H+H International

Untitled CVR no: 49 61 98 12 | Lautrupsgade 7, 5 th floor, 2100 Copenhagen Ø 2022 Annual Report H+H International A/S We enable better homes for our communities Partners in Wall Building Being a part of H+H means you are in the business of people and teamwork. Our partners trust us to understand their building needs from design, specification and planning to delivery, assembly and problem solving. With our partners, we enable better homes for our communities. Putting people first The health and safety of our people, suppliers and customers, will never be compromised. We are committed and have the ambition of zero harm for our own and our partners’ people. We know that people are different. We trust our differences enable us to see new opportunities and be more effective. People are the heart of H+H. Performance driven H+H strives to deliver results to all our partners and in the communities where we operate. Even when times are difficult, we deliver quality products with the highest level of service to our customers. Our operations run timely and effectively. We follow through on our commitment to serve our communities. You can trust us to deliver on our promises. Pushing the boundaries To build better homes, we must stay curious and eager to drive our industry forward. We are continuously improving operations and products. Together with our partners we rethink supply chains, services and digital solutions. We are pushing to meet the needs of tomorrow. Part of a sustainable future Today we work with our partners to reduce energy needs in homes and our commitment is more than the long lasting and insulating products we produce. We are part of the solution in creating sustainable and carbon neutral buildings. We are partnering with our customers, suppliers, and other stakeholders; finding new production methods to lower the environmental impact of homes. We act today to realise our vision of carbon neutrality in 2050. Management’s review | H+H introduction 2 | H+H Annual Report 2022 Table of Contents Management’s review Financial statements Other 2022 reports In brief 4 Letter from the Chair 5 Letter from the CEO 7 H+H at a glance 9 Equity story 10 Performance highlights 2022 11 Five-year summary 12 Our business and strategy 13 Business model 14 Products and solutions 15 Corporate strategy and growth platform 16 Sustainability strategy 19 Sustainability highlights 20 Summary of strategic targets 22 Our performance 23 A word from the CFO 24 Full year 2022 financial review 25 Financial outlook 27 Q4 2022 key figures 28 Q4 2022 results (unaudited) 29 Financial policy and capital allocation 30 Our markets 31 Our geographical footprint 32 Central Western Europe 33 The United Kingdom 35 Poland 37 Governance and shareholder information 39 Corporate governance 40 Board of Directors 43 Executive Board 44 Risk management 45 Shareholder information 47 Financial statements 49 Income statement 50 Statement of comprehensive income 50 Balance sheet at 31 December 51 Cash flow statement 52 Statement of changes in equity 53 Notes to the consolidated financial statements 54 Notes – Financial statements 55 Notes – Income statement 58 Notes – Balance sheet 65 Notes – Supplementary information 79 Statement by the Executive Board and the Board of Directors 85 Independent Auditor’s Reports 86 Contact information 90 More than 100 years of experience 91 Sustainability report www.hplush.com/sustainability-reports Remuneration report www.hplush.com/remuneration Corporate Governance statement www.hplush.com/corporate-governance-reports 7 Letter from the CEO 49 Financial statements 23 Our performance Sustainability Report 2022 H+H International A/S CVR-no: 49 61 98 12 | Lautrupsgade 7, 5 th Floor. 2100 Copenhagen Ø CVR-no: 49 61 98 12 | Lautrupsgade 7, 5 th Floor. 2100 Copenhagen Ø H+H International A/S Remuneration Report 2022 Corporate Governance Statement 2022 H+H International A/S CVR-no: 49 61 98 12 | Lautrupsgade 7, 5 th Floor. 2100 Copenhagen Ø Management’s review | H+H introduction 3 | H+H Annual Report 2022 The Annual Report of H+H International A/S comprises consolidated financial statements and parent company prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and further requirements in the Danish Financial Statements Act. Forward-looking statements The Annual Report contains forward-looking statements. Such statements are subject to risks and uncertainties, as various factors, many of which are beyond the control of H+H, may cause actual developments and results to differ materially from the expectations expressed in this document. In no event shall H+H be liable for any direct, indirect or consequential damages or any other damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other action arising out of or in connection with the use of information in this document. Comparative figures Unless otherwise stated, all figures in parenthesis refer to the corresponding figures in the prior year. IN BRIEF Letter from the Chair Letter from the CEO H+H at a glance Equity story Performance highlights 2022 Five-year summary 4 | H+H Annual Report 2022 Management’s review LETTER FROM THE CHAIR Strong performance in a challenging business environment It is my pleasure once again to present strong results for H+H. The results demonstrate the strengths of our business model and the resilience of our diversified footprint. Our commitment towards sustainability, environmental and climate protection remains a key focus for H+H looking ahead. I am proud to present another successful year for H+H. Again this year we delivered double-digit growth and were able to pursue our strategy for profitable growth while delivering on our financial guidance with EBIT before special items of DKK 455 million. Much has happened since we entered 2022, and the macro-economic and political situation is today quite different in many of our markets from a year ago. The Ukraine war has led to general uncertainty, and prices of raw materials and building materials kept rising during parts of the year. However, thanks to the execution of our strategy, resilient partnerships and our dedicated employees all over Europe, we have successfully navigated through these challenging situations. Onboarding a new CEO On 1 October we welcomed our new CEO; Jörg Brinkmann. H+H focuses on international expansion and we believe he is the right person to drive our agenda for profitable growth going forward as he brings solid international experience from the industry. Our new CEO will head the continued expansion of our factory network, ensure innovation and keep a firm eye on securing a continous journey towards zero emissions. Investing in factories and production Our factory network plays an essential role in our future growth. This year we have invested in optimising our production platform in Germany and Poland, and we will continue to do so in the coming years. Through targeted investments we aim to harvest efficiency gains to drive further organic growth while at the same time lowering CO 2 emissions from our production and reducing our overall environmental footprint. Management’s review | H+H introduction 5 | H+H Annual Report 20225 | H+H Annual Report 2022 Together with investments, maintenance and consolidation of our other facilities in Europe this prepares us to meet demand in a flexible way in the coming years. With the economic uncertainty and instability in many parts of Europe, we have prioritised to be resilient and scalable in these dynamic and changing market conditions. Towards zero emissions Sustainability is an integral part of our strategy and business operations and annually we allocate DKK 20 million to fund CO 2 reducing projects. Our overall goal is to be carbon neutral in 2050, and we have set a ten-year science-based target to decarbonise our operations and reduce the carbon intensity of our AAC and CSU products. It is our ambition to reduce absolute scope 1 and 2 emissions by 46% and our scope 3 emissions per m 3 by 22% by 2030. We continue to be on the right path to achieving these targets, which is a recognition that our production and value chain aligns with the 1.5°C global warming reduction required. Long-term benefits for H+H Our growth was particularly strong in the first half of the year. However, the growing market uncertainty had an impact on the second half which has slowed down decision-making in the building sector. We are not immune to these challenges and our revenue growth rate is impacted by general economic uncertainty. Though we do see macro-economic challenges in the short- and mid-term, I am confident in the long-term prospects for our business. Our markets remain characterised by the longer-term effects of a structural undersupply of housing caused by growing populations and urbanisation. Especially in Germany and in the UK there is a strong need for housing, and it appears that this need will only grow in the coming years. Also, we see increased expectations of more sustainable, less energy-consuming and more climate-friendly buildings. This speaks directly to our business model. H+H is strongly positioned to take advantage of these trends, and we will be investing in advancing that position over the coming years. Our promise At H+H we focus on delivering shareholder value. This includes defining ambitious and realistic financial targets, providing relevant guidance, communicating concisely to the market, and delivering open and transparent data about our business performance. Although we are seeing a shift in market demand and tougher times ahead, our markets are characterised by a structural undersupply and a need for sustainable housing solutions, and we are therefore confident in the long-term prospects for our business. We maintain our long-term financial ambitions over a cycle of an EBIT margin of 12% and ROIC of 16%. On behalf of the Board of Directors, I am grateful for the support that our customers, business partners and investors bring us. Also, I am proud that our people overcame the considerable challenges presented during the year due to the volatility and uncertainty on our markets. They made us able to deliver uninterrupted service to our customers across our footprint. Kent Arentoft Chair Long-term financial targets EBIT margin before special items 12% 13% in 2022 Financial gearing Net interest-bearing debt to EBITDA before special items 1-2x 0.7x in 2022 Return on invested capital (ROIC) 16% 19% in 2022 Note: The long-term financial targets reflect the ambition to maintain average levels across a full business cycle. Management’s review | H+H introduction 6 | H+H Annual Report 2022 LETTER FROM THE CEO A strong and sustainable business model delivered record results 2022 was a record year for H+H We delivered our best result ever with an organic growth of 14% and an EBIT before special items of DKK 455 million. Our business model and lean organisation proved resilient to the challenging business environment. We remain agile and adjust to the market changes in front of us. A lot has changed in 2022 with the beginning of the war in Ukraine, high inflation, and higher prices for our raw materials and energy. Consequently, we increased our sales prices throughout the year with the clear ambition to offset rising input costs. The team delivered all-time high financial performance with revenue of DKK 3.604 million and an EBIT margin of 13%. Also, our CO 2 emissions and safety performance significantly improved and reached new levels. Delivering such results in a challenging market environment is not easy and I would like to thank our employees for their dedication and ability to adapt to these challenges. Through 2022, our teams have worked tirelessly to deliver unparalleled quality and customer service, working closely together with our partners and continuously improving our business model. Also, I would like to extend my gratitude to our customers and suppliers for entrusting us in meeting their needs. Continuously improving our operations As a manufacturing company the performance of our plants is critical for our business success. Consequently we strive to improve our operations through continuous improvement initiatives, maintenance investments and strategic investments. In 2022, our Wittenborn factory in Germany was upgraded, resulting in higher efficiency and more reliable output to serve our customers with high quality AAC products in Northern Germany and Nordics. Also in 2022, a new CSU plant in our existing AAC factory in Reda, Poland was opened. It is the first factory in Poland capable of producing both AAC and CSU, and the factory will be supplying the growing Tri-city area around Gdan´sk. Management’s review | H+H introduction 7 | H+H Annual Report 2022 Management’s review | H+H introduction In November 2022, we also announced an upgrade to our Borough Green factory to increase the UK capacity by approximately 10% to be completed in beginning of 2024. In parallel to our ongoing investments, we believe to have further potential in our factory network through best practice sharing, standardisation and de-bottlenecking. This leads to higher efficiency and increased output, which is needed to meet the future demand for our products in our markets. In all we do, nothing is more important than the safety of our people, and I am very pleased to report that we reduced our Lost Time Incident Frequency (LTIF) to 3.6 in 2022, the lowest level ever achieved. However, every accident is one to many and we restlessly strive for zero harm. Driving forward our ESG agenda We strongly support the sustainable transformation of Europe towards carbon neutral construction. We believe in leading by example and was one of only six companies within our sector in Europe to have science- based targets approved in 2021. We are a year ahead of our target having reduced our emissions approximately 8 percent in 2022 year-on- year, and we have established a structured process for identification and implementation of CO 2 reducing projects, optimizing our energy mix and collaborating with our suppliers to reduce Scope 3 emissions. Our ESG agenda is becoming an integral part of our business strategy and to support this our 2023 LTI and STI programmes will include ESG targets across our organisation. In addition, in the beginning of March, we entered our first sustainability-linked finance agreement with Nordea including targets for CO 2 emissions and safety. Short-term challenging market environment, long-term growth opportunities In the second half of 2022, we have seen decreases in building permits issued in all our markets. Higher building cost as well as rising mortgage rates have led to increased uncertainty, and we have seen construction activities declining from end 2022 into start 2023. Consequently, towards the end of 2022, we initiated a mitigation plan, which includes adjusting our capacity to lower demand, tight cost management and review of investment levels. At the same time, inflation continues to impact our production costs, and we expect to see these costs maintained at a high level. As we remain committed to defend our earnings, we will continue to pass through cost inflation to the market. Despite those challenges our long-term market view remains positive, as urbanization and structural undersupply of housing across Europe continues to hold attractive growth opportunities. Our products are well suited to support the demand for affordable and sustainable housing. M&A remains a strategic growth driver Strategic growth through acquisitions has been a strong part of our strategy in recent years. During 2022, we have successfully integrated two acquisitions made in 2021. Acquisitions will continue to be a growth driver for H+H, as we see further synergies from expansion of our factory network in existing markets and potentially entering new markets. Our strong financial position enables us to pursue profitable growth opportunities, and we will continue to explore potential targets. Jörg Brinkmann Chief Executive Officer “In parallel to our ongoing investments, we believe to have further potential in our factory network through best practice sharing, standardisation and de-bottlenecking” Management’s review | H+H introduction 8 | H+H Annual Report 2022 H+H at a glance H+H is a leading provider of solutions and materials for wall building. Over the recent years, H+H has grown significantly through acquisitions and now has a strong and diversified market position across its geographies, serving as a solid foundation for continued growth. Sustainability 46% By 2030, to reduce absolute Scope 1 and 2 GHG emissions by 46% from a 2019 base year, equivalent to a 4.2% reduction each year. By 2050, achieve net-zero emissions. Employees 1,739 We have more than 1,700 employees working across eight different countries in Northern and Central Europe. Approximately two-thirds work in our factories. Factories 32 We have 32 factories across Northern and Central Europe with a total annual output of close to 4.5 million cubic metres of wall-building materials. Acquisitions 24 Since 2014, we have acquired 24 factories. These have contributed to a significant expansion of our factory network and have more than tripled our white-stone businesses in both Germany and Poland. Revenue by product line (FY 2022)Revenue (DKKm) 3,604 In 2022, we generated total revenue of DKK 3,604 million and organic growth of 14%. AAC and CSU accounted for 71% and 29% of total revenue, respectively. 29% Calcium silicate (CSU) is a heavy and dense wall- building material primarily used for residential high-rise buildings. The product is fire resistant and has a very high degree of sound insulation. 71% Aircrete (AAC) combines strength and durability with fire resistance, low weight and excellent thermal insulation making it the ideal material for the residential low-rise housing market. Both products are key components for energy-efficient wall systems. Management’s review | H+H introduction 9 | H+H Annual Report 2022 Equity story We remain in a unique position for continued growth due to unique market conditions, a differentiated market approach, sustainable products and solid strategy execution Unique market conditions for growth • Structural undersupply of housing • Government commitment and stimuli programmes for housebuilding • Demographic growth and changing housing needs • Fragmented markets with room for consolidation through acquisitions • High entry barriers for new competitors Differentiated market approach • Value-added customer relationships and assistance through entire building process • Supplying sophisticated and sustainable solutions • High degree of market adaptability • High customer retention rate Sustainable solutions — net-zero emissions by 2050 • Commitment to ambitious emission-reductions in line with the 1.5-degree scenario • Long-lasting products • Carbon-friendly products with CO 2 absorbing abilities • Aspiration to deliver ‘less-than-zero’ emission products • Insulating properties leading to energy savings and more sustainable buildings Proven track record of strategy execution • European market-leading position in AAC and CSU products established through M&A • Consolidation of fragmented markets continues to provide attractive synergies • Efficient integration process and agile organisation • Return on Invested Capital (ROIC) consistently above WACC • Strong cash-flow generation to fund continued growth Management’s review | H+H introduction 10 | H+H Annual Report 2022 Performance highlights 2022 DKKm Ratio 0 120 240 360 480 600 2018 2019 2020 2021 2022 0,0 0,5 1,0 1,5 2,0 2,5 DKKm % 0 500 1,000 1,500 2,000 2,500 2018 2019 2020 2021 2022 0 5 10 15 20 25 DKKm 0 70 140 210 280 350 2018 2019 2020 2021 2022 DKKm % 0 200 400 600 800 1,000 2018 2019 2020 2021 2022 0 7 14 21 28 35 0 800 1,600 2,400 3,200 4,000 DKKm % 2018 2019 2020 2021 2022 -8 0 8 16 24 32 DKKm % 0 100 200 300 400 500 2018 2019 2020 2021 2022 0 3 6 9 12 15 Invested capital and ROIC excluding goodwillNet interest-bearing debt and financial gearing 1 Profit after tax Note: In 2018, Return on invested capital (ROIC) was adversely impacted by a one-off related to the acquisition and integration of the German and Polish businesses as well as impairment of fixed assets in the now divested Russian business. Adjusted for these effects, ROIC would have been 17%. 1 Net interest-bearing debt to EBITDA before special items ratio Note: Net interest-bearing debt for 2019 onwards include the impact from IFRS 16 317 0.7x 19% Profit after tax Net interest-bearing debt Financial gearing Invested capital Return on invested capital EBIT and EBIT margin before special itemsGross profit and gross margin before special itemsRevenue 3,604 28% 13% Selected financial figures and ratios Revenue Organic growth Gross profit before special items Gross margin before special items EBIT before special items EBIT margin before special items Management’s review | H+H introduction 11 | H+H Annual Report 2022 Five-year summary Income statement (DKK million) 2022 2021 2020 2019 2018 Revenue 3,604 3,020 2,654 2,840 2,523 Gross profit before special items 1,020 905 836 877 690 EBITDA before special items 657 591 521 539 410 EBITDA 615 567 521 531 345 EBIT before special items 455 408 332 366 228 EBIT 413 377 332 358 163 Profit before tax 398 356 307 205 125 Profit after tax for the period 317 321 251 150 125 Balance sheet (DKK million) 2022 2021 2020 2019 2018 Assets 3,750 3,400 2,909 2,716 2,421 Invested capital 2,142 1,852 1,865 1,809 1,568 Investments in property, plant, and equipment 1 266 197 134 126 138 Aquisition and divestment of enterprises - 238 72 (20) 839 Net working capital 242 65 55 48 8 Equity 1,938 1,814 1,509 1,371 1,000 Net interest-bearing debt (NIBD) 492 350 230 407 525 Cash flow (DKK million) 2022 2021 2020 2019 2018 Cash flow from operating activities 316 454 425 369 370 Cash flow from investing activities (255) (427) (206) (105) (973) Cash flow from financing activities (19) (25) 6 (131) 679 Free cash flow 61 27 219 264 (603) Financial ratios (DKK million) 2022 2021 2020 2019 2018 Organic growth 14% 13% (6%) 6% 18% Gross margin before special items 28% 30% 31% 31% 27% EBITDA margin before special items 18% 20% 20% 19% 16% EBITDA margin 17% 19% 20% 19% 14% EBIT margin before special items 13% 14% 13% 13% 9% EBIT margin 11% 12% 13% 13% 6% Return on invested capital, excluding goodwill 2 19% 20% 18% 20% 10% Solvency ratio 49% 50% 50% 49% 41% Financial gearing 0.7x 0.6x 0.4x 0.8x 1.3x ESG performance data (DKK million) 2022 2021 2020 2019 2018 Average number of FTEs 1,738 1,572 1,619 1,685 1,651 Full-time workforce 1,739 1,663 1,571 1,636 1,608 Lost-time incident frequency (LTIF) 3.6 5.5 5.7 5.6 9.0 Sickness absence (days per FTE) 13 12 13 13 10 Total energy per m 3 (MJ) 567 554 551 565 593 Fresh water consumption per m 3 (litres) 369 354 363 382 387 SBTi targets 2022 2021 2020 2019 2018 Scope 1+2 emissions (Tonnes) 176,250 191,806 178,363 199,209 N/A Scope 3 intensity (kg/m 3) 157 157 157 162 N /A 1 Investment in property, plant, and equipment excludes effects from IFRS 16. 2 Due to the acquisitions the method for calculating Return on invested capital (ROIC) has changed to better reflect a true and fair view. ROIC for the period 2018-2021 has been calculated as Operating profit (EBIT) relative to average invested capital (excluding goodwill) on a twelve-month basis. Note: Financial ratios and ESG measures have been calculated in accordance with recommendations from the Danish Society of Financial Analysts. Management’s review | H+H introduction 12 | H+H Annual Report 2022 OUR BUSINESS AND STRATEGY Business model Products and solutions Corporate strategy and growth platform Sustainability strategy Sustainability highlights Summary of strategic targets 13 | H+H Annual Report 2022 Management’s review Business model Resources People We value our workforce, recognise the advantages of diversity and believe in the equality of people Raw materials Our products are made of sand, water and lime, with cement and aluminium added for aircrete Factory network We have created a strong network of factories and sales offices with national reach within the countries in which we operate Unique market conditions for growth Structural undersupply of housing, demographic growth, urbanisation and changing housing needs provide a solid growth platform Solid capital structure Our strong and flexible capital structure supports our continued growth journey and sustainable shareholder value creation Added value Customer value By understanding our customers, their local needs and the industry trends, we help overcome challenges, elimi- nate waste and manage complexities throughout the wall-building process Modern and carbon-friendly products Our products offer improved indoor climate and energy savings as well as fire resistance and better acoustic insu- lation between rooms. In addition, the products are long-lasting and can be integrated into a circular economy Safe and attractive work environment Employment and working conditions must be safe, fair and non-discrimina- tory to attract top talents and support the development and career ambitions of our employees Shareholder value We will continue to pursue profitable growth through acquisitions and investments in the existing production platform to generate robust, long-term value for our shareholders. Further, we may return excess capital to share- holders by means of dividends and/or share buy-back programmes We enable better homes for our communities Strategy execution We have a strong track record of strategy execution. Through consolidation of the European white-stone markets, we have realised significant synergies related to both pricing, sourcing and sales channels Quality manufacturing We follow a lean manufacturing process to improve efficiency and eliminate waste. Further, targeted capital investments improve reliability, throughput and quality across the production platform Value-added sales We support our customers from the early planning stage and throughout the wall-building process. We aim to be the ideal partner and a one-stop shop for every wall-building project Diversified market Our product range is diverse and its flexibility allows for various applications. As a result, the customer segments are also diverse and provide a differentiated risk profile Our business Management’s review | Our business 14 | H+H Annual Report 2022 Private low-rise houses H+H has a strong track record and expertise in construction of walls for private low-rise houses. Applicable across segments and purposes Volume housebuilders H+H is a trusted partner to builders of large construction projects ensuring cost- efficient and high-quality solutions. Public sector housing H+H is committed to supporting public sector housing providers with high quality, long-lasting and energy-efficient housing. Commercial and industry H+H’s solutions are immensely versatile and can be used in many types of commercial and industrial buildings – low-rise as well as high-rise. Residential high-rise H+H wall building solutions also include solid and partition wall products used in residential high-rise buildings. Self-build H+H wall solutions also support self-build and DIY projects of any kind. An eco-friendly and easy-to-handle material for any wall. Renovation H+H wall-building solutions are a popular choice for domestic renovations, extensions, and small building projects, including energy-efficient improvements. Our product range is diverse and its flexibility allows for various applications. As a result, the customer segments are also diverse and provide a differentiated risk profile. Our products H+H is a provider of building materials. Our core activities are the production and sale of autoclaved aerated concrete (AAC or aircrete) and calcium silicate (CSU or sand lime bricks). The products are building blocks used for wall building and pre-cast wall-panel solutions, primarily in the residential new-building segment. The product range also includes more advanced products, such as high-insulating blocks, larger elements and a range of traded goods used for wall- building. Foundations H+H Foundations Blocks are quick to install and can be used to support solid or cavity wall constructions as well as timber frame structures. External walls H+H wall elements can also be used for solid external walls. They offer the fastest building method as well as unparalleled air tightness and insulation. Internal walls Partition walls built with H+H wall materials meet any sound-insulation requirements and are quick and easy to install. A strong solution in sustainable building Products and solutions Management’s review | Our business 15 | H+H Annual Report 2022 Corporate strategy and growth platform We will continue to pursue profitable organic growth, as well as opportunities to expand both our geographical footprint and offerings within adjacent products and wall systems. We will focus on opportunities offering synergies and providing us with a more diversified exposure in the growing market of affordable and sustainable housing in Europe. Differentiated market approach We firmly believe that collaboration creates lasting value – both for the customers, suppliers and other stakeholders. By understanding industry trends, our customers and their specific needs, we can help them solve challenges, eliminate waste and manage complexities throughout the building process with the aim of building affordable, long-lasting sustainable homes. We strive to be the ideal partner and a one-stop- shop for every wall-building project, while also assisting in optimising the building process and the carbon emissions from a life-time perspective. Our value proposition is to be a trusted partner to all customers across our markets, aiming to add value at every stage of the building process. We are constantly striving to find new ways to improve our products and building concepts to make building better, easier and more efficient to everyone involved – from sourcing and production to distribution and building sites. Optimisation of production network The markets in which we operate hold attractive long- term growth opportunities due to the demographic profile and the political drive to secure adequate housing, and we have a strong track record as a market consolidator. Generally, and as previously communicated, the European housing markets are still expected to continue growing, supported by the longer- term effects of a structural undersupply of housing, demographic growth and urbanisation. We remain strongly positioned to take advantage of these longer- term trends and will be investing in further enhancing our position over the coming years. Following the successful consolidation of the German and Polish white-stone markets, which has formed a solid platform for long-term growth and value creation, we will to a larger degree focus our strategic efforts on optimising and strengthening our production platform. This may be done via investments in optimising the existing factory network allowing for further efficiency gains, investments in additional capacity and a continued focus on innovation and sustainability. Our Continuous Improvement programme has shown good results since its introduction in 2019. The programme is a long-term commitment to deliver sustainable margin improvements. We will continue our focus on improving energy efficiency, improving raw-materials consumption, reducing