REPORT 2021 Q3

Connectivity Electrification Industry Medical devices Defence/Aerospace

Third quarter report 2021

Very strong demand, revenue constrained by component supply

• Very strong demand

REVENUE Group

• Record order backlog

ORDER BACKLOG Group

NOK million

Very strong demand

Kitron's revenue for the third quarter was NOK 831 million (NOK 1 054 million). The decrease is explained by last year's Coronarelated and exceptional volumes within Medical devices, which are now normalized. For the other market sectors combined, demand is very strong, but revenue growth was limited by ongoing component shortages. More than NOK 200 million of demand has been delayed into later quarters. Nevertheless, there was revenue growth in the third quarter within the Electrification, Connectivity and Industry sectors, while revenue declined within Defence/Aerospace and, in particular, within Medical devices. Currency had only a minor effect of negative 2 per cent in selling currencies in compared to last year.

Record order backlog

The order backlog ended at NOK 2 568 million, an increase of 38 per cent compared to last year. This is a record and reflects a strong total demand situation but also includes revenue delays due to the component shortage. The order backlog increased within all market sectors. In absolute numbers, the order backlog grew the most within Electrification and Defense/Aerospace, while the percentage growth was particularly strong within Connectivity. Adjusted for changes in currency rates, the order backlog increase was 43 per cent compared to last year.

EBIT margin 6%

• EBIT margin 6%

• Constraints in supply chain

Third quarter EBITDA* was NOK 75.7 million (NOK 115.7 million), a decrease of 35 per cent compared to last year.

Operating profit (EBIT)* for the third quarter ended at NOK 50.1 million (NOK 90.5 million), a decrease of 45 per cent. Profitability expressed as EBIT margin* was 6.0 per cent (8.6 per cent). Profit after tax was NOK 19.5 million (NOK 60.9 million), a decrease of 68 per cent and corresponding to NOK 0.11 earnings per share (NOK 0.34).

The EBIT margin in the quarter is affected by inefficiencies caused by the component shortage and the fact that the third quarter is seasonally softer. Last year's EBIT margin was affected by the exceptional Corona-related volumes within the Medical devices sector.

First three quarters EBITDA* was NOK 263.4 million (NOK 312.2 million), a decrease of 16 per cent from last year. Operating profit (EBIT)* for the first three quarters ended at NOK 188.6 million (NOK 236.9 million), a decrease of 20 per cent.

Profitability expressed as EBIT margin* was 6.8 per cent for the first three quarters (8.0 per cent). Profit after tax was NOK 112.9 million

Key figures

NOK million	Q3 2021	Q3 2020	Change	30.09.2021	30.09.2020	Change	Full year 2020
Revenue	831.4	1 053.8	(222.4)	2 762.8	2 972.3	(209.5)	3 963.9
EBIT	50.1	90.5	(40.4)	188.6	236.9	(48.3)	312.6
Order backlog	2 568.1	1 863.1	704.9	2 568.1	1 863.1	704.9	2 005.5
Operating cash flow	(70.2)	(3.2)	(67.0)	117.3	104.8	12.6	237.0
Net working capital	1 157.5	1 134.1	23.4	1 157.5	1 134.1	23.4	1 063.8

* For definition – See Appendix "Definition of Alternative Performance Measures"

(NOK 166.0 million), a decrease of 32 per cent and corresponding to NOK 0.63 earnings per share (NOK 0.93).

The second tranche of ordinary dividend for 2020 of NOK 0.35 per share, is to be paid out on or about 22 October 2021, with record date 6 October 2021.

Constraints in supply chain

Operating cash flow was negative NOK 70.2 million (negative NOK 3.2 million) for the third quarter.

Net working capital was NOK 1 158 million, an increase of 2 per cent compared to the same quarter last year. Cash conversion cycle R3* was up from 96 days to 124 days, and net working capital R3* as a percentage of revenue was 31.8 per cent compared to 25.1 per cent last year. Return on operating capital (ROOC) R3* was 12.8 per cent compared to 22.4 per cent in the same quarter last year.

