Kitron — Investor Presentation 2016

Feb 11, 2016

Capital Markets Day

Peter Nilsson, CEO February 11th, 2016

Disclaimer

This presentation contains certain forward-looking information and statements. Such forward-looking information and statements are based on the current, estimates and projections of the Company or assumptions based on information currently available to the Company. Such forward-looking information and statements reflect current views with respect to future events and are subject to risks, uncertainties and assumptions. The Company cannot give assurance to the correctness of such information and statements. These forward-looking information and statements can generally be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use terminology such as "targets", "believes", "expects", "aims", "assumes", "intends", "plans", "seeks", "will", "may", "anticipates", "would", "could", "continues", "estimate", "milestone" or other words of similar meaning and similar expressions or the negatives thereof.

By their nature, forward-looking information and statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company to differ materially from any future results, performance or achievements that may be expressed or implied by the forward-looking information and statements in this presentation. Should one or more of these risks or uncertainties materialize, or should any underlying assumptions prove to be incorrect, the Company's actual financial condition or results of operations could differ materially from that or those described herein as anticipated, believed, estimated or expected.

Any forward-looking information or statements in this presentation speak only as at the date of this presentation. Except as required by the Oslo Stock Exchange rules or applicable law, the Company does not intend, and expressly disclaims any obligation or undertaking, to publicly update, correct or revise any of the information included in this presentation, including forward-looking information and statements, whether to reflect changes in the Company's expectations with regard thereto or as a result of new information, future events, changes in conditions or circumstances or otherwise on which any statement in this presentation is based.

Given the aforementioned uncertainties, prospective investors are cautioned not to place undue reliance on any of these forward-looking statements.

Agenda and speakers

• § Welcome
• § Chairman's message
• § Strategic overview
• § Financials

Break

• § Markets
• § Operations
• § Summary
• § Q&A

Tuomo Lähdesmäki Chairman of the Board

Peter Nilsson Chief Executive Officer

Tommy P. Storstein Sales Director

Israel Losada Salvador Chief Operating Officer

Cathrin Nylander Chief Financial Officer

Chairman's message

Tuomo Lähdesmäki Chairman of the Board February 11th, 2016

Focus on shareholder value:

Adjusted dividend policy

"Kitron's dividend policy is to pay out an annual dividend between 30 and 60 % of the company's ordinary net profit after tax. When deciding on the annual payout ratio the company will evaluate the cash requirements and financial flexibility required in the company."

Earnings and dividends

Strategic Overview

Peter Nilsson, CEO February 11th, 2016

Financial highlights full year 2015:

Significantly improved profitability and cash flow

• § Double-digit revenue and order growth
• § Ongoing margin expansion
• § Strong cash flow
• § Reduced working capital
• § Solid dividend capacity

"Actions are yielding results."

NOK mill.	2015 vs 2014
Revenue	Ý
1951,8	11,4 %
EBIT	Ý
102,7	242,0 %
Order backlog	Ý
975,6	12,3 %
Operating cash flow	Ý
204,1	4384,1 %
Net working capital	Þ
507,6	-10,2 %

Brief timeline:

A Scandinavian company with a global footprint

Operations: What is it Kitron does?

"Kitron is an Electronics Manufacturing Services company. Our customers outsource manufacturing and related services to us to improve flexibility, cost efficiency, accuracy and innovation power throughout the value chain."

Markets and customers:

High-value sectors with high-reliability products

Kitron in the future:

Strategic Agenda

1. Accelerated organic growth 2. Continued operational improvements 3. Growth through targeted M&A

Strategic agenda 1: Accelerated organic growth

10% annual revenue growth

Strategic agenda 2:

Continued operational improvement

• § Kitron Operational Excellence Program
• § "A redesign of how we do business. A way of life."
• § A number of projects:
• § Sourcing
• § Production
• § Quality

Strategic Planning

Direction and Commitment

Strategic agenda 3: Growth through targeted M&A

Kitron will consider carefully targeted acquisitions in two areas:

Electronic Manufacturing services

§ Competence, customers or market complementary to Kitron

Product hardware company

• § Competence complementary to Kitron
• § Technology of importance to Kitron customers

Focus on shareholder value:

NOK 1.80

Strong share performance, increasing dividends

• § Market cap 31 January 2014: MNOK 311
• § Market cap 31 January 2016: MNOK 709
• § Dividend for 2014: NOK 0.05
• § Proposed dividend for 2015: NOK 0.21

"Kitron's dividend policy is to pay out an annual dividend between 30 and 60 per cent of the company's ordinary net profit after tax. When deciding on the annual pay-out ratio the company will evaluate the cash requirements and financial flexibility required in the company."

