LPKF Laser & Electronics : 9-Month Financial Report

Quarterly Financial Report

1 JANUARY - 30 SEPTEMBER 2023

CONTENT

LETTER FROM THE MANAGEMENT BOARD

Garbsen, October 26th, 2023

Ladies and Gentlemen,

We are pleased to report a strong third quarter at LPKF. Our business development has picked up noticeably in recent months, with incoming orders and order backlog continuing to rise.

In the third quarter, we reached the upper end of our forecast for this period with sales of EUR 33 million and an EBIT of EUR 2.7 million. According to our forecast, sales should have been between EUR 28 and 33 million and EBIT between EUR -1 and 3 million.

After nine months, sales of EUR 80.9 million was still 6.8% below the same period of the previous year (9M 22: EUR 86.8 million), as a particularly high proportion of deliveries in the current year take place in the fourth quarter. Earnings before interest and taxes (EBIT) were EUR - 4.3 million (9M 22: EUR 2.5 million).

The order situation in the Group continued to develop well. At EUR 94.0 million, incoming orders after nine months were 28.6% above the previous year (9M 22: EUR 73.1 million). The order backlog rose from EUR 48.8 million in the previous year to EUR 76.2 million, of which approximately EUR 40 million are due for delivery in the fourth quarter.

Development in core business

The introduction of our innovative Tensor technology in the Electronics segment had already significantly increased demand for depaneling systems in the first half of the year. Now we see the growth also in the increased order intake and sales in this area. The significantly higher performance of our cutting systems has given us a clear competitive advantage, and we expect positive business development here in the future as well.

The Development segment also slightly increased sales and earnings in the third quarter. We have an attractive product portfolio, see continuously high demand, and will continue on our profitable growth path.

In the Solar segment, the delivery of major orders began in the third quarter as announced. Global efforts to reduce CO2 emissions are leading to high demand worldwide for solar scribers for the years 2024 and 2025. LPKF has taken a leading role in the development and production of processes for new semiconductors such as perovskites; the first systems for this were delivered in the current financial year. We see a very good market environment in the Solar segment and have further diversified our customer structure. We will make every effort to implement the deliveries planned for the fourth quarter before the end of the year.

Sales in the Welding segment remained below our expectations in the third quarter despite a good order backlog. This is due to project delays on the part of various customers. We are pleased that we were able to book the first orders for the series production of battery packs as part of a longer cooperation.

Development of new technologies

Our LIDE systems are in operational use in the first fields of application and are being intensively tested by our partners in the semiconductor and display sectors. The cooperation with our customers in the display area is proceeding constructively and according to plan. In September, a leading global semiconductor manufacturer publicly expressed its support for the future use of glass substrates, thus accelerating corresponding activities throughout the industry. We see LIDE technology as an important building block for the planned use of glass in high-performance chips. Because LIDE is already used in volume production in other application fields, LPKF is well positioned here both technologically and operationally. We are pleased that this is reflected in increasing interest in glass-based solutions for our semiconductor packaging applications.

Our Vitrion Foundry (LIDE) in Garbsen is developing steadily. We are producing an increasing volume of customer samples here in the low million euro range and were able to win the first orders for small series production.

In August, we moved part of our biotechnology division ARRALYZE into the co-working spaces of the BioLabs Group at Tufts University in Boston, USA. We are pleased that the marketing campaign for the official market launch of the CellShepherd in the first half of 2024 has started successfully.

Outlook

We confirm our full-year guidance for 2023 with sales of EUR 125 to 135 million and an EBIT margin of 3 to 7%. Our focus is now on managing the upcoming deliveries well in the fourth quarter.

In the medium term, we want to achieve an attractive single-digit growth rate for our core business, which we are driving forward with ever new innovations through active product portfolio management. The new business initiatives in the semiconductor, display and biotechnology markets are expected to contribute a low three-digit million euro sales in the medium term in addition to the core business. Based on the growth in sales and the resulting economies of scale, we are aiming for an attractive double-digit EBIT margin for the LPKF Group.