Capital efficiency ratios are heavily affected by the supply shortage, which deteriorated rapidly in the third quarter with material decommitments and new delivery dates. The material constraints now seem to have stabilized at a difficult level. Our focus in the quarter and going forward is on balancing demand with the constraints in supply, executing demand into deliveries and improving cash flow.

Markets

Order intake

Order intake in the quarter was NOK 1 106 million, which is 35.7 per cent higher than for the third quarter 2020. The order backlog ended at NOK 2 568.1 million, which is 38 per cent higher than the same period last year.

Revenue market sectors

NOK million	Q3 2021	Q3 2020	Change	30.09.2021	30.09.2020	Change	Full year 2020
Connectivity	126.8	87.7	39.1	321.2	247.2	74.0	330.9
Electrification	195.7	173.7	22.0	765.8	626.5	139.3	938.8
Industry	186.4	157.3	29.1	659.2	528.1	131.1	718.0
Medical devices	167.4	394.7	(227.2)	474.2	833.8	(359.6)	1 006.6
Defence & Aerospace	155.0	240.4	(85.4)	542.4	736.7	(194.3)	969.6
Total group	831.4	1 053.8	(222.4)	2 762.8	2 972.3	(209.5)	3 963.9

Order Backlog market sectors

NOK million	30.09.2021	30.09.2020	Change	31.12.2020
Connectivity	230.2	99.0	131.2	132.6
Electrification	774.6	509.8	264.8	566.9
Industry	373.0	349.6	23.5	302.0
Medical devices	298.5	239.5	59.0	234.5
Defence & Aerospace	891.7	665.2	226.5	769.4
Total group	2 568.1	1 863.1	704.9	2 005.5

Revenue geographic markets

NOK million	Q3 2021	Q3 2020	Change	30.09.2021	30.09.2020	Change	Full year 2020
Norway	127.3	150.3	(23.0)	436.1	433.3	2.7	570.8
Sweden	427.3	555.9	(128.6)	1 305.0	1 344.7	(39.7)	1 728.7
Rest of Europe	134.3	168.1	(33.8)	534.9	591.2	(56.2)	807.0
North America	126.6	169.5	(42.9)	448.4	559.0	(110.5)	764.9
Others	15.9	10.0	5.9	38.3	44.1	(5.8)	92.4
Total group	831.4	1 053.8	(222.4)	2 762.8	2 972.3	(209.5)	3 963.9

Four-quarter moving average order intake was up from NOK 1 042.1 million at the beginning of the third quarter to NOK 1 114.8 million at the end of the quarter. Kitron's order backlog includes four months customer forecast plus all firm orders for later delivery.

Connectivity

Kitron's Connectivity sector is focused on connected devices. Many of these devices are sensors, continuously feeding data into increasingly advanced software, utilizing artificial intelligence to make predictions and improve efficiency and safety. Examples are multiplying, in everything from industrial control systems, to medical devices monitoring vital functions and modern cars, containing many sensors communicating with the Internet. Another part of the connectivity market sector is communication, which supplies the backbone for sensors and IOT. Typical products here are wireless communication, optical transmission and networking products.

Electrification

Kitron's Electrification sector is focused on the megatrend that sees the world increasingly moving to renewable energy and electrification. Examples are battery management, power grid transmission, power and electric drive management, charging and fuel cell technology. Kitron is involved with electrification from the power grid to end-user products, from control systems for offshore wind power, to battery management systems and charging stations.

Industry

Within the Industry sector Kitron operates and delivers a complete range of services within industrial applications like automation, environmental, material warehousing and security. The Industry sector consists of three main product areas: control systems, electronic control units and automation.

Medical devices

The medical device sector consists of the product areas diagnostics, life support, surgical, hospital and home care. Kitron is especially strong in ultrasound and cardiology systems, respiratory medical devices and Lab/IVD (In-Vitro Diagnostics).

Defence/Aerospace

Aerospace is mainly navigation and communication equipment for civil and military avionics. Defence is primarily communication, encryption, and surveillance systems. The Defence/Aerospace sector is in general characterized by project deliveries.

Operations

Organisation

The Kitron workforce corresponded to 1 764 full-time employees (FTE) on 30 September 2021. This is a decrease of 33 FTE since the third quarter of 2020. The number of FTE in lower-cost regions now accounts for 69 per cent of the total.