OSEBX

NOK 4.10

• § Operational improvement on track
• § Clear strategy for revenue and profit growth
• § Committed to shareholder value

Financials

Cathrin Nylander, CFO February 11th, 2016

Financial highlights full year 2015:

Significantly improved profitability and cash flow

• § Double-digit revenue growth in spite of declining revenues in offshore/marine sector
• § Continued profitability improvement
• § EBIT margin 5.3%
• § Defence orders strengthen future position
• § Strong operational cash flow

NOK mill.	2015 vs 2014
Revenue	Ý
1951,8	11,4 %
EBIT	Ý
102,7	242,0 %
Order backlog	Ý
975,6	12,3 %
Operating cash flow	Ý
204,1	4384,1 %
Net working capital	Þ
507,6	-10,2 %

Revenue Q4:

Strong growth in other sectors offsets decline in Offshore/Marine

	Q4 2015 vs Q4 2014	Share of total revenue
Offshore/Marine	Þ -27,3 %	6,8 %
Medical equipment	Ý 9,5 %	27,7 %
Defence/Aerospace	Ý 16,2 %	25,0 %
Energy/Telecoms	Ý 28,3 %	13,0 %
Industry	Ý 12,2 %	27,5 %

EBIT Q4:

Seventh consecutive quarter of improved profitability

• § Improvement in both nominal value and EBIT margin
• § Increased sales quarter-onquarter
• § Strong contribution from service sales, both from development and engineering

Historical financials: Increasing effect of actions taken

Operational cash flow

EBITDA

Growth outlook:

Accelerating growth: NOK 3 billion in 2020

• § Focus on existing strengths and segments
• § Target annual organic growth of 10%
• § Existing customers
• § New customers
• § Grow service to 10% of revenue
• § Organic target 2020: NOK 3 billion
• § Explore targeted acquisitions

Organic growth

Cost control: Ongoing improvements

• § Combining increased revenue and tight cost control
• § Payroll expenses limited by leveraging investments in lower-cost countries
• § Key cost-oriented initiatives ongoing:
• § Continue to utilize resources in lower-cost countries
• § Operational improvement program
• § Consolidate sourcing
• § Increased service sales will influence cost structure going forward
• § Strategic target 25%

Cost controltaking hold

Margins:

EBIT target 7% in 2020

• § Operational improvements have taken hold in 2015
• § Expect approximately 5–6% margin in 2016
• § Expect ongoing margin increases in coming years
• § Key elements:
• § Growth
• § Improved operational efficiency
• § Growth of service sales

Balance sheet:

million

Solid foundation for growth

§ Equity ratio 44% (43%) § Target range 38% to 48% § Net interest-bearing debt NOK 226.9 § NIBD/EBITDA 1.6 (5.0) § Target below 2.5 § Capacity to combine growth and dividend payments § Stronger profitability and reduction of working capital improves ratios 3.5 2.4 4.4

NIBD/EBITDA*

* Net interest-bearing debt divided by earnings before interest, taxes, depreciation and amortization.

Capex:

Major investment cycle nearing end

• § Major investment cycle: modern, highly competitive facilities
• § Lithuania 2014: NOK 37.0m (facility) and NOK 13m (equipment)
• § Norway 2015: NOK 40.5m (facility) and NOK 7.0m (equipment)
• § Will be considerably lower in 2016
• § Despite facility and equipment investments in Sweden
• § Expected to remain at lower level

Capital expenditure

Net working capital: Major focus area

• § Company-wide initiatives launched
• § Results started to materialized in 2015
• § Improvement expected to continue
• § Short- and long-term target: Approximately 20% of revenue

ROOC and CCC: Improving use of capital

• § 2015 increase in return on operating capital primarily due to higher profit
• § Improvement expected to continue:
• § Higher profit
• § Lower net working capital
• § Lower capex
• § Long-term target 25%
• § Cash conversion cycle* is a key metric
• § Today: 90 days. Long-term target: 50 days
• § Long-term target based on thorough internal analysis and peer comparisons

Return on operating capital

* Days inventory outstanding + days sales outstanding - days payable outstanding.

Cash flow:

Expect solid free cash generation

• § Strong improvement in operational cash flow in 2015
• § Improvement expected to continue in 2016
• § Ongoing profitability improvements
• § Focus on working capital
• § Lower capex from 2016
• § Expect strong cash generation to continue

Improved free cash flow*

* Operational cash flow – capex.

M&A: Financing of potential acquisitions

Dividends:

Strong commitment to shareholder value

• § Share price up 129% (1.70 – 3.90) in 2015
• § Firm dividend policy
• § Favorable outlook for dividend capacity
• § Proposed 2015 dividend NOK 0,21 per share

"Kitron's dividend policy is to pay out an annual dividend between 30 and 60 per cent of the company's ordinary net profit after tax. When deciding on the annual pay-out ratio the company will evaluate the cash requirements and financial flexibility required in the company."

