Kitron — Investor Presentation 2017

Feb 16, 2017

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.

Speakers

Peter Nilsson Chief Executive Officer

Strategy and Markets

Operations Break Financials Summary Q&A

Speakers

Israel Losada Salvador Chief Operating Officer

Strategy and Markets Operations

Break Financials Summary

Q&A

Speakers

Cathrin Nylander Chief Financial Officer

Strategy and Markets Operations Break Financials Summary Q&A

Financial highlights full year 2016:

Growth and margin expansion continue

• § Revenue growth continues
• § Continued profitability improvement
• § EBIT margin 5.6% (5.3%)
• § Order backlog growing
• § Defence gives long-term visibility
• § Net working capital
• § Higher capital efficiency
• § Low financial gearing
• § NIBD / EBITDA 1.3 (1.6)

NOK mill.		2016 vs 2015
Revenue 2093.0	Ý	7.2 %
EBIT 117.8	Ý	14.7 %
Order backlog 1019.4	Ý	4.5 %
Operating cash flow 108.5	Þ	-46.8 %
Net working capital 512.2	Ü	0.9 %

The essence of Kitron

Kitron is an Electronics Manufacturing Services company.

Our customers outsource manufacturing and related services to us.

We deliver improved flexibility, cost efficiency, and innovation power throughout the value chain.

Positioning of Kitron:

Complex, high-margin products

Volume

Markets and customers:

High-reliability products for high-value sectors

2016: Key orders and agreements

Northrop Grumman

• § F-35 program
• § Sub-assembly for JSF Radar
• § Potential above NOK 500 million
• § Sub-assembly for JSF CNI system
• § Potential above NOK 1 billion

Dentsply Sirona

• § New supply agreement
• § World's largest manufacturer of professional dental products
• § Strategically important in German market

Aidon

• § 3 years
• § More than NOK 100 million
• § RF
• communication modules
• § Production at Kaunas

Lockheed Martin

• § 2 years
• § F-35 program
• § Integrated Backplane Assembly
• § Low Rate Initial Production program 11

Industrial supplier

• § 3 years
• § NOK 300 million
• § Power and automation technology

Order backlog: Diversified growth

• § Order backlog NOK 1019 million
• § Underlying growth 9.2%
• § Defence/Aerospace adds visibility, also beyond order backlog horizon
• § Industry and Energy/Telecoms particularly strong in 2016
• § Growth in Medical devices expected beyond visibility in backlog as new products are approved for ramp-up during 2017
• § Decline in Offshore tapering off, but no visible growth in outlook

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

Kitron in 2020: Strategic Agenda

Accelerated organic growth

• § Existing customers
• § New customers
• § Life cycle services

Operational improvements

• § Capital efficiency
• § Flexibility
• § Execution
• § Innovation

Targeted M&A

• § New geographies
• § Existing geographies
• § Value chain expansion

Kitron in 2020: Strategic Agenda

Kitron 2020

Accelerated organic growth

• § Existing customers
• § New customers
• § Life cycle services

Operational improvements

• § Capital efficiency
• § Flexibility
• § Execution
• § Innovation

Targeted M&A

§ New geographies § Existing geographies § Value chain expansion

Accelerated organic growth:

Achieve NOK 3 billion in 2020

Accelerated organic growth: Existing customers

• Significant growth potential with present customers base
• Existing large customers are market leaders. We see significant growth opportunities going forward.
• Current market share with customers won during the last years is small. There is still a lot of potential to grow.

Accelerated organic growth: Short-term and long-term sectors

Years before and after production starts

The figures will vary from contract to contract and are only meant to be indicative of the sector differences.

Accelerated organic growth:

Aerospace: visibility beyond order backlog

• § Aerospace characterized by contracts covering 20-25 years
• § Example: F-35 strong growth 2015-2020, but more than 80% remains

Sales strategy: New customers

Targeted customers

• Targeted customers are larger, growing, profitable customers with demanding requirements
• Leverage our competence, application knowledge and references

Targeted markets

• § Focus on selected market sectors
• § Utilize our Eastern European base to penetrate German-speaking markets
• § Win local business within our sectors in North America and China markets

Target 5% of revenue

Accelerated organic growth:

Road to success in German-speaking markets

• § Focused approach in the Defence, Medical and Industrial sectors
• § Lead, coordinate and compile customer strategy
• § Financial, commercial and contractual account responsibility
• § Management of local customer teams at manufacturing sites
• § Sales office in Stuttgart covering Germany, Austria and Switzerland

Target NOK 300 million by 2020

Life Cycle Services: Leveraging our competence

• § Close to NOK 200 million sales in 2016
• § Approaching target of 10%
• § Product development and simulation
• § Test design and development
• § Consultancy and project management
• § Component engineering
• § Product manufacturability analysis
• § Tooling design and manufacturing
• § Flexible distribution services
• § Aftermarket services

