Kitron — Investor Presentation 2016

Jul 13, 2016

First half year and Q2 results 2016

Peter Nilsson, CEO Cathrin Nylander, CFO

July 13th, 2016

Financial highlights Q2:

Solid improvement of all key figures

• Strong growth in revenue and order backlog
• Underlying growth 9.8%
• Improved profitability
• 5.9% (4.5%)
• Improved capital efficiency

NOK mill.		Q2 2016 vs Q2 2015
Revenue 563,1		15,2 %
EBIT 33,1		50,1 %
Order backlog 989,4		19,2 %
Operating cash flow 61,0		25,5 %
Net working capital 521,5		-6,7 %

Financial highlights first half year: Solid growth

• Solid growth in revenue and strong growth in order backlog
• Underlying growth 5%
• Improved profitability
• 5.1% (4.5%)
• Profitability adjusted for one-offs in Q1 at 5.5%
• Improved capital efficiency

NOK mill.		2016 vs 2015
Revenue 1060,1		10,5 %
EBIT 53,6		25,1 %
Order backlog 989,4		19,2 %
Operating cash flow 35,7		57,3 %
Net working capital 521,5		-6,7 %

Major new orders:

Important orders in the second quarter

Defence communications order

• Kitron received an order from Kongsberg Defence & Aerospace AS for military communications equipment, for supplies to an existing contract for deliveries to Hungary.
• Kitron will supply various communications products, and production will take place by Kitron in Norway.
• The contract has a value for Kitron of NOK 37 million, and deliveries will take place in 2016 and 2017.
• For the last twelve months Kongsberg have placed orders totaling 157 MNOK to Kitron for advanced tactical communications equipment.

Highlights: Capacity adjustments

• Increased SMT capacity due to strong revenue growth
• Kitron has decided to increase production capacity by investing in two new SMT lines, one in Lithuania and one in Sweden.
• They will be in place in the fourth quarter 2016 in Lithuania and in the first quarter 2017 in Sweden.
• Resource adjustments in Norway
• The temporary drop in efficiency in the factory in Norway due to the relocation has now been remedied.
• During the third quarter, Norway is adjusting the indirect resources with 16 personnel to compensate for the longer-term downturn in the Offshore/Marine sector.
• In addition, due to short-term reduction of activity and change in product mix to less labour-intensive products, up to 60 employees might be furloughed during the third quarter.

Financial statements Q2 2016

Revenue Q2:

Exceptional growth in Industry sector

Revenue first half year:

Solid growth driven by growth in Industry sector

	2016 vs 2015	Share of total revenue
Offshore/Marine	 -64,9 %	2,8 %
Medical devices	 15,1 %	22,2 %
Defence/Aerospace	 0,8 %	25,9 %
Energy/Telecoms	 17,7 %	14,0 %
Industry	 36,4 %	35,1 %

Revenue by country Q2*:

Continued strong growth in Lithuania and Sweden

	Q2 2016 vs Q2 2015	Share of total revenue	216
Norway	 3,9 %	35,2 %
Sweden	 20,5 %	23,0 %
Lithuania	 45,3 %	27,1 %
Others	 -10,0 %	14,7 %	million OK N

Revenue by country first half year *:

Strong growth in Lithuania and Sweden

	2016 vs 2015	Share of total revenue
Norway	 -8,7 %	34,0 %
Sweden	 25,6 %	23,0 %
Lithuania	 49,7 %	28,8 %
Others	 -10,5 %	14,1 %

Quarterly EBIT: Profitability level improved

• Lithuanian growth driver of profit
• Norway Q1 temporary negative effects remedied
• US volumes picked up in Q2

EBIT by country Q2: Lithuania drives profitability EBIT*

• Norway
• First quarter temporary efficiency effects remedied.
• Sweden
• Quarterly EBIT affected by currency effects
• Lithuania
• EBIT improvement driven by strong Revenue growth
• Other
• Revenue growth and improved profitability in China, US volumes and profitability lower than last year but improved in Q2

EBIT by country first half year:

Lithuania drives profitability

• Norway
• First quarter temporary efficiency effects remedied, but half year figures affected.
• Sweden
• Volume drives profitability
• Lithuania
• EBIT improvement driven by strong Revenue growth
• Other
• Revenue growth and improved profitability in China, US volumes and profitability lower than last year.

First half year

Balance sheet: Cash flow

Cash flow

• Q2 Cash flow MNOK 61.0 (48.6)
• The improvement in the quarter due to increased factoring debt and improved profitability

Working capital

• Working capital reduction compared to last year primarily attributable to improved supplier terms
• Cash conversion cycle 86, a reduction from 106 last year
• ROOC at 17.6% improved from 11.8% last year

Operating cash flow 48,6 32,7 87,8 -25,3 61,0 NOK million 25.5 %

Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Net working capital 559 541 508 NOK million 522 521 -6.7 %

Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

Market development

Order backlog:

Strong growth in Industry

Order Backlog MNOK

• 989 vs. 830 Q2 last year (increase of 19.2 %)
• Defence: 480 +21 % (368)
• Medical: 167 -5 % (177)
• Industry: 217 +32 % (164)
• Energy/Telecom: 109 +31% (83)
• Offshore: 17 -57% (39)

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

Outlook

Outlook

• For 2016, Kitron expects revenue of between NOK 2 050 and 2 250 million and EBIT margin of 5.3 to 6.3 per cent.
• The growth is driven by increased demand in the Industry and Defence/Aerospace sectors.
• The profitability increase is driven by cost reduction activities and improved efficiency.

Thank you!