VARTA AG Group

Half-year Report 2023

as at 30 June 2023

We are defining the future of battery technology to empower a more independent life.

MISSION

Through continuous investment in research and development, we set the benchmark in battery technology and customization to strive for market leadership in our business segments.

VARTA AG – SELECTED GROUP KPIs
(€ k)	30 June 2023	30 June 2022
Revenue	339,045	376,810
EBITDA	-23,401	66,234
Adjustments:
Cost of share-based payment	1	9
Costs of M&A transactions	0	2,665
Restructuring costs VARTA AG Group	16,587	0
Adjusted EBITDA	-6,813	68,908
Adjusted EBITDA Margin (%)	-2.0 %	18.3 %
Group result	-110,406	2,784
Earnings per share	-2.59	0.07
Investments (CAPEX)	37,493	66,852
Free Cash Flow**	-77,555	-126,660
Equity ratio*	15.8 %	19.0 %
Balance sheet total*	1,137,973	1,258,454
Employees at the end of quarter**	4,216	4,602

* Comparison period relates to 31 December 2022

** Prior year adjusted according to IAS 8

VARTA AG

VARTA Aktiengesellschaft (VARTA AG), Ellwangen (Jagst), Germany, is the parent company of the VARTA Group. Since October 2017, VARTA AG has been listed on the Frankfurt Stock Exchange in the Prime Standard segment and is currently listed on the SDAX. The business activities of VARTA AG and its subsidiaries encompass the research and development, production and sale of micro and household batteries, large-format batteries, customer-specific battery solutions and energy storage systems. The business activities of the VARTA AG Group are divided into five reportable business segments: "Micro Batteries", "Lithium-Ion CoinPower", "Consumer Batteries", "Energy Storage Systems" and "Other". Through intensive research and development, VARTA sets global standards in many areas of lithium-ion technology and microbatteries and ranks among the innovation leaders in the key growth markets of lithium-ion technology in addition to primary hearing aids and household batteries. Our production processes that have been developed and refined over the years, including customised production systems in some cases, round off the Company's competence profile alongside a highly qualified and experienced workforce. The VARTA AG Group currently employs 4,216 staff. The Group operates five production and battery manufacturing plants in Germany, Romania and Indonesia in addition to distribution centres in the USA, Europe and Asia, from which sales to customers in more than 100 countries around the world are coordinated.

Micro Batteries

The "Micro Batteries" segment covers the business activities in the area of microbatteries and hearing aid batteries. The Group is one of the leading manufacturers of microbatteries for hearing aids. Hearing aid batteries are produced in the largest, stateof-the-art hearing aid battery plant in Germany on fully-automated lines in compliance with medical quality standards. A complete portfolio of small, high-performance, customised lithium-ion rechargeable batteries are produced at the same site for the new rechargeable solutions and tailored to the demands of our customers' devices as an energy source.

Lithium-Ion CoinPower

The "Lithium-Ion CoinPower" segment represents the business with small lithium-ion round cells, also known as CoinPower, for OEM applications. The Company boasts reputable firms as clients and manufactures batteries in numerous key electro-chemical systems as well as in a variety of structural shapes and sizes, while the range of applications extends from hearing aids to wireless headsets (True Wireless Stereo Headsets) all the way through to automotive applications operated by way of microbatteries. The two segments "Micro Batteries" and "Lithium-Ion CoinPower" work together in a synergistic manner.

Consumer Batteries

The "Consumer Batteries" segment comprises the product categories of household batteries, rechargeable batteries, chargers, portable power (power banks) and lights. VARTA AG is one of the European market leaders with production activities located in Germany for household device batteries. "Consumer Batteries" is predominantly geared towards end customers. The innovative, high-quality products from the "Consumer Batteries" segment are developed and manufactured using cutting-edge technology and by leveraging the expertise of internationally qualified specialists. A combination of innovative capacity, breadth, quality and design make the product range unique. An intensive focus on the lifestyle of consumers and close cooperation with retailers are crucial in enabling VARTA to react quickly and flexibly to the latest device trends with the best energy solutions.

