Kitron — Investor Presentation 2019

Jul 11, 2019

First half year and Q2 results 2019

Cathrin Nylander, Acting CEO and CFO

11 July, 2019

Cathrin Nylander, Kitron's acting CEO comments

• Continued strong topline growth with revenue increasing 29,0% second quarter and 26.9% year to date
• US acquisition and Norway and Lithuania contributed to the strong revenue growth
• EBIT margin at 6.6% second quarter with continued margin improvements in Norway and Sweden
• Order backlog stabilized at a high level. Strong growth of 44% compared to last year with contributions from offshore/maritime and defence/aerospace sectors.
• Increase in working capital YoY related to higher (revenue) growth and the raw material constraint situation
• The raw material constraint has started to ease and improved working capital efficiency is expected going forward

Continued strong growth and profitability Financial highlights Q2:

• Revenue
• Continued strong growth 29.0 % yoy
  • Organic growth 19%
• Strong value growth within the industry, defence/aerospace and offshore/marine segment
• Operating Margin/EBIT
• Operating margin at 6.6% (6.8%)
• EPS
• EPS 0.20 (0.20) NOK
• Agio effects on non-cash net income
• Order Backlog
• Order backlog still at a high level

NOK Million	Q2 2019 vs Q2 2018
Revenue	29,0 %
860,2
EBIT	25,3 %
56,4
Order Backlog	44,0 %
1 4 5 3 , 3
Operating cash flow	25,3 %
53,5
Net working capital	54,7 %
932,8

Continued strong growth and profitability Financial highlights first half year:

• Revenue
• Continued strong growth 26.9 %
  • Organic growth 19%
• Strong value growth within the industry, defence/aerospace and offshore/marine segment
• Operating Margin/EBIT
• Operating margin at 6.4% (6.4%)
• Operating cash flow
• Improved as a result of the stabilized working capital
• EPS
• EPS 0.41 (0.35) NOK
• Agio effects on non-cash net income

N O K M illio n		2019 vs 2018
R even u e		26,9 %
1 6 7 3 ,0	
E BIT		28,5 %
1 0 7 ,7	
O rd er Ba ck lo g		44,0 %
1 4 5 3 ,3	
O p era tin g ca s h flo w		238,2 %
7 8 ,8	
N et w o rk in g ca p ita l		56,6 %
9 3 2 ,8	

Important agreements in the second quarter Major new orders:

Kitron signs contract with Efore Group

• In April, Efore Group selected Kitron as manufacturing partner for some of its EMS production
• Potential value of approximately NOK 25 million in the first year of full production
• Production will take place at Kitron's plants in Lithuania

Kongsberg award orders to Kitron

• In April, Kitron received orders with a value of more than NOK 50 million under a long-term manufacturing agreement with Kongsberg Defence & Aerospace announced 26 October 2018
• Deliveries planned from the second half of 2019 to 2020
• Production will take place at Kitron's plant in Norway

Important agreements in the second quarter Major new orders:

Harris Awards Block Buy Contract to Kitron for F-35 Work

• In May, Kitron received a contract from Harris for production of Integrated Backplane Assembly (IBA) for the F-35
• The contract covers an economic order quantity buy for production lots 12 through 14
• The potential value of the contract is 18 million USD
• The IBA is an advanced and complex high-level assemble, and deliveries start this year and continue through 2021

Financial statements First quarter and Q1 2019

Revenue Q2:

Strong revenue growth of 29%

	Q2 2019 vs Q2 2018	Share of total revenue
Industry	15,4 %	39,1%
Defence/Aerospace	53,5 %	21,0%
Medical devices	6,4 %	16,6 %
Energy/Telecoms	9,7 %	14,4 %
Offshore/Marine	634,6%	8,9%

Revenue First half year:

Strong revenue growth of 26,9%

	2 0 1 9 vs 2 0 1 8	Share of total re ve nue
In d u stry	 1 4 ,4 %	4 0 ,7 %
D e fe n ce /A e ro sp ace	 3 0 ,3 %	1 9 ,3 %
M e d ical d e v ice s	 1 2 ,9 %	1 6 ,5 %
En e rg y /Te le co m s	 2 9 ,6 %	1 6 ,4 %
O ffsh o re /M arin e	 5 2 5 ,4 %	7 ,1 %

