Kontron AG (formerly S&T AG)

Quarterly Report • Nov 4, 2021

S&T AG Quarterly statement Q3 2021 1

S&T AG | WKN A0X9EJ | WWW.SNT.AT

Q3 2021 QUARTERLY STATEMENT

01

S&T GROUP OVERVIEW

KEY FIGURES

IN EUR MIO.	9M 2021	9M 2020
Revenues	913.8	836.4
Gross profit	347.7	317.7
EBITDA	85.6	83.7
Amortisation and depreciation	47.2	42.2
EBIT before PPA amortisation1)	46.0	49.2
Result after non-controlling interests	30.7	31.5
Operating cash flow	-14.6	50.0
Free cash flow2)	-46.8	27.9

1) EBIT before amortisation from purchase price allocation

2) Operating cash flow less purchase of non-current non-financial assets

IN EUR MIO.	30.09.2021	31.12.2020
Cash and cash equivalents	218.6	281.9
Equity	405.6	409.5
Equity ratio	32.9%	32.8%
Net Cash (+) / Net debt (-)3)	-87.5	20.3
Working capital4)	204.4	154.3
Backlog	1,233.9	927.2
Project-pipeline	3,307.0	2,702.3
Employees5)	6,191	6,067

3) Cash and cash equivalents less non-current and current financial liabilities

4) Inventories, trade receivables less trade payables (excl. IFRS 15)

5) Number of employees on full time equivalent basis without employees on parental leave, trainees and apprentices

02 FOREWORD

MICROCHIP CRISIS SLOWS OUR GROWTH – THE START OF BIG CHANGES!

In the third quarter of 2021, we were not able to meet our expectations as planned. While compared to the same quarter in the previous year revenues did increase by 5% to EUR 313 million, EBITDA was down 14% on the same quarter in the previous year at EUR 27.3 million. Based on the 9-months so far, growth in revenue is still 9%, although EBITDA is showing signs of slowing down in Q3 2021.

What is the reason for this? There is still very strong demand for our products, so that is not the problem. In the third quarter, we had another record order intake of EUR 410 million, which was EUR 97 million higher than shipments. Orders in the first nine months therefore added up to around EUR 1,221 million, compared with EUR 913 million in revenues. The demand for intelligent IoT solutions from S&T is huge and is further boosted by the economic recovery following the COVID-19 crisis.

These orders provide a strong basis for further growth, although we cannot satisfy demand at the moment. Due to the poor availability of microchips, products worth approximately EUR 80 million could not be delivered and recorded as revenue as of September 30, 2021. These are products for which our customers are urgently waiting. We are working hard to find a variety of solutions: By adapting software and hardware, we can do without some microchips, while the upcycling of components from older technology generations could help to find needed chips. We have also increased our inventory by around EUR 40 million compared with the beginning of the year to be in a better position to deliver. These measures have a temporary effect on profitability and reduce the EBITDA margin slightly by around 0.5%, although this is negligible in relation to the profit offset due to missing revenue. Semiconductor suppliers are also significantly increasing their capacities. From our current viewpoint, we expect the bottlenecks to ease significantly during 2022. For S&T this will mean EUR 80 million in additional revenue as soon as the delayed deliveries can go ahead.

Regarding our long-term strategy for the future, the official go-ahead for our "Focus" project was given in the past quarter. The goal is to evaluate the separation or sale of our "IT Services" segment so that S&T can focus 100% on the IoT segment. In the medium term, this should enable gross margins of over 50% and EBITDA margins of over 15%. The "Focus" project is scheduled for completion in 2022. The funds raised are intended mainly to support the focus on IoT activities in order to acquire companies offering synergies in the IoT sector, and further share buybacks are also planned.

As a consequence of the delivery delays, in 2021 we expect a revenue of EUR 1,330 to EUR 1,400 million – depending on the availability of microchips – with an EBITDA margin of around 10%. We plan to deliver delayed shipments of around EUR 80 million in addition during financial year 2022, and we expect stronger growth in the IoT segment in 2022. We will replace missing IT service revenues by focusing on our IoT business and building new IoT segments. As a result we will be targeting revenues of EUR 2,000 million in 2025, assuming significantly higher profitability than in our previous "Agenda 2023".