Energy Storage Systems

In the "Energy Storage Systems" segment, the Company primarily manufactures energy storage systems for private households in addition to large-scale commercial storage solutions for trade customers. In this context, VARTA is playing a key role in the energy transition by developing and manufacturing energy storage systems. The energy storage solutions developed by VARTA in the home and mass storage markets range from compact, basic models such as the wall-mounted VARTA pulse neo to large-scale storage solutions including the VARTA flex storage for commercial applications. The existing product portfolio for private households as part of the VARTA pulse neo and VARTA element backup product series comprises AC-coupled systems, which feature integrated battery inverters and can therefore be combined with photovoltaic systems without the need for additional PV inverters. As such, they are perfectly suited to new installations as well as retrofit projects. The smart energy management system also ensures optimal use of self-produced solar energy and is designed to significantly increase domestic solar power use. With the VARTA.wall, the Company presented a stateof-the-art system based on round cell technology in 2022, which is extremely flat and space-saving and benefits from a small installation depth of around only 10 centimetres. The DC-coupled VARTA.wall storage system is set to be launched on the market in 2023 with capacities of 10 to 20 kWh and is therefore geared towards the particular capacity requirements of individual customers. In addition, the modular stacking design facilitates a subsequent storage capacity expansion in order to ensure sufficient capacity even if the energy demand increases in the future. With this design, VARTA is aiming for an installation in under 30 minutes, which means installers would save a significant amount of time in comparison with existing products. In addition, compatibility with various market-leading inverter manufacturers facilitates the use of the VARTA.wall for both new installations and pre-installed PV systems.

Other

The "Other" segment includes the "Lithium-Ion Battery Packs" and "Lithium-Ion Large Cells" business units. The Group can call on extensive industry experience in the construction of high-performance, safe and needs-based lithium-ion battery packs within the "Lithium-Ion Battery Packs" business segment – for medical technology, robotics, connectivity, household and telecommunications applications. The product portfolio ranges from fully customer-specific battery packs all the way through to fully configured standard batteries that can be used immediately. With the "Lithium-Ion Large Cells" division, VARTA is planning to offer large lithium-ion round cells for automotive (V4Drive) and non-automotive (RoundPower) applications. Preparations for the Company's entry into the e-mobility business are focused on the V4Drive large-format lithium-ion round cells. An initial small scale production line is expected to supply up to 10 m round cells per year, which are already being used in the prototype production for an OEM customer. In the non-automotive business, the focus with RoundPower is on all fields of application outside of classic e-mobility. This includes, for example, industrial vehicles, power tools, home and garden applications, e-bikes and various other potential application areas. However, at present, no sales are being generated here.

	Business development in the first half of 20236
	Consolidated management report8
1.	Group Structure8
1.1	Business model8
1.2	Strategy and Goals 10
1.3	Corporate Management10
1.4	Management and Control11
2.	Economic Report11
2.1	Markets and influencing factors 11
2.2	Macroeconomic and industry-related framework conditions 11
3.	Key events after the reporting date 14
4.	Development of Financial Position and Financial Performance 15
4.1	Financial Performance 15
4.2	Financial Position 17
5.	Financial Performance: Segments19
6.	Employees 21
7.	Opportunity and Risk Report22
8.	Outlook 23
	Interim financial statements of the VARTA AG Group as at 30 June 2023 27
	Consolidated Notes of VARTA AG as at 30 June 2023 33

Business development in the first half year of 2023

VARTA AG looks to the future with confidence

Restructuring is making progress: The cost reductions in all areas as well as the working capital optimisations are running successfully.
Increase in business expected in the second half of 2023 due to seasonal factors and customer projects starting up.
However, the persistently challenging macroeconomic situation has continued to have a negative impact on manufacturing companies such as VARTA AG in recent months.
VARTA AG's business development in the first half of the year: revenue € 339 m (H1 2022: € 376.8 m), adjusted EBITDA € -6.8 m (H1 2022: € 68.9 m)
Forecast for the current business year was adjusted: Revenue is expected to be € 820 m, adjusted EBITDA between € 40 m and € 60 m.
Outlook: Rising demand for Energy Storage Systems as well as lithium-ion products is expected to generate revenues of at least € 900 m in the coming year and therefore significantly above the 2023 result.

VARTA AG is optimistic about the coming months despite the continuing challenging overall economic situation. The reasons for this are the continued positive development of the energy storage business, the start of customer projects and the traditional seasonal increase in demand in the second half of the year. In addition, the company is making progress with its ongoing restructuring: VARTA AG is currently on target to meet the cost savings or is even exceeding them in some areas. The necessary worldwide job cuts are also on schedule. The volunteer programme at the Ellwangen site will be completed in August. VARTA plans to cut around 800 jobs worldwide.

Like all manufacturing companies, VARTA AG is operating in an environment characterised by the consequences of the war against Ukraine and its impact on the global economy. Price increases for raw materials, as well as restraint among end customers, have burdened the results of many companies, particularly in Europe, in recent months. VARTA had therefore already embarked on a strict austerity course in autumn 2022 and agreed with its financing banks and the majority owner on a restructuring programme, which is currently being implemented. The job cuts are one measure alongside programmes to increase sales, optimise supply chains and processes, relocate to VARTA locations abroad and reduce working capital.

The challenges resulting from the global crises continued to be felt in the past two quarters of the current year. Group revenue for the first half of 2023 was € 339 m (H1 2022: € 376.8 m). Adjusted EBITDA for the same period was € -6.8 m (H1 2022: € 68.9 m).

