Kitron — Investor Presentation 2015

Jul 16, 2015

First half year and Q2 results 2015

Peter Nilsson, CEO Cathrin Nylander, CFO

July 16th, 2015

Financial highlights Q2:

Profitability improvement continued

• Fifth consecutive quarter with improved profitability
• Significantly improved cash flow
• Stable order backlog
• Stable working capital in the quarter but an increase from last year primarily driven by a shift from the Offshore/Marine sector to the longer cycle Defence/Aerospace sector.

NOK mill.		Q2 2015 vs Q2 2014
Revenue 489,0		7,0 %
EBIT 22,1		220,5 %
Order backlog 829,9		-3,4 %
Operating cash flow 48,6		413,5 %
Net working capital 558,9		10,7 %

Financial highlights first half year: Significantly improved profitability and cash flow

• Stable revenue growth in spite of declining revenues in offshore/marine sector.
• Earnings stabilized on higher level since fourth quarter 2014.
• Significantly improved cash flow

NOK mill.		2015 vs 2014
Revenue 959,6		7,5 %
EBIT 42,8		383,9 %
Order backlog 829,9		-3,4 %
Operating cash flow 83,6		1158,5 %
Net working capital 558,9		10,7 %

Major new orders:

Important orders in the second quarter

Kongsberg Defence & Aerospace awards order to Kitron AS

• Kitron Norway has received an order from Kongsberg Defence & Aerospace AS for military communications equipment linked to contracts for deliveries to Hungary.
• Kitron will supply various communications products.
• The contract has a value for Kitron of NOK 32 million, and deliveries will take place in 2015 and 2016
• Production at Kitron's plant in Arendal, Norway.
• Saab AB (Business Unit Avionics Systems) signs frame-agreement with Kitron AB
• The frame agreement is for delivery of military avionics and aeronautic electronic equipment and to be incorporated by Saab in current and future avionics contracts globally
• Kitron will supply assembled electronic circuit boards for military and civil products
• The frame agreement has potential order value of more than 400 million NOK over 20 years.
• Production at Kitron's plant in Jönköping, Sweden.

Operational highlights:

Shift in operations and expansion

Shift from high-cost to low-cost regions

• 53% (49%) Full time employees in low cost regions
• Payroll expenses/revenue 23,6% (~29% in Q1 2014)
• Revenue per employee at KNOK 420 (~KNOK 369 in Q1 2014)

Expansion of Kaunas facility in Lithuania

• The new production facility was officially opened at the end of May
• The operation is extended to include not only manufacturing but also test development services and engineering services
• prototyping
• product design supervision
• component engineering
• project management services
• Expansion with 5,000 sqm. to a total 13.000 sqm.
• Investment: 7 million EUR

Financial statements first half year and Q2 2015

Revenue Q2:

Defence/Aerospace and Industry growth offsets decline in Offshore/Marine

Stable growth Revenue first half year :

	2015 vs 2014	Share of total revenue
Offshore/Marine	 -44,8 %	8,7 %
Medical equipment	 -6,1 %	21,3 %
Defence/Aerospace	 52,4 %	28,4 %
Energy/Telecoms	 6,1 %	13,2 %
Industry	 20,7 %	28,5 %

US and China with continued strong growth Revenue by country Q2:

* Before group entities and eliminations

Growth outside Scandinavia Revenue by country first half year*:

	2015 vs 2014	Share of total revenue
Norway	 -1,0 %	41,1 %
Sweden	 0,4 %	20,2 %
Lithuania	 11,3 %	21,2 %
Others	 89,8 %	17,4 %

Quarterly EBIT: Fifth consecutive quarter of improved profitability

• Improvement in both nominal value as well as EBIT margin
• Strong contribution from service sales, both from development and engineering
• Personnel expense reduction
• All sites profitable

EBIT by country Q2: Strong improvement

• Norway
• Cost reduction actions continue to yield results
• Sweden
• Significantly improved margins
• Lithuania
• Reduction due to higher indirect cost and pressure on margins
• Other
• China and US continue to contribute positively

* Before group entities and eliminations

EBIT by country first half year:

Strong improvement

• Norway
• Cost reduction actions continue to yield results
• Sweden
• Significantly improved margins
• Lithuania
• Reduction due to higher indirect cost and pressure on margins
• Other
• China and US continue to contribute positively

Balance sheet: Cash flow improvement

• Cash flow
• Improved profitability affects cash flow positively this year with a third consecutive quarter of improvement.
• Compared to last year, improved results and improved working capital development (stable this year, an increase in WC last year)
• Working capital
• Stabilized with a downwards trend
• Net increase in WC from last year is due to inventory
• Cash conversion cycle 106 which is same level as the last quarter

Operating cash flow

Market development

Order backlog:

Growth in Energy/Telecom and Medical offset reductions in Offshore/Marine Order backlog

• Energy/Telecom and Medical
• Double digit growth compared to last year
• Defence/Aerospace and Industry
• Stable at same level as last year
• Offshore/Marine
• Expected development continues, reduction of 61.4% (MNOK 62.0) compared to last year

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

Market development

Offshore/Marine

General adjustment in the oil service market in Norway

Medical equipment

Stable development

Defence/Aerospace

Continued strong growth and positive outlook

Energy/Telecoms

Stable backlog and positive outlook

Industry

Continues to grow, increased revenue from existing and new customers.

Outlook

Outlook

• For 2015, Kitron expects growth and a clear improvement in profitability.
• Growth is primarily driven by increased demand in Defence sector for US and Norwegian markets, as well as increases in Energy/Telecoms and Industry.
• Offshore/Marine will have reduction due to oil service market in Norway.

Thank you!