Lectra : Annual Report

ANNUAL FINANCIAL REPORT

2023

GENERAL SUMMARY

Statement from Daniel Harari, Chairman and Chief Executive Office ................ 4 2023 key figures ..................................................................................................................... 6

01

Management discussion

7

• 1. Summary of events and performance in 2023 ........................... 8

• 2. Assenssment of the 2023-2025 strategic roadmap .............. 13

• 3. Risk factors - Internal control and risk management

  procedures .............................................................................................. 13

• 4. Off-balance sheet items .................................................................... 2 1

• 5. Research and development ............................................................. 2 1

• 6. Corporate social, environmental and societal

  responsabilityinformation(Non-financialStatement) ........ 21

• 7. Appropriation of earnings ................................................................ 22

• 8. Share capital - ownership - share price performance .......... 22

• 9. Share repurchase program .............................................................. 27

• 10. Signifiant post-closing events ......................................................... 28

• 11. Financial calendar 2024 .................................................................... 28

• 12. Business trends ..................................................................................... 28

• 13. Additional information

  - Consolidated financial statements ............................................ 30

02

Non-financial statement

33

• 1. About this Non-financial Statement ............................................ 35

• 2. Principal risks and challenges in the area of social,

  societal and environmental responsibility ................................. 36

• 3. A virtuous business model ............................................................... 37

• 4. The highest ethical standards ......................................................... 47

• 5. Eco-responsible offers ....................................................................... 49

• 6. An inclusive, diverse and vibrant work culture ....................... 53

• 7. Reducing the environmental impact of Lectra activities .... 61

• 8. A program for the next generation .............................................. 67

• 9. The European Union Regulation on sustainable activities:

  the "Green Taxonomy" ....................................................................... 68

• 10. Report by one of the Statutory Auditors, appointed as an independent third party, on the consolidated non-financial

  Statement ................................................................................................ 74

  Appendix 1 - Materiality matrix ..................................................... 76 Appendix 2 - List of challenges presented to

  stakeholders analysis .......................................................................... 77 Appendix 3 - Risk, commitments and

  challenges mapping table ................................................................ 79 Appendix 4 - Lectra's 12 commitments

  for Corporate Social Responsibility ............................................. 80

  Appendix 5 - Map of corruption risks .......................................... 81

03

Report on corporate governance

82

• 1. Directors and managing bodies ..................................................... 84

• 2. Compensation and benefits

  of company officers and directors ............................................... 112

• 3. Market abuse prevention measures ............................................ 125

• 4. Related-party agreements and agreements

  entered into in the ordinary course of business .................... 126

• 5. Financial authorizations and delegations ................................. 127

• 6. Attendance at shareholders' meetings ...................................... 128

• 7. Information concerning potentially material items in the

  event of a public tender offer ........................................................ 129

04

Consolidated financial statements

130

1. Statement of financial position consolidated ......................... 131

2. Income statement consolidated ................................................... 132

3. Statement of cash flows consolidated ....................................... 133

4. Statement of changes in equity consolidated ...................... 134

5. Notes to the consolidated financial statements .................... 135

Notes to the statement of financial position ................................. 149

Notes to the income statement consolidated ................................ 174

Notes to the statement of cash flows consolidated .................... 182 Statutory Auditors' report

on the consolidated financial statements ....................................... 184

05

People responsible for the annual financial and auditing the financial statements

188

• 1. Certification by the people responsible for the Annual Financial Report ................................................... 189

• 2. People responsible for auditing the financial statements ................................................................. 189

Statement from Daniel Harari, Chairman and Chief Executive Office

In 2023, Lectra celebrated its 50th anniversary. 50 years of innovation, 50 years of serving our customers. 50 years of creating a world-renowned technology Group, which is now part of the SBF 120 index.

Continued improvement in fundamentals

A year ago, I stated that the combination of Gerber Technology and Lectra in June 2021 created a premier advanced technology Group with an extended global reach, capable of responding rapidly to emerging customer needs in its three strategic market sectors - fashion, automotive, and furniture.