VARTA AG takes a positive view of further development: Thanks to the revival of business in important areas and the successful restructuring measures, the company's management is expecting sales of well over 900 million euros again in the coming year.

Dr Markus Hackstein, Speaker of the Executive Board of VARTA AG: "Behind us lies a challenging period and we still have a lot of work ahead of us. But we see that our decisive action and the measures of our restructuring programme are having an effect. Our customers continue to trust in the strong VARTA brand. We have new projects in the works that convince us that we can get back on the road to success in the coming year."

Condensed consolidated management report for the first half of financial year 2023

VARTA Aktiengesellschaft, Ellwangen (Jagst)

1. Group structure

1.1. Business model

VARTA Aktiengesellschaft, Ellwangen (Jagst), Germany (VARTA AG) is the parent company of the corporate Group. The business activities of VARTA AG and its subsidiaries encompass the research and development, production and sale of microbatteries, large-format batteries, household batteries and energy storage systems.

The business activities of the VARTA AG Group are divided into five reportable business segments: "Micro Batteries", "Lithium-Ion CoinPower", "Consumer Batteries", "Energy Storage Systems" and "Other". The VARTA AG Group has accordingly amended its positioning with the statement of business activity for 2022 as a whole.

The "Micro Batteries" segment comprises micro batteries and hearing aid batteries, "Lithium-Ion CoinPower" small, round lithium-ion cells for OEM applications. The "Consumer Batteries" segment comprises business activities in the area of household batteries, rechargeable batteries, chargers, portable power (power banks) and lights. "Energy Storage Systems" primarily includes energy storage solutions intended for private applications, although some commercial solutions are offered as well. In the new structure, the "Other" segment includes the business areas "Lithium-Ion Battery Packs" and "Lithium-Ion Large Cells".

The Group develops, produces and distributes a comprehensive battery portfolio that ranges from microbatteries, household batteries, large-format cells and energy storage systems all the way to customer-specific battery solutions for a wide range of applications and end customer markets. Through intensive research and development, VARTA sets global standards in many areas of lithium-ion technology and microbatteries and ranks among the innovation leaders in the key growth markets of lithium-ion technology in addition to primary hearing aids and household batteries.

At the end of the first half of 2023, the Group operated five production and battery manufacturing plants in Germany, Romania and Indonesia in addition to distribution centres in the USA, Europe and Asia, from which sales to customers in more than 100 countries around the world are coordinated. Operating on a global basis today, VARTA AG can look back on more than 135 years of company history with great pride.

Segments and organisational structure

MICRO BATTERIES & LITHIUM-ION COINPOWER

The segment "Micro Batteries" (previously Microbatteries) covers the business activities in the area of microbatteries and hearing aid batteries. The Group is one of the leading manufacturers of microbatteries for hearing aids. "Micro Batteries", as is the case with the "Lithium-Ion CoinPower" segment, was previously managed underneath the former "Lithium-Ion Solutions & Micro Batteries" segment.

The segment "Lithium-Ion CoinPower" represents the business with small lithium-ion round cells, also known as CoinPower, for OEM applications. The Company boasts reputable firms as clients and manufactures batteries in numerous key electro-chemical systems as well as in a variety of structural shapes and sizes, while the range of applications extends from hearing aids to wireless headsets (True Wireless Stereo Headsets) all the way through to automotive applications operated by way of microbatteries. The two segments "Micro Batteries" and "Lithium-Ion CoinPower" work together in a synergistic manner.

CONSUMER BATTERIES & ENERGY STORAGE SYSTEMS

The innovative, high-quality products from the "Consumer Batteries" segment are developed and manufactured using cutting-edge technology and by leveraging the expertise of internationally qualified specialists. A combination of innovative capacity, breadth, quality and design make the product range unique. An intensive focus on the lifestyle of consumers and close cooperation with retailers are crucial in enabling VARTA to react quickly and flexibly to the latest device trends with the best energy solutions.

In the "Energy Storage Systems" segment, the Company primarily manufactures energy storage systems for private households in addition to large-scale commercial storage solutions for trade customers. In this context, VARTA is playing a key role in the energy transition by developing and manufacturing energy storage systems. The energy storage solutions developed by VARTA in the home and mass storage markets range from compact, basic models such as the wall-mounted VARTA pulse neo to large-scale storage solutions including the VARTA flex storage for commercial applications. The existing product portfolio for private households as part of the VARTA pulse neo and VARTA element backup product series comprises AC-coupled systems, which feature integrated battery inverters and can therefore be combined with photovoltaic systems without the need for additional PV inverters. As such, they are perfectly suited to new installations as well as retrofit projects. The smart energy management system also ensures optimal use of self-produced solar energy and is designed to significantly increase domestic solar power use. With the VARTA.wall, the Company presented a stateof-the-art system based on round cell technology, which is extremely flat and spacesaving and benefits from a small installation depth of around just 10 centimetres. The DC-coupled VARTA.wall storage system is set to be launched on the market with capacities of 10 to 20 kWh and is therefore geared towards the particular capacity requirements of individual customers. In addition, the modular stacking design facilitates a subsequent storage capacity expansion in order to ensure sufficient capacity even if the energy demand increases in the future. With this design, VARTA is aiming for an installation in under 30 minutes, which means installers would save a significant amount of time in comparison with existing products. In addition, compatibility with various market-leading inverter manufacturers facilitates the use of the VARTA.wall for both new installations and PV systems already installed.