waste and increasing factory up-time across our footprint. We also see great potential in the British ‘Modern Methods of Construction’ (MMC) initiative, including marketing of our pre-cast wall-panel solutions (i.e., storey-height aircrete panels) to the British market as well as a continued focus on the marketing of our thin-joint masonry solutions where mortar is replaced by glue, thereby creating a thinner joint between the individual blocks which results in faster laying and improved productivity. Both solutions provide improved efficiency at the construction sites, but are also expected to result in incremental sales volumes for H+H. The addition of capacity through the construction of new factories or the expansion of existing production facilities will also be within our strategic scope. The expansion of the AAC factory in Reda in Poland with a new CSU production line was completed in Q3 2022, and in 2023 we will upgrade our capacity at Borough Green, UK. Profitable growth through acquisitions We want to continue our profitable growth through acquisitions and have the financial strength to further strengthen our position through acquisitions offering synergies and a more diversified exposure in a growing market. We see good opportunities to grow and expand both our geographical footprint as well as our offerings within adjacent products and wall systems. We have a strong track record when it comes to buying solid companies and integrating them both fast and successfully from consolidating the European white- stone-market in recent years, with the acquisition of 24 factories. These factories have contributed to a significant expansion of our factory network and have more than tripled our white-stone businesses in both Germany and Poland. This has significantly increased our geographic footprint, revenue and earnings and positions us well for continued growth through acquisitions. Management’s review | Our business 16 | H+H Annual Report 2022 In 2021, we acquired an aircrete factory located in Feuchtwangen in Bavaria, Germany, and 52.5% of the shares in DOMAPOR Baustoffwerke GmbH & Co. KG (DOMAPOR), a German manufacturer of aircrete and calcium silicate blocks located in Mecklenburg-West Pomerania. We maintain a pipeline of potential acquisition targets and may pursue any of these should they add value to our existing operations. We may therefore continue to engage in acquisitions of targets with attractive geographical locations and/or modern and well-run production facilities. We remain in a unique position to pursue further expansion of our German production footprint, as we have both the necessary financial strength and a proven track record of integration and restructuring from recent years’ acquisitions. Entrance into new markets. We also see relevant growth opportunities through expansion of activities into geographies with high levels of market penetration for AAC and CSU products. The market structures and associated risk profiles differ from market to market – particularly for AAC as the product category has a larger geographical reach. We are continuously monitoring the market and have the financial means to benefit from opportunities arising and creating market-leading positions should targets be available. The expansion of our product offering with other wall-building materials may potentially also offer relevant growth opportunities and synergies. Packaging line in Reda, Poland Management’s review | Our business 17 | H+H Annual Report 2022 Completion of our new CSU factory in Gdan´sk, Poland Our new plant affords us a number of key benefits; closer proximity to our CSU customers in a densely populated area of Poland, synergies across channels for sales and marketing and a factory with sustainability built in the start. The factory was approved in January 2019, but building commencement was delayed to 2021 due to the COVID pandemic. The factory currently operates in its first phase with an automatic production line and with a production capacity of 50,000-60,000 m 3 . Phase two, will increase capacity to 90,000-100,000 m 3 per year. In July 2022, H+H opened a new plant near Gdan´sk, Poland. The new plant has been built next to the existing AAC plant and is the first factory in Poland capable of producing both AAC and CSU. The new CSU plant is built with a focus on sustainability. The production line has been built from refurbished machinery and materials; it operates ecologically based on the principle of zero waste with a very efficient use of water in the production processes. Also, the plant operates on high standards as regards to health and safety. The new CSU factory has a capacity of up to 60,000 m 3 annually in its phase one, corre- sponding to approximately 3% of the current CSU market. Management’s review | Our business 18 | H+H Annual Report 2022 Sustainability strategy Environment Social Governance Sustainable buildings Climate & environment Health, safety, and people Business integrity By 2030, reduce Scope 3 GHG emissions 22% per m 3 from a 2019 base year By 2050, achieve net-zero emissions in H+H products By 2030, reduce absolute Scope 1 and 2 GHG emissions by 46% from a 2019 base year, equivalent to a 4.2% reduction each year By 2024, reduce energy consumption per m 3 by 7% vs. 2019 base line of 565 MJ per m 3 By 2024, reduce water usage by 5% vs. 2019 base line of 382 litres per m 3 By 2024, achieve zero waste to landfill By 2050, achieve net- zero emissions in H+H’s operations By 2024, reduce absenteeism to 9 days per annum, including absentee- ism from long-term illness By 2024, reduce lost time incidents frequency (LTIF) to 3.5 Have gender diversity within the Board of Directors of H+H International A/S to minimum 25-40% of the under-repre- sented gender We want to enhance our product portfolio through more sustainable products and application methods, that improve energy efficiency and lower the life-cycle emissions of buildings. We partner with cement and lime manufacturers to test low-carbon products to reduce our Scope 3 emissions and are committed to achieving net-zero emissions from our products by 2050. We aim to reduce our Scope 1 and 2 emissions, achieve net-zero emissions from operations, and continuously improve resource use through enhanced environmental management and strategic sourcing of raw materials. In regards to circular economy, we have three sub-streams focusing on this matter - a ‘no waste of virgin materials’ principle, a ‘brick-to-brick’ approach, and a ‘building-to-building’ approach. We strive for zero harm to our people through improved behavioural and automation levers, to provide a healthy working environment as well as continuing to be an attractive employer to attract, retain, and develop our talent pool. We aim to always conduct our business in an honest, ethical, and socially responsible manner and to drive compliance with laws, anti-trust guidelines, and sustainable sourcing. Read more about H+H’s Sustainability Strategy on www.hplush.com/sustainability-reports We have reported separately on corporate social responsibility in our sustainability report for 2022, in accordance with section 99a of the Danish Financial Statements Act. Management’s review | Our business 19 | H+H Annual Report 2022 Sustainability highlights During 2022, we executed on our plans to meet our ESG commitments. The results show a positive development towards our targets. Net-zero by 2050 We are committed to achieving net-zero emissions in our operations and products by 2050. Reduced carbon emissions 5% lower Scope 1 and 2 emissions compared to our Science Based target. Steady safety performance 3.6 Lost-Time Incident Frequency (LTIF) versus a target of 5. UN Global Compact Sustainable Development Goals (SDGs) Our products support SDG-11 (Sustainable cities and communities) and SDG-12 (Responsible consumption and production). Lower water usage 3% reduction in water intensity versus 2019 base year. H+H has carbon reduction targets verified and approved by the SBTi 1.5°C We are on track in reducing our own emissions in line with the 1.5-degree scenario in the Paris Agreement. Results 2022 Long-term targets Management’s review | Our business 20 | H+H Annual Report 2022 Investing in state-of-the-art energy equipment As part of this ongoing process, H+H UK was granted funds to install new gas burners at our Pollington site. Gas burners are an integral part of the boiler system used to generate the steam which is used to ‘bake’ the AAC block in our autoclaves. Through thorough internal and external analysis, replacing the 21-year-old old gas burners was identified as a high impact investment for reducing our CO 2 emissions. This initiative was enabled by developments in gas burning technologies. The burners were successfully installed in Q3 2022 with the subsequent data showing significant reduction in gas usage. To date, we have already seen gas savings of up to 4% in consumption levels, saving more than 600 tons in CO 2 emissions on an annual basis. To ensure that we are prepared for future renewable energy sources, the new burners are compatible with hydrogen as a base fuel. Furthermore, we are in continuous dialogue with local governments about the possibility of changing to hydrogen supply, once capacity becomes available in the UK. As a result of the successful implementation of the new burners, we are already preparing to replicate this initiative at our Borough Green site whilst also preparing separate analyses of potentially replacing burners in our other regions. Newly installed burn- ers in Pollington which save up to 600 tonnes CO 2 annually. Sustainability is an embedded part of our value proposition and operations, and we allocate capital specifically to CO 2 , NOx and greenhouse gas reduction initiatives. Management’s review | Our business 21 | H+H Annual Report 2022 Summary of strategic targets Financial targets Sustainability targets EBIT margin before special items H+H commits to reducing absolute Scope 1 and 2 greenhouse gas emissions by H+H commits to reducing Scope 3 greenhouse gas emissions by 12% 46% 22% 13% in 2022 by 2030 compared to 2019 per kg CO 2 e/m 3 by 2030 compared to 2019 Financial gearing Net interest-bearing debt to EBITDA before special items 1-2x 0.7x in 2022 Return on invested capital 16% 19% in 2022 Note: The Group’s long-term financial targets reflect the ambition to maintain average levels through a full business cycle. Net-zero emissions H+H commits to achieving net-zero emissions in our operations and products by 2050 22 | H+H Annual Report 2022 Management’s review | Our business OUR PERFORMANCE A word from the CFO Full year 2022 financial review Financial outlook Q4 2022 key figures Q4 2022 results (unaudited) Financial policy and capital allocation 23 | H+H Annual Report 2022 Management’s review A WORD FROM THE CFO Pricing execution key in challenging market 2022 was largely driven by high demand for our products, continuing the trend of recent years. During Q3 we saw a change in market dynamics, and permits started decreasing primarily due to higher interest rates and the continued strong inflationary pressures. Navigating the high inflationary environment with declining demand is challenging, but our principle of passing on inflation remains clear, and we will keep monitoring the market closely. Additionally, we will focus on cost saving measures to mitigate the impact on our bottom line. Despite these headwinds, I am proud to report that we have delivered strong financial results for the year. Revenue for 2022 reached DKK 3,604 million, a 19% increase over the previous year. This growth was driven mainly by price increases, as we successfully passed on the higher input costs. Non-financial reporting is key to support our ESG journey A key initiative we have undertaken during 2022 is to strengthen our non-financial reporting practices to accommodate new reporting requirements. In our journey towards net zero, strengthening our reporting platform is critical and we are committed to provide meaningful insights into our ESG performance. Hence, to support this, we have implemented new reporting tools which together with a common business intelligence system will support performance management. In addition, in 2022, we successfully upgraded the Polish market to our ERP platform which now covers the majority of our markets. We expect the remaining markets to follow during 2023. The upgrade ensures further scalability, efficiencies and standardised processes across our business as well as establishing the foundation for further use of technology to improve our competitiveness and our service to our customers. New sustainability-linked financing On 1 March 2023, H+H signed a new multi-currency sustainability-linked financing agreement with Nordea. The agreement includes a committed term loan of DKK 400 million and a committed Revolving Credit Facility of DKK 600 million. In addition, the agreement includes an uncommitted accordion facility of DKK 1,100 million. The agreement replaces our previous agreement and runs for three years until 2026 with an option to extend the agreement for two additional years. The terms of the agreement are favorable compared to the previous agreement and support the robustness of H+H. The specific sustainability-related objectives linked to the financing agreement are closely related to our strategy and incorporate sustainability performance targets related to a reduction of absolute Scope 1 and 2 GHG emissions and the Lost Time Incident Frequency (LTIF), which are both key strategic KPIs. The inclusion of these targets underpins our strong commitment to our journey towards net zero and it demonstrates how ESG is integral to all aspects of our business. I am also pleased that the financing agreement together with our continuing strong cash generation supports our strategic growth. Resilience measures to prepare for lower demand cycle After many years of high activity in the building industry, building permits are currently declining across our markets. We expect this to impact market demand in combination with continuing high input cost pressure. As a consequence we will continue to focus on tight cost control and risk management, and we will drive efficiencies at our factories to maintain our strong financial foundation. Over the years, we have maintained a disciplined approach to capital expenditures which has enabled us to maintain financial flexibility and to make strategic investments in our business, even when facing lower demand. I am confident in our ability to navigate and shift gears when needed. We have a robust plan in place, and we remain focused on delivering value to our shareholders. Peter Klovgaard-Jørgensen Chief Financial Officer Management’s review | Performance 24 | H+H Annual Report 2022 Full year 2022 financial review Income statement Revenue Total revenue increased by 19% to DKK 3,604 million compared to DKK 3,020 million in 2021. Revenue growth before acquisitions and divestments (organic growth) was 14% compared to 13% in 2021. Organic growth was driven by the continued implementation of sales price increases to counter the continued strong inflationary pressures, offset by lower sales volumes as a result of lower production output primarily due to the planned upgrade of the Wittenborn factory in Germany as well as a softening of sales volumes in Poland. Revenue in Central Western Europe amounted to DKK 1,611 million compared to DKK 1,399 million in 2021. Organic growth was 2% mainly driven by price increases in both product categories. Revenue in the UK amounted to DKK 1,052 million compared to DKK 884 million in 2021. At 18%, organic growth was driven by higher sales prices. Revenue in Poland was DKK 941 million compared to DKK 737 million in 2021. Organic growth was positive by 31% mainly driven by higher sales prices for both product categories. Of total revenue of DKK 3,604 million, AAC accounted for 71%, while CSU accounted for 29%, on a par with 2021 where total revenue amounted to DKK 3,020 million. Production costs Production costs were impacted by increasing prices of raw materials as well as higher transport prices in the UK resulting from high demand pressure. Furthermore, the planned upgrade of the Wittenborn factory resulted in a relatively lower production output and higher production costs in the period. Gross profit before special items Gross profit before special items increased by 13% to DKK 1,020 million compared to DKK 905 million in 2021, corresponding to a gross margin before special items of 28% compared to 30% in 2021. The gross margin was adversely impacted by increasing production costs. Gross profit in the AAC business was DKK 713 million, corresponding to a gross margin of 28%. Gross profit in the CSU business was DKK 307 million, corresponding to a gross margin of 29%. EBITDA before special items EBITDA before special items increased by 11% to DKK 657 million compared to DKK 591 million in 2021, corresponding to an EBITDA margin before special items of 18% compared to 20% in 2021. The lower EBITDA margin before special items is a result of increasing prices of raw materials and higher production costs while sales and administrative costs remained relatively stable. Depreciation and amortisation before special items Depreciation and amortisation before special items amounted to DKK 202 million against DKK 183 million in 2021. EBIT before special items EBIT before special items increased by 12% to DKK 455 million in 2022 compared to DKK 408 million in 2021, corresponding to an EBIT margin before special items of 13% compared to 14% in 2021. Special items Special items for 2022 were negative by DKK 42 million compared to DKK 31 million in 2021. Special items for 2022 comprise additional transport costs related to a factory upgrade in Germany, the acquired AAC factory located in Feuchtwangen in Bavaria, Germany as well as costs related to changes to Group and regional Management. Recognition of special items has affected the following lines of the income statement: Cost of goods sold (DKK 25 million) and administrative costs (DKK 17 million). Please refer to note 7 for more information. EBIT EBIT increased by 10% to DKK 413 million compared to DKK 377 million in 2021. Net financials Net financials totalled an expense of DKK 15 million compared to an expense of DKK 21 million in 2021. Profit before tax Profit before tax increased by 12% to DKK 398 million compared to DKK 356 million in 2021. Tax Tax expense increased to DKK 81 million compared to an expense of DKK 35 million in 2021. The relativly lower tax in 2021 was driven by deferred tax adjustments related to acquired companies in prior years. Profit for the period Profit for the period totalled DKK 317 million compared to DKK 321 million in 2021. Profit for the period attributable to H+H International A/S’s shareholders was DKK 303 million and DKK 14 million attributable to non-controlling interest. For 2021, the profit attributable to H+H International A/S’s shareholders and to non-controlling interest was DKK 310 million and DKK 11 million, respectively. Management’s review | Performance 25 | H+H Annual Report 2022 Other comprehensive income Other comprehensive income was net zero compared to a positive amount of DKK 45 million in 2021. The year-on-year movement was a result of movements in value adjustment of net pension obligations less deferred tax of a negative amount of DKK 19 million and foreign exchange less deferred tax of negative DKK 26 million. Further details can be found in the section Statement of changes in equity. Cash flow Operating activities Cash flow from operating activities decreased by 30% to DKK 316 million compared to DKK 454 million in 2021, primarily driven by higher EBITDA which was offset by a negative development in working capital development due to an increase in stock. Investing activities Cash flow from investing activities was negative by DKK 255 million compared to a negative amount of DKK 427 million in 2021. The year-on-year decrease was mainly driven by acquisitions of entities in 2021 of DKK 238 million. Capital expenditures totalled DKK 266 million compared to DKK 197 million in 2021. Free cash flow Free cash flow amounted to DKK 61 million against DKK 27 million in 2021. Financing activities Cash flow from financing activities was negative by DKK 19 million compared to a negative amount of DKK 25 million in 2021. The year-on-year development was driven by an increase in purchases of treasury shares under the share buy-back programme which was offset by a change in borrowings. Balance sheet The balance sheet total at 31 December 2022 was DKK 3,750 million compared to DKK 3,400 million at 31 December 2021. Financing Net interest-bearing debt totalled DKK 492 million at 31 December 2022, an increase of DKK 142 million since 31 December 2021. The increase in net interest-bearing debt since the beginning of the year was primarily driven by capital expenditures and the purchase of treasury shares and was partly offset by earnings for the period. At 31 December 2022, financial gearing was 0.7x net interest-bearing debt to EBITDA before special items, which is comfortably below the Group’s long-term financial target of 1-2x EBITDA before special items. Net interest-bearing debt excluding leasing totalled DKK 384 million at 31 December 2022, corresponding to an unused committed bank facility of DKK 0.6 billion. Equity Equity increased by DKK 124 million to DKK 1,938 million. Net gains recognised directly in equity comprise profit for the year of DKK 317 million, a value adjustment of pension obligations less deferred tax of DKK 17 million and foreign exchange adjustments of investments in foreign entities of a negative amount of DKK 17 million. Other changes to equity comprise adjustment to recognition of non-controlling interests arising from the acquisition of the majority stake in DOMAPOR of a negative amount of DKK 22 million, recognised costs for share programmes of DKK 4 million, dividend to non-controlling interest of DKK 6 million and the purchase of treasury shares of DKK 169 million. Please refer to note 4 “Staff costs”, note 19 “Share capital and treasury shares”, note 20 “Pension obligations” and note 25 “Business combinations” for further information. Equity attributable to H+H International A/S’s shareholders and to non-controlling shareholders was DKK 1,842 million and DKK 96 million, respectively. Return on invested capital (ROIC) Return on invested capital was 19% compared to 20% in 2021. Management review for the parent company Profit for the year was DKK 108 million compared to DKK 267 million in 2021. The decrease of DKK 159 million against last year was driven by dividend received in 2022 of DKK 102 million compared to DKK 280 million in 2021. Events after the balance sheet date On 1 March 2023, a new committed credit facility was agreed with Nordea Danmark, a branch of Nordea Abp, Finland, subject to H+H’s fulfilment of certain formal requirements. The agreement has a duration of 3 years and has been secured on attractive market terms. Other than above, no events have occurred after the balance sheet date that will have a material effect on the parent company’s or the H+H Group’s financial position. Management’s review | Performance 26 | H+H Annual Report 2022 Financial outlook Changes to the guidance during 2022 The initial outlook for 2022 was introduced on 3 March 2022 in connection with the release of the 2021 Annual Report after record earnings and solid organic growth. The initial guidance for 2022 reflected the swift recovery of the European housing market following the Covid-19 pandemic The first half of the 2022 was fuelled by continued high activity and customer demand. We demonstrated our ability to negotiate sales price increases to offset the inflationary pressure and the financial guidance was therefore upgraded in May 2022. The changed geopolitical and macroeconomic 2023 financial outlook Revenue growth measured in local currencies is expected to be around 0%. EBIT before special items is expected to be in the range of DKK 330 - 400 million. Assumptions for the financial guidance for 2023 The expectations for H+H’s financial performance in 2023 are based on a number of specific and general assumptions. Management believes that the most significant of these assumptions relate to the following items: Specific assumptions: • Sales volumes expected to decrease around 10-15% in aggregate mainly driven by Poland. • Further cost increases in 2023 expected, which are passed on through sales price increases. • Exchange rates, primarily GBP, EUR and PLN remain at end-February 2023 levels. General assumptions: The expectations for H+H’s financial performance are also based on a number of general assumptions. Management believes that the most significant assumptions underlying H+H’s expectations relate to: • Sales volumes and product mix • Price competition • Developments in the market for building materials • Distribution factors • Weather conditions • Macroeconomic and geopolitical developments • Operational uptime at H+H’s production plants including supply of energy and raw materials landscape led to decreased visibility coupled with the continued high-inflation environment, and softening market demand led to a narrowing of our financial guidance in November 2022. The realised results for 2022 were within the recent guidance range, reflecting a softening of market demand in Q4. Original guidance 3 March 2022 Organic growth 10-15% EBIT 1) 420-500 (DKKm) 1) Before special Items Upgrade 6 May 2022 Organic growth 15-20% EBIT 440 -520 (DKKm) Narrowed 10 November 2022 Organic growth ~15% EBIT 440-470 (DKKm) Realised results 1 March 2023 Organic growth 14% EBIT 455 (DKKm) Management’s review | Performance 27 | H+H Annual Report 2022 Comments relating to the fourth quarter of 2022 Revenue Total revenue increased by 11% to DKK 810 million compared to DKK 731 million in 2021. Revenue growth before acquisitions measured in local currencies (organic growth) was positive 9% compared to positive 11% in 2021. Organic growth for Q4 was mainly driven by price initiatives across our regions, partly adjusted by lower volumes. Gross profit before special items Gross profit before special items was DKK 202 million compared to DKK 216 million in 2021, corresponding to a gross margin before special items of 25% and 30%, respectively. Gross margin was negatively impacted by increasing production cost and maintenence shut downs. EBITDA before special items EBITDA before special items was DKK 111 million compared to DKK 139 million in 2021. Depreciation and amortisation before special items Depreciation and amortisation before special items amounted to DKK 53 million compared to DKK 45 million in 2021. EBIT before special items EBIT before special iitems was DKK 58 million compared to 94 million in 2021 , corresponding to an EBIT margin before special items of 7% compared to 13% in 2021 mainly driven by higher production costs. Special items Special items amounted to DKK 14 million, against DKK 27 million in 2021. Special items for Q4 2022 comprise additional transport costs related to a factory upgrade in Germany as well as costs related to changes to Group and regional Management. EBIT EBIT amounted to DKK 44 million compared to DKK 67 million in 2021. Net financials Net financials totalled an expense of DKK 3 million compared to an expense of DKK 5 million in 2021. Profit before tax Profit before tax was DKK 41 million compared to DKK 62 million in 2021. Tax Tax totalled an expense of DKK 7 million compared to an income of DKK 29 million in 2021. The tax income in 2021 was driven by deferred tax adjustments related to acquired companies in prior years. Profit for the period Profit for the period was DKK 34 million compared to DKK 91 million in 2021. Profit for the period is attributable to H+H International A/S’s shareholders by DKK 28 million and to non-controlling interest by DKK 6 million. For Q4 2021, profit was attributable to H+H International A/S’s shareholders by DKK 83 million and to non-controlling interest by DKK 8 million. Other comprehensive income Other comprehensive income amounted to positive DKK 79 million compared to positive DKK 22 million in 2021, driven by actuarial gains net deferred tax of positive DKK 36 million in relation to pension obligations and foreign exchange adjustment related to foreign entities of positive DKK 21 million. Please refer to the section “Statement of changes in equity” for more information. Cash flow Operating activities Cash flow from operating activities amounted to DKK 29 million compared to DKK 77 million in 2021, mainly driven by negative working-capital developments from increase of stock. Investing activities Cash flow from investing activities was negative by DKK 106 million, compared to negative DKK 195 million in 2021, mainly as a result of cash flow related to the acquisition of the majority stake in DOMAPOR in 2021. Capital expenditures for 2022 amounted to DKK 117 million compared to DKK 92 million in 2021. Free cash flow Free cash flow was negative DKK 77 million compared to DKK 118 million in 2021 mainly as a result of the aforementioned. Financing activities Cash flow from financing activities was positive DKK 73 million, compared to negative DKK 56 million in 2021, primarily driven by change in borrowings. Q4 2022 key figures Management’s review | Performance 28 | H+H Annual Report 2022 Q4 2022 results (unaudited) Group Group (DKK million) 2022 Q4 2022 Q3 2022 Q2 2022 Q1 2022 2021 Q4 2021 Q3 2021 Q2 2021 Q1 2021 Income statement Revenue 3,604 810 920 1,000 874 3,020 731 811 836 642 Gross profit before special items 1,020 202 254 320 244 905 216 250 251 188 EBITDA before special items 657 111 160 227 159 591 139 171 172 109 EBIT before special items 455 58 110 177 110 408 94 125 125 64 Profit after tax for the period 317 34 82 129 72 321 91 88 93 49 Balance sheet Investments in property, plant and equipment 266 117 65 42 42 197 92 44 34 27 Cash flow Cash flow from operating activities 316 29 101 207 (21) 454 77 176 206 (5) Cash flow from investing activities (255) (106) (65) (42) (42) (427) (195) (171) (34) (27) Cash flow from financing activities (19) 73 (22) (70) 0 (25) (56) 1 (16) 46 Financial ratios Organic growth 14% 9% 7% 13% 29% 13% 11% 13% 39% (9%) Gross margin before special items 28% 25% 28% 32% 28% 30% 30% 31% 30% 29% EBITDA margin before special items 18% 14% 17% 23% 18% 20% 19% 21% 21% 17% EBIT margin before special items 13% 7% 12% 18% 13% 14% 13% 15% 15% 10% Management’s review | Performance 29 | H+H Annual Report 2022 Financial policy and capital allocation Financial policy The overall objective of H+H’s financial policy is to ensure sufficient financial flexibility to meet the Group’s strategic objectives and a robust capital structure to maximise the return for H+H’s shareholders. The long-term target (i.e., through a business cycle) for the financial gearing ratio is 1-2x EBITDA before special items. The ratio may exceed this level from time to time following certain significant acquisitions. Capital allocation priorities Our free cash flow allocation priorities are unchanged from previous years: 1. Repay of net interest-bearing debt in periods when the financial gearing ratio is above the long-term target range; 2. Pursue value-adding investments in the form of acquisitions or development of the existing business; and 3. Distribute of capital to the shareholders by means of share buy-backs and/or dividends. Distribution of capital to shareholders Supported by the continued strong earnings and free cash flow generation, which has resulted in a financial gearing comfortably below the Group’s long-term target of 1-2x EBITDA, H+H initiated a share buy-back programme on 4 March 2022 of up to DKK 150 million. The share buy-back programme was completed on 3 January 2023. A total of 1,118,800 shares were bought back under the programme at an aggregate purchase price of DKK 150 million. 