Purmo Oyj : Financials review 2023

Financials 2023

Report of the Board of Directors 2023

Purmo Group is at the centre of the global sustainability journey, offering full solutions and sustainable ways of heating and cooling homes to mitigate global warming. We provide complete heating and cooling solutions to residential and non-residential buildings, including underfloor heating and cooling systems, a broad range of radiators, heat pumps, flow control and hydronic distribution systems, as well as smart products. Our mission is to be the global leader in sustainable indoor climate comfort solutions. Our approximately 3,190 employees operate in 24 countries, manufacturing and distributing top-quality products and solutions to our customers in more than 100 countries. Purmo Group's shares are listed on Nasdaq Helsinki with the ticker symbol PURMO. More information: www.purmogroup.com.

Market overview for 2023

In 2023, construction activity across Purmo Group's key markets remained weak. This was a result of high inflation and interest rates which undermined consumer confidence and decreased demand, leading to lower volumes in residential renovation and new construction projects.

During 2023, the decline in demand was particularly intense in Germany, Italy and China. The decline in demand in Italy was significant due to the exceptional corresponding period last year, when demand was high because of government incentives for improving the energy efficiency of buildings and homes. However, market in Italy picked up in the fourth quarter of the year. At the end of 2023, inventory levels of wholesalers in Purmo Group's core markets were stabilised.

Energy efficiency requirements for new and existing buildings are expected to favorably influence demand for Purmo Group's indoor climate comfort solutions. Governments and local authorities are incentivising the shift to renewable energy sources, energy efficiency through low-temperature systems and well-insulated housing, and also the introduction of energy performance requirements for new and renovated buildings. The European Union's Green Deal, aiming at making Europe the first carbon-

neutral continent by 2050, is one example of a generic longer-term initiative. Furthermore, as a result of global warming and rising energy prices, consumers show an increasing preference and need for combatting climate change and supporting sustainability. Consumer preferences are moving towards sustainable solutions and products.

According to the European Commission, up to 75% of the buildings in the EU require deep energy renovation, implying that the addressable energy renovation market opportunity is significant. Energy renovations in existing dwellings will often include the replacement of fossil-fuel-based heat sources (e.g. gas boilers) with renewable-energy-based heat sources (e.g. heat pumps). Importantly, the growth of heat pumps also drives a shift from high- temperature to low-temperature heat distribution systems to enable the energy efficiency of the heat pump installation. This implies that emitters such as radiators will need to be upgraded when combined with heat-pump systems by becoming larger or more efficient, so they can generate equal heating output given the lower water temperature of the system.

Purmo Group is well positioned to support this transition, being a provider of complete heating and cooling solutions, including air-to-water heat pumps, low temperature emitters and smart controls.

The company's indoor climate comfort solutions are sold primarily across Europe mainly to residential buildings, but also to non-residential buildings. Around 60 per cent of Purmo Group's net sales are generated from renovation, with the remainder from new construction projects. The secular trend for energy renovations also helps to make the business even less reliant on new build construction markets.

The estimated compounded annual growth rate for Purmo Group's products and systems varies. As an example, the demand for air-to-water heat pumps is expected to grow by 19 per cent annually (CAGR) within the company's addressable markets in 2021-2026 (BRG, December 2023).

The energy renovation trend in Europe requires an upgrade of radiators in conjunction with heat pump installations for consumers to capture full energy savings. This trend is expected to grow the radiator market by 5.6 per cent annually during 2022-2030 (CAGR) (Third party independent analysis).

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The construction markets in new build and renovation segments are expected to remain challenging in 2024. Increased geopolitical risks and high overall uncertainties can also have an impact on Purmo Group's core markets.

The mid- to long-term market outlook is positive for Purmo Group given the support from secular green transition tailwinds. The need for radiator upgrades in conjunction with heat pump installations across Europe also drives the demand for the heating and cooling products offered by the Group.

