ASML Holding (ASML) 20-F2021 FY Annual report (foreign)

In addition to historical information, this Annual Report contains statements relating to our expected business, results projections, business trends and other matters that are "forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify these statements by the use of words like "may", "will", "could", "should", "project", "believe", "anticipate", "expect", "plan", "estimate", "forecast", "potential", "intend", "continue" and variations of these words or comparable words. They appear in a number of places throughout this Annual Report and include statements with respect to our expected trends and outlook, strategies, corporate priorities, expected semiconductor industry trends, R&D and capital expenditures and 2030 market opportunities and roadmap and revenue potential and other statements under the section titled “Semiconductor industry trends and opportunities”, expected trends in markets served by our customers, expected market growth and drivers of such trends and growth, expected financial results, including expected sales, service revenue, expected trends in working capital, gross margin, expected capital expenditures, R&D and SG&A expenses, cash conversion cycle, target and expected effective annualized tax rate, sales targets and outlook for 2022 and other statements under "-Trend Information", annual revenue opportunity and potential and growth outlook for 2025, expected growth in 2022, outlook for 2025 and 2030 and other statements under the section titled “Long-term growth opportunities”, expected continued growth in free cash flow generation, investments in the future and cash returned to shareholders, our Strengths, Weaknesses, Opportunities and Threats (SWOT), expected demand for upgrades, semiconductor industry dynamics and industry opportunities, expected trends in customer demand and demand for particular systems and upgrades and expected trends in end markets, including Memory, Logic and Foundry, including the continuation of investment by Logic customers in ramping new nodes and stronger lithography demand from memory customers, expected benefits of High-NA and planned target to start shipment of High-NA systems and high-volume production of systems using High-NA by 2025-2026, market opportunities for semiconductor industry end markets, expected innovation drivers, expected drivers of long-term stakeholder value, expected trends in DUV systems revenue, expected DUV sales and the expectation that DUV will continue to drive value for our customers and be used in production in most layers of their chips, expected benefits of Holistic Lithography and expected installed based management revenues, our supply chain strategies and goals, customer, partner and industry roadmaps, ASML’s applications business, expected development of High-NA and its benefits, including the expected timing for development of future generation EUV systems, expected growth in EUV sales compared to sales of DUV, expected benefits of the indirect interest in Carl Zeiss SMT GmbH and the acquisition of Berliner Glas, expected EUV adoption, expected EUV margins and margin improvement in our systems and service via cost reduction and value delivery, expected productivity and benefits of our tools, systems, and projects, EUV productivity targets and goals, potential future innovations and system performance, expected shipments of our tools and systems, including demand for and timing of shipments, statements with respect to DUV and EUV competitiveness, the development of EUV technology and EUV industrialization, expected productivity upgrade releases, enabling high-volume production of next generation chips and expected designs of such chips and their benefits, and revenue recognition, predicted growth in wafer production, sustainability targets, goals and strategies, shrink being a key driver supporting innovation and providing long-term industry growth, lithography enabling affordable shrink and delivering value to customers, environmental, diversity and sustainability strategy, ambitions, goals and targets, including circular procurement goals, targeted greenhouse gas emission and waste reduction, recycling and refurbishment initiatives, investments and goals and energy-saving strategies and targets, including statements on targeting zero carbon emissions and indirect emissions from energy use across operations and reducing intensity of all other emissions in the value chain from the making and use of ASML’s products by 2025, charity goals, the impact of the fire at our facility in Berlin on our production, repair center expansion and targets, our expectation of the continuation of Moore’s Law and that EUV will continue to enable Moore’s Law and drive long-term value for ASML well beyond the current decade, tax strategy, capital allocation policy, dividend policy, our expectation to continue to return cash to our shareholders through share buybacks and dividends including our proposed dividend for 2021 and statements relating to our share buyback program for 2021-2023, and statements with respect to the expected impact of accounting standards.

These forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the business and our future financial results and readers should not place undue reliance on them. Forward-looking statements do not guarantee future performance, and actual results may differ materially from projected results as a result of certain risks, and uncertainties. These risks and uncertainties include, without limitation, those described under How we manage risk - Risk factors. These forward-looking statements are made only as of the date of this Annual Report. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

Dear Stakeholder,

None of this would be possible without the people at ASML and our partners. First of all our people – with their creativity, perseverance, resilience and ingenuity in difficult times, they are crucial to the success of our business. In addition, we rely on partnerships with our customers as well as partnerships with our dedicated suppliers, despite the setbacks they faced during the COVID-19 crisis. We rely on national and local governments to facilitate a social and economic infrastructure that allows us to be successful. We value our partnerships with research institutions who, like us, understand the importance of innovation and education. And not to forget our shareholders, who provide us with the backing to keep executing our technology innovation roadmap, and finally, our partnerships with the communities around us, without whom we would not thrive.

There are several megatrends in the electronics industry that are shaping our digital, connected world and are expected to continue to fuel growth across the semiconductor market, such as artificial intelligence, 5G, virtual reality, gaming, simulation and visualization applications, and the intelligent cloud and edge. With a growing number of mobile and sensor-enabled applications and services, our society will rely more and more heavily on distributed computing and storage solutions. The electronics industry is booming – there are around 40 billion connected devices in use today, and that number is expected to grow to 350 billion in the next ten years based on external source data.

The most important end markets driving ASML’s growth are the smartphone market and the data center, server and storage market, but at the same time we are also seeing a huge increase in microchip demand in the automotive and industrial electronics markets.

Another aspect of the growth we’re seeing today is that it’s not only in the most advanced nodes – a lot of the distributed computing and storage solutions I mentioned above require mature lithography technology to manufacture. We expect that by 2025, about two-thirds of our total system sales will be EUV and the rest will be DUV and metrology and inspection. This expected EUV percentage is lower than what we predicted in 2018, but that doesn't mean that the EUV market has shrunk – as a matter of fact, it is expected to grow. But the DUV and metrology and inspection markets are expected to grow even faster.

The global pandemic has alerted governments around the world that global supply chains can create significant geographical dependencies on services, raw materials and end products. Governments increasingly realize that this now also turns out to be true

for semiconductors. Since semiconductors play an increasingly important role in the growth and continuity of large industrial complexes and the importance of the semiconductor industry is likely only going to increase, governments have turned their attention to securing sufficient semiconductor supply to support their local industries, creating higher levels of technological sovereignty and planning significant investments in the semiconductor industry. The US, China and the EU, as well as Japan and South Korea, are expected to nearly double the industry’s (2021) annual capital expenditures (CAPEX) of $150 billion based on external source data.

We are aware that this has created concerns about potential oversupply. However, we believe that the significant growth prospects of the semiconductor industry do require substantially more capacity and that given the high levels of capital expenditure to support all this, industry partners will apply sufficient effort to sustain an accessible and efficient innovation ecosystem.

We believe that the advantages of scaling as expressed by Moore’s Law will continue throughout this decade and beyond. We will therefore relentlessly invest in innovation. In addition, we strive to ensure that ASML and its supply chain will be able to fulfill the increasing demand for more wafers to support advanced and mature technology. We will do this by increasing the productivity of all our machine types and by adding more manufacturing capacity.

To increase our own production capacity, we will focus on building more machines by driving down cycle time for both EUV and DUV, on adding more people and tooling, and on increasing our production space. Together with our supply chain partners, we are actively adding capacity to meet future customer demand.

Our product portfolio is very much aligned with our customers’ roadmaps. We will continue to deliver cost-effective solutions that provide value in EUV, in DUV, in applications, metrology and inspection, and in installed base management.

ASML operates in an industry that has considerable innovation power. Digital technology itself can help drive societal progress and has the potential to help cut global greenhouse gas emissions. ASML’s increasingly advanced lithography technology helps our customers to continue to produce microchips – with fewer materials and less energy consumption – that are three times more energy-efficient every two years.

Driven by our values and commitment to corporate responsibility, we want to have a positive role in society – for our employees, the communities around us, and everyone involved in our innovation ecosystem and supply chain. We are expanding on our community engagement, and with our new diversity and inclusion strategy, we want to improve our performance in this regard.

Building on our achievements so far, we have increased our environmental ambitions. Our climate goal is to strive toward zero waste disposal by 2030 and net zero value chain emissions by 2040, focusing on our manufacturing and buildings, business travel and commuting, and on our supply chain and product use.

Again, we won’t be able to achieve this alone, but will rely on strong and successful ongoing collaboration with our partners, suppliers and customers.

The last couple of years have posed new challenges to all of us that have required agility, patience and perseverance to overcome. As a global society we are faced with unparalleled challenges, but with its great workforce, partnerships and innovative power, ASML is looking toward the future with confidence, preparing for even more sustainable growth. We can only do that by continuing to be a trusted partner for all our stakeholders – we would like to thank them for their commitment and support. As I have said many times before, we are looking at a bright future, but we cannot do this alone.

For all the ways we have moved forward as a society, the world still faces crucial challenges for the future. We must change how we think and act on themes that impact everyone, such as energy use, climate change, mobility and access to healthcare and nutrition.

As the innovation leader that makes vital systems for chip manufacturing, we are proud to play our role as technology enabler in the innovation ecosystem of the semiconductor industry. We can only do this if we continue to challenge the status quo, tap into the collective knowledge of our global ecosystem and create an environment where people can contribute, learn and grow. At ASML, we believe our purpose is to unlock the potential of people and society by pushing technology to new limits.

The long-term growth of the semiconductor industry is based on the principle that the energy, cost and time required for electronic computations can be reduced by shrinking transistors on microchips. One of the main drivers of shrink is the resolution that lithography systems can achieve, which is mainly determined by the wavelength of the light used and the numerical aperture of the optics. A shorter wavelength – like a finer brush used for painting – can print smaller features. A larger numerical aperture can focus the light more tightly, which also leads to better resolution. To enable shrink, what we do – lithography – is key.

We are a focused supplier of holistic lithography solutions to all of the world’s major chipmakers. Our mission, together with our partners, is to provide leading patterning solutions that drive the advancement of microchips. Through our sustained investment in and dedication to research and development, we seek to innovate at least at the same pace as our customers. We put our innovations in the hands of chipmakers as quickly as possible by engineering in parallel, not sequentially, while ensuring their quality, reliability, manufacturability, and serviceability.

To help solve humanity’s toughest challenges while at the same time addressing our own, we must continue to amplify ASML's core values that created our success – challenge, collaborate and care.

We challenge boundaries, question the status quo and stand up for the ideas we believe in. We’re comfortable with discussion and debate, because it is often inherent to stress-testing and championing an idea. This is what enables us to push technology forward,

keep things simple and do things with care and attention. We continue to challenge ourselves to add value for our customers, ensuring that we continually improve across key aspects, such as safety, quality, efficiency and cost.

As a system architect and system integrator, we collaborate to tap into our collective potential. Together with our partners in our ecosystem, we expand our knowledge and skills, learn from each other, and share approaches to deliver the best results. What we do is unique, and we need each other to make it possible. As we continue to grow and our ecosystem of partners expands, this collaborative mindset becomes even more essential to success.

As we push technology further together, we have to do so with care. As an industry leader, we realize that our impact extends from people, to society, to the planet. We care not only for those we work with, but for our customers, suppliers, the world we live in, and the communities where we do business. We believe in integrity and respect for people and their human rights. We take personal responsibility to create a safe, inclusive and trusting environment where people from all backgrounds are encouraged and enabled to speak up, contribute, learn, make mistakes, and grow. We also seek to be clear in how we organize ourselves to achieve our goals, making sure we have a clear framework for what we do and how we do it.

We believe that these values will help our company and our employees to make smart decisions that will benefit all stakeholders. Our purpose and values, together with the great responsibility we have as an industry leader, make us optimistic for the future.

Our company was founded in 1984 in Eindhoven under the name of ASM Lithography, a joint venture between Philips and ASM International. As they moved into their new space near the Philips factories at Strijp-T in Eindhoven, our first employees could never have imagined that in just three decades, ASML would be a global innovation leader.

We’ve grown from our humble beginnings to a global force through relentless focus on innovation, sheer customer focus through tough times, and a willingness to rely on others to come to a better result.

Although we’re constantly looking to the future, where we have come from is just as important to us as we evolve. These pioneering behaviors have been key to our success over the past 37 years, and they’ve become even more important to us as we continue to define our purpose and articulate the values that underpin everything we do. Understanding what made us successful in the past will help us maintain our success in the future.

Innovation is rarely a straight line. We've always known that it takes laser focus, multidisciplinary teamwork and a keen eye for how we can best help our customers. And even then, we've had to show grit. It took a decade of tenacity to get our technology off the ground. We've all cared for this company unconditionally and are proudly committed to its success. We believed then as we do now that even the biggest challenge can be overcome through perseverance, if necessary with thousands of people over many years.

Lithography is a driving force in the creation of more powerful, faster and cheaper chips. Today’s most advanced processors, based on the Logic N5 node, contain billions of transistors. Shrinking transistors further is becoming increasingly difficult, but we aren’t as close to the fundamental limits of physics as some would think. Next-generation chip designs will include more advanced materials, new packaging technologies, and more complex 3D designs, which will create the electronics of the future.

The manufacturing of chips becomes increasingly complex as semiconductor feature sizes shrink, while the imperative to mass produce at the right cost remains. Our holistic lithography product portfolio helps to optimize production and enable affordable shrink by integrating lithography systems with computational modeling, as well as metrology and inspection solutions. Our computational models enable our customers to optimize their mask design and tape-out time (the time to send the final design to the manufacturer for production). This works through mask-correction software to prepare and modify the design for optimized exposures, while the metrology and inspection solutions help in analyzing and controlling the manufacturing process in real time.

A lithography system is essentially a projection system. Light is projected through a blueprint of the pattern that will be printed (known as a ‘mask’ or ‘reticle’). With the pattern encoded in the light, the system’s optics shrink and focus the pattern onto a photosensitive silicon wafer. After the pattern is printed, the system moves the wafer slightly and makes another copy on the wafer.

Moore’s Law, a prediction made over half a century ago, sets the pace for our industry. Gordon Moore predicted that computing would dramatically increase in power, and decrease in relative cost, at an exponential pace. In other words, the number of transistors (tiny electrical switches) on an integrated circuit will double every two to three years at the same cost. This opens up two options to make microchips faster and more powerful: by using the same number of transistors on a chip at half the cost, or by doubling the number of transistors at the same cost. Even today, the power of this prediction is the fundamental principle of the semiconductor industry and the driving force for innovations that benefit our daily lives.

At ASML, our job is to help the industry continue Moore’s Law. Our goal has always been to reduce the critical dimension (CD) – the smallest structure that a lithography system can print. This is defined by the Rayleigh criterion, the equation on which all our innovations are based:

ASML's goal has always been to reduce the critical dimension. By reducing the wavelength and increasing the numerical aperture, our systems can print IC structures in increasingly smaller feature sizes. If our customers can print smaller structures, the chips can be smaller and the costs per transistor become cheaper, which in turn makes it more profitable for our customers.

Extending Moore’s Law is becoming increasingly complex and costly. What will always be needed is a way to mass produce IC designs at the right cost. That’s where the full scope of ASML’s product portfolio will continue to play a big role to ensure affordable transistor shrink. We continue to push our entire system portfolio to new productivity levels and imaging performance. We believe that our EUV 0.33 and 0.55 NA lithography will help enable tomorrow’s most advanced chips. In our computational lithography solutions, we’re bringing machine learning and big data to the forefront in predicting both lithography and metrology processes, striving for 100% accuracy. We have developed an entirely new class of e-beam inspection systems to help our customers control defectivity in manufacturing in next-generation chip nodes, as those smaller structures can hardly be detected with optical inspection.

Dear Stakeholder,

I’ve been asked the question many times, but let me assure you: Moore’s Law is still alive and well. And we believe it will stay with us for quite some time.

Over the past 40 years, we have gradually evolved from the era of PCs and mobile devices into the cloud era, where almost every aspect of our lives is now stored and managed online. The next step of our digital future will be about distributed intelligence, driven by the seamless integration of communication, computation and artificial intelligence (AI). All these trends require more computing power, which in turn is accelerating the demand for more powerful and energy-efficient microchips.

With our customers, we share a commitment to increase the energy efficiency performance of microchips. Together, we have a vision of the next 20 years to improve energy efficiency three-fold every two years, through system scaling including ongoing improvements in the resolution of our lithography systems, and through microchip device, material and transistor innovations. Moore’s Law has evolved and it is not only about printing the smallest lines.

Over the last 15 years, the main driver of innovation in the semiconductor industry has expanded from pure lithography-enabled shrink (dimensional scaling) to microchip system scaling. This is achieved through new transistor structures and associated materials (device-level scaling), optimized circuit designs (circuit scaling) and innovative microchip architectures – such as 3D structures (architectural scaling) – as well as shrinking the microchip device footprint.

ASML remains focused on enabling system scaling through shrink. We are integrating our complete product portfolio into a holistic lithography solution to optimize and control the lithography process. We do this through optimizing litho parameters, overlay, critical dimension (CD) and optical proximity correction (OPC), and by reducing the edge placement error (EPE) as well as improving our defect inspection capabilities.

We are uniquely able to help our customers find, measure, and correct for patterning variations. Our main focus is on improving EPE (the difference between the intended and the printed feature edge of a microchip layout), which is one of the keys to improving yield. This is because the lithography systems at our customers not only measure every single wafer that goes through the fab, but they also expose every single field on every single wafer and die individually. This allows our customers to set the actuation values of all of the control knobs that they have on our lithography systems in an optimal way.

How do we achieve that? We use scanner metrology, optical metrology, e-beam metrology and inspection to bring data from every relevant step in the process flow together. By analyzing all data in a single framework, our applications can then provide a feedback loop to the lithography system to make the required corrections, thereby delivering real value for our customers.

Our deep ultraviolet (DUV) products are the industry backbone, supporting all semiconductor market segments. We keep innovating on all wavelengths. Our immersion and dry systems lead the industry in productivity, imaging and overlay performance for the high-volume manufacturing of the most advanced Logic and Memory chips.

We continue to systematically develop our product portfolio to optimize the installed base for our customers, while increasing our focus on productivity and performance upgrades and additional services to support our customers’ wafer demand.

Our extreme ultraviolet (EUV) product roadmap will help us drive affordable scaling well into the next decade. Our EUV 0.33 NA platform extends our customers’ Logic and DRAM roadmaps.

Chip manufacturing with EUV helps reduce the amount of critical lithography masks (-40%) and process steps (-30%) when compared to non-EUV manufacturing. This results in significant defect, cost and cycle time reductions for our customers. We expect that adoption of EUV will continue to grow, with all advanced node chipmakers expected to use EUV in production by 2024.

With our next-generation EUV 0.55 NA platform, we will continue to enable cost-efficient scaling for future nodes. The novel optics design with a higher numerical aperture will enable 60% smaller features and increase microchip density by a factor of almost 3 times. Our first early-access system is expected to be available in 2023 and we expect our customers will start their R&D in the 2024-2025 timeframe. High-volume manufacturing is projected to start in 2025-2026.

In everything we do, a trusted relationship with our customers is key. Our comprehensive product portfolio is therefore aligned with our customers' roadmaps to deliver cost-effective solutions in support of all their applications, from advanced to mature nodes. We are aware that commonality across our DUV and EUV platforms allows faster and more cost-effective innovation, production and maintenance. That is why we increasingly focus on using common technology across our portfolio.

We are investing in the energy efficiency of our products to help reduce the energy needed to produce a wafer. In addition, we have a strong roadmap to reduce waste. We are committed to re-using parts, tools and packaging whenever possible in our value chain. We are working together with our customers and suppliers to remanufacture used system parts, re-using them as new parts to prevent unnecessary waste.

I strongly believe that we have a solid roadmap for the coming 10 years that will drive the continuation of Moore’s Law. Enabled by shrink, ongoing system scaling on all levels – on device, circuit, dimensional and architectural level – will require substantial innovation across our whole portfolio. This will be key to increasing the circuit density and energy efficiency of microchips while lowering their cost for many years to come.

Chief Technology Officer

At almost every moment of every day, all of us make use of technology that contains microchips: small but mighty devices. A microchip is a unique product – fabricating the layers on even the simplest chip requires an elaborate process that few companies in the world have mastered.