1 Investments in property, plant and equipment excludes effects from IFRS 16 2 Net interest-bearing debt to EBITDA before special items 3 In 2018, ROIC was negatively impacted by a one-off related to the acquisition and integration of the German and Polish businesses and impairment of fixed assets in Russia. Adjusted for these items, ROIC in 2018 would have been 17% Please refer to Company Announcement no. 469 of 3 March 2022 for more information. For the time being, H+H expects to use the free cash flow to develop the existing business and pursue value- adding investments within the debt gearing indicated. DKKm 2018 2019 2020 2021 2022 0 60 120 180 240 300 Capital expenditure 1 Invested capital and Return on invested capital (ROIC) 3 Financial gearing 2 DKKm % 2018 2019 2020 2021 2022 0 500 1,000 1,500 2,000 2,500 0 5 10 15 20 25 DKKm 2018 2019 2020 2021 2022 0.0x 0.4x 0.8x 1.2x 1.6x 2.0x Capital expenditure Invested Capital ROIC Financial gearing Long-Term target ratio Management’s review | Performance 30 | H+H Annual Report 2022 OUR MARKETS Our geographical footprint Central Western Europe The United Kingdom Poland 31 | H+H Annual Report 2022 Management’s review Our geographical footprint Share of Group revenue in 2022 (DKKm) Share of Group revenue in 2022 (DKKm) Share of Group revenue in 2022 (DKKm) 45% 29% 26% Central Western Europe The United Kingdom Poland We have a diversified geographical footprint with our activities spread across three core regions, namely the Central Western Europe region (comprising Germany, the Nordics, the Benelux countries, the Czech Republic and Switzerland), the United Kingdom and Poland. We have a leading position in most of our markets with solid market shares and strong customer relationships. Management’s review | Our markets 32 | H+H Annual Report 2022 0 400 800 1,200 1,600 2,000 DKKm % 2018 2019 2020 2021 2022 -5 -2 1 4 7 10 Central Western Europe In 2022, Central Western Europe was affected by general uncertainty in the market, increased production costs, our factory upgrades and lower demand towards the end of the year. 15 Factories 644 Employees 1,611 2022 revenue, DKKm 2% 2022 organic growth 1 Germany only Revenue and organic growth Revenue Organic growth Sales and administration Aircrete factories Calcium silicate factories ~20% AAC market share 1 ~14% CSU market share 1 Management’s review | Our markets 33 | H+H Annual Report 2022 Germany Market conditions and trends 2022 started with mild weather conditions, and an easing of supply chain bottlenecks gave rise to a rebound in the construction activity including demand for our products. However, high inflation, risk related to energy supply and increasing interest rates led to decreased consumer confidence, and as a result private consumption was affected for the remainder of the year. In 2022, the number of building permits issued decreased approximately 13% from January to November compared to the same period last year. Overall capacity utilisation for the building materials industry is generally high, and only minor capacity expansions were undertaken in the AAC and CSU industry during 2022. Overall, pricing in both product segments continues to follow positive trajectories as increasing input costs are passed on. In 2023, economic growth is projected to remain flat hampered by the effects of inflation and energy supply and to recover by 2024 1 . Currently, unemployment rates are stable, and investment levels are under pressure, underpinned by high interest rates, which all in all put pressure on the activity in the construction industry 2 . In general, residential building capacity in Germany has been an ongoing issue in recent years. The German government have set the objective to build 400.000 new dwellings p.a. in the next years. In 2022, 293.393 new dwellings were completed. The growing demand for housing, have resulted in more permits being issued than housing being completed causing the order backlog among housebuilders to increase significantly over the past few years. Political attempts have been made to offset the structural undersupply through incentive schemes to homeowners and targeted funding programmes for land availability and development. However, we are yet to see the full effect of these initiatives, which suggests a solid foundation for continued high construction levels in the medium term. Key developments in 2022 During 2022, our focus was to integrate the two acquisitions made in late 2021 and to upgrade our AAC factory in Wittenborn located in the northern part of Germany. The acquired AAC and CSU Domapor factories in Northeast Germany had a successful year with efficient production and high output. The other acquired AAC factory in Feuchtwangen in Bavaria ramped up production gradually during the year to support AAC across Germany and in particular southern Germany. The upgrade of Wittenborn finished in the last quarter of 2022, negatively impacted our production volumes during 2022. The upgrade leaves the factory well positioned to meet our ESG roadmap. Our German activities continue to offer strong potential. Recent acquisitions have established a solid footprint across Germany, and we have taken considerable synergies from sales and administration. However, further synergies are being worked on by stronger utilisation of the plant network. In 2022, we successfully negotiated sales price increases to offset higher input costs and we expect this to continue in 2023. Other markets Increasing prices of raw materials, long delivery times and challenging transport were key headlines in the Nordic market in 2022. However, building activity was strong for most of the year and especially the project market performed well. In the last part of the year, building activity started to decline, and we are seeing signs of a slowdown going into 2023 on the back of inflation and uncertainty. The same trend was seen in our other markets in the region, which performed strongly in the first half of 2022 but slowed down towards the second half as inflation rates, input prices and general uncertainty affected the purchasing power. Crane unloading new autoclave in Wittenborn, Germany 1 OECD Economic Outlook, Volume 2022 Issue 2. 2 Deutsche Bundesbank Monthly Report December 2022. Management’s review | Our markets 34 | H+H Annual Report 2022 0 300 600 900 1,200 1,500 DKKm % 2018 2019 2020 2021 2022 -30 -17 -4 9 22 35 The United Kingdom 2022 demonstrated the robustness of the British construction industry with high demand. Short-term market drivers point to growth deterioration, but longer-term prospects remain favourable driven by a strong undersupply of housing and government ambitions. 3 Factories 243 Employees 1,052 2022 revenue, DKKm 18% 2022 organic growth >40% AAC market share Revenue and organic growth Revenue Organic growth Sales and administration Aircrete factories Calcium silicate factories Management’s review | Our markets 35 | H+H Annual Report 2022 Market conditions and trends During 2022, the private housing market showed resilience to changing macroeconomic conditions and maintained high levels of activity, while the wider economy started to shrink. This was driven by the general shortage of housing and a strong order backlog from the beginning of the year. Towards the end of the year, market demand slowed down and housebuilders reported decreasing sales rates in Q4. Uncertainty due to the economic and geopolitical situation weighs heavily on the UK economy which is expected to contract slightly in 2023 and remain flat in 2024 1 . Although the general construction order book in the UK is expected to serve as a cushion ahead of a potential slowdown, demand for new dwellings is expected to decrease by around 10% impacted by uncertainty, inflation and increasing interest rates. The British government continues to address the challenges of a structural undersupply of housing and maintain the ambition of delivering 300,000 new homes per year. However, new housing supply in the United Kingdom is currently lower than the British government’s target. It is estimated that there will be a need for 3.7 million new households in the next 25 years which is the underlying reason for the need for increasing the British housing stock through the construction of new homes. In comparison, a total of 244,000 dwellings were added in 2022, representing the highest level in more than 30 years but still short of the Government’s target. Key developments in 2022 As inflation levels were on the rise during 2022, we continued to focus on offsetting the input cost increases through sales price increases in close dialogue with our customers which we expect to continue in 2023. The high activity levels resulted in a continued high demand for our products. As a result, we focused on the delivery of core wall products leaving certain market share to alternative solutions. As the market softens, we will seek to regain this market share by restoring a widened product portfolio. In addition, the British government is promoting Modern Methods of Construction (MMC). For H+H, this will include the continued marketing of our pre-cast wall-panel solutions (i.e., storey-height aircrete panels) and of our thin-joint masonry solutions to the British market – both of which will provide improved efficiency at the construction sites. We continue observing solid customer interest in these products, and we expect this trend to continue in the coming year. We have a clear ambition to remain market leader in the UK market, which continues to have positive underlying growth drivers. We are therefore planning to increase the capacity at our Borough Green factory during 2023. The upgrade is expected to increase our UK capacity by approximately 10% and is phased to fit with the year-end maintenance shutdown. Completion is scheduled during the first quarter of 2024. Depending on continued growth drivers for the UK market, we see potential to increase our capacity even further. H+H UK, Borough Green 1 OECD Economic Outlook, Volume 2022 Issue 2. Management’s review | Our markets 36 | H+H Annual Report 2022 0 200 400 600 800 1,000 DKKm % 2018 2019 2020 2021 2022 -10 2 14 26 38 50 Poland Activity in Poland was high during the first half of 2022 which translated into strong demand for our AAC and CSU products. In the wake of Russia’s invasion of Ukraine, macroeconomic risk has risen sharply leading to high uncertainty and low visibility for 2023. 14 Factories 813 Employees 941 2022 revenue, DKKm 31% 2022 organic growth 20-25% AAC market share 20-25% CSU market share Sales and administration Aircrete factories Calcium silicate factories Revenue and organic growth Revenue Organic growth Management’s review | Our markets 37 | H+H Annual Report 2022 Market conditions and trends In the first part of the year, demand remained at a very high level supported by a strong order backlog and undersupply of rental housing. This allowed for strong sales price dynamics being ahead of inflationary input costs in the first half of 2022. However, the war in Ukraine caused uncertainty which together with a high inflationary environment caused market demand to soften. This has lead to a sharp decline dwelling starts which are down 28% in 2022 year-on-year as well as building permits issued which is down 13% in 2022 year-on-year. The number of building permits issued continues to exceed the number of completions, adding further to the construction backlog that has been building since 2013 indicating a continued undersupply of housing. There has been a significant number of refugees from Ukraine who have sought safety and temporary shelter in Poland due to the ongoing conflict in Ukraine. The majority of the Ukrainian refugees in Poland are staying in government-run reception centers, while others are staying with host families, in rented apartments, or in self-organized camps. At the beginning of May 2022, approximately 1.5 million refugees from Ukraine were staying in Poland. Two-thirds declared that their stay in Poland is temporary 1 . It remains unclear to which extent refugees from Ukraine will impact the Polish housing markets, but the situation will likely add to the need for additional new-build construction activity due to the already significant shortage of housing space in the country. In 2023, the Polish economy is expected to slow before recovering in 2024 2 . Key developments in 2022 In 2022, the expansion of our Reda AAC factory in the Northern part of Poland with one additional CSU production line was completed and is now supplying the Polish Tri-City near Gdan´sk with up to 60,000 m 3 annually, corresponding to around 3% of the Polish CSU market. The factory is the first H+H factory in Poland capable of producing both AAC and CSU in one location and allows us to supply existing AAC customers with CSU products. The new CSU plant is built with a focus on sustainability. The production line has been built from refurbished machinery and materials; it operates ecologically based on the principle of zero waste with a very efficient use of water in the production processes. Also, the plant operates on high standards as regards health and safety. During 2022, H+H demonstrated our strong agility operating in the Polish market, taking advantage of the upside in the first half of the year, while adjusting capacity in the second half of the year. As a result of the declining demand, H+H has reduced weekend work and overtime and is planning the next step of adjusting capacity. This includes further shift reductions and potentially temporary factory shutdowns. In the AAC and CSU markets, pricing continued its positive trajectory in 2022 thanks to the strong demand in H1 2022 and pressure from dynamically increased raw material and energy prices. We expect the pricing trend to continue into 2023, although at a slower pace. New CSU factory Reda, Poland 1 National Bank of Poland, The living and economic situation of Ukrainian refugees in Poland. 2 OECD Economic Outlook, Volume 2022 Issue 2. Management’s review | Our markets 38 | H+H Annual Report 2022 GOVERNANCE AND SHAREHOLDER INFORMATION Corporate governance Board of Directors Executive Board Risk management Shareholder information 39 | H+H Annual Report 2022 Management’s review Corporate governance Corporate governance is a key aspect of H+H. We continuously develop and align our governance structure and principles with our strategy, input from shareholders and other stakeholders and changes in legislation and best practice standards. Corporate governance reporting The Board of Directors and the Executive Board apply the latest recommendations on corporate governance issued by the Danish Committee on Corporate Governance. H+H International A/S abides by the recommendations in all material respects, and explanations to the few deviations are provided in a seperate statement. The statement includes reporting on our internal controls and risk management systems applied as basis for the financial reporting process, and is available at www.HplusH.com/corporate-governance-reports. Governance structure Shareholders of H+H International A/S exercise their rights at the general meeting, which is the supreme governing body of H+H. It is the shareholders who decide on the Articles of Association which currently state that the Board of Directors must consist of four to eight members elected at a general meeting. The term of all board members expires at each annual general meeting, but they may be re-elected for a new term. H+H International A/S has a two-tier management system under which the Board of Directors and the Executive Board are responsible for the management of the Company’s affairs. No persons hold dual membership of the Board of Directors and the Executive Board. The Executive Board is responsible for the day-to-day management of the Group, while the Board of Directors supervises the work of the Executive Board and is responsible for the overall management of and strategic direction for the Group and makes decisions concerning major investments, the capital base, key issues within policies, control and audit matters, risk management and significant operational issues. To support the Board of Directors and to benefit from individual members’ competences, the Board of Directors has established three board committees, namely the Audit Committee, the Remuneration Committee and the Nomination Committee. The board committees are not authorised to make independent decisions, but must instead prepare reports and recommendations for the Board of Directors. The members and the Chair of each board committee are appointed by the Board of Directors among its members. Board of Directors This section includes reporting on H+H management gender composition and diversity policies in accordance with section 99b and 107d of the Danish Financial Statements act. The Board of Directors annually evaluates its composition to ensure diversity and that all relevant business competences are represented among its members. Considering the H+H Group’s current growth strategy, the main competences relevant for the Board of Directors are deemed to be strategy development as well as executive and in-depth experience in relation to integration processes for acquired businesses, with a particular focus on financial and non-financial reporting (ESG), IT, Strategic HR (recruitment, retention, diversity), risk management and ESG-driven business development, as well as innovation, commercial and operational experience in H+H’s core markets. The Board of Directors and the Executive Board recognise the importance of promoting diversity in gender, age, nationality, international experience and competences. Pursuant to section 139c of the Danish Companies Act, the Board of Directors has set a target for the gender distribution amongst its members, whereby the Board must seek to ensure that each gender is represented: • by at least one shareholder-elected member when the Board of Directors consists of a total of four shareholder-elected members; • by at least two shareholder-elected members when the Board of Directors consists of a total of five to seven shareholder-elected members; and • by at least three shareholder-elected members when the Board of Directors consists of a total of eight shareholder-elected members. The aim is to achieve the target no later than by the annual general meeting to be held in 2023. The target corresponds to equal gender distribution as defined by the Danish Business Authority, and the target was reached at the annual general meeting on 31 March 2022, when our shareholders elected two female and four male board members. H+H has a group policy on diversity focusing on diversity in a broader sense encompassing not only gender, but also other aspects, including but not limited to age, education and skills, experience, and geographical and cultural background. The diversity policy can be found on the Company’s website at www.HplusH.com/diversity. The Diversity Policy applies to the Board of Directors, the Executive Board and all other executives and employees of the Group and has as its purpose to foster an inclusive and open working climate where diversity is embraced and promoted. Having a diverse mix of cultures, backgrounds, genders, skills, expertise and experiences ensures a dynamic organisation that continues to develop and advance exactly due to its diversity, whereas having a monoculture creates a risk of overlooking relevant opportunities and risks due to the right questions not being asked. Diversity in a broad sense is one of the focal points for the Board of Directors in recruitment searches for new members for the Board as well as new members for the Executive Board, but new members must not be recruited solely based on their contribution to the diversity, but based on their overall qualifications. The current Board of Directors and the Executive Board are considered to be diverse, as the members represent very different competences and experiences, board tenures which differ from a few months to more than 12 years, five different nationalities and ages ranging from Management’s review | Governance 40 | H+H Annual Report 2022 the early 40s up to the mid-60s. The Board of Directors has an equal gender distribution as defined by the Danish Business Authority, whereas the the Executive Board consists of two males, who except for being the same gender differ with regard to nationality, educational background, competencies and international experience. If in connection with a future recruitment process for the Executive Board, the two final candidates have the same level of overall competences and one candidate represents a different gender than the remaining members of the Executive Bord, that candidate will be preferred. The broad diversity on the Board of Directors and the Executive Board is a deliberate achievement where the diversity gaps are considered right from initiation of recruitments processes, and the fact that the Board of Directors’ latest two recruitments were women and that the international experience of both the Board of Directors and the Executive Board matches H+H’s key markets is a testament to the Board of Directors’ conscious work with diversity for several years. The Board of Directors’ annual evaluation procedure for 2023 was conducted as one-on-one meetings between the Chair and each board member, and the evaluation of the Chair was performed by the board member with the longest seniority. The evaluation included a review of the diversity and board competencies required. The Board’s self-evaluation concluded that the gender-diversity target was met, but that more extensive competences were needed in respect of the implementation of the growth strategy as well as measures to meet and leverage the sustainability targets set. It was therefore decided that the Nomination Committee should initiate a search for a relevant additional board candidate with the said qualifications, and to strengthen not only the Board's competencies but also resources, the Board found that the number of board members should be increased to seven. Accordingly, at the coming annual general meeting to be held on 30 March 2023, the Board of Directors will propose that all current board members are re-elected and that Jens-Peter Saul, German/British, born 1966 CEO of Ramboll Group A/S, Denmark, is elected as a new board member. Jens-Peter Saul comes with extensive international experience particular within strategy development and execution to accelerate organic and acquisitional growth and to maximise investments, general management, as well as broad insights into sustainability and the green energy transition. He has experience from diverse industries such as infrastructure, energy, construction, investment, manufacturing and trading. Jens-Peter Saul is also member of the Board of Directors of Cubico Sustainable Investments Limited (UK) and member of the Board of Directors of Danske Commodities A/S (Denmark). Jens-Peter Saul will be deemed an independent member as per the definition in the Danish corporate governance recommendations. Board activities during 2022 During 2022, the Audit Committee held five meetings, the Nomination Committee one meeting and the Remuneration Committee four meetings. Attendance rates are shown in the table below. Board members unable to participate will, except in the case of non-planned sudden hindrances, read the agenda and background material for the meeting and then submit comments and input prior to the meeting to ensure that the views of all members are considered at the meeting. Remuneration Remuneration of the Board of Directors and the Executive Board is paid in line with H+H's Remuneration Policy for the Board of Directors and Executive Board as adopted by the general meeting. H+H also reports on the remuneration in an annual remuneration report that is presented to the shareholders at the annual general meeting for an advisory vote. The Remuneration Policy and the Remuneration Report for 2022 are available at www.HplusH.com/remuneration. Data Ethics Policy During 2022, we implemented a Data Ethics Policy. As data becomes increasingly important in our society, it is key to define and establish rules and guidelines for the collection, storage and use of data. We strive to ensure a high and adequate level of data protection, as we recognise that privacy plays an important role in gaining and maintaining the trust of our employees, customers, suppliers, and other stakeholders. While we do not process large quantities of personal data, we acknowledge the importance of safeguarding such data. We further acknowledge that the use of artificial intelligence may present some ethical dilemmas which need to be managed appropriately. We are committed to complying with all applicable personal data protection laws, including section 99d of the Danish Financial Statements Act. We run internal audit controls to secure compliance with both information security and data protection requirements, and all employees developing, purchasing or otherwise working with technology and data science-based uses of data must be informed about the data-ethics principles. We do not purchase, sell or broker data or otherwise profit from separate data transfers from or to third parties. We do not currently carry out data processing using artificial intelligence, such as machine learning, as a natural part of our business. Potential future uses relate to production and logistics optimisation as well as marketing automation. When we process personal data or other types of data, we always apply our standards for data ethics to the way we work, making sure that our processing activities and security measures match the requirements for the data we are handling. Our Data Ethics Policy can be found on our corporate website via the following link: www.hplush.com/data-ethics. Attendance rates at board meetings and board committee meetings in 2022 Audit Nomination Remuneration Board Meetings Committee Meetings Committee Meetings Committee Meetings Kent Arentoft Chair - - Chair Chair Stewart A Baseley Member - - Member - - Volker Christmann Member Member - - Member Kajsa von Geijer Member - - - - Member Pierre-Yves Jullien Member Member - - - - Miguel Kohlmann Member - - Member Member Helen MacPhee Member Chair - - - - Attendance rate 100% 100% 100% 100% Management’s review | Governance 41 | H+H Annual Report 2022 Key matters transacted by the Board of Directors during 2022 (including but not limited to) • Strategy and business plan review and target setting • Follow up on M&A activities • Monitor the Company’s financial policy, debt levels and capital structure, including approval of a share buy-back programme of DKK 150 million • CAPEX planning, including decision to upgrade the Borough Green factory, UK, to increase capacity by early 2024 • CAPEX execution review, including upgrades and maintenance of one of the AAC Wittenborn production lines, Germany, and the new CSU production line next to the AAC Reda factory, Poland • Review of supply risks and inflated pricing for especially raw materials and energy • Review of updated resilience plans • Review of the Group’s IT policy, IT security set-up and implementation of ERP system • Review of the Group’s ERM framework • Board self-evaluation and recruitment of new board member with ESG and HR experience bringing the Board’s gender diversity in compliance with Danish law • CEO succession, including recruitment of new CEO • Establishment of policy approval hierarchy for all group policies • Review of the Group’s new whistleblower policy and organisation Key matters transacted by the Board Committees during 2022 (including but not limited to) The Audit Committee • Review of the auditors' assurance readiness review for ESG data reported in the Sustainability Reports and implementation of measures to ensure H+H can obtain assurance in accordance with ISAE 3000 for the ESG data in the Sustainability Report for 2023 • Oversight of ERM, principles and processes and review of key enterprise risks and related mitigation plans, including adjustment of the ERM framework in regard to risk appetite principles • Monitoring of group insurance strategy, coverage and pricing • Review of progress within IT security and monitoring of implementation of new Group ERP system • Review of implementation of new large CAPEX project management framework • Monitor the financial reporting process, including accounting estimates and accounting policies as well as the integrity of the reporting process • Review of annual and interim financial reports • Engagement and audit strategy plan with new auditors (PwC) The Nomination Committee • Search for, interviews with and signing of new CEO in cooperation with the Remuneration Committee in respect of remuneration terms • Annual review and assessment of the composition, competencies and diversity of the Board of Directors and search for a new additional board member to be nominated at AGM 2023 The Remuneration Committee • Review and propose executive remuneration, including co-operating with the Nomination Committee on the contractual remuneration terms for the new CEO • Ensuring that actual executive remuneration is in compliance with the established remuneration policy and the review of the individual member’s performance • Annual review and adjustment proposal for remuneration of the Board of Directors, the Executive Board, regional managing directors and other key personnel • Propose KPIs and targets for short-term and share-based long-term incentive programmes being initiated every year • Preparation of the annual remuneration report • Annual review of the Remuneration Policy Management’s review | Governance 42 | H+H Annual Report 2022 Board of Directors Kent Arentoft, Chair Stewart Antony Baseley Volker Christmann Kajsa von Geijer Male. Born 1962. Danish. Male. Born 1958. British. Male. Born 1957. German. Female. Born 1964. Swedish. Chairman of DSVM Invest A/S and subsidiaries (Denmark). Executive Chairman, Home Builders Federation and Board member of four subsidiaries (UK). Managing Director, Senior Vice President Insulation Central Europe, Member of Group Management of ROCKWOOL A/S. Chairman of the Board of Directors of two companies in the ROCKWOOL Group, managing director of five companies in the ROCKWOOL Group and member of the Board of Directors of ROCKWOOL Foundation. Senior Vice President HR & Sustainability and member of Group Management, Thule Group AB (Sweden). Joined the Board of Directors in 2013. Chairman since 2013. Member of the Nomination Committee (Chair) and the Remuneration Committee (Chair). Joined the Board of Directors in 2010. Member of the Nomination Committee. Joined the Board of Directors in 2017. Member of the Audit Committee. Joined the Board of Directors in 2022. Member of the Remuneration Committee. Indirectly holds 60,000 shares in H+H via a company he controls with no changes to