Net sales

EUR million	2023	2022	Change, %
Net sales, by segment
Climate Products &	591.9	720.6	-18%
Systems
Climate Solutions	151.6	183.9	-18%
Eliminations	-0.3	-0.4
Total	743.2	904.1	-18%

Net sales, EUR million

Group financial overview

Key figures

EUR million	2023	2022	Change, %
Net sales	743.2	904.1	-18%
Adjusted EBITDA1	92.3	92.9	-1%
Adjusted EBITDA margin1	12.4%	10.3%
Adjusted EBITA1	66.3	64.6	3%
Adjusted EBITA margin1	8.9%	7.1%
EBIT	9.7	39.0	-75%
EBIT margin	1.3%	4.3%
Profit for the period	-9.3	13.1
Adjusted profit for the period1 3	32.2	32.7	-2%
Earnings per share, basic, EUR	-0.32	0.32
Adjusted earnings per share, basic, EUR1 3	0.68	0.79	-14%
Cash flow from operating activities	40.4	31.1	30%
Adjusted operating cash flow, last 12 months1 2	75.1	44.0	71%
Cash conversion1 2	81.4%	47.4%
Operating capital employed1	294.7	305.0	-3%
Return on operating capital employed1 3	2.9%	12.2%
Net debt1	219.6	275.2	-20%
Net debt / Adjusted EBITDA1	2.38	2.96	-20%

1. Purmo Group presents certain measures of financial performance, financial position and cash flows, which are alternative performance measures in accordance with the guidance issued by the European Securities and Markets Authority ('ESMA'). For the detailed definitions and reconciliation of alternative performance measures, see page 24.
2. Change in net working capital includes assets held for sale. The 2022 comparison figure has been restated by EUR 9.6 million impairment charges related to the business in Russia.
3. Comparative figures have been restated due to change in calculation of the key figure, see page 25.

In January-December 2023, Purmo Group's net sales were EUR 743.2 million (904.1); the decrease was 18 per cent. The organic decline in net sales, excluding currency effect, acquisitions and divestments was 17 per cent. Acquisitions did not have a material contribution to net sales. The net impact of changes in currencies was -1 per cent.

Net sales for the Group declined due to slowdown in residential new building and renovation markets during the year. Most of the regions in both business divisions remained weak in 2023, although partial recovery were seen in some markets towards the end of the year. Net sales declined in all clusters in the Climate Products & Systems division, with stabilisation in some markets towards the end of the year, Poland in particular. In the Climate Solutions division, the Italian market recovered after a period of downturn during the last quarter of the year. The corresponding period last year in Italy was strong when demand was high due to government incentives for improving energy efficiency of buildings and homes. Markets in France and in Ireland grew during the year, whereas

843.6	904.1
	743.2
2021	2022	2023

the slowdown in the Nordics impacted negatively on the Group's net sales for 2023.

Net sales in Northern Europe declined by 13 per

cent to 166.4 million (191.0). Western Europe declined by 15 per cent, amounting to EUR 287.5 million (337.2). Central and Eastern Europe declined by 22 per cent to EUR 135.4 million (174.5). Southern Europe declined by 23 per cent to EUR 110.3 million (142.4) and the Rest of the world region declined by 26 per cent to EUR 43.5 million (58.9).

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Results and profitability

EUR million	2023	2022	Change, %
Adjusted EBITDA,
by segment
Climate Products &	78.5	71.7	10%
Systems
Climate Solutions	23.7	29.9	-21%
Other and	-9.9	-8.7	14%
unallocated
Total	92.3	92.9	-1%
Adjusted EBITDA	12.4%	10.3%
margin, %

In January-December 2023, Purmo Group's adjusted EBITDA was EUR 92.3 million (92.9); the decrease was 1 per cent. The decline in adjusted EBITDA for the Group was a result of lower volumes for both divisions.

The adjusted EBITDA margin improved to 12.4 (10.3) per cent.

Comparability adjustments affecting EBITDA and EBITA amounted to EUR 52.8 million (21.7). The adjustments were mainly related to EUR 46.0 million costs associated with the Accelerate PG programme. Furthermore, an EUR 1.3 million increase in the redemption liability and an additional impairment of EUR 3.9 million on inventory and other assets related to Purmo Group's Russian business classified as assets held for sale was realised.