During this process, which can take months from start to finished product, the silicon wafer travels through dozens of different machines in a chipmaker’s fab (semiconductor fabrication plant), before it finds its way into electronic products.

This multifaceted production process has led, over decades, to the semiconductor industry becoming a global ecosystem. This ecosystem includes companies specialized in chip design, equipment and infrastructure suppliers, and chipmakers themselves.

As a crucial manufacturer of lithography equipment, ASML is a vital part of this ecosystem chain. A critical step in the chip manufacturing process is the fabrication of the circuitry patterns on silicon wafers, made possible by our lithography systems which can be found in the factories of every major chipmaker in the world.

But our systems are just one part of the process involving numerous suppliers and chip-making equipment. Every step and every machine in the process is important. That’s why collaboration and innovation are key. From academics who help us understand and bend the laws of physics, to customers who identify new possibilities and suppliers that translate our ideas into products and technology – we collaborate to succeed. This huge collaborative network that we call the semiconductor industry is at the cutting edge of our digital future.

Product development in the semiconductor industry is managed through so-called ‘roadmaps’, which is essentially planning product development. When an idea has become a more specific definition, this transforms into a roadmap giving guidelines on how the product development should proceed during the next couple of years. By combining the roadmap of our customers and the technological feasibility, we design a product roadmap that outlines the specifications and functionalities of new types of machines that are feasible for us to produce and that meet our customers’ demands.

ASML's success depends on the timely delivery of innovative and complex products. This brings uncertainty and risk, and the positive and negative impact of decisions made throughout product development can be huge. Compare it to a sailing race: The goal is clear, but the route is not. There are numerous variables to be managed, at high speed. Every piece of information is crucial to plan and reach the goal.

For more than a decade, we have applied our tailor-made modular innovation and product development process, which we call the Product Generation Process (PGP). PGP describes the way we develop products at ASML, how we introduce these products to the market, and eventually how we phase them out. PGP is a decision-based process. There are 15 sequenced Key Decisions that

determine the main stream of the product development. This means that PGP enables decisions to be made as to whether or not the development of a product should continue.

The modular design of our products allows us to work out solutions to technological challenges independently of projects. This independent work enables us to consistently improve our solutions and it leads to an efficiency in development through reuse of system design and architecture.

Every day at ASML, more than 11,000 of the brightest minds in R&D take on the exciting challenge to innovate the most advanced lithography systems in the world. We manage this process by balancing our customers’ needs, product capabilities and technology solutions. To stay ahead, we invest heavily in R&D. In 2021, we spent €2.5 billion on R&D, compared to €2.2 billion in 2020.

The constant stream of new ideas is crucial to fill our technology pipeline that flows through the so-called ‘innovation funnel’. Here we select new ideas that have the potential to advance our products and customer application. Ideas that successfully pass the ‘proof of concept’ stage in our Research department are transferred to the Development & Engineering (D&E) department. D&E takes them on into our Product Generation Process (PGP) for product development. We then build and test system prototypes in the necessary environments. Prototypes that pass these tests may eventually lead to new product releases.

Our D&E engineers drive our machines forward by creating new components or subsystems, integrating them into the functional system, or developing new applications to help move the industry forward.

Every day, our teams take on the exciting challenge of building and driving innovation forward to maintaining the most advanced lithography systems in the world. To do this, we apply concurrent engineering, often starting new system development before the previous generation has even reached the customer. At the same time we continuously seek to improve our products capabilities, while guarding our products’ reliability, manufacturability and serviceability.

In 2021, our research and D&E teams showed great achievements. A few examples are provided below.

We don’t say 'no' to a challenge. Our global research and D&E teams were challenged to create a new wafer clamp design that could be manufactured faster while meeting tighter specifications. After two years of research, design and engineering, our team launched the first full-scale prototype of the modular wafer clamp, ready for qualification in an EUV scanner. This achievement is a true testimony of cross-continental challenge and collaboration.

Unlike any other module in the scanner, the wafer table is the only scanner part in direct contact with the wafer during exposure. The requirements for flatness and surface stability are therefore rigorous. Thousands of wafers with different shapes and process

characteristics are clamped to it on a daily basis as it moves under high acceleration forces, leading to unwanted drift and leaving behind a clamping fingerprint which affects the overlay performance.

Our teams sought a solution to these fundamental issues affecting wafer table performance and found a more effective coating solution which ensures stability and also has substantial lifetime improvement benefits.

EUV systems use several mirrors instead of lenses to guide the EUV light to the wafer, shrinking the reticle pattern by a factor of four. When EUV light travels through the machine, part of it is absorbed into each reflecting mirror. This gives rise to so-called mirror heating, which influences imaging and overlay performance.

Our researchers and engineers investigated new ways of thermal conditioning for the mirrors. Simulation and modelling showed good results on water-cooled mirrors. Testing of bonded substrates with water channels is underway, with encouraging results.

As one of the world’s leading manufacturers of chip-making equipment, we enable our customers to create the patterns that define the electronic circuits on a chip. Our customers are the world’s leading microchip manufacturers, and our success is inextricably linked with theirs.

We collaborate with our customers to understand how our technology best fits their needs and challenges. For this reason, we engage with our customers at all levels: building partnerships, sharing knowledge and risks, and aligning our investments in innovation. We develop our solutions based on their input, engage in helping them achieve their technology and cost roadmaps, and work together, often literally in the same team, to make sure our solutions match.

Despite continued travel restrictions and mandatory quarantine and workforce constraints, thanks to our collaborative efforts across the company and our business partners, we were able to maintain a high level of engagement with our customers and prevent any major impact on their business requirements. Customers around the world have recognized our additional support efforts and interventions during the pandemic. We were presented with several ‘customer awards’ in recognition of our rapid response to their needs and good overall customer service.

In 2021, the demand for chips substantially increased driven by market fundamentals such as distributed computing, sensor technology, 5G, AI and digitalization accelerated by the pandemic. This also meant that the need for our customers to increase their capacity was at a record high. Rapidly increasing the number of systems shipped is challenging in our business, requiring seamless coordination with our suppliers who are also experiencing their own supply constraints. While we still managed to produce significantly more systems in 2021, we continued to work in close collaboration with our customers to weather the supply and delivery challenges by optimizing the installed base productivity.

To us, customer intimacy is about the entire customer relationship across all channels, from the early stages of innovation onwards. We aim to foster loyalty, advocacy and continuous engagement with the goal of achieving complete customer satisfaction.

We aim to leverage our innovation leading to more sophisticated solutions and interactions with our customers. As customer requirements become more complex, it takes longer to align, so we need to start earlier. Transparency is key in this process, and our customer intimacy strategy supports this.

It’s crucial to be in a true partnership with our customers, to share in the risks and rewards of what we do. Trust and a shared vision are at the heart of this.

To support and sustain our partnerships with customers, we have a structure of customer interactions across various channels in the organization, including, for example, customer alignment meetings. Here, members of our Board of Management, senior managers and customer representatives come together to make sure our product development plans are in line with our customers' business goals and needs.

We run regular customer alignment meetings with our key customers. These meetings include our Executive Review Meetings, at which members of our senior management team and Board of Management discuss business and strategies with customers; Technology Review Meetings, at which our senior technology experts and our Chief Technology Officer discuss technology roadmaps and requirements with customers; and Operational Review Meetings, where we review topics related to our customers’ operational activities.

We have a dedicated Sales and Customer Management department, which is responsible for building and maintaining our customer relationships and ensuring all relevant ASML departments contribute to meeting their needs. We market and sell our products directly to our customers, without agencies or other intermediaries. Our account managers, field and application engineers, and service and technical support specialists are located close to our customer locations throughout Asia, the US and Europe.

Another focus area is training – boosting the capabilities of the local customer service teams as well as enhancing local technical expertise. The travel restrictions, among others, highlighted just how essential the need is for well-trained engineers in the regions where we operate. With the help of remote control capabilities, we were able to increase the self-sufficiency of the local field engineers.

Our Voice of the Customer program helps ensure our employees hear firsthand about our customers’ needs and challenges. This is especially important for employees without direct access to customers. To reach as many of our people as possible, the program makes use of different channels of communication: live presentations and Q&As with senior customer representatives, recorded customer interviews, online articles, and personal engagement with customer representatives.

In 2021, travel restrictions and other mitigation measures related to COVID-19 continued to limit our in-person interactions to a large extent. Our account teams adapted quickly, introducing alternative solutions such as more local Voice of the Customer initiatives and remote customer interviews. Local account and support teams visited our customers at their locations, interviewed them on video, and then shared feedback with teams at ASML. Except for live presentations with large audiences, we were able to adhere to our regular schedule of interactions throughout the year.

Another valuable customer feedback tool is our biennial Customer Feedback Survey, which asks our customers to rate our performance. We also use this opportunity to collect open feedback. The direct ratings and frank comments provide valuable insight into customers’ successes and challenges. We carefully analyze the results per customer, check our gained insights with the customer, and then define targeted, continuous improvement plans together with them, taking their priorities into account. Key elements in this process are: truly understanding what customers need from us, validating that we are on the right track with the right improvements, and updating our customers regularly on progress being made. In 2021, we continued deploying the improvement actions identified from the survey results of 2020. The next survey will be sent out in September 2022.

We also set ourselves a target of achieving a VLSI top-three ranking among large suppliers of semiconductor equipment. The VLSI research annual Customer Satisfaction Survey benchmarks the performance of suppliers across the semiconductor industry based on three key factors: supplier performance, customer service and product performance. We moved up to second place in the 2021 VLSI research Customer Satisfaction ranking of the ’10 Best Large Suppliers of Chip Making Equipment’. We've maintained our position in the top three overall ‘Large Suppliers of Chipmaking Equipment’ and also in the top three individual categories: number one in ‘Best Suppliers of Fab Equipment’, ‘Wafer to Foundation Chipmakers’, and ‘Wafer Fabrication Equipment to Specialty Chipmakers’.

Our product portfolio is aligned with industry trends and our customers’ detailed product roadmaps, which require lithography-enabled solutions. Our customers are showing their trust in us by investing in our newest technology, supporting the industry driver of shrink beyond the current decade.

Our product offerings in our holistic product portfolio provide patterning solutions for every possible wavelength – from the most advanced 13.5 nm EUV wavelength to the industry’s workhorse DUV wavelengths of 193 nm, 248 nm and 365 nm. This comprehensive portfolio supports customers across the semiconductor industry from mass-producing advanced Logic and Memory chips to creating novel ‘More than Moore’ applications or cost-effective manufacturing of mature chip technologies.

To make sure that every individual pattern on an integrated circuit is connected flawlessly, we provide advanced process control solutions through our metrology and inspection systems and computational lithography solutions. In addition, we support our growing installed base with best-in-class customer support. Our highly differentiated solutions provide unique value drivers for our customers and ASML, working together to enable affordable shrink well into the next decade.

More than two decades ago, we started developing EUV technology. It was "no walk in the park" and, since the start, we have invested billions in R&D, acquired Cymer to accelerate EUV source technology, and helped solve several technical challenges to enable the EUV infrastructure that our customers need for high-volume manufacturing. We succeeded by innovating in close cooperation with our customers and suppliers. This partially explains why ASML is the world’s only manufacturer of EUV lithography systems. Since its introduction, our EUV installed based produced more than 59 million wafers by end of 2021, compared to 26 million wafers produced by end of 2020.

Our EUV platform extends our customers’ Logic and Memory roadmaps by delivering resolution improvements, state-of-the-art overlay performance and year-on-year cost reductions. EUV lithography uses light with a wavelength of just 13.5 nm and a numerical aperture of 0.33. This is a wavelength reduction of almost 15 times compared to the next most advanced lithography solution used in advanced chipmaking – deep ultraviolet (DUV) argon fluoride (ArF) lithography with its 193 nm light. This allows our customers to use EUV in a single exposure, rather than complex multiple patterning strategies with ArF immersion, and allows them to further shrink microchip structures. Our EUV product roadmap is intended to drive affordable scaling to 2030 and beyond.

The TWINSCAN NXE:3600D is our latest-generation EUV 0.33 NA lithography system. It combines the highest resolution with 15-20% increased productivity and around 30% better overlay compared to its predecessor the TWINSCAN NXE:3400C, while also improving system availability.

After five years of engineering, we have started to build the next generation of EUV lithography systems that further improves resolution with a higher numerical aperture (NA) of 0.55 compared to the 0.33 NA of our current EUV platform. To reduce technological introduction risk and R&D costs, the EUV 0.55 NA (High-NA) platform maximizes commonality with the EUV 0.33 NA platform.

The capabilities of our EUV 0.55 NA system, called EXE:5000, bring considerable benefits to our customers by enabling lithography simplification for future nodes, higher yield and decreased defect density for both Logic and DRAM. With its larger optics, it can print smaller features with higher density, reducing patterning costs for customers significantly. EUV 0.55 NA helps our customers to extend their shrink roadmap and minimize double or triple patterning compared to 0.33 NA, leading to reduced patterning complexity, lower risk of defects and a shorter cycle time.

We believe this technology will enable affordable geometric scaling well into the next decade as EUV 0.55 NA offers higher resolution that enables 1.7x smaller features and 2.9x increased density compared to EUV 0.33 NA. EUV 0.55 NA is expected to enter high-volume manufacturing at our customers in 2025–2026.

DUV lithography systems are the workhorses of the industry. Supporting numerous market segments, DUV systems produce the majority of layers in a customer device today and will remain important for future devices. We offer immersion as well as dry lithography solutions for all DUV wavelengths currently used in the semiconductor industry – i-line using 365 nm wavelength, KrF using 248 nm and ArF using 193 nm. These systems help manufacture a broad range of semiconductor nodes and technologies, and support the industry’s cost- and energy-efficient scaling.

Our DUV immersion and dry systems lead the industry in productivity, imaging and overlay performance for high-volume manufacturing of the most advanced Logic and Memory chips in combination with EUV, while continuing to deliver value for mature nodes and lower-volume applications.

ArF immersion lithography maintains a thin film of water between the lens and the wafer, increasing NA and improving resolution to support further shrink. Our immersion systems are suitable for both single-exposure and multiple-patterning lithography, and can be used in seamless combination with EUV systems to print different layers of the same chip.

The TWINSCAN NXT:2050i is our current state-of-the-art immersion system and is being used in high-volume manufacturing of the 5 nm Logic and fourth generation of 10 nm DRAM nodes. The NXT:2050i is based on a new version of the NXT platform, which includes new developments in the reticle stage, wafer stage, projection lens, and exposure laser. Thanks to these innovations, the system delivers better overlay control at higher productivity than its predecessor.

Not every layer on a chip necessarily needs the latest and greatest immersion lithography systems to produce them. There may be more complicated layers that are made using more advanced lithography systems, but the rest can often be printed using ‘older’ technology such as dry lithography systems. Our dry systems product portfolio offers more cost-effective solutions for all types of wavelengths for our customers.

The TWINSCAN NXT:1470 is our latest dry ArF lithography system, offering a record productivity of 300 wafers per hour with a 4 nm overlay capability. It is also the first dry NXT system, building on our successful immersion platform, and delivers improvements in matched machine overlay, productivity and its fab space.

With an 0.80 NA, the TWINSCAN XT:860N is our new-generation KrF system, supporting high-volume 200 mm and 300 mm wafer production at and below 110 nm resolution. The XT:860N features the new Large Range Level Sensor that allows customers to measure high topology 3D NAND wafers at increased productivity of 260 wafers per hour – up from the 240 wafers per hour capability of the XT:860M. For more critical KrF layers, the 0.93 NA TWINSCAN XT:1060K is our most advanced KrF lithography system, and offers best-in-class resolution at and below 80 nm and overlay.

The TWINSCAN XT:400L is our latest i-line lithography system, which can print features down to a resolution of 220 nm for 200 mm and 300 mm wafer production.

Before EUV, before immersion, and even before our TWINSCAN systems, there was the PAS. In 1991, seven years after the company was founded, we launched the PAS 5500, which turned out to be our breakthrough platform. This system was able to dramatically reduce manufacturing times for our customers, and its modular design enabled them to produce multiple generations of advanced chips using the same system.

Our refurbished products business, known as Mature Products and Services (MPS), refurbishes and upgrades our older lithography systems to extend their lives and offer associated services. MPS’s customer base is wide and active in a variety of markets, especially in the 'More than Moore' space.

ASML systems have a very long operational lifetime that often exceeds their role at the initial customer. As a result, many customers are able to generate value by selling off systems that are no longer required. To support this sustainable product use and ensure used systems deliver the quality that ASML stands for, ASML is actively involved in the used system market through our refurbishment and associated services. Over 90% of the PAS systems ASML has ever sold are still in use.

Our metrology and inspection systems allow chipmakers to measure the patterns that they actually print on the wafer to see how well they match the pattern intended. Our portfolio covers every phase of bringing a chip to market, from R&D to mass production, and each step of the manufacturing process – allowing them to assess the performance of the entire process. The systems offer the speed and accuracy to create automated control loops via our process control solutions, optimizing the lithography system settings for each exposure to reduce edge placement error (EPE), enlarge the process window and achieve the highest yield and best performance in mass production.

Our YieldStar optical metrology solutions allow chipmakers to assess the quality of patterns on the wafer in volume production, through fast and accurate overlay measurements. Overlay, or how well one layer of a chip is aligned with the previous one, is an important measure of lithography performance and a key contribution to EPE. As structures on microchips get smaller and smaller, overlay and EPE become more and more important.

The YieldStar 385H offers the latest in-resist post-lithography (pre-etch) overlay and focus metrology, with enhanced throughput and accuracy. Compared to previous systems, key enhancements include a faster stage and faster wavelength changing. This enables highly accurate overlay measurements and tool matching using multiple wavelengths without impacting throughput.

Our latest model, the YieldStar 1385H, provides the ability to measure after-etch device patterns enabling extended yield control capability for our customers. The YieldStar 1385H delivers improved accuracy and around 50% productivity improvement capability over the previous model YieldStar 1375F. The YieldStar 1385H is the optical tool on the market for fast, accurate in-device overlay and metrology and has the capability of measuring multiple layers at once which helps customers to improve yield through post-etch process control.

Our HMI e-beam solutions allow customers to locate and analyze individual chip defects amid billions of printed features, extending the possibilities for process control. Historically, e-beam solutions were too slow to monitor volume production processes. However, ASML has made progress in various methods for increasing the throughput of e-beam systems.

ASML continues to extend market leadership in voltage contrast inspection and physical defect inspection with the widely adopted single-beam platform. The eScan 430 is our latest single-beam inspection system, delivering more than 35% throughput improvement across various applications in logic, DRAM and 3D NAND.

Our high-resolution e-beam metrology system eP5 offers world-class 1 nm resolution with large field-of-view capabilities at more than 10 times the speed of existing technologies. It outputs critical dimension (CD) and edge placement error (EPE) data in high volume with a quality level that customers need for monitoring and control. EPE is becoming more critical for device patterning and yield with shrinking design rules and the adoption of EUV lithography. We also released an EPE metrology application software product on eP5. It is capable of local and global EPE measurements on device, both intralayer and interlayer.

Our innovation did not stop after we launched our breakthrough multibeam inspection tool HMI eScan 1000, with a 3x3 image, a year ago. We added the next generation HMI eScan 1100 to our product portfolio. With a 5x5 image, it demonstrates successful multibeam operation, simultaneously scanning with 25 beams. The 5x5 system has higher sensitivity for detecting voltage contrast defects and physical defects while substantially increasing inspection throughput. At this stage, our customers are evaluating our multibeam systems.

Our system and process control software products enable automated control loops to keep lithography processes operating optimally. Using powerful algorithms, they analyze metrology and inspection data and calculate necessary corrections for each individual exposure that can be fed back to the lithography system to minimize edge placement error in subsequent wafer lots. In this way they enable the creation of ever more advanced microchips with maximum yield and performance. Our system and process control roadmap aims to take increasing advantage of the huge flexibility of our lithography systems and apply more powerful algorithms with higher-order corrections to support our customers own roadmaps for increasing EPE performance.

Our computational lithography solutions are used in the development of new chips to optimize reticle patterns and the setup of the lithography system to ensure robust, manufacturable designs that deliver high yields. Insight from computational lithography solutions is also increasingly being used to guide metrology and inspection, increasing throughput and enabling more precise process monitoring and control in high-volume manufacturing.

