Civitanavi S p A : 2022 Annual Financial Report (including Opinion of Board of Statutory Auditors and Opinion of Independent Auditors

Civitanavi Systems S.p.A.

Annual Financial Report as at 31 December 2022

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This is an English translation of the original Italian document. In cases of conflict between the English language document and the Italian document, the interpretation of the Italian language document prevails.

Company Data and Governance

Registered office of the Company

Civitanavi Systems S.p.A.

Via del Progresso 5, 63827

Pedaso (FM) - Italy

VAT no. IT01795210432

Corporate website

Auditing firm BDO Italia S.p.A.

Manager in charge of drafting the company's accounting documents Letizia Galletti

Supervisory Board Antonio Francesco Morone

*Independent director pursuant to Art. 148, paragraph 3, of the TUF (Consolidated Law on Finance), as cited in Art. 147-ter, paragraph 4, of the TUF and pursuant to the Corporate Governance Code.

Methodological Note

In this Directors' Report on Operations and Finanacial Statements documents, accompanied by the related Notes, values are expressed in millions and/or thousands of euros and/or to the punctual euro. Percentage ratios, margins and variances, are calculated with reference to values expressed in punctual euros.

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This is an English translation of the original Italian document. In cases of conflict between the English language document and the Italian document, the interpretation of the Italian language document prevails.

Letter to Shareholders

The year 2022 was the year of milestones in many ways. We have achieved a development plan that we have been working on for ten years, which has led us to be listed on the Euronext Milan stock exchange, opening up further growth opportunities and new projects, allowing us to compete at an international level and attract both authoritative and high-profile partners, as well as talents that have enriched our workforce, made up of exceptional people who contribute to the excellence of our company on a daily basis with commitment and passion, making possible the journey we have accomplished so far.

We are very proud of our achievements in this first year as a listed company. The quality of our products, flexibility, and operational excellence have allowed us to consolidate our position in a market that is usually exclusive to large operators.

The fiscal year just ended was marked by solid operational and financial performance, with growth in revenues and cash flow. We achieved total revenues of Eur 34.4 million (+37% compared to 2021), driven by the growing demand for A&D solutions and cash flows, in line with our medium-term financial ambitions.

Also, the "Booking 2022" (orders received from customers in 2022) continues in line with past trends, reaching Eur 41 million with a performance exceeding expectations and a book-to-bill ratio of 1.2x. This trend continues in 2023, bringing the Booking as of the date of preparation of this document (16 March 2023) to Eur 16.7 million, confirming the company's constant growth.

The organic growth that awaits us in the future is also favored by the important alliances signed with leading companies in our sector, including the one signed with Honeywell last July, which represents a strategic opportunity by activating synergies in the production of a new stabilisation and navigation solution to provide a product that will have an impact on the global market. In conjunction with the agreement, we joined the European Defense Fund's research call, organised by the European Commission, to develop Q-SING-a quantum vector inertial and gravimetric navigation system-which has confirmed our technological expertise and invested in the research and development of high-precisionfree-inertial systems capable of operating in GNSS-denied areas. In September, we started a collaboration with IEROM Ltd, a London-based company specialising in UAM - Urban Air Mobility, a growing sector in which we aim to gain a larger market share to expand our offering and our ability to produce inertial navigation and stabilisation systems for strategic sectors for the growth and international positioning of Civitanavi. These alliances generate an important momentum for our activities.

The results achieved in 2022 give us a positive outlook for the future, and although we are not immune to global macroeconomic challenges, we are well positioned to face them, and we expect to continue generating a strong financial performance in the coming years.

Based on these results, we will distribute dividends of Eur 4 million (Eur 0.13 per share) compared to an available profit for distribution of Eur 6.5 million (Eur 2.5 million allocated to extraordinary reserve), reflecting our ability to generate cash from our core business. The strength of our company and its cash generation ability is demonstrated by the Free Cash Flow, which, net of the change in equity resulting from the IPO listing, was Eur 6 million in 2022.

We have started 2023 with the accelerator by actively pursuing opportunities both in terms of organic growth with the start of operations of our subsidiary in the UK and through M&A, announcing the signing of the binding proposal to acquire a 30% stake in PVLabs, a company based in Canada, a leader in the design and manufacture of gyro-stabilized gimbals and advanced ISR&T (Intelligence Surveillance Reconnaissance and Targeting) imaging systems, with which we have started collaborating immediately with the aim of strengthening technological and product development know-how, strengthening our position in this market as well.

A sustainable long-term strategy of both organic and external growth, careful operational and financial management, the creation of strategic partnerships in sectors with greater potential for growth, and an increasing focus on people and sustainability issues are the factors that will continue to create value for our shareholders and stakeholders at Civitanavi.

Chairman of the Board of Directors and CEO

Andrea Pizzarulli

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This is an English translation of the original Italian document. In cases of conflict between the English language document and the Italian document, the interpretation of the Italian language document prevails.

Directors' Report on Operations

The Directors' Report on Operations intends to provide information on the Company's situation and on the operating performance as a whole and in the various divisions in which it operates, including through subsidiaries.

The financial statements have been prepared in XHTML format in accordance with the provisions of the European Commission's Delegated Regulation (EU) 2019/815 on technical regulatory standards for the specification of the European Single Electronic Format (ESEF) for electronic communication.

Economic environment situation

Civitanavi Systems operates in a predominantly international market, and the economic context in the field of sensor technology and inertial navigation is growing. The year 2022 shows an increase in target market volumes, which, compared to the previous year, was slowed down by the Covid-19 pandemic.

The high-tech market (especially the semiconductor industry) and raw materials market remains strongly affected by geopolitical factors and the increase in consumption of electronic devices, resulting in a shortage of raw materials for production.

Demand development and trends in the markets in which the company operates

As the Company has ITAR-FREE (International Traffic in Arms Regulations from USA State Department) technology at its disposal, the focus on business development activities remains oriented towards customers with ITAR-FREE or USA content free requirements.

High-end inertial sensors cover many markets. They are used as simple single-axis and low-cost configurations in industrial applications or highly integrated multi-axis applications as inertial measurement units (IMUs), attitude and heading reference systems (AHRS), and high-performance,high-cost inertial navigation systems (INS) in mobility applications (civil aviation), defense, and aerospace. The high-end inertial systems market showed a value of over 3.1 billion dollars in 2021. It will have a compound annual growth rate of 6.5% from 2021-2027(CAGR21-27), reaching $4.5 billion by 2027. The market is stimulated by general trends in traditional markets such as Defense modernisation, A-PNT (Assurred Position Navigation and Timing) in the absence of GPS in civilian and defense applications, and emerging trends in new markets such as new space applications, robotics, logistics, automation, and mobility.

In addition, significant trends are highlighted in the relevant sectors in the market environment in which the Company operates, namely Aerospace and Defense (Avionics, Space, Land and Naval/Other) and Industrial (Mining, Oil & Gas and Horizontal Directional Drilling).

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