Hannes Niederhauser, CEO

NOTES TO THE COURSE OF BUSINESS

MICROCHIP CRISIS CONTINUES TO HAVE A TEMPORARY NEGATIVE IMPACT ON REVENUE DEVELOPMENT AND WORKING CAPITAL

In the last 3 months, the effects of the microchip and electronic component shortage have intensified. Despite the company's highest-ever backlog as of the end of Q2 2021 and strong order intake in Q3 2021, revenue did not keep up as a result of poor availability and delays in delivery of preliminary products. Revenue increased by 9% compared to the same period of the previous year (PY: EUR 836.4 million | 9M 2021: EUR 913.8 million), although this is mainly attributable to consolidation effects. EBITDA increased by only around 2% from EUR 83.7 million to EUR 85.6 million. The volume of products that could not be delivered due to the microchip crisis increased to approximately EUR 80 million as of September 30, 2021.

Revenues for Q3 2021 in isolation grew compared to the same period in financial year 2020 from EUR 297.7 million to EUR 313.2 million. Gross profit in the first nine months increased from EUR 317.7 million to EUR 347.7 million, corresponding to a gross margin of 38%, consistent with the same period in the previous year. Taking Q3 in isolation, the gross margin amounted to 36.6% (PY: 35.6%). An EBITDA of EUR 27.3 million (PY: EUR 31.7 million) was achieved in the past quarter as a result, which corresponds to a downturn of around 14% compared to Q3 2020 and an EBITDA margin of 8.7% (PY: 10.7%). This downturn is due largely to the delayed shipments as a result of the microchip crisis as well as additional costs for procurement and the re-design of products to make best use of the components available.

Net income (after non-controlling interest) was therefore also down from EUR 11.8 million to EUR 10.2 million for Q3 2021 in isolation and from EUR 31.5 million to EUR 30.7 million for the nine months of the current financial year. Earnings per share (undiluted) after 9 months of the current financial year remained the same as in the equivalent period last year at 48 cents.

DIFFERENT DEVELOPMENTS IN EACH BUSINESS SEGMENT AND VERTICAL END MARKET

S&T Group is controlled using the following three segments:

• › "IT Services": This segment covers all IT services business activities in the DACH and Eastern Europe regions. In this segment, the acquisition of PSB IT-Service GmbH, Ober-Mörlen, Germany, by CITYCOMP Services GmbH, a fully consolidated subsidiary of S&T AG, was implemented with effect from July 1, 2021. Like CITYCOMP Services GmbH, PSB IT-Service GmbH is focused on multi-vendor services and in the past provided these services to the system integrators belonging to Bechtle AG and to external customers. At the same time, a cooperation agreement was also signed with the Bechtle Group, on the basis of which the services of CITYCOMP and PSB will also be sold and used by the Bechtle system integrators in future. Furthermore, S&T AG's shareholding in S&T IT Services S.R.L., Moldova (formerly BASS Systems S.R.L.), was sold with effect from September 30, 2021.
• › "IoT Solutions Europe": This segment focuses on the development of secure solutions using a combined range of hardware products, middleware and services in the areas of IoT and Industry 4.0. In particular, this segment serves customers in the fields of industrial automation, medical technology and transport.

› "IoT Solutions America": This segment brings together activities in the North America region. Product development and the portfolio focuses particularly on the areas of communication, aviation and autonomous driving.

While in the financial year 2020 the COVID-19 pandemic in particular affected S&T's business in different ways, during financial year 2021 significant effects on the course of business are attributable to the microchip crisis. Although hardware components have a lower level of relevance for the S&T Group as an IT service provider in the "IT Services" segment, the availability of IT products for system integration projects is better than in the IoT or embedded hardware sector. In the two IoT segment, order intake and order backlog developed very well. Due to the current microchip crisis, however, both revenue growth and development of profitability fell short of expectations.

The situation in terms of development of the individual segments in the S&T Group is as follows:

IN EUR MIO.	IT SERVICES			IOT SOLUTIONS EUROPE		IOT SOLUTIONS AMERICA		S&T GROUP
	9M 2021	9M 2020	9M 2021	9M 2020	9M 2021	9M 2020	9M 2021	9M 2020
Total revenues	406.9	365.4	538.1	479.1	81.3	106.3	1,026.4	950.9
Internal revenues	-15.2	-14.2	-88.4	-79.5	-8.9	-20.8	-112.5	-114.4
Revenues	391.8	351.2	449.7	399.7	72.4	85.5	913.8	836.4
EBITDA before HQ Charging*)	32.1	21.5	50.6	52.0	2.9	10.1	85.6	83.7
EBITDA after HQ-Charging**)	37.7	27.9	46.6	47.9	1.3	8.0	85.6	83.7