OTHER

The newly created "Other" segment includes the business areas "Lithium-Ion Battery Packs" and "Lithium-Ion Large Cells". The Group can call on extensive industry experience in the construction of high-performance, safe and needs-based lithium-ion battery packs within the "Lithium-Ion Battery Packs" business segment – for medical technology, robotics, connectivity, household and telecommunications applications. The product portfolio ranges from fully customer-specific battery packs all the way through to fully configured standard batteries that can be used immediately. With the "Lithium-Ion Large Cells" division, VARTA is planning to offer large lithium-ion round cells for automotive (V4Drive) and non-automotive (RoundPower) applications. Preparations for the Company's entry into the e-mobility business are focused on the V4Drive large-format lithium-ion round cells. An initial small scale production line is supplying up to 10 m round cells per year, which are already being used in the prototype production for an OEM customer. In the non-automotive business, the focus with RoundPower is on all fields of application outside of classic e-mobility. This includes, for example, industrial vehicles, power tools, home and garden applications, e-bikes and various other potential applications. However, at present, no sales are being generated here.

1.2. Strategy and goals

As part of its annual budget planning, the VARTA AG Group defines its goals and strategies for the following financial year. With its five reportable segments, the Group is well-positioned to take advantage of relevant growth trends such as demographic change, technological progress, increased connectivity, renewable energies and emobility.

In principle, the VARTA AG Group is focusing on the following growth areas and objectives:

Strengthening and expanding its global market position in core products
Maintaining innovation and technological dynamics, adapting production capacities
Cutting costs and profitable growth

These are unchanged compared with the Annual Report 2022 and are described in detail there.

For further information on specific Group objectives, please refer to "8. Outlook"

1.3. Corporate management

The VARTA AG Group is managed on the basis of internally defined financial and nonfinancial metrics to pursue a strategy centred on sustained value growth. The Executive Board changed its internal control and management mechanisms in the course of 2022. These have remained unchanged since this time.

As in the first six months of financial year 2022, sales and adjusted EBITDA were used as key performance indicators for management purposes. CAPEX was no longer defined as a financial indicator due to the change in the company's situation. The number of employees is another key non-financial performance indicator.

The management control system also represents the basis for VARTA AG's external reporting and is monitored by the Supervisory Board within the scope of its control function.

1.4. Management and control

As at 30 June 2023, the Executive Board of VARTA AG comprised the following members:

Dr Markus Hackstein (Spokesperson for the Executive Board), Marc Hundsdorf (CFO), Rainer Hald (CTO) and Michael Giesswein (CRO). The Executive Board members share joint responsibility for the management of the Company. Armin Hessenberger left the Executive Board on 15 May 2023.

As at 30 June 2023, the Supervisory Board comprised the following members:

Prof. DDr Michael Tojner (Chairman), Dr Harald Sommerer (Vice Chairman), Sven Quandt, Martin Ohneberg and Dr Michael Pistauer. Following the end of the reporting period, Günther Apfalter was also elected as a new member of the Supervisory Board at the Annual General Meeting of VARTA AG on 11 July 2023.

2. Economic report

2.1. Markets and influencing factors

In terms of the structural outlook for the battery business, the prospects remain exceptionally positive. Batteries, especially lithium-ion batteries, can be used in almost all markets and industries around the world. Owing to their high energy density, they also facilitate major technological innovations. The VARTA AG Group manufactures and sells batteries around the world. The trend towards portable and wireless devices that rely on batteries in the VARTA product portfolio is opening up significant opportunities. In addition, the transition to renewable energy sources, a need to store energy and the desire for energy self-sufficiency are positively impacting demand for products from the VARTA portfolio.

The current macroeconomic environment has deteriorated overall in the first half of 2023 compared with the same period in the previous year, which has adversely impacted several of VARTA's target markets. High raw material and energy prices, the impact of the ongoing war in Ukraine, such as restrictions in the availability of components including semiconductors, and significantly increased transport costs are causing problems for the Company, directly or indirectly via VARTA's customers and suppliers. The trend in inflation and interest rates has contributed to a slowdown in investment and consumption in key sales markets and has therefore depressed demand for key products that rely on VARTA solutions. TWS end customer business is still experiencing very significant fluctuations, which are affecting sales of lithium-ion batteries.