Net financial items amounted to EUR -19.3 million (-17.4).

Adj. EBITDA,

EUR million

103.9	92.9	92.3
12.3		12.3
	10.3
2021	2022	2023

Adjusted EBITDA margin, %

Profit before tax was EUR -9.6 million (21.6). Income tax expenses were EUR 0.3 million (-8.4), corresponding to an effective tax rate of 2.7 per cent (39.1). Taxes relating to comparability adjustments amounted to EUR -11.2(-2.2). The adjusted effective tax rate was -27.8 per cent (20.1).

Profit for the review period was EUR -9.3 million (13.1), and adjusted profit for the period was EUR 32.2 million (32.7). Earnings per share were EUR -0.32 (0.32), and adjusted earnings per share were EUR 0.68 (0.79).

Cash flow and financial position

In January-December 2023, cash flow from operating activities increased to EUR 40.4 million (31.1). The cash flow was positively impacted by the increase in net working capital of EUR -2.1 million (-31.5) during the review period. The cash flow was reduced by increase in financial items and income taxes paid, totalling EUR -36.0 million (-28.3). The development in net working capital was positively impacted by the Accelerate PG programme.

Adjusted operating cash flow for the last 12 months increased by 71 per cent to EUR 75.1 million (44.0), and the cash conversion increased to 81.4 per cent (47.4). The change was mainly a result of an improvement in net working capital of EUR 3.2 million (-24.8). The adjusted EBITDA during the last 12 months was EUR 92.3 million and, consequently, on the same level compared to previous year (92.9).

Cash flow from investing activities was EUR -20.2 million (-32.9). The change was primarily attributable to the Thermotech acquisition in 2022 of EUR 14.6 million. In the reporting period, the investments

in property, plant and equipment, and intangible assets were EUR -20.3 million (-24.0). Cash flow from financing activities was EUR 32.6 million (-110.8) and was mainly related to the proceeds from the hybrid bond of EUR 60.0 million in February 2023.

At the end of December 2023, the Group's net debt was EUR 219.6 million (31 Dec 2022: 275.2), and the net debt to adjusted EBITDA ratio, based on the last

12 months adjusted EBITDA, was 2.38 (31 Dec 2022:

2.96). The hybrid bond is treated as equity according to IFRS and, therefore, not included in net debt.

At the end of December 2023, the equity ratio was

1. per cent (31 Dec 2022: 41.0), and it improved compared to the corresponding period last year mainly due to the issuance of the hybrid bond.
   The equity ratio calculation has been updated to be calculated from total equity instead of equity attributable to the owners of the company from the beginning of 2023.
   At the end of December 2023, the liquidity position in terms of cash and cash equivalents totalled EUR

1. million (31 Dec 2022: 56.3). The company has a Finnish commercial paper programme totalling EUR 100.0 million (31 Dec 2022: 100.0), which was unutilised at the end of reporting period (31 Dec 2022: EUR 10.0 million). The company also had an EUR 80.0 million (31 Dec 2022: 80.0) undrawn committed revolving credit facility, EUR 20.5 million (31 Dec 2022: 20.5) of undrawn overdraft facilities with core financial institutions and EUR 125.0 million (31 Dec 2022: 125.0) unutilised uncommitted M&A facility.
   Total equity was EUR 435.7 million (31 Dec 2022: 403.3). The increase in total equity was mainly due to the hybrid bond.

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Climate Products & Systems Division

EUR million	2023	2022	Change, %
Net sales	591.9	720.6	-18%
Adjusted EBITDA	78.5	71.7	10%
Adjusted EBITDA	13.3%	9.9%
margin, %
Depreciations,
amortisations and	-31.7	-34.9	-9%
impairments

The Climate Products & Systems division sells via wholesalers to residential and non-residential sectors. Its sales regions are Northern, Western, Southern and Eastern Europe, and Rest of the World, including Brazil, China, Japan and the United States. The main product categories within the division are panel, tubular and electric radiators as well as products for radiant heating and cooling (RHC); including underfloor heating, air heating and cooling, water distributions systems, and system components and controls.

