabaltec well- positioned in terms of liquidity, with EUR 14.0 million in free cash flow

Boehmite revenues once again post strong growth

2021 revenue growth expected to fall in a range from 6% to 9% over the previous year's total of EUR 159.6 million

take us some time to build up the market standing which we have long enjoyed in other sectors all over the world. But we consider this reticence on the part of customers to be a temporary effect. We remain convinced of the strength of our products and we believe that the market will open to us, although we also know that it will take patience.

In 2021, our company will get back on track for growth. Things started moving in the right ­direction in the fourth quarter of 2020, and we got off to a strong start in 2021 as well. Despite the continuing COVID-19 pandemic, we expect 2021 revenue growth to fall in a range from 6% to 9% over last year's total of EUR 159.6 million. We are similarly confident about earnings performance, and we expect an EBIT margin of 8% to 10%, up from an adjusted EBIT margin of 6.0% in 2020. This forecast is based on the assumption of strong economic and industry performance. In other words, results in 2021 should be down slightly from the levels posted in 2019, but we expect to be posting record highs once again by 2022 at the latest.

Schwandorf, March 2021

Nabaltec AG's performance in Financial Year 2020 was shaped by the global coronavirus pandemic, which had a lasting impact on the economy and on workers everywhere. The market environment worsened rapidly in the second quarter due to the impact of the pan- demic, and was very slow to recover over the remainder of 2020. Aside from the non-recurring expense represented by the extraordinary write-down at Nabaltec's US subsidiary Nashtec, the impact of the pandemic was moderate in the overall scheme of things. At the same time, the company demonstrated that it is well-prepared for emerging crises and that is capable of maneuvering in a difficult environment. The continuing focus on innovations and, therefore, on the newly developed markets of the future, such as boehmite for electric mobility, will provide the basis for stable corporate performance in the long term.

COLLABORATION BETWEEN THE SUPERVISORY AND MANAGEMENT BOARDS

The Supervisory Board duly performed its assigned tasks in Financial Year 2020 in accordance with the law, the Articles of Association and the Rules of Procedure and was routinely informed by the Management Board in detail as to the performance and position of the company. The Supervisory Board advised the Management Board in accordance with the underlying information and exercised utmost care in monitoring and supervising the Management Board. The Supervisory Board was involved at an early stage in all decisions of fundamental importance for the company, and was kept fully and directly informed by the Management Board.

Major events, as well as questions relating to strategy, planning, business development, the risk position, risk management and compliance, were considered by the Supervisory Board both internally and in conjunction with the Management Board. The Supervisory Board voted

In the past financial year, Nabaltec has demonstrated that it is well-prepared for emerging crises and that is capable of maneuvering in a difficult environment

The Supervisory Board was kept fully informed by the Management Board

All transactions requiring approval in Financial Year 2020 were decided positively

The Supervisory Board had four meetings in 2020 in which all

members were present

on the reports and draft resolutions submitted by the Management Board after careful deliberation and review. All transactions requiring approval in Financial Year 2020 were decided positively.

In the Supervisory Board's estimation, all three of its current members should be considered independent. However, the Supervisory Board reserves the right to approve consulting and employment agreements between individual members of the body and the company if the Management Board and Supervisory Board concur that the conclusion of such an agreement is in the company's interest in that particular case.

The Supervisory Board once again opted not to form committees in the past financial year. With three members, the Supervisory Board is of suitable size for all matters to be ­considered and decided by the full Supervisory Board. No conflicts of interest for individual Supervisory Board members arose in the course of deliberations or voting by the Supervisory Board, or in the Board's exercise of its supervisory mandate in the 2020 reporting year.

The Supervisory Board once again performed a self-assessment of its activities in the past year (efficiency check) and has reached a positive conclusion. The focuses of this self-assessment were above all on procedures and the timely and adequate provision of information.

MEETINGS OF THE SUPERVISORY BOARD AND FOCUS OF DELIBERATIONS

Four regular ordinary meetings of the Supervisory Board were held in the reporting year, on 21 April, on 30 June, following the virtual Annual General Meeting, on 29 September and on 15 December. The meetings on 21 April 2020, 30 June 2020 and 29 September 2020 were held in-person, while the meeting on 15 December 2020 was a virtual meeting (video conference). All members were present at all meetings in 2020. No additional meetings took place in 2021 prior to the Supervisory Board meeting on 20 April 2021 (as a video ­conference), in which the Board votes on adoption of the financial statements. The members of the Supervisory Board also deliberated in writing and by telephone. On four occasions in 2020, resolutions were adopted by the Supervisory Board outside of Super­ visory Board meetings.

The following issues were the subject of particularly intensive consideration in Financial Year 2020:

• the 2019 annual financial statements and consolidated financial statements including the proposal for the appropriation of distributable profit;
• planning for 2021 and mid-term planning through 2023;
• investment and financing planning for the period from 2021 through 2023;
• measures in connection with the coronavirus pandemic (pay cuts, conduct of the 2020 Annual General Meeting in virtual form);
• performance, planned measures, outlook and accounting treatment for the US subsidiary Nashtec.

The goals and realization status of innovative projects, the effectiveness of the risk management system, the accounting processes in Nabaltec AG and Nabaltec Group, as well as the monitoring of the internal controlling system were also focuses of the Supervisory Board's work in Financial Year 2020.