These products are based on accurate computer simulations of the lithography system and process, representing a wide variety of physical and chemical effects. Machine learning techniques are also increasingly used to further speed development. We are continually developing our computational lithography offering to increase the range and accuracy of models and reduce the computational time and cost.

The installed base of ASML systems continues to grow, with many systems finding second or even third lives at new owners in new markets and applications. To provide all our customers with the best possible value proposition, we offer an extensive installed base management portfolio, including a wide range of service and upgrade options.

We develop and sell product options and enhancements designed to improve throughput, patterning performance and overlay. Through field-upgrade packages, it is possible to upgrade older systems to improved models in the field. This enables customers to optimize their cost of ownership over the system’s lifetime.

We support our customers with a broad range of applications, services, and technical support products to maintain and enhance our systems' performance. We have almost 7,000 customer support employees, who work to ensure the systems in our customers’ fabs run at the highest levels of predictability and availability. We offer 24/7 support, next-day parts delivery, an easy, centralized customer portal, and training for customer engineers. In 2021, our customer support organization has provided nearly 5,000,000 hours of customer support, up from 4,500,000 hours in 2020.

Our customers can be grouped into Memory and Logic chipmakers.

Memory chips can store a large amount of data in a very small area. They are used in an increasing variety of electronic products like servers, data centers, smartphones, high-performance computing, automotive or personal computers, and other communication devices. There are two main classes of Memory: NAND and DRAM.

With NAND chips, data can be stored even when a device is powered off. DRAM memory is used to efficiently provide data to the processor. These DRAM and NAND chips are typically made in dedicated Memory-chip factories.

Logic chips, which process information in electronic devices, are produced by two groups of manufacturers. The first group, known as integrated device manufacturers (IDMs), designs and manufactures Logic chips. The second group comprises contract manufacturers known as foundries. Foundry manufacturers produce chips for ‘fabless’ companies, which focus only on chip design and distribution, but do not manufacture microchips themselves.

Both Logic and Memory chips can vary greatly in complexity and capability. For example, the most advanced chips are powering leading-edge technology in artificial intelligence (AI), big data and automotive technology, while the simpler, low-cost chips are integrating sensing capabilities in everyday technology to create a vast IoT.

The chip market (worldwide semiconductor revenues) has grown by 5% per year in revenue on average over the past 20 years, and is projected to grow even stronger. The factors driving this growth have radically changed. In the 1990s, personal computers (PCs), both desktops and later laptops, drove chip demand. In the 2000s, the market driver evolved from PCs to smartphones. These in turn produced new market drivers, data centers and (edge) cloud solutions, where data from PCs and smartphones is routed, processed and stored with the extensive use of specialized Logic chips, in combination with DRAM, NAND and HDD storage.

The transition to ubiquitous computing is enabled by what has been termed the ‘artificial intelligence of things’ (AIoT). AIoT is a smart and connected network of devices that seamlessly communicate over powerful 5G networks, allowing us to unleash the power of data better and faster than ever. This combination of artificial intelligence (AI) technologies with the internet of things (IoT) infrastructure will achieve more efficient IoT operations, improve human-to-machine interactions, and enhance data management and analytics. The potential of AIoT will gradually open up as AI and IoT increasingly intertwine, facilitated by 5G. The vast amount of data that people can access, and the insights this provides, will fuel semiconductor business growth and digital transformation.

Moore's Law is the guiding principle for the semiconductor industry, the motor driving the industry to transit from mobile computing to ubiquitous computing. This transition continues to expand, facilitating three major trends in computing: applications, data and algorithms.

In 2020, more than 953 billion chips were manufactured around the world, feeding a $440 billion industry. In 2021 the semiconductor industry increased the output to over 1.1 trillion chips, turning to a $590 billion market. Growth is set to continue, with market analysts predicting the industry could reach a nearly $700 billion market by 2025.

Semiconductor technology plays a crucial part in shaping the interconnected and intelligent network future, and end markets continue to grow. The overview below shows an outlook on the current market size and market opportunity for the entire industry based on external research.

Several factors are shaping the semiconductor industry landscape. These are some of the major trends driving industry development, both today and tomorrow.

Highly skilled people with a technical background are scarce in the labor market and competition is growing. Top-tier talent select their employer of choice, not the other way around. The global race for talent is becoming more crucial as the industry competes for a small pool of scientists, engineers and software developers with the skill set to develop innovative solutions.

The current trade environment presents significant challenges for the global semiconductor industry, and trade tensions and increased protectionism are likely to continue. The global pandemic has alerted governments around the world that global supply chains can create significant geographical dependencies on services, raw materials and end products. Semiconductors play an increasingly important role in the growth and continuity of large industrial complexes and the importance of the semiconductor industry is likely only going to increase. Governments have turned their attention to securing sufficient semiconductor supply to support their local industries, creating higher levels of technological sovereignty and planning significant investments in the semiconductor industry.

In the rapidly evolving semiconductor industry, access to the latest technologies, chip designs and manufacturing processes is the basis for competition. R&D is an ever bigger priority and expense. Chipmakers are faced with supporting applications and end markets that are becoming increasingly complex. Traditional semiconductor companies are challenged to diversify their portfolio, due to the rise of tech platform companies moving toward in-house chip design.

To capitalize the convergence of megatrends such as AI, IoT, 5G and autonomous vehicles, the industry is investing significant amounts in assets that can unlock value across the portfolio.

Climate change is an urgent matter around the world. It is a global challenge that requires global responsibility to limit a temperature rise to well below 2°C. The industry has a role to play.

Acting on the global trends and developments in the semiconductor industry and in society is an important factor in the success of our business, as well as in creating value for our stakeholders. Using these external and internal factors, as well as current and future potential, we have evaluated our company's competitive position in the environment we operate in. The following table provides a brief overview of our strengths, weaknesses, opportunities and threats (SWOT). More information on how we manage the topic can be found in the reference sections.

For the next decade, we believe that Moore’s Law will continue to evolve from cost of power and time, through system scaling, to measuring energy and time efficiency combined. This means that the semiconductor roadmap will continue to drive scaling in four areas:

Scaling fuels the need for advanced semiconductor solutions, where dimensional scaling (shrink) is key to improving circuit density and cost. To drive affordable scaling into the next decade, chip manufacturers’ roadmaps require continued shrink. Lithography is the key enabler for shrink, since it is the process used to pattern the structures on a microchip.

We innovate across our entire product portfolio at the same pace as our customers through large and sustained investment in research and development. To accelerate our product development, we engineer in parallel, not sequentially, all the while guarding the product’s quality, reliability, manufacturability and serviceability. This enables us to get our innovations into the hands of chipmakers faster. We collaborate with chipmakers to understand how our technology best fits their needs, including their challenges and visions of the future. It is through this collaboration and trust that we can build for today and develop for tomorrow.

To realize our long-term strategic vision within the semiconductor industry, we continue to drive our core strategy, which we define around five major pillars: strengthen customer trust, holistic lithography and applications, DUV competitiveness, EUV 0.33 NA for manufacturing and EUV 0.55 NA insertion.

Through our sustainability strategy that comprises five strategic areas – Climate & energy, Circular economy, People, Innovation ecosystem and Responsible supply chain – we continue to advance our corporate responsibility to create long-term value for our stakeholders as well as contribute to the United Nations’ Sustainable Development Goals (SDGs).

For more than a decade, we have been committed to sustainability through multifaceted sustainability programs. We aim to address the issues that are most relevant to us and our stakeholders as part of our duty towards corporate responsibility.

Our current sustainability strategy was launched in 2018 for the time period 2019–2025, focusing on five strategic sustainability areas. Over the past years, we have shown continuous improvement and consistent performance while gradually expanding our scope. However, the evolution of our company and the increasing demand for transparent reporting on environmental, social and governance (ESG) aspects of sustainability have made us re-assess our sustainability strategy in 2021.

To this end, we have updated our materiality assessment for the remaining period of 2022–2025, based on major sustainability topics and their relative importance to our business operations. The outcome of this assessment served as the basis for ASML to reshape and reformulate our long-term sustainability ambition and targets for 2025 and beyond to strengthen the correlation between our stakeholder expectations and our sustainability strategies.

At ASML, we aim to make positive contributions to a digital and sustainable future with lithography products and services that enable further shrink. As a responsible organization, we want to do more to become a leader in sustainability, using our innovation strengths to get there.

Our products continue to support the continuation of Moore's Law, which makes computation, communication and countless aspects of our lives more energy efficient. Pursuing our vision, we develop lithography technology to continue to produce microchips that are three times more energy efficient every two years. In addition, we are helping our customers to minimize the use of materials and energy required to produce advanced microchips.

We have defined a roadmap to get us to net zero waste disposal to landfill by 2030 and net zero value chain emissions by 2040. We aim to achieve this with a diverse, engaged and talented workforce and a strong network of innovation partners, all with a keen eye for the needs of a more sustainable society. To be successful, we need to embed this ESG ambition into our corporate culture, mindset and everyday operations.

Building on our current sustainability strategy and the progress we have made, we have re-assessed and are currently enriching our roadmaps toward 2025. We look at our impact at various levels, from society at large to our own operations. As a result of this extensive re-assessment, we have consolidated the material issues and our impact areas to nine sustainability themes categorized by the environmental, social and governance (ESG) aspects of our company, business and operations.

We develop lithography technology to continue to produce microchips that are more energy efficient with each new generation, replacing many energy-inefficient technologies, products and services. Reducing our environmental footprint and managing our waste – both from our operations and the use of our products and services – is key to our circular economy approach and sustainability practices.

We maintain our ambition to achieve carbon neutrality with net zero emissions in our operations (scope 1 and 2) by 2025. At the same time, we raise our ambition on scope 3 emissions. Through close collaboration with our tier-1 suppliers we aim to achieve net zero emissions in our supply chain by 2030. In addition, through industry collaboration on a joint roadmap, we strive toward net zero emissions for our products’ use at our customers (scope 3) by 2040.

As a multinational technology company, we impact many people’s lives, both directly and indirectly. Driven by our values and commitment to corporate responsibility, we want to have a positive role in society – for our employees, the communities around us, and everyone involved in our innovation ecosystem and supply chain.

We aim to provide the best possible employee experience, wanting the talent we need to choose to work for us and want to stay with us for the long run. We foster a culture where different identities, backgrounds, talents and passions are valued and celebrated, and we enable our leadership to bring out the best in people – leading through trust, empowerment and accountability. We also play an active role in the communities around us. We aim to be a valued and trusted partner, improving the quality of life for all, with a special focus on people in underserved communities.

We strengthen innovation and nurture young entrepreneurship in our industry and innovation ecosystem. We collaborate closely with our customers and partners in our value chain to help them achieve their goals and realize new technology and applications. We strive to meet industry social, ethical and environmental standards, and we require our suppliers to meet them as well.

With the growth of the company, organizational structures have become more complex. We champion good integrated corporate governance, of which independence, accountability and transparency are the most significant elements. These are also the elements on which a relationship of trust, respect and mutual benefit between us and our stakeholders – shareholders, customers, suppliers, employees and society – can be built. Continuous stakeholder engagement, in which we embrace open dialogue and knowledge-sharing through various channels and at a variety of levels, is important in our innovation-driven industry and helps us to identify areas of improvement.

To achieve our ambitions within the timeframe set, we focus on strengthening our organization’s governance structure to ensure that each project on our ESG sustainability roadmap is embedded in operational business plans and is best-equipped to meet its targets.

The 2021 Annual Report outlines ASML’s strategy, programs and performance during the 2021 calendar year. In terms of sustainability performance, we refer to the five strategic areas of sustainability – Climate & energy, Circular economy, People, Innovation ecosystem and Responsible supply chain – consistent with our disclosure since 2019.

While we have launched our updated ESG focus areas on ASML’s Investor Day on September 29, 2021, the process of defining the metrics to measure our performance and success was underway and implementation will start in 2022. We will report on our updated ESG ambitions using this set of metrics per our 2022 Annual Report.

We are committed to creating long-term value for our stakeholders and generating broader impact towards the UN's Sustainable Development Goals (SDGs). We base our value creation model on the framework developed by the International Integrated Reporting Council (IIRC), in which we modeled the capital resources we use for our business activities in the executing of our strategy, to the financial, environmental, social and governance topics. Each capital resource is interrelated, and business activities often require a mix of capital. For each topic we developed performance indicators that measure progress on the outcomes against the capital resources used. We aim to use our capital resources in the most effective way by maximizing their potential value and minimizing their negative impact as part of our continuous drive to improve and to generate long-term value for all of our stakeholders.

Our purpose and strategy is aimed at creating both short- and long-term value through our financial, environmental, social and governance focus areas and topics. The short-term value – time horizon of one year – is expressed in the 2021 outcome performance indicators. More information on our progress can be found in subsequent sections of this annual report. The long-term value – time horizon of five to ten years – is described below, which is categorized in the value created per stakeholder. Lastly we have linked our long-term impact along the entire value chain to the SDGs set by the United Nations. We focus on five SDGs where we can make the greatest impact: SDG 4 Quality education, SDG 8 Decent work and economic growth, SDG 9 Innovation and infrastructure, SDG 12 Responsible production and consumption, and SDG 13 Climate action.

Our core values – challenge, collaborate and care – are a key contributor to our culture aimed at long-term value creation and as such an important enabler in the execution of our strategy. We define our long-term value for all our stakeholders as follows:

Our large and sustained investments in research and development to execute our business strategy enable us to maintain our position as a leader in holistic lithography. Our innovations contribute to the long-term growth of the semiconductor industry, which contributes to our solid financial performance and capital return policy.

As one of the world’s leading manufacturers of chip-making equipment, we invest in innovations that enable the continued shrink of microchips. With EUV 0.33 NA and the next-generation EUV 0.55 NA platform, we pursue the continuation of Moore’s Law. This allows our customers to develop ever-more powerful chips for new applications and devices. At the same time, we help our customers to reduce their costs and environmental footprint by embedding circularity principles in our products.

As we grow and our innovations enter ever-higher levels of complexity, we want our suppliers to grow with us. We innovate together with our supplier network, sharing knowledge and tapping into each other’s technology expertise. Long-term relations, close cooperation and transparency with our suppliers are key to our success.

Our workforce has grown steeply in recent years, almost doubling from around 16,500 FTE in 2016 to over 32,000 FTE in 2021. For example, with 16,727 employees at our headquarters in Veldhoven, the Netherlands, we are a major employer in the community. We are a proud employer of 122 nationalities, allowing for diverse points of view in our quest to develop the best ideas. Developing our people is crucial to the sustained success of our business, so we invest in their career development and well-being.

With our continuous innovations, we enable new technology that supports the growth and transformation of the semiconductor industry, using artificial intelligence to offer new applications and services to address society’s needs. Through our innovation ecosystem we nurture innovation by giving back to society, such as by sharing our expertise with universities and research institutes, supporting young tech companies, and promoting STEM education worldwide. We also develop groundbreaking technology to reinforce our innovation footprint and minimize our environmental footprint. We do this by seeking to minimize waste and maximize the value of material we use, and execute our carbon footprint strategy and product energy efficiency strategy.

We believe the chip industry is in a unique position to tackle socioeconomic and environmental challenges. We focus on the challenges and sustainability areas that are most relevant to our stakeholders and where we believe ASML can have the greatest

Dear Stakeholder,

This was another growth year for ASML, setting a record with €18.6 billion in net sales, an increase of €4.6 billion. The COVID-19 crisis has accelerated digitalization worldwide, which has led to a strong increase in demand from our customers across all market segments from both advanced and mature nodes.

Logic system sales grew by €2.2 billion, or 30%. This was due to customers continuing to see strong demand for both advanced and mature nodes in support of the ongoing digital transformation, which includes secular growth drivers, such as 5G, AI, virtual reality, gaming, simulation and visualization applications, and the intelligent cloud and edge that will be an integral part of the growing digital infrastructure. Memory system sales grew by €1.1 billion, or 39%, as a result of strong end-market demand for servers and smartphones.

In EUV we see an increased layer adoption by customers in Logic and DRAM. Adoption is expected to continue to grow to reduce patterning complexity and cost and support our customers' surging demand. This led to EUV system revenue of €6.3 billion in 2021, an increase of €1.8 billion compared to 2020. We successfully shipped and recognized 42 EUV systems in 2021, including our first NXE:3600D for use in high-volume manufacturing. In total we shipped 26 NXE:3600Ds in 2021. Compared to the NXE:3400C the NXE:3600D has around 30% better performance in product overlay and offers 15% to 20% increased throughput productivity.

Net service and field option sales grew by €1.3 billion, or 35%, driven by an increase in the sales of productivity, overlay and focus upgrade packages, in combination with a growing installed base. With the global chip shortage, our customers have pulled forward demand for our productivity enhancement packages, which provide the most effective and efficient way to increase wafer output as they can be installed quickly.

To meet the strong demand across our entire product portfolio, we have been driving down our manufacturing cycle times and we are working with our supply chain to increase our output capability for EUV as well as DUV. In the process of increasing capacity to meet the increased demand, the after-effects of the COVID-19 crisis were felt in the form of some materials shortages in our supply chain. We worked closely with our suppliers and customers to address the materials shortages to support the increased worldwide demand across all our business lines, but these shortages did result in the late start on the assembly of a number of systems. In addition, we experienced issues in the start-up of our new logistics center. As a consequence of these factors and the high-demand environment, our customers are more frequently requesting fast shipments, where we expedite the delivery of systems by shipping before completion of the normal Factory Acceptance Tests (FAT), in order to bring systems into production as quickly as possible. This resulted in revenue recognition being delayed from shipment until after formal customer acceptance tests are completed in the field.

As a result of the start-up issues at our new logistics center in Veldhoven and the materials shortages in our supply chain, we experienced delays in shipments. In order to address our customers' needs for additional wafer capacity, we expedited delivery of productivity upgrades. Overall, our capabilities to support the strong customer demand has contributed to total net sales growing by 33% in 2021.

The ongoing digital transformation and current chip shortage further fuel the need to increase our capacity to meet the current and expected future demand. We expect continued growth in our Logic business assuming that customer demand remains strong for both advanced and mature nodes. For Memory this year's growth is expected to continue into 2022 as lithography tool utilization remains very high, while customers indicate they see strong demand growth for DRAM and NAND. To meet demand for this expected bit growth, customers will need to add capacity as well as continue to make node migrations. As customers migrate to more advanced nodes we also expect to see an increase in EUV demand for Memory. Our services and upgrades business will continue to scale as our installed base grows, and we expect significant demand for upgrades, with increasing contribution from EUV service revenue as this technology ramps in volume production.

Gross profit as a percentage of net sales increased from 48.6% in 2020 to 52.7% in 2021, mainly attributable to the NXE 3600D and DUV immersion systems value proposition and continued growth in our installed base business. We continue to drive profitability of our EUV systems, and as a result, we achieved 50% system gross margin in 2021. Looking ahead, we will continue to seek improvements in the margins in both systems and service via cost reduction and delivering more value, leading to higher selling prices.

Our strong net income and continued working capital improvement initiatives resulted in Net cash provided by operating activities increasing by €6.2 billion in 2021. The significant growth allowed us to return record amounts to our shareholders through dividends and our share buyback programs. In 2021 we repurchased shares for a total consideration of €8.6 billion and paid dividends totaling €1.4 billion. We expect continued strong cash returns to shareholders for next year.

Overall, it was another record year for ASML, driven by the ongoing digital transformation and current chip shortage. The secular growth trends, as part of the digital transformation to a more connected world, and countries pushing for technological sovereignty are fueling future demand across all market segments at both the advanced and mature nodes.

Chief Financial Officer

The following table presents the KPIs used by our Board of Management and senior management to measure performance.

We achieved another record year in 2021, with Total net sales increasing by €4,632.5 million, 33.1%, reflecting an increase in Net system sales of 32.3%, and an increase in Net service and field options sales of 35.4% compared to 2020.

We saw growth in both Logic and Memory markets, which is a reflection of our customers' drive to innovate and continue to invest in future technology nodes to facilitate the acceleration of the digital infrastructure and the push for ‘technological sovereignty’, and increase manufacturing capacity to address the global chip shortage. Logic demand for both advanced and mature nodes continues to be strong, driven by the digital transformation and distributed computing. Memory demand continues to grow, fueled by end-market demand for servers and smartphones.

