Combined Management Report 3. Segment information 3.1 Overall economic conditions Overall, calendar 2023 was characterized by many headwinds for the global economy. Global economic development continued to slowly recover from the negative shocks of the previous years: the coronavirus pandemic (COVID-19) with its disruptions on global demand and supply chains; war in Ukraine and the following commodity price explosions, especially for European energy; spiraling inflation and severe financial tightening which caused some turbulence in the banking sector and financial markets. After calendar 2022, in which global gross domestic product (GDP) increased by 3.1%, calendar 2023 is expected to show global GDP increasing by 2.6%, which shows a remarkable resilience of the global economy, given the number of big negative shocks of the previous year. In the post-pandemic world, consumption patterns of households continued to normalize. In particular, the shift to goods from services triggered by COVID-19 ended and then reversed, with a strong rebound of the service sector including tourism, and a normalization of goods demand. In addition, in light of much higher interest rates many firms started to reduce their inventory levels, which they had previously elevated as a precautionary measure to ensure production and delivery during periods of supply chain bottlenecks. Accordingly, both global goods demand and trade were significantly weaker in calendar 2023. These trends were primary contributors for the significant slowdown of the Chinese economy during calendar 2023, after it started very dynamically in the first quarter of calendar 2023 following lifting of severe COVID-19 lockdowns. Another main contributor for the slowdown was the intensification of the country’s real estate crisis. Hence, China’s GDP is expected to grow by only 5% in calendar 2023, which is regarded as low because under multiple lockdowns in calendar 2022, China delivered GDP growth of only 3% and some catching- up in 2023 was expected. The U.S. economy was a positive surprise. Although monetary policy was substantially tightened and the main policy interest rate was increased to 5.5%, consumption and investment were strong and GDP is expected to expand by 2.5% in calendar 2023. In particular the labor market was robust and unemployment remained at historic lows. Despite the strong economy, inflation and core inflation rates declined substantially. By end of calendar 2023, consumer price inflation is expected to be approximately 3%, after it reached nearly 6.5% at the end of calendar 2022. Receding global commodity and energy prices and the dissolvement of supply chain bottlenecks both helped ease inflation while tighter monetary policy had the desired effect of anchoring inflation expectations. This helped the U.S. avoid a price- wage-price spiral which could have led to structurally higher inflation rates. While the U.S. showed stronger economic growth than expected, the European Union (E.U.) experienced the difficulties that were widely expected. The drastic increase of energy prices in calendar 2022, a result of the war in Ukraine, had a severe negative impact, especially on energy-intensive industries. Strong increases in inflation rates led the European Central bank to increase the main policy interest rate to 4.5% which weighed on fixed investment, especially in the real estate sector. Moreover, the global manufacturing and trade slowdown mentioned above weighed on the E.U., due in particular to the high concentration of manufacturing and export industries in Germany, the region’s largest economy. GDP growth in calendar 2023 is expected to be 0.4% in the E.U. and -0.4% in Germany. Only the service sector, in particular tourism, supported the overall E.U. economy. The partly estimated figures presented here for GDP are based on an S&P Global report dated October 15, 2023. 3.2 Digital Industries Digital Industries offers a comprehensive product portfolio and system solutions for automation used in discrete and process industries; these offerings include automation systems and software for factories, numerical control systems, servo motors, drives and inverters and integrated automation systems for machine tools and production machines. Digital Industries also provides process control systems, machine-to-machine communication products, sensors (for measuring pressure, temperature, level, flow rate, distance or shape) and radio frequency identification systems. Furthermore, Digital Industries offers production and product lifecycle management (PLM) software, and software for simulation and testing of mechatronic systems. These leading software offerings are supplemented by an electronic design automation (EDA) software portfolio; the Mendix cloud-native low-code application development platform, which allows customers to significantly reduce app development times through visual representation of underlying code; and digital marketplaces for the global electronics value chain, such as Supplyframe and Pixeom. Digital Industries also provides customers with lifecycle and data- driven services. Taken together, Digital Industries’ offerings enable customers to optimize entire value chains from product design and development through production and post-sale services. With its advanced software solutions in particular, Digital Industries supports customers in their evolution towards the “Digital Enterprise,” resulting in increased flexibility and efficiency of production processes and reduced time to market for new products. The most important customer markets include the automotive industry, the machine-building industry, the pharmaceutical and chemicals industry, the food and beverage industry and the electronics and semiconductor industry. Digital Industries serves its customers through a common regional sales organization spanning all its businesses, using various sales channels depending on the type of customer and industry and also enhancing customer choice across all channels. Changes in customer demand, especially for standard products, are driven strongly by macroeconomic cycles, and can lead to significant short-term fluctuation in Digital Industries’ profitability. Volume from large contracts in the software business, particularly for EDA, may also result in strong fluctuations in quarterly volume and profitability. In fiscal 2023, Digital Industries continued to transition parts of its software business, particularly PLM, from largely upfront revenue recognition towards Software as a Service (SaaS), which yields more predictable recurring revenue and offers growth opportunities by opening access to new customers, especially small and medium-sized companies seeking to reduce costs associated with owning complex IT infrastructure. The transition held back revenue growth rates and profit margin development in the software business in fiscal 2023 and Digital Industries expects continued impacts until completion of the transition. Competition with Digital Industries’ business activities comes primarily from multinational corporations that offer a relatively broad portfolio and from smaller companies active only in certain geographic or product markets. Digital Industries sees three trends influencing its business and providing long-term growth opportunities. Producers of investment goods in today’s increasingly digital environment must modernize their production capacity, particularly to increase production flexibility and reduce time to market. This environment also spurs producers to complement their core products with vertical solutions and service 6