Target 10% of revenues from services

Kitron in 2020: Strategic Agenda

Accelerated organic growth

• § Existing customers
• § New customers
• § Life cycle services

Operational improvements

• § Capital efficiency
• § Flexibility
• § Execution
• § Innovation

Targeted M&A

§ New geographies § Existing geographies § Value chain expansion

Operational improvements

• § Capital efficiency
• § Return on Operating Capital Target 25%
• § Flexibility
• § Time to Market
• § Annual revenue growth 10%
• § Execution
• § Cost competiveness and targeted earnings drive Operational Excellence and Lean programs
• § Innovation
• § Robotics and Automation
• § Additive Manufacturing / 3D printing
• § Augmented Reality

Kitron in 2020: Strategic Agenda

Accelerated organic growth

• § Existing customers
• § New customers
• § Life cycle services

Operational improvements

• § Capital efficiency
• § Flexibility
• § Execution
• § Innovation

Targeted M&A

• § New geographies
• § Existing geographies
• § Value chain expansion

Growth through targeted M&A: Exploring along three axes

Entering new geographies

• § Leverage existing customer relationships
• § Expand customer base

Value chain expansion

§ Leverage existing customers' value chain

Existing geographies

§ Synergies

Focus on shareholder value:

End 2014 NOK 1.70

Strong share performance, increasing dividends

• § Market cap 31 December 2014: MNOK 294
• § Market cap 31 January 2017: MNOK 1173
• § Free float from 30% to 100%
• § Included in OSEBX December 2016
• § Proposed 2016 dividend: NOK 0.25

Dividend policy 30-60 per cent of ordinary net profit after tax.

OSEBX

31 Jan 2017 NOK 6.66 +292%

Progress on key figures: 2020 strategy

	2014 actual	2015 actual	2016 actual	2017 target	2020 strategy
Revenue NOK million	1751	1952	2093	2150-2350	3000
EBIT margin	1.7%	5.3%	5.6%	5.6-6.4%	7%

2020 strategy

Profitability reaching 7 % - increased focus on profitable growth

Key messages

• § Operational improvement on track
• § Focus on growth and margin expansion
• § Committed to total shareholder return

Impressive window view from administration to manufacturing area at the new Torsvik factory in Sweden!

Strategy and Markets Operations

Break Financials Summary Q&A

Speaker

Israel Losada Salvador Chief Operating Officer

Kitron's operations:

Modern facilities serving demanding customers

• § Operations:
• § Norway
• § Lithuania
• § Sweden
• § Germany
• § China
• § United States
• § About 1350 employees
• § Major upgrades past years
• § Lithuania 2014
• § Norway 2015
• § Sweden 2016

Evolving business model:

Improving our value-adding proposition

Ensuring success:

Long term systematic approach to improvement

Supply chain management:

Simplifying complex matters

Strategy

• § Efficient internal production capabilities supported by strong supply partners
• § Built around customers' needs
• o Flexible inventory solutions
• o Savings
• o Transparent real time data
• o Risk management

Supply chain management: Consolidation brings financial benefits

Kitron's Lean Road Map

Operational excellence: Increasing efficiency

What works? What needs to be improved? What's the plan to get there?

36

Operational excellence: Increasing efficiency

2015

Setting our Operational Excellence Program

• § Kitron common processes
• § Visualized daily meetings
• § Weekly measurement system reviewing 100 performance indicators

Operational excellence: Increasing efficiency

2016

Prepared ourselves for growth

• Test Development
• New site in Sweden
• New Product Introduction

Operational excellence: Increasing efficiency

2017

Further improving our processes

• § Value stream mapping – eliminating waste
• § Project Management – enable us to grow smoothly
• § Investment in robotics – 24x7 operations and repeatability

Improving time to market and cost: Introducing SATS

• § Kitron's proprietary test system
• § Lower investment cost
• o Only requires an adaptor – pay as you use
• o Frigg: Full version
• o Nanna: Compact version
• § Standard system and common libraries
• § Ensures common platform between customer and supplier
• § Facilitates transfers within Kitron

20 SATS by 2018

75% of our revenue tested with SATS by 2020

Innovation: Taking Kitron to the next level

Additive manufacturing – 3D printing: Moving to mass production

Additive manufacturing of composites at all Kitron sites by 2018

Additive manufacturing of metals introduced in 2019

Automation & Robotics: Will drive competitiveness

• § Enables cost efficient flexibility Payroll expense as % of revenue
• § Facilitates growth

Manufacturing lines for 2 products fully automated in all sites by 2018

50% of our production lines fully automated by 2020

Virtual simulation: Identify improvements early

Before we build a new product, we will first create and optimize its digital twin.