IN EUR MIO.	IT SERVICES		IOT SOLUTIONS EUROPE		IOT SOLUTIONS AMERICA		S&T GROUP
	Q3 2021	Q3 2020	Q3 2021	Q3 2020	Q3 2021	Q3 2020	Q3 2021	Q3 2020
Total revenues	137.8	129.9	182.8	168.7	28.6	39.4	349.3	338.0
Internal revenues	-4.6	-6.1	-28.5	-27.1	-2.9	-7.1	-36.0	-40.3
Revenues	133.3	123.9	154.3	141.6	25.7	32.3	313.2	297.7
EBITDA before HQ Charging*)	10.4	8.9	15.0	17.6	1.9	5.2	27.3	31.7
EBITDA after HQ-Charging**)	12.4	11.0	13.6	16.1	1.3	4.7	27.3	31.7

*) EBITDA adjusted for headquarter charging of S&T AG

**) EBITDA after all headquarter charging of S&T AG

NOTES TO THE COURSE OF BUSINESS 03

The "IT Services" segment contributed 42.9% to segment revenue in the first nine months, the "IoT Solutions Europe" segment 49.2% and the "IoT Solutions America" segment around 7.9%. The "IT Services" segment EBITDA increased from EUR 27.9 million to EUR 37.7 million in the three quarters compared to the previous year (after Headquarter charging). This increase is attributable largely to operating improvements in Germany and Eastern Europe in particular. In the "IoT Solutions Europe" segment, EBITDA fell from EUR 47.9 million to EUR 46.6 million in the reporting period despite increased revenues, which were mainly attributable to the consolidation of the Iskratel Group. The reason for this is the shortage of electronic components mentioned previously. In addition, EUR 1.3 million (PY: EUR 8.0 million) of S&T Group's EBITDA was attributable to the "IoT Solutions America" segment. The decline in sales in North America continued during 2021 and the negative impact on profitability could not be fully compensated, despite the cost-saving measures that have been implemented.

FINANCIAL POSITION REMAINS STRONG, WORKING CAPITAL AND CASH FLOW TEMPORARILY STRESSED BY MICROCHIP CRISIS

The asset and liquidity situation remains satisfactory in the current financial year. Although equity fell from EUR 409.5 million as of December 31, 2020 to EUR 405.6 million, this was not attributable to operating losses, but more to the pay out of a dividend of around EUR 19 million and further share buybacks of around EUR 20.6 million. As a result, the equity ratio remained stable at 32.9% as of September 30, 2021 (December 31, 2020: 32.8%). Cash and cash equivalents decreased from EUR 281.9 million as of December 31, 2020 to EUR 218.6 million. This is mainly due to the dividend paid, the share buybacks and the increase in working capital caused by the microchip crisis. Current and non-current financial liabilities amounted to EUR 306.0 million (December 31, 2020: EUR 261.7 million), which means that the S&T Group has net debt of EUR 87.5 million as of September 30, 2021 (December 31, 2020: net cash EUR 20.3 million | September 30, 2020: net debt EUR 9.9 million) (cash and cash equivalents less non-current and current financial liabilities excluding IFRS 16).

Operating cash flow suffered significantly from the microchip crisis during the first nine months: Since December 31, 2020, working capital has climbed by EUR 50.1 million from EUR 154.3 million to EUR 204.4 million. The main reasons for this are an increase in inventories by EUR 40.7 million to EUR 200.5 million (December 31, 2020: EUR 159.9 million) due to the additional procurement of components and the general increase in storage of products that could not be shipped as a result of some components still being missing. On the other hand, due to the offsetting of custodial fees on EURO balances, factoring was reduced to EUR 61.9 million as of September 30, 2021, which corresponds to a decrease and consequently a burden on cash flow from operating activities of approximately EUR 17 million compared to December 31, 2020. Management consider these setbacks to be temporary and S&T expects a gradual reduction in supply chain bottlenecks in 2022 accompanied by a significant improvement in operating cash flow.

The number of employees as of September 30, 2021 was 6,191, compared with 6,067 employees as of December 31, 2020 (employee numbers on full time equivalent basis, excluding employees on maternity leave, interns and apprentices). The average number of employees during the first nine months of the current financial year was 6,122, compared with 5,024 in the first nine months of 2020.