With continuing economic and geopolitical tensions in many parts of the world, rising interest rates, and limited access to credit for our customers, the year 2023 did not unfold as we had anticipated. We expected orders to rise at the start of the year, but the opposite occurred. We increased salaries twice in 2022, and again in January 2023, in order to protect employees from inflation, and we accelerated recruitment to prepare for business growth. In April, we introduced a strict cost control plan.

By combining strong growth in recurring contracts and higher gross margins across all product lines, while containing costs, we both mitigated the impact of the slowdown in activity and continued to improve our fundamentals.

We also generated higher free cash flow than in 2022. At end- 2023, following the acquisition of the majority of the capital of TextileGenesis, we have a positive net cash position of 17 million euros and consolidated shareholders' equity of 418 million euros.

A new stage in our Lectra 4.0 strategy

Launched in 2017, the Lectra 4.0 strategy aims to position Lectra as a key Industry 4.0 player in its markets between now and 2030. From 2017 to 2022, we developed, tested and marketed numerous offers for Industry 4.0.

In 2023, we successfully implemented the first year of the 2023- 2025 strategic roadmap. More specifically, we successfully leveraged synergies from acquisitions made in recent years, most notably Gerber Technology; we significantly increased our SaaS activity; and we acquired the majority of the capital of TextileGenesis.

Committed CSR policy

The relevance of our CSR policy, now enshrined as a key pillar of our strategy, has been recognized by Euronext, independent rating organizations, and the media. For the second year running, we were awarded the Best Managed Company by Deloitte.

Over and above our commitment to being environmentally responsible regarding our own ecological impact, our entire offer enables customers to limit their fabric and leather consumption - one of the principal contributors to their carbon footprint. The acquisition of TextileGenesis enhances our value proposition by ensuring fabric traceability, from fibre to retail.

Signs of improvement for 2024

Even though the economic environment remains tense at the start of the year, observers generally expect the situation to stabilize and visibility to improve gradually, with the prospect of a turnaround in late 2024 or early 2025.

In this context, a rebound in orders, combined with the improvement in the Group's fundamentals, would allow for significant growth in our results in 2024.

I hope that you will find this report of interest and trust it provides the information you require.

Daniel Harari

Chairman and Chief Executive Officer

Overview of the Group's situation

2023 key figures

Like-for-like

01

Management discussion

Dear Shareholders,This Management Discussion and analysis reports on the operations and financial results of the company Lectra (the "Company") and of the group Lectra ("Lectra" or the "Group", i.e., the consolidated entity formed by Lectra SA and all French and foreign subsidiaries under its control within the meaning of article L. 233-16 of the French Commercial Code).

It is separate from the report of the Board of Directors to the Shareholders' Meeting of April 26, 2024, which in addition discusses in detail the financial statements and other disclosures relating to the parent company, Lectra SA. This document is available, in French only, on the Company's website (www.lectra.com).

sUmmarY

• 1. Summary of events and performance in 2023 .................... 8

• 1.1 2023: mixed results ............................................................................. 8

• 1.2 Consolidated financial statements for 2023 ............................ 8

• 1.3 Acquisitions ............................................................................................ 9

• 2. 2023-2025 strategic roadmap: first progress report ..... 10

• 2.1 Lectra 4.0: a long-term vision ...................................................... 10

• 2.2 New strategic roadmap for 2023-2025 .................................... 11

• 3. Risk factors - Internal control and risk management procedures .................................................................................... 13

• 3.1 Risks in connection with the 2023-2025 roadmap ............. 13

• 3.2 Risks relating to market conditions ........................................... 14

• 3.3 Risks related to the Group's business ....................................... 15

• 3.4 IT risks ..................................................................................................... 15

• 3.5 Human resources ............................................................................... 16

• 3.6 Factors relating to legal regulations and compliance ....... 16

• 3.7 Internal control and risk management procedures ............ 16

• 3.8 Specific provisions relating to the preparation and

  processing of accounting and financial information .......... 19

• 3.9 Insurance and risk cover ................................................................ 20

  Comparisons between 2023 and 2022 are based on 2022 exchange rates unless otherwise stated ("like-for-like"). As the impact of the acquisition of TextileGenesis (see press release dated December 8, 2022) on the financial statements for 2023 is not material, like-for-like changes exclude only the variations in exchange rates.