his holdings during 2022. Holds 22,500 shares in H+H with no changes to his holdings in 2022. Does not hold any shares in H+H and no changes were made to his holding during 2022. Does not hold any shares in H+H and no changes were made to her holdings during 2022. Independent as defined in the Danish Recommendations on Corporate Governance. Non-independent as defined in the Danish Recommendations on Corporate Governance (i.e. board tenure for more than 12 years). Independent as defined in the Danish Recommendations on Corporate Governance. Independent as defined in the Danish Recommendations on Corporate Governance. Broad organisation and management experience in international companies in the building materials and contracting sector, particularly within strategy development and M&A transactions. Experience in the international housebuilding industry and the developer industry, particularly in the UK, as well as international management experience. Extensive experience within the building materials production sector of Central Europe, particularly in Germany, as well as within financial auditing and controlling. International experience within strategic and operational HR, sustainability, ESG and general compliance. Other management positions and directorships Other management positions and directorships Other management positions and directorships Other management positions and directorships Member of the Board of Directors of Solix Group AB (Sweden) and board member of one subsidiary. Group-related companies: Chairman of Fuerst Day Lawson Holdings Limited (UK) and Director of one subsidiary (UK), Chairman of Highlander-Partners (Poland) and Director of Sferra Fine Linens Uk Limited (UK) Chairman of Troy Homes Limited (UK). Patron of Children with Speciel Needs Foundation (UK) Chairman of the Board of Directors of BuVEG (Bundesverband energieeffiziente Gebäudehülle) (Germany). Member of the Board of Directors of FIW (Forschungsinstitut für Wärmtechnik) (Germany). Member of the Board of Directors of Solix Group AB (Sweden) and of one subsidiary. Management’s review | Governance 43 | H+H Annual Report 2022 Miguel Kohlmann Helen MacPhee Male. Born 1962. German & Brazilian. Female. Born 1962. British. Professional board member and advisor. Senior Vice President of Finance, AstraZeneca plc (UK). Joined the Board of Directors in 2018. Member of the Remuneration Committee and the Nomination Committee. Joined the Board of Directors in 2019. Member of the Audit Committee (Chair). Does not hold any shares in H+H and no changes were made to his holding during 2022. Does not hold any shares in H+H and no changes were made to her holding during 2022. Independent as defined in the Danish Recommendations on Corporate Governance. Independent as defined in the Danish Recommendations on Corporate Governance. Extensive management experience in building materials and industry on a global scale. Worked in controlling, sales, production and general management. Extensive experience within strategic and operational finance and international experience in change mangement, financial oversight and control, governance, and risk frameworks, as well as international talent development. Other management positions and directorships Other management positions and directorships Chairman of the Board of Directors of Pfleiderer GmbH (Germany), Archroma Holdings SARL (Luxemborg) and NMC International S.A. (Luxembourg). Member of the Advisory Board of Paul Bauder GmBH (Germany). N/A Board of Directors Executive Board Jörg Brinkmann Peter Klovgaard-Jørgensen Male. Born 1979. German. Male. Born 1978. Danish. CEO since 2022 CFO since 2019 Does not hold any shares in H+H and no changes were made to his holding during 2022. Holds 7,962 shares in H+H with an addition of 4,283 shares in 2022. Background Background 2018-2022: Managing Director Europe James Hardie Europe 2016-2019: CFO of ISS Denmark A/S (Denmark) 2014-2018: CEO of Fermacell 2014-2016: Head of Finance of ISS Denmark A/S (Denmark) 2011-2014: Sales Director of Fermacell 2010-2014: Treasury Vice President of ISS Group 2005-2011: Marketing at Xella Group Prior: Auditor of EY Education Education MSc (Business Administration) PhD Economics MSc (Business Economics and Auditing) Management’s review | Governance 44 | H+H Annual Report 2022 Risk management The Board of Directors evaluates the risk management processes on a continuous basis to ensure that the risk profile, risk processes and risk awareness are appropriate. Below are the most material risk conclusions from the 2022 risk assessment. A full description of the risk management structure can be found in the Corporate Governance statement for 2022. Risk position in 2022 Key changes in the risk position in 2022 were driven by increased inflation, geopolitical instabilities and interest rate increases which have negatively impacted customer demand. These macroeconomic changes have impacted H+H’s market and production risks through rising input costs, increasing sales prices and lower visibility of customer demand. Most material risks in 2022 Market Risk description and mitigating actions The increased inflation has mainly impacted input costs and energy and have to a large extent been countered by sales price increases. The general change in market conditions during 2022 combined with general inflation has led to a reduction in demand for H+H’s products towards the end of the year, predominantly in Poland and Germany. Demand is being monitored closely and capacity adjustments prepared accordingly. Furthermore, risks also relate to competition and potential excess production capacity, which may lead to changes in competitors’ pricing strategies. H+H has successfully been able to address this through our market understanding and a structured process for continuously updating key leading indicators to anticipate potential impact and execution of mitigation plans. H+H closely monitors economic, political and competition developments in and outside our footprint and remain committed to passing on cost increases in order to counter the high inflationary pressure as this trend is expected to continue into 2023. In the long term, the European housing market continues to offer strong underlying growth opportunities driven by a structural undersupply of housing, demographic growth and a need for efficient building materials. Net risk assessment Operating in the construction sector, H+H is exposed to economic developments but believes to have reduced the risk to an acceptable level through our agile business model and mitigating actions. During 2022, H+H has been able to defend margins, earnings and cash flow in line with long-term financial targets. Production Risk description and mitigation actions Recent years have been characterised by high demand for our products which puts pressure on utilisation of our plant network. As the market dynamics are now changing, H+H anticipates a lower demand in the short term which will result in lower production output and overhead recovery being impacted negatively. Our diversified geographical footprint and strong factory networks provide a resilient market position to counter the impact. In addition, H+H has initiated specific resilience actions to adjust capacity and has prepared plans for further adjustments if needed. Also, there are risks related to inflationary pressures, especially related to raw materials and transport, and our ability to absorb the pressures through continuous improvement projects and/or pass them on to customers. Mitigating actions have been taken to reduce and manage the cost base where relevant but are continuously being evaluated and reassessed due to the dynamic market conditions. Supply and pricing agreements have been made, where possible. During 2022, the supply of gas was a key underlying risk to our production. As a response, H+H prepared our production sites for usage of oil as an alternative. Where coal was used, tight stock management was applied to ensure sufficient supply during the year. During 2022, high fluctuations in energy prices were seen across Europe. Our policy to forward hedge gas and electricity prices mitigated the impact in 2022 and provides some cost visibility for 2023. The expectations above are based on the assumptions of continuous availability of the relevant energy sources and raw materials but not on escalations of the war in Ukraine nor further recessionary developments in any of the Company’s current markets. Net risk assessment Considering the mitigation plans, we believe the risk is medium but acceptable. However, H+H is continuously focusing on improving mitigating actions as regards to production and supply risks. Management’s review | Governance 45 | H+H Annual Report 2022 1 2 5 7 3 4 6 Probability Net impact after mitigating actions Less material risks in 2022 Financial With the new committed financing agreement, H+H has low finance risk as credit facilities provide sufficient funding, including strategic growth, long-term maturities and excess covenant headroom. Compliance The risk of lack of compliance with laws and regulations is considered low. People The risk of incidents and fatalities does exist but considering the mitigating actions taken and and management's attention, it is our assessment that the risk is reduced to an acceptable level. Improved HR processes also contribute to a reduced people risk. 1 Market 2 Production 3 Financial 4 Compliance 5 People 6 IT 7 Sustainability IT The IT-related risk impact is considered low given our relatively low dependency on IT overall. The likelihood of occurrence is further reduced as the mitigating actions are continuously updated and implemented. Sustainability Our strategy on sustainability, as described in the sustainability report, has reduced the risk to an acceptable level, but an execution risk for the long-term strategy remains. The strategy relies on the use of hydrogen which is not yet available on the market and that suppliers of cement, lime and transport services reduce their direct emissions in line with their targets. Management’s review | Governance 46 | H+H Annual Report 2022 Shareholder information H+H international A/S is listed on the Nasdaq Copenhagen stock exchange and is trading under the ticker symbol HH. Share-price development The H+H International A/S shares started the year at a price of DKK 230.00 and closed the year at a price of DKK 102.60, representing a decrease of 55%. At the end of the year, the total market value of H+H amounted to DKK 1,845 million. By comparison, the OMX Copenhagen Mid-Cap index decreased by 13% in 2022 and the Danish KAXCAP index, an index comprising all stocks trading on the Nasdaq Copenhagen stock exchange, decreased by 15%. The highest traded price during 2022 was DKK 236.50 on 3 January and the lowest traded price was DKK 95.10 on 26 September. The average daily volume was 25,638 shares, representing a decrease of 25% relative to 2022. Share buy-back programme On 3 March 2022, H+H initiated a share buy-back programme of up to DKK 150 million to be executed over a period of twelve months. The share buy-back programme was completed on 3 January 2023. A total of 1,118,800 shares were bought back under the programme at an aggregate purchase price of DKK 150 million. The programme was carried out in accordance with the Safe Harbour Regulation. The share buy-back programme was carried out with the objective of adjusting the capital structure of H+H, and it is expected to be proposed at the Annual General Meeting in 2023 that any shares bought back under the programme, which are not used to meet obligations relating to the Company’s share-based incentive programme, will be proposed cancelled. Please refer to Company Announcement no. 469 of 3 March 2022 for more information. Share capital H+H’s share capital is currently divided into 17,500,000 shares with a nominal value of DKK 10 per share. All the Group’s shares enjoy the same voting and dividend rights. At the end of 2022, H+H held a total of 1,218,731 shares as treasury shares. As previously communicated, it is expected to be proposed at the Annual General Meeting in 2023 that any shares bought back under the share buy-back programme carried out during 2022, which are not used to meet obligations relating to the Company’s share-based incentive programme, will be cancelled. Geographical distribution of shareholders Denmark United Kingdom United States Sweden Other Share information Exchange Nasdaq Copenhagen ISIN code DK0015202451 Ticker symbol HH No. of shares 17,500,000 Denomination DKK 10 per share Share capital DKK 175,000,000 Voting rights One vote per share Composition of shareholders On 31 December 2022, H+H had more than 5,300 registered shareholders. Major shareholders owning more than 5% of the share capital and votes were Arbejdsmarkedets Tillægspension (more than 10.0%), Nordea Funds Ltd. (more than 5.0%) and Handelsbanken Fonder AB (more than 5.0%). When excluding major shareholders and certain other related shareholdings, the free float of H+H’s outstanding shares is estimated to be around 70%. The majority of the share capital (71%) is held by Danish investors. Other key markets are the United Kingdom, the United States and Sweden, accounting for 6%, 6% and 6% of the share capital, respectively. Major shareholders Arbejdsmarkets Tillægspension, Denmark >10% Nordea Funds Ltd., Finland >5% Handelsbanken Fonder AB >5% 71% 6% 6% 6% 11% Management’s review | Governance 47 | H+H Annual Report 2022 January February March April May June July August September October November December 80 120 160 200 240 280 Annual general meeting The next annual general meeting will be held on 30 March 2023. The time and place will be announced in the notice convening the annual general meeting as published in a company announcement and on the Group’s website. The notice will be published no earlier than five weeks and no later than three weeks prior to the annual general meeting. Documents for use at the annual general meeting will be made available on the H+H website, www.HplusH.com, no later than three weeks before the meeting. Shareholder proposals for the agenda of the annual general meeting must be submitted no later than six weeks before the meeting (i.e., before 15 February 2023). Unless otherwise stated in the Danish Companies Act or the Group’s Articles of Association, resolutions on the amendment of the Articles of Association will be valid only if carried by at least two-thirds of the votes cast and of the voting share capital represented at the general meeting. Investor Relations The purpose of H+H’s financial communications and other investor relations activities is to ensure that relevant, accurate and timely information is made available to the stock market to serve as a basis for regular trading and a fair pricing of H+H shares. Relevant investor information is available on H+H’s website, www.HplusH.com/investor-relations. To ensure that capital market participants, including current and prospective investors, are able to make well-informed investment decisions, H+H seeks a transparent and active dialogue with all financial market participants, including investors, sell-side analysts, journalists and the general public via conference calls, participation in investor meetings and equity conferences and social media. H+H is currently covered by four sell-side analysts who regularly publish equity research reports about the company. One other financial institution has coverage 2022 relative share-price performance H+H International A/S OMXC Mid-Cap Index (re-based) KAXCAP Index (re-based) of the H+H share but is currently in a transition process. A list of analysts covering H+H can be found on the Group’s investor relations website, https://www.HplusH.com/analysts-and-share-analyses. H+H is not normally available for dialogue about financial matters in the three-week period leading up to the publication of an interim financial report or the annual report. Inquiries concerning investor relations issues should be addressed to the Head of Investor Relations and Treasury via email to [email protected]. Financial calendar 2023 1 March 2023 2023 Annual Report 30 March 2023 2023 Annual General Meeting 10 May 2023 Q1 2023 Interim Financial Report 17 August 2023 H1 2023 Interim Financial Report 17 November 2023 Q3 2023 Interim Financial Report Management’s review | Governance 48 | H+H Annual Report 2022 FINANCIAL STATEMENTS Income statement Statement of comprehensive income Balance sheet at 31 December Cash flow statement Statement of changes in equity Notes to the consolidated financial statements Notes – Financial statements Notes – Income statement Notes – Balance sheet Notes – Supplementary information Statement by the Executive Board and the Board of Directors Independent Auditor’s Reports 49 | H+H Annual Report 2022 Financial statements Group Parent company Note (DKK million) 2022 2021 2022 2021 3, 11 Revenue 3,604 3,020 - - 4, 11, 17 Cost of goods sold (2,584) (2,115) - - Gross profit before special items 1,020 905 - - 4, 11 Sales costs (170) (143) - - 4, 11 Administrative costs (222) (186) (72) (64) 5, Other operating income and costs, net 29 15 66 52 EBITDA before special items 657 591 (6) (12) 6, 11 Depreciation and amortisation (202) (183) (3) (2) EBIT before special items 455 408 (9) (14) 7 Special items, net (42) (31) (14) - EBIT 413 377 (23) (14) 8 Financial income 6 4 143 299 9 Financial expenses (21) (25) (17) (24) Profit before tax 398 356 103 261 10 Tax on profit (81) (35) 5 6 Profit for the year 317 321 108 267 Profit for the year attributable to: H+H International A/S’ shareholders 303 310 108 267 Non-controlling interest 14 11 - - Profit for the year 317 321 108 267 12 Earnings per share (EPS-Basic) (DKK) 17.1 17.5 12 Diluted earnings per share (EPS-D) (DKK) 17.0 17.3 Group Parent company Note (DKK million) 2022 2021 2022 2021 Profit for the year 317 321 108 267 Other comprehensive income: Items that will not be reclassified subsequently to the income statement: 20 Actuarial losses and gains 18 47 - - Tax on actuarial losses and gains (1) (11) - - 17 36 - - Items that may be reclassified subsequently to the income statement: Foreign exchange adjustments, foreign entities (17) 9 - - (17) 9 - - Other comprehensive income after tax 0 45 - - Total comprehensive income for the year 317 366 108 267 Income statement Statement of comprehensive income Financial statements 50 | H+H Annual Report 2022 Group Parent company Note (DKK million) 2022 2021 2022 2021 Goodwill 419 364 - - Customer relations 213 261 - - Other intangible assets 40 35 22 10 13 Intangible assets 672 660 22 10 Land and buildings 767 755 - - Plant and machinery 652 633 - - Other equipment, fixtures and fittings 87 92 5 6 Assets under construction 316 227 - - 14 Property, plant and equipment 1,822 1,707 5 6 15 Deferred tax assets 17 17 10 10 16 Equity investments in subsidiaries - - 1,232 1,230 16 Investments in associated companies 1 1 - - Other receivables 5 5 - - Receivables from subsidiaries - - 1,236 1,009 Other non-current assets 23 23 2,478 2,249 Total non-current assets 2,517 2,390 2,505 2,265 17 Inventories 523 321 - - 18 Trade receivables 122 146 - - Group debtors - - 71 72 18 Other receivables 40 37 1 1 Prepayments 12 7 1 1 Cash 536 499 222 338 Current assets 1,233 1,010 295 412 Total assets 3,750 3,400 2,800 2,677 Group Parent company Note (DKK million) 2022 2021 2022 2021 19 Share capital 175 180 175 180 Translation reserve (155) (138) - - Retained earnings 1,822 1,662 1,435 1,487 Equity attributable to H+H International A/S’s shareholders 1,842 1,704 1,610 1,667 Equity attributable to non-controlling interests 96 110 - - Equity 1,938 1,814 1,610 1,667 20 Pension obligations 23 85 - - 21 Provisions 38 41 - - 15 Deferred tax liabilities 110 137 - - 26 Lease liabilities 81 85 4 1 25 Deferred payments, acquisition of subsidiary 105 - - - 22 Credit institutions 920 743 873 646 Non-current liabilities 1,277 1,091 877 647 22 Credit institutions - - - - Trade payables 278 251 8 4 26 Lease liabilities 27 21 2 5 Income tax 37 23 1 - Payables to subsidiaries - - 278 337 25 Deferred payments, acquisition of subsidiary 7 - - - 21 Provisions 9 5 - - Other payables 177 195 24 17 Current liabilities 535 495 313 363 Total liabilities 1,812 1,586 1,190 1,010 Total equity and liabilities 3,750 3,400 2,800 2,677 Balance sheet at 31 December Assets Equity and liabilities Financial statements 51 | H+H Annual Report 2022 Group Parent company Note (DKK million) 2022 2021 2022 2021 Operating profit (EBIT) 413 377 (23) (14) 8 Financial income, received 6 4 32 19 9 Financial items, paid (20) (25) (17) (17) 6 Depreciation and amortisation 202 183 3 2 Write downs - 7 - - Gain on disposal of property, plant and equipment (9) (7) - - Other adjustments with non-cash effects 1 7 4 6 Change in inventories (205) (18) - - Change in receivables 12 (54) 1 (16) Change in trade payables and other payables 16 83 11 1 Change in provisions and pension contribution (42) (29) - - Income tax paid (58) ( 74) 5 5 Operating activities 316 454 16 (14) Sale of property, plant and equipment 11 8 - - Change in borrowings to subsidiares - - (276) (245) Capital increase in subsidiaries - - (2) - 8 Dividend from subsidiaries - - 102 280 25 Acquisition of enterprises and related deferred payments - (238) - - 13, 14 Acquisition of property, plant and equipment and intangible assets (266) (197) (13) (16) Investing activities (255) (427) (189) 19 Free cash flow 61 27 (173) 5 Group Parent company Note (DKK million) 2022 2021 2022 2021 22 Change in borrowings 177 134 227 74 25 Debt from acquired enterprises - (28) - - Payment of lease liabilities (27) (26) (2) - Dividend to non-controlling interests - (10) - - Purchase of treasury shares (169) (95) (169) (95) Financing activities (19) (25) 56 (21) Cash flow for the year 42 2 (117) (16) Cash at 1 January 499 481 338 353 25 Cash related to the acquired enterprises - 7 - - Foreign exchange adjustments of cash (5) 9 1 1 Cash at 31 December 536 499 222 338 Cash flow statement Financial statements 52 | H+H Annual Report 2022 Group (DKK million) Share capital Translation reserve Retained earnings H+H share- holders share Non- controlling interest' share Total Equity at 1 January 2021 180 (147) 1,405 1,438 71 1,509 Profit for the year - - 310 310 11 321 Other comprehensive income: Foreign exchange adjustments, foreign entities - 9 - 9 - 9 Actuarial gains/losses on pension plans - - 47 47 - 47 Tax on other comprehensive income - - (11) (11) - (11) Net gains recognised directly in equity - 9 36 45 - 45 Total comprehensive income - 9 346 355 11 366 Acquisition of treasury shares - - (95) (95) - (95) Share-based payment - - 6 6 - 6 Non-controlling interests arising from acquisition - - - - 38 38 Dividend to non-controlling interests - - - - (10) (10) Total changes in equity - 9 257 266 39 305 Equity at 31 December 2021 180 (138) 1,662 1,704 110 1,814 Profit for the year - - 303 303 14 317 Other comprehensive income: Foreign exchange adjustments, foreign entities - (17) - (17) - (17) Actuarial gains/losses on pension plans - - 18 18 - 18 Tax on other comprehensive income - - (1) (1) - (1) Net gains recognised directly in equity - (17) 17 0 - 0 Total comprehensive income - (17) 320 303 14 317 Acquisition of treasury shares - - (169) (169) - (169) Share-based payment - - 4 4 - 4 Share capital decrease, note 19 (5) - 5 - - - Adjustment to non-controlling interests arising from acquisition - - - - (22) (22) Dividend to non-controlling interests - - - - (6) (6) Total changes in equity (5) (17) 160 138 (14) 124 Equity at 31 December 2022 175 (155) 1,822 1,842 96 1,938 Parent company (DKK million) Share capital Retained earnings Proposed dividend Total Equity at 1 January 2021 180 1,310 - 1,490 Profit for the year - 267 - 267 Other comprehensive income - - - - Total comprehensive income - 267 - 267 Acquisition of treasury shares - (96) - (96) Share-based payment - 6 - 6 Total changes in equity - 177 - 177 Equity at 31 December 2021 180 1,487 - 1,667 Profit for the year - 108 - 108 Other comprehensive income - - - - Total comprehensive income - 108 - 108 Acquisition of treasury shares - (169) - (169) Share-based payment - 4 - 4 Share capital decrease, note 19 (5) 5 - - Total changes in equity (5) (52) - (57) Equity at 31 December 2022 175 1,435 - 1,610 Statement of changes in equity Financial statements 53 | H+H Annual Report 2022 Notes - Financial statements 1 General accounting policies 55 2 Significant estimates and judgements 57 Notes - Income statement 3 Segment information 57 4 Staff costs 58 5 Other operating income and costs before special items 60 6 Depreciation and amortisation before special items 60 7 Special items, net 60 8 Financial income 61 9 Financial expenses 61 10 Tax 61 11 Income statement classified by function 63 12 Earnings per share (EPS) 64 Notes - Balance sheet 13 Intangible assets 64 14 Property, plant and equipment 67 15 Deferred tax 69 16 Investments in subsidiaries 70 17 Inventories/cost of goods sold 71 18 Trade and other receivables 72 19 Share capital and treasury shares 73 20 Pension obligations 73 21 Provisions 77 22 Credit institutions 78 Notes - Supplementary information 23 Contingent liabilities 79 24 Auditors’ remuneration 79 25 Business combinations 80 26 Financial instruments and financial risks 81 27 Related parties 84 28 Events after the balance sheet date 84 Notes to the consolidated financial statements Financial statements 54 | H+H Annual Report 2022 Basis of preparation The annual report is presented in DKK, which is the parent company’s functional currency, rounded to the nearest DKK 1 million. The annual report has been prepared using the historical cost principle. The accounting policies are unchanged compared to last year. Accounting policies have been applied consistently throughout the financial year and for the comparative figures, if not mentioned otherwise. The accounting policies applied to the consolidated financial statements as a whole are described below, while the remaining accounting policies are described in connection with the notes to which they relate. The aim is to give a better understanding of the individual items. The descriptions of accounting policies in the notes form part of the overall description of accounting policies. The annual report covers the period 1 January – 31 December 2022. Adoption of new, revised and amended IFRSs effective 1 January 2022 H+H International A/S has adopted all relevant new or revised and amended International Financial Reporting Standards (IFRSs) and interpretations (IFRIC) issued by IASB and endorsed by the EU effective for the financial year 2022. It is assessed that they have not had a material impact on the consolidated financial statement. Other new interpretations effective 1 January 2022 It is assessed that application of other new interpretations effective on 1 January 2022 has not had a material impact on the consolidated financial statements. New, revised and amended IFRS Standards It is assessed that new, revised or amended IFRSs and Interpretations will not have a material impact on the consolidated financial statements. New, revised and amended IFRSs and interpretations not yet adopted by EU It is assessed that new, revised or amended IFRSs and interpretations that have been issued but not yet adopted by EU as at 31 December 2022 will not have a material impact on the consolidated financial statements. Application of materiality In the preparation of the annual report, H+H Group aims to focus on information which is considered to be material and relevant to the users of the annual report. The consolidated financial statements are a result of aggregating large numbers of transactions into classes of similar tems, according to their nature or function, in the consolidated financial statements. If a line item is not individually material, it is aggre- gated with other items of a similar nature in the consolidated financial statements or in the notes. The provisions in IFRS contain extensive disclosure requirements. The specific disclosures required by IFRS are provided in the annual report unless the information is considered immaterial to the users of the annual report. Description of accounting policies Consolidated financial statements The consolidated financial statements include the parent company H+H International A/S and subsidiaries in which H+H International A/S has control of the Subsidiary’s financial and operating policies so as to obtain returns or other benefits from the Subsidiary’s activities. Control exists when H+H International A/S holds or has the ability to exercise, directly or indirectly, more than 50% of the voting rights or otherwise has control of the Subsidiary in question. The consolidated financial statements have been prepared by aggregation of the parent company’s and the individual subsidiaries’ financial statements, applying the H+H Group’s accounting policies. Intra-group income and expenses, shareholdings, balances and dividends as well as realised and unrealised gains arising from intragroup transactions are eliminated on consolidation. Equity investments in subsidiaries are offset against the proportionate share of the fair value of the subsidiaries’ identifiable net assets and recognised contingent liabilities at the date of acquisition. Accounting items of subsidiaries are fully recognised in the consolidated financial statements. Foreign currency translation For each entity included in the consolidated financial statements, a functional currency has been determined. The functional currency of an entity is the currency of the primary economic environment in which the entity operates. Transactions in currencies other than the functional currency are accounted for as transactions in foreign currencies. On initial recognition, transactions denominated in foreign currencies are translated into the functional currency at the exchange rates at the transaction date. Foreign exchange differences arising between the exchange rates at the transaction date and at the date of payment are recognised in the income statement as financial income or financial expenses. Receivables, payables and other monetary items denominated in foreign currencies are translated into the functional currency at the exchange rates at the balance sheet date. The difference between the exchange rate at the balance sheet date and the exchange rate at the date on which the receivable or payable arose or the exchange rate used in the last annual report is recognised in the income statement as financial income or financial expenses. On recognition in the consolidated financial statements of foreign entities with a functional currency other than DKK, income statements are translated at the exchange rates at the transaction date and balance sheet items are translated at the exchange rates at the balance sheet date. An average exchange rate for each month is used as the exchange rate at the transaction date to the extent that this does not give a significantly different view. Foreign exchange differences arising on translation of the opening equity of foreign entities at the exchange rates at the balance sheet date, and on translation of income statements from the exchange rates at the transaction date to the exchange rates at the balance sheet date, are recognised as other comprehensive income. Foreign exchange adjustments of balances considered part of the overall net investment in entities with