The company's total payroll expenses in the third quarter were NOK 1.1 million higher than in the corresponding period in 2020. The relative payroll costs ended at 19.1 per cent, up from 15.0 per cent of revenue in the third quarter last year.

Revenue business entities

NOK million	Q3 2021	Q3 2020	Change	30.09.2021	30.09.2020	Change	Full year 2020
Norway	215.0	228.6	(13.6)	761.6	704.9	56.7	988.5
Sweden	175.2	212.8	(37.6)	538.4	543.7	(5.3)	715.0
CEE	271.1	292.5	(21.4)	980.7	952.7	28.0	1 350.1
Others	195.2	409.6	(214.5)	554.6	962.0	(407.4)	1 151.6
Group and eliminations	(25.0)	(89.6)	64.6	(72.5)	(190.9)	118.4	(241.3)
Total group	831.4	1 053.8	(222.4)	2 762.8	2 972.3	(209.5)	3 963.9

EBIT business entities

NOK million	Q3 2021	Q3 2020	Change	30.09.2021	30.09.2020	Change	Full year 2020
Norway	13.9	14.9	(0.9)	53.2	48.7	4.6	70.0
Sweden	11.2	13.2	(2.0)	37.7	35.0	2.7	46.9
CEE	13.5	16.0	(2.5)	77.1	61.6	15.5	100.6
Others	11.6	53.4	(41.8)	25.7	116.9	(91.2)	128.9
Group and eliminations	(0.2)	(6.9)	6.8	(5.2)	(25.3)	20.1	(33.8)
Total group	50.1	90.5	(40.4)	188.6	236.9	(48.3)	312.6

Full time employees

	30.09.2021	30.09.2020	Change	31.12.2020
Norway	341	311	29	319
Sweden	212	192	20	192
CEE	895	859	36	941
Other	317	435	(118)	353
Total group	1 764	1 797	(33)	1 805

NET WORKING CAPITAL Group

NOK million

EQUITY RATIO Group

Per cent

Finance

Net financial items

During the quarter, net financial items amounted to a net cost of NOK 9.2 million. The corresponding figure for third quarter last year was a net cost of NOK 10.3 million. Net disagio for the third quarter amounted to NOK 4.4 million (2020: NOK 4.0 million). Intragroup financial loans to subsidiaries of 1.9 millon in foreign currencies as of 30 September 2021, are affecting net financial income.

Balance sheet

Kitron's gross balance sheet as of 30 September 2021 amounted to NOK 2 904.0 million, compared to NOK 2 891.2 million at the same time in 2020.

Equity was NOK 876.8 million (NOK 983.3 million), corresponding to an equity ratio of 30.2 per cent (34.0 per cent). Equity is influenced by foreign exchange effects from consolidation of foreign subsidiaries.

Inventory was NOK 824.2 million as of 30 September 2021 (NOK 571.3 million). Inventory turns* was 1.9 in the third quarter 2021, which is a decrease compared to third quarter last year (2.8).

Accounts receivables amounted to NOK 840.5 million at the end of the third quarter of 2021. The corresponding amount at the same time in 2020 was NOK 966.9 million.

Contract assets was NOK 421.4 million as of 30 September 2021, compared to NOK 428.6 million at the same time in 2020. Right-ofuse assets amounted to NOK 233.0 million at the end of the third quarter compared to NOK 276.2 million at the same time last year.

Right-of-use assets consist of buildings, land and vehicles amounting to NOK 106.1 million (2020: NOK 129.0 million) and machinery and equipment amounting to NOK 126.9 million (2020: NOK 147.2 million). Depreciation and interest costs related to leased buildings, land and vehicles were NOK 4.8 million and NOK 1.2 million respectively for the third quarter (2020: NOK 5.3 million and NOK 1.4 million respectively).

The group's reported net interest-bearing debt* amounted to NOK 791.3 million as of 30 September 2021 (NOK 764.7 million).