The increase in Net sales was driven by a strong increase in demand from our customers across all technologies. Our DUV and EUV sales volumes increased to keep up with customer demand driven by the ongoing digital transformation and current chip shortage. We recognized revenue for 42 EUV systems in 2021 compared to 31 EUV systems in 2020. Our system sales across our DUV technologies increased from 227 units in 2020 to 267 units in 2021.

In addition to the growth in EUV and DUV, Service and field options sales were also a key driver for our overall growth in net sales. The increase is driven by an increase in the sales of productivity, overlay and focus upgrade packages, which provide the most effective and efficient way to increase wafer output quickly, supported by a growing installed base. EUV continues to contribute in a more meaningful way to net service and field option sales as our installed base continues to grow and our customers continue to run more EUV systems in their high-volume production.

Gross profit increased as a result of both an increase in sales and profitability. Gross profit as a percentage of net sales increased from 48.6% in 2020 to 52.7% in 2021, mainly attributable to improvement in our EUV profitability as we deliver more value to our customers, DUV product mix and improved profitability in our installed base business through a ramp in production and an increase in the number of productivity upgrades.

This year we achieved a record setting cash flow performance. Our Net cash provided by operating activities increased to €10.8 billion (2020: €4.6 billion) driven by the strong worldwide demand from our customers and our working capital initiatives. We also continued our efforts to return cash to our shareholders. We were able to return a record amount of cash to our shareholders through our share buyback program and growing dividends. In 2021 we purchased €8.6 billion (2020: €1.2 billion) of shares and paid out a total dividend of €1.4 billion (2020: €1.1 billion).

We continue to heavily invest in our next-generation technologies in order to secure future growth opportunities which requires significant cash investment in net working capital, capital expenditures and R&D. However, our capital allocation policy remains unchanged.

The significant increase in Net cash provided by operating activities of €6.2 billion compared to 2020, is mainly due to an increase in Net income of €2.3 billion and increase in down payments from our customers in connection with our continued working capital improvement initiatives.

The decrease in Net cash used in investing activities of €1.3 billion compared to 2020, is mainly due to the maturity of most of our short-term investments offset with limited purchases of new short-term investments as significant cash was used for our share buyback program. In 2021 we sold the non-core business acquired as part of the Berliner Glas acquisition for €0.3 billion, while Berliner Glas was acquired for total consideration of €0.3 billion in 2020.

As of December 31, 2021, management has determined that ASML has sufficient working capital for the company’s present requirements.

We expect 2022 to be another growth year with an expected net sales increase of around 20% compared to 2021 driven by healthy Logic demand and growth in the Memory market. The expected growth is driven by increasing sales on all platforms, as well as growth in our installed base business. The positive industry momentum around innovation and expanding new markets further strengthen our confidence in the 2022 outlook and our 2025 growth scenarios.

In Logic, we see the digital transformation that is underway as we move to a more connected world. The broadening application space and secular growth drivers translate to very strong demand for both advanced and mature nodes. With this continued strong demand, we expect Logic system revenue to be up more than 20% year-on-year.

In Memory, we also expect continued growth of our business this year. Customers have indicated systems are operating at higher utilization levels. As customers are making the technology transition to support projected growth, additional capacity additions are expected to be required. Subsequently, this is expected to trigger equipment demand. As a result, it seems likely that we will see strong lithography equipment demand from the Memory market in 2022 with a system revenue to be up around 25% year-on-year.

Customers adopted EUV, and with increasing customer confidence in EUV, this is translating into more layers in their next nodes, for Logic production as well as the adoption in Memory. We expect to ship around 55 systems of which we expect revenue from 6 systems to be deferred to 2023 due to fast shipments. Despite this shift, we expect 25 percent growth in our EUV system revenue in 2022.

In our DUV and Applications business, we expect growth in both immersion and dry systems, as well as continued demand for metrology and inspection systems. We expect revenue growth of over 20% for non-EUV shipment revenue.

We expect further growth in our Installed Base Management business to around 10% year-on-year as the demand for services will continue to expand as our installed base grows. Additionally, we anticipate an increased contribution to service sales from EUV as more and more systems start running wafers in volume manufacturing, as well as expect significant demand for upgrades, particularly in EUV, as customers utilize upgrades as a quick way to increase capacity.

Our expectations and guidance for the first quarter of 2022 can be summarized as follows:

This decade is all about distributed computing, bringing the cloud closer to devices at the edge, and through connectivity the computing power will be available to all of us ‘on device’ enabling a connected world. These global megatrends in the electronics industry, supported by a highly profitable and fiercely innovative ecosystem, are expected to continue to fuel growth across the semiconductor market. This translates to increased wafer demand at both advanced and mature nodes.

The push of countries around the globe for technological sovereignty is expected to drive increased capital intensity. This means that the industry is expected to make significant investments in wafer capacity, with increasing lithography spending. The semiconductor end markets, such as automotive, data centers, industrial and consumer electronics, are expected to grow more than 7% year on year until at least 2025, fueling the strong growth of our business based on an increased mix of EUV while the demand for DUV is expected to remain strong across all wavelengths. To achieve this, we and our supply chain partners are actively adding and improving capacity to meet future customer demand.

On September 29, 2021 we presented at our Investor Day, our upward revised long-term growth opportunity for 2025 in which we re-modeled our previous sales scenarios in a low and high market due to the rapid evolution of digitalization we have seen in the past two years. Customers’ strong capital expenditure growth is expected to continue, translating to an expected lithography capex CAGR of 13.8% (2017-2025). This compares to previous expected CAGR estimate of 7.5% over the same period, as shown at our Investor Day 2018.

Based on the different market scenarios, we believe we have an opportunity to reach annual sales in 2025 between approximately €24 billion and €30 billion, with a gross margin between approximately 54% and 56%.

Moving beyond 2025, we also announced that we see that the growth opportunities will continue and that we expect our Systems and Installed Base Management to provide an annual sales growth rate of around 11% for the period 2020-2030, based on third-party research and our assumptions.

Our sales potential is primarily based on assumed organic growth. We continuously review our product roadmap and have, from time to time, made focused acquisitions or equity investments to enhance the industrial synergy of our product offering. Based on such reviews and the assessment of clear potential product and value synergies, we may also evaluate and pursue focused merger and acquisition activities in the future. Within this growth ambition, we expect to continue to return significant amounts of cash to our shareholders through a combination of growing annualized dividends and share buybacks.

Climate change is a global challenge that requires urgent action by everyone, including us. The challenge to limit the temperature rise to well below 2°C is a global responsibility. At ASML, we’re committed to reducing our carbon footprint. In terms of carbon footprint, we identify three impact areas: the direct emissions from fossil fuels (scope 1) used on our premises, the indirect emissions from the electricity consumption (scope 2) on our premises, and the indirect emissions in our value chain (scope 3) from upstream supply chain and downstream use of our products by customers.

Over the past years, we have made significant steps in our performance and achievements with regard to reducing our scope 1 and 2 carbon footprint and energy consumption, as well as maturing our scope 3 calculation. Although we see many positive results and are making progress, we also realize that we are not there yet.

Our scope 1 and 2 carbon footprint strategy is built on three principles: reducing energy consumption wherever we can, using only green renewable energy, unless no other solution is possible or reasonably feasible, and compensating for the residual emissions.

With regard to scope 2, our ambition is to increase the share of direct green energy purchases (so-called bundled renewable electricity) from renewable electricity produced close to our premises in the Netherlands, and to reduce the share of certificates. For the US and Asia, our ambition is to purchase renewable energy attribute certificates (respectively RECs and IRECs) and monitor

the evolution of renewable energy in those countries. Our scope 1 and 2 emissions reduction targets are consistent with reductions required to keep warming to 1.5°C and are approved by the Science Based Targets initiative (SBTi) – under category 'near-term'.

We recognize that environmental impact goes beyond our operations. In general, most of the environmental impact of energy consumption in our value chain (scope 3) comes from the greenhouse gas emissions of our suppliers (upstream) and the use of our products at our customers (downstream). Results show that the indirect emissions (scope 3) from upstream and downstream value chains account for around 98% of the total emissions footprint (scope 1, 2 and 3). Of this, indirect emissions in the value chain, the category ‘downstream' – use of sold products at our customers’ sites – accounts for nearly 65%, and the category ‘upstream' – emissions related to the goods and services we buy – accounts for 30%. The remaining 5% of our scope 3 emissions relates to, among other things, activities linked to transportation, business travel, and commuting.

Energy savings are mainly achieved by using more energy-efficient technical installations and improving our overall production processes. Our efforts focused on recovery of exhaust heat and reduction of the energy consumption of our cleanrooms, where maintaining the right conditions is energy intensive.

In 2021, we saved 13 TJ per year of energy thanks to projects executed in the Netherlands and in Taiwan. In the Netherlands, the largest project was completed and led to nearly 8 TJ savings in 2021 and will lead to around 11 TJ per year onwards. In Hsinchu, Taiwan, we managed to save 3 TJ energy in 2021 by optimizing the use of air-conditioning systems through time-outs.

Continuing our drive to reduce energy consumption even further, we want to achieve direct energy savings of 100 TJ by 2025 by executing around 25 projects in five different sites worldwide, as defined in our energy savings master plan.

As we grow as a company, we strive to optimize our real estate portfolio. Optimizing the use of every square meter in our portfolio contributes to reducing our environmental footprint – each square meter saved is a square meter we don’t need to heat, cool, ventilate or light up.

When building new offices and manufacturing sites, we take the opportunity to make our buildings as environmentally sound as possible. With an eye on future growth, for example, our new campus in Veldhoven, the Netherlands, is designed with a strong sustainability focus. Its design and use of materials will be assessed on sustainability performance using BREEAM guidelines with score of ‘excellent’. For 2025, we strive to implement the most suitable green building certifications in new constructions – such as BREEAM, LEED and G-SEED – in the countries where we operate.

Electricity accounts for nearly 80% of the energy we use at ASML. Most of our electricity consumption relates to the manufacturing of chipmaking equipment – from assembly to testing lithography and other systems – and maintaining consistent climate conditions, such as constant temperature, humidity and air quality.

In 2021, we secured a 10-year purchase agreement for green electricity for our installations in the Netherlands which will enable us to achieve our goal of using 100% renewable electricity in the Netherlands. For our electricity consumption in the US, we also achieved 100% renewable energy. The renewable market situation in Asia is slightly different and more challenging – we are investigating various options to meet our ambitions there as well.

We have an environmental management system (EMS) in place that helps us monitor our energy and emissions, improve performance, and enhance efficiency. Our EMS is integrated into our combined environmental, health and safety (EHS) management system. All our facilities operate on the basis of this EHS management system – the former HMI locations in Tainan (Taiwan) and San Jose (US) have been successfully integrated. Our EHS management system is ISO:14001 certified and structured in accordance with ISO:45001 requirements. This certification gives our stakeholders confidence in our commitment to achieving our environmental goals.

We measure progress in our emissions reductions by monitoring our scope 1, 2 and 3 emissions, representing three key performance indicators. Our participation in the annual assessment by the Carbon Disclosure Project (CDP), a non-profit global disclosure program, also helps steer our environmental initiatives. Our score in the most recent CDP Climate Change 2021 assessment is C, which is the same level as the sector average.

With a growing demand for enhanced chip functionality, the complexity and energy consumption of the overall microchip patterning process, including from our lithography systems, is also increasing. A major benefit of the wider adoption of our EUV lithography systems is the ability to simplify patterning schemes to create the most critical layers of a microchip, which reduces the need for applying difficult multiple patterning schemes – this translates into less overall fab energy and materials use to fully process a wafer when compared to a multi-patterning process. However, the laser light plasma technology of EUV requires high electrical power input, therefore our product energy efficiency strategy is focused on EUV. Our challenge is to increase the energy efficiency of our products.

We have set ourselves the target to reduce the overall energy consumption of our future-generation EUV systems by 10% compared to the 2018 baseline model – NXE:3400B – by 2025, in spite of a increasing productivity. Our second target is at the same time to reduce the energy use per exposed wafer pass by 60%, as compared to the NXE:3400B (baseline 2018). To achieve this, we have developed and are executing an EUV energy efficiency roadmap.

Other challenges include developing materials and coatings that can deal with higher EUV intensities, and improving the heat management of optical components – this includes the wafer itself, which heats up through the exposure to EUV light during the production process. Tackling these challenges requires ongoing innovation and collaboration within our innovation ecosystem of customers, suppliers and knowledge institutions.

By reducing the total energy consumption by 10% in absolute terms and at the same time doubling the productivity compared to the baseline model NXE:3400B, we aim to reduce the energy use per exposed wafer pass by 60%. To increase the productivity in number of wafers produced, we are continuously working on improving the conversion efficiency of wall-plug power to EUV light and on optimizing sequences, control schemes and other components, such as higher reflectivity mirrors and faster stages.

Most of our product efficiency enhancements are also offered as upgrades for the installed base of our lithography systems. For our customers, this helps to improve the economic value of the installed base, increase productivity and reduce the lithography energy use per wafer.

In 2021, we installed dilution systems aimed at simplifying and reducing energy use of the hydrogen abatement system. Our EUV systems need hydrogen for protecting the optics in the EUV scanner and source. For newer production cabins we chose to dilute and vent hydrogen after use, instead of combusting it. This saves energy and emissions both from methane combustion – for keeping the hydrogen flame stable – and from lowering cooling water needs.

In 2021, we continued our investigation on the use of warmer cooling water. We studied how it can be applied in the drive laser and started to engage with our customers and with SEMI (the global industry association representing semiconductor manufacturing

supply chain), by taking the lead in an extensive update of the S23 energy standard. As this involves significant changes to the hardware both of our suppliers and of the facility installations in our customers’ fabs, this project is part of our long-term plan to reduce the wall-plug power needed per wafer pass by 60% by 2025 (baseline year 2018).

The tables below provide an overview of the system achievements in terms of output and energy usage to achieve this output.

We are committed to a circular economy and ensuring that any materials we use retain and generate as much value as possible for us and for our partners in the ecosystem. To minimize waste and maximize resources, we focus on three core strategies:

The cornerstone of our circular approach is the modular design of our products. It enables us to upgrade a system to a higher performance level at a customer site rather than having to replace the entire product. We can further extend the lifetime of our products by refurbishing systems after they have been used in the most advanced chipmaking factories, repurposing them for other customers and semiconductor environments. As a result of our approach, nearly 94% of the lithography systems we’ve ever sold across our whole portfolio, are still in use at customer sites, highlighting our ability to contribute to a circular economy.

Within our operations, the main waste streams are:

We have set ourselves two targets to reduce our waste footprint. The first target is to reduce our waste intensity – the amount of waste generated in kg per € million revenue – by 50% in 2025 compared to baseline year 2019. The second target is to increase our material recycling to 85% by 2025. These targets include hazardous and non-hazardous waste.

Managing waste from our operations is a complex issue and relies on having detailed and accurate insight into waste streams to and from ASML. We manage our waste through proper classification, separation and safe disposal. Although we’ve developed procedures to monitor and measure waste that leaves our premises, it’s much harder to gain insight on the waste streams of our customers.

In 2021, we generated 5,878 tonnes of waste from the activities on our sites and 77% of this was recycled (from 85% in 2020). Compared to 2020, the total amount of waste increased by nearly 12% (from 5,257 tonnes), mainly due to both the increase of our reporting scope from 20 locations in 2020 to 57 locations in 2021 and the growth of the company. Waste reduction programs for the expanded scope need to be defined and implemented, aiming at 2022.

Non-hazardous waste accounted for 93% (5,483 tonnes) of our total waste in 2021, of which the vast majority was diverted through recycling. We reduced non-hazardous waste through several ongoing programs, such as:

To produce and operate our products and systems, we need to make use of hazardous substances. In 2021, hazardous waste accounted for nearly 7% (395 tonnes) of our total waste generated. Of this, nearly 88% was recycled. Hazardous waste can include lamps, batteries, hazardous liquids, empty packaging from hazardous materials, and cleaning wipes and filters. Liquids, including acetone and sulfuric acid, are the majority of our hazardous waste streams.

The use of hazardous substances makes us subject to a variety of governmental regulations relating to environmental protection (as well as employee and product health and safety). These include transport, use, storage, discharge, handling, emission, generation, and disposal of hazardous substances.

We are committed to re-using system parts, tools, packaging and other materials, whenever practical in our value chain to reduce and prevent waste and reduce costs. We believe that re-use is a learning opportunity for all of us in the value chain, so we work closely on this with our customers and suppliers. Our target is to increase our rate of re-use to 95% of defective parts in ASML factories and in the field by 2025.

To achieve this ambition, we focus on:

We accelerated our efforts on re-use, formalizing and structuring many parts of the process. Our Re-use Board, chaired by our Chief Operations Officer and Chief Technology Officer, signed off on a field repair strategy that promotes the repair of parts in local supply chains where possible, driven by our local repair centers. We extended our re-use policy to all product-related packaging, parts, materials and tools, and created a dedicated cross-sector Re-use department to drive this change on a global scale. Whether parts returning from the field are well-functioning, defective or unused, we are working hard to get them back into action in as-good-as- or better-than-new condition.

We have started a life cycle assessment of the NXE:3400 EUV system to gain relevant insights into designing, developing and manufacturing our lithography systems with a lower carbon footprint. In this assessment we applied the life cycle assessment model for calculating the impact of waste and waste-reduction activities, which we developed in 2020. Similar assessment of our NXT and EXE lithography systems is planned for 2022.

In 2021, our re-use rate of defective parts was 85% (from around 86% in 2020).

In 2021, we integrated re-use into our Product Generation Process (PGP), as a key element of preventing waste that will help us meet our long-term goals. Our design for re-use methodology contains five elements – reliability, accessibility, replaceability, repairability and re-manufacturability – to enable the re-use of parts throughout the entire product life cycle. This means that re-use requirements are now part of the product design strategy and specifications. For example, through the modular design of our products and their components, we make sure that future upgrades, wear parts and components can be replaced as a single unit. Through commonality in designing a part, it can be used in multiple contexts in the product and even in future product generations.

The Re-use department’s focus for 2021 was on embedding re-use into our New Product Implementation (NPI) programs and driving waste reduction in our ‘reverse flows’ (materials coming back to us or to our suppliers from the field). Work continues to resolve bottlenecks in the execution of re-use and to clarify direction, guidelines and ‘re-use rules’ across the business. We are also looking to further mature our waste reporting data.

When modules and systems are shipped, either from our suppliers to our factories, or from our factories to our customers, many transportation materials are used, such as packaging, locking and parts, to ensure that the products arrive safely. These so-called auxiliary parts (plugs, caps, clamps, cover plates, flanges, auxiliary brackets, etc.) are removed on arrival. Instead of throwing them away, these are re-used at use level (the highest level of re-use), so preventing them from ending up as waste. Before sending these parts back for re-use, they go through an identification process and quality check, followed by logistic and financial processes required to sell them back to the original module suppliers or to ASML.

We are improving the re-use of packing, locking and transport materials from the field and factory, aiming to return and re-use 80% or more in the next installation or relocation. In 2021, over 4,300 tonnes of transportation materials were re-used, up from nearly 4,000 tonnes in 2020.

We are extending local repair centers for service parts and materials, and setting up global repair centers for factory materials. There are currently local repair centers in South Korea, Taiwan and China, with plans for all our customer regions to eventually have one or more in place. Global repair centers will also be set up at each of our factory hubs in Wilton and San Diego (US), Linkou (Taiwan) and Veldhoven (the Netherlands).

By enabling repair and re-use activities and taking ownership of repairs in the field, we are able to reduce logistics time, stocking of parts and our environmental impact.

When a part is re-used, our customers expect it to be as good as, or better than, the original new part. We set high-quality standards on ‘As-New’ parts and expect suppliers to be involved to meet these standards. This qualification standard and requirement is identical to the one for new parts, meaning that the same specifications, performance requirements, warranty, and so on, apply.

We now have over 75 ‘As-New’ release projects ongoing at over 25 suppliers. Our ambition is to increase the use of As-New modules in our systems to prevent unnecessary scrapping of well-functioning parts and modules.