Earnings and dividends

2016: Financial targets

• § Revenue NOK 2.05-2.25 billion
• § EBIT margin 5.3-6.3%
• § CCC 80 days
• § ROOC 20%
• § Dividend 30-60% of net profit

2020: Long-term strategy

• § Revenue NOK 3 billion
• § EBIT margin 7%
• § CCC 50 days
• § ROOC 25%

• § Dividend 30-60% of net profit

• § Better capital management leads to strong cash generation

• § Solid balance sheet enables growth
• § Focus on shareholder value and dividend

Markets

Tommy Storstein Sales Director February 11th, 2016

Electronics Manufacturing Services (EMS): Large, well-established market

Increasingly complex market:

Outsourcing, nearshoring or reshoring?

• § Outsourcing to Asia due to labor-cost advantage was major growth driver
• § Today's picture more complex
• § Increasing labor costs in Asia
• § China moving up value chain
• § Automation changes cost mix
• § Strong growth in Eastern Europe
• § Shorter time-to-market favors nearshoring

Kitron offers a variation of production sites to match customers' preferences, with clear strategic reasoning for each location.

Kitron's offering: Focused market approach

• § High-value sectors with high-reliability products
• § Complex and changing customer needs
• § Specialized competence-driven company with in-depth application knowledge
• § Proximity to customers and markets combined with low-cost alternatives
• § Competence and capabilities for a full product-life-cycle support

Positioning of Kitron:

High-reliability products and demanding customers

Margin/complexity

Order backlog:

Diversified growth

• § Order backlog NOK 976 million
• § Positive trend in most sectors
• § Industry and Defence/Aerospace particularly strong
• § Diversification compensates for weakness in offshore
• § Increased number of prototypes in Energy and Industrial sectors

* Figures in NOK million. Definition of order backlog includes firm orders and four-month customer forecast.

Development expectations:

Geographic markets

• § Strong position in Norway and Sweden
• § Sweden the biggest market in Scandinavia
• § Germany 5 times bigger than the Scandinavian market
• § Several opportunities in the US

2015: Key orders won

Northrop Grumman

• 20 years + extensions
• Electronic modules
• Technical services
• Service and repair center

SAAB

• 20 years
• 400 million NOK
• Printed Circuit Board Assembly (PCBA) for avionics
• Military and civil products

Global energy company

• 3 years + 1
• 100 million NOK
• Electronic modules
• Technical services
• Potential business in USA and China

Rheinmetall

• 3 years
• 100 million NOK
• Printed Circuit Board Assembly (PCBA) to final products for defence equipment
• Strategic milestone for our investments in Germany

Customer Example: Industrialization Sourcing & procurement Manufacturing Logistics & Distribution Redesign Repair Maintenance Development § Prototyping § Test development § Cost reduction programs § Obsolescence management § ITO optimization § Production planning § Quality assurance § Efficiency programs § Cable harnessing § Final assembly § Re-cycling and disposal management of packaging material § Repair and Overhaul

Customer Example:

	Development		Industrialization		Sourcing & procurement	Manufacturing		Logistics & Distribution	Redesign Repair Maintenance
§	Design studies	§ § §	Prototyping Test development Sustainability reports	§ § § §	Supplier selection and optimization Cost reduction programs Obsolescence management ITO optimization	§ Production planning § Quality assurance § Efficiency programs § Electro mechanical assembly	§	Packaging and labeling services

Sales strategy: Achieve 10 per cent annual revenue growth

Sales strategy: New customers

• § Focus on selected market sectors
• § Leverage competence, application knowledge and references
• § Utilize our Eastern European base to penetrate selected European markets
• § Target local business within defined sectors in China and the US
• § Support Northern European companies in China and the US

Sales strategy: Existing customers

• § Win replacement product generations
• § Up-sell of services to climb service ladder
• § Cross-sell between business units and regions

Sales strategy: Service sales

• § Win prototyping and new product introduction (NPI) services
• § Win repair and overhaul
• § Target warehouse and distribution services
• § Innovate new services to increase revenue streams

Markets: Strategic targets

• § New customers: 5% annually
• § Existing customers: 10% annually

• § Service sales: 10% of revenue

• § High-reliable products in high-margin sectors

• § Positioned for growth and increased profitability
• § Clear, credible targets

Operations

Israel Losada Salvador, COO February 11th, 2016

Kitron's operations:

Global reach, European strength

• § Headquarters:
• § Norway
• § Manufacturing:
• § Norway
• § Sweden
• § Lithuania
• § US
• § China
• § Sales office:
• § Germany

Kitron's unique value proposition:

What makes us special?

