Kitron — Earnings Release 2019

Feb 13, 2020

Full year and Q4 results 2019

Peter Nilsson, CEO Cathrin Nylander, CFO

13 February, 2020

Peter Nilsson, Kitron's CEO comments

• Strong revenue growth increasing 20 % in Q4 and 26% year to date with particularly strong growth within Defence/Aerospace and Offshore/Marine market sectors.
• Year to date EBIT margin at 6.1% with margin improvements in Norway and Sweden
• Strong order backlog, with strong contribution from the Defence/Aerospace and Offshore/Marine sectors
• Working capital ratios trending down
• Kitron China running at 30 % capacity due to Corona virus outbreak.
• Kitron U.S. rebuild of flooded factory nearing end stages
• Kitron Poland running at planned capacity and margins
• Proposed dividend at 0.50 per share
• Kitron will have a Markets Presentation 18 March (webcast).

Strong development continues Financial highlights Q4:

▪ Revenue

• o Continued strong growth 20.3 %
• o Organic growth 8 %
• Operating Margin/EBIT
• o Operating margin at 6.1% (5.7%)
• EPS 0.19 (0.16) NOK
• Cash flow 97,2 (-26,7) MNOK
• Order Backlog
• o Organic growth 29,4%

NOK Million	Q4 2019 vs Q4 2018
Revenue 888,8		20,3 %
EBIT 54,2		28,3 %
Order Backlog 1 883,9		41,1 %
Operating cash flow 97,2		463,1 %
Net working capital 941,8		20,9 %

Strong development continues Financial highlights Full year:

• Revenue
• o Continued strong growth 26 %
• o Organic growth 16 %
• Operating Margin/EBIT
• o Operating margin at 6.1% (6.0%)
• EPS 0.74 (0.63) NOK
• Cash flow 195,2 (-44,5) MNOK
• Order Backlog growth
• o Organic growth 29,4%

NOK Million		2019 vs 2018
Revenue 3 299,4		26,0 %
EBIT 201,5		29,1 %
Order Backlog 1 883,9		41,1 %
Operating cash flow 195,2		542,1 %
Net working capital 941,8		20,9 %

Important agreements in the fourth quarter Major new orders:

KONGSBERG awarded orders to Kitron

• In October, Kitron received orders for communication equipment in K-TaCS and Nasams air defence systems supplied by KONGSBERG with a potential value approximately NOK 90 million.
• Deliveries will start in 2020 and continue into 2021.
• Production will take place at Kitron's plant in Arendal, Norway.

KONGSBERG awarded orders to Kitron

• In November, Kitron received orders with a value of more than NOK 80 million under a long-term manufacturing agreement with Kongsberg Defence & Aerospace announced 26 October 2018
• The orders are for production of electronics that are part of KONGSBERG 's weapon control system, Remote Weapon Station (RWS) for international defense projects.
• Production will take place at Kitron's plant in Norway, with startup of production in 2020.

Important agreements in the fourth quarter Major new orders:

Kitron awarded Energy orders

• In December, Kitron received orders with a value of more than NOK 75 million for development of test systems and production of electronics modules that are part of control systems for high-voltage direct current (HVDC) technology used for offshore wind power.
• Deliveries are planned for 2020 with startup in the second quarter.
• Production will take place at Kitron's plant in Arendal, Norway.

Corona Virus effects in China

Overall – we do not expect any material effects for Kitron based on current information

Facility in China

• Kitron facility in China is located in coastal city of Ningbo, some 900 kilometers from the inland city of Wuhan.
• The facility is opened and running at 30% of the capacity
• Expect a gradual increase of capacity going forward as
• o Employees are released from quarantine
• o Suppliers/transport/customs open up their facilities/trade in a similar manner
• o Kitron China revenue is approximately 10% of the Group revenue

Other Kitron sites

• Most Kitron tier 1 suppliers up and running
• Mainly PCBs and mechanics
• Rescheduling and resourcing to limit any effects

Kitron Technologies

• The facility of Kitron Technologies in Windber, Pennsylvania, was damaged by flooding in July
• Production has been running from a temporary site since then
• Salvage completed and restoration of site nearing end
• Current status Insurance Indemnification updated in Q4, losses and costs also booked
• Relocation to restored site planned within Q2

Kitron Poland

• Kitron's new factory in Grudziądz, Poland, started production Q4
• Production currently running with two fully automated SMT lines
• Made break even in December 2019
• Currently at planned capacity and margins