Net gearing of the company was 0.9 (0.8). Net interest-bearing debt/ EBITDA is 2.2 for 12 months rolling compared to 1.9 for the same period last year. The net gearing and net interest-bearing debt/ EBITDA exclusive IFRS 16 effects are 0.8 and 2.0 respectively.

The Annual General Meeting approved in April 2021 an ordinary dividend for 2020 of NOK 0.70 per share, paid in two equal tranches. The first tranche was paid in May 2021, while the second tranche of NOK 0.35 per share will be paid out on or about 22 October 2021. A dividend debt of NOK 62.7 million is incorporated in the balance sheet per 30 September 2021.

Outlook

Total demand is very strong and the order backlog at a record level. However, in the very short term, supply shortages has somewhat limited Kitron's ability to turn demand into revenues, and the outlook for 2021 is adjusted to reflect this.

For 2021, Kitron has previously indicated a revenue outlook of between NOK 3 900 and 4.200 million and an EBIT margin between 6.8 and 7.4 per cent.

Due to the constraints in the supply chain and the resulting delays of revenue, the revenue for 2021 is now expected to be between 3 700 and 3 900 million. EBIT margin is expected to be between 6.8 and 7.1 per cent.

Growth is expected within the Connectivity, Electrification and Industry sectors, whereas there will be a decline within in the Medical devices and Defence/Aerospace sectors.

Although the outlook 2021 is adjusted, the backlog and demand situation implies that Kitron remains on the long-term strategic trajectory for revenue and profitability.

The Corona situation has so far had limited direct effects but nevertheless brings uncertainty to the outlook together with the constraints in the material supply situation.

Oslo, 20 October 2021, Board of directors, Kitron ASA

Condensed profit and loss statement

NOK 1 000	Q3 2021	Q3 2020	30.09.2021	30.09.2020	Full year 2020

Revenue	831 431	1 053 847	2 762 787	2 972 288	3 963 876
Cost of materials	553 407	716 406	1 829 270	2 001 679	2 645 855
Payroll expenses	159 065	157 943	536 715	490 335	671 438
Other operational expenses	39 060	55 854	130 568	162 430	225 211
Other gains / (losses)	(4 154)	(7 909)	(2 816)	(5 627)	(6 970)
Operating profit before depreciation and impairments (EBITDA) 75 745		115 735	263 419	312 216	414 402
Depreciation	25 666	25 222	74 862	75 362	101 828

Operating profit (EBIT)	50 079	90 513	188 557	236 854	312 574

Net financial items	(9 167)	(10 340)	(32 195)	(22 793)	(38 487)

Profit (loss) before tax	40 912	80 173	156 361	214 061	274 087
Tax	21 364	19 321	43 486	48 057	61 031
Profit (loss) for the period	19 548	60 852	112 875	166 004	213 056

Earnings per share-basic	0.11	0.34	0.63	0.93	1.19
Earnings per share-diluted	0.11	0.34	0.62	0.92	1.18

Condensed balance sheet

NOK 1 000	30.09.2021	30.09.2020	31.12.2020

ASSETS
Goodwill	36 933	36 933	36 933
Other intangible assets	45 994	47 765	52 760
Property, plant and equipment	218 470	248 073	237 960
Right-of-use assets	233 035	276 179	256 892
Deferred tax assets	62 683	77 579	72 384
Other receivables	10 475	5 223	4 598
Total non-current assets	607 590	691 754	661 528

Inventory	824 161	571 332	544 977
Accounts receivable	840 452	966 880	834 493
Contract assets	421 403	428 624	386 660
Other receivables	107 530	92 618	74 589
Cash and cash equivalents	102 859	140 024	152 572
Total current assets	2 296 405	2 199 477	1 993 292

Total assets	2 903 995	2 891 231	2 654 819

LIABILITIES AND EQUITY
Equity	876 798	983 302	885 654
Total equity	876 798	983 302	885 654
Deferred tax liabilities	4 526	4 936	4 728
Loans	213 826	313 674	267 894
Pension commitments	5 666	5 896	5 666
Other liabilities	4 355	-	3 088

Total liabilities and equity	2 903 995	2 891 231	2 654 819
Total current liabilities	1 798 823	1 583 423	1 487 789
Loans	680 353	591 049	642 723
Tax payable	21 179	31 907	14 605
Other payables	168 729	127 733	128 093
Accounts payable	928 561	832 734	702 368