a functional currency other than DKK are recognised in the consolidated financial statements as other comprehensive income. Correspondingly, foreign exchange gains and losses on that part of loans and derivative financial instruments entered into to hedge the net investment in such entities which effectively hedges against corresponding exchange gains/losses on the net investment in the entity are recognised as other comprehensive income. Notes – Financial statements 1 General accounting policies The annual report for the period 1 January - 31 December 2022 comprises both the consolidated financial statements of H+H International A/S and its subsidiaries (the H+H Group) and separate financial statements for the parent company. H+H International A/S is a public limited company registered in Denmark. The annual report of H+H International A/S for 2022 has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and additional requirements of the Danish Financial Statements Act. The Board of Directors and Executive Board discussed and approved the annual report of H+H International A/S for 2022 on 1 March 2023. The annual report for 2022 will be submitted to the shareholders of H+H International A/S for adoption at the annual general meeting on 30 March 2023. Financial statements 55 | H+H Annual Report 2022 1 General accounting policies – continued On the complete or partial disposal of a foreign operation, or on the repayment of balances that are considered part of the net investment, the share of the cumulative exchange adjustments that is recognised in equity and attributable to this is recognised in the income statement when the gain or loss on disposal is recognised. On the disposal of partially owned foreign subsidiaries, the part of the translation reserve attributable to non-controlling interests is not trans- ferred to the income statement. On the partial disposal of foreign subsidiaries without loss of control, a proportionate share of the translation reserve is transferred from the parent company shareholders’ share of equity to non-controlling interests’ share of equity. The repayment of balances that are considered part of the net investment is not itself considered to constitute partial disposal of the subsidiary. Cash flow statement The cash flow statement shows the cash flows for the year, broken down by operating, investing and financing activities, and the year’s change in cash and cash equivalents as well as the cash and cash equivalents at the beginning and end of the year. The cash flow effect of acquisitions and disposals of entities is shown separately under cash flows from investing activities. Cash flows from acquisitions of entities are recognised in the cash flow statement from the date of payment, and cash flows from disposals of entities are recognised up to the date of disposal. Cash flows in currencies other than the functional currency are translated at average exchange rates, unless these deviate significantly from the rates at the transaction date. Cash flows from operating activities are determined as operating profit adjusted for depreciations, amortisation and impairment losses, non-cash operating items, change in working capital, pension contributions, interest received and paid, and income tax paid. Cash flows from investing activities comprise payments in connection with acquisitions and disposals of entities and activities; acquisitions and disposals of intangible assets, property, plant and equipment, and other non-current assets; and acquisitions and disposals of securities that are not recognised as cash and cash equivalents. Cash flows from financing activities comprise changes in the size or composition of the share capital and associated expenses as well as the raising of loans, repayment of interest-bearing debt, purchase and sale of treasury shares, and payment of dividends as well as dividend received from subsidiaries. Payment of lease liabilities is included under financing activities and the related interest is included as a financial item under operating activities. Cash and cash equivalents comprise cash and securities with a maturity of less than three months at the time of acquisition that are readily convertible to cash and are subject to an insignificant risk of changes in value. For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in liabilities in the balance sheet. Financial ratios Other financial ratios have been prepared in accordance with the Danish Finance Society’s guidelines. The financial ratios under Key figures in the Managemen’t review have been calculated as follows: Gross margin Gross profit x 100 Revenue EBITDA margin EBITDA x 100 Revenue EBIT margin EBIT x 100 Revenue Return on invested capital * EBIT Average invested capital Earnings per share (EPS) ** Profit/loss for the year Average number of shares outstanding Diluted earnings per share (EPS-D) ** Diluted earnings Average number of shares outstanding + diluted shares Return on equity Profit/loss for the year x 100 Average equity excl. non-controlling interests Solvency ratio Equity at year-end (attributable to H+H) x 100 Total equity and liabilities, year-end Book value per share, year-end Equity (in H+H), year-end Number of shares, year-end Price/book value Share price Book value per share, year-end Price-earnings ratio (PE) Share price Earnings per share Lost -time incident frequency (LTIF) Number of lost time incidents x 1 million Hours worked Payout ratio Total dividend paid x 100 Profit/loss for the year Free cash flow The sum of cash flow from operating and investing activities NIBD/EBITDA Net interest-bearing debt, year-end EBITDA * Return on invested capital is measured on a twelve months basis. Invested capital is calculated as net working capital plus tangible assets and intangible assets excluding goodwill deducted by provisions and operating non-current liabilities. Net working capital is defined as inventories, trade receivables, other receivables, prepayments deducted by trade payables and other payables. ** Earnings per share (EPS) and diluted earnings per share (EPS-D) are determined in accordance with IAS 33. Notes – Financial statements Financial statements 56 | H+H Annual Report 2022 Notes – Financial statements 1 General accounting policies – continued Glossary EBITDA Operating profit before depreciation, amortisation and financial items EBIT Operating profit before financial items Special items Refer to note 7 for accounting policy for special items Margins before special items Consists of defined margins adjusted for special items re above and note 7 Organic growth Revenue growth excluding effects from changes in foreign exchange rates and revenue from acquisi- tions and divestments 2 Significant estimates and judgements Determining the carrying amounts of some assets and liabilities requires Management to make judgements, estimates and assumptions concerning future events. The estimates and assumptions made are based on historical experience and other factors that are believed by Management to be sound under the circumstances but that, by their nature, are uncertain and unpredictable. The estimates and assump- tions may be incomplete or inaccurate, and unforeseen events or circumstances may occur. Moreover, the H+H Group is subject to risks and uncertainties that may lead to the actual outcomes differing from these estimates and assumptions. It may be necessary to change estimates and assumptions made previously as a result of changes in the factors on which these were based or as a result of new knowledge or subsequent events. Critical accounting estimates and judgements made in connection with the financial reporting are set out in the notes listed below. Reference is made to the specific notes for further information on the key accounting estimates and judgements as well as the assumptions applied. Note Significant accounting estimate and judgement Nature of accounting impact Impact of estimates and judgements 3 Segment information Aggregation of similar segments Judgement ** 13 Impairment testing of intangible assets Key assumptions in impairment test Estimate *** 15 Deferred tax Recovery of deferred tax assets Judgement ** 20 Defined benefit pension plans Key actuarial assumptions Estimate ** 25 Business combinations Purchase price allocation Estimate ** * Low ** Medium *** High 3 Segment information Key customers Two customer represented more than 10% of the H+H Group’s total revenue in 2022. One customer in the UK approx. 17% and one customer in Germany approx. 11% (2021: one customer in the United Kingdom represented approx. 20%). The following geographical areas in the Group represent more than 10% of revenue or non-current assets. Group (DKK million) 2022 2021 Revenue Non- current assets Revenue Non- current assets Central Western Europe 1,611 1,784 1,399 1,704 UK 1,052 258 884 239 Poland 941 437 737 420 Other countries and eliminations - 38 - 27 3,604 2,517 3,020 2,390 When presenting information on geographical areas, information on revenue is based countries except for “Central Western Europe” which comprise of Germany, Switzerland, Denmark, Sweden, Czech Republic, Holland and Belgium. For Germany, revenue in 2022 for amounts to DKK 1,124 million (2021: DKK 946 million) and non-current assets amount to DKK 1,501 million (2021: DKK 1,417 million). All revenue relates to sales of goods and transport services. Revenue in Denmark was DKK 244 million in 2021 (2021: DKK 222 million). Non-current assets in Denmark at year-end 2022 amounted to DKK 40 million (2021: DKK 29 million). Financial statements 57 | H+H Annual Report 2022 Notes – Income statement Accounting policies The reporting of operating segments is in accordance with the internal reporting to the Executive Management which constitute H+H’s chief operating decision maker. Segment information is prepared in accordance with H+H’s accounting policies and the internal financial reporting framework. H+H has identified three operating segments Central Western Europe, UK and Poland which has been aggregated into one reporting segment. The operating segments share similar economic characteristics in regard to long-term gross profit margin, are similar in the nature of prod- ucts, production processes and customer base as well as in distribution methods. Executive Management is responsible for decisions about overall resource allocation and performance assessment. Business decision on resource allocation and performance evaluation for each of the operating segments are made on basis of EBIT before special items. Decision on financing and tax are made for H+H as a whole. Critical accounting Judgement Aggregation of segments with exhibit similar economic characteristics When assessing segment information, Management has provided significant judgements, especially related to the five aggregation criteria’s re. IFRS 8.12, i.e. nature of the products and services, nature of the production processes, type or class of customer, method used to distrib- ute products and nature of the regulatory environment. Based on a thorough analysis, it is concluded that aggregation of the identified three operating segments Central Western Europe, UK and Poland into one reporting segment can be made as each of the operating segments share similar economic characteristics measured on a long-term gross profit margin basis, as well as they share similar fundamental charac- teristics re. the five aforementioned specific aggregation criteria’s. 4 Staff costs Group Parent company (DKK million) 2022 2021 2022 2021 Total Remuneration to Key Management Personnel - Executive Board and non-registred members of Executive Management Salary 12.4 11.6 12.4 11.6 Bonus 5.8 4.1 5.8 4.1 Share-based payment 2.7 3.6 2.7 3.6 Pension 0.3 0.3 0.3 0.3 Severance payment 5.8 - 5.8 - Total 2 7.0 19.6 2 7.0 19.6 * Non-registred members of executive management are the Group Chief Operating Officer, Group Strategy Officer and the Group Human Ressource Officer. ** Share based payment comprise costs related to share programs for the years 2019 - 2022 recognised in accordance with IFRS 2. Group Parent company (DKK million) 2022 2021 2022 2021 Wages and salaries 593 503 35 37 Defined contribution plans, see note 20 5 7 - - Share-based payment 5 6 5 6 Remuneration to the Board of Directors 3 3 3 3 Other staff costs 58 51 - - 664 570 43 46 Staff costs are recognised as follows: Production costs 420 342 - - Sales and distribution costs 120 111 - - Administrative costs 124 117 43 46 664 570 43 46 Average full-time equivalent staff 1,738 1,572 22 21 Group Parent company (DKK million) 2022 2021 2022 2021 Total Remuneration to Executive Board and Board of Directors Executive Board 19.6 11.8 19.6 11.8 Board of Directors 2.7 2.7 2.7 2.7 Total 22.3 14.5 22.3 14.5 3 Segment information – continued Financial statements 58 | H+H Annual Report 2022 Notes – Income statement Remuneration Policy for Board of Directors and Executive Board The Remuneration Policy for H+H International A/S (H+H) was adopted at the annual general meeting on 2 April 2020 and subsequently adjusted on 12 May 2021 by the Board of Directors to ensure alignment with the new corporate governance recommendations. The overall objective of the Remuneration Policy is to provide a remuneration framework that supports successful execution of the H+H Group strategy. The Board of Directors has established a Remuneration Committee that assists the Board of Directors in developing, implementing and con- tinuously complying with the Remuneration Policy. The Charter of the Remuneration Committee as well as a description of the key matters handled by the Remuneration Committee for the latest financial year is available at www.HplusH.com/board-committees. The Board of Directors does not receive any form of incentive payment, and remuneration to the Executive Board consists of fixed salary and other benefits as well as the variable elements short-term incentive programs (STIP) and long-term incentive programs (LTIP). Executive Board Short-term incentive programs (STIP) In addition to the fixed salary, remuneration for the Executive Board consists of an annual cash bonus based on performance related to the extent of achievement of pre-defined key performance indicators (KPIs). The bonus is therefore not guaranteed. In the case of termination of employment, the member is entitled to a pro rata bonus up to the date of termination, if the performance achieved by year-end means that a cash bonus has been earned. Long-term incentive programs (LTIP) for 2022 In March 2022, the Board of Directors of H+H International A/S implemented a new long-term incentive programme (“LTIP”) being a performance share unit (“PSU”) programme similar to the LTIP PSU programme launched in 2020 and 2021. At initiation, a total of 43.989 PSUs were granted to the participants, including 8.789 PSUs to CFO, Peter Klovgaard-Jørgensen. Subsequently, the PSUs granted has been increased to 60.289 PSUs, including 17,000 PSUs to CEO Jörg Brinkmann. Based on the average share price for H+H shares trading on the Nasdaq Copenhagen stock exchange during the first ten days after the release of the 2021 Annual Report on 3 March 2022, the theoretical value was DKK 182.81 per PSU, corresponding to a total theoretical value of DKK 11 million for the 2022 LTIP based on the current participants and their receipt of PSU grants. The vesting period for the PSUs is approximately three years, with vesting for the 2022 LTIP being in 2025 when the audited annual report for 2024 is publicly announced. Long-term incentive programs (LTIP) related to prior years In 2021 and 2020, PSU programs, similar to above, was launched, and in 2019, matching share programs was launched for the Executive Board and certain key employees in the H+H Group. In the matching share programs, each participant invested H+H shares into the program, which will trigger vesting of a maximum allocation of 3 shares per investment share by the end of the vesting period, if all the vesting criteria are fulfilled. Vesting criteria also relate to continuous employment in the H+H Group during the vesting period or dismissal as a “good leaver”. Vesting period for the matching share programs is approximately 3 years. In March 2022 a total of 54,957 shares vested relating to the 2019 matching share program, hereof 6,900 shares settled in cash. 4 Staff costs – continued Pending share programs The fair value of the programs are determined as the number of shares/PSU’s which are expected to vest, with the external KPI fulfillment being fixed at initiation of the programmes in accordance with IFRS 2. The share price used in calculating the value of the programs is the average share price on the first 10 days of the trading window when the programme is launched. At vesting, grants can be settled with shares or by cash, based on the company’s decision. Cost for share programs are recognised as staff costs until the expiry of the vesting periods. Cost are reversed for participants that voluntarily (i.e. “bad leavers”) leave the H+H Group. As of 31 December 2022, the Company had the following pending share programs with associated fair values: Max. Shares/ PSUs to be granted Expected shares/PSUs to be granted Max. value (DKK million) Exp. value (DKK million) 2020-programme, vesting in March 2023 86,400 80,525 8.9 8.3 2021-programme, vesting in March 2024 63,617 45,457 6.5 4.7 2022-programme, vesting in March 2025 57,289 9,777 5.9 1.0 * Share price of DKK 102,60 as of 31 December 2022 has been applied. The programmes pending are hedged in whole or in part by purchase of treasury shares. In 2022, the Company bought 1,191,400 treasury shares (2021: 478,553 shares), mostly related to the share buy-back program. Refer to note 19 for more information. Accounting policies The H+H Group’s incentive schemes comprise share programmes for senior executives and certain key employees. The value of services rendered by employees in return for share grants is measured at the fair value of the shares. For equity settled shares, the grant date fair value is measured and recognised in the income statement as staff costs over the vesting period of the shares. The costs are set off directly against equity. On initial recognition of shares, the number of shares expected to vest is estimated, cf. the service condition described. The figure initially recognised is subsequently adjusted for changes in the estimate of the number of shares expected to vest, so that the total recognition is based on the actual number of vested shares. Financial statements 59 | H+H Annual Report 2022 Notes – Income statement 5 Other operating income and costs before special items Group Parent company (DKK million) 2022 2021 2022 2021 Other operating income: Management fee - - 66 52 Reversal of a loss provision related to sale of land in previous years 10 - - - Gain on disposal of property, plant and equipment 9 7 - - Rental income 6 6 - - Other income 10 5 - - 35 18 66 52 Other operating costs: Loss on disposal of property, plant and equipment (1) - - - Other costs (5) (3) - - (6) (3) - - Total 29 15 66 52 Accounting policies Other operating income and costs comprise items secondary to the entities’ activities such as gain and losses and reversal of provisions on disposal of property, plant and equipment, management fee, rental income, refunds of energy taxes etc. 6 Depreciation and amortisation before special items Group Parent company (DKK million) 2022 2021 2022 2021 Intangible assets 44 37 1 - Land and buildings 36 31 2 2 Plant and machinery 88 82 - - Fixtures and fittings, tools and equipment 34 33 - - Total 202 183 3 2 No impairment is recognised in 2022 or 2021. 7 Special items, net Group Parent company (DKK million) 2022 2021 2022 2021 Integration costs - (11) - - Write down - (7) - - Transaction and restructuring costs (42) (13) (14) - Total (42) (31) (14) - Impact of special items on EBIT Cost of goods sold (25) (11) - - Sales costs - (4) - - Administrative costs (17) - (14) - Other operating income and costs, net - (9) - - Depreciation and amortisation - (7) - - Total (42) (31) (14) - Special items for 2022 comprise restructuring costs of DKK 42 million corresponding to an increase of DKK 11 million compared to DKK 31 million in 2021. Special items for 2022 comprise additional transport costs related to a factory upgrade in Germany, the acquired AAC factory located in Feuchtwangen in Bavaria, Germany as well as costs related to changes to Group and regional Managements. Accounting policies Special items include significant income and expenses of a special nature in terms of the Group’s revenue-generating activities that cannot be attributed directly to the Group’s ordinary operating activities. Special items also include significant non-recurring items, including gains and losses on the disposal of activities and associates and transac- tion costs in a business combination. Significant restructuring of processes and structural adjustments are also included in special items. Special items are shown separately from the Group’s ordinary operations to facilitate a better understanding of the Group’s financial perfor- mance. Financial statements 60 | H+H Annual Report 2022 Notes – Income statement 8 Financial income Group Parent company (DKK million) 2022 2021 2022 2021 Interest income 5 3 - 2 Interest income from subsidiaries - - 32 17 Dividend from subsidiaries - - 102 280 Past service cost relating to pension plans; see note 20 1 - - - Foreign exchange rate adjustments 0 1 9 - Total 6 4 143 299 Accounting policies Financial income comprises interest income, capital gains, transactions denominated in foreign currencies, amortisation of financial assets, and surcharges and allowances under the tax prepayment scheme etc. Dividends from equity investments in subsidiaries are credited to the parent company’s income statement in the financial year in which they are declared. 9 Financial expenses Group Parent company (DKK million) 2022 2021 2022 2021 Interest expenses 11 15 11 10 Interests expense, leases 4 3 - - Interest expenses to subsidiaries - - 5 6 Interest on financial instruments 15 18 16 16 Financial expenses relating to pension plans; see note 20 2 2 - - Foreign exchange rate adjustments 1 - - 7 Other financial expenses 3 5 1 1 Total 21 25 17 24 Accounting policies Financial expenses comprise interest expenses on debt measured at amortised cost, past service costs, capital losses, impairment losses re- lating to securities, recirculation of cumulative translation differences of entities disposed of, payables and transactions in foreign currencies, and amortisation of financial liabilities, including finance lease obligations etc. 10 Tax Group Parent company (DKK million) 2022 2021 2022 2021 Tax on profit 81 35 (5) (6) Tax on other comprehensive income 1 11 - - Total 82 46 (5) (6) Total tax can be broken down as follows: Current tax for the year 75 70 (5) (6) Adjustment relating to changes in tax rate 1 (1) - - Adjustment of deferred tax 1 7 4 3 Change in valuation of tax assets (4) (5) (4) (3) Prior year adjustments 9 (25) - - Total 82 46 (5) (6) Current joint taxation contribution for the year - - (5) (6) Tax on profit can be broken down as follows: Calculated 22.0% (2021: 22.0%) tax on income from ordinary activities 87 78 23 57 Less tax in foreign Group entities compared with 22.0% rate (2021: 22.0%) (13) (15) - - Tax effect of: Change in valuation of tax assets (4) (4) (4) (3) Change in tax rate 1 - - - Non-deductible expenses/non taxable income 1 1 (24) (60) Prior year adjustment 9 (25) - - Total 81 35 (5) (6) Financial statements 61 | H+H Annual Report 2022 Notes – Income statement Accounting policies Tax on profit comprises current tax and changes in deferred tax for the year. The portion that relates to profit for the year is recognised in the income statement, and the portion that can be attributed to items in other comprehensive income or directly in equity is recognised in other comprehensive income or directly in equity. H+H International A/S is taxed jointly with all its Danish subsidiaries. The current Danish income tax is allocated among the jointly taxed companies in proportion to their taxable income. Subsidiaries that utilise tax losses in other subsidiaries pay joint taxation contributions to the parent company equivalent to the tax base of the utilised losses, while subsidiaries with tax losses that are utilised by other subsidiaries receive joint taxation contributions from the parent company equivalent to the tax base of the tax losses utilised (full absorption). The jointly taxed companies are taxed under the tax prepayment scheme. Where the H+H Group receives a tax deduction in the calculation of taxable income in Denmark or abroad as a result of sharebased payment schemes, the tax effect of these schemes is recognised in tax on profit. If the total deduction exceeds the total remuneration expense, the tax effect of the excess deduction is recognised directly in equity. The parent company is the administration company for the jointly taxed Danish companies. Pursuant to the rules on this contained in the Danish Corporation Tax Act, all companies that are jointly taxed are thus liable to withhold tax at source on interest, royalties and dividends for the jointly taxed companies for contingent liabilities. The Group’s Danish companies are further jointly and severally liable for joint regis- tration of VAT. Approach to taxes As recommended by the Danish Committee on Corporate Governance, H+H has adopted a tax policy. For more details on our approach to taxes, we refer to our tax policy which can be found here: https://www.hplush.com/tax In addition to the Committee’s best practice guidelines, the Global Sustainability Standard Board (GSSB) has issued GRI 207 TAX 2019. The H+H tax policy addresses the essence of the Committee’s recommendations and the disclosures of GRI 207, and thereby forms the founda- tion for a common tax approach for the H+H Group. In order to increase transparency, we present key figures on tax jurisdiction levels below. Corporate income tax is based on IFRS reporting standards instead of GRI methodology to ensure internal coherence throughout the annual report. 10 Tax – continued Country-by-country key figures - IFRS Group (DKK million) 2022 Number of employees Total employee remuneration Revenues from third-party sales Revenues from intragroup transactions with other tax juridictions Property, plant and equipment and inventory Balance of intra- company debt Corporate income tax paid on a cash basis Denmark 54 65 244 - 51 976 1 UK 248 124 1,052 - 330 148 24 Germany 588 289 1,071 279 1,739 (1,165) 4 Poland 808 153 941 21 600 5 22 Switzerland 18 18 128 - 290 23 6 Holland 11 11 82 - 2 14 - Sweden 5 3 34 - 5 (1) 1 Czech Republic 6 1 52 - - - - Total 1,738 664 3,604 300 3,017 - 58 Current tax explanation on country level Calculated local corporate tax on profit (loss) before tax Non-taxable income and non-deductable costs, net Current tax Deferred tax Prior years and other adjust- ments Denmark 9 (15) - 6 - UK (37) - (22) 10 5 Germany (4) 18 (5) (12) - Poland (51) (2) (44) - 9 Switzerland (6) - (5) 2 (1) Holland 2 - 1 (1) - Sweden 1 - 1 - - Czech Republic (1) - (1) - - Total (87) 1 (75) 4 13 Financial statements 62 | H+H Annual Report 2022 Notes – Income statement AAC and CSU revenue, respectively, amounted to DKK 2,548 million and DKK 1,056 million in 2022, compared to DKK 2,131 million and DKK 890 million in 2021. The revenue streams contain of contracts for sale of goods and related transport services. Change of control for contracts for goods are sat- isfied upon shipment whereby the performance obligation is met instantly. Revenue relating to transport services is recognised upon delivery of the goods to an agreed location whereby the performance obligation is met. The transaction price is the amount to which H+H expects to be entitled in exchange for the transfer of goods and transport services. The transaction price for delivery of goods and transport services are an integrated part of the contracts and the standalone selling prices are directly observable. Accounting estimates are made for variable considerations which consist of customer rebates and bonusses. These are allocated to the transaction price based on “The most likely amount”-method. Payment terms mainly comprise of 30 days end of month, hence no significant financing component. Defect products and return pallets can be redelivered and provisions has been recognised accordingly. For further description, please refer to note 21 “Provisions”. Accounting policies Revenue from contracts for goods recognised in the income statement when the customer obtains control. Revenue relating to transport services is recognised upon delivery of the goods to an agreed location. Revenue is recognised if the income can be measured reliably and is expected to be received. Revenue is measured net of VAT and duties collected on behalf of third parties. All types of discount and rebate granted are recognised in revenue. Cost of goods sold comprise costs incurred in generating the revenue for the year. The trading entities recognise cost of sales and the producing entities recognise production costs, relating to revenue for the year. This includes the direct and indirect cost of raw materials and consumables, distribution and wages and salaries. Sales costs comprise marketing costs etc. which includes costs of sales personnel, and advertising and exhibition costs. Administrative costs include costs incurred during the year for management and administration, including costs for administrative staff, office premises and office expenses. Administrative costs also include impairment of trade receivables. 11 Income statement classified by function It is Group policy to prepare the income statement based on an adapted classification of costs by function in order to show EBIT before special items. Depreciation, amortisation and impairment of property, plant and equipment and intangible assets are therefore classified by function and presented on separate lines. The table below shows an extract of the income statement adapted to show depreciation, amortisation and impairment classified by function: Group Parent company (DKK million) 2022 2021 2022 2021 Revenue 3,604 3,020 - - Cost of goods sold (2,724) (2,238) - - Gross profit including depreciation and amortisation 880 782 - - Sales costs (217) (188) - - Administrative costs (237) (201) (75) (66) Other operating income 35 18 66 52 Other operating costs (6) (3) - - EBIT before special items 455 408 (9) (14) Special items (42) (31) (14) - EBIT 413 377 (23) (14) Depreciation and amortisation comprise: Amortisation of intangible assets 44 37 1 - Depreciation of property, plant and equipment 158 146 2 2 Total 202 183 3 2 Depreciation and amortisation are allocated to: Production costs 140 123 - - Sales costs 47 45 - - Administrative costs 15 15 3 2 Total 202 183 3 2 Financial statements 63 | H+H Annual Report 2022 Notes – Income statement 12 Earnings per share (EPS) Group (DKK million) 2022 2021 Average number of shares 17,983,365 17,983,365 Average number of treasury shares (317,829) (279,822) Average number of shares in circulation 17,665,536 17,703,543 Average number of restricted shares 135,759 189,439 Average number of diluted shares in circulation 17,801,295 17,892,982 Profit/loss for the year (DKK million) 317 321 Attributable to non-controlling interest (14) (11) Shareholders in H+H International A/S (DKK million) 303 310 Earnings per share (EPS) (DKK) 17. 