In geographical terms, the sales distribution is highly diversified. Revenue is primarily generated in Europe, followed by Asia and North America (see Chapter 4.1 Financial performance). This therefore limits the dependency on individual countries and their respective economic development. Irrespective of the main sales focus, the Asian market plays a highly significant role owing to its market and customer structure; many major manufacturers of wireless headsets base their production activities in this region. The key influencing factors are dealt with in the following chapter 2.2 Macroeconomic and industry-related framework conditions.

2.2. Macroeconomic and industry-related framework conditions

In comparison with the previous year, the macroeconomic landscape has deteriorated overall due to low demand in key markets and higher inflation, as explained in Chapter 2.1. "Markets and influencing factors". High raw material and energy prices, the ongoing limited availability of certain components such as semiconductors and increased transport costs are causing problems in terms of both supply and production. In terms of demand, key sales markets and segments have been suffering from the consequences of higher inflation and interest rates. Accordingly, a decline in consumption, including consumer electronics and household devices, resulted in a marked reduction in our customers' sales, which was also reflected in VARTA's sales of the relevant products. While VARTA was significantly affected by external factors, in some cases the energy crisis and higher energy prices also had a highly positive impact on sales in the "Energy Storage Systems" segment.

The "Micro Batteries" segment comprises a range of microbatteries for a wide variety of applications. The primary focus here is on the production of zinc-air button cells and rechargeable lithium-ion cells for various types of hearing aids. Increased life expectancy of people in many countries around the world, as well as rising acceptance of hearing aids, are supporting sales of such products and therefore also the sale of batteries for hearing aids. For example, in this context, the UN expects the global population of people aged 65+ to more than double by 2050. The increasing market share of low-cost amplifiers, known as OTC models, and innovative product solutions for medical applications promise further structural impetus for growth. In the period under review, these structural growth factors were affected by the negative economic factors.

In the "Lithium-Ion CoinPower" segment, VARTA manufactures batteries based on lithium-ion technology for a variety of wireless applications. In this context, VARTA supplies batteries for the True Wireless Stereo (TWS) headset market in particular. Up to this point, VARTA has focused primarily on the premium segment, which is characterised by cutting-edge technical features such as active noise cancelling, transparency mode and the longest possible battery lives. The widespread desire to participate in innovations in consumer electronics generates structural impetus for growth. The contrasting weakness in the segment's sales in the first half of 2023 is largely attributable to the fact that the largest customer in the "Lithium-Ion CoinPower" segment reduced sales volume significantly in response, among other factors, to restrained spending on the part of end customers. The temporary deterioration in consumption resulting from high inflation rates is likely to have played a key role here.

The "Consumer Batteries" segment covers a range of battery products including alkaline batteries, rechargeable batteries, chargers, lights and portable storage options (power banks). VARTA anticipates structural growth in its broadly based product portfolio. In terms of the global demand for household batteries, moderately annual growth of 3.5 % has been forecast. During this time, the market looks set to grow from \$ 41.5 bn to a value of \$ 52.8 bn. In terms of sales, the market for alkaline batteries is particularly important for VARTA. Annual growth of 2.3 % has been projected here, with the global market volume set to amount to \$ 13.7 bn in 2027 (Reportlinker, 2022). High energy and raw material costs have had a particularly severe impact in the material-intensive segment. VARTA aims to gradually pass on the increased costs and, in the medium term, to return to the attractive margin levels seen in 2020 and 2021.

The "Energy Storage Systems" segment develops energy storage solutions primarily intended for private households, although some commercial solutions are offered as well. The energy transition and strong demand for energy-autonomous solutions represent key structural stimuli for growth within this segment. These drivers are already having an impact. This is highlighted by the sharp increase in revenue in the first half of 2023 of over 90 % compared with the first half of 2022 and by the fact that the segment has evolved into the second largest of the VARTA segments in terms of revenue in the first half of 2023. According to Solar Power Europe (2022), the capacity of the newly installed energy storage systems in Europe is likely to quadruple from 1 GWh in 2020 to 4.5 GWh in 2023 and 7.3 GWh in 2026. With the further expansion of its capacities, VARTA expects to benefit from the structural growth in demand for PV systems and associated energy storage systems over the long term.

The "Lithium-Ion Battery Packs" business, which forms part of the "Other" segment, manufactures battery packs for various applications including household and garden equipment, intralogistics, communication electronics, medical applications and the mobility sector, in addition to a range of other industrial applications. The range includes customised solutions as well as standard solutions. Key growth drivers in this regard include the trend towards wireless devices, such as rechargeable battery-powered household and gardening equipment as well as the increasing importance of electromobility. Restrained consumer spending in response to the economic situation has depressed the structural growth forces in the period under review. These structural growth forces are regarded as considerable. Accordingly, Transparency Market Research (2021) assumes that the relevant market will grow by 11 % per year on average in the period from 2021 to 2031.