Financial statements Full year andQ4 2019

Revenue Q4:

Strong revenue growth in Defence/Aerospace and Offshore/marine

	Q4 2019 vs Q4 2018	Share of total revenue
Industry	 -10,6 %	35,5 %
Defence/Aerospace	 116,5 %	28,5 %
Medical devices	 27,3 %	20,4 %
Energy/Telecoms	 -23,1 %	9,6 %
Offshore/Marine	 176,4 %	5,9 %

Revenue Full year:

Strong revenue growth in Defence/Aerospace and Offshore/marine

	2019 vs 2018	Share of total revenue
Industry	6,3 %	 38,4 %
Defence/Aerospace	65,3 %	 22,6 %
Medical devices	14,8 %	 18,1 %
Energy/Telecoms	14,5 %	 14,4 %
Offshore/Marine	341,3 %	 6,5 %

Strong growth from Norway Revenue by country Q4:

	Q4 2019 vs Q4 2018	Share of total revenue
Norway	 30,3 %	26,4 %
Sweden	 -10,2 %	17,9 %
Lithuania	 -8,5 %	28,8 %
USA	 918,8 %	12,3 %
Others	 36,1 %	14,6 %

Before group entities and eliminations

Strong growth from Norway Revenue by country Full year:

Before group entities and eliminations

Improved profits Quarterly EBIT:

• Strong EBIT at 54,2 million, an increase of 28 per cent compared to last year
• EBIT margin was 6.1% (5.7%)
• Start-up of Polish facility affects margins negatively short-term with MNOK 10 in Q4.

Margin improvement in Norway and Sweden EBIT by Country Full year:

• Continued profitability improvements in Norway, and Sweden
• Lithuania, lower margins due to ramp-up affects and transfer of volumes to Poland
• U.S. margins positive
• Kitron Technologies* profit at expected margins
• Kitron U.S.* improving but show losses
• Other
• China is performing well
• Poland startup costs included

FY 2018 FY 2019

	Norway	Sweden	Lithuania	USA	Other
FY 2019	5,2 %	6,3 %	7,3 %	3,0 %	5,5 %
FY 2018	4,2 %	5,5 %	8,1 %	-23,5 %	3,9 %

Working capital Balance sheet:

▪ Working capital

• o NOWC* 26.3% (23,0%)
• o Cash conversion cycle* 102 (84)
• o ROOC* 14.8% (17.5%)
• Excl. IFRS 16 ROOC% 16.3%
• o NOWC Increase of 163, to MNOK 942
• MNOK 100 from acquisition in the U.S. and Poland
• Fixed assets
• o Increase of 230 to MNOK 523 MNOK
  • Acquisition in the U.S. MNOK 43 ( Incl. IFRS 16 of MNOK 33)
  • Startup in Poland MNOK 138 (Incl. IFRS 16 of MNOK 47)
  • IFRS 16 (Excl. Acquisition in the U.S. and Poland) MNOK 52

Net working capital

Working capital Balance sheet:

▪ Cash flow

• o Q4 Cash flow from operations 97.2 (-26.8)
• o YTD Cash flow from operations 195.2 (-44.5)

▪ Financial gearing

• o NIBD / EBITDA 2.8 (1.9)
• Excl. IFRS16 NIBD/EBITDA 2.4
• o Cash / interest bearing debt
• New classification in balance sheet
• Net funds/overdraft on each currency presented gross - No effect on net interest bearing debt
• MNOK 125 moved from interest bearing debt to cash

Operating cash flow

Market development

Strong order backlog driven by Defence/Aerospace Market development:

Organic growth 29%

	2019 vs 2018	Share of total revenue
Defence/Aerospace	 95,8 %	45,0 %
Energy/Telecoms	 37,0 %	11,6 %
Industry	 7,7 %	26,0 %
Medical devices	 13,1 %	11,2 %
Offshore/Marine	 15,0 %	6,1 %

Order Backlog

Outlook

Outlook 2020

• For 2020, Kitron expects revenue to grow to between NOK 3 300 and 3 700 million.
• EBIT margin is expected to be between 6.4 and 7.0 per cent.
• Growth is driven by the Aerospace/Defence and Industry sectors.
• Profitability is mainly driven by operational improvements in Poland and the U.S.

Thank you!