  Orders for new systems are reported using two indicators: on the one hand, the value of software sold separately under perpetual software licenses, equipment and accompanying software (also sold in the form of perpetual licenses) and non-recurring services; and on the other hand, the annual value of new subscriptions for software sold in Software-as-a-Service (SaaS) mode.

  • 8. Share capital - ownership - share price performance .... 22

  • 8.1 Change in share capital .................................................................. 22

  • 8.2 Main shareholders ............................................................................. 22

  • 8.3 Shareholding pacts and agreements ....................................... 22

  • 8.4 Treasury shares .................................................................................. 22

  • 8.5 Granting of stock options - potential capital stock ........... 23

  • 8.6 Absence of bonus shares .............................................................. 26

  • 8.7 Lectra joins Euronext's CAC Mid 60

    and SBF 120 indices ......................................................................... 26

  • 8.8 Share price performance and trading volumes ................... 26

  • 8.9 Transactions in shares by directors

    and similar persons .......................................................................... 26

  • 8.10 Compliance with the Transparency Directive and the

    General Regulation ("MAR") - regulated disclosure ......... 26

  • 9. Share repurchase program ..................................................... 27

  • 9.1 Current share repurchase program .......................................... 27

  • 9.2 Transactions by the Company on its own shares

    in 2023 ................................................................................................... 27

  • 9.3 Description of the share repurchase program submitted

    to the Shareholders' Meeting for approval ............................ 27

• 4. Off-balance sheet items ........................................................... 21

• 4.1 Off-balance sheet commitments relating to the Group's financing ................................................................................................ 21

• 4.2 Off-balance sheet commitments relating to the Group's operating activities ........................................................................... 21

• 5. Research and development ..................................................... 21

  • 10. Signifiant post-closing events ............................................... 28

  • 11. Financial calendar 2024 .......................................................... 28

  • 12. Business trends .......................................................................... 28

  • 12.1 Outlook for 2024 ............................................................................... 28

  • 12.2 Confidence in prospects for growth in the medium term... 29

• 6. Corporate social, environmental and societal responsability information (Non-financial Statement)...21

• 7. Appropriation of earnings ...................................................... 22

• 13. Additional information - Consolidated financial statements ................................................................................... 30

• 13.1 Orders for new systems - like-for-like ...................................... 30

• 13.2 Breakdown of revenues - like-for-like ....................................... 31

• 13.3 Consolidated income statement - like-for-like .................... 32

1. Summary of events and performance in 2023

1.1 2023: mixed results

The year 2023 was marked by a severely degraded macroeconomic and geopolitical environment, with many companies worldwide delaying investment decisions; this led to a 26% decline in orders for perpetual software licenses, equipment and accompanying software, and non-recurring services.

Nonetheless, new subscriptions for software sold in Software-as-a- Service (SaaS) mode had an annual value of 10.8 million euros, with continuing growth (+15%) confirming their success and increasing adoption by Group customers.

Results in line with revised objectives

In light of the shortfall in orders for new systems, the Group reported on October 25 that it anticipated full-year 2023 revenues in the range of 474 to 481 million euros, and EBITDA before non-recurring items in the range of 78 to 82 million euros.

Revenues (477.6 million euros) and EBITDA before non-recurring items (79.0 million euros) were in line with these expectations. Q4 exchange rates negatively impacted the results in this period; they reduced reported revenues and EBITDA before non-recurring items by 0.7 million euros and 0.4 million euros, respectively, relative to the expectations on October 25, particularly in the case of the US dollar, which came to €1/$1.08, whereas the October scenarios were based on €1/$1.06.

Strong improvement in the fundamentals of the Group's business model

The 2023 results showed a strong improvement in the fundamentals of the Group's business model, largely due to synergies arising from the Gerber acquisition. Revenues from recurring contracts rose by 10% and the gross profit margin increased by 3.5 percentage points, on a like-for-like basis. Moreover, the Group decided to raise salaries, twice in 2022 and again in early 2023, in order to protect employees from inflation; it also continued to invest for the future by strengthening its R&D teams. These decisions raised fixed costs in the first quarter of 2023 by 11%, compared to the first quarter of 2022. Measures to reduce certain overhead costs brought the increase down to 2% in the fourth quarter, without sacrificing investments for the future.