Net Sales

In January-December 2023, net sales for the Climate Products & Systems division decreased by 18 per cent to EUR 591.9 million (720.6). The organic decline in net sales was 16 per cent. Acquisitions did not contribute to the division's net sales. The net impact of changes in currencies was -1 per cent.

Net sales of radiators for the full year 2023 amounted to EUR 392.2 million (473.1). The weak demand environment led to a decline in the organic

sales volume in radiators of around 20 per cent during the year.

In 2023, net sales for the Climate Products & Systems division declined due to weak market environment throughout the year. The demand remained weak in all regions, although some markets stabilised towards the end of the year.

Profitability

In January-December 2023, adjusted EBITDA of the Climate Products & Systems division increased by

10 per cent to EUR 78.5 million (71.7). The adjusted EBITDA margin improved to 13.3 per cent (9.9).

For 2023, adjusted EBITDA margin increased due to margin management actions in the divisions, which was supported by the Accelerate PG programme.

Climate Solutions Division

EUR million	2023	2022	Change, %
Net sales	151.6	183.9	-18%
Adjusted EBITDA	23.7	29.9	-21%
Adjusted EBITDA	15.6%	16.3%
margin, %
Depreciations,
amortisations and	-5.1	-4.5	14%
impairments

The Climate Solutions division sells integrated solutions directly to installers from the company's Emmeti business in South Europe, its Thermotech business in the Nordic region and its Merriott business in the United Kingdom and Ireland. The

Climate Solutions division provides a comprehensive set of heating and cooling solutions for customers whose goal is to achieve energy savings and reduce emissions generated by energy consumption.

Net sales

In January-December 2023, net sales for the Climate Solutions division decreased by 18 per cent to EUR

151.6 million (183.9). The organic decline in net sales was 19 per cent. The Thermotech business contributed 2 per cent to the division's net sales growth. The net impact of changes in currencies was -1 per cent.

In 2023, net sales for the Climate Solutions division declined as a result of period of downturn in the Italian market. The corresponding period last year in Italy was strong due to governmental incentives. The slowdown in the Nordics also impacted negatively to the division's net sales for 2023. The Emmeti business in France and the Merriot business in Ireland performed well instead and grew in net sales during the year.

Profitability

In January-December 2023, adjusted EBITDA for the Climate Solutions division decreased by 21 per cent to EUR 23.7 million (29.9). The Thermotech business contributed about EUR 1.0 million to the adjusted EBITDA. The adjusted EBITDA margin was 15.6 per cent (16.3).

The slight decrease in adjusted EBITDA margin in 2023 was a result of lower volumes in the main markets of the division, Italy and the Nordics. As a response to lower volumes, margin management actions were completed in the division, including cost-saving actions within the Emmeti and the Thermotech businesses.

Investments, acquisitions, structural changes and R&D

Investments

Capital expenditure, excluding business combinations and leased assets, totalled EUR

21.5 million (24.0) in January-December 2023. The investments during the review period were related primarily to strategic projects as well as factory expansions and maintenance. The investments in the comparison periods comprised mainly of factory expansions.

Acquisitions and disposals

On 28 April 2023, Purmo Group announced that it had signed an agreement to divest all of its Russian operations to IPLS, including all related assets and liabilities. Subsequent to the closing of the transaction, Purmo Group will not have any redemption liabilities in relation to the Russian business. Completion of the transaction is subject

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to the approval of the relevant regulatory authority in Russia. The process has taken longer than expected. The company will publish the closing of the transaction separately as soon as possible.

Purmo Group has classified its Russian business as assets held for sale, resulting in non-recurring impairments totaling EUR 12.9 million in 2022.

In March 2023, the redemption liability related to Purmo Group's Russian business increased by EUR 1.3 million and, in September 2023, an additional impairment on inventory of EUR 1.7 million was recognised. In the last quarter, the Group recognised an additional impairment of EUR 2.6 million on inventory and other assets.