1 1 7. 5 Diluted earnings per share (EPS-D) (DKK) 17.0 1 7. 3 See calculation principle in note 1 under financial ratios. 13 Intangible assets Parent company (DKK million) 2022 2021 Other intangible assets Other intangible assets Total cost at 1 January 10 3 Additions during the year 13 7 Total cost at 31 December 23 10 Total amortisation at 1 January - - Amortisation for the year (1) - Total amortisation at 31 December (1) - Carrying amount at 31 December 22 10 Group (DKK million) 2022 Goodwill Customer relations Other intangible assets Total Total cost at 1 January 392 373 98 863 Foreign currency translation adjustments (1) (1) (1) (3) Additions from acquired companies, see note 25 56 (11) (2) 43 Additions during the year - - 15 15 Disposals during the year - - (2) (2) Total cost at 31 December 447 361 108 916 Total depreciation and amortisation at 1 January (28) (112) (63) (203) Foreign currency translation adjustments - - 1 1 Amortisation for the year - (36) (8) (44) Amortisation of disposals - - 2 2 Total amortisation and impairment losses at 31 December (28) (148) (68) (244) Carrying amount at 31 December 419 213 40 672 (DKK million) 2021 Goodwill Customer relations Other intangible assets Total Total cost at 1 January 239 324 75 638 Foreign currency translation adjustments - - 1 1 Additions from acquired companies 153 49 3 205 Additions during the year - - 22 22 Disposals during the year - - (3) (3) Total cost at 31 December 392 373 98 863 Total depreciation and amortisation at 1 January (28) (80) (61) (169) Foreign currency translation adjustments - - - - Amortisation for the year - (32) (5) (37) Amortisation of disposals - - 3 3 Total amortisation and impairment losses at 31 December (28) (112) (63) (203) Carrying amount at 31 December 364 261 35 660 Financial statements 64 | H+H Annual Report 2022 Notes – Balance sheet 13 Intangible assets – continued Impairment testing Management has tested goodwill for impairment in each of the cash-generating units to which such assets have been allocated. Management has identified the following five cash-generating units (CGU’s); 2022 Cash-generating units and related goodwill Product Year of origin DKK million Poland AAC & CSU 2003 21 Continental Western Europe AAC 2006/20/21 254 Continental Western Europe CSU 2018/19 144 UK AAC N /A - Total 419 In total, goodwill of DKK 243 million was acquired in connection to the acquisitions of “Feuchtwangen” and “DOMAPOR”, both adding into the Central Western Europe AAC cash-generating unit. Refer to note 25 “Business combinations” for further information on the purchase price allocations which has been finalised in 2022. Management is of the opinion that the lowest level of cash-generating unit to which the carrying amount of goodwill can be allocated is in each CGU. In both 2022 and 2021, the impairment test of goodwill showed no impairment. Key assumptions For the purpose of impairment testing the recoverable amount was defined as the value in use. The impairment tests were based on budget for 2023 approved by the Management and financial forecasts for the years 2024-2028 for all CGUs. A significant marked decline is expected in 2023, this driven by high inflation and increased interest rate for mortgages for all markets. In the financial forecast periods, growth from 2024 and onwards are expected whereas earnings are expected to rebound into normalized levels. Assumptions are based historic trends as well as external benchmarked data. Most material key assumptions for the impairment test are growth in terminal period and WACC, but also annual growth in revenue (CAGR) and gross margins. Annual growth in revenue is to a large extend volume driven. Annual growth in revenue excluding the volume effect is between 1.6% - 2.3% for the three CGU’s, a result of the current inflationary environment, which is estimated to counter direct cost increases coming from raw materials and energy, effectively defending 2022 gross margin levels, at least. 2022 Cash-generating units Poland AAC & CSU Central Western Europe AAC Central Western Europe CSU Carrying amount of intangible assets, property, plant and equipment at 31 December 2022 (DKK million) 431 1,001 781 Goodwill (DKK millon) 21 254 144 Estimated average annual growth in revenue 2023-2028 (CAGR) 6.9% 7. 7 % 3.8% Estimated average annual growth/decrease in gross margin in percentage points 2023-2028 0.7% (0.3)% (0.3)% WACC before tax (budget and terminal period, respectively) 16.0% 10.6% 10.6% WACC after tax (budget and terminal period, respectively) 13.0% 8.2% 8.2% 2021 Cash-generating units Poland AAC & CSU Central Western Europe AAC Central Western Europe CSU Carrying amount of intangible assets, property, plant and equipment at 31 December 2021 (DKK million) 415 873 828 Goodwill (DKK millon) 22 198 144 Estimated average annual growth in revenue 2022-2027 (CAGR) 5.5% 6.4% 1.8% Estimated average annual growth in gross margin in percentage points 2022-2027 0.3% 0.3% 0.2% WACC before tax (budget and terminal period, respectively) 13.0%/13.0% 8.7%/9.9% 9.8%/11.7% WACC after tax (budget and terminal period, respectively) 10.5%/10.5% 6.9%/7.8% 7.2%/8.6% Financial statements 65 | H+H Annual Report 2022 Notes – Balance sheet 13 Intangible assets – continued The weighted average growth rate used for the terminal period for the years after 2028 has for all CGUs been estimated at 2.0% (2021: 1.0% - 2.0%). The weighted average annual growth rate for the terminal period are assessed not to exceed long-term average growth rates on the markets of the individual CGUs. For the CGU “Poland AAC & CSU”, the gross margin has been estimated to increase for the period 2023-2028, after which it is expected to be constant. The rising gross margin assumes more expedient utilisation of production capacity driven by increased volumes sold. For the GCU’s “Continental Western Europe AAC” and “Continental Western Europe CSU”, gross margins are estimates to remain on 2022 level. The WACC is based on generally applied principles including the determination of return on equity and cost of debt. Components for the return on equity, the marked risk premium, company specific risk premium and beta-values, is benchmarked to external information. The risk-free rate for each CGUs for the budget period has been sourced from trading economics and is equal a 10-years government bond. The risk-free rate for the terminal period is normalised. The cost of debt is estimated based on the actual margin in the bank agreements and the risk-free rate. WACC components applied are similar for all CGUs apart from the risk-free rates which differentiate. Sensitivity on changes in key assumptions Group Management believes that likely changes in the key assumptions will not cause the carrying amount of goodwill and non-current as- sets to exceed the recoverable amounts. Sensitivity analysis of impairment tests focuses on changes in discount rate (WACC) and long-term growth rate. All other factors are unchanged in the sensitivity analysis. Based on sensitivity analyses, it is Management’s opinion that no probable change in any key assumptions would cause the carrying amounts of CGUs to exceed the recoverable amount as at 31 December 2022. Accounting policies Goodwill is recognised initially in the balance sheet at cost. Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses. Goodwill is not amortised. On acquisition, goodwill is allocated to the cash-generating units which subsequently form the basis for impairment testing. Goodwill and fair value adjustments in connection with the acquisition of a foreign entity with a functional currency other than the H+H Group’s presentation currency are accounted for as assets and liabilities belonging to the foreign entity, and translated on initial recognition into the foreign entity’s functional currency at the exchange rate at the transaction date. Any excess of the fair value over the cost of acquisition (negative goodwill) is recognised in the income statement at the date of acquisition. The carrying amount of goodwill is allocated to the H+H Group’s cash-generating units at the date of acquisition. The determination of cash-generating units follows the H+H Group’s organisational and internal reporting structure. Other intangible assets comprises of customer relations, order-book, trademarks, development projects and patent and licenses. Customer relations, order book and trademarks acquired in connection with business combinations are measured at cost less cumulative amortisation and impairment losses. They are amortised using a straight-line method over the expected useful life. Development projects that are clearly defined and identifiable, and for which technical feasibility, adequate resources and a potential future market or an application in the entity can be demonstrated, and which the entity intends to manufacture, market or use, are recognised as intangible assets if the cost can be determined reliably and if there is reasonable certainty that the future earnings or the net selling price will cover production costs, selling costs, administrative expenses and development costs. Other development costs are recognised in the income statement as incurred. Recognised development costs are measured at cost less cumulative amortisation and impairment losses. Cost comprises salaries, amor- tisation and other expenses attributable to the H+H Group’s development activities and interest expenses on loans to finance development projects that relate to the production period. On completion of the development work, development projects are amortised on a straight-line basis over the estimated economic useful life from the date the asset is available for use. The amortisation period is normally 5-10 years. The amortisation base is reduced by any impairment losses. Patents and licences are measured at cost less cumulative amortisation and impairment losses. Patents and licences are amortised on a straight-line basis over the shorter of the remaining patent or contract period and the useful life. Software and other intangible assets are depreciated on a straight-line basis over the expected useful lives of the assets as follows: • Software 3-6 years • ERP systems 8 years • Customer relations 10 years • Other intangible assets 1-10 years Critical accounting estimates Impairment of goodwill and non-current assets Critical accounting estimates relates to determining goodwill and the impairment test in its whole. In determining goodwill and preparing the impairment test, a range of critical accounting estimates are made, i.e. determining future cash flows, identifying CGU’s, determining growth rates in terminal period and WACC. Goodwill is tested for impairment annually, the first time before the end of the year of acquisition. The carrying amount of goodwill is tested for impairment together with the other non-current assets of the cash-generating unit to which the goodwill has been allocated, and written down to the recoverable amount in the income statement if the carrying amount exceeds the recoverable amount. As a rule, the recoverable amount is determined as the present value of the expected future net cash flows from the entity or activity (cash-generating unit) to which the goodwill relates. The carrying amounts of other non-current assets are reviewed annually to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. The recoverable amount of an asset is the higher of its fair value less expected disposal costs and its value in use. The value in use is determined as the present value of expected future cash flows from the asset or the cash-generating unit to which the asset belongs. An impairment loss is recognised whenever the carrying amount of an asset or cash-generating unit exceeds its recoverable amount. Im- pairment losses are recognised in the income statement under depreciation and amortisation. Impairment losses relating to goodwill are not reversed. Impairment losses relating to other assets are reversed to the extent that the assumptions or estimates that led to the impairment loss have changed. Impairment losses are only reversed to the extent that the asset’s new carrying amount does not exceed the value the asset would have had after depreciation/amortisation if no impairment losses had been charged. For the purpose of impairment testing the recoverable amount was defined as the value in use. The impairment tests were based on budget for 2023 approved by the Management and financial forecasts for the years 2024-2028 for all CGUs. A significant marked decline is expected in 2023, this driven by high inflation and increased interest rate for mortgages for all CGUs. In the financial forecast periods, growth from 2024 and onwards are expected rebounding earnings to a of normalized level. Assumptions are based historic trends as well as external benchmarked data. Most material key assumptions for the impairment test are growth in terminal period and WACC. Financial statements 66 | H+H Annual Report 2022 Notes – Balance sheet 14 Property, plant and equipment Parent company (DKK million) 2022 2021 Land and buildings Land and buildings Total cost at 1 January 10 9 Additions 1 1 Total cost at 31 December 11 10 Total depreciation at 1 January (4) (2) Depreciations for the year (2) (2) Total amortisation at 31 December (6) (4) Carrying amount at 31 December 5 6 Right-of-use assets included as Additions 1 1 Depreciation 2 2 Carrying amount at 31 December 5 6 Group (DKK million) 2022 Land and buildings Plant and machinery Other equipment, fixtures and fittings Property, plant and equipment under con- struction Total Total cost at 1 January 1,373 2,380 287 227 4,267 Foreign currency translation adjustments (10) (30) (2) (5) (47) Adjustment to additions from acquired companies, in prior years (8) 23 - - 15 Transfers 44 51 - (95) - Additions, including right-of-use assets 17 45 32 189 283 Disposals during the year (3) (2) (14) - (19) Total cost at 31 December 1,413 2,467 303 316 4,499 Total depreciation and amortisation at 1 January (618) (1,747) (195) - (2,560) Foreign currency translation adjustments 5 18 1 - 24 Depreciation for the year (36) (88) (34) - (158) Depreciation of disposals 3 2 12 - 17 Total depreciation and impairment losses at 31 December (646) (1,815) (216) - (2,677) Carrying amount at 31 December 767 652 87 316 1,822 Right-of-use assets included as Additions 8 - 24 - 32 Depreciation (5) - (21) - (26) Carrying amount at 31 December 85 - 48 - 133 Financial statements 67 | H+H Annual Report 2022 Notes – Balance sheet 14 Property, plant and equipment – continued Group (DKK million) 2021 Land and buildings Plant and machinery Other equipment, fixtures and fittings Property, plant and equipment under con- struction Total Total cost at 1 January 1,290 2,298 260 100 3,948 Foreign currency translation adjustments 9 45 2 1 57 Additions from acquired companies, see note 25 71 38 - - 109 Transfers 2 17 - (19) - Additions, including right-of-use assets 4 17 37 146 204 Disposals during the year (3) (35) (12) (1) (51) Total cost at 31 December 1,373 2,380 287 227 4,267 Total depreciation and amortisation at 1 January (581) (1,656) (173) - (2,410) Foreign currency translation adjustments (7) (35) (1) - (43) Additions from acquired companies - - - - - Depreciation for the year (31) (82) (33) - (146) Depreciation of disposals 1 26 12 - 39 Total depreciation and impairment losses at 31 December (618) (1,747) (195) - (2,560) Carrying amount at 31 December 755 633 92 227 1,707 Right-of-use assets included as Additions 1 - 28 - 29 Depreciation (3) - (19) - (22) Carrying amount at 31 December 84 - 46 - 130 Right-of-use-assets The Group leases land and buildings, offices, cars and forklift trucks. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Total cash outflows for leases amounts to DKK 27 million (2021: DKK 27 million). Lease liabilities and interest relating to recognised lease contracts are included in Note 26. Future minimum lease payments relating to leases not recognised in the balance sheet amount to DKK 3 million (2021: DKK 0 million). At 31 December 2022 the Group was committed to short- term and low value leases for an amount of DKK 3 million (2021: DKK 0 million). Accounting policies Land and buildings, plant and machinery, fixtures and fittings, and tools and equipment are measured at cost less accumulated depreciation and impairment losses. Cost comprises purchase price and any costs directly attributable to the acquisition up to the date the asset is available for use. The cost of self-constructed assets comprises direct and indirect costs of materials, components, subsuppliers and labour. Cost is increased by estimat- ed costs for dismantling and removal of the asset and restoration costs, to the extent that they are recognised as a provision, and interest expenses on loans to finance the production of property, plant and equipment that relates to the production period. The cost of a combined asset is divided into separate components that are depreciated separately if the components have different useful lives. Subsequent costs, for example in connection with replacement of part of an item of property, plant or equipment, are recognised in the car- rying amount of the asset if it is probable that future economic benefits will flow to the H+H Group from the expenses incurred. The replaced part is derecognised in the balance sheet, and the carrying amount is transferred to the income statement. All other expenses for general repair and maintenance are recognised in the income statement as incurred. Property, plant and equipment are depreciated on a straight-line basis over the expected useful lives of the assets as follows: • Production buildings 30-50 years • Office buildings 30-50 years • Production equipment, autoclaves, mills, cutting machines and moulds 10-30 years • Plant, machinery and other equipment 5-20 years • Vehicles, fixtures and IT equipment 3-10 years • Land is not depreciated The main part of the Group’s non-current assets comprises of production equipment, autoclaves, mills, cutting machines, presses and moulds which are depreciated over a period of 10-30 years. The depreciation base is determined taking into account the asset’s residual value and is reduced by any impairment losses. The residual value is determined at the date of acquisition and reviewed annually. Depreciation ceases if the residual value of an asset exceeds its carrying amount. The effect on depreciation of any changes in depreciation period or residual value is recognised prospectively as a change in accounting estimates. Leases At the commencement date, the Group recognises a lease liability and a corresponding right-of-use asset at the same amount, except for short-term leases of 12 months or less and leases of low-value assets. The interest rate implicit in the lease or the H+H Group’s incremental borrowing rate is used as the discount rate for calculating the lease liability and a corresponding right-of-use asset. Financial statements 68 | H+H Annual Report 2022 Notes – Balance sheet 14 Property, plant and equipment – continued A right-of-use asset is initially measured at cost, which equals the initial lease liability and initial direct costs less any lease incentives received. The Group has applied the practical expedient option allowed under IFRS by using a portfolio approach for the recognition of lease contracts related to assets of the same nature and with similar lease terms, i.e. cars and trucks. Subsequently, the right-of-use asset is measured at cost less depreciation and impairment losses, and adjusted for remeasurement of the lease liability. The right-of-use asset is depreciated over the earlier of the lease term or the useful life of the asset. The impairment testing of right-of-use assets follows the same principles as those applied for property, plant and equipment. Right-of-use assets are recognised as property, plant and equipment. The Group has elected not to recognise right-of-use assets and liabilities for leases with a term of 12 months or less and leases of low-value assets. Lease payments related to such leases are recognised in the income statement as an expense on a straight-line basis over the lease term. In determining the lease term, Management considers all the facts and circumstances that create an economic incentive to exercise an extension option or not to exercise a termination option. Extension or termination options are only included in the lease term if the lease is reasonably certain to be extended or not terminated. Judgement is applied in determining the depreciation period and future residual value of the assets recognised and is generally based on historical experience. Reassessment is done annually to ascertain that the depreciation basis applied is still representative and reflects the expected life and future residual value of the assets. 15 Deferred tax Group Parent company (DKK million) 2022 2021 2022 2021 Deferred tax at 1 January (120) (112) 10 10 Addition from acquisitions in prior years 32 (28) - - Prior years adjustments (9) 25 - - Foreign exchange adjustments 2 (3) - - Effect of change in tax rate (1) 1 - - Change in deferred tax (1) (7) - - Valuation of tax asset 4 4 - - Deferred tax at 31 December (93) (120) 10 10 Group Parent company (DKK million) 2022 2021 2022 2021 Deferred tax relates to: Non-current assets (136) (173) - - Current assets (2) (1) - - Liabilities 12 26 - - Tax loss carry-forwards 33 28 10 10 Total (93) (120) 10 10 Breakdown of deferred tax and recognition in the balance sheet: Deferred tax assets 17 17 10 10 Deferred tax liabilities (110) (137) - - Total (93) (120) 10 10 No deferred tax has been recognised on the difference between the cost of equity investments and the carrying amount. This is because the shareholdings in the equity investments are all considered to be ”shares in a subsidiary”, and any gain/loss is therefore not taxable. The tax value of loss carry-forwards has been recognised as deferred tax assets in the companies where, based on budget and forecasts, it is considered very likely that this can be utilised in future earnings and a history of profit before tax within the last three to five years has been verified. A tax value of loss carry-forwards of DKK 24 million at 31 December 2021 (2021: DKK 22 million) has not been recognised as deferred tax assets, as these are not considered likely to be utilised, especially given the current macro-economic environment. The carry-forward losses, which does not have an expirery date, relate to Germany, Denmark and Sweden. The parent company has special carried-forward losses related to sale of property and shares with limited possibilities of use with a taxable value of DKK 11 million (2021: DKK 11 million) which are not recognised. The losses in question have no expiry date. Financial statements 69 | H+H Annual Report 2022 15 Deferred tax – continued Accounting policies Income tax and deferred tax: Current tax payable and receivable is recognised in the balance sheet as tax computed on the taxable income for the year, adjusted for tax on the taxable income of prior years and for tax paid on account. Deferred tax is measured using the balance sheet liability method, providing for all temporary differences between the carrying amount and tax base of assets and liabilities. However, the following temporary differences are not recognised: Goodwill not deductible for tax purposes and other items – apart from business combinations – where temporary differences have arisen at the date of acquisition that affect neither profit nor taxable income. Where alternative tax rules can be applied to compute the tax base, deferred tax is measured on the basis of Man- agement’s planned use of the asset or settlement of the liability respectively. Deferred tax assets, including the tax base of tax loss carry-forwards, are recognised as other non-current assets at the value at which they are expected to be utilised either by elimination against tax on future earnings or by set-off against deferred tax liabilities within the same legal tax entity and jurisdiction. Deferred tax assets and liabilities are offset if the H+H Group has a legally enforceable right to offset current tax liabilities and assets or intends to settle current tax liabilities and assets on a net basis or to realise tax assets and liabilities simultaneously. Adjustment of deferred tax is made in respect of elimination of unrealised intra-group profits and losses. Deferred tax is measured on the basis of the tax rules and at the tax rates that will apply under the legislation enacted at the balance sheet date in the respective countries when the deferred tax is expected to crystallise in the form of current tax. Changes in deferred tax as a result of changes in tax rates are recognised in the income statement. Under the joint taxation rules, H+H International A/S, as the administration company, becomes liable to the tax authorities for the subsidiar- ies’ income taxes as the subsidiaries pay their joint taxation contributions. Joint taxation contributions payable and receivable are recognised in the balance sheet under receivables from/payables to subsidiaries. Critical accounting judgements Recovery of deferred tax assets: Deferred tax assets are recognised for all unutilised tax loss carry-forwards to the extent it is considered likely that the losses can be offset against taxable income in the foreseeable future. The amount recognised for deferred tax assets is based on judgement of the likely date and size of future tax loss carry-forwards. 16 Investments in subsidiaries Parent company (DKK million) 2022 2021 Acquisition cost at 1 January 1,297 1,297 Additions 2 - Disposals - - Cost at 31 December 1,299 1,297 Impairment losses at 1 January (67) (67) Reversal of previous write-down - - Reversal in connection with disposals - - Impairment losses at 31 December (67) (67) Carrying amount at 31 December 1,232 1,230 The cost of investments in subsidiaries was tested for impairment at the end of 2022. The recoverable amount of the equity investments at 31 December 2022 is based on the value in use, which has been determined using expected net cash flows based on estimates for the years 2023-2028 and a WACC after tax of 8.2%-13.0% (2021: 6.9-10.5%). The weighted average growth rate used for extrapolating expected future net cash flows for the years after 2028 has been estimated at 2.0% (2021: 2.0%). It is estimated that the growth rate will not exceed the long- term average growth rate in the respective company’s markets; see note 14 for further information on the impairment tests. Non-controlling interest Set out below is summarised financial information for each subsidiary that has a non-controlling interest that are material to the group. The amounts disclosed for each subsidary are before intercompay eliminations. Baustoffwerke Dresden GmbH & Co. KG Porenbetonwerk Laussnitz GmbH & Co. KG DOMAPOR Baustoffwerke GmbH Principal activities CSU AAC AAC/CSU Principal place of business Dresden, Germany Laussnitz, Germany Hohen Wangelin, Germany Financial information (DKK million) 2022 2021 2022 2021 2022 2021 Net assets 88 96 87 86 120 150 Accummulated non-controlling interest 38 38 42 35 16 16 Revenue 124 117 86 78 164 - Profit for the period 12 16 15 8 35 - Dividend paid to non-controlling interest 6 7 - 3 - - Notes – Balance sheet Financial statements 70 | H+H Annual Report 2022 16 Investments in subsidiaries – continued 2022 2021 Registered office Equity interest, % Equity interest, % KWAY Holding Limited UK 100 100 H+H Deutschland GmbH Germany 100 100 Hunziker Kalksandstein AG Switzerland 100 100 H+H Danmark A/S Denmark 100 100 HHI A/S af 3. maj 2004 Denmark 100 100 H+H Sverige AB Sweden 100 100 H+H Polska Sp. z o.o. Poland 100 100 H+H Benelux B.V. Netherlands 100 100 Diverse af 29.9.2011 ApS Denmark 100 100 * This activity comprises ownership of H+H UK Holding Limited and thus the activities of H+H UK Limited. ** This activity comprises ownership of H+H Kalksandstein GmbH, 51 % ownership of Baustoffwerke Dresden GmbH & Co. KG, 51% ownership of Porenbetonwerk Laussnitz GmbH & Co. KG. and 52.5% ownership of DOMAPOR Baustoffwerke GmbH. *** This activity comprises ownership of Grupa Prefabet S.A. The above list does not include indirectly owned companies without any activities. Impairment of financial assets Loans to related and other parties: Lifetime expected credit losses (ECL) has been provided for them upon initial application of IFRS 9 until these financial assets are derecognised as it was determined on initial application of IFRS 9 that it would require undue cost and effort to determine whether their credit risk has increased significantly since initial recognition to the date of initial application of IFRS 9. In determining the expected credit losses for these assets, we have taken into account the historical default experience, the financial position of the counterparties and considering various external sources of actual and forecast economic information, as appropriate, in estimating the probability of default of each of these financial assets occurring within their respective loss assessment time horizon, as well as the loss upon default in each case. There has been no change in the estimation techniques or significant assumptions made during the current reporting period in assessing the loss allowance for these financial assets. Loans to subsidiaries are denominated in EUR and therefor not exposed to foreign exchange risks. Accounting policies Equity investments in subsidiaries in the parent company’s financial statements: Equity investments in subsidiaries are measured at cost. If there is any indication of impairment or reversal of prior year’s impairment, an impairment test is carried out as described in note 13. Cost is written down to the recoverable amount whenever the carrying amount is higher. Notes – Balance sheet 17 Inventories/cost of goods sold Group Parent company (DKK million) 2022 2021 2022 2021 Raw materials and consumables 159 114 - - Finished goods and goods for resale 364 207 - - Total 523 321 - - Write-downs recognised in the inventories above have developed as follows: Write-downs at 1 January 31 24 - - Foreign exchange adjustments - - - - Write-downs for the year 8 10 - - Realised during the year (1) (2) - - Reversals (7) (1) - - Total 31 31 - - Cost of goods sold comprised (before special items): Direct production costs 1,499 1,199 - - Wages and salaries 420 342 - - Production overheads 273 216 - - Distribution 384 348 - - Write-downs for the year 8 10 - - Total 2,584 2,115 - - Accounting policies Inventories are measured at cost using the FIFO method. Where the net realisable value is lower than the cost, inventories are written down to this lower value. In the case of goods for resale, and raw materials and consumables, cost comprises purchase price plus expenses incurred in bringing the inventories to their existing location and condition. In the case of finished goods, cost comprises raw materials, consumables, direct labour and production overheads. Production overheads comprise indirect materials and labour as well as maintenance and depreciation of the machinery, factory buildings and equipment used in the production process, and the cost of factory administration and management. The net realisable value of inventories is determined as the selling price less any costs of completion and costs incurred to execute the sale. The net realisable value is determined on the basis of marketability, obsolescence and developments in expected selling price. Financial statements 71 | H+H Annual Report 2022 Notes – Balance sheet 18 Trade and other receivables Group Parent company (DKK million) 2022 2021 2022 2021 Trade receivables, gross 189 199 - - Rebates, bonusses and write-downs (67) (53) - - Group debtors - - 71 72 Other receivables 40 37 1 1 Total 162 183 72 73 In the parent company, group debtors comprise of receivable management fee. Other receivables include a receivable from sale of land and property in Poland, rent deposits, VAT, other indirect taxes etc. and fall due within one year of the balance sheet date. Group Parent company (DKK million) 2022 2021 2022 2021 Age analysis of trade receivables (gross): Not past due 149 138 - - 0-30 days 39 59 - - 31-90 days 1 - - - 91-180 days 1 - - - Over 180 days 2 2 - - Total trade receivables 192 199 - - Write-downs relating to receivables, year-end 2 3 - - The average credit period on sales of goods is approximately 30 days. The expected credit losses on trade receivables are estimated using a provision matrix and the Group has recognised a loss allowance of 100% against all receivables over 180 days because historical experience has indicated that these receivables are generally not recoverable. Receivables that are not past due are predominantly deemed to have a high credit quality and security is normally not required. The Group’s customers are typically large well-consolidated builders’ merchants and housebuilders, and customers are credit rated on a regular basis. Only limited security had been provided at 31 December 2022. Write-downs of receivables Group Parent company (DKK million) 2022 2021 2022 2021 Write-downs at 1 January 3 3 - - Write-downs for the year - - - - Realised during the year - - - - Reversals (1) - - - Write-downs relating to receivables at 31 December 2 3 - - Accounting policies Receivables are measured at amortised cost, which in all material respects corresponds to the nominal value less a loss allowance equal expected credit loss. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. Expected credit losses on receivables are recognised as other external expenses. The expected credit losses on receivables are estimated using a provision matrix based on the Group’s historical credit loss experience, ad- justed for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate. Prepayments recognised under assets comprise expenses incurred in respect of subsequent financial years. Prepayments are measured at amortised cost. Financial statements 72 | H+H Annual Report 2022 Notes – Balance sheet 19 Share capital and treasury shares Number Nominal value, DKK million 2022 2021 2022 2021 Share capital at 1 January 17,983,365 17,983,365 180 180 Movements (483,365) - (5) - Share capital at 31 December 17,500,000 17,983,365 175 180 On 22 June 2018, H+H International A/S increased its share capital by a nominal amount of DKK 71,933,460 from DKK 107,900,190 to DKK 179,833,650. H+H International A/S’s total nominal share capital is DKK 179,833,650 divided into 17,983,365 shares of nominal DKK 10 each, corresponding to 17,983,365 votes. On 5 May 2022, and with reference to Company Announcement no. 479 of 31 March 2022 and Company Announcement no. 485 of 5 May 2022, the approved reduction of the share capital by a nominal amount of DKK 4,833,650 from 179,833,650 to DKK 175,000,000 through the cancellation of 483,365 shares of nominally DKK 10.00 each was registered at the Danish Business Authority. There have been no movements in the share capital in the last five years except for the changes stated in the above paragraphs. Treasury shares Number Nominal value, DKK million % of share capital, year-end Holding at 1 January 2021 97,946 0.98 (0.5) Purchased during the year 478,553 4.79 (2.7) Granted due to matching share programme in 2018 (27,746) (0.28) 0.2 Holding at 31 December 2021 548,353 5.49 (3.1) Purchased during the year 1,191,400 11.91 (6.8) Share capital decrease (483,365) (4.83) 2.8 Granted due to matching share programme in 2019 (48,057) (0.48) 0.3 Holding at 31 December 2022 1,208,731 12.09 (6.9) On 16 February 2022, the share buy-back programme initiated in 2021 was concluded with 569,853 shares acquired at total purchase price of DKK 115 million. On 3 March 2022, H+H International A/S initiated a share buy-back programme in compliance with Article 5 of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on Market Abuse and Commission Delegated Regulation (EU) 1052/2016 of 8 March 2016 (the “Safe Harbour Regulation”). The share buy-back programme is in full described in Company Announcement no. 469 of 3 March 2022. The share buy-back programme is expected to be realised over a 12-month period, starting from 4 March 2022. Under the share buy-back programme, H+H may repurchase shares up to a maximum amount of DKK 150 million. In 2022, a total of 1,110,100 shares were acquired at a total purchase price of DKK 149 million in connection with the 2022 share buy-back programme. All the treasury shares are owned by H+H International A/S. Treasury shares not related to the share buy-back program are acquired in order to hedge liabilities related to the share programmes. Refer to note 4 for further information on the share programmes. Accounting policies Equity: Proposed dividends are recognised as a liability at the date of adoption at the annual general meeting (declaration date). Treasury shares: Acquisition costs, disposal costs and dividends relating to treasury shares are recognised directly in retained earnings under equity. Capital reductions as a result of cancellation of treasury shares reduce the share capital by an amount equivalent to the nominal value of the shares. Proceeds from the sale of treasury shares in H+H International A/S in connection with the exercise of share options are taken directly to equity. 20 Pension obligations Under defined contribution plans, the employer is obliged to pay a specific contribution (e.g. a fixed amount or a fixed percentage of salary). Under such plans, the Group does not bear the risk associated with future developments in interest rates, inflation, mortality and disability. Under defined benefit plans, the employer is obliged to pay a specific amount (e.g. a retirement pension as a fixed amount or a fixed percent- age of final salary). Under such plans, the Group bears the risk associated with future developments in interest rates, inflation, mortality and disability. The Danish entities’ pension obligations are insured. Some foreign entities’ pension obligations are also insured. Foreign entities that are not insured or only insured in part (defined benefit plans) calculate the obligation actuarially at present value at the balance sheet date. These pension plans are fully or partly funded in pension funds for the employees. In the consolidated financial statements, an amount of DKK 23 million (2021: DKK 85 million) has been recognised under liabilities in respect of the Group’s obligations to existing and former employees after deduction of the assets associated with the plans. At 31 December 2022, the actuarial valuation of the defined benefit plan in the UK showed a net deficit of DKK 13 million (GBP 1.6 million). In comparison, at 31 December 2021, the actuarial valuation of the defined benefit plan in the UK showed a net asset of DKK 17 million (GBP 2.0 million), consequently triggering IFRIC 14 for H+H UK to recognise future committed pension contributions of the scheme as they do not have unconditional right to a refund. Value recognised in the balance sheet amounts to DKK 79 million (GBP 8.9 million), including a derecognition of the aforementioned IFRIC 14 effect. In the consolidated income statement, an amount of DKK 5 million (2021: DKK 7 million) has been recognised in respect of expenses relating to insured plans (defined contribution plans). For non-insured plans (defined benefit plans), an amount of DKK 0 million (2021: DKK 0 million) has been recognised in the consolidated income statement as financial expenses. The Group has defined benefit plans in the UK, Germany and Switzerland. The UK and Swiss pension plans are managed by a pension fund – legally separate from the Company – to which payments are made, whereas the German pension plans are unfunded. The board of the UK pension fund is composed of two representatives appointed by the employer, two elected by the pension fund members and two professional independent members. Financial statements 73 | H+H Annual Report 2022 Notes – Balance sheet The board of the UK pension fund is required by law and by articles of association to act in the interest of the pension fund members. The board of the UK pension fund is responsible for the investment policy with regard to the plan assets. Under the pension plan, employees are entitled to post-retirement annual payments amounting to 1/60 of the final pensionable salary for each year of service before the retirement age of 65. In addition, the service period is limited to 40 years, resulting in a maximum yearly entitlement (lifetime annuity) of 2/3 of the final pensionable salary. The defined benefit pension fund in the UK typically exposes the Company to actuarial risks, such as investment, interest rate, inflation and longevity. H+H Celcon Pension Fund is supervised by an independent corporate trustee, H+H Celcon Pension Fund Trustee Limited. In accord- ance with the legislation governing pension funds, the corporate trustee must ensure among other things that a limited actuarial calculation of the pension obligations is carried out each year. Every 3 years a triennial valuation take place. This valuation is based on more prudent assumptions than used under IAS 19. The updated triennial valuation, postponed from April 2020, was finally agreed on 27 January 2022, with the Actuarial certificate signed on 31 January 2021, replacing the triennial valuation from April 2017 (current). The updated triennial valuation showed a deficit of DKK 143 million (GBP 16.5 million), a decreased deficit compared to the triennial valuation from April 2017 of DKK 173 million (GBP 20.0 million). The updated repayment schedule runs from April to April and H+H UK Limited is obliged to pay core contributions of DKK 35 million (GBP 4.00 million) in 2021/22, DKK 35 million (GBP 4.00 million) in 2022/23, DKK 28 million (GBP 3.21 million) in 2023/24 and DKK 26 million (GBP 3.03 million) in 2024/25. The UK pension fund was closed to new entrants in June 2007 and to the accrual of future service benefits in December 2011. The most recent actuarial valuations (based on IAS 19R) of plan assets and the present value of the defined benefit obligation in UK were carried out at 31 December 2022 by Mr Oscar Brown, Fellow of the UK Institute of Actuaries (Axis Actuarial Consulting Ltd.), in Germany by AON and in Switzerland by Swiss Life. The present value of the defined benefit obligation, and the related service and past service cost, were measured using the projected unit credit method. The UK pension fund has been replaced by a defined contribution pension scheme where the Company is not subject to any ongoing invest- ment, interest rate or mortality risk. 20 Pension obligations – continued Group (DKK million) 2022 2021 Pensions and similar obligations: Present value of fully or partly funded defined benefit plans 504 812 Fair value of plan assets 489 816 (Surplus)/Deficit 15 (4) Present value of unfunded defined benefit plans recognised in the balance sheet 8 10 Future committed pension contribution (UK) (Asset ceiling) - 79 Net obligation recognised in the balance sheet 23 85 Development in present value of defined benefit obligation: Obligation at 1 January 822 877 Foreign exchange adjustments (31) 65 Calculated interest on obligation 14 11 Past service costs (1) (1) Service costs 2 2 Gains/losses as a result of changes in economic assumptions (260) (102) Gains/losses as a result of changes in demographic assumptions - (2) Empirical changes (8) (4) Pension paid by employees 5 3 Pension paid (31) (27) Obligation at 31 December 512 822 Breakdown of the present value of defined benefit obligation: Present value of fully or partly funded defined benefit obligations 504 812 Present value of unfunded defined benefit obligations 8 10 Obligation at 31 December 512 822 Financial statements 74 | H+H Annual Report 2022 Notes – Balance sheet 20 Pension obligations – continued Group (DKK million) 2022 2021 Development in fair value of plan assets: Plan assets at 1 January 816 730 Foreign exchange adjustments (29) 54 Calculated interest income 15 10 Return on plan assets over and above the calculated interest (329) 17 The Group’s contributions to plan assets 42 29 The employee’s contributions to plan assets 5 3 Pensions paid (31) (27) Plan assets at 31 December 489 816 Pension costs relating to the current financial year, recognised as staff costs: Pension costs relating to defined contribution plans 5 7 Total pension costs 5 7 Financial costs relating to the defined benefit plans for the current year: Past service costs (1) (1) Calculated interest on obligation (14) (11) Calculated interest on plan assets 15 10 Net interest on defined benefit plans - (2) Pension costs recognised in other comprehensive income: Gains/losses as a result of change in economic assumptions 260 102 Gains/losses as a result of change in demographic assumptions - 3 Return on plan assets over and above the calculated interest (329) 17 Future committed pension contribution 79 (79) Changes due to empirical changes 8 4 Total 18 47 The cost has been recognised in the income statement under staff costs; see note 4. Costs recognised under production costs amount to DKK 3 million (2021: DKK 3 million), costs recognised under sales and distribution costs amount to DKK 1 million (2021: DKK 0 million) and costs recognised under administrative costs amount to DKK 1 million (2021: DKK 4 million). Group (DKK million) 2022 2021 Plan assets can be broken down as follows: Diversified Growth Fund 218 499 Liability Driven Investment 146 284 Bonds 79 - Alternatives 34 30 Cash 12 3 Total 489 816 All plan assets in the UK, DKK 456 million (2021: DKK 786 million), are investments held in LGIM funds, which in turn invest directly in highly rated assets that are traded on a stock exchange. Asset of another DKK 33 million (2021: DKK 30 million) relates to the Swiss pension plan. Group (DKK million) 2022 2021 Return on plan assets Actual return on plan assets (314) 27 Calculated interest on plan assets 15 10 Actuarial gain (loss) on plan assets (329) 17 The average assumptions used for the actuarial calculation related to the UK pension at the balance sheet date can be stated as follows: Discount rate (avg.) 4.7% 1.9% Expected inflation rate 3.3% 3.1% Members’ life expectancy from retirement age (years) 23.1 23.0 Sensitivity analysis The table below shows the sensitivity of the UK pension obligation to changes in the key assumptions for determination of the obligation on the balance sheet date. The H+H Group is also exposed to developments in the market value of the plan assets. The key actuarial assump- tions in determination of the pension obligation relate to interest rate level, pay increases and mortality. Financial statements 75 | H+H Annual Report 2022 Notes – Balance sheet 20 Pension obligations – continued The analysis is based on the reasonably likely changes which can be expected on the balance sheet date, provided that the other parameters in the calculations are unchanged and not subject to consequential changes: Group (DKK million) 2022 2021 Sensitivity relative to discount rate: If the discount rate falls by 0.1 percentage point, the pension obligation will increase by 8 15 Sensitivity relative to inflation: If the inflation rate increases by 0.1 percentage point, the pension obligation will increase by 4 8 Sensitivity relative to life expectancy from retirement age: If the life expectancy from retirement age increases by 1 year, the pension obligation will increase by 19 35 The Group expects to pay DKK 31 million into the defined benefit pension plan in 2023 (2021: DKK 28 million). Group (DKK million) 2022 2021 The pension obligation is expected to fall due as follows: 0-1 year 31 28 1-5 years 125 112 Over 5 years 356 682 Total 512 822 Actuarial assumptions Discount rate The discount rate is based on high-quality corporate bonds, and an adjustment has been made to reflect the fact that the duration of the bonds does not correspond to the duration of the pension obligation. Price inflation Inflation is based on market expectations for inflation over the duration of the pension liabilities and is calculated as a single equivalent rate. Demographic assumptions are based on the latest available mortality projection model. Accounting policies Pension obligations: The H+H Group has entered into pension agreements and similar agreements with some of its employees. Obligations relating to defined contribution plans are recognised in the income statement over the vesting period, and any contributions payable are recognised in the balance sheet as other payables. In the case of defined benefit plans, the value in use of future benefits to be paid under the plan is determined actuarially on an annual basis. The value in use is determined on the basis of assumptions concerning future trends in factors such as salary levels, interest rates, inflation and mortality. The value in use is determined only for the benefits attributable to service already rendered to the H+H Group. The actuarially determined value in use less the fair value of any plan assets is recognised in the balance sheet under pension obligations. The pension costs for the year is recognised in the income statement based on actuarial estimates and the financial outlook at the start of the year. Past service costs are recognised in the income as a financial item. Differences between the expected development in plan assets and obligations and the realised values determined at year-end are designated as actuarial gains or losses and recognised in other comprehensive income. Critical accounting estimates Defined benefit pension plans: The present value of pension obligations depends on the actuarial assumptions made. These assumptions comprise the discount rate, inflation rate, estimated return on plan assets, future salary increases, mortality and future developments in pension obligations. All assumptions are reviewed at the reporting date. Any changes in the assumptions will affect the carrying amount of the pension obligations. Financial statements 76 | H+H Annual Report 2022 Notes – Balance sheet 21 Provisions Group (DKK million) 2022 2021 Provisions at 1 January 46 40 Additions from acquired companies - 11 Provisions for the year 13 6 Utilised during the year (7) (11) Reversals during the year (5) - Provisions at 31 December 47 46 Breakdown of the provisions at 31 December: Warranty obligations 3 3 Obligations relating to restoration of sites 37 35 Onerous contracts 1 2 Restructuring - 2 Other provisions 6 4 Total 47 46 Expected maturity of provisions: Non-current liabilities 38 41 Current liabilities 9 5 Total 47 46 H+H’s subsidiaries provide normal warranties in respect of products supplied to customers. The provision for warranty obligations thus re- lates to warranties provided in respect of products supplied prior to the balance sheet date. The warranty period varies depending on normal practice in the markets in question. The warranty period is typically between one and five years. Warranty obligations have been determined separately for each company based on normal practice in the market in question and historical warranty costs. At 31 December 2022, war- ranty obligations relate predominantly to Germany and Poland. The obligation in respect of restoration of sites relates to H+H’s sites in Germany and Poland. The obligation has been calculated on the basis of external assessments of the restoration costs. Additions from acquired companies also comprises restoration obligations. Accounting policies Provisions are recognised when, as a result of an event occurring before or at the balance sheet date, the H+H Group has a legal or construc- tive obligation, the settlement of which is expected to result in an outflow from the company of resources embodying economic benefits. The measurement of provisions is based on Management’s best estimate of the amount expected to be required to settle the obligation. In connection with the measurement of provisions, the costs required to settle the obligation are discounted to net present value if this has a material effect on the measurement of the obligation. A pre-tax discount rate is applied that reflects the general interest rate level plus the specific risks attached to the provision. The changes in present values during the financial year are recognised under financial expenses. A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data. A provision for restructuring is recognised when a detailed formal plan for the restructuring has been made public, no later than the balance sheet date, to those affected by the plan. A provision for onerous contracts is recognised when the benefits expected to be derived by the H+H Group from a contract are lower than the unavoidable costs of meeting its obligations under the contract. If the H+H Group has an obligation to dismantle or remove an asset or restore the site on which the asset has been used, a provision equiva- lent to the present value of the expected future expenses is recognised. Financial statements 77 | H+H Annual Report 2022 Notes – Balance sheet 22 Credit institutions Group Parent company (DKK million) 2022 2021 2022 2021 Bank loans, non-current 920 744 873 647 Bank loans, current - - - - Amortised borrowing costs 0 (1) 0 (1) Total 920 743 873 646 Change in borrowings from financing activitites: Group Parent company (DKK million) 2022 2021 2022 2021 Borrowings 1 January 743 609 646 572 Change in borrowings 177 134 227 74 Borrowings 31 December 920 743 873 646 * Change in borrowings is driven by movement of positions within the Global Cash Pool arrangement. Change in lease liabilities: Group Parent company (DKK million) 2022 2021 2022 2021 Lease liabilities 1 January 106 102 6 6 Cash flows (27) (26) (2) (1) New/disposed/remeasured lease 31 29 2 1 Foreign exchange adjustments (2) 1 - - Lease liabilities 31 December 108 106 6 6 Maintenance of the committed credit facilities is conditional upon compliance with a number of financial covenants; see note 26. Accounting policies Bank loans etc. are recognised at the date of borrowing at the proceeds received net of transaction costs incurred. In subsequent periods, the financial liabilities are measured at amortised cost using the effective interest rate method. Accordingly, the difference between the proceeds and the nominal value is recognised in the income statement under financial expenses over the term of the loan. The lease liability is measured at the present value of the remaining lease payments at the reporting date, discounted using the incremental borrowing rate for similar assets, taking into account the terms of the leases. A remeasurement of the lease liability, for example a change in the assessment of an option to purchase, results in a corresponding adjustment of the related right-of use assets. Extension or termination options are included in the lease term if the lease is reasonably certain to be extended or not terminated. Conse- quently, all cash outflows that are reasonably certain to impact the future cash balances are recognised as lease liabilities at initial recognition of lease contracts. The Group reassesses the circumstances leading to it not recognising extension or termination options on an ongoing basis. Financial statements 78 | H+H Annual Report 2022 Notes – Supplementary information 23 Contingent liabilities Operating leases Material leases for the H+H Group are recognised in accordance with IFRS 16 “Leases”. An amount of DKK 1 million (2021: DKK 0 million) has been recognised in the consolidated income statement for 2022 in respect of operating leases and rental obligations. Taxes and duties The parent company is the administration company for the jointly taxed Danish companies. Pursuant to the rules on this contained in the Danish Corporation Tax Act, the parent company is thus liable to withhold tax at source on interest, royalties and dividends for the jointly taxed companies for contingent liabilities, and to withhold corporation tax from 1 January 2013. The Group’s Danish companies are further jointly and severally liable for joint registration of VAT. Financial guarantee The parent company H+H International A/S acts as guarantor for the subsidiaries’ drawdowns on the Group’s Global Cash Pool facility. Subsidiaries drawdowns at 31 December 2022 amounts to DKK 315 million (2021: DKK 108 million). In addition hereto, third party guarantees provided by H+H International A/S and its subsidiaries amounts to DKK 66 million at 31 December 2022 (2021: DKK 65 million). Other The H+H Group is not a party of any legal procedings. Shares in some subsidiaries as well as some specific land and buildings have been pledged as security for a loan agreement with Nordea Danmark, branch of Nordea Abp, Finland. 24 Auditors’ remuneration Group Parent company (DKK million) 2022 2021 2022 2021 Total fees for the parent company’s auditors elected at the annual general meeting: Fee 3.1 3.5 1.4 1.1 Total 3.1 3.5 1.4 1.1 The total fee can be broken down as follows: Statutory audit 2.7 1.8 0.8 0.7 Other assurance engagements 0.1 1.2 0.1 0.0 Tax and VAT services 0.1 0.3 0.1 0.0 Other services 0.4 0.2 0.4 0.4 Total 3.3 3.5 1.4 1.1 A few Group enterprises are not audited by the Parent’s appointed auditors (PwC) or the auditors’ foreign affiliates. The fee for non-audit services delivered by PwC to the Group amounts to DKK 0.6 million (2021: Deloitte Statsautoriseret Revisionspartner- selskab, DKK 0.2 million) and consist of advisory services in relation to ESG, various tax advisory services and other advisory services. Financial statements 79 | H+H Annual Report 2022 Notes – Supplementary information 25 Business combinations No business combination was made in 2022. In 2021, H+H International A/S’ subsidiary H+H Deutschland GmbH has on the 14 September 2021 made an agreement with Greisel Vertrieb GmbH and affiliated companies to acquire its aircrete factory located in Feuchtwangen in Bavaria, Germany. Furthermore, on 31 December 2021 H+H Deutschland GmbH acquired 52.5% of the shares in DOMAPOR GmbH & Co. KG (“DOMAPOR”), a manufacturer of aircrete and calcium silicate blocks located in Mecklenburg-West Pomerania, Germany. The acquisitions are in line with H+H’s strategy to expand its activities within the German wall-building materials market and further consoli- date and restructure the industry. Feuchtwangen Cashflow related to the acquisition of Feuchtwangen amount to DKK 126 million which was paid in cash on the acquisition date. Transaction costs of DKK 3 million related to the acquisition have been expensed in 2021, recognised as other operating costs, and presented as special items in the income statement. The purchase price allocation shows acquired net assets at a fair value of DKK 42 million and related goodwill of DKK 84 million. Compared to what was disclosed in the 2021 Annual Report, an adjustment has been made related to value of plant and machinery, conse- quently increasing goodwill by DKK 1 million. DOMAPOR Cashflow related to the acquisition DOMAPOR amount to DKK 112 million which was paid in cash on the acquisition date. Transaction costs of DKK 6 million related to the acquisition have been expensed in 2021, recognised as other operating costs, and presented as special items in the income statement. In addition to the cash payment of DKK 112 million made on the acquisition date, H+H Deutschland GmbH entered into a Domination and profit/loss transfer agreement ("DPLTA”) with the sellers of DOMAPOR whereby H+H Deutschland GmbH for a 20-year period is obliged to pay an annual consideration of EUR 0.89 million for the first ten years and EUR 0.82 million for the following ten years, allowing H+H Deutschland GmbH to obtain the rights related to a minority shareholding of 47.5% in DOMAPOR, including the right to dividend paid out during this period. In the consolidated financial statements for 2021, this obligation was disclosed as contingent liabilities. In connection with determining the final purchase price, the obligation has been recognised as a liability as deferred payments related to the acquisition. In addition, the minority interest has been recognised at fair value, measured as the fair value of 47.5% minority shareholding deducted by the discounted value of payments related to the DPLTA, a net amount of DKK 16 million, hence goodwill consequently amounts to DKK 127 million. Goodwill has been measured by applying the “full goodwill method” as the obligation related to the DPLTA represents a significant part of the fair value of the minority shareholding of 47.5% in DOMAPOR. Compared to what was disclosed in the 2021 Annual Report, the use of above method has resulted in the recognition of additional goodwill of DKK 57 million, the recognition of deferred payments related to the acquisition of DKK 112 million and an adjustment of the minority interest on the acquisition date of DKK 22 million, and reductions following re-evaluation of plant and machinery, customer relations and deferred tax liabilities of net DKK 32 million. The purchase price allocation of the fair value of identified assets and liabilities was completed in 2022, resulting recognition of goodwill of DKK 127 million. The comparative figures have not been restated. Accounting effect of acquisitions Goodwill in the H+H Group was DKK 364 million at the beginning of the year. Due to finalising off the purchase price allocation relating to acqui- sitions in 2021, additional goodwill of DKK 57 million was recognised, resulting in goodwill as of 31 December 2022 amount to DKK 419 million, after adjusting for foreign exchange rates. Goodwill represents the value of the existing staff, access to new markets and expected synergies. The table provides a summary of the purchase price for the two acquisitions and the allocation of the fair value of acquired assets and assumed liabilities on the acquisition dates. DOMAPOR Feuchtwangen Total (DKK million) 31 December 2021 14 September 2021 2022 2021 Customer relations and other intangible assets 39 - 39 52 Land and buildings 27 36 63 71 Plant and machinery 41 18 59 38 Financial assets - - - - Receivables 17 - 17 17 Inventories 18 - 18 18 Cash 7 - 7 7 Acquired assets 149 54 203 203 Financial debt 28 - 28 28 Non-current provision - 11 11 11 Trade payables 1 - 1 0 Tax payables 3 - 3 3 Other current liabilities 8 1 9 10 Deferred tax (4) - (4) 28 Assumed liabilities 36 12 48 80 Total identifiable acquired net assets 113 42 155 123 Hereof minority interests’ share (16) - (16) (38) Goodwill in connection with the acquisition 127 84 211 153 Purchase price 224 126 350 238 Movements in cash flow in connection with the acquisition: Purchase price 224 126 224 238 Of which is deferred payments (112) - (112) - Of which is cash acquired 7 - 7 7 Of which financial debt is acquired (28) - (28) (28) Net cash flow in connection with the acquisitions 91 126 91 217 Financial statements 80 | H+H Annual Report 2022 Notes – Supplementary information 26 Financial instruments and financial risks H+H’s financial risk management policy As a result of its activities, H+H is exposed to various financial risks i.e. foreign exchange risks, as well as capital structure and cash flow risks, bad debt exposure and financial covenants. It is H+H’s policy not to speculate actively in financial risks. H+H’s financial risk management policy and procedures is thus aimed exclusively at managing the financial risks that are a direct conse- quence of H+H’s activities. This note relates exclusively to financial risks directly associated with H+H’s financial instruments. Foreign exchange risks H+H presents its consolidated financial statements in DKK. Most of H+H’s products are produced and sold outside Denmark. Sales in mar- kets outside Denmark account for approximately 90% of revenue, with the UK, Germany and Poland being the largest markets. H+H’s in- and outflows are denominated mainly in GBP, EUR and PLN, and its principal exposure is currently related to these currencies. Predominantly the group subsidiaries trade in their functional currency or in EUR. Currency exposure on transaction positions on ordinary activities is therefore contained within the Group. H+H’s foreign exchange hedging policy and procedures states that an individual group subsidiary must not take foreign exchange positions. Instead, Group Finance needs to be consulted, and if relevant, financial instruments in foreign currencies are entered into if the foreign exchange exposure exceeds certain thresholds, also depending on the character of exposure. Due to the nature of H+H activities, financial instruments in foreign currencies are only limitedly used. H+H has for 2022 entered foreign contracts for purchase of EUR paid in other currencies, these all related to flow of funds from group subsidiaries to Group. Capital structure and cash flow risks The H+H Group has significant net interest-bearing debt. An increase in the interest rate level will depress the Group’s pre-tax profit. It is H+H’s policy to hedge interest rate risks on H+H’s loans if it is assessed that the interest payments can be hedged at a satisfactory level. Historically, the interest rate has only to a very limited extent been hedged and H+H has therefore benefited from lower short-term rates compared with long-term rates. The H+H Group’s liquidity risk is defined as the risk that the H+H Group will not, in a worst-case scenario, be able to meet its financial obligations due to insufficient liquidity. It is the H+H Group’s policy that all surplus funds flow upwards to be managed centrally by the parent company. H+H’s capital structure contains a Global Cash Pool arrangement supported by individual loans. Most group subsidiaries participate in the Global Cash Pool arrangement and the parent company sets limits for all overdraft facilities included herein. H+H aims that financing of group subsidiaries are management within the Global Cash Pool arrangement, or via intercompany loans from the parent company to the relevant group subsidiary. If necessary, the parent company may decide to approve that financing of a group subsidiary is obtained externally. H+H regularly evaluates the capital structure on the basis of expected cash flows with a view to ensuring an appropriate balance between adequate future financial flexibility and a reasonable return to shareholders. 