Kitron — Interim / Quarterly Report 2018

Jul 12, 2018

First half year and Q2 results 2018

Peter Nilsson, CEO Cathrin Nylander, CFO

12 July, 2018

Financial highlights Q2:

Continued growth and solid profitability

• Continued revenue growth
• Highest Q2 revenue ever
• Underlying growth 2.6%
• EBIT margin 6.8% (7.0%)
• EPS 0.20 (0.18) NOK
• Order backlog
• Comparable 12.1% growth

NOK mill.	Q2 2018 vs Q2 2017
Revenue 666,6		2,8 %
EBIT 45,0		-1,0 %
Order backlog 1008,9		-0,9 %
Operating cash flow 42,7		32,4 %
Net working capital 602,7		6,6 %

Financial highlights First half year:

Continued growth and solid profitability

▪	Strong revenue growth	NOK mill.	2018 vs 2017
	▪ Highest H2 revenue ever ▪ Underlying growth 6.7%	Revenue 1317,9		6,8 %
▪	EBIT margin 6.4% (6.2%)	EBIT 83,8		9,8 %
▪	EPS 0.34 (0.31) NOK	Order backlog 1008,9		-0,9 %
▪	Order backlog ▪ Comparable 12.1% growth	Operating cash flow 23,2		-51,3 %
		Net working capital 602,7		6,6 %

Peter Nilsson, Kitron's CEO, comments:

• This is the highest second quarter revenue in Kitron's history.
• Financial results increase our confidence in the 2018 outlook and our strategic ambitions of Revenues of NOK 3 billion and an EBIT margin of 7 per cent in 2020.
• Gratifying to make progress in the face of industry-wide issues with component availability. This is a testament to our robust supply chain.
• The second quarter showed record levels of future prospects with growth of 60 per cent compared to last year in the new quote pipeline.
• The oil and gas market sector shows signs of recovery, and we expect significant improvement from 2019.

Effective actions to counter component shortages

• Shortages of electronic components challenges Electronics Manufacturing Services business continues.
• The situation is expected to prolong into 2019
• Kitron works closely with its customers to alleviate the situation
• Kitron's timely and systematic approach combined with its preferred partner program has prevented serious supply disruptions.
• Deliberate and temporary inventory build-up to avoid supply disruptions

Financial statements First half year and Q2 2018

IFRS 15:

New accounting standard implemented

• IFRS 15 implemented 1.1.2018
• Over time revenue recognition (point in time)
• Marginal effects on P&L
• Re-classification within NWC in balance sheet
• Order backlog adjustment

▪ See note 5 for complete overview

	Old	Effects from	New	Old	Effects from	New
	principles	IFRS 15	principles	principles	IFRS 15	principles
NOK 1 000	Q2 2018	Q2 2018	Q2 2018	30.06.2018	30.06.2018	30.06.2018
Revenue	669 018	-2 408	666 611	1 306 001	11 896	1 317 897
Cost of materials	447 895	-1 821	446 074	876 828	8 311	885 138
Payroll expenses	126 912	-202	126 710	249 448	1 373	250 821
Other operational expenses	34 794	-339	34 455	66 214	1 418	67 632
Other gains / (losses)	(723)	-	(723)	(2 608)	-	(2 608)
Operating profit before depreciation and impairments (EBITDA)	58 694	-45	58 649	110 903	795	111 698
Depreciation	13 605	-	13 605	27 892	-	27 892
Operating profit (EBIT)	45 089	-45	45 044	83 011	795	83 806
Net financial items	(2 202)	-	(2 202)	(9 611)	-	(9 611)
Profit (loss) before tax	42 887	-45	42 842	73 400	795	74 195
Tax	8 325	(6)	8 319	13 295	166	13 461
Profit (loss) for the period	34 563	(39)	34 524	60 105	629	60 734

Revenue Q2:

Sector growth in line with expectations

Revenue First half year:

Sector growth in line with expectations

	2018 vs 2017	Share of total revenue
Industry	 33,5 %	45,2 %
Defence/Aerospace	 -30,5 %	18,8 %
Medical devices	 16,9 %	18,5 %
Energy/Telecoms	 2,9 %	16,1 %
Offshore/Marine	 13,6 %	1,4 %

Revenue by country Q2*:

Continued strong growth in Lithuania and China

	Q2 2018 vs Q2 2017	Share of total revenue
Norway	 -15,9 %	24,7 %	212	250 209		Q2/2017 Q2/2018
Sweden	 -10,5 %	24,2 %	178	195 174		119
Lithuania	 19,7 %	34,7 %				96
Others	 24,3 %	16,5 %	million OK N Norway	Sweden	Lithuania	Others

Norway, Sweden and US affected by temporary lower Defense Revenue.

Revenue by country First half year*:

Continued strong growth in Lithuania and China

	2018 vs 2017	Share of total revenue			517
Norway	 -14,8 %	24,1 %	396		422	2017 2018
Sweden	 -7,4 %	23,6 %	337	357 331		214
Lithuania	 22,6 %	36,9 %	million			184
Others	 16,3 %	15,3 %	K O N Norway	Sweden	Lithuania	Others

Norway, Sweden and US affected by temporary lower Defense Revenue.

Quarterly EBIT: Profits stabilizing on a higher level

• Improvements in efficiency
• Component allocations have not had significant impact on results

EBIT by country Q2: Lithuania drives profits

• Lithuania and China show strong EBIT improvement, both in value and margin
• Sweden, Norway and US affected by Defense projects timing on revenue, cost reductions in place to manage margins

EBIT by country First half year:

Lithuania drives profits

• Lithuania and China show strong EBIT improvement, both in value and margin
• Sweden, Norway and US affected by Defense projects timing on revenue, cost reductions in place to manage margins

Balance sheet:

Seasonal effects

▪ Cash flow

▪ Q2 Cash flow MNOK 42.7 (63.1)

▪ Financial gearing

• NIBD / EBITDA 1.3 (1.3)
• Dividend MNOK 96.9 (44.0)

▪ Working capital

• NOWC* 21.6% (20.6%)
• Cash conversion cycle* 75 (73)
• ROOC* 21.3% (23.0%)

* R3 - Three months rolling average

Market development

Market development:

Solid order backlog

Order backlog (comparable)

• MNOK 1141 (1018)
• Growth of 12.1%
• Defence: 398 -1%
• Medical: 171 +6%
• Industry: 410 +39%
• Energy/Telecom: 133 -9%
• Offshore: 29 +142%
• IFRS adjusted: MNOK 1009
• Fluctuations to be expected within defence going forward

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!