We made good strides on re-use and are committed to continuing to reduce waste streams. Building a re-use mindset and adopting it into normal ways of working is critical to achieving re-use and preventing scrap. For example, by replacing scrap bins in our factories with what we now call ‘re-use collection corners’, we encourage employees to think of used parts as having potential rather than being seen as waste.

To fully embed our re-use vision, however, there are several challenges to overcome and processes to be defined. These include:

In 2021, under configuration control we reduced the risk of what we call ‘broken life cycles’ by improving the traceability of parts. We intend to finish this improvement by the end of Q2 2022, solving the broken life cycle issues we now have in 4% of our parts. We also delivered some new re-use execution processes, such as ‘harvesting at the supplier’, enabling us to send purchase orders to harvest parts to suppliers, embedded in our sourcing and logistics process.

As next steps, we have defined five priorities. These include planning of re-use before new, supplier re-use incentives and autonomy, high-quality reverse logistics, further embedding re-use in our Product Generation Process (PGP), and launching re-use change and communication campaigns across ASML and suppliers.

A well-maintained ASML lithography system can last for decades and can be used by more than one fab. Many ASML lithography systems start out in cutting-edge fabs – once that fab needs to upgrade, the lithography systems are given a new lease of life in a fab where the manufacturer requires comparatively less sophisticated chips, such as accelerometers or radio frequency chips.

Our Mature Products and Services (MPS) business focuses on the refurbishment of the following product families: the PAS 5500 (with around 1,800 systems at customer sites worldwide), the TWINSCAN XT systems, and, as of 2021, the NXT:1950-1980 systems.

Our refurbishment strategy focuses on buying back systems that are not operational in the field, harvesting parts from decommissioned systems, and managing the continued availability of spare parts, which is key to the extended lifetime service we offer for our systems. We provide our customers with a guaranteed service roadmap until at least 2030. This means that all support and the necessary services and spare parts they need to maintain their systems is expected to be available through at least 2030 and beyond.

For the TWINSCAN AT systems that are still in operation, we focus on measures to proactively manage their end of life by guaranteeing the availability of spare parts as long as possible on a best-effort basis.

Thirty years after its introduction, ASML’s PAS 5500 platform is still alive and kicking. Currently, 90% of the PAS 5500 systems we have ever built are still in use, whether as refurbished tools or in its original configuration. The PAS platform is used for a wide variety of niche applications, from sensors to power chips and even life-changing implantable medical devices.

Until 2021, we have refurbished and resold well over 500 lithography systems. In 2021, we celebrated the 100th refurbished TWINSCAN, which also marked the 20th anniversary of our TWINSCAN refurbishment program.

We are making significant investments to ensure continued supply of more than 2,000 service parts for our PAS platform, either through redesigns, a parts harvesting strategy or by finding an alternative with the same form, fit and function. If this does not work, we are generally able to secure components through Last Time Buy – a supplier's 'last call' for a part or component before production switches to its successor. Over time, when a part is no longer available, we redesign parts.

We track the spare parts we have in our portfolio, see how they are being used, and identify when we expect to run out of these parts. For the PAS systems, we use this information to update our priorities for redesigning parts. For the AT systems, we try to continue supplying parts by harvesting them from systems that are decommissioned by our customers.

To secure the availability of spare parts into the next decade, we need to replace many unavailable parts that were designed with technology from the 1980s and 1990s with parts based on state-of-the-art technology. This involves a complete overhaul of these parts. For the coming years, we have identified and plan to execute more than 100 redesign projects for nearly 300 parts. This is especially relevant for electronic parts, for which the evolution of technology has gone faster than in any other field.

Pushing the limits of technology would not be possible without our engaged, diverse and highly competent workforce. Our employees are critical to the performance of our organization and our long-term success as a company. As well as working hard to attract the world’s top talent, we need to focus on helping them all reach their full potential, in an environment where they are proud to work for us and engaged with our ambitions as a company.

We continue to experience strong growth at ASML. Our workforce nearly doubled in size in the last five years. And in spite of the ongoing pandemic, we had an extraordinary year in 2021, with an over 16% increase in employees (in FTE), a revenue increase of more than 30%, and over 20% more product output. This rapid growth also brings challenges. Our organization has become more complex, our workforce is more diverse, and the expectations of our customers and stakeholders are growing.

The needs of our growing workforce are changing, which requires an environment and tools that support collaboration, knowledge sharing and autonomy in more diverse and interdependent teams. At the same time, we must also continue to deliver on our commitments to our stakeholders and manage our day-to-day challenges to attract, onboard, develop and retain our talent.

We’ve already created a strong foundation by articulating our purpose, vision, mission, values and leadership expectations. To stay successful in the future, we examined how our strengths translate to our current reality. Hence, we define our people vision as follows: We empower each other to thrive, fueling our growth, happiness and business success. ASML’s people vision sets out our ambition for the future, supporting our values and what we stand for. Everyone throughout the organization has an important role in this vision.

Collaborating closely with the business on a day-to-day basis, we drive several key programs, designed to provide people with more autonomy in steering their development and career aspirations and enabling our leaders to support the growth of the company.

More than ever, we need to pay attention to anchoring ASML’s identity deep in the organization, to help our people embrace our values and provide a unified direction to familiarize themselves with our company strategy and purpose.

Our company values – challenge, collaborate and care – ensure we are all working from a commonly understood base that can be applied across our organization, helping us make choices that keep us true to ourselves. They also allow teams to discuss the natural areas of friction where these values overlap. For example, by ensuring that the founders’ traits that brought us this far (persistence, a ‘can do’ mentality and a belief that anything is possible), are balanced by the right degree of care. Embedding our values is an ongoing journey, but we aim to succeed by applying them every day.

Building on our core values, we apply six people principles – clarity and accountability, continuous learning, inclusion, enabling environment, personal growth, and trust – to guide and inspire us in our people decisions to bring the best out of our employees.

In 2021, we executed several 'Values in action' events around the topics of mental health safety, the ASML Foundation, 5 life-saving rules, Speak Up and green energy.

We believe a diverse and inclusive workforce provides the necessary mix of voices and points of view required to innovate and drive our business forward. We foster a culture where different identities, backgrounds, talents and passions are valued and celebrated. Therefore, we want to offer our people the best possible employee experience at all our sites, enabling them to develop their talent, feel respected and work to the best of their abilities and allows us to attract and retain the best talent.

Employee experience is the sum of all experiences an employee gains through the interactions with the company at each stage of the employee life cycle, from attracting and onboarding talent to attrition. To this end we focus on employer branding and employee engagement.

With the demand for top-tier talent increasing year-on-year, employer branding is a vital strategy to ensure ASML gets its share of this talent. Our strong growth means we need to hire large numbers of employees. Highly skilled people with a technical background are scarce in the labor market and competition is growing. We see that top-tier talent selects their employer of choice, not the other way around. This is a general development of employees choosing their future employer, and it’s important for employees that a potential employer has a proper value proposition.

We view recruitment as an ongoing process, and continuously seek to improve and professionalize how we go about it. We use this information to fine-tune our target audiences and recruitment efforts.

We measure our employer brand for the main locations where we operate – the Netherlands, the US, China, Taiwan and South Korea. We do this by measuring how ASML is perceived by external audiences – and potential employees in particular – by monitoring our position in an independent external employer-branding ranking. We have defined targets for the different local labor markets on our positioning by 2025. We continue to improve our employer brand and values on our corporate website, creating a better understanding of what we do and what we stand for as an employer.

In 2021, restrictions on travel and large group gatherings limited our ability to meet future talent in person. Various planned activities were either postponed or adapted to a virtual space. More than ever, the internet is the optimal platform to communicate. Our labor market communications team is continuously working to optimize how we reach, inform and engage our target audiences online. To leverage recruitment efforts, we facilitate job postings and manage ASML’s presence on online social network channels. We also promote the ASML employer brand through online advertising.

Employee engagement is critical to the performance of our organization and our long-term success as a company. We measure the overall impact of our activities on the total employee experience using our we@ASML employee engagement survey.

Our annual we@ASML survey is a crucial tool for collecting and measuring employee feedback. It provides insights that enable us to improve the employee experience and work on our policies and processes. We set ourselves the target of achieving an employee engagement score that is at least on a par with our peers.

Throughout the COVID-19 pandemic, employees across ASML have done admirable work to continue our business, serve our customers and secure our roadmap. We knew they experienced pressure from pandemic fatigue, hybrid working and the rapid growth in our employee base on top of increasing customer demand and we expected this to impact our employee engagement score.

To understand these effects and allow us to set improvement actions, the 2021 survey featured additional questions about well-being topics. To measure the degree to which our values are embedded in the organization, the survey also included questions about our culture and values that go beyond the ‘what’ to the ‘how’.

We succeeded in creating a positive working environment amid challenging circumstances, but did not make measurable progress in our key improvement areas.

In our 2021 we@ASML employee engagement survey, we again saw good results and received valuable feedback for improvement. The engagement survey score was 78% in 2021 (80% in 2020) – 2 percentage points above our external global benchmark of 76%. Overall, we conclude that ASML still has a highly engaged population. People are proud to work for ASML. Other areas where we score high are, for example, a good working environment, good team spirit with respect and open communication, and opportunities to learn and grow. However, as expected the engagement score decreased due to the dynamics of 2021. Defining action plans to prevent further decline is a priority for us.

Despite our continuous focus and improvement actions executed, we still see the three areas from the 2020 and 2019 surveys, namely: enabling processes, cross-team collaboration and clarity of expectations are lagging behind as we still score well below the external benchmark. The 2021 results also show that we need to pay more attention to well-being. Addressing these four areas is our key priority in 2022.

We hired 4,373 new payroll employees in 2021, growing our workforce to 30,842 FTEs at year-end. Our workforce more than doubled compared to the 14,681 FTEs we employed at the end of 2015.

While attrition can open up a knowledge gap in the company, we also view it as an opportunity to bring in new talent and enhance existing talent. We strive for a healthy attrition rate (the percentage of employees leaving our company), aiming for an annual attrition rate of 3.0–8.0%. For high performers, our target is to have a rate that is at least 50% lower than the overall attrition rate target.

With the overall attrition rate of 5.4% and the attrition rate of our high performers of 2.6% in 2021, both are well within our target range and is below the industry average in every country we operate in. In 2021, we saw an increase in the attrition rate to 5.4%, from 3.8% in 2020, a year that was shaped by the COVID-19 pandemic, when people were less inclined to look for other jobs. We attribute the increase to the effects of the pandemic, the global shortage of employees across many industries, and the booming semiconductor industry that is providing plenty of job opportunities. Nevertheless, we view that our efforts to create a unique employee experience, our employee engagement programs, and our onboarding of new employees are paying off.

As our global workforce grows exponentially, onboarding is one of our key priorities. In 2021, we welcomed our 30,000th employee. A positive onboarding experience builds a sense of connection, helps employees fit in quickly, and boosts retention. We believe onboarding is a joint effort, driven by everyone.

With the COVID-19 pandemic continuing in 2021, our new employee onboarding remained virtual to give new colleagues the best possible start. For example, the ASML onboarding event is a half-day introduction event organized by HR to make new colleagues feel welcome, learn more about ASML and connect with other new colleagues. In small groups, new colleagues work together to learn about ASML products, technology, organization, customers and programs. Business sectors and functions continue to build on our global onboarding initiatives, making sure we’re providing one consistent experience across the company, further tailored to the various departments.

To measure how new hires rate their onboarding experience, we conduct pulse surveys in each phase of their onboarding journey from feeling welcome, engaged, equipped, to feel part of ASML. On average, 89% of new hires indicated that they had a positive experience. They also perceive the support they get from their manager during onboarding as very positive. We are proud that our managers took extra efforts to guarantee a positive onboarding experience while working remotely.

In an innovative, high-tech, fast-changing industry, it’s vital to strengthen and continuously invest in our talent pool to anticipate evolving business requirements and developments in the labor market. We empower our employees to develop their talent, pursue their career ambitions and to thrive. We strongly believe that personal development works best when our employees can invest in themselves. At ASML, we give employees the time, opportunity and support, while they put in the effort, passion and drive needed to enhance their development. We offer tailor-made training and development programs to help grow the highly skilled professionals we employ at ASML.

To maintain our technological leadership and pace of innovation, we need to ensure the right knowledge is available to our people at the right time. To do this, we have our own technical development centers in-house for our D&E, customer support, and manufacturing employees to tailor training to the specific technical needs of these departments.

Most of our trainings take place on the job, given the nature of our collaborative innovative business. Overall, we are promoting the 70-20-10 approach for learning interventions, meaning that 70% is on-the-job learning, 20% is through coaching, and 10% is learning through training courses. In 2021, the average number of training hours in this last category, including development programs, was 29 hours per FTE.

In 2021 we continued adding virtual trainings where possible. We had to postpone some of the development activities that have a strong networking component to them with the need to bring different sectors and countries together. Due to travel restrictions and different time zones, these activities were not viable. In addition, we continued working on redesigning specific development programs to establish an effective mix between remote and in-person training, bringing people from different locations together, and making training more digestible for online purposes.

We are continuously looking into ways to improve how we can help employees identify opportunities for professional development within ASML. We offer various career paths and have various tools in place to support our employees’ career navigation.

Two years ago, we started the discussion and thinking process around how our performance management approach and philosophy can better align with our culture and values. This forms part of a broader look at the future of performance management in the company. Together with our executive committee, we started defining how to do this more fundamentally. In 2021, we worked hard on re-shaping performance management processes and to embed them in the new tooling, which went live as of January 2022.

We're proud to be a culturally diverse organization, with employees from 122 different nationalities. Diversity and inclusion enhance our ability to innovate, to be creative, problem solve, and provide an environment where employees feel valued, challenged to grow professionally, and contribute to our common goals.

Since 2020, we have been developing and formalizing our approach to diversity and inclusion. We assembled a Global Diversity & Inclusion Council in 2021 that consists of senior leaders who act on behalf of ASML to provide thought leadership. The Council, chaired by a member of the Board of Management, proposes the Diversity & Inclusion strategy to the Board of Management, sets, promotes and monitors diversity and inclusion initiatives, and drives company-wide accountability towards its goals.

Our aim is to be representative of the available skilled workforce. Creating an environment where all feel welcome, know they belong and see a career path in front of them requires diversity at all levels of the organization.

We aim to increase the diversity of our workforce by fostering a culture that is inclusive of all. We@ASML, our employee survey, measures inclusion levels each year. In 2021 our Inclusion score was 83% compared to 82% of top performing global companies. Our goal is to meet or increase this level of inclusion among our employees on an ongoing basis. To do this, we set a target to score on par +/- 3% with the top 25% of this comparison company list in 2024.

In 2021, we made progress in gender diversity among all employees and senior management. Female employees now make up 18% of our workforce worldwide. This improvement has increased by 1% compared to last year. We aim to increase this trend as we move toward 2024.

We believe the most effective way to address this is by focusing on the growth of our existing team members and expanding the diversity of our talent pool. We’ve set goals to increase the hiring of women from 20% in 2021 to 23% by 2024.

We still have work to do in this area and have set specific goals focused on female leadership levels. The current representation of women at this level is 8% today and our ambition is to reach 12% by 2024. To make this tangible, we’ve set a goal to raise the hiring of female leaders, from 12% in 2021 to 20% in 2024. We believe this talented pool will be role models, paving a path for more to follow. Our ambition is to have more diversity in our workforce because we believe it is one of the best ways to attract and retain smart talented people to help us drive technological innovations forward to meet our customers’ needs.

Overall, the global STEM (science, technology, engineering and math) talent pool is scarce and it is even more challenging to recruit female talent. Our R&D workforce is 15% female. Nearly 90% of job positions are STEM related, whereas peers in the high-tech industry have more diverse, non-STEM related job positions. ASML is highly motivated to see more women pursuing careers in engineering and science now and in the future. The highly specialized nature of our industry means achieving this balance is a long-term process. We are actively engaged with multiple educational programs to grow the pipeline, deploy multiple initiatives to promote STEM education among the future female talent pool and continue to foster an environment where our current workforce can thrive.

At ASML, we are committed to meeting adequate living-wage requirements, meaning that employees earn salaries that meet their and their families' basic needs, but also provide some discretionary income. Our company has a predominantly highly educated workforce with relatively high levels of remuneration. In 2020, as part of a two-year cycle, we conducted an analysis of how our lowest base salary compared to the local minimum wage and local ‘living wage’ in the countries and regions where we operate. We did not detect any gaps. On average, our salaries are significantly above local living wage. An update of the analysis is planned for 2022.

We want to provide fair labor conditions and social protection for all our employees, regardless of their location and whether they are on a fixed or temporary contract. We support the principles of the International Labor Organization (ILO) and we respect the rights of all employees to form and join trade unions of their own choosing, to bargain collectively and to engage in peaceful assembly.

We strive to comply with the relevant legislations in every country we operate in. In those countries where we have employee representation, we engage in regular dialogue with the different organizations representing our employees. In these conversations, topics are put forward and discussed by both the company and the employee representatives.

We do not have operations in countries where the freedom of association and collective bargaining for ASML employees is restricted.

In the Netherlands, we have requested dispensation from the Metalektro Collective Labor Agreement (CLA) in order to develop our own CLA. Our unique position in the global market, our size and growth as well as our very unique group of employees and the large range of competencies and activities we bring together to deliver our products have created a need for our own direction in labor conditions. The purpose of a future ASML CLA is to offer a set of labor conditions that match the diversity and needs of all our employees.

In 2021, following an intensive period of consultations, the negotiations with the trade unions began. The new CLA will be developed in close collaboration with the unions represented in the Metalektro. Once we have our new CLA in place, we will continue to work with the unions regarding labor conditions within the framework of our own CLA and maintain our active membership in various labor organizations, such as FME and PME.

We want to have a positive impact on people’s well-being, their productivity and work-life balance. Working from the office and meeting each other face-to-face stimulates innovation and optimal collaboration within and across teams, and it is the starting point of our way of working. During the pandemic, teams expressed the need to meet in person to tackle problems together and to stay aligned toward common goals. We also recognize that a busy office may not be the best place for focused work, so quiet work in a remote office may be much better for some tasks.

Fundamentally, ASML is convinced that employees themselves can best manage their own work. On the other hand, managers are responsible for efficiently organizing the way the team is working and the organization. This means that both employees and managers have joint responsibility for the choices to be made under our Remote Working Policy.

We aim to provide ASML employees and their managers with clear guidance and help to make the right choices between working remotely and working in the office. Remote working is neither mandatory nor an entitlement. As a global guideline, employees may work up to two working days per week remotely, if the job allows. There may be exceptions for certain jobs or departments.

To remain a market leader, we must provide unified direction. This means we need authentic leadership to give our people a clear picture of where ASML is heading. This offers great opportunities for all of us to contribute to ASML’s success and make an impact, which is also quite a challenging job for our leaders. As our company grows, so does the need for clarity around roles and expectations. Leaders need to play a part here in providing role clarity for employees, as well as being clear about their own roles and responsibilities. We continue to strive to formulate and capture this more clearly so our people can understand what is expected of them.

Launched in 2020, our Leadership Framework outlines and clarifies a leader’s role in business leadership, role-modeling the values within the company, and what it means to be a people manager and coach for employees. Leadership is all about people.

In 2021, we continued deploying behavioral competencies training, coaching programs and a practical guide to inspire and enable personal development. We have leadership programs where we fast-track the careers of our most promising managers through our Potential Acceleration Program. These programs ensure our managers are aware of what’s expected of them, and help them to develop the skills and competencies they need to become better leaders.

The effects of these programs are most visible in our employees' responses from our 2021 we@ASML survey, where 74% of our employees stated that they see their manager role modelling the three ASML values – challenge, collaborate, care – in a balanced way.

At ASML, safety is not just a priority – it is a prerequisite. It is an integral part of our daily work and the way we lead others. We do everything in our power to provide injury-free and healthy working conditions for everyone on our premises and ensure all our operations are safe and secure. This includes employees, contractors, suppliers, customers, and visitors. We count on each other – every one of us working at and for ASML – to share this commitment, because together, we keep each other safe.

