Kitron — Earnings Release 2017

Feb 16, 2018

Whole year and Q4 results 2017

Peter Nilsson, CEO Cathrin Nylander, CFO

16 February, 2018

Financial highlights Q4:

Strong growth and profitability

• Strong revenue growth
• Underlying growth 12.5%
• EBIT margin 6.5% (6.0%)
• Solid order backlog and high order intake
• Net working capital
• ROOC % 23.2
• CCC 61 days

Q4 2017 vs Q4 2016 NOK mill.
Revenue 667,6		17,1 %
EBIT 43,1		26,3 %
Order backlog 1306,4		28,2 %
Operating cash flow 90,8		149,7 %
Net working capital 486,4		-5,0 %

Financial highlights whole year:

Strong growth and profitability

• Strong revenue growth
• Underlying growth 16.9%
• Strong profitability
• EBIT margin 6.1% (5.6%)
• Solid order backlog
• Underlying growth 24%
• Net working capital
• Improved capital efficiency

NOK mill.		2017 vs 2016
Revenue 2436,7		16,4 %
EBIT 148,7		26,2 %
Order backlog 1306,4		28,2 %
Operating cash flow 160,8		48,2 %
Net working capital 486,4		-5,0 %

Major new orders:

Important agreements in the fourth quarter

Agreement related to manufacturing of medical equipment

In December, Kitron was awarded a contract from a leading medical supplier for a period of two years from 2018.

The expected turnover linked to the contract is between NOK 100 million and NOK 150 million.

Production will take place at Kitron's plant in Arendal.

Kitron has received a further order from Husqvarna Group

In November, Kitron will manufacture and deliver controller units to Husqvarna Group's factory in Sweden for the next 4 years.

The controller units are important parts of Husqvarna Group's batterypowered equipment such as chainsaws, blowers and trimmers.

Production will take place at Kitron's plant in Kaunas, Lithuania.

Active management of component availability

• The shortage of electronic components made 2017 a challenging year for many companies in the Electronics Manufacturing Services business. Kitron's swift and systematic approach combined with our preferred partner program has prevented us from having any serious supply disruptions.
• Shortages and allocations are expected to continue in 2018 and the first half of 2019. Nevertheless, Kitron plans to reduce our material cost in the same manner as we have done over the past 3 years.
• Kitron has established world-class efficient supply chain management and a preferred partner supply strategy.
• Our centralized approach to sourcing and shortages handling, allowing us to leverage Kitron's size, our investment in IT and the support of our preferred partners puts Kitron in an advantageous position to gain market share over the next years.

Highlights: Adjusted dividend policy and divided

Following a fundamental strengthening of Kitron's business, with an improved profitability and successful programs to improve the working capital, the Board has decided to adjust the dividend policy

"Kitron's dividend policy is to pay out an annual dividend of at least 50 % of the company's consolidated net profit before non-recurring items. When deciding on the annual dividend the company will take into account the company's financial position, investment plans as well as the needed financial flexibility to provide for sustainable growth."

• The board proposes that the Annual General Meeting decides on an ordinary dividend of NOK 0.35 per share and an extraordinary dividend of NOK 0.20 per share, a total of NOK 0.55 (NOK 0.25).
• This represents 97.9 per cent of net profit after tax for the group.

Financial statements Whole year and Q4 2017

Revenue Q4:

Strong growth in Industry

Revenue Whole year:

Good growth in several sectors

Revenue by country Q4*:

Continued strong growth in Lithuania and China

	Q4 2017 vs Q4 2016	Share of total revenue
Norway	 -5,2 %	26,8 %
Sweden	 9,6 %	27,1 %
Lithuania	 38,5 %	31,1 %
Others	 27,1 %	14,9 %

Revenue by country Whole year*:

Continued strong growth in Lithuania and Sweden

	2017 vs 2016	Share of total revenue			818
Norway	 -3,8 %	27,7 %	767 738	708	636	2016 2017
Sweden	 19,4 %	26,6 %		593		395
Lithuania	 28,7 %	30,8 %				357
Others	 10,7 %	14,9 %	on milli K O N Norway	Sweden	Lithuania	Others

Quarterly EBIT: Strong profits

• Improved efficiency
• Inefficiencies due to relocations in Q1 and Q4 2016 and Q1 2017
• Profitability in Q1 2016 includes negative oneoffs of MNOK 5

EBIT by country Q4:

Lithuania drives the improvement

• Lithuania show strong EBIT improvement, both in value and margin, and drives the improvement for the whole group
• In all, sites ended in line with expectations
• Group cost re-alignment in Q4

EBIT by country Whole year: Profits improvements

• Norway
• Decline in revenue, improved margins due to cost reductions and efficiency improvements
• Sweden
• Whole year affected by move in first quarter. Efficiency improvements during the year

Lithuania

• Strong growth and efficiency improvements
• Other
• Revenue growth in China drives increased profit

Balance sheet: Strong cash flow

• Cash flow
• Q4 Cash flow MNOK 90.8 (36.3)
• YTD Cash flow MNOK 160.8 (108.5)
• Low financial gearing
• NIBD / EBITDA 0.9 (1.3)
• Working capital
• Capital efficiency
  • Improved inventory processes
  • Further spend consolidation and improved payment terms
• NOWC (R3*) at 17.5% (22%)
• Cash conversion (R3*) cycle 61 (79)
• ROOC (R3*) at 23.2% (18.5%)

Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Net working capital 512 553 565 448 486 NOK million -5.0 %

* Three months rolling average

Market development

Order backlog: Solid order backlog

Order backlog MNOK

• 1306 vs. 1019 last year. Growth of 28%, underlying growth 24%
• Defence: 504 +12% (449)
• Medical: 158 +13% (140)
• Industry: 514 +70% (302)
• Energy/Telecom: 110 -5% (116)
• Offshore: 21 +75% (12)
• Fluctuations to be expected within defence going forward Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

Order backlog

Definition of order backlog includes firm orders and four month customer forecast

Outlook

Outlook

• For 2018, Kitron expects revenue to grow to between NOK 2 500 and 2 700 million. EBIT margin is expected to be between 6.1 and 6.5 per cent.
• The growth is primarily driven by customers in the Industry sector and the Energy / Telecom sector
• The profitability is driven by cost reduction activities and improved efficiency.

Thank you!