Letter to the Shareholders

Liebe Aktionärinnen und Aktionäre, sehr geehrte Damen und Herren, wir blicken zurück auf ein Jahr 2023, das in einem herausfordernden Markt die Stärke unseres Portfolios gezeigt hat. Unsere Beteiligungen waren gut unterwegs. Neben einem Ergebnis, das über unserer letzten Vorschau liegt, ist insbesondere der hohe Free Cashflow bemerkenswert.

With almost EUR 200 million in free cash flow, we have generated additional leeway to further expand our portfolio in 2024 – by means of growth acquisitions at the first level and also with complementary additions for our portfolio companies. In 2023 we added QUICK Bauprodukte to strengthen our Infrastructure segment. For 2024 we are expecting to undertake further promising acquisitions with a strong future focus. There is a healthy supply in our M&A pipeline.

Let us briefly look at the details of our sales and income development: The Engineering and Materials segments did especially well. The companies in the Engineering segment slightly raised their year-on-year sales in 2023 and significantly increased their operating income (EBIT). Sales fell slightly in the Materials segment; however, EBIT increased a great deal. The Infrastructure segment was impacted by the slowdown in the construction industry, with both sales and EBIT coming in slightly lower than the previous year. After a few booming years in this area, demand has flattened out – in homebuilding in particular. Considering these difficult framework conditions, we can be very satisfied with the performance of the companies.

Dr. Ing. Johannes Schmidt

Chairman of the Board

Dr. Johannes Schmidt (German citizen, born 1961) has been a member of the Board of Management of ­INDUS Holding AG since January 2006. He assumed the position of Chairman of the Board of Management in July 2018. Dr. Schmidt was previously the sole managing director of ebm-papst Landshut GmbH, a manufacturer of ventilation motors and fans. During his tenure there, his main achievements included advancing the development of new product platforms and internationalization of production sites. Dr. Schmidt began his career at Richard Bergner GmbH, a manufacturer of electrical instruments from Schwabach. He initially assumed development tasks before rising to the position of managing director during his 12 years at the company. Schmidt, who studied mathematics, gained an engineering doctorate in mechanics at the Technical University of Darmstadt.

The INDUS Group maintained sales at the previous year’s level in an overall adverse economic environment. Impairments were significantly below the previous year. The EBIT increased to almost EUR 150 million. This puts the EBIT margin at 8.3%, and as such slightly above our target of 7 – 8%.

We announced our PARKOUR perform strategy update at the start of 2023, and in the months following we successfully drove forward the implementation of this future-oriented program. This led us to terminate business in the previous automotive technology segment as planned: Back in summer 2023 we sold the last two companies that were being managed under discontinued operations. Following deconsolidation of these companies in the third quarter of 2023, there are no further encumbrances from discontinued opera-tions. INDUS is therefore now focused exclusively on highly specialized industrial technology.

As part of PARKOUR perform, we have started using free cash flow as an additional management key performance indicator; at EUR 199 million at year-end 2023, it was significantly above the minimum value of EUR 100 ­million. This is also because our portfolio companies significantly reduced the working capital at year-end compared with the previous year, as a result of our active working capital management. The resulting high level of free cash flow also reduced net debt. The outcome is that we have an EBITDA/net debt key figure of 2.0. This is below our defined upper limit of 2.5, and secures the investment grade for us on the financing side.

DEPUTY CHAIRMAN OF THE BOARD

Rudolf Weichert (German citizen, born 1963) has been a member of the ­INDUS Holding AG Board of Management since June 2012. Before joining the INDUS Board of Management, he was a partner at accounting firm KPMG for nine years. He spent three of these years in ­Detroit, ­Michigan, United States, where he worked mainly with companies in the automotive, ­engineering, and ­materials trading industries. Mr. Weichert, who holds a business degree, worked for KPMG for about 20 years, primarily in the firm’s Düsseldorf offices, where he worked mainly with multi-national manufacturing corporations.

Rudolf Weichert

“Striving for Sustainability” is a central component of our business strategy, so we are delighted about the reported development of our corporate group’s sustainability performance: In 2023, we successfully reduced emissions intensity, i.e. CO2 emissions from Scope 1 and Scope 2 related to the gross value-added by 36%.

As shareholders, we want you to appropriately partici­pate in the Group’s positive 2023 development. We therefore propose to the Annual Shareholders’ Meeting a dividend payment of EUR 1.20 per share. This is 40 cents more than in the previous year and corresponds to a dividend yield of 5.4% related to the 2023 year-end price. Taking into account the share buyback program successfully completed in mid-March 2024, shareholders will receive over EUR 56 million in 2024.