Total non-current liabilities	228 374	324 506	281 376

Condensed cash flow statement

NOK 1 000	Q3 2021	Q3 2020	30.09.2021	30.09.2020	Full year 2020

Profit before tax	40 912	80 173	156 361	214 061	274 087
Depreciations	25 666	25 222	74 862	75 362	101 828
Change in inventory, accounts receivable,
contract assets and accounts payable	(123 786)	(74 951)	(93 691)	(192 280)	(121 941)
Change in net other current assets
and other operating related items	(35 073)	(40 545)	(76 450)	(7 506)	(39 652)
Change in factoring debt	22 067	6 936	56 266	15 152	22 683
Net cash flow from operating activities	(70 213)	(3 165)	117 348	104 789	237 005
Net cash flow from investing activities	(10 831)	(20 200)	(21 498)	(35 151)	(58 963)
Net cash flow from financing activities	21 522	77 390	(92 422)	12 056	(141 995)

Change in cash and bank credit	(59 522)	54 025	3 428	81 693	36 047
Cash and bank credit opening balance	(19 244)	(96 526)	(81 039)	(119 461)	(119 461)
Currency conversion of cash and bank credit	(171)	690	(1 326)	(4 043)	2 375
Cash and bank credit closing balance	(78 937)	(41 811)	(78 937)	(41 811)	(81 039)

Consolidated statement of comprehensive income

NOK 1 000	Q3 2021	Q3 2020	30.09.2021	30.09.2020	Full year 2020
Profit (loss) for the period	19 548	60 852	112 875	166 004	213 056
Actuarial gain / losses pensions Exchange differences on translation of foreign operations	- 2 516	- (2 973)	- 2 859	- 8 003	(179) (2 859)
Currency translation differences Total comprehensive income for the period	6 401 28 464	12 438 70 317	(2 792) 112 942	68 478 242 485	23 090 233 108
Allocated to shareholders	28 464	70 317	112 942	242 485	233 108

Changes in equity

NOK 1 000	30.09.2021	30.09.2020	31.12.2020

Equity opening balance	885 654	739 213	739 213
Profit (loss) for the period	112 875	166 004	213 056
Dividends	(125 374)	-	(89 552)
Employee share schemes	3 576	1 603	2 885
Other comprehensive income for the period	67	76 481	20 052
Equity closing balance	876 798	983 302	885 654

Notes to the financial statements

Note 1 – General information and principles

The condensed consolidated financial statements for the third quarter of 2021 have been prepared in accordance with International Financial Accounting Standards (IFRS) and IAS 34 for interim financial reporting. Kitron has applied the same accounting policies as in the consolidated financial statements for 2020. The interim financial statements do not include all the information required for a full financial report and should therefore be read in conjunction with the consolidated financial statements for 2020, which were prepared in accordance with the Norwegian Accounting Act and IFRS, as adopted by the EU.

The consolidated financial statements for 2020 are available upon request from the company and at www.kitron.com.

Note 2 - Estimates

The preparation of the interim financial statements requires the use of evaluations, estimates and assumptions that affect the application of the accounting principles and amounts recognised as assets and liabilities, income and expenses. The actual results may deviate from these estimates. The important assessments underlying the application of Kitron's accounting policy and the main sources of uncertainty are the same for the interim financial statements as for the consolidated statements for 2020.

Note 3 – Financial risk management

Kitron's business exposes the company to financial risks. The purpose of the company's procedures for risk management is to minimise possibly negative effects caused by the company's financial arrangements.

Note 4 – Other gains and losses

Other gains and losses consist of net currency gains and losses.

Note 5 – Coronavirus pandemic

Market demand for Kitron 2021 is strong. However, the supply chain is affected by the general material supply shortage, which has rapidly deteriorated during third quarter and continues to be a challenge to lead times and deliveries.

Kitron continuously makes capacity adjustments based on demand fluctuations and has prepared for significantly larger fluctuation, if they should occur.