For accounting purposes, the Russian business is presented as continuing operations as it does not meet the criteria for discontinued operations. Russia represented circa 3 per cent of Purmo Group's total net sales in 2023.

Structural changes

On 28 November 2023, Purmo Group announced that it has completed the consultation process concerning the discontinuation of its radiator production plant in Zonhoven, Belgium. According to the plan, part of the radiator production in Zonhoven ceased at the end of the fourth quarter of 2023, and the remainder will close by the end of the first quarter of 2024.

According to the plan, the horizontal radiator production was transferred during the fourth quarter of 2023 from Zonhoven to be manufactured at the

Group's most efficient production lines at its plant in Rybnik, Poland.

Research and development

Product development within Purmo Group focuses on connecting smart HVAC equipment, from the energy source to thermal emitters, in one unified and intelligent system. Combining and connecting heat pumps with the heat emitters and other systems offered by the Group maximises energy savings for end-users. Additionally, focus is placed on minimising material usage, including product packaging, and on smart design that improves system performance. Purmo Group also continues collaboration with its network in the field of control systems.

In line with its strategy, Purmo Group's pipeline of smart products focuses on three clear strategic priorities: intelligence and connectivity, sustainability and aesthetics.

Research and development (R&D) expenditure totaled EUR 5.3 million (6.1) in January-December 2023.

During 2023, Purmo Group launched new products and improved its existing product ranges. As an example, the company launched a new radiator version of Kaba, called Kaba2, an oil-filled radiator which is small in size and with a digital, programmable thermostat. It has similar heat output compared to radiators of larger size and its intuitive control-interface allows for quick product setup and selection of operating mode. Kaba2 comes in fully recyclable packaging.

Purmo Group also launched the Unisenza Plus App, which is a control system for heating or air conditioning. The application includes an intuitive user interface, which gives a fast overview of heating and cooling system status. It is connected to heating or cooling system remotely through the Cloud and can be connected to other Purmo thermal devices in the house.

In 2023, an upgraded range of oil-filled electric radiators called Yali Plus was launched. The next generation radiators include the Unisenza Plus control system, with which users can decide when their heating is active and avoid excess energy consumption. The Unisenza application is available for smart phones.

A significant improvement was also made to our underfloor heating pipe material. The company now offers the world's most flexible PE-Xc pipe, enabling easy and quick installation for customers.

Furthermore, Purmo Group launched a new iQ control system. This advanced control system is wirelessly connected and comes with several benefits, such as a smart fireplace function, an option to regulate both heating and cooling via any heat pump, and radiator control for each desired room or zone.

In complete solutions, the company launched an easy-to-install offering in Austria, which will expand across Europe in the future. This solution combines Purmo Group's ULOW heat pump radiator, underfloor heating products and a heat pump from a partner of Purmo Group. It also includes other products from Purmo Group as well as service and support.

During the year, the Group delivered first set of improved, Radson-branded horizontal radiators produced at its largest plant in Rybnik to the customers across Benelux and France. The horizontal radiator production was transferred from Zonhoven, Belgium, to be manufactured at the Group's most efficient production lines at its plant in Rybnik, Poland.

The new radiator offers an increased maximum operating pressure and suits well for higher buildings or buildings that are connected to district heating. Pre-settled valve inserts of the radiator makes hydraulic balancing easy and saves time of an installer. Furthermore, it includes a range of accessories, is offered in more than 70 colours and comes with improved, sustainable packaging.

Strategy

The company's growth strategy is built on three pillars:

1. scaling-upof solution-selling to provide complete solutions and to capture growth potential in underpenetrated markets;
2. launching and delivering smart products that are more intelligent, sustainable and aesthetic; and
3. focusing on growth markets to capture the biggest opportunities outside of current markets.

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Growth is supported by M&A opportunities, which will foster consolidation and expansion.

The strategy is further supported by continuous improvement of operational excellence and by investments in people and culture.

Strategy acceleration programme

On 5 October 2022, Purmo Group announced a strategy acceleration programme, 'Accelerate PG', to strengthen the execution of the strategy. The programme focuses on improving net sales growth, profitability and net working capital efficiency

to support reaching its financial targets. The programme supports the financial development of the Group.

