Kitron — Investor Presentation 2018

Feb 16, 2018

Capital Markets Presentation 16 February 2018

Kitron Group

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, currency development 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.

Capital Markets Presentation

Speakers

Peter Nilsson 2018 Chief Executive Officer

Strategy and Markets Operations Financials Summary

The essence of Kitron

Kitron is a leading Electronics Manufacturing Services company in Scandinavia, delivering improved flexibility, cost efficiency, and innovation power throughout the value chain.

Complex, high-margin products, medium volumes

Volume

Customers and market sectors

Accomplishments 2014–2017

Operational

• § Complete modernization of facilities
• § Substantial operational improvements
• § Supply chain streamlined
• § More employees in lower-cost countries

Financial

• § Revenue increased from NOK 1751 to NOK 2437 (39%)
• § EBIT margin increased from 1.7% to 6.1%
• § Updated dividend policy and solid dividends
• § Share price increased approximately 300%

European EMS growth picking up

European EMS market

«After a few years of no, or at best, very slow growth, the mood in the European EMS industry is more buoyant in 2017 and the prospects for further growth are good.»

Source: Reed Electronics Research, The European EMS Industry 2016-2021

32.1

Sector	Key products	Market Development	Sales outlook
ENERGY/ TELECOMS	§ Protection and control systems for power transmission § Smart grid/automatic meter reading systems § Power system relays for energy transmission and distribution	§ European EMS revenue EUR 5.8 billion in 2017 § Expected European growth rate 2.8%	§ Power transmission and smart grid systems are important growth drivers § Share of Kitron's revenue expected to be little changed in 2020 Expected share of 2020 revenue 18%

Sector	Key products	Market Development	Sales outlook
DEFENCE / AEROSPACE	§ Defence Avionics § Defence Communication § Weapon Control Systems § Surveillance & Radar Systems	§ European EMS revenue EUR 1.3 billion in 2017 § Expected European growth rate 3.2% § Long-term trend reversed since 2015: Defence spending now growing	§ Long processes § Growth expected to pick up from 2019 for F35, Gripen E, Missile and Surveillance Systems § Share of Kitron's revenue expected to be little changed in 2020 Expected share of 2020 revenue 24%

Sector	Key products	Market Development	Sales outlook
	§ Defence Avionics § Ultrasound and Cardiology System § Defence § Respiratory Ventilators Communication § Blood Analysis systems § Weapon Control Systems & Ammunition § Radiology systems	§ European EMS revenue EUR 2.4 billion in 2017 § Expected European growth rate 3.4% § Dominated by Western Europe § Aging population and diagnostics driving demand	§ Growth expected in-line with market development around 3% per year § Expected to be slightly lower share of revenue in 2020
MEDICAL DEVICES			Expected share of 2020 revenue 16%

§ Defence Avionics § Strongest short-term § European EMS revenue EUR 3.8 § Vehicle Control Systems growth driver for Kitron § Defence billion in 2017 § Electronic Control Units Communication § Strong momentum for § Expected European growth rate 5.3% § Central processing Units § Weapon Control European manufacturing § Faster growth in Eastern Europe Systems & Ammunition § Drives & Servos for Robotics § Lithuania and China § Expected to be higher share of Kitron's revenue in 2020 Expected share of INDUSTRY 2020 revenue 40%

Sector	Key products	Market Development	Sales outlook
	§ Subsea control systems § Seismic sensors and equipment § Wireless sensors § Surveillance systems	§ Highly dependent on Norwegian offshore market § Industry analysts forecast growing investments in 2018	§ Upside potential from very low level § Kitron in talks with potential new customers § But no material improvement budgeted
OFFSHORE / MARINE			Expected share of 2020 revenue 2%

Exploring Eastern European expansion

• § Growing demand, especially in Industry market sector
• § Calls for expanded capacity in Eastern Europe
• § Building on success of Lithuanian operation

Capital Markets Presentation

Speakers

Israel Losada Salvador 2018 COO & Sales Director

Strategy and Markets Operations Financials Summary

Overview of operations

• § Modern highly competitive facilities globally
• § Investments in new technology
• § Increasingly offering advanced services

3 main topics

Innovation

• § Augmented reality: Combines live view and computer graphics in work instructions
• § Reduce quality defects
• § Support traceability
• § Distance support and training
• § Augmented Reality Creator: Kitron has developed application for creating augmented reality work instructions
• § Live in 2018
• § Augmented Reality Work Station: Taking advantaged of ARC instructions
• § Can be used by any operator from day one
• § Kitron explores ways to commercialize the technology and has a patent pending.