The "Lithium-Ion Large Cells" business unit in the "Other" segment, which designs lithium-ion round cells for automotive and non-automotive product solutions, will be boosted by the strong growth trend towards electrification. According to a study carried out by Avicenne, Fraunhofer, IHS Interviews and Roland Berger (2021), global market demand will increase almost tenfold from around 363 GWh in 2021 to 3,127 GWh in 2030. In this context, the automotive market is regarded as a particular growth driver due to the long-term transition in the direction of electric vehicles. VARTA potentially stands to benefit from strong market growth in this area with its unique V4Drive cells, which clearly stand out from the competition on account of incredibly fast charging and discharging cycles. Our first production line for our 21700 cells is being gradually ramped up for a pilot customer. When fully utilised, the batch production line should be able to produce up to 10 million cells per year. In addition to other customers operating on the automotive market, in the medium and long term, VARTA also plans to use this unique cell technology in connection with other application areas. These include batterypowered power tools, industrial vehicles and products from the home and garden sector.

3. Key events after the reporting date

After the profit collapse in 2022, VARTA AG developed a restructuring concept to facilitate the Company's return to the growth path. In a final report of the restructuring expert for the assessment of the restructuring ability according to IDW S6, VARTA AG was certified to have the restructuring ability and growth prospects with short-term financing requirements for the further stabilisation of the company.

VARTA has agreed on a restructuring agreement for the implementation of a restructuring concept with the financing banks and the majority shareholder Montana Tech Components AG, which was signed on 30 June 2023, including an extension of the existing financing until 31 December 2026 and changes to the credit conditions (covenants).

In the wake of this agreement, a capital increase was required by the banks and successfully carried out on 21 March 2023. As a result, VARTA AG generated gross issuance proceeds of € 50,727,000. VGG Beteiligungen SE, a wholly owned subsidiary of Montana Tech Components AG, subscribed for 2,220,000 new shares while excluding other shareholders' subscription rights.

For further information, please refer to the detailed explanations in the risk report and supplementary report of the consolidated financial statements 2022 dated 28 April 2023.

On the basis of the measures already initiated, also taking into account the corporate planning reviewed by an external expert, the Executive Board is convinced that the Company will return to the growth path with corresponding profitability. To this end, the construction of a gigawatt hour factory for energy storage systems was given the green light in the second quarter of 2023. The first modules for the VARTA.wall are expected to be manufactured in Neunheim in the second half of the year. Over 500 MWh of energy storage systems per year is expected to be produced in an initial expansion stage, which corresponds to an annual output of approximately 50,000 systems. Expansion of existing capacity to over 1 GWh by 2025 is planned, after which up to 100,000 VARTA.wall energy storage systems are expected to be produced per year.

Apart from that, there were no other key events in the first half year.

4. Development of financial position and financial performance

4.1. Financial performance

Consolidated income statement for the period 1 Jan. to 30 Jun. 2023 (unaudited) VARTA Aktiengesellschaft, Ellwangen (Jagst)

(€ k)	30 June 2023	30 June 2022
Sales revenue	339,045	376,810
Increase in finished and unfinished goods	7,426	50,147
Own work capitalized	12,908	6,167
Other operating income	9,754	49,013
Cost of materials	-191,257	-200,260
Personnel expenses	-130,544	-135,727
Other operating expenses	-70,733	-79,916
EBITDA	-23,401	66,234
Depreciation	-67,221	-52,563
Operating income (EBIT)	-90,622	13,671
Interest income	811	970
Interest expenses	-16,165	-3,504
Other financial income	584	766
Other financial expenses	-2,387	-5,422
Financial result	-17,157	-7,190
Earnings before taxes	-107,779	6,481
Income taxes	-2,627	-3,697
Group result	-110,406	2,784
Appropriation of loss (PY profit):
Shareholders of VARTA AG	-110,406	2,784

Revenue

In the first half of financial year 2023, VARTA AG Group revenue fell by 10.0 % compared with the same period in the previous year from € 376.8 m to € 339.0 m. The reason for this is a slowdown in consumer behaviour owing to high inflation and the current economic environment.

Revenue in the "Energy Storage Systems" segment rose from € 42.6 m to € 81.5 m, an increase of € 38.9 m. This pleasing development is due to the high demand for home storage solutions.

Revenue in the "Consumer Batteries" segment fell from € 146.5 m to € 142.5 m, a decrease of € 4.0 m. This revenue decline is the result of a fall in demand for household batteries.

Revenue in the "Micro Batteries" segment decreased by € 13.1 m from € 83.1 m to € 70.0 m. The deterioration in the economic environment led to a downturn in demand.