25 Business combinations – continued Valuation method applied for acquisitions The fair value of customer relations is determined through use of the Multi-Period Excess Earnings method (MEEM). Customer relations are calculated as the present value of the net cash flow generated by sales to customers after deduction of a reasonable return on all other assets which contribute to generating the cash flows in question. The fair value of the identified intangible assets is based on the discounted cash flows that are expected to be generated by the continued use or sale of the assets. An after-tax discount rate of 11.50% has been applied. The fair value of the acquired land and buildings is recognised on the basis of an internal property valuations. The fair value of the acquired plant and machinery is estimated on the basis of the depreciated replacement value. Receivables are valued at the present value of the amounts that are expected to be received less expected costs for collection. The fair value of the acquired finished goods is determined on the basis of expected selling prices to be obtained in the course of normal business operations less expected completion costs and costs incurred to execute the sale, and with deduction of a reasonable profit on the sales effort and a reasonable profit on the completion. The fair value of the acquired raw materials and goods for sale is determined at replacement cost. Liabilities are valued at the present value of the amounts that are required for settling the liabilities. The Group’s loan interest rate before tax is used in the case of discounting of receivables and liabilities. However, discounting is not used when the effect is immaterial. Accounting policies Acquisitions are recognised using the acquisition method. Under this method, assets and liabilities as well as contingent liabilities of the acquired enterprise are measured at fair value on the date of acquisition. The fair values of assets and liabilities are valued using the approach most relevant for the individual item, which can be either a market approach, an income approach, or a cost approach. An acquired enterprise is included in the consolidated financial statements from the date of acquisition, which is the date when H+H Group obtain control. Critical accounting estimates Business combinations by nature involves judgement in assessing the fair value of identifiable assets and liabilities. The assessment of fair value is based on a number of estimates regarding WACC and expected cash flows, which both have a large impact on the fair value. The table provides a summary of the purchase price for the two acquisitions in 2021 and the allocation of the fair value of acquired assets and assumed liabilities on the acquisition dates. Financial statements 81 | H+H Annual Report 2022 Notes – Supplementary information 26 Financial instruments and financial risks – continued Bad debt exposure As consequence of it’s ordinary activities, H+H is exposed to the risk of bad debt. This risk is primarily related to receivables in respect of sales of H+H’s products, which for the majority is invoiced through a number of builders’ merchants across several countries. This reduces the H+H’s risk of bad debt exposure towards contractors and house builders, but consequently increases it to builders’ merchants. In line with H+H’s credit risk hedging procedures, all customers are subject to mitigating actions, i.e. credit rating, assessment of payment terms or credit limits etc., which all constitutes that H+H’s risk of bad debt are at a very low level - which also is supported by the very modest bad debt losses realised in previous years. The maximum related credit risk corresponds to the carrying amounts recognised in the balance sheet. The H+H Group does not have any material risks relating to a single customer, business partner or country. Loan agreements and financial covenants H+H Group’s financing is a committed credit facility with Nordea Danmark, a branch of Nordea Abp, Finland which is subject to usual financial covenants. These are monitored on a quarterly basis, calculated on basis of budget and updated financial forecasts data. They furthermore undergo sensitivity testing to ensure that management, if needed, can initiate mitigating actions to ensure compliance. The financial cove- nants have been fulfilled in 2022 and are also expected to be fulfilled for 2023. Parent company’s monetary items and sensitivity (DKK million) 2022 2021 Position Sensitivity Position Sensitivity Cash and receivables Potential volatility of exchange rate Hypothetical impact on profit before tax for the year Hypothetical impact on equity Cash and receivables Potential volatility of exchange rate Hypothetical impact on profit before tax for the year Hypothetical impact on equity EUR/DKK 1,002 1% 10 8 1,028 1% 10 8 GBP/DKK (140) 5% (7) (5) (147) 5% (7) (6) 3 3 3 2 * The hypothetical impact on profit/loss and equity is significant to the parent company’s financial statements but not necessarily to the consolidated financial statements. The parent company has significant monetary items in currencies other than the functional currency in the form of loans to subsidiaries. The table above shows the parent company’s key monetary positions broken down by currency and derived sensitivity. Monetary items in foreign currency Group (DKK million) 2022 EUR GBP PLN Others Total DKK Total Trade receivables 6 57 32 5 100 22 122 Other receivables 20 1 17 2 39 1 40 Cash 213 75 179 44 511 25 536 Trade payables (72) (131) (60) (7) (270) (8) (278) Other payables (75) (20) (40) (23) (158) (18) (177) Deferred payment (112) - - - (112) - (112) Credit institutions (348) - - (13) (361) (559) (920) Gross exposure (368) (18) 128 8 (250) (537) (789) Hedged via derivative financial instruments - - - - - - - Net exposure (368) (18) 128 8 (250) (537) (789) (DKK million) 2021 EUR GBP PLN Others Total DKK Total Trade receivables 55 34 23 7 119 27 146 Other receivables 29 - 5 2 36 1 37 Cash 193 118 120 38 469 30 499 Trade payables (64) (113) (56) (10) (243) (8) (251) Other payables (90) (15) (45) (25) (175) (20) (195) Credit institutions (195) (12) (2) (12) (221) (522) (743) Gross exposure (72) 12 45 0 (15) (492) (507) Hedged via derivative financial instruments - - - - - - - Net exposure (72) 12 45 0 (15) (492) (507) Financial statements 82 | H+H Annual Report 2022 Notes – Supplementary information 26 Financial instruments and financial risks – continued Sensitivity of profit and equity to market fluctuations Group (DKK million) 2022 2021 Profit Equity Profit Equity 5% increase in GBP/DKK 10 19 6 16 5% increase in PLN/DKK 9 32 8 23 19 51 14 39 The table above shows the sensitivity of profit/loss and equity to market fluctuations. A decline in the GBP/DKK and PLN/DKK exchange rates would result in a corresponding increase in profit/loss after tax and equity. The sensitivity analysis has been calculated at the balance sheet date on the basis of the exposure to the stated currencies at the balance sheet date. The calculations are based solely on the stated change in the exchange rate and do not take into account any knock-on effects on interest rates, other exchange rates etc. Interest rate exposure Group (DKK million) 2022 2021 Net interest- bearing debt Interest hedged Net position Weighted time to maturity of hedging Net interest- bearing debt Interest hedged Net position Weighted time to maturity of hedging DKK 541 - 541 - 499 - 499 - EUR 171 - 171 - 30 - 30 - PLN (126) - (126) - (66) - (66) - CHF (30) - (30) - (31) - (31) - GBP (62) - (62) - (88) - (88) - Other (2) - (2) - 6 - 6 - Total 492 - 492 - 350 - 350 - The table above illustrates H+H’s interest rate exposure on financial instruments at the balance sheet date. At 31 December 2022, the Group was not involved in any interest rate swaps. All other things being equal, based on H+H’s average net interest-bearing debt (expressed by quarter), an increase of 1 percentage point per year in the interest rate level relative to the average interest rate level in 2022 would reduce profit/loss before tax and equity by DKK 4 million (2021: DKK 2 million). The interest rate is variable, changing in accordance with the performance relative to the covenants contained in the loan agreement. H+H’s financial liabilities fall due as follows: Group (DKK million) 2022 Carrying amount 0-1 year 1-5 years Over 5 years Non-derivative financial instruments: Credit institutions and banks 920 8 948 - Lease liability 108 26 45 40 Deferred payment 112 7 33 87 Trade payables 278 278 - - Other payables 177 177 - - Total 1,595 496 1,026 127 (DKK million) 2021 Carrying amount 0-1 year 1-5 years Over 5 years Non-derivative financial instruments: Credit institutions and banks 743 15 766 - Lease liability 106 21 45 40 Trade payables 251 251 - - Other payables 195 195 - - Total 1,295 467 810 40 Financial statements 83 | H+H Annual Report 2022 Notes – Supplementary information 26 Financial instruments and financial risks – continued Other derivatives that do not qualify for hedge accounting The fair value of those financial instruments that do not qualify for hedge accounting under IFRS 9 is recognised directly in the income state- ment. No contracts are entered as at 31 December 2022 (31 December 2021: DKK 0 million). The fair value of derivative financial instruments to hedge future cash flows is based on observable data (level 2). Categories of financial instruments Group (DKK million) 2022 Carrying amount Fair value Carrying amount Fair value Trade receivables 122 122 146 146 Other receivables 40 40 37 37 Cash 536 536 499 499 Total financial assets measured at amortised costs 698 698 682 682 Credit institutions and banks 920 920 743 743 Trade payables and other payables 455 455 446 446 Total financial liabilities measured at amortised cost 1,375 1,375 1,189 1,189 Classification and assumptions for the calculation of fair value Current bank loans at variable interest rates are valued at a rate of 100. The fair value of long-term loans and finance leases is calculated using models that discount all estimated and fixed cash flows to net present value. The expected cash flows for the individual loan or lease are based on contractual cash flows. Financial instruments relating to sale and purchase of goods etc. with a short credit period are considered to have a fair value equal to the carrying amount. The methods are unchanged from last year. 27 Related parties The Group’s related parties are the Executive Board and the Board of Directors. Apart from contracts of employment, no agreements or transactions have been entered into between the Company and the Executive Board. Remuneration to the Board of Directors and the Executive Board is disclosed in note 4. H+H International A/S has no controlling shareholders. Besides the parties specified above, the parent company’s related parties consist of its subsidiaries; see note 16. Parent Company A management fee totaling DKK 66 million (2021: DKK 52 million) was received by the parent Company from the remainder of the Group. Transactions between the parent company and subsidiaries also include deposits, loans and interest; these are shown in the parent company balance sheet and notes 8 and 9. There were no material unsettled balances with related parties at the end of the year. Trading with related parties is at arm’s length. 28 Events after the balance sheet date On 1 March 2023, a new committed credit facility was agreed with Nordea Danmark, branch of Nordea Abp, Finland, subject to H+H’s fulfil- ment of certain formal requirements. The agreement has a duration of 3 years. Other than above, no events have occurred after the balance sheet date that will have a material effect on the parent company’s or the H+H Group’s financial position. Financial statements 84 | H+H Annual Report 2022 Statement by the Executive Board and the Board of Directors The Executive Board and the Board of Directors have today discussed and approved the annual report of H+H International A/S for the financial year 2022. The annual report has been prepared in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed companies. It is our opinion that the consolidated financial statements and the parent company financial statements give a true and fair view of the Group’s and the parent company’s financial position at 31 December 2022 and of the results of the Group’s and the parent company’s operations and cash flows for the financial year 1 January - 31 December 2022. In our opinion, the management’s review includes a fair review of the development in the parent company’s and the Group’s operations and financial conditions, the results for the year and the parent company’s financial position, and the position as a whole for the entities included in the consolidated financial statements, as well as a description of the more significant risks and uncertainty factors that the parent company and the Group face. We recommend that the annual report be approved at the annual general meeting. Copenhagen, 1 March 2023 Executive Board Jörg Brinkmann Peter Klovgaard-Jørgensen CEO CFO Board of Directors Kent Arentoft Stewart Antony Baseley Chair Volker Christmann Kajsa von Geijer Miguel Kohlmann Helen MacPhee Financial statements 85 | H+H Annual Report 2022 Independent Auditor’s Reports To the shareholders of H+H International A/S Report on the audit of the Financial Statements Our opinion In our opinion, the Consolidated Financial Statements and the Parent Company Financial Statements give a true and fair view of the Group’s and the Parent Company’s financial position at 31 December 2022 and of the results of the Group’s and the Parent Company’s operations and cash flows for the financial year 1 January to 31 December 2022 in accordance with International Financial Reporting Standards as adopted by the EU and further requirements in the Danish Financial Statements Act. Our opinion is consistent with our Auditor’s Long-form Report to the Audit Committee and the Board of Directors. What we have audited The Consolidated Financial Statements and Parent Company Financial Statements of H+H International A/S for the financial year 1 January to 31 December 2022 comprise income statement and statement of comprehensive income, balance sheet, cash flow statement, statement of changes in equity and notes, including summary of significant accounting policies for the Group as well as for the Parent Company. Collectively referred to as the “Financial Statements”. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and the additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the Auditor’s responsibilities for the audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (IESBA Code) and the additional ethical requirements applicable in Denmark. We have also fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. To the best of our knowledge and belief, prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No 537/2014 were not provided. Appointment We were first appointed auditors of H+H International A/S on 31 March 2022 for the financial year 2022. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Statements for 2022. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Financial statements 86 | H+H Annual Report 2022 Key audit matter How our audit addressed the key audit matter Revenue recognition including cut-off and provisions for quantum rebates and customer bonuses Recognition of revenue is complex due to the volume of transactions and variable considerations. We focused on this area due to the significance of amounts involved and because recognition of revenue includes management judgement regarding timing and provisions for quantum rebates and customer bonuses, which is complex by nature. Consequently, there is a risk that the estimates including methods, applied data or assumptions made by Management are inaccurate. Further, the volume of transactions involves various it-systems, business processes and controls and Man- agement’s monitoring hereof, to ensure correct revenue recognition, which are complex and introduce an inherent risk to the revenue recognition process. Reference is made to note 11 in the Consolidated Financial Statements. Our audit procedures included considering the appropri- ateness of the revenue recognition accounting policies and assessing compliance with applicable financial reporting standards. We performed risk assessment procedures with the purpose of achieving an understanding of it-systems, business procedures and relevant controls regarding revenue recognition. In respect of controls, we assessed whether they were designed and implemented effectively to address the risk of material misstatement. For selected controls, on which we planned to rely on, we tested whether these controls had been performed on a consistent basis. We tested revenue recognition on a sampling basis, including quantum rebates and customer bonuses for consistency with terms and conditions of the underlying customer contracts. Further we tested revenue recog- nised around year-end and the provisions for quantum rebates and customer bonuses for appropriate cut-off. Statement on Management’s Review Management is responsible for Management’s Review. Our opinion on the Financial Statements does not cover Management’s Review, and we do not express any form of assurance conclusion thereon. In connection with our audit of the Financial Statements, our responsibility is to read Management’s Review and, in doing so, consider whether Management’s Review is materially inconsistent with the Financial Statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. Moreover, we considered whether Management’s Review includes the disclosures required by the Danish Financial Statements Act. Based on the work we have performed, in our view, Management’s Review is in accordance with the Consolidated Financial Statements and the Parent Company Financial Statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstatement in Management’s Review. Management’s responsibilities for the Financial Statements Management is responsible for the preparation of consolidated financial statements and parent company financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and further requirements in the Danish Financial Statements Act, and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the Financial Statements, Management is responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless Management either intends to liquidate the Group or the Parent Company or to cease operations, or has no realistic alternative but to do so. Financial statements 87 | H+H Annual Report 2022 Auditor’s responsibilities for the audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Statements. As part of an audit in accordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Parent Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. • Conclude on the appropriateness of Management’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Parent Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group or the Parent Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the Financial Statements, including the disclosures, and whether the Financial Statements represent the underlying transactions and events in a manner that gives a true and fair view. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the Consolidated Financial Statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter. Report on compliance with the ESEF Regulation As part of our audit of the Financial Statements we performed procedures to express an opinion on whether the annual report of H+H International A/S for the financial year 1 January to 31 December 2022 with the filename HH-2022-12-31-en.zip is prepared, in all material respects, in compliance with the Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Regulation) which includes requirements related to the preparation of the annual report in XHTML format and iXBRL tagging of the Consolidated Financial Statements including notes. Financial statements 88 | H+H Annual Report 2022 Management is responsible for preparing an annual report that complies with the ESEF Regulation. This responsibility includes: • The preparing of the annual report in XHTML format; • The selection and application of appropriate iXBRL tags, including extensions to the ESEF taxonomy and the anchoring thereof to elements in the taxonomy, for all financial information required to be tagged using judgement where necessary; • Ensuring consistency between iXBRL tagged data and the Consolidated Financial Statements presented in human-readable format; and • For such internal control as Management determines necessary to enable the preparation of an annual report that is compliant with the ESEF Regulation. Our responsibility is to obtain reasonable assurance on whether the annual report is prepared, in all material respects, in compliance with the ESEF Regulation based on the evidence we have obtained, and to issue a report that includes our opinion. The nature, timing and extent of procedures selected depend on the auditor’s judgement, including the assessment of the risks of material departures from the requirements set out in the ESEF Regulation, whether due to fraud or error. The procedures include: • Testing whether the annual report is prepared in XHTML format; • Obtaining an understanding of the company’s iXBRL tagging process and of internal control over the tagging process; • Evaluating the completeness of the iXBRL tagging of the Consolidated Financial Statements including notes; • Evaluating the appropriateness of the company’s use of iXBRL elements selected from the ESEF taxonomy and the creation of extension elements where no suitable element in the ESEF taxonomy has been identified; • Evaluating the use of anchoring of extension elements to elements in the ESEF taxonomy; and • Reconciling the iXBRL tagged data with the audited Consolidated Financial Statements. In our opinion, the annual report of H+H International A/S for the financial year 1 January to 31 December 2022 with the file name HH-2022-12-31-en.zip is prepared, in all material respects, in compliance with the ESEF Regulation. Hellerup, 1 March 2023 PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab CVR no 33 77 12 31 Jacob F Christiansen Poul P. Petersen State Authorised Public Accountant State Authorised Public Accountant mne18628 mne34503 Financial statements 89 | H+H Annual Report 2022 Contact information Group Head Office H+H International A/S Lautrupsgade 7, 5th Floor DK-2100 Copenhagen Ø Denmark Telephone: +45 35 27 02 00 E-mail: [email protected] www.HplusH.com Company Reg. No.: 49 61 98 12 H+H Benelux B.V. Nikkelstraat 4 6031 TR Nederweert Netherlands Tel.: +31 49 54 50 169 www.HplusH.nl H+H Denmark Skanderborgvej 234 8260 Viby J Denmark Tel.: +45 70 24 00 50 www.HplusH.dk H+H Germany Klaus-Bungert-Straße 6a 40468 Düsseldorf Germany Tel.: +49 45 54 70 00 www.HplusH.de H+H Sweden Mobilvägen 3 246 43 Löddeköpinge Sweden Tel.: +46 40 55 23 00 www.HplusH.se H+H Czech Republic Beroun-Meˇsto 660 26601 Beroun Czech Republic Tel.: +420 311 644 705 www.VAPIS-sh.cz H+H Switzerland Aarauerstrasse 75 5200 Brugg Switzerland Tel.: +41 56 46 05 466 www.hunziker-kalksandstein.ch H+H UK Celcon House, Ightham Sevenoaks, Kent TN15 9HZ UK Tel.: +44 17 32 88 63 33 www.HplusH.co.uk H+H Poland ul.Kupiecka 6 03-046 Warsaw Poland Tel.: +48 22 51 84 000 www.HplusH.pl 90 | H+H Annual Report 2022 1909 Henriksen & W. Kähler established joint gravel pit enterprise 1937 Business expanded with Danish Aircrete and Rockwool Partnership 2011 Michael T. Andersen is appointed CEO of H+H 2022 Jörg Brinkmann is appointed CEO 2000 Focus on aircrete—expansion to Finland and Germany 2019 Divestment of the Russian business and acquisition of one CSU factory in Germany 1958 H+H enters the UK—joint venture with Celcon 1962 Henriksen & W. Kähler divided Rockwool activities from the other activities 2009 Opening of factory near St. Petersburg, Russia 1985 H+H’s B shares listed on the Copenhagen Stock Exchange 2017 H+H enters the CSU markets through acquisitions in Germany, Switzerland and Poland 2019 Peter Klovgaard- Jørgensen is appointed CFO 2005 Expansion into Poland 2015 Restructuring of the Polish aircrete market 2021 Acquisitions of one AAC factory and one combined AAC and CSU factory in Germany 2013 Kent Arentoft is appointed Chairperson of the Board of Directors H+H as a conglomerate 190 9–1998 H+H as a consolidator 199 8–202 1 H+H as a Partner in Wall Building 2022 Turnaround 2011–2015 Restructuring of the European white-stone markets 2015–2021 2020 Acquisition of one AAC factory in Germany More than 100 years of experience 91 | H+H Annual Report 2022 Design and production: Noted H+H International A/S Lautrupsgade 7, 5th Floor 2100 Copenhagen Ø Denmark Telephone: +45 35 27 02 00 Email: [email protected] HplusH.com Annual reportAuditor's report on audited financial statementsParsePort XBRL Converter2022-01-012022-12-312021-01-012021-12-312023-03-30213800GJODT6FV8QM841Reporting class Dwww.hplush.com/sustainability-reports2023-03-01213800GJODT6FV8QM841OpinionBasis for Opinion2023-03-01213800GJODT6FV8QM8412022-01-012022-12-31cmn:ConsolidatedMember213800GJODT6FV8QM8412022-01-012022-12-31213800GJODT6FV8QM8412021-01-012021-12-31213800GJODT6FV8QM8412022-12-31213800GJODT6FV8QM8412021-12-31213800GJODT6FV8QM8412020-12-31213800GJODT6FV8QM8412020-12-31ifrs-full:IssuedCapitalMember213800GJODT6FV8QM8412021-01-012021-12-31ifrs-full:IssuedCapitalMember213800GJODT6FV8QM8412021-12-31ifrs-full:IssuedCapitalMember213800GJODT6FV8QM8412020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800GJODT6FV8QM8412021-01-012021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800GJODT6FV8QM8412021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800GJODT6FV8QM8412020-12-31ifrs-full:RetainedEarningsMember213800GJODT6FV8QM8412021-01-012021-12-31ifrs-full:RetainedEarningsMember213800GJODT6FV8QM8412021-12-31ifrs-full:RetainedEarningsMember213800GJODT6FV8QM8412020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800GJODT6FV8QM8412021-01-012021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800GJODT6FV8QM8412021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800GJODT6FV8QM8412020-12-31ifrs-full:NoncontrollingInterestsMember213800GJODT6FV8QM8412021-01-012021-12-31ifrs-full:NoncontrollingInterestsMember213800GJODT6FV8QM8412021-12-31ifrs-full:NoncontrollingInterestsMember213800GJODT6FV8QM8412022-01-012022-12-31ifrs-full:IssuedCapitalMember213800GJODT6FV8QM8412022-12-31ifrs-full:IssuedCapitalMember213800GJODT6FV8QM8412022-01-012022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800GJODT6FV8QM8412022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800GJODT6FV8QM8412022-01-012022-12-31ifrs-full:RetainedEarningsMember213800GJODT6FV8QM8412022-12-31ifrs-full:RetainedEarningsMember213800GJODT6FV8QM8412022-01-012022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800GJODT6FV8QM8412022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800GJODT6FV8QM8412022-01-012022-12-31ifrs-full:NoncontrollingInterestsMember213800GJODT6FV8QM8412022-12-31ifrs-full:NoncontrollingInterestsMember213800GJODT6FV8QM8412021-01-012021-12-31cmn:ConsolidatedMember213800GJODT6FV8QM8412022-12-31cmn:ConsolidatedMember213800GJODT6FV8QM8412022-01-012022-12-31cmn:ConsolidatedMember1213800GJODT6FV8QM8412022-01-012022-12-31cmn:ConsolidatedMember2213800GJODT6FV8QM8412022-01-012022-12-31cmn:ConsolidatedMember1213800GJODT6FV8QM8412022-01-012022-12-31cmn:ConsolidatedMember2213800GJODT6FV8QM8412022-01-012022-12-31cmn:ConsolidatedMember3213800GJODT6FV8QM8412022-01-012022-12-31cmn:ConsolidatedMember4213800GJODT6FV8QM8412022-01-012022-12-31cmn:ConsolidatedMember5213800GJODT6FV8QM8412022-01-012022-12-31cmn:ConsolidatedMember6213800GJODT6FV8QM8412022-01-012022-12-31cmn:ConsolidatedMember1213800GJODT6FV8QM8412022-01-012022-12-31cmn:ConsolidatedMember2iso4217:DKKiso4217:DKKxbrli:sharesxbrli:pure

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