Automation

• § Target: Products moving independently through production
• § Generating real-time data during production process
• § Collaborative robots key element
• § Fully automated line installed in Kaunas, Lithuania, last autumn
• § Full production from January

Operational excellence

• § Has impacted profitability through:
• § Reduced cost
• § Reduced time to market
• § Quick ramp-up to meet demand surge
• § Further quality improvement

"Operational Excellence is not something you do on top of your job, it is the way you do your job."

Capital Markets Presentation

Strategy and Markets Operations Financials Summary

Cathrin Nylander 2018 CFO

Revenue growth continues

• § Revenue growth continues according to strategy
• § Annual trend growth approximately 10%
• § Variations around trend line
• § 2020 target of NOK 3 billion looks achievable with some upside potential
• § Order backlog NOK 1,306 million (1,019)
• § Focus now extended to 2025, exploring activities to continue current growth path

On track for 7% EBIT margin in 2020

• EBIT margin § Operational improvements continued in 2017
• § Expect 6.1-6.5% EBIT margin in 2018
• § Maintain 2020 target of 7% EBIT margin
• § Key elements:
• § Revenue growth
• § Improved operational efficiency
• § Growth of life cycle services
• § Larger share of cost in lower cost countries

Improved capital efficiency

100 106 90 79 61 50 2013 2014 2015 2016 2017 2018 2020 Cash conversion cycle

• § Lower NWC as % of revenue due to inventory efficiency and improved payment terms

• § Target of <20% achieved in 2017

• § Cash conversion cycle is a key metric

• § Target 50 days

Cash Conversion Cycle (CCC) = Days inventory outstanding + days sales outstanding - days payable outstanding. CCC is calculated as a 3 months rolling average

Improving return on capital

• § Increase in return on operating capital Return on operating capital due to higher EBIT and disciplined use of capital
• § Improvement expected to continue:
• § Higher profit
• § Capital efficiency

• § Long-term target 25%

• Return On Operating Capital (ROOC) = EBIT / (Intangible and tangible fixed assets + Inventory + Trade receivables – Trade payables)

• ROOC is calculated based on 3 months rolling average

Strong free cash flow

• § Major investment cycle on facilities completed
• § Expect average annual capex of 2-3% of revenue
• § Investments will focus on automation and robotization
• § Expand capacity in Eastern Europe
• § Will invest to remain competitive in highmargin sectors

Strong balance sheet with low gearing

NIBD/EBITDA

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

Strong dividend capacity

• § Free cash flow underpinning favourable dividend outlook
• § Proposed for 2017:
• § Ordinary dividend NOK 0.35 per share
• § Extraordinary dividend NOK 0.20 per share
• § Extraordinary dividend due to clearly improved cash flow

Adjusted dividend policy

"Kitron's dividend policy is to pay out an annual dividend of at least 50 % of the company's consolidated net profit before nonrecurring items. When deciding on the annual dividend the company will take into account company's financial position, investment plans as well as the needed financial flexibility to provide for sustainable growth."

Earnings and dividends

Capital Markets Presentation

Speakers

Peter Nilsson 2018 Chief Executive Officer

Strategy and Markets Operations Financials Summary

29

• § On track towards 2020 strategic ambitions
• § Much stronger operational platform
• § Investing in robots and automation
• § Innovations add upside to growth and margins
• § Exploring Eastern European expansion

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.

EBITDA Operating profit (EBIT) + Depreciation and Impairments

EBIT Operating profit

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/Inventory)

Days of Inventory Outstanding R3 360/ ((Last 3 months Direct Costs *4) /(Last 3 months Inventory/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 Outsanding (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)

Net gearing Net Interest-bearing debt / Equity