Thanks to the good results within the programme in 2023, Purmo Group will move beyond implementing cost savings to growth initiatives in 2024. The company also updates the programme's target. The programme targets cumulative adjusted EBITDA run-rate improvements of EUR 50 million (previously: EUR 40 million), which are expected to be reached by the end of 2024. The programme also targets net working capital improvements of EUR

45 million by the end of 2024 (previously: more than EUR 30 million).

Profitability improvements include both variable and fixed cost savings. Additionally, the company continues to assess opportunities for optimising its manufacturing and supply chain footprint.

Financials 2023

The costs for the programme, excluding non- cash items, are expected to be approximately EUR 45 million, of which approximately EUR 34 million was generated before the end of 2023, and the remainder will incure in the first half of 2024. In addition, non-cash costs for the programme were EUR 11.0 in 2023 and, in 2024, non-cash costs are expected to be below EUR 5.0 million.

Accelerate PG is delivering improvements ahead of plan. Implemented adjusted EBITDA run-rate improvements at the end of the fourth quarter amounted to EUR 30.1 million. This was above

the original target of EUR 25 million at the end of 2023. For 2023, adjusted EBITDA periodic impact amounted to EUR 16.0 million. The programme has also realised a cumulative net working capital improvement of EUR 20.6 million.

The most significant improvements within the strategy acceleration programme have been generated from pricing optimisation, procurement savings and overhead cost reductions from operating model changes. In addition, the Group achieved improvements in net working capital efficiency. The savings reported in the programme are incremental and recurring and, thus, do not include inflationary effects on either sales price or input costs.

As part of the programme, on 28 November 2023, Purmo Group announced that it has completed the consultation process with employee representatives concerning the discontinuation of its radiator production plant in Zonhoven, Belgium. According to the plan, part of the radiator production in Zonhoven was ceased by the end of the fourth quarter of 2023,

and the remainder will be closed by the end of the first quarter of 2024. Consequently, the termination of the employment of 136 employees follows.

After the review period, on 10 January 2024, the Group announced that it has entered into consultation with employee representatives regarding its intention to relocate the production from its plant in Hull, United Kingdom, with a possible collective redundancy. The plant employs 37 employees working in the manufacturing of low surface-temperature radiators, fan convectors and other components.

Events after the review period

On 20 January 2024, Purmo Group announced Shareholders' Nomination Board proposal to the Annual General Meeting 2024 planned to be held on 9 April 2024.

The Shareholders' Nomination Board proposes to the Annual General Meeting that the remuneration would not change and the members of the Board of Directors be paid annual fees as follows:

• EUR 92,000 for the Chairman of the Board;
• EUR 53,000 for the Vice Chairman of the Board;
• EUR 53,000 for each of the Chairmen of the Board committees; and
• EUR 48,000 for each ordinary Board member.

The Shareholders' Nomination Board proposes

that approximately 40% of the annual fee be paid in Purmo Group's class C shares. The Board members

are encouraged to keep such shares for the entire duration of their board assignment.

The Shareholders' Nomination Board proposes to the Annual General Meeting that, in addition to annual fee, a meeting fee be paid to the members of the Board of Directors for each meeting of the Board and its committees as follows:

• EUR 800 per meeting held in the Board member's country of residence;
• EUR 1,400 per meeting held outside the Board member's country of residence but on the same continent as the Board member's country of residence;
• EUR 2,600 per meeting held on another continent than the Board member's country of residence; or
• EUR 800 per meeting held by telephone or through virtual communication channels.

In addition, it is proposed that an additional meeting fee of EUR 800 be paid to the Chairman of the Board and the Chairmen of the Board Committees for each meeting of the Board and its committees.

The Shareholders' Nomination Board proposes to the Annual General Meeting that the number of members of the Board of Directors shall be seven (7).