Revenue in the "Li-Ion CoinPower" segment decreased by € 60.4 m from € 79.7 m to € 19.2 m. The main factor driving this development was the fact that one of our largest customers reduced sales volume significantly in response to a significant deterioration in end-customer demand as well as a customer-side diversification of the supply chain.

Expenses and other operating income

In the first half of the year, material expenses came to € 191.3 m compared with € 200.3 m in the same period in the previous year. This corresponds to a reduction of 4.5 %. The cost-of-materials ratio in relation to total output (revenue plus an increase in finished and unfinished goods) increased from 46.9 % to 55.2 %. The increase in the cost-ofmaterials ratio is the consequence of the negative trend for VARTA in raw material prices compared with the first half of the previous year and changes in the product mix.

Personnel expenses declined by 3.8 % from € 135.7 m to € 130.5 m. This development can be attributed to the personnel measures implemented, such as the short-time work at the factory in Nördlingen as well as initial restructuring measures and fluctuations in staff turnover.

Other operating expenses fell by 11.5 % overall from € 79.9 m to € 70.7 m. On account of short-time work and falling revenues, energy costs fell by € 3.3 m, while those for outward freight and customs duties declined by € 1.1 m. Price volatility has decreased expenses for currency hedging by € 4.8 m in the last year. The miscellaneous other operating expenses decreased, mainly due to lower expenses for claims settlement compared to the previous year by € 1.8 m. Conversely, expenses for legal, auditing and consulting fees increased by € 6.2 m, mainly in connection with the preparation of the restructuring concept. Furthermore, expenses for warranties increased by € 1.8 m.

Other operating income decreased by € 39.3 m, declining from € 49.0 m in the same period in the previous year to € 9.8 m in the first half of 2023. This decline is primarily the result of reduced income from subsidies and public grants of € 26.9 m as well as the change in disclosure in the amount of € 7.5 m described in the annual financial statements 2022 under chapter "Changes according to IAS 8". As expected, grants decreased in the first half of 2023.

EBITDA

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) fell sharply from € 66.2 m in the same period in the previous year to € -23.4 m. This was mainly due to the negative factors described above and the significantly more restrained development of sales revenue by comparison with the same period of the previous year.

Adjusted EBITDA

Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation, adjusted for extraordinary effects) represents a sustainable earnings indicator for the Group. At the same time, adjusted EBITDA is the appropriate control parameter for the Executive Board to assess the operating earnings capacity of the Group and the five segments. The non-cash expenses for share-based remuneration payments and expenses linked to the restructuring plan (previous year M&A transactions) were adjusted as extraordinary effects. The following table shows the reconciliation from EBITDA to adjusted EBITDA:

(€ k)	30 June 2023	30 June 2022
EBITDA	-23,401	66,234
Expenses from share-based remuneration	1	9
Expenses for M&A transactions	0	2,665
Restructuring costs VARTA AG Group	16,587	0
adjusted EBITDA	-6,813	68,908

The restructuring concept resulted in additional expenses. These have been identified as an extraordinary effect and are to be adjusted this year.

Depreciation

Scheduled depreciation amounted to € 38.0 m in the first half of the year. In addition, a non-cash impairment of € 25.9 m was recognised in the "Lithium-Ion CoinPower" CGU in the first half of 2023 due to lower volume expectations for 2023.

Operating result (EBIT)

The operating result is € -90.6 m and thus significantly lower than in the same period in the previous year (€ 13.7 m). The material effect is attributable to operating business and the negative factors described above.

Financial result

The financial result deteriorated in the reporting period from € -7.2 m in 2022 to € -17.2 m in 2023. This is primarily due to the growth in interest expenses, which rose by € 12.7 m from € 3.5 m to € 16.2 m. This was due to the increase in borrowing and the rise in variable interest rates compared with the same period of the previous year.

Taxes

As at 30 June 2023, there was a tax expense of € 2.6 m on the back of deferred tax liabilities that arose due to temporary differences and the expected actual tax expenses as a result of the positive earnings situation of the Consumer companies. The effective tax rate is -2.4 % (2022: 57.0 %).

Consolidated result

Due to the above-mentioned reasons, the consolidated result is well down on the previous year's figure, amounting to € -110.4 m (2022: € 2.8 m).

Consolidated balance sheet as at 30 June 2023 (unaudited) (€ k)	30 JUNE 2023	31 DECEMBER 2022
ASSETS
Non-current assets	723,634	749,220
Current assets	414,339	509,234
Total assets	1,137,973	1,258,454

(€ k)	30 JUNE 2023	31 DECEMBER 2022
EQUITY AND LIABILITIES
Equity	180,005	239,465
Total liabilities	957,968	1,018,989
Non-current liabilities	549,473	196,035
Current liabilities	408,495	822,954
Total equity and liabilities	1,137,973	1,258,454

4.2. Net assets and financial position

Non-current assets

Non-current assets decreased by € 25.6 m from € 749.2 m as at 31 December 2022 to € 723.6 m. The change mainly results from the decline in property, plant and equipment due to the impairment of € 25.9 m, as well as the decline in deferred tax assets from € 19.7 m to € 9.4 m as at 30 June 2023. Intangible assets developed in the opposite direction, rising from € 99.6 m to € 108.9 m. This was largely due to the capitalisation of development costs.