We would like to thank our employees at all our sites for their commitment and you, dear shareholders, for your continued support and trust.

Best regards,

INTERIM MANAGEMENT REPORT AS OF 30 SEPTEMBER 2023

BASIC INFORMATION ON THE GROUP

The basic information on the LPKF Group in the combined management and Group management report for 2022 continues to apply unchanged. Changes in the scope of consolidation are presented in the notes to this interim report under "Notes on the preparation of the quarterly financial report".

REPORT ON ECONOMIC POSITION

NET ASSETS, FINANCIAL POSITION AND RESULTS OF OPERATIONS OF THE GROUP

Results of operations

In the third quarter, LPKF generated consolidated revenue of EUR 33.0 million, up 5.5 % on the prior-year quarter (EUR 31.3 million). Turnover after nine months totaled EUR 80.9 million, down 6.8 % on the same period last year (EUR 86.8 million). The decline resulted from the Solar (EUR -2.6 million), Electronics (EUR -1.9 million) and Welding (EUR -1.8 million) segments. The Development segment increased its sales by EUR 0.4 million.

The main contributor to the sales growth in the third quarter was the Solar business (+ EUR

3.7 million) in addition to the likewise higher sales of the Development segment (+ EUR 0.8 million). The Welding (- EUR 1.6 million) and Electronics (- EUR 1.2 million) segments reported a decline in sales.

The lower sales in the first nine months resulted in negative EBIT (earnings before interest and taxes) of EUR -4.3 million (previous year: EUR 2.5 million). EBIT in the third quarter amounted to EUR 2.7 million (previous year: EUR 0.8 million).

At EUR 94.0 million, incoming orders after nine months were up on the previous year's figure of EUR 73.1 million. At EUR 76.2 million, the order backlog as of September 30, 2023 was up on the prior-year figure of EUR 48.8 million.

Own work capitalized includes EUR 3.7 million in development costs for products and software (previous year: EUR 4.3 million). At EUR 2.6 million, other income was down on the prior-year figure (previous year: EUR 2.8 million). The decrease compared to the same period of the previous year resulted mainly from lower other income (EUR - 0.2 million).

At 34%, the material usage ratio was slightly lower than the previous year's figure of 35%, mainly due to the product mix.

As of September 30, 2023, the LPKF Group employed 754 people, 10 more than on September 30, 2022.

The increase in the workforce was mainly attributable to the Production and Sales divisions. At EUR 39.5 million, personnel expenses in the reporting period were up on the previous year (EUR 37.7 million). The increase resulted from the expansion of the workforce, the payment of an inflation compensation premium, and additions to personnel provisions.

At EUR 6.6 million, depreciation and amortization in the reporting period was EUR 0.4 million higher than in the previous year. Of this amount, EUR 3.4 million was attributable to depreciation and amortization of own work capitalized (previous year: EUR 3.2 million). At EUR 18.1 million, other operating expenses were up on the previous year's figure of EUR 17.7 million. The main reasons for the increase were higher expenses for travel and entertainment (+ EUR 0.8 million), costs for rent, leasing and incidental expenses (+ EUR 0.5 million) as well as legal and consulting costs (+ EUR 0.4 million) and expenses for repairs and maintenance (+ EUR 0.2 million). In the opposite direction, expenses for R&D costs and external work decreased by EUR 0.7 million each.

Due to the utilization of overdraft facilities, interest expenses for short-term loans were incurred to a minor extent. After interest and taxes, the consolidated result was EUR -5.1 million (previous year: EUR 1.6 million).

Financial position

The Group's cash and cash equivalents decreased from EUR 12.8 million at December 31, 2022 to EUR 5.0 million in the reporting period.

Cash flow from operating activities was EUR 7.8 million after nine months (previous year: EUR - 9.5 million). The negative cash flow from operating activities in the reporting period resulted mainly from the consolidated net profit and an increase in net working capital. Advance payments received increased by EUR 1.4 million as of the reporting date of September 30, and the Group's receivables increased by EUR 2.2 million. Liabilities increased by EUR 1.9 million. At the same time, inventories increased by 9.1 million in order to secure upcoming deliveries. These movements resulted in a net working capital effect of EUR 7.7 million after nine months.