In 2021, the persistent effects of the COVID-19 pandemic still reached into every corner, affecting people globally and across every aspect of our business. Our priorities remained unchanged: Our primary focus has always been to ensure our colleagues and their families around the world stayed safe. Our second goal was to make sure we upheld exceptional service to our customers.

We follow all government guidelines and safety measures. The corporate crisis management team provides our employees with frequent updates about the COVID-19 situation and our response to it. In 2021, we rolled out numerous well-being programs worldwide to address the physical, mental and emotional well-being of people working from home.

We believe that all work-related injuries and occupational illnesses are preventable. As such, we are working toward a long-term ambition of zero injuries and work-related illnesses.

It’s impossible to completely eradicate risk, but we can work proactively at all levels to identify potential issues or concerns in the workplace and develop measures toward reducing these. We do everything we can to minimize risk, and it is our responsibility to provide our people with the right protection, procedures and processes to keep them safe.

Our goal is to prevent occupational health and safety incidents. To benchmark our performance against industry standards, we use a targeted recordable incident rate of 0.20, which represents world-class performance. But our ongoing ambition is zero, and this drives our continuous improvement in processes, working conditions and employee behavior. To achieve this, we focus on an EHS management system, safety culture and training. An example is the ‘Safety Gemba Walks’, where managers visit the employees’ workplace. This helps us to increase safety performance and to strengthen a safety culture.

We are committed to a well-established EHS management system. We use the highest possible professional standards, and continuous improvement is a key principle of our management system. Our EHS management system is based on the ISO 45001 standards and complies with its requirements.

We have established a Corporate EHS Committee, chaired by our Chief Operations Officer, to oversee and approve ASML’s EHS strategy and lead the EHS management system. Our line managers are responsible for day-to-day EHS management. Our EHS Competence Center gathers best practices and defines the EHS standards for ASML, helping our managers to implement these standards in the workplace.

Our employee and product safety commitment is captured in our Sustainability Policy, which applies to ASML worldwide. In addition, our ASML EHS Guide aims to provide practical, useful and essential information for our employees, contractors, and any other parties working for us. The guide – designed to create awareness and ownership – explains our aims and objectives, and clearly describes the rules and policies we follow.

Incident and risk management are key elements of our EHS management system. We record and investigate all incidents and near-misses to determine the root cause and take corrective action to prevent them from recurring or occurring in the future.

We conduct regular hazard and risk evaluations, with a focus on preventing employees’ potential exposure to hazards such as chemicals, fire, radiation, mechanical handling, and ergonomic risks. These provide us with further insights into the main hazard and risk areas at ASML. We can then take appropriate action to mitigate these risks. We ensure continuous improvement through internal EHS audits.

In 2020, we introduced five life-saving safety rules to create a safer workplace and enhance our safety performance. Respecting and adhering to these rules could not only save lives, but also make us collectively more aware of safety risks across our organization. Active and consistent deployment of these rules in 2021 led to increased awareness, better insights and actions for improvement, such as improved procedures, tools and education. At ASML, it is standard practice to inform our employees and anyone else accessing our premises and customer sites independently – including contractors and suppliers – about our safety culture and to raise awareness around these. Training is one of the ways we prepare and inform our people about this.

We register EHS-related incidents in line with the US Occupational Health and Safety Act. Our recordable incident rate decreased from 0.18 in 2020 to 0.17 in 2021, outperforming the electronic industry benchmark of 0.20. The recordable incident rate is the number of recordable cases beyond first aid in a year per 100 FTE. As in previous years, we did not record any work-related fatalities or permanent disabilities.

Safety goes beyond procedures, rules and the right equipment to human mindset, behavior, attitude and habits. Following the five safety rules, we deployed various department specific awareness programs. For example, we have been rolling out the hein® safety campaign in D&E which helps us develop a common safety language and dialogue. Workshops and trainings took place in many clusters with many interesting discussions and insights into our safety behaviors.

In 2021, we extended the EHS Fundamentals program with a new safety training module. As of September 2021, new hires expected to work in a cleanroom will have to complete EHS Cleanroom Fundamentals, a training module designed to prepare new employees to safely enter, leave and work in a cleanroom at ASML. By year end 2021, 95% of eligible candidates had completed this mandatory training. We are also planning a company-wide reassessment of the safety culture in our company in early 2022, to validate if our safety culture transformation program has the right effect, and to create insights into where we need to step up.

To improve our EHS performance, we encourage our employees to speak up whenever they encounter safety risks. Every employee is empowered to stop working if they feel unsafe. Together with their manager and EHS expert, a safe way of working will be defined, so the work can resume.

Being part of a community means not only caring for our own employees, but also looking out for those beyond our organization. We foster close community ties and encourage our employees to get involved and do their part as well. ASML needs the support of the community to be successful and will earn that support if ASML lets the community benefit from its presence and is considerate of the community's needs.

We aim to be a valued and trusted partner in our communities, improving the quality of life for all, with a special focus on disadvantaged communities. We support skills development for young people under the age of 18 to prepare them for an increasingly digital future, as well as community services for disadvantaged people, and local arts and culture initiatives.

We benefit from each other’s presence and support each other’s development. For ASML it is important to create a healthy foundation for long-term sustainable strategy execution by motivated employees. For the community, success means that we are able to close the divide, so that citizens and their environment thrive.

ASML recognizes the need to prepare people of all ages for an increasingly digital future. STEM (science, technology, engineering and mathematics) competencies are important in helping children to reach their potential, particularly in disadvantaged communities. We organize and sponsor many initiatives that aim to share our enthusiasm for and expertise in technology to inspire all generations. We also partner with multiple organizations and educational events that promote careers in technology. Our employees act as role models and guides for these initiatives.

Culture is the invisible bond that ties the people of a community together, whereas the arts are culture made visible. To strengthen that bond, ASML supports initiatives and organizations that are vital for the community’s culture and help open them up for newcomers and the underprivileged. We focus on cultural icons in our communities – organizations and initiatives that have an impact beyond the local community.

As a responsible company, we want to play our part in the communities we operate in. By partnering with businesses and organizations in the regions around the world where ASML is located, we build trust and give back.

We support local initiatives and organizations that are vital for our communities and that connect the people in our communities. Together with ASML employees, we contribute and make these initiatives attractive and accessible, and we pay special attention to stimulate integration, promote diversity and empower the underprivileged.

We are spread over 60 locations across Europe, the US and Asia. With such a widespread presence, it’s important that we engage with and support the communities where we are based. Our passionate employees contribute to local projects and organizations that make a difference in their community. And as a company, we provide sponsorship and donate funds to local non-profit organizations.

The ASML Foundation is our charity of choice primarily focusing on impactful, inclusive education and training programs for young people in need. Improving lives through inclusive and quality education and training, is how we view our mission. We want to enable inclusive and equitable participation in society through lifelong learning and education in 21st century and entrepreneurial skills. By doing this, the Foundation aims to make a sustainable impact on SGD 4 (Quality Education), and contribute to SDG 5 (Gender Equality), SDG 10 (Reduce Inequalities) and SDG 17 (Partnerships for the goals).

We believe that all people deserve to receive a quality education, allowing them to be self-sufficient in our increasingly digital world. Our goal is to help people who participate in the programs we support to improve their chances of a better life. Through funding and partnerships, the ASML Foundation aims to unlock the potential of young people in need by enabling inclusive and equitable participation in society through education. Diversity in terms of our project selection does not only indicate the inclusion of women, but also the disadvantages our target groups may face: little access to education, special education needs, or a lack of vocational training.

The ASML Foundation wants to make a difference in the community in the locations where ASML operates. As such, it mainly supports projects and initiatives in Europe, the US and Asia that address specific needs in that region. In the Brainport Eindhoven region in the Netherlands, for example, tackling illiteracy has become a key focus area for the ASML Foundation in 2021. In the US, projects focus mainly on preventing school dropouts in less-privileged areas, and on promoting science, technology, engineering and mathematics (STEM), especially for girls. Projects in Asia differ per country. In developing areas in Asia, for example, there is a focus on education for girls to reduce inequality and also to prevent child marriages. In China, the focus is on STEM for girls in rural areas.

In 2021, the Foundation donated around €2 million (€1 million in 2020), supporting 22 projects in 8 countries. With these committed donations, the Foundation aims to reach about 775,000 young people.

ASML employees support the ASML Foundation financially when they purchase goods from the ASML employee store and through donations. The ASML Foundation is also responsible for ASML’s volunteering program: It coordinates the volunteering activities and keeps track of the volunteering hours that ASML employees contribute to education initiatives and other causes. ASML employees are allowed to take eight hours per year to do volunteer work that aligns with the volunteering policy; many volunteers also donate their own time.

We innovate through partnerships. Our innovation philosophy is one where we see ourselves as architects and integrators, working with partners in an innovation ecosystem. In our innovation ecosystem, long-term collaboration is based on trust. We share both risk and reward while driving innovation. While sharing our expertise with the ecosystem, it also provides us with access to a large leading-edge knowledge base across a wide range of technologies. Together we build a strong knowledge network to create technological solutions that society can tap into. This collaborative approach allows us to accelerate innovation.

We innovate through partnerships. To this end, we focus on collaboration with research centers, fueling the innovation pipeline through partnerships with research institutes and universities, and collaboration with R&D partners through EU public-private partnerships. In addition, we believe that we can create greater impact in the ecosystem by nurturing future young tech by supporting startups and scaleups.

We co-develop expertise within a wide network of technology partners, such as universities and research institutions. Some of our partners include imec in Belgium, the technical universities in Twente, Delft and Eindhoven in the Netherlands, and the Advanced Research Center for Nanolithography (ARCNL), also in the Netherlands. ARCNL conducts fundamental research, focusing on the physics and chemistry that are important in current and future key technologies within nanolithography and its application within the semiconductor industry.

In 2021, as in previous years, these partnerships delivered positive results.

In 2021, imec demonstrated a breakthrough in printing narrow 24 nm pitch lines in a single exposure. Using ASML’s NXE:3400B system and combining advanced imaging schemes, innovative resist and optimized settings in its cleanroom, imec demonstrated how our system is capable of printing lines at 24 nm pitch in a single exposure step. This innovation will enable imec and its partners that specialize in resist and patterning to help develop and test resist materials that will support the introduction of our next-generation EUV lithography systems, our EUV 0.55 NA (High-NA) platform.

We collaborate with, among others, Tokyo Electron, a fellow semiconductor equipment company in Japan to further enhance scaling solutions for our EUV technology. In 2021, Tokyo Electron joined our partnership with imec and introduced its leading-edge Coater/Developer to the imec-ASML joint High-NA EUV research laboratory (joint High-NA lab). This Coater/Developer will feature advanced capabilities that are not only compatible with widely used chemically amplified resists and underlayers, but are also compatible with spin-on metal-containing resists. Spin-on metal-containing resists have demonstrated high resolution and high etch resistance, and are expected to enable finer patterning. Combined with the new process modules, this will enable flexible fab operation, while also realizing increased productivity and high availability.

We continued our close involvement in the High Tech Systems Center (HTSC), set up by Eindhoven University of Technology (TU/e) to facilitate fundamental research with a focus on understanding the needs of the mechatronics and mechanical engineering industry. Since its launch three and a half years ago, the HTSC has supported the start of several new projects broadening the scope of our cooperation with TU/e toward electrostatic fundamentals and new developments in optical design. To celebrate the TU/e's 65th anniversary and our appreciation for the collaboration, we donated a set of high-tech nanotechnology machines and services for the new institute and for the student labs, with a total value of €3.5 million.

In 2021, we joined forces with the Jheronimus Academy of Data Science (JADS), based in 's-Hertogenbosch, the Netherlands, to collaborate in the field of data science. Data science is increasingly important for the semiconductor industry as a whole and for ASML technology in particular. This collaboration provides us access to the latest academic knowledge and fresh perspectives from young talent, while also helping us develop the skills of our employees through professional education programs.

We cooperate with private partners in research and innovation projects subsidized by the European Union and its member states. We run collaborative subsidy projects aimed at advancing IC technology for the next node connected to the industry roadmap following Moore’s law. The Horizon Europe program, a public-private partnership, facilitates collaboration and strengthens the impact of research and innovation in developing, supporting and implementing EU policies while tackling global challenges.

By collaborating in European projects, ASML and its partners play a role in giving the region a degree of sovereignty by driving and accelerating fundamental research and groundbreaking innovation in Europe. This collaboration also generates significant business value, fuels job creation, and creates knowledge. This is borne out of, for example, the increasing number of patent requests per year, both for ASML and the other members in the various consortia, which reflects the success of the collaborations.

In 2021, we continued coordinating the efforts in three EU projects – TAPES3, PIN3S and IT2, all with a duration of three years – securing timely reporting to the connected public partners, as well as organizing online consortium meetings to exchange ideas and knowledge.

Our own contribution in R&D across these public-private partnerships in 2021 was €30.3 million, and the total value of our investment for the full three-year duration of the projects is €93 million of the total project funding of €448 million. In all of these projects, we work with universities, research and technology institutes and other high-tech companies across Europe – varying from 20 to 80 partners from 10 different European countries – to help enable the industry to move toward next-generation technology.

In 2021, ASML started coordinating a new EU collaboration project, called ID2PPAC. In this three-year project, the technology solutions for the 2 nm node, as identified in the preceding IT2 project, will be consolidated and integrated with the objective to demonstrate that Performance Power Area and Cost (PPAC) requirements for this next generation of leading-edge Logic technology can be achieved.

To continue Moore’s Law trajectory to the 2 nm node, while meeting PPAC requirements, further advancements are required in EUV lithography and masks, 3D device structures, and materials and metrology. The ID2PPAC project brings together the R&D capabilities of 28 leading expert partners to tackle these challenges – it is valued at more than €107 million in R&D cost and unlocks €48.9 million in public funding for the ecosystem. In terms of geography, the project connects people from Austria, Belgium, the Czech Republic, France, Germany, Israel, Spain and the Netherlands.

To nurture innovation by new generations of technological talents, we also provide valuable expertise to support entrepreneurs and startups. We make use of our experts’ in-depth competencies and knowledge to develop and support startups and scaleups. By fostering entrepreneurship, we aim to help these young enterprises excel and grow. What we share is based on what we are good at, such as building complex manufacturing systems. This is where we can play a role and make a difference.

Sharing our expertise is a way to strengthen our regional high-tech ecosystem, particularly around our headquarters in Veldhoven, the Netherlands. This region has a competitive edge globally, and we need to make sure we maintain this position. Building a

strong regional foundation benefits not just ASML and associated partners, but also other companies and organizations. It also helps attract a broad base of talent to the region.

Through HighTechXL, we build and accelerate impactful startups by combining high-tech entrepreneurial talent and relevant technologies. With the Make Next Platform, we aim to support young innovative high-tech scaleups.

In 2021, ASML provided nearly €1 million in-kind support to high-tech startups and scaleups. This amount consists of 2,100 hours of support and €0.4 million in cash.

ASML is one of the main shareholders of HighTechXL, together with other tech-minded partners in the region such as Philips, TNO, the Brabant Development Agency (BOM) and High Tech Campus Eindhoven. Through HighTechXL, we build and accelerate impactful startups by combining high-tech entrepreneurial talent and relevant technologies from reputable tech partners such as ESA, CERN, Fraunhofer, imec and TNO, with the goal of solving main global societal challenges.

Through HighTechXL, a venture-building accelerator that builds teams of entrepreneurs and tech talents around the most advanced technology in the world, we have supported startups and scaleups in their various stages over the years in collaboration with other tech-minded peers from our region. We monitor and assess their maturity through objective assessment and a set of deliverables per KPI, such as business model, finance, technology, sustainability and execution skills.

Insights we’ve gained in recent years show that our past successes were based on working with scaled-up startups with a ‘deep tech’ component, and that these were difficult to find. The solution was to build our own in partnership with other technology providers. Since 2020, we have further developed our involvement in accelerating existing startups and mapped out a new focus area, which is building our own deep-tech ventures.

Up to now, 18 new deep-tech ventures have completed the program and are already getting global attention. Moreover, five new ventures are currently still in the accelerator program, making good progress, and new cohorts are already planned for.

In 2021, most of HighTechXL’s activities still had to be held online due to the COVID-19 pandemic. We had to organize ourselves offline as well, with associated challenges around communications and logistics. And while the spend rate of startup companies is relatively low, some ran into financial difficulty. ASML helped to arrange funding and subsidies for some of these.

Another issue that became more apparent during the COVID-19 crisis was the need for early-stage funding, especially for deep-tech startups. Deep tech is often perceived as complex, requires high-risk capital and is therefore less attractive for typical early-phase venture capital funds. ASML has committed financial contributions to address the needs for startups, particularly in the early phase of their existence, when there is a need for funding the often relatively high costs associated with building technology demonstrators, prototypes, etc. Together with other HighTechXL shareholders, ASML intends to build a deep-tech seed fund.

To support young innovative high-tech scaleups, ASML founded The Make Next Platform in 2016 together with Huisman, Vanderlande and the non-profit Stichting Technology Rating. Thales NL joined as a co-founder in 2019. The Make Next Platform puts the partners' network, competencies, expertise, and experience to work in answering questions that these scaleups encounter in their development. We help them grow into a sustainable company.

The Make Next Platform aims to help young technology companies that have moved beyond the startup phase and are ready to expand. These companies, so-called scaleups, face challenges such as finding the funding needed to grow, knowing how to target new customer groups, and recruiting new employees with the right skills. Through exchange of best practices, business experience and coaching from corporate experts, the Make Next Platform partners aim to support them in their development to become global players by giving them access to their inside networks.

Up to now, the Make Next Platform has screened more than 200 companies and engaged with the management teams of more than 50 of these. So far, seven scaleups have been adopted and more than 10 are currently in the pipeline.

Our ambitions, commitments and programs as described in this chapter contribute to the following SDGs.

At ASML, we rely heavily on our supplier network to achieve the innovations we strive for. Our suppliers are a critical extension of our value chain. With around 4,700 suppliers in our total supplier base, we distinguish between product-related and non-product-related suppliers.

Product-related suppliers provide materials, equipment, parts and tools used directly to produce our systems. This category comprises 800 suppliers and represents the highest percentage of our procurement volume, accounting for 70% of our total spend. From this total number of product-related suppliers, around 200 suppliers are critical suppliers, accountable for roughly 92% of the product-related spend.

We invest considerable resources to develop and introduce new systems and system enhancements, such as EUV lithography and e-beam metrology. As these are complex technologies involving thousands of specialized parts, we focus on high value-added system integration.

ASML’s supply chain strategy is centered on long-term relationships and close cooperation with our suppliers and partners. Our goal is to ensure we get the products, materials and services we need to meet our short- and long-term needs, to support our operations from the earliest moment of development to the end-of-life stages of our systems. To make sure that this runs smoothly, we bring in our suppliers at the earliest possible phase in the Product Generation Process (PGP). This also enables us to increase product performance and ensure manufacturability and serviceability.

To drive a sustainable and resilient supply chain, we emphasize supplier performance management, supply chain risk management, and a responsible supply chain.

ASML's continued growth, in combination with our ambitions, requires us to significantly improve our key business processes. Tight risk control and continuous supply chain improvement are key to ensuring quality, long-term business continuity and sustainability.

We invest in developing and monitoring our supply landscape to help suppliers meet our requirements with regard to quality, logistics, technology, cost and sustainability (QLTCS). Our supplier profiling methodology helps us to measure supplier performance, supplier capability and risk profile in all of these fields.

We have a framework in place to communicate process requirements and compliance expectations to our suppliers. This framework outlines our approach to supplier management and development toward the desired ASML supplier landscape. It also provides an enhanced knowledge base to improve our dialogue with suppliers around their performance and development potential. We conduct regular operational and performance review meetings to ensure suppliers continue to improve their performance and processes. When supplier performance drops below annually set thresholds and does not recover upon request and within a reasonable time frame, ASML will take action to secure reliable future supplies.

In addition, we have a structural audit program in place to assess supply chain risks and identify areas of improvements to mitigate or reduce those risks.

In 2021, we launched various suppliers improvement initiatives, in areas such as N-tier (indirect) supplier change management, product safety and repair. These cross-sectoral improvement projects aim to accelerate learning for our suppliers and improve overall supplier performance.