04

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED INCOME STATEMENT IN TEUR	9M 2021	9M 2020	Q3 2021	Q3 2020
Revenues	913,815	836,423	313,232	297,749
Capitalised development costs	15,189	11,865	7,060	4,661
Other income	4,701	2,930	1,231	1,249
Expenses for materials and other services purchased	-566,108	-518,679	-198,665	-191,606
Personnel expenses	-226,272	-190,219	-75,699	-64,510
Depreciation and amortisation	-47,225	-42,184	-15,537	-14,555
Other operating expenses	-55,753	-58,629	-19,894	-15,814
Result from operations	38,347	41,507	11,728	17,174
Finance income	993	1,288	184	185
Finance expenses	-7,697	-6,458	-2,579	-2,097
Financial result	-6,704	-5,170	-2,395	-1,912
Result from associated companies	0	-20	0	-9
Earnings before taxes	31,643	36,317	9,333	15,253
Income taxes	-986	-5,838	1,196	-3,301
Net income	30,657	30,479	10,529	11,952
Results from the period attributable to owners of non-controlling interests	-17	-971	349	146
Results from the period attributable to owners of interests in parent company	30,674	31,450	10,180	11,806
Earnings per share (undiluted)	0.48	0.48	0.16	0.18
Earnings per share (diluted)	0.47	0.47	0.16	0.17
Average number of shares in circulation (in thousands undiluted)	64,068	65,035	63,710	64,948
Average number of shares in circulation (in thousands diluted)	65,068	66,727	64,710	66,408

STATEMENT OF OTHER COMPREHENSIVE INCOME

STATEMENT OF OTHER COMPREHENSIVE INCOME IN TEUR	9M 2021	9M 2020	Q3 2021	Q3 2020
NET INCOME	30,657	30,479	10,529	11,952
Items that will not be reclassified to profit or loss
Results from remeasurement of financial instruments at fair value through other comprehensive income	2	0	1	0
	2	0	1	0
Items that may be subsequently reclassified to profit or loss
Unrealised gains/losses from currency translation	5,852	-8,990	2,504	-5,339
Net loss on debt instruments at fair value through other comprehensive income	0	-12	0	0
	5,852	-9,002	2,504	-5,339
Other comprehensive income	5,854	-9,002	2,504	-5,339
Comprehensive income	36,511	21,477	13,033	6,613
of which attributable to
Results from the period attributable to owners of non-controlling interests	665	-1,511	936	-618
Results from the period attributable to owners of interests in parent company	35,846	22,988	12,097	7,231

04 CONSOLIDATED BALANCE SHEET

ASSETS IN TEUR	30.09.2021	31.12.2020
NON-CURRENT ASSETS
Property, plant and equipment	130,321	135,120
Intangible assets	101,352	102,798
Goodwill	206,715	199,481
Financial assets non-current	12,630	11,913
Contract assets non-current	218	201
Other non-current assets	19,988	19,831
Deferred tax assets	40,737	36,616
	511,961	505,960
CURRENT ASSETS
Inventories	200,525	159,857
Trade receivables	194,869	204,482
Contract assets current	36,527	23,553
Financial assets current	11,768	10,206
Other receivables and assets current	60,306	60,660
Cash and cash equivalents	218,578	281,909
	722,573	740,667
Total assets	1,234,534	1,246,627
EQUITY AND LIABILITIES IN TEUR EQUITY	30.09.2021	31.12.2020
Subscribed capital	66,096	66,096
Capital reserves	169,450	169,441
Accumulated results	221,845	210,354
Other reserves	-10,419	-15,591
Treasury shares	-46,848	-26,262
Equity attributable to owners of interests in parent company	400,124	404,038
Non-controlling interests	5,439	5,432
	405,563	409,470
NON-CURRENT LIABILITIES
Financing liabilities non-current	242,678	218,848
Other financial liabilities non-current	66,718	77,858
Contract liabilities	14,279	16,323
Other liabilities non-current	935	661
Deferred tax liabilities	13,506	13,271
Provisions non-current	27,224	26,846
	365,340	353,807
CURRENT LIABILITIES
Financing liabilities current	63,352	42,810
Trade payables	190,994	210,011
Contract liabilities	69,503	69,669
Other financial liabilities current	44,474	46,487
Provisions current	31,762	40,473
Other liabilities current	63,546	73,900
	463,631	483,350
Total equity and liabilities	1,234,534	1,246,627