These improvements, many of which can be considered permanent, will have a positive impact on the Group's future earnings growth, in addition to the positive impact of the rebound in new systems orders.

1.2 Consolidated financial statements for 2023

With an average exchange rate of €1/$1.08 in 2023, the dollar was down 3% compared to 2022 and the yuan declined by 8% against the euro. Currency changes mechanically decreased revenues by 11.2 million euros (-2%) and EBITDA before non-recurring items by 4.8 million euros (-6%) at actual exchange rates, compared to like-for-like figures.

Orders

In a highly degraded environment, orders for perpetual software licenses, equipment and accompanying software, and non-recurring services (145.4 million euros) were down 26% compared to 2022.

Orders for perpetual software licenses (14.0 million euros), equipment and accompanying software (111.1 million euros) and for training and consulting (15.9 million euros) decreased by 23%, 29% and 10% respectively.

Geographically, orders for perpetual software licenses, equipment and accompanying software, and non-recurring services decreased by 33% in the Americas, 30% in Europe, 22% in Asia-Pacific and 6% in the rest of the world (including North Africa, South Africa, Turkey, and the Middle East …). They decreased by 28% in the fashion market, by 21% in the furniture market and by 18% in the automotive market.

The annual value of new software subscription orders came to 10.8 million euros, up 15% compared to the year 2022.

Revenues

Revenues came to 477.6 million euros, down 6% compared to 2022 (-8% at actual exchange rates).

Revenues from software licenses, equipment and accompanying software, and non-recurring services

Revenues from perpetual software licenses, equipment and accompanying software, and non-recurring services (154.3 million euros) were down 24%. This item contributed 32% of revenues (40% in 2022), and included mainly: ■ perpetual software licenses (13.8 million euros), which decreased by 23% and accounted for 3% of revenues (4% in 2022);

■ equipment and accompanying software (118.8 million euros),

which decreased by 29% and accounted for 25% of revenues (33% in 2022);

■

training and consulting (17.3 million euros), which increased by 14% and accounted for 3% of revenues (3% in 2022).

At December 31, 2023, the order backlog for perpetual software licenses, equipment and accompanying software, as well as training and consulting amounted to 35.2 million euros. It decreased by 8.3 million euros compared to December 31, 2022, but increased by 1.1 million euros compared to September 30, 2023, like-for-like.

Revenues from recurring contracts, consumables and parts

Revenues from recurring contracts, which represented 38% of revenues (32% in 2022), amounted to 181.3 million euros, a 10% increase:

• ■ software subscriptions (30.4 million euros), up 47%, represented 6% of revenues (4% in 2022);

• ■ software maintenance contracts (53.6 million euros), up 3%, represented 11% of revenues (10% in 2022);

• ■ equipment and accompanying software maintenance contracts (97.3 million euros), up 6%, represented 21% of revenues (18% in 2022).

In parallel, revenues from consumables and parts (141.9 million euros) increased by 1% and represented 30% of revenues (28% in 2022).

Overall, recurring revenues (323.2 million euros) accounted for 68% of revenues and were up 6% (+3% at actual exchange rates).

Gross profit

Gross profit amounted to 333.2 million euros, down 1% compared to 2022, while revenues fell by 6%.

The gross profit margin came to 69.8%, up 3.5 percentage points. This increase stems mainly from the synergies coming from the Gerber acquisition, particularly strong growth of recurring contract revenues, and strong improvement in the gross margin on equipment and accompanying software revenues.

Personnel expenses and other operating expenses incurred in the execution of maintenance contracts or in training and consulting are not included in the cost of goods sold but are accounted for in overhead costs.

Overhead costs

Overhead costs were 284.1 million euros, up 4% compared to 2022. The breakdown is as follows: ■ 264.5 million euros in fixed overhead costs (+6%); ■ 19.6 million euros in variable costs (-16%).

Research and development costs (55.8 million euros), which are fully expensed in the period and included in fixed overhead costs, represented 11.7% of revenues (52.9 million euros and 10.1% of revenues in 2022). After deducting the research tax credit applicable in France and grants received, net research and development costs totaled 51.3 million euros (45.8 million euros in 2022).