The Shareholders' Nomination Board proposes that the present members of the Board of Directors Tomas von Rettig, Matts Rosenberg, Alexander Ehrnrooth, Carina Edblad, Carlo Grossi, Jyri Luomakoski and Catharina Stackelberg-Hammarén

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would be re-elected as members of the Board of Directors until the end of the next Annual General Meeting.

On 10 January 2024, Purmo Group announced that it launches a consultation process to relocate its manufacturing from Hull, United Kingdom. The plant employs 37 employees working in the manufacturing of low surface-temperature radiators, fan convectors and other components. The production of these products could possibly be relocated to other manufacturing locations in the United Kingdom.

Financial targets and dividend policy

Purmo Group has set the following financial targets and dividend policy.

Growth

Purmo Group is targeting organic net sales growth in excess of market growth. In addition, Purmo Group aims for notable inorganic growth through acquisitions.

In January-December 2023, the organic decline in net sales was 17 per cent, while total net sales decreased by 18 per cent to EUR 743.2 million (904.1).

Net sales for the Group declined due to slowdown in residential new building and renovation markets during the year. Most of the regions in both business divisions remained weak in 2023, although partial recovery were seen in Italy and Poland towards the end of the year.

Profitability

Purmo Group is targeting an adjusted EBITDA margin above 15 per cent in the medium- to long-term.

In January-December 2023, the adjusted EBITDA margin improved to 12.4 (10.3) per cent.

The increase in adjusted EBITDA was driven by systematic margin management and good performance in the Accelerate PG programme.

The strategic transition to a solutions business and the Accelerate PG programme are expected to expand the adjusted EBITDA margin towards the 15 per cent medium- to long-term target.

Leverage

The leverage ratio is targeted not to exceed 3.0x, measured as interest bearing net debt / Adjusted EBITDA on a rolling twelve-month basis. However, leverage may temporarily exceed the target level, for example, in conjunction with acquisitions or restructuring actions.

At the end of December 2023, net debt / adjusted EBITDA was 2.38 (2.96). The decrease in the ratio was due to lower level of net debt mainly as a result of the issuance of the hybrid bond of EUR 60.0 million in February 2023.

Dividend

Purmo Group's aim is to distribute at least 40 per cent of annual net profit as dividends or return of

capital, intended to be paid out after considering earnings trends for the Group, its financial position and future growth potential.

For financial year 2023, the Board of Directors of Purmo Group Plc proposes to the Annual General Meeting planned to be held on 9 April 2024 that a return of capital of EUR 0.36 per class C share and EUR 0.07 per class F share shall be paid. The return of capital is proposed to be paid in four instalments on 26 April 2024, 26 July 2024, 25 October 2024 and 24 January 2025.

Financial guidance for 2024

Adjusted EBITDA in 2024 is expected to be on a similar or higher level than in 2023 (EUR 92.3 million).

The stock levels of wholesalers have stabilised, and the lower interest rates support the expectations for gradual market activity improvement during

2024. Strong margin management actions, which will continue in 2024, provide confidence in the guidance for the Group.

The strategy acceleration programme, Accelerate PG, performs ahead of plan and further underpins Purmo Group's outlook for 2024. The company updates the target for the programme. The programme targets cumulative adjusted EBITDA run-rate improvements of EUR 50 million (previously: EUR 40 million), which are expected to be reached by the end of 2024. The programme also targets net working capital improvements of EUR 45 million by the end of 2024.

Non-Financial information

This section describes Purmo Group's non- financial information as required in Chapter Finnish Accounting Act on non-financial information (NFI). For more information about Purmo Group's Sustainability, please visit the company's website.

Business model

Purmo Group, headquartered in Finland, is a leading manufacturer and supplier of sustainable indoor climate comfort solutions, specialising in heating and cooling solutions. Purmo Group makes embedded radiant-heating and cooling systems, air-based heating and cooling systems (including ventilation), hydronic and electric radiators, dedicated hydronic and electronic controls and piping distribution systems. Purmo Group products are manufactured for residential buildings (both new builds and renovations), commercial buildings, industrial buildings, and public spaces such as airports, schools, and hospitals. The products are mainly sold via sanitary and heating wholesalers, but also directly to installers.

