TO OUR SHARE OWNERS

Fiscal year 2021 was another record-breaking year for our company. Despite the ongoing challenges caused by the pandemic and global parts shortage, we achieved new highs for many financial metrics, including net sales, margin rates, earnings, cash flow from operating activities, and return on invested capital, as well as record highs for our employee engagement metrics.

Our global team has demonstrated remarkable resilience throughout these unprecedented times. From the very beginning of the COVID-19 pandemic, our number one priority has remained the health and safety of our employees. We continue to make every effort to keep our people safe, utilizing protective shields, face masks, body temperature scanning, social distancing, and proper hygiene throughout our facilities. We strongly encouraged vaccination of our employees and assisted, whenever possible, in making the vaccine available to our employees. I am so proud of our collective response to the COVID-19 pandemic and of the entire Kimball Electronics team who helped keep us moving forward at each of our global facilities. Through it all, we continued to deliver on our promises to our customers, employees, and communities. We also remained committed to creating long-term value for our Share Owners, and our strong cash flow and solid balance sheet position us well to meet our objectives.

We continued to execute on our strategies to drive profitable growth and value creation with Kimball Electronics’ strong company culture serving as the cornerstone of our strategic plan. Shaped by our Guiding Principles and core values, our company culture is derived from basic, but very important, beliefs:

• Our customer is our business.
• Our people are the company.
• The environment is our home.
• Profits are the ultimate measure.

By living our Guiding Principles, our people are instilled with a strong sense of purpose to build success for our stakeholders and to always “do the right thing.” The spirit of our purpose statement, “Creating Quality for Life,” was evident in the passionate responses of our employees around the world as we helped those in need by carrying out our mission as an essential business, manufacturing critical assemblies such as those for our medical customers helping to fight the pandemic. Our strong sense of purpose is also apparent in both the high employee satisfaction scoring from our Guiding Principles survey and in our customer loyalty metrics. Sales from customers with whom we have been doing business for over 10 years increased to 81% of our total sales in fiscal year 2021. We received recognition awards from several customers as testimonials to our service excellence. Based upon an independent survey of our customers, we were honored to once again be recognized by Circuits Assembly magazine as being one of the best in our industry in customer satisfaction for calendar year 2020, another indication of our continued progress in service excellence.

During our seventh year as a stand-alone public company, we continued to make investments that will increase customer engagement and drive future growth in sales and profits. We deployed capital to support our new business awards and growth in our existing business. We added capacity in our existing facilities and launched our Board-approved facility expansions in Thailand and Mexico. We continue to expand our global footprint in alignment with our customers’ preferences and to support their future growth plans.

We published our second Environmental, Social, and Governance (ESG) report in December 2020 which highlighted our company’s efforts in “Creating Quality for Life.” Our employees around the world are doing their part to protect the environment and to give back in meaningful ways to the communities where we live and work. Our Board remains active in the review and commitment to good corporate governance. We hope that this and future ESG reports provide you with insightful information and give you a greater appreciation for the goodness of our company.

OUR RESULTS
Consolidated net sales for fiscal year 2021 were $1,291,807,000, an 8% increase when compared to net sales for fiscal year 2020. Sales in our automotive end market vertical were up 21% in fiscal year 2021, mainly due to the ramp up of new business wins and a strong recovery after COVID-19 related plant shutdowns in the fourth quarter of our fiscal year 2020. Our medical end market vertical sales were down 3% in fiscal year 2021 when compared to fiscal year 2020. A boost from COVID-19 related increases in respiratory care and patient monitoring products was offset by a decrease in products used in non-COVID-19 related patient care such as elective procedures.

Helped by our Global Equipment Services (GES) acquisition in calendar year 2018, sales in our industrial end market vertical were up a solid 8% in fiscal year 2021 when compared to fiscal year 2020. Sales in our public safety end market vertical were down 14% in fiscal year 2021 when compared to fiscal year 2020 due to certain legacy programs reaching end-of-life phasing.

Our adjusted operating income increased from 3.4% in fiscal year 2020 to 5.2% in fiscal year 2021, which was well above our goal of 4.5%. We were very pleased to finish the year above our goal, as our efforts to minimize the financial impact of the pandemic and global parts shortage, combined with our overall operational improvements, allowed us to set a new record high in fiscal year 2021 for adjusted operating income margin. Consolidated adjusted net income increased from $28.0 million, or $1.10 per diluted share, in fiscal year 2020 to $56.4 million, or $2.23 per diluted share, in fiscal year 2021. Return on invested capital was 13.1% in fiscal year 2021, up from 7.1% in fiscal year 2020, which was above our long-term goal of 12.5%. Margin improvement and capital efficiency will continue to be priorities of focus for us in fiscal year 2022. We anticipate another strong year of growth in fiscal 2022, with revenue in the range of $1.4 – $1.5 billion and operating income margin of 4.5% – 5.0%.

We invested $39.4 million in capital expenditures in fiscal year 2021. Excluding acquisitions, we expect to invest another $60–$70 million in fiscal year 2022 to support our aggressive growth plans. We have a rock solid balance sheet, and we ended fiscal year 2021 with $207 million in available liquidity.

MANAGING THROUGH THE PANDEMIC AND THE GLOBAL PARTS SHORTAGE WHILE STAYING FOCUSED ON EXECUTING OUR STRATEGY
We are well positioned to carry the momentum from 2021 into fiscal year 2022. As a result of the ongoing semiconductor shortage, a portion of our shippable backlog continues to shift out ahead of us, which will likely result in two very different halves for us in the fiscal year. Our full year guidance considers this as we expect material supply to steadily catch up with customer demand throughout the first half of fiscal year 2022, thus enabling us to ship the majority of the surplus backlog in the second half of fiscal year 2022. We expect that catching up on the backlog, combined with strong organic growth from new and existing programs, will provide significant yearover- year growth for us in fiscal year 2022.

We are uniquely positioned and qualified to take full advantage of the growth opportunities that will emerge once the COVID-19 pandemic subsides. We are proven experts and leaders when it comes to the design, manufacturing, and testing of electronic assemblies that require the highest level of quality and reliability. Our global footprint and capabilities are precisely aligned with the preferences and requirements of our customers. We are positioned to support their growth initiatives, when they need us and where they need us. Within our growing diversified contract manufacturing services capabilities, we are establishing strategic inroads by developing innovative plastic injection molding solutions for our medical customers. Utilizing our GES capabilities, we are making investments in automation, test, and measurement that are increasing customer engagement and adding capabilities for us to continue our expansion into a multifaceted manufacturing solutions company.

We remained very active in the implementation of our people strategy as we consistently and intentionally develop our people within our talent management framework. These practices and conversations continue to further develop the talent we have while ensuring that we have the vitality in our talent pipeline to successfully execute our strategic plans. We believe by connecting our people to our purpose, and by building human-centered talent systems, we will continue to create a work environment where our people can be the best version of themselves, resulting in the creation of impactful careers and the successful execution of our business strategies.

When we hire someone, we invite them to help us become an even better company. Each teammate directly influences how we embrace and execute our company’s strategies. I continue to be proud of the global team of Kimball Electronics employees for remaining true to our time-proven Guiding Principles, purpose, and core values that ensure our future success.

We invite you to stay informed by visiting our website at www.kimballelectronics.com as we continue to build lasting relationships for global success.

For more detailed insights into the past year, we encourage you to read the following Form 10-K.

Donald D. Charron
Chairman and Chief Executive Officer