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED CASH FLOW STATEMENT IN TEUR

9M 2021 9M 2020 Q3 2021 Q3 2020

CASH FLOWS FROM OPERATING ACTIVITIES
Earnings before taxes	31,643	36,317	9,333	15,253
Depreciation and amortisation	47,225	42,184	15,537	14,555
Interest expenses	7,697	6,458	2,580	2,097
Interest and other income from the disposal of financial assets	-993	-1,288	-184	-185
Result from associated companies	0	20	0	9
Increase/decrease of provisions	-8,876	-20,687	-2,391	-5,866
Gains/losses from the disposal of non-current non-financial assets	-1,005	-46	2	-36
Changes in inventories	-40,367	-14,275	-22,020	-11,831
Changes in trade receivable and contract assets	-311	32,093	-8,374	-4,949
Changes in other receivables and assets	-531	-6,733	6,289	1,074
Changes in trade payable and contract liabilities	-29,041	-5,643	-2,807	17,130
Changes in other liabilities	-11,688	-17,285	1,206	-4,044
Other non-cash income and expenses	16	4,774	48	2,040
Cash and cash equivalents from operations	-6,231	55,889	-781	25,247
Income taxes paid	-8,341	-5,897	-1,191	-2,462
Net cash flows from operating activities	-14,572	49,992	-1,972	22,785
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of non-current non-financial assets	-32,266	-22,086	-9,559	-8,408
Purchase/sale of financial instruments	-4	-19	0	0
Proceeds from sale of non-current non-financial assets	2,245	557	1,084	296
Disposal/purchase of financial instruments	-285	3,037	-413	685
Payments to acquire subsidiaries less cash assumed and plus current account liabilities assumed	-3,059	-22,332	-1,490	-5,216
Proceeds /Payments from disposal/sale of subsidiaries less cash disposed and plus current account liabilities disposed	-3,580	0	-3,580	0
Interest income	624	347	85	55
Net cash flows from investing activities	-36,325	-40,496	-13,873	-12,588
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in financing liabilities and financial liabilities	52,725	1,371	7,306	134
Decrease in financing liabilities and financial liabilities	-35,027	-36,449	-12,817	-10,742
Interests paid	-4,595	-4,370	-1,055	-957
Acquisition of non-controlling interests	-1,003	-8,086	-275	0
Dividends to owners of interests in parent company	-19,183	0	0	0
Payments for acquisition of treasury shares	-20,586	-6,533	-4,569	0
Capital increase (less transaction costs)	0	1,385	0	1,379
Net cash flows from financial activities	-27,669	-52,682	-11,410	-10,186
Changes in exchange rates	2,992	-6,741	625	-3,145
Changes in financial funds	-75,574	-49,927	-26,630	-3,134
Financial funds as of the beginning of the period	254,951	265,165	206,007	218,372
Financial funds as of the end of the period	179,377	215,238	179,377	215,238
Overdrafts	34,991	33,628	34,991	33,628
Restricted cash	4,210	4,790	4,210	4,790
Total cash and cash equivalents	218,578	253,656	218,578	253,656

FINANCIAL CALENDAR

04.11.2021 Q3-quarterly statement 2021 (Earnings-Call Q3 2021)

22.11.2021 Equity forum (22.11. - 24.11.2021)

Further details available under https://ir.snt.at/Financial_calendar.en.html.

Please visit https://ir.snt.at/reports/Reports.en.html to get access to our annual and quarterly reports, and to our releases, each of which is placed online on its day of publication. We also give notification of any changes to dates and events on our website. This report was published on November 4, 2021, in German and in English. The former is always the authoritative and binding version. Typographical and printing errors excepted.

This quarterly statement contains statements that refer to future developments. These are based on assumptions and assessments made by the Executive Board. We believe these assumptions and assessments to be realistic and applicable. Nevertheless, they entail certain risks and uncertainties. These in turn mean that actual events could significantly differ from the assumptions and estimates made. Among the factors leading to such divergences could be alterations in the economic situation as a whole; in the company's business, markets and competitors; in rates of exchange and interest; and in business strategy. This uncertainty has recently been heightened by the outbreak and spread of the SARS-CoV-2 virus. We accept no warranty for the developments and events actually taking place in the future according to the assumptions and assessments articulated in this annual report. These assumptions and assessments will not be updated.

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