At this point you may be asking if it wouldn’t be better to invest those funds in purchasing companies. To that we respond that we are well able to do both. We had hoped to be able to announce a larger-scale acquisition to you at year-end, however, we ultimately decided against implementation because it was not possible to meet all of our criteria.

Gudrun Degenhart

Board Member since October 2023 (responsible for the Materials segment)

Gudrun Degenhart (born 1970, German nationality) has been a member of the Board of Management of INDUS Holding AG since October 2023. She has more than 20 years of experience in the management and development of portfolio companies in the Europe, USA and Asia-Pacific regions. A graduate in business administration, she began her career by building up the Central and Eastern European activities of the market-leading manufacturer and construction specialist Lindner Group. After another stint on the board of a SMEs construction technology company, she joined the thyssenkrupp Group. Her positions there included CEO of an international business unit for special lifts and CEO Materials Western Europe and AsiaPacific. Most recently, she served as CEO for the German portfolio companies of the international service group ISS A/S.

There are still major challenges ahead in 2024, and we foresee very little momentum from the macroeconomic environment. Even though inflation is coming down, costs are expected to continue rising. Nonetheless, we expect stable development for the INDUS Group. Our view is confirmed by the development of our portfolio companies at the start of 2024 – this was made possible by our companies working consistently on their efficiency, with the support of the holding company. We are well-positioned in this respect in light of our strategic initiatives to increase operational excellence and market excellence. What’s more, our new segment management means we can steer these measures even more successfully. We are particularly attentive to the further internationalization of our businesses. Our portfolio companies are working on establishing additional locations outside Germany – with a particular focus on North America. We also have an eye to the acquisition of sub-subsidiaries abroad. It is clear that technical progress and the innovativeness of our SME portfolio companies are of central importance, particularly in the context of a fast-moving market. The rapid development of AI methods, in particular, offers various opportunities here. We are addressing these with our “Driving Innovation” strategic initiative.

Board Member (responsible for the Infrastructure segment)

Dr. Jörn Großmann (German citizen, born 1968) has been a member of the ­INDUS Holding AG Board of Management since January 2019. Up until his move to the INDUS Board of Management, he worked for the Dutch Group Aalberts Industries N.V., with his last position being sole managing director of Impreglon GmbH in Lüneburg. He previously held various positions at the Georgsmarienhütte Group, initially becoming managing director of Mannstaedt GmbH in Troisdorf and later managing director of GMH Edelstahl Service Center Burg GmbH and GMH Engineering GmbH. Before Dr. Großmann became the managing director of Buderus Feinguss GmbH in Moers, he worked as a development engineer and as technical director for Doncasters Precision Castings GmbH in Bochum, Germany. He studied material sciences and earned a doctorate in the field of natural sciences.

Dr. Jörn Großmann

So you can see: We take action with the qualities of an SME, in the best possible sense. Because it does us no good to simply bemoan the current framework conditions and concentrate on complaining about how things are – that certainly will not move us forward. For us and for all of our portfolio companies, the priority is to rapidly find good solutions. Our Annual Report illustrates that we are doing this successfully. We have adjusted our internal structures and eliminated losses. We are expanding business in growth industries, improving our profitability and doing business sustainably. And with strong free cash flow we have generated what we need to acquire additional attractive hidden champions, invest in the existing portfolio, and pay you an increased dividend as well.

Axel Meyer

Board Member (responsible for the Engineering segment)

Axel Meyer (geb. 1968, deutsche Staatsangehörigkeit) ist seit Oktober 2017 Vorstand der INDUS Axel Meyer (German citizen, born 1968) has been a member of the ­INDUS Holding AG Board of Management since October 2017. He previously worked in various management positions at Schuler AG, most recently as managing director of Schuler Pressen GmbH and head of the Schuler Group service division in Göppingen. Between 2003 and 2008, Axel Meyer was a managing partner and a management board member at the management consultancy firm IMAGIN Prof. Bochmann AG in Eppstein im Taunus. He began his career at the Schuler Group in the massive forming segment – first in international sales and then as division manager. Axel Meyer studied industrial engineering in Germany and the United States and also completed a Master of Mergers & Acquisitions (LL.M.) from the Frankfurt School of Finance & Management while working.

By investing in the INDUS share, you are participating in a successful German SME sector. This business model continues to have excellent prospects into the future. We stand by our commitment: We are shaping the future with SMEs.

Thank you very much for your confidence in us.

Yours sincerely,

Dr. Johannes Schmidt
Rudolf Weichert
Gudrun Degenhart
Dr. Jörn Großmann
Axel Meyer

Bergisch Gladbach, March 2024

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Report of the Supervisory Board