Due to the highly specialized nature of many of our parts and modules, as well as the low volume, it is not always economical to source from more than one supplier. Our sourcing strategy therefore (in many cases) prescribes 'single sourcing, dual competence', which requires us to proactively manage supplier performance and risk.

We conduct continuous performance and risk management of our supply base with the purpose to assure and improve performance, and prevent reputational damage. To this end, we deploy two key programs: a suppliers business continuity program aimed at securing continuity of supply and suppliers information security, and an information security and cyber resilience program to protect our intellectual property and maintain a leading technology position.

In 2021, we continued to focus on improving business recovery capabilities through a review of business continuity plans to be sure that suppliers can re-establish deliveries within the shortest possible timeframe in case a disruptive event occurs. We require suppliers to have business recovery capabilities in line with the ISO 22301 standard. Supplier recovery plans are requested, evaluated and, where needed, improved to prevent potential business disruptions. For example, suppliers might be required to put their inventory in separate locations, implement fire prevention controls, or increase buffer stock. In 2021, we included 197 business-critical product-related suppliers in our business continuity program, and extended the scope with 32 non-product-related suppliers.

We actively pursue sustainable development of our supply chain designed to ensure that our tier-1 suppliers and contractors conduct their business in a caring and accountable manner, and that they act as a responsible business partner. As we seek to ensure a responsible supply chain, we deploy several programs that focus on Responsible Business Alliance (RBA) commitment and standards, due diligence, and our Supplier Sustainability Program.

We are a member of the Responsible Business Alliance (RBA) and have adopted the RBA Code of Conduct, which is a standard intended to ensure that working conditions in the electronics industry, or industries in which electronics is a key component, and its supply chains are safe, that workers are treated with respect and dignity, and that business operations are environmentally responsible and conducted ethically.

We expect our key suppliers and their suppliers to acknowledge and comply with the RBA Code of Conduct as well. This requirement is included in our long-term product-related suppliers’ contracts. We also encourage our suppliers to develop their own sustainability strategies, policies and processes, and we actively pursue our suppliers’ adherence to this code.

With regard to the suppliers in scope for these detailed procedures, we expect them to complete the RBA SAQ each year to validate their compliance with the RBA Code of Conduct and to determine any potential gaps in relation to the RBA Code of Conduct standards. We review all RBA SAQ results, evaluate high risk findings (if any) and determine severity of the finding. It is our policy to discuss all high-risk findings with the supplier to evaluate the risk and to determine if an improvement plan is needed.

A key performance indicator of our approach to ensuring a sustainable supply chain is the percentage of suppliers in scope who complete the RBA SAQ. Our target is to achieve a 90% completion rate by 2025. Our second key performance indicator is to have 100% improvement plans in place for high-risk suppliers, as identified by the RBA self-assessment.

The graphic below provides an overview of the scoping resulted from our due diligence procedure.

We have asked a total of 56 suppliers to complete the detailed RBA SAQ. In general, the RBA SAQ results show a relatively low risk level in our supply base, as most of our suppliers operate in countries which we believe generally have a strong rule of law. In 2021, 89% of the suppliers in scope have completed the RBA SAQ (88% in 2020). From this total, the RBA SAQ indicated an overall high risk for two suppliers.

We evaluated these potential gaps and we engaged with these suppliers. Based on our evaluation, we determined that the risks did not relate to an actual breach or incident – we concluded that the high risks were overrated, that no improvement plan was needed, and we adjusted the scoring. With regard to human rights risks, the RBA SAQ indicated a high risk on labor for one supplier. Based on our evaluation, we concluded that this risk was related to management systems rather than actual breaches of human rights. More details can be found in the table below.

Amid travel restrictions and other COVID-19 measurements, we have not conducted on-site supplier audits. We view this as an area of improvement and have reviewed our previous audit approach. We are considering whether to involve third-party auditors. We will complete the review and start implementation in 2022.

Our Supplier Sustainability Program addresses labor, human rights, safety, ethics and environmental risks in our tier-1 supply chain by focusing on seven building blocks – Supplier Code of Conduct (RBA), RBA self-assessment, responsible minerals sourcing, reducing carbon footprint, increase re-use capabilities and reducing waste, information security, and business continuity.

Like many companies in the electronics industry, our products contain minerals and metals necessary to the functionality or production of our products. Such minerals and metals include tantalum, tungsten, tin and gold, which are 3TG minerals, or so-called ‘conflict minerals’. We do not use a significant amount of these 3TG minerals in the manufacturing of our products. However, certain 3TG minerals are needed to develop our products and for them to function. Gold, for example, is used in coating critical electronic connectors, and tin is used for welding electronic components and creating EUV light.

We have adopted a series of compliance measures based on the legal requirements and guidelines of the five-step framework set forth by the OECD Due Diligence Guidance from Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD Guidance). As part of our responsible sourcing program we conduct a reasonable country of origin inquiry. To this end we focus on five areas, covering a robust management system, risk identification, risk mitigation, industry collaboration with the Responsible Minerals Initiative (RMI) organization, and public reporting.

Despite continuous efforts, we are unable to determine the precise origin of all of the 3TG minerals included in our products. This is due to several reasons: 3TG supply chain complexity, the number of tiers of suppliers to trace the source, and the limited number of certified conflict-free smelters for all conflict minerals. To obtain correct data from our supply chain is a challenge, but we continue our efforts in this regard. We continue to encourage our suppliers to trace the origins of the 3TG minerals within their supply chain in accordance with applicable conflicts minerals rules and regulations. Furthermore, we request our suppliers to report smelters who are not listed or identified on the RBA smelters list to the RBA for audit. For more information, please see our Conflict Minerals report available on www.asml.com.

ASML Holding N.V. is a public limited liability company operating under Dutch law. ASML’s shares are listed on Euronext Amsterdam and NASDAQ.

We have a two-tier board structure, consisting of a Board of Management responsible for managing the company, and an independent Supervisory Board which supervises and advises the Board of Management. For the fulfillment of their duties, the two Boards are accountable to the General Meeting, the corporate body representing our shareholders.

Our governance structure is based on ASML’s articles of association, Dutch corporate and securities laws and the Dutch Corporate Governance Code. Because we are listed on NASDAQ, we are also required to comply with applicable provisions of the Sarbanes-Oxley Act, the NASDAQ Listing Rules, and the rules and regulations promulgated by the US Securities and Exchange Commission.

This section of the Annual Report addresses our corporate governance structure and the way ASML applies the principles and best practices of the Dutch Corporate Governance Code. It also provides information required by the Decree adopting further rules related to the content of the management report and the Decree implementing Article 10 of the Takeover Directive.

ASML’s Board of Management is responsible for managing ASML. Its responsibilities include establishing a position on the relevance of long-term value creation for ASML and its business, defining and deploying ASML’s strategy, establishing and maintaining effective risk management and control systems, managing the realization of ASML’s operational and financial objectives and the corporate social responsibility aspects relevant to ASML. In fulfilling its management tasks and responsibilities, the Board of Management is guided by the interests of ASML and its business and takes into consideration the interests of our stakeholders.

The current Board of Management is comprised of five members. It has a dual leadership structure, under the chairmanship of the President and Chief Executive Officer, and the vice chairmanship of the President and Chief Technology Officer. The Board of Management has adopted a division of tasks, charging individual members with a specific part of the managerial tasks, but the Board of Management remains collectively responsible for the management of ASML.

The Board of Management is supervised and advised by the Supervisory Board. The Board of Management provides the Supervisory Board with all the information, in writing or otherwise, necessary for the Supervisory Board to properly carry out its duties. Besides the information provided in the regular meetings, the Board of Management provides the Supervisory Board with regular updates on developments relating to our business, financials, operations, and industry developments in general. Certain important decisions of the Board of Management require the approval of the Supervisory Board, see the Supervisory Board section of this Corporate Governance chapter.

Further information regarding the general responsibilities of the Board of Management, the relationship with the Supervisory Board and various stakeholders, the decision-making process within the Board of Management, and the logistics surrounding the meetings can be found in the Board of Management’s rules of procedure. These are published in the Governance section on our website.

Members of the Board of Management are appointed by the Supervisory Board on the recommendation of the Selection and Nomination Committee and upon notification to the General Meeting. Members of the Board of Management are appointed for a term of four years. Reappointment for consecutive four-year terms is possible.

In line with Dutch law, all members of the Board of Management are engaged by means of a management services agreement for the duration of their appointment.

The management services agreements between ASML and the Board of Management members contain specific provisions regarding severance payments. If ASML terminates the agreement for reasons which are not exclusively or mainly found in acts or omissions of the Board of Management member, a severance payment not exceeding one year’s base salary will be paid. Furthermore, current agreements stipulate that a member of the Board of Management, when giving notice of termination pursuant to a change of control, will be entitled to a severance amount. Given that such a resignation is specifically linked to a change of control, ASML does not consider this provision a deviation from the Dutch Corporate Governance Code.

The Supervisory Board may suspend and dismiss members of the Board of Management, but this can only be done after consulting the General Meeting.

Peter Wennink became President and CEO in 2013, having served as Executive VP, CFO and member of the Board of Management since 1999. Peter was previously a partner at Deloitte Accountants, focusing on the semiconductor industry. He has an extensive background in finance and is a member of the Dutch Institute of Registered Accountants. Peter was a member of the Advisory Board of the Investment Committee of Stichting Pensioenfonds ABP until December 31, 2021. He serves as vice-chairman on the board of the FME-CWM, Peter is also a member of the board of Captains of Industry Eindhoven Region and is Chair of the Eindhovensche Fabrikantenkring and of the Supervisory Board of the Eindhoven University of Technology. Furthermore, Peter is council member of Topconsortium voor 'Kennis en Innovatie' TKI HTS&M, member of the Advisory Committee of the Dutch National Growth Fund and a member of the Circle of Influence of Startup Delta.

Martin van den Brink has been President and CTO of ASML since 2013. He joined ASML at its founding in 1984, and for the next 11 years held various positions in engineering. In 1995 he became Vice President Technology, and in 1999 was appointed Executive Vice President Product & Technology and member of the Board of Management. Martin holds a degree in Electrical Engineering from HTS Arnhem (HAN University), as well as a degree in Physics (1984) from the University of Twente. In 2012, the University of Amsterdam awarded him an honorary doctorate in physics.

Roger Dassen joined ASML in June 2018 and was appointed Executive Vice President and CFO and member of the Board of Management at the AGM the same year. He previously served as Global Vice Chair and member of the Executive Board of Deloitte Touche Tohmatsu Limited, having been CEO of Deloitte Holding B.V. Roger holds a master’s in Economics and Business Administration, a post-master’s in Auditing, and a PhD in Business Administration, all from the University of Maastricht. He is Professor of Auditing at Vrije Universiteit Amsterdam, and sits on the Supervisory Board of the Dutch National Bank. He is also the Chair of the Supervisory Board of Maastricht University Medical Center+.

Christophe Fouquet was appointed Executive Vice President EUV and member of the Board of Management in 2018. Since joining ASML in 2008, he has held several positions, including Senior Director Marketing, Vice President Product Management, and Executive Vice President Applications, a position he held from 2013 until 2018. Prior to joining ASML, he worked for semiconductor equipment peers KLA Tencor and Applied Materials. Christophe holds a master’s degree in Physics from the Institut Polytechnique de Grenoble.

Frédéric Schneider-Maunoury has been Executive Vice President and Chief Operations Officer since he joined ASML in 2009. He was appointed to the Board of Management in 2010. Prior to joining ASML, Frédéric was Vice President Thermal Products Manufacturing at power generation and rail transport equipment group Alstom, having previously served as General Manager of the worldwide Hydro Business of Alstom. Before joining Alstom, Frederic held various positions at the French Ministry of Trade and Industry. He is a graduate of Ecole Polytechnique (1985) and Ecole Nationale Supérieure des Mines (1988) in Paris.

Our Supervisory Board supervises the Board of Management and the general course of affairs of ASML and its subsidiaries. The Supervisory Board also supports the Board of Management with advice. In fulfilling its role and responsibilities, the Supervisory Board takes into consideration the interests of ASML and its subsidiaries, as well as the relevant interests of its stakeholders. In the two-tier structure, the Supervisory Board is a separate and independent body from the Board of Management and from ASML. No member of the Supervisory Board personally maintains a business relationship with ASML, other than as a member of the Supervisory Board.

The Supervisory Board currently consists of eight members, with the minimum being three.

In performing its task, the Supervisory Board focuses on, inter alia, ASML’s corporate strategy aimed at long-term value creation and the execution thereof, the staffing of and succession planning for the Board of management, the management of risks inherent to ASML's business activities, the financial reporting process, compliance with applicable legislation and regulations, ASML’s culture and the activities of the Board of Management in that regard, the relationship with shareholders and other stakeholders, and corporate social responsibility issues important for ASML.

Important management decisions, such as setting the operational and financial objectives, the strategy designed to achieve these objectives and the parameters to be applied in relation thereto, major investments, budget and the issue, repurchase and cancellation of shares, require the Supervisory Board’s approval.

The Supervisory Board is governed by its rules of procedure. Items covered in these rules include the responsibilities of the Supervisory Board and its committees, the composition of the Supervisory Board and its committees, logistics surrounding the meetings, the meeting attendance of members of the Supervisory Board, the rotation schedule for these members and the Committee charters. The Supervisory Board’s rules of procedure and the committee charters are regularly reviewed and, if needed, amended. The Audit Committee charter is reviewed annually to confirm that the charter still complies with applicable rules and regulations, especially those relating to the Sarbanes-Oxley Act.

The members of the Supervisory Board are appointed by the General Meeting based on binding nominations proposed by the Supervisory Board. When nominating persons for (re)appointment, the Supervisory Board checks whether the candidates fit the Supervisory Board's profile. The profile is available in the Governance section of our website. The General Meeting may reject binding nominations of the Supervisory Board by way of a resolution adopted with an absolute majority of the votes cast, representing at least one-third of ASML’s outstanding share capital. If the votes cast in favor of such a resolution do not represent at least one-third of the total outstanding capital, a new shareholders’ meeting can be convened, at which the nomination can be overruled by an absolute majority.

The Supervisory Board generally informs the General Meeting and the Works Council about upcoming retirements by rotation at the Annual General Meeting of Shareholders (AGM) in the year preceding the actual retirement(s) by rotation. This ensures they have sufficient opportunity to recommend candidates for the upcoming vacancies. The Supervisory Board has the right to reject the proposed recommendations. Furthermore, the Works Council has an enhanced right to make recommendations for one-third of the members of the Supervisory Board. This enhanced recommendation right implies that the Supervisory Board may only reject the Works Council’s recommendations in limited circumstances: (i) if the relevant person is unsuitable or (ii) if the Supervisory Board would not be duly composed if the recommended person were appointed as Supervisory Board member.

Members of the Supervisory Board serve for a maximum term of four years or a shorter period as per the Supervisory Board’s rotation schedule. Supervisory Board members are eligible for reappointment for another maximum term of four years. After that, members may be reappointed again for a maximum period of two years. This appointment may be extended for a final term of no more than two years. The rotation schedule is available in the Governance section on our website.

If the General Meeting loses confidence in the Supervisory Board, it may, by an absolute majority of the votes representing at least one-third of the total outstanding capital, withdraw its confidence in the Supervisory Board. This resolution shall result in the immediate dismissal of the entire Supervisory Board. In such case, the Enterprise Chamber of the Amsterdam Court of Appeal shall appoint one or more members to the Supervisory Board at the request of the Board of Management.

The Supervisory Board, while retaining overall responsibility, has assigned some of its tasks and responsibilities to four committees: the Audit Committee, the Remuneration Committee, the Selection and Nomination Committee and the Technology Committee. Further information on the Supervisory Board committees can be found in the Supervisory Board report and in the charters of the committees as posted on our website.

Gerard Kleisterlee joined the Supervisory Board in 2015, and has been its Chair since 2016. He was President and CEO of the Board of Management of Royal Philips NV from 2001 until 2011, having worked at the company since 1974. From 2011 to 2022 Gerard was the Chairman of the Board of Vodafone Group Plc. From 2010 until May 2020, he was a Non-Executive Director of Royal Dutch Shell Plc. Currently, Gerard is an independent board member at IBEX Limited.

Annet Aris has been a member of the Supervisory Board since 2015. She is Senior Affiliate Professor of Strategy at INSEAD business school, France, a position she has held since 2003. From 1994 to 2003 she was a partner at McKinsey & Company in Germany and until 2019 she was the Non-Executive Director of Thomas Cook Group. She also sits on the supervisory boards of Jungheinrich AG, Randstad Holding NV and the Cooperatieve Rabobank U.A.

Hans Stork joined the Supervisory Board in 2014. He is Senior Vice President and CTO of ON Semiconductor Corporation, a position he has held since 2011. Prior to that, Hans held a range of senior positions, including Senior Manager at IBM Corporation, Director of ULSI Research Lab at Hewlett Packard Company, Senior Vice President and CTO of Texas Instruments, Inc and Group Vice President and CTO of Applied Materials, Inc. He has also been a member of the Board of Sematech, and currently sits on the Scientific Advisory Board of imec.

Mark Durcan was appointed as a member the Supervisory Board in 2020. From 2012 to 2017, he was CEO of Micron Technology, Inc, having joined the company in 1984, and held various management positions before being appointed as CEO. Furthermore, Mark was director at Freescale Semiconductor and MWI Veterinary Supply. Mark is a Non-Executive Director at Advanced Micro Devices, Inc and Veoneer, a member of the board of AmerisourceBergen Corporation, member of the Board of Trustees for Rice University (Texas), director at St. Luke's Health System (Idaho) and Director at Natural Intelligence Systems CA private AI. Startup Company.

Terri Kelly has been a member of the Supervisory Board since 2018. Previously, she was President and Chief Executive Officer at W.L. Gore & Associates from 2005 until 2018, having worked at Gore since 1983 in various management roles. She also served on Gore’s Board of Directors through July 2018. Terri is a Trustee of the Nemours Foundation, Vice-Chair of the University of Delaware, and a Trustee of the Unidel Foundation. She is also a member of the Board of Directors of United Rentals, Inc.

Rolf-Dieter Schwalb has been a member of the Supervisory Board since 2015. He was CFO and member of the Board of Management of Royal DSM NV from 2006 to 2014. Prior to that, he was CFO and member of the Executive Board of Beiersdorf AG. He also held a variety of management positions in Finance, IT and Internal Audit at Beiersdorf AG and Procter & Gamble Co.

Warren East became a member of the Supervisory Board in 2020. Warren has been CEO of Rolls-Royce Group Plc since 2015. He spent his early career at Texas Instruments Ltd from 1985 to 1994. He then joined ARM Holdings, Plc, where he held various management positions and was appointed as its CEO from 2001 to 2013.

Birgit Conix became a member of the Supervisory Board in 2021. Birgit has been CFO and a member of the Management Board of Sonova Holding AG since June 2021. From 2018 until January 1, 2021, Birgit was a member of the Executive Board and CFO of TUI AG. Prior to that, she was the CFO of the Belgian media, cable and telecommunications company Telenet Group NV. Prior to that, she held various management positions in finance at Johnson & Johnson, Heineken, Tenneco and Reed Elsevier.

The section below addresses a number of topics that apply to both the Board of Management and the Supervisory Board.

The remuneration of the Board of Management is determined by the Supervisory Board, on recommendation of the Remuneration Committee, in accordance with the Remuneration Policy adopted by the General Meeting. The current Remuneration Policy was adopted by the General Meeting in 2021.

The remuneration of the Supervisory Board is based on the Remuneration Policy. The current Remuneration Policy was adopted by the General Meeting in 2021. The remuneration of the Supervisory Board is not dependent on our (financial) results. The members of the Supervisory Board do not receive ASML shares, or rights to acquire ASML shares, as part of their remuneration.

Board of Management and Supervisory Board members who acquire or have acquired ASML shares or rights to acquire ASML shares must intend to keep these for long-term investment only. In concluding transactions in ASML shares, members of the Board of Management and the Supervisory Board must comply with our Insider Trading Rules. Any transactions in ASML shares performed by members of the Board of Management and the Supervisory Board are reported to the Dutch AFM. No member of the Supervisory Board currently has any ASML shares or rights to acquire ASML shares.

We will not and have not granted any personal loans, guarantees, or the like to members of the Board of Management and the Supervisory Board.