Employees: Highly competent and motivated

• § Approximately 1200 employees
• § Areas of particular expertise, e.g. testing
• § Partnership with technical educational institutions
• § More than 20,000 hours a year of training, close to 20 hours per employee
• § No serious accidents in 2015, absenteeism low and trending lower
• § Half of employees female, one third of managers

Customers: When failure is not an option

Customers

"Kitron specializes in manufacturing products with the highest reliability requirements. This fundamentally shapes our operations."

Satellite launching rockets

• § Electro-mechanical units for civilian expendable launch vehicles used to place satellites in space
• § Aerospace manufacturing demands highest quality standards (AS9100)
• § Kitron also involved with the design for manufacturability and test development

Customers

Ultrasound machines

• § Kitron fully manufactures latest generation of premium 4D ultrasound systems
• § Printed circuit board assembly, cable harnesses, high level assembly and various functional tests, all of it following medical standards (ISO13485)

Remote Weapon Stations

• § Remotely controlled weapon station for light and medium calibre weapons
• § Kitron manufactures the control system
• § Manufactured to highest quality standards and put through Highly Accelerated Life Testing (HALT)

Customers

Control equipment for trains

• § Kitron manufactures the Vehicle Control Unit
• § Responsible for collecting train usage data in order to define the maintenance program
• § Directly related to safety and therefore extremely well tested
• § All tests designed by Kitron based on proprietary platform, SATS

§ Improved payment terms

§ Strengthened quality

Equipment and facilities: Following the market

• § Product life cycle dramatically shorter over last decade
• § Large companies with complex products more risk averse:
• § Subcontract value-adding services
• § Demand for increased flexibility

"Moving up the value-adding pyramid is going to be critical to our success."

• § Kitron's success depends on our ability to:
• § introduce new services and technologies
• § move up the value adding pyramid
• § provide services beyond traditional manufacturing

Equipment and facilities:

Major investment cycle nearing end

• § Lithuania (2014), Norway (2015), Sweden (2016)
• § Foundation in place for offering more advanced services
• § Very competitive facilities for foreseeable future

Operational excellence:

Comprehensive program started 2015

• § Step change for entire organization
• § Continuous improvements going forward

Operational excellence: 4 985 5 030 5 344 5 102 5 103 105 000 110 000

Operational Performance Metrics - OPM 106 280 107 594 105 703 105 093 3 524 3 144 3 124 3 000 4 000 95 000 100 000 23 639 21 741 20 753 9 040 8 039 15 000

• § Dashboard with 90+ indicators Wk - 32 Wk - 33 Wk - 34 Wk - 35 Wk - 36 Wk - 37 Wk - 38 Wk - 39
• § Customer Care
• § Market
• § Finance 7 185 7 276 7 194
• § Employees and QHSE 67 882 66 925 68 862 62 891 62 932 62 008 58 568 55 616
• § Supply chain Wk - 32 Wk - 33 Wk - 34 Wk - 35 Wk - 36 Wk - 37 Wk - 38 Wk - 39
• § Manufacturing
• § Review every week with every site ^{89 84} 91 180

• § Early warning, pre-emptive actions, rapid improvements 161 ^{66 56 53 55 58} 50 48 100

• WIP Inventory (value) - Manufactured/Finished Goods (value)

15 581 15 778

Operational Excellence

18 000

Operational Excellence:

Main focus: Return on Operating Capital

• § Inventory – DIO (Days of Inventory Outstanding)
• § From 104 days in 2014 to 50 days by 2020
• § Accounts payable
• § Ongoing negotiations of terms
• § Consolidation with preferred partners
• § Positive development

Strategic target ROOC 25%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 2016

* Rolling 3 months DIO at end of quarter.

^{= 365} ∗

⁼ + − + 66

Operational Excellence

Operations:

Targets

• § Reduce cost by 5% annually
• § Drive operational excellence to achieve ROOC of 25%
• § Enable NOK 1 billion business in Norway, Sweden and Lithuania

Operations: Key messages

• § Preferred partner for high-reliability solutions
• § Moving up value-adding pyramid
• § Major investment cycle nearing end
• § Operational excellence program in force

Summary

Peter Nilsson, CEO February 11th, 2016 Summary: Long-term strategy

• § Revenue NOK 3 billion
• § EBIT margin 7%
• § Dividend 30-60% of net profit

Summary: Key messages

• § Operational improvements ongoing
• § Strong cash generation
• § Focused market strategy
• § Clear plans for organic growth
• § Potential acquisitions
• § Focus on shareholder value

Questions and answers