Augmented reality: Great potential in production

• § Live view of a physical environment augmented by computer
• § A true value-add device

QUALITY

§ Increasing the likelihood that the correct procedure is performed

TRAINING

§ Accelerating training of new employees – quick growth

OPERATIONAL EXCELLENCE

§ Assessing accuracy and timing of tasks, so they can be improved

Investments:

Focus on technology

• § Major investment cycle on facilities completed
• § Modern, highly competitive facilities
• § Shift focus to automation

Capital expenditure

Flexibility, execution and innovation: From vision to specific goals

Operations: Key messages

• § Preferred partner for high-reliability solutions
• § Operational excellence program pays off
• § Seamless supply chain means true partnership
• § Technical innovation takes us to next level

Speaker

Cathrin Nylander Chief Financial Officer

Strategy and Markets Operations Break Financials Summary Q&A

Financial highlights full year 2016:

Growth and margin expansion continue

• § Revenue growth continues
• § Continued profitability improvement
• § EBIT margin 5.6% (5.3%)
• § Order backlog growing
• § Defence gives long-term visibility
• § Net working capital
• § Higher capital efficiency
• § Low financial gearing
• § NIBD / EBITDA 1.3 (1.6)

NOK mill.		2016 vs 2015
Revenue 2093.0	Ý	7.2 %
EBIT 117.8	Ý	14.7 %
Order backlog 1019.4	Ý	4.5 %
Operating cash flow 108.5	Þ	-46.8 %
Net working capital 512.2	Ü	0.9 %

Historical financials: Growth, margin expansion and solid cash flow

Operating cash flow

EBITDA

Cost control: Progress continues

• § Combining growth and tight cost control improves operational expenses in % of Revenue
• § Investments in low cost countries reduce payroll expenses as % of revenue
• § Closing in on strategic ambition of < 25% 27.2% 25.3%

Cost control taking hold

Margins:

EBIT target 7% in 2020

• § Operational improvements continued in 2016
• § Expect 5.6-6.4% EBIT margin in 2017
• § Expect further margin improvement in coming years targeting 7%
• § Key elements:
• § Revenue growth
• § Improved operational efficiency
• § Growth of life cycle services 1.5 % 1.7 %

Balance sheet: Low gearing

• § Net interest-bearing debt NOK 216 million (227)
• § NIBD/EBITDA 1.3 (1.6)
• § Target below 2.5
• § Equity ratio 43% (44%)
• § Solid platform for organic growth, acquisitions and dividends

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)
• § Sweden 2016: NOK 10,7 (facility) and NOK 13.5 (equipment)
• § 4 surfacemountlines in 2016
• § In the future CapEx will trend lower to the level of around 2 – 2,5 % of revenue
• § But will invest to remain competitive in high-margin sectors
• § CapEx partly financed by leasing

Capital expenditure

Net working capital: Continued downwards trend

• § Ongoing effort to lower ratio of NWC to revenue as sales are growing
• § Increase inventory efficiency
• § Improve payment terms with suppliers
• § Target: < 20% of revenue

ROOC (R3) and CCC (R3): Improving use of capital

• § 2016 increase in return on operating capital primarily due to higher EBIT
• § Improvement expected to continue:
• § Higher profit
• § Capital efficency
• § Long-term target 25%
• § Cash conversion cycle is a key metric:
• § 2015: 90 days
• § 2016: 79 days
• § 2017 target: <70 days
• § Long-term target: 50 days

Return on operating capital

• Cash Conversion Cycle (CCC) = Days inventory outstanding + days sales outstanding - days payable outstanding.
• Return On Operating Capital (ROOC) = EBIT / (Intangible and tangible fixed assets + Inventory + Trade receivables – Trade payables)

Cash flow: Solid free cash generation

• § Operating cash flow in line with EBITDA going forward
• § Operating cash flow and free cash flow to increase in 2017
• § Strong cash generation to continue

* Operational cash flow – capex.

Dividends:

Strong commitment to total shareholder return

• § Share price 2016 6.03, 55% increase from 2015
• § Total shareholder return ~250% from 2014
• § Firm dividend policy
• § Favorable outlook for dividend pay out
• § Proposed 2016 dividend NOK 0.25 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

Scorecard:

What we said, what we did, what we aim for

	2014	2015	2016 target	2016 actual	2017 Target
Revenue NOK million	1751	1952	2050-2250	2093	2150-2350
EBIT margin	1.7%	5.3%	5.3-6.3%	5.6%	5.6-6.4%
Return on operating capital (R3)	7.8%	17.8%	20%	18.5%	20%
Cash Conversion Cycle (R3) Days	106	90	80	79	< 70

• § Better capital management leads to strong cash generation
• § Solid balance sheet enables growth
• § Focus on Total Shareholder Return

Speakers

Peter Nilsson Chief Executive Officer

Strategy and Markets Operations Break Financials Summary Q&A

A clear path for growth and profitability.

Questions and answers

Appendix:

Definition of alternative performance measures

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 de ned as underlying growth. Change based on the change in exchange rates are de ned as foreign exchange effects. The sum of underlying growth and foreign exchange effects represent the total change between the periods.

EBIT margin (%) Operating profit (EBIT) / Revenue

Net working capital

Inventory + Accounts Receivable – 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/Trade Payables)

Days of Inventory Outstanding R3

360/ ((Last 3 months Direct Costs *4) /(Last 3 months Trade Payables/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 Receivables)

Days of Payables Outsanding (R3)

360/ (((Last 3 months (Cost of Material + other operational expenses)*4) /(Last 3 months Trade Receivables)/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 (Noncurrent liabilities) + Loans (Current liabilities)