EBITDA before non-recurring items, income from operations before non-recurring items and net income EBITDA before non-recurring items was 79.0 million euros, down 15% (-20% at actual exchange rates) and the EBITDA margin before non-recurring items came to 16.5%, down 1.7 percentage points (-2.3 percentage points at actual exchange rates).

Income from operations before non-recurring items amounted to 49.1 million euros, down 22%. This included a 12.6-million-euro charge for amortization of intangible assets arising from the acquisitions carried out since 2021.

Income from operations came to 48.5 million euros. This includes a non-recurring total income item of 5.2 million euros, arising from the reversal of the unused portion of a provision following the settlement of a tax dispute in the United Kingdom relating to the acquisition of Gerber (2.6 million euros), and reversals of provisions for other tax liabilities no longer required (2.5 million euros). It also includes a non-recurring total charge of 5.8 million euros, consisting of a provision for tax adjustment regarding the research tax credit in France (4.6 million euros), and fees and expenses relating to acquisition projects (1.2 million euros).

Financial income and expenses represented a net charge of 2.8 million euros. Foreign exchange gains and losses generated a net loss of 1.6 million euros.

After an income tax expense of 11.4 million euros, net income amounted to 32.6 million euros, down 26% at actual exchange rates.

Net earnings per share were €0.90 on basic capital and €0.89 on diluted capital (€1.18 on basic capital and €1.16 on diluted capital in 2022).

Free cash flow

Free cash flow before non-recurring items totaled 45.3 million euros (43.7 million euros in 2022). It is higher than net income.

After disbursement of 2.9 million euros in respect of non-recurring charges, free cash flow amounted to 42.4 million euros (40.3 million euros in 2022 after non-recurring disbursements of 3.4 million euros).

A particularly robust balance sheet

At December 31, 2023, the Group had a particularly robust balance sheet with a consolidated shareholders' equity of 417.9 million euros and a positive net cash position of 17.0 million euros, consisting in financial debt of 98.1 million euros and cash of 115.0 million euros.

Throughout the year, the Company paid out 15.2 million euros in respect of the acquisition of the majority of the capital of TextileGenesis, and 18.1 million euros in respect of dividends for fiscal year 2022.

The working capital requirement at December 31, 2023 was a negative 4.1 million euros. This amount includes the purchase of inventories in the amount of 4.1 million euros, on December 1, 2023, in connection with the insourcing of the production in China previously outsourced to the company VDL.

1.3 Acquisitions

Acquisition of the majority of the capital of TextileGenesis On December 8, 2022, Lectra announced the signature of an agreement to acquire the majority of the capital and voting rights of the Dutch company TextileGenesis.

Founded in 2018, TextileGenesis provides a SaaS platform that enables fashion brands and sustainable textile manufacturers to ensure a reliable, secure and fully digital mapping of their textiles, from the fiber to the consumer, and thereby guarantee their authenticity and origins.

The transaction, which involves the acquisition of 51% of TextileGenesis for 15.2 million euros, was finalized on January 9, 2023. The acquisition of the remaining share capital and voting rights is expected to take place in two stages, in 2026 and 2028, for an amount that will be calculated based on a multiple of the 2025 and 2027 recurring revenues.

Insourcing of manufacturing in China previously performed by subcontractor

Following the acquisition of Gerber Technology in 2021, Lectra relied on a factory in China, operated by the Dutch group VDL, to manufacture Gerber-brand multi-ply cutting machines and spreaders. By establishing the new subsidiary, Suzhou Lectra Equipment Manufacturing , the Group has been able to insource this activity, which is primarily geared to the Asian market (see press release dated December 1, 2023). The Suzhou plant, located near Shanghai, will meet the same standards of operational excellence as are currently in place in the manufacturing facilities at Bordeaux- Cestas (France), and Tolland (United States).

2. 2023-2025 strategic roadmap: first progress report

Launched in 2017, the Lectra 4.0 strategy aims to position the Group as a key Industry 4.0 player in its three strategic market sectors, fashion, automotive and furniture, before 2030. The strategy has been implemented up to now through three strategic roadmaps.