In the third quarter, the cash outflow from operating activities amounted to EUR 2.7 million. At EUR 2.5 million, capital expenditure was above the level of the prior-year quarter.

After a cash outflow from investing activities in the first nine months of EUR -5.9 million (previous year: EUR -6.2 million), free cash flow amounted to EUR -13.7 million (previous year: EUR -15.7 million). In addition to the regular repayments for lease liabilities, the Group transferred the outstanding loans of EUR 0.5 million to the use of the current account line as of June 30. This technically resulted in a cash inflow from financing activities of EUR 5.7 million (previous year: EUR 4.7 million), the offsetting movement can be seen in cash and cash equivalents.

The LPKF Group has the necessary funds for investments and further growth, consisting of cash and cash equivalents and the available credit lines.

Net assets

Analysis of net assets and capital structure

Compared to December 31, 2022, non-current assets decreased by EUR 0.6 million to EUR

66.4 million. The change resulted mainly from capitalized development costs (+EUR 0.8 million) and deferred tax assets (+EUR 0.1 million). This increase was offset by a decrease in property, plant and equipment (EUR -1.7 million).

Current trade receivables increased by EUR 1.9 million to EUR 29.3 million during the reporting period. Inventories increased by EUR 9.1 million to EUR 36.8 million. This is due to a targeted build-up of inventories in order to secure upcoming deliveries. Cash and cash equivalents decreased by EUR 7.8 million and amounted to EUR 5.0 million as of September 30, 2023. Overall, current assets increased by EUR 5.7 million to EUR 77.0 million.

Net working capital increased from EUR 26.0 million at December 31, 2022 to EUR 33.7 million at September 30, 2023. Inventories increased by EUR 9.1 million and receivables by EUR 1.8 million. Liabilities increased by EUR 1.9 million, advance payments received for customer projects by EUR 1.4 million.

The equity ratio of 62.4% as of September 30, 2023 was below the ratio as of year-end 2022 of 68.3%.

Non-current liabilities decreased by EUR 0.5 million, mainly due to scheduled repayments and additional early repayment of loans. Current liabilities increased by EUR 10.5 million to EUR 50.1 million. Current financial liabilities increased by EUR 6.9 million, in particular due to the utilization of overdraft facilities. Advance payments received increased by EUR 1.4 million, while other provisions decreased by EUR 0.4 million compared with December 31, 2022. In addition, trade payables increased by EUR 1.9 million and other liabilities by EUR 0.4 million.

Beyond this, the balance sheet structure has not changed significantly.

Capital expenditure

In the first nine months, the Group invested on a similar scale to the previous year. Investments in property, plant and equipment and intangible assets amounted to EUR 1.7 million, while additions to capitalized development costs totaled EUR 4.6 million.

Segment performance

The following table provides an overview of the operating segments' performance:

The operating result (EBIT) of the segments contains the operating activities of the segments and the attributable intragroup allocations.

EMPLOYEES

The following table shows the development in employee numbers in the first nine months of 2023:

The total number of employees as of Sept. 30, 2023, equals 704 Full Time Equivalents (FTE), compared to 700 FTE at year-end 2022.

OVERALL ASSESSMENT OF THE GROUP'S ECONOMIC SITUATION

From LPKF's perspective, the global economic and geopolitical situation remains tense. According to the IMF, Germany is suffering from weak global trade overall. Despite a slightly improved forecast, the global economy is still suffering overall from the increase in key interest rates by central banks to combat inflation. The IMF experts expect overall global inflation to fall from 8.7 per cent in 2022 to 6.9 per cent in 2023 and 5.8 per cent in 2024. For Germany, the IMF expects inflation of 6.3% in the current year and 3.0% in 2024. LPKF expects moderate effects from cost inflation and some continuing material bottlenecks in