The Corona situation has so far had limited direct effects but nevertheless brings uncertainty to the outlook together with the constraints in the material supply situation.

Tuomo Lähdesmäki

Chairman

Espen Gundersen Board member

Maalfrid Brath Board member

Oslo, October 20, 2021

Gro Brækken Deputy chairman

Tanja Rørheim Employee elected board member

Bjørn Gottschlich Employee elected board member

Lars Peter Nilsson CEO of Kitron ASA

Christian Jebsen Board member

Jarle Larsen Employee elected board member

Petra Grandinson Board member

Appendix

Definition of Alternative Performance Measures

Kitron uses terms in the consolidated financial statements that are not anchored in the IFRS accounting standards. As being an Electronics Manufacturing Services company, Kitron uses Alternative Performance Measures which are relevant for understanding and evaluation of performance within manufacturing.

Our definitions and explanations of these terms follow below.

Order backlog

All firm orders and 4 months of committed customers forecast at revenue value as at balance sheet date.

Foreign exchange effects

Group consolidation restated with exchange rates as comparable period the previous year. Change in volume or balance calculated with the same exchange rates for the both periods are defined as underlying growth. Change based on the change in exchange rates are defined as foreign exchange effects. The sum of underlying growth and foreign exchange effects represent the total change between the periods.

EBITDA

Operating profit (EBIT) + Depreciation and Impairments

EBIT

Operating profit

EBIT margin (%)

Operating profit (EBIT) / Revenue

Net working capital

Inventory + Contract assets + Accounts Receivables – Accounts Payable

Operating capital

Other intangible assets + Tangible fixed assets + Net working capital

Return on operating capital (ROOC) %

annualised Operating profit (EBIT) / Operating Capital

Return on operating capital (ROOC) R3 %

(Last 3 months Operating profit (EBIT))*4) / (Last 3 months Operating Capital /3)

Direct Cost

Cost of material + Direct wages (subset of personnel expenses only to include personnel directly involved in production)

Days of Inventory Outstanding

360/ (Annualised Direct Costs/(Inventory + Contract assets))

Days of Inventory Outstanding R3

360/ ((Last 3 months Direct Costs *4) / (Last 3 months Inventory and Contract assets/3))

Days of Receivables Outstanding

360/ (Annualised Revenue/Trade Receivables)

Days of Receivables Outstanding R3

360/ ((Last 3 months Revenue*4)/(Last 3 months Trade Receivables/3))

Days of Payables outstanding

360/ ((Annualised Cost of Material + Annualised other operational expenses) / Trade Payables)

Days of Payables Outstanding (R3)

360/ (((Last 3 months (Cost of Material + other operational expenses)*4) / (Last 3 months Trade Payables)/3))

Cash conversion cycle (CCC)

Days of inventory outstanding + Days of receivables outstanding – Days of payables outstanding

Cash conversion cycle (CCC) R3

Days of inventory outstanding (R3) + Days of receivables outstanding (R3) – Days of payables outstanding (R3)

Net Interest-bearing debt

Cash and cash equivalents + Loans (Non- current liabilities) + Loans (Current liabilities)

Interest-bearing debt

Loans (non-current liabilities) + Loans (current liabilities)

Inventory turns

Annualised direct costs / (Inventory + Contract assets)

Variable contribution Revenue - Direct cost

Net gearing

Net interest bearing debt / Equity

Equity Ratio

The ratio of Equity to Total Assets

Kitron is a leading Scandinavian electronics services company for the Connectivity, Electrification, Industry, Medical devices and Defence/Aerospace sectors. The company is located in Norway, Sweden, Lithuania, Germany, Poland, China and the United States. Kitron had revenues of about NOK 4.0 billion in 2020 and has about 1 800 employees. Kitron manufactures that are embedded in the customers' own product, as well as box-built electronic provides high-level assembly (HLA) of complex electromechanical products for its customers.

Kitron offers all parts of the value chain via industrialisation, manufacturing and logistics, to repairs. The electronics content may be based on conventional printed circuit boards or ceramic substrates.

Kitron also provides various related services such as components analysis, and resilience testing, and also source any other part of the customers typically serve international markets and provide equipment or systems for professional or industrial use.