The first strategic roadmap, which covered the 2017-2019 period, established the key fundamentals for the future of the Group. These included the successful integration into its new offers of the key technologies for Industry 4.0 (cloud computing, the Internet of Things, big data, and artificial intelligence.), the strengthening of the Executive Committee, the transformation of sales organizations into four main regions, and the launch of the first software offers in SaaS mode.

The second roadmap, which ran from 2020 through 2022, achieved a new dimension for the Group - primarily through the acquisition of Gerber in June 2021 - and opened new perspectives, with a financial position stronger than ever before, an extended worldwide presence, a broader customer base, a powerful product portfolio, a growing number of customers using its new offers for Industry 4.0, and a new brand image.

The Lectra 4.0 strategy and each of the chapters of the 2023-2025 strategic roadmap are summarized below, followed by an initial progress report describing the actions taken in this connection in 2023.

2.1 Lectra 4.0: a long-term vision

Markets undergoing profound changes

Lectra customers throughout the world continue to be affected by changes in consumer behavior, the macroeconomic and geopolitical events of recent years and the growing importance of ethical commitment and sustainable development.

Fashion industry players must undertake far-reaching transformations in their distribution networks and supply chains, taking into account Corporate Social Responsibility (CSR) issues, and the continuous adjustment of their product range and positioning strategies. The fashion sector's main objective is to produce only the products it can actually sell, at the right price to meet customer demand.

Automotive suppliers face major challenges including inflation of raw materials and components, supply chain disruptions and logistical complexity. Furthermore, the progressive shift from internal combustion to electric vehicles with costly technologies is exerting pressure on their cost structure. As a consequence, carmakers must optimize in other areas - particularly in seats and interiors, which account for a significant portion of total costs - in order to preserve their margins. To remain competitive, suppliers have to boost the performance of their production tools and optimize material consumption.

Finally, furniture industry players are continuing to modernize, digitize and automate their industrial facilities, while also transforming their production methods and processes to give

greater priority to on-demand production that can best meet the needs of their consumers.

Accelerating adoption of key Industry 4.0 technologies Industry 4.0 calls for a new approach to organizing production plants based on communication across a configuration of increasingly flexible players and production tools, while optimizing the use of available resources.

The COVID-19 crisis, and its impact on consumer habits and ecosystems, are driving ever increasing structural changes in product value chains. These developments have substantially accelerated the digitalization of processes from creation to point of sale; the introduction of modular, intelligent and communicating production lines; and the adoption of the key technologies for Industry 4.0. These preliminary steps will make it possible to exploit the full potential of the fourth industrial revolution, and then automate and continuously optimize all processes.

Ultimately, Industry 4.0 will be a major step forward in interconnecting all participants in the value chain, driving higher performance, making production lines more flexible, more agile and more capable of meeting demand for personalization.

Corporate Social Responsibility: an increasingly central role for all activities

No company can ignore ethical, environmental, social and societal issues in conducting its business. Increasing numbers of consumers are expressing their expectations in terms of product traceability, sustainability and ethics. More and more countries are introducing regulations to guarantee their origin and their content. And many employees, especially younger people joining the workforce, are voicing increased concerns regarding corporate values and working conditions.

To address these issues, organizations must reassess the way they operate and their decision-making processes. Eco-design of products will progressively become the norm, optimizing production systems will be a necessity, and transparency will be imperative. All players in the fashion, automotive and furniture industries will have to adjust to these new conditions.

Lectra's long-term strategy more relevant than ever before Launched in 2017, the Lectra 4.0 strategy, which aims to position the Group as a key Industry 4.0 player in its three strategic market sectors before 2030, has proven its effectiveness. The five pillars of the strategy are even more relevant today, in light of the changing environment and the new demands made by the markets Lectra serves:

• ■ acknowledged premium positioning, further strengthened since the Gerber acquisition, based on high value-added solutions and services with strong business-line expertise;

• ■ focus on three strategic market sectors - fashion, automotive, and furniture - with a specific approach for each in terms of offers, organization and processes;

• ■ integration of customers into the heart of the Group's activities, with a commitment from its teams to do everything in their