Continued (strong) growth from several regions Revenue by country Q2:

	Q 2 2 0 1 9 vs Q 2 2 0 1 8	Share of total re ve nue
N o rw a y	 2 4 ,8 %	2 4 ,9 %
Sw e d e n	 9 ,4 %	2 1 ,0 %
L ith u a n ia	 2 2 ,5 %	3 3 ,5 %
U SA	 5 4 2 ,4 %	9 ,3 %
O th e rs	 1 7 ,9 %	1 1 ,3 %

Before group entities and eliminations

Continued (strong) growth from several regions Revenue by country First half year:

N o rw a y	2 0 1 9 vs 2 8 ,5 %	2 0 1 8 	Sh are of total re 2 5 ,2 %	ve n u e
Sw e d e n	7 ,6 %		2 1 ,1 %
L ith u a n ia	1 8 ,2 %		3 4 ,5 %
U SA	4 8 2 ,4 %		7 ,7 %
O th e rs	2 7 ,1 %		1 1 ,4 %

Before group entities and eliminations

Another quarter with improved profits Quarterly EBIT:

• All time high
• Strong EBIT at 56,4 million, an increase of 25,0 per cent compared to last year
• EBIT margin was 6.6% (6.8%).

Strong margin improvement in Norway and Sweden EBIT by Country Q2:

• Another quarter with profitability improvements in Norway and Sweden
• Norway for the first time reaching a month at/with the targeted 7% margin this quarter
• Lithuania ramp-up affects margins
• China shows strong profitability
• US margins turn positive this quarter
• Kitron Technologies profit at expected margins

Q2-2018 Q2-2019
N o rw ay	Sw e d e n	Lith u an ia	USA	O th e r
6,0 %	6,6 %	7,0 %	0,4 %	12,5 %
5,2 %	5,6 %	8,6 %	-3,0 %	10,0 %

Strong margin improvement in Norway and Sweden EBIT by Country First half year:

• Profitability improvements in Norway and Sweden
• Value and margin
• Lithuania ramp-up affects margins
• China show strong profitability
• US margins turn positive
• Kitron Technologies profit at expected target

5,3 %	6,5 %	8,0 %	0,2 %	11,2 %
4,7 %	4,5 %	9,5 %	-6,7 %	3,7 %

Working capital Balance sheet:

• Cash flow
• Cash flow from operations 53,5 (42,7)
• Working capital stabilized
• Financial gearing
• NIBD / EBITDA 2.9 (1.3)
  • exclusive IFRS16 NIBD/EBITDA 2.6
• Working capital
• NOWC* 27.4% (21.6%)
• Cash conversion cycle* 101 (75)
• ROOC* 16.7% (21.3%)
  • exclusive IFRS16 ROOC% 17.7%

Operating cash flow

Net working capital

Working capital – improvements expected

• Supplier shortage/constraints has started to ease and lead times have come down
• Allocation of components are reduced by half compared to peak in Q3-2018
• Raw materials in inventory have peaked in value, further reductions are expected

Market development

Backlog stabilizing at a high level Market development:

Order backlog still strong with a growing Industry sector and strong growth for the Defence/Aeorspace and Offshore/Marine segment as expected

Seasonal effects to Industry backlog

Comparable:

• MNOK 1 453 (1 009) +44,0%
• Defence: 674,6 +87,8%
• Medical: 174,4 +24,1%
• Industry: 361,1 +10,2%
• Energy/Telecom: 132,4 -14,3%
• Offshore: 110,7 +313,7%
• Organic growth 28%

Order Backlog

Outlook

Outlook

• For 2019, Kitron expects revenue to grow between NOK 3 200 and NOK 3 400 million.
• Earnings in value are above previous outlook, however EBIT margin is expected to be between 5.9 and 6.3 per cent. Stronger growth than expected due to ramp-up of customers temporarily drive inefficiency in existing facilities. Start-up of Polish facility also expected to affect margins. We expect the margin challenges to be resolved as we move into 2020.
• Growth is primarily driven by the acquisition of the EMS division of API Technologies Corp. and growth for customers in the Defence/Aerospace, Industry and Offshore/ Marine sectors.

Thank you!