The company's strategy is to leverage its leadership position in sustainable indoor comfort climate solutions with a well-known brand portfolio and strong relationships with key technical wholesalers to increasingly provide integrated solutions.

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With heating and cooling of household buildings making up 18% of total energy consumption in Europe, the company's vision is that indoor climates should not cost the planet's climate. The industry can help to create a significant positive impact on the planet's future, which is why Purmo Group's aim is to create value for society by delivering smart, connectable, sustainable, and aesthetic solutions.

Purmo Group's Complete Care sustainability strategy puts climate at the heart of its business and covers four key areas, our production, our solutions, our people, and our communities. These are enabled by strong governance, safe working practices, and ethical behaviour.

The process of double materiality started with mapping Purmo Group's impacts (actual/potential, positive/negative, and over short-, medium- or long-term1) as well as sustainability-related financial risks and opportunities (over short-, medium- or

long-term). This led to a 'long' list of IROs (impacts, risks, and opportunities). The identification of IROs was focused on both activities within Purmo Group's operations and across the upstream and downstream value chain.

Desktop research involving a review of internal and external sources, such as Purmo Group's last sustainability report and industry reports, was also carried out.

To complement the desktop research, a stakeholder dialogue was carried out with selected members from Purmo Group's operations and external stakeholders (e.g. supplier, customer) and experts both from within the industry and other relevant organizations to provide views of affected stakeholders.

Material issues in sustainability
To comply with the new EU legislation, Corporate					Purmo Group's value chain
Sustainability Reporting Directive (CSRD), and to drive
sustainability work forward, Purmo Group conducted
a double materiality analysis in 2023 based on					Purmo Group
Corporate Social Reporting Directive (CSRD) and
European Sustainability Reporting Standards (ESRS).					Head Quarter &
Through the double materiality analysis,	Raw material	Suppliers		Production	Sales offices	Logistics		Customer	End-user
Purmo Group's material sustainability matters
were identified. A sustainability matter is material
from an impact perspective when it pertains
to the company's impact on people and/or
the environment. It is material from a financial
	1	Short-term is defined as 1-3 years, medium-term is 3-5 years and long-term is 5-10 years.
perspective if the sustainability-related risks and

opportunities trigger a material financial effect.

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This was followed by an assessment of each identified sustainability matter to arrive at a shorter 'net' list. The assessment of the 'net' list was based on factors as defined in the ESRS. For actual negative impacts, the severity2 was analysed and for potential negative impacts, the likelihood was also considered. For actual positive impacts, the scale and scope were analysed and for potential positive impacts, their likelihood was also considered. Sustainability- related financial risks and opportunities, on the other hand, were assessed based on the magnitude of financial effect and likelihood of occurrence.

An appropriate threshold was discussed together with external experts, and the defined threshold was then applied to determine the identified impacts, risks and opportunities as material sub-topics. The following graph is a representation of the 'net' list and material sub-topics for Purmo Group.

The material sub-topics were grouped into five material topics and thirteen sub-topics which were validated by Purmo Group's management team.

'Net' list and material sub-topics based on set threshold

Severity or financial effect

5	11	2
		6

4	7	14	13	3	5
18			1
	16	19	10	8

3	12	9
4

2

15

17

1

1

2

3

4

5

Likelihood

2 Severity is a measure of impact's scale, scope, and irremediable character.

IMPACT, negative

1. Greenhouse gas emissions
2. Energy consumption
3. Substances of concern
4. Water consumption
5. Land degradation as a result of mining of raw materials

1. Packaging materials
2. Decent working conditions for migrant workers

10 Employees' health and safety

11 Value chain workers health and safety

13 Management of relationships with suppliers

IMPACT, positive

1 Energy efficient products

7 Sustainable material choices

12 End-users' health and safety

Financial RISK

1. Climate change crisis management
2. Waste management

17 Employees' health and safety

18 Corruption and bribery

Financial OPPORTUNITY

1. Climate change driven market demand

1. Legislation related toenergy efficiency

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