Current assets

In comparison with 31 December 2022, current assets decreased by € 94.9 m from € 509.2 m to € 414.3 m as at 30 June 2023. This change is due to the reduction in tax refund claims of € 12.0 m, and in cash and cash equivalents of € 54.7 m. Trade receivables also trended downwards, falling by € 30.9 m compared with year-end 2022. This is due to both falling revenue and seasonal factors.

Equity/equity ratio

Equity fell from € 239.5 m as at 31 December 2022 to € 180.0 m as at 30 June 2023. The equity ratio amounted to 15.8 % as at the reporting date (31 December 2022: 19.0 %). The main effects are the capital increase of € 50.7 m and the negative consolidated result of € 110.4 m.

Non-current liabilities

Non-current liabilities increased by € 353.4 m from € 196.0 m as at 31 December 2022 to € 549.5 m in the reporting as at 30 June 2023. The main factor behind this increase is the extension of the existing financing as part of the restructuring agreement, which led to loan liabilities of € 354.3 m being classified as non-current. Other non-current liabilities have also increased from € 27.4 m to € 34.9 m. This was offset by the fall in deferred tax liabilities from € 16.9 m to € 6.8 m.

Current liabilities

Current liabilities have fallen from € 823.0 m to € 408.5 m as at 30 June 2023. This change is largely due to the reclassification of loan liabilities as non-current liabilities. Moreover, tax liabilities have fallen by € 14.9 m and deferred liabilities by € 19.4 m in comparison with 31 December 2022. The reduction in deferred liabilities is mainly due to the fall in customer bonuses of € 17.8 m.

Net working capital

Net working capital increased from € 162.7 m at the end of 2022 to € 178.3 m as at 30 June 2023. This corresponds to an increase of € 15.6 m in comparison with the previous year. The net working capital ratio is calculated in relation to the revenue of the last three months extrapolated to one year and stands at 25.5 % as at 30 June 2023 (31 December 2022: 17.1 %). The change in the net working capital ratio by 8.4 percentage points is mainly due to the restrained development of sales revenue in the last six months as well as the decline in receivables and liabilities.

Cash flow statement

(€ k)	30 June 2023	30 June 2022
Cash and cash equivalents as at 1 January	108,709	73,107
Cash flow from operating activities	-27,317	-26,509
Cash flow from investing activities*	-50,238	-100,151
Cash flow from financing activities*	23,151	89,659
Net change in cash and cash equivalents	-54,404	-37,001
Effects of exchange rate fluctuations	-314	1,737
Cash and cash equivalents as at 30 June	53,991	37,843

* Prior year adjusted according to IAS 8

The cash flow from operating activities amounts to € -27.3 m in the reporting year and is therefore € 0.8 m below the previous year's figure. Despite the tense economic situation, the Group has succeeded in keeping cash flow from operating activities stable.

The cash flow from investing activities has reduced from € -100.2 m in the same period of the previous year to € -50.2 m. Payment outflows in connection with investments in

intangible assets and property, plant and equipment (CAPEX) are below the same period in the previous year, amounting to € 37.5 m (2022: € 66.9 m). As far as possible, they were adjusted to the current business development in relation to the commitments.

Cash flow from financing activities decreased in the reporting period from € 89.7 m in 2022 to € 23.2 m. The positive cash flow in the first half of 2023 results from the capital increase in the amount of € 50.7 m. Higher interest expenses reduced the cash flow by € -12.0 m. The high cash inflow in the same period of the previous year resulted from the raising of the promissory note loan in the amount of € 250.0 m and opposing effect through the payment of the dividend.

As at 30 June 2023, cash and cash equivalents totalled € 54.0 m (2022: € 37.8 m). As at the balance sheet date, existing credit lines had been drawn down in full.

5. Financial performance: Segments

The Company is divided into the segments "Micro Batteries", "Lithium-Ion CoinPower", "Consumer Batteries", "Energy Storage Systems" and "Other".

Many of VARTA's customers around the world are facing major challenges. One of the primary factors behind this is the current war in Ukraine. This cost increases for raw materials prices that this has resulted in, as well as the downturn in consumer behaviour as a result of high inflation, is leading to reduced demand for our batteries in the "Micro Batteries", "Lithium-Ion CoinPower" segments and, to a lesser extent, in the "Consumer Batteries" segment as well. However, the "Energy Storage Systems" segment is clearly bucking the general trend, which is firstly due to the high order volume generated in 2022 and secondly to high levels of demand for home energy storage solutions.