Our Articles of Association provide for the indemnification of the members of the Board of Management and the Supervisory Board against claims that are a direct result of their tasks, provided that such claims are not attributable to willful misconduct or intentional recklessness of the respective member. We have also implemented the indemnification of the members of the Board of Management and the Supervisory Board by means of separate indemnification agreements for each member.

On August 6, 2021, the US Securities and Exchange Commission approved the Nasdaq Stock Market’s proposal to amend its listing standards to encourage greater board diversity and to require board diversity disclosures for Nasdaq-listed companies. Pursuant to the amended listing standards, ASML, as a foreign private issuer, is required to have at least two diverse Supervisory Board members or explain the reasons for not meeting this objective. Furthermore, a Board diversity matrix is required to be included in the Annual Report on Form 20-F, containing certain demographic and other information regarding members of the Supervisory Board. ASML currently complies with the diversity requirement, as we currently have three female and five male members on our Supervisory Board. The Board diversity matrix is set out below.

On September 28, 2021, a gender diversity bill was adopted by Dutch Parliament, introducing a quota for the supervisory boards of Dutch listed companies pursuant to which the composition of the supervisory board should comprise at least one-third of both men and women. New appointments will be declared null and void in the event of non-compliance with this requirement. Also, the bill introduced a requirement to set ambitious gender balance targets for boards of management and senior management of large listed and non-listed Dutch NVs and BVs. This gender diversity bill has entered into force on January 1, 2022. Annually, as of the 2022 reporting year, companies will have to report on their progress made in achieving the gender balance targets to the Dutch Social and Economic Council and in the management report.

Currently, the Supervisory Board meets the gender criterion of the Dutch gender diversity bill, since both men and women are represented in the Supervisory Board with at least three out of eight members.

We recognize the importance of diversity and inclusion: a diverse and inclusive workforce provides the necessary mix of voices and points of view required to continue to innovate and drive our business forward. Ensuring balanced gender representation has proven to be challenging in a technology environment such as the one ASML operates in. Overall, the global STEM (science, technology, engineering and math) talent pool is scarce and it is even more challenging to recruit female talent. Our R&D workforce is 15% female. Nearly 90% of job positions are STEM related, while peers in the high-tech industry have more diverse, non-STEM related job positions. ASML is highly motivated to see more women pursuing careers in engineering and science now and in the future, thereby increasing our future talent pool, so that more women will be available in the future for technical positions and (senior) management positions, including the Board of Management. The highly-specialized nature of our industry means achieving this balance is a long-term process. We are actively engaged with multiple educational programs to grow the pipeline, deploy multiple initiatives to promote STEM education among the future female talent pool and continue to foster an environment where on our current workforce can thrive.

Since 2020, we have been developing and formalizing our approach to diversity and inclusion. We assembled a Global Diversity & Inclusion Council in 2021 that consists of senior leaders who act on behalf of ASML to provide thought leadership. The Council, chaired by a member of the Board of Management, creates strategic accountability for results, provides governance and oversight on diversity and inclusion initiatives, and promotes company-wide accountability to goals. Our diversity and inclusion strategy includes the following:

Our aim is to be representative of the available skilled workforce. Creating an environment where all feel welcome, know they belong and see a career path in front of them requires diversity at all levels of the organization.

We aim to increase the diversity of our workforce by fostering a culture that is inclusive of all. We@ASML, our employee survey, measures inclusion levels each year. In 2021 our Inclusion score was 83% compared to 82% of top performing global companies. Our goal is to meet or increase this level of inclusion among our employees on an ongoing basis. To do this, we set a target to score on par +/- 3% with the top 25% of this comparison company list in 2024.

In 2021, we made progress in gender diversity among all employees and senior management. Female employees now make up 18% of our workforce worldwide. This improvement has increased by 1% compared to last year. We aim to increase this trend as we move toward 2024.

We believe the most effective way to address this is by focusing on the growth of our existing team members and expanding the diversity of our talent pool. We’ve set goals to increase the hiring of women from 20% in 2021 to 23% by 2024.

Conflicts of interest procedures are incorporated in both the Board of Management’s and the Supervisory Board’s rules of procedure. These procedures reflect Dutch law and the principles and best practice provisions of the Code with respect to conflicts of interest.

Pursuant to Dutch legislation, a member of the Board of Management may not be a Supervisory Board member in more than two other large companies or large foundations, as defined in Dutch law. A member of the Board of Management may never be the Chairperson of a Supervisory Board of a large company. Board of Management members require prior approval from the Supervisory Board before accepting a position of another large company or foundation. Members of the Board of Management are also required to notify the Supervisory Board of other important functions held or to be held by them.

Dutch law stipulates that a Supervisory Board member may not hold more than five Supervisory Board positions in large companies or large foundations as defined in Dutch law, with chairmanships counting double.

A General Meeting (AGM) is held at least once a year and generally takes place in Veldhoven, the Netherlands. However, due to the COVID-19 pandemic and in accordance with the Temporary Act COVID-19 Justice and Safety, in 2021 the AGM was held fully virtually. The agenda for the AGM typically includes the following topics:

Proposals placed on the agenda by the Supervisory Board, the Board of Management, or by shareholders, provided that they have submitted the proposals in accordance with the applicable legal provisions, are discussed and resolved upon. Shareholders representing at least 1.0% of ASML’s outstanding share capital or representing a share value of at least €50 million are entitled to place items on the agenda of a General Meeting at the latest 60 days before the date of the meeting.

Extraordinary general meetings may be held when considered necessary by the Supervisory Board or Board of Management. In addition, an extraordinary general meeting must be held if one or more ordinary or cumulative preference shareholders, who jointly represent at least 10% of the issued share capital, make a written request to that effect to the Supervisory Board and the Board of Management. The request must specify in detail the business to be dealt with.

Shareholders’ meetings are convened by public announcement via the website of ASML no later than 42 days prior to the meeting, as stipulated by Dutch law. The record date is set at the 28th day prior to the day of the AGM. Persons who are registered as shareholders on the record date are entitled to attend the meeting and to exercise other shareholder rights.

The Board of Management and Supervisory Board provide the shareholders with the information relevant to the topics on the agenda by means of an explanation to the agenda and other documents necessary or helpful for this purpose. The agenda indicates which agenda items are voting items, and which items are for discussion only. All documents related to the General Meeting, including the agenda with explanations, are posted on our website.

ASML shareholders may appoint a proxy who can vote on their behalf at the AGM. We also use an internet proxy voting system, facilitating shareholder participation without having to attend in person. We also provide the option for shareholders to issue voting proxies or voting instructions to an independent civil law notary prior to the AGM. We do not solicit from or nominate proxies for our shareholders.

Resolutions are adopted by the General Meetings by an absolute majority of the votes cast (except where a different proportion of votes are required by the Articles of Association or Dutch law), and there are generally no quorum requirements applicable to such meetings.

Voting results from the AGM are made available on our website within 15 days of the meeting. The draft report of the AGM is made available on our website or on request no later than three months after the meeting. Shareholders have the opportunity to provide comments in the subsequent three months, after which the report is adopted by the Chairman and the Secretary of the meeting. The adopted report is also available on our website and on request.

In addition to the items submitted annually at the AGM, the General Meeting also has other powers, with due observance of the statutory provisions. These include resolving:

(Proposed) amendments of the Articles of Association require the approval of the Supervisory Board. A quorum requirement applies for the General Meeting at which an amendment of the Articles of Association is proposed: more than half of the issued share capital is required to be represented; the proposal requires a voting majority of at least three-fourths of the votes cast. If the quorum requirement is not met, a subsequent General Meeting shall be convened, to be held within four weeks of the first meeting. At this second meeting, the resolution can be adopted with at least three-fourths of the votes cast, irrespective of the share capital represented. If a resolution to amend the Articles of Association is proposed by the Board of Management, the resolution will be adopted with an absolute majority of votes cast irrespective of the represented share capital at the General Meeting.

A brief summary of the most significant provisions of our Articles of Association is included as Exhibit 99.1 to our form 6-K furnished to the SEC on February 8, 2013 (the ‘Articles of Association’), which is incorporated by reference herein.

ASML's authorized share capital amounts to €126.0 million and is divided into:

82,915,935 ordinary shares were held by 286 registered holders with a registered address in the US. Since certain of our ordinary shares were held by brokers and nominees, the number of record holders in the US may not be representative of the number of beneficial holders, or of where the beneficial holders are resident.

No ordinary shares B and no cumulative preference shares have been issued.

There are no special voting rights on the issued shares in our share capital.

There are currently no limitations, either under Dutch law or in ASML’s Articles of Association, on the transfer of ordinary shares in the share capital of ASML. Pursuant to ASML’s Articles of Association, the Supervisory Board’s approval shall be required for every transfer of cumulative preference shares.

Our Board of Management has the power to issue ordinary shares and cumulative preference shares insofar as it has been authorized to do so by the General Meeting. The Board of Management requires approval of the Supervisory Board for such an issue. The authorization by the General Meeting can only be granted for a certain period not exceeding five years and may be extended for no longer than five years on each occasion. If the General Meeting has not authorized the Board of Management to issue shares, the General Meeting will be authorized to issue shares on the Board of Management’s proposal, provided that the Supervisory Board has approved such proposal.

Holders of ASML’s ordinary shares have a preemptive right, in proportion to the aggregate nominal amount of the ordinary shares held by them. This preemptive right may be restricted or excluded. Holders of ordinary shares do not have preemptive right with respect to any ordinary shares issued for consideration other than cash or ordinary shares issued to employees. If authorized for this purpose by the General Meeting, the Board of Management has the power, subject to approval of the Supervisory Board, to restrict or exclude the preemptive rights of holders of ordinary shares.

We may repurchase our issued ordinary shares at any time, subject to compliance with the requirements of Dutch law and our Articles of Association. Any such repurchases are subject to the approval of the Supervisory Board and the authorization by the General Meeting, which authorization may not be for more than 18 months.

The ASML Preference Shares Foundation (Stichting Preferente Aandelen ASML), a foundation organized under Dutch law, has been granted an option right to acquire preference shares in the share capital of ASML. The Foundation may exercise the Preference Share Option in situations where, in the opinion of the Foundation’s Board of Directors, ASML’s interests, ASML’s business or the interests of ASML’s stakeholders are at stake. This may be the case if:

The Foundation’s objectives are to look after the interests of ASML and the enterprises maintained by and/or affiliated in a group with ASML, in such a way that the interests of ASML, of those enterprises and of all parties concerned are safeguarded in the best possible way, and that influences in conflict with these interests, which might affect the independence or the identity of ASML and those companies, are deterred to the best of the Foundation’s ability, and everything related to the above or possibly conducive thereto. The Foundation aims to realize its objects by acquiring and holding cumulative preference shares in the capital of ASML and by exercising the rights attached to these shares, particularly the voting rights.

The Preference Share Option gives the Foundation the right to acquire such number of cumulative preference shares as the Foundation will require, provided that the aggregate nominal value of such number of cumulative preference shares shall not exceed the aggregate nominal value of the ordinary shares issued at the time of exercise of the Preference Share Option. The subscription price will be equal to their nominal value. Only one-fourth of the subscription price would be payable at the time of initial issuance of the cumulative preference shares, with the other three-fourths of the nominal value only being payable when ASML calls up this amount. Exercise of the preference share option could effectively dilute the voting power of the outstanding ordinary shares by one-half.

Cancellation and repayment of the issued cumulative preference shares by ASML requires authorization by the General Meeting, on a proposal to this effect made by the Board of Management and approved by the Supervisory Board. If the Preference Share Option is exercised and as a result cumulative preference shares are issued, ASML will initiate the repurchase or cancellation of all cumulative preference shares held by the Foundation on the Foundation’s request. In that case, ASML is obliged to effect the repurchase and respective cancellation as soon as possible. A cancellation will result in a repayment of the amount paid and exemption from the obligation to pay up on the cumulative preference shares. A repurchase of the cumulative preference shares can only take place when such shares are fully paid up.

Other than the arrangements made with the Foundation as described above, ASML has not established any other anti-takeover devices.

The Dutch Act on the supervision of financial markets and US securities laws contain requirements regarding the disclosure of capital interests and voting rights in listed companies. The following table sets forth the total number of ordinary shares owned by each shareholder that reported to the Dutch AFM or the US SEC a beneficial ownership of ordinary shares that is at least 3.0% (5.0%, in the case of the SEC) of our ordinary shares issued and outstanding. Also included in the table below is the total number of ordinary shares owned by our members of the Board of Management as of December 31, 2021. The information set out below with respect to shareholders is based on public filings with the SEC and AFM as of January 31, 2022.

ASML publishes, among others, the following annual reports regarding the financial year 2021:

Both reports have the same qualitative base and describe the same risk factors that are specific to the semiconductor industry, ASML and ASML’s shares. We also provide sensitivity analyses by providing:

The Supervisory Board has reviewed and approved, and all Supervisory Board members signed, ASML’s 2021 financial statements as prepared by the Board of Management. KPMG has duly examined our financial statements, and the Auditor’s Report is included in the Consolidated Financial Statements.

In accordance with Dutch law, our external auditor is appointed by the General Meeting, based on a nomination for appointment by the Supervisory Board. The Supervisory Board bases its nomination on the advice from the Audit Committee and the Board of Management, who annually provide a report to the Supervisory Board on the performance of and relationship with the external auditor, as well as its independence. ASML’s current external auditor, KPMG, was first appointed by the General Meeting in 2015 for the reporting year 2016, and has been reappointed on a yearly basis since then. At the 2020 AGM, KPMG was appointed as the external auditor for the reporting year 2021.

The Audit Committee reviews and approves the external auditor’s audit plan for the audits planned during the financial year. The audit plan also includes, among others, the activities of the external auditor with respect to their limited procedures on the quarterly results other than the annual accounts. Proposed services may be preapproved at the beginning of the year by the Audit Committee (annual pre-approval) or may be pre-approved during the year by the Audit Committee in case of a particular engagement (specific pre-approval). The annual pre-approval is based on a detailed, itemized list of services to be provided, which is designed to ensure there is no management discretion in determining whether a service has been approved, and to ensure the Audit Committee is informed of each service it is pre-approving.

Dutch rules require strict separation of audit and advisory services for Dutch public-interest entities and US regulations restrict services that can be provided by an auditor of a US listed company. Dutch law prohibits the acceptance by the external auditor of other services when an audit is performed. The Audit Committee monitors compliance with Dutch and US rules on services provided by the external auditor.

In principle, the external auditor attends all the Audit Committee meetings. The external auditor’s findings are discussed at these meetings. The Audit Committee reports to the Supervisory Board on the topics discussed with the external auditor, including the external auditor’s reports with regards to the audit of the annual reports as well as the content of the annual reports. Furthermore, the external auditor may attend the Supervisory Board meeting in which the annual external audit report is discussed. The external auditor may also attend Supervisory Board meetings in which the quarterly financial results are discussed.

The role of our Internal Audit function is to assess our systems of internal controls by performing independent procedures such as risk-based operational audits, IT audits and compliance audits. The Internal Audit department reports directly to the Audit Committee and the Board of Management. The yearly Internal Audit plan is discussed with and approved by the Audit Committee, the Board of Management and the Supervisory Board. The follow-up on the Internal Audit findings and progress made compared to the plan are discussed on a quarterly basis with the Audit Committee. The external auditor and Internal Audit department have meetings on a regular basis.

As ASML's New York Shares are listed on NASDAQ Stock Market LLC (‘NASDAQ’), NASDAQ corporate governance standards in principle apply to us. However, NASDAQ rules provide that foreign private issuers may follow home country practice in lieu of the NASDAQ corporate governance standards subject to certain exceptions. Our corporate governance practices are primarily based on Dutch requirements. The table below sets forth the practices followed by ASML in lieu of NASDAQ rules based upon the exception as described above.

We closely follow the developments in the area of corporate governance and the applicability of the relevant corporate governance rules for ASML. Any substantial changes to ASML’s corporate governance structure or application of the Corporate Governance Code will be submitted to the General Meeting for discussion.

We are of the opinion that ASML fully complies with the Dutch Corporate Governance Code.

The Board of Management and the Supervisory Board,

Veldhoven, February 9, 2022

We deploy our ERM framework through a well-defined governance structure and a robust ERM process. The Risk and Business Assurance function drives the ERM process and associated activities across ASML and its affiliates. It takes a systematic approach to identify, manage and monitor risks in pursuit of our business objectives by setting standards and enabling management to make ASML's governance, risk management, internal control and compliance more efficient and effective. The framework also helps to identify opportunities that allow us to achieve our objectives and enable continuous sustainable growth.

ERM is a continuous process. Its related activities are periodically repeated to identify and address risks in a timely fashion, and its results remain relevant for decision-making purposes. Our Vice President of Risk and Business Assurance, reporting to ASML's CFO, is responsible for leading the development and maintenance of the ERM framework and makes sure the ERM process is carried out. ASML has adopted the ISO 31000:2018 standard as the foundation of its enterprise risk management. In addition, the Vice President of Risk and Business Assurance is responsible for leading the security, and internal control function and for the development and maintenance of the compliance process.

The Supervisory Board provides independent oversight on management’s response to identifying and mitigating critical risk areas based on regular risk reviews. The Supervisory Board’s Audit Committee provides independent oversight on the ERM process and the timely follow-up on priority actions based on quarterly progress updates.

The Board of Management is responsible for managing the internal and external risks related to our business activities and for making sure we comply with applicable laws and regulations. The Board of Management has delegated its risk oversight to ASML’s Corporate Risk Committee.

The Corporate Risk Committee is a central risk oversight body that reviews, manages and controls risks in the ASML risk universe, including information security. It also approves the risk appetite, risk-management policies and risk-mitigation strategies. The Corporate Risk Committee is chaired by the CFO and comprises senior management representatives from all sectors at ASML, including the CEO and COO.

The Disclosure Committee assists the Board of Management in overseeing ASML’s disclosure activities and compliance with applicable disclosure requirements arising under Dutch and US law and applicable stock exchange regulations, and other regulatory requirements.

The Internal Control Committee, which includes members of the Disclosure Committee, advises the Disclosure Committee and the CEO and CFO in their assessment of our internal control over financial reporting and disclosures, under section 404 of the Sarbanes-Oxley Act. The Chair of the Internal Control Committee updates the Audit Committee, the CEO and CFO on the progress of this assessment. The Chair also includes this update in the report to the Audit Committee.

Risk owners monitor the development of risks in the ASML risk universe and drive risk response across the ASML organization according to requirements that are defined by the Corporate Risk Committee.

The ASML risk universe is a consolidated overview of the risks that may have a material adverse effect in achieving our business objectives. It consists of 38 risk categories grouped into six risk types. This allows us to have a consistent approach across ASML when assessing risks.

We take into account a broad range of internal and external information sources such as macroeconomic and industry trends, relevant guidelines and legislation, and stakeholders’ needs and expectations in all areas. The risk universe is reviewed, updated and approved on a yearly basis, or more frequently in case of significant internal and/or relevant external developments.

Our ERM process provides a holistic approach combining both top-down (company-level) and bottom-up (organization- and process-level) perspectives. This helps us to ensure that risk identification, evaluation, and management are performed at the right level. Our ERM process is subject to continuous improvement. For example, in 2021 we started to implement key risk indicators.

The results of periodic risk assessments and the potential impact of external trends and emerging risks are captured in the ASML risk landscape. As we operate in a dynamic environment, risk exposures are subject to change. The ASML risk landscape is reviewed, updated and discussed by the Corporate Risk Committee each quarter. The execution of the risk assessments is done according to the risk management plan and any additional engagement approved by the Corporate Risk Committee. We define strategies to address relevant risks and take these into account when we define the corporate priorities. ASML defines risk responses with the aim to mitigate the risks up to the level defined by the risk appetite.

Our risk appetite depends on the nature of the risk. ASML’s risk appetite – the level of risk ASML is willing to accept to achieve its objectives – may vary based on the specific risk and is divided into five levels: Averse, Prudent, Moderate, High and Extensive. Our approach is geared toward mitigating the risks to the level defined in our risk appetite.

The table below presents examples of external developments that have affected the exposure of a series of risk categories in 2021, including examples of our responses. The list of risks and risk responses below is not exhaustive.