Kitron — Investor Presentation 2024

Apr 25, 2024

2024 Q1 Presentation

Kitron Group | 2024-04-25

CEO comments 2024 outlook

• Strong demand in key areas . These products are built in in Norway, Sweden, and the U.S. leading to an overall growth in these sites by more than 20% in 2024.
• However, following a remarkable growth in 2023, the broader market environment is challenging, leading us to revise our full year sales outlook down by 12%.
• The slower than anticipated market recovery, along with extended de -stocking activities by our customers, necessitate this adjustment.
• These challenges are affecting our operations in Central and Eastern Europe (CEE) and to a greater extent in China.
• Despite these headwinds, we see signs of recovery in some market sectors as we approach the fourth quarter.
• New Malaysia facility is meeting customer expectations and is set for transfers from our other operations and new customer engagements.

Maintaining profitability

• To meet the challenges of the market outlook, substantial steps are taken to create a unified "One Kitron" through adopting :
  • o Common business platforms
  • o Streamlining organizational structures
  • o Aligning capacity with demand
• Actions will lead to a :
  • o Reduction in force of more than 20% from last year's peak
  • o Reduction of annual costs by €12 million.
• Close to €5 million in restructuring charges taken in first quarter.
• Full impact of changes from the mid -second quarter. Significant changes to former BB -electronics operations.
• Strategic target of 9% operating margin maintained.

First quarter sector trends

Sector trends 2024 -Q1

▪ Connectivity:

• o Sector decline 18%
• o Market saturation and economic downturns affecting spending on new technologies
• o Growth on products supporting infrastructure investments.

o Electrification:

• o Sector decline 11%
• o Greentech products suffer from reduced consumer spending on big ticket items
• o Strong growth on network grid infrastructure (+160%).

o Industry:

• o Sector decline 15%
• o Cooling off in industrial activity, due to a combination of economic slowdown, consumer demand, and over -stock in supply chain
• o Strong growth Infrastructure supporting advanced chip design (+96%).

o Medical Devices:

• o Sector decline 21%
• o Urgent demand for medical devices spurred by the pandemic has normalized leading to reduced revenue growth in this sector.

o Defence/Aerospace:

• o The sector shows a growth of 31%.
• o Increase is connected to heightened defense spending amidst global security concerns, regional conflicts, and increased government investment in defense and aerospace capabilities. The top 3 customers grow 36% with the largest growing 58%.

Connectivity

Expect strength returning to the sector in early 2025 Electrification

-

Expect strength returning to the sector in mid 2025 Industry

Medical Devices

Expect strength returning to the sector in 2025 with new product generations

Defense/Aerospace

Continued double digit growth over next several years

4

R06 and R12 Forward demand

▪ Rolling six-month outlook 354 €M

• o R06 demand relevant considering shorter demand horizon from customers
• o R06 demand decreases to 354 €M from 386 €M from last quarter
• o Reduction indicates more uncertain outlook in third quarter
• Rolling twelve-month outlook 654€M
  • o R12 demand decreases to 654 €M from 669 €M from last quarter.
  • o Reduction relevant considering shorter demand horizon from customers and poor data for 2024-Q4 and 2025- Q1.

The R12 AND R06 forward demand covers the future rolling 12 and 6-month period. This contains all customer demand, firm demand and forecast. Historically the R06 and R12 demand has been a good representation of the next 5-6 and next 9-10 months of sales.

First quarter 2024 Highlights

• Revenue: 173.9 - 8.8% (190.6)
• EBIT: 10.6, -38.9% (17.3)
• EBIT margin: 6.1% (9.1%)
• EBIT and EBIT % adj for non -recurring items: 15.4, 8.8%
• ROOC: 15.4% (28.4%)
• Cash Cycle Conversion days: 113 (90 )
• Operating Cash flow 8.5 (10.5)
• NIBD: 123.1 (140.7)
• NIBD/EBITDA 1.5 (2.0)
• Net Gearing: 0.65 (0.91)
• Equity %: 33.3% (25.7%)
• Order Backlog: 445.0, -24.1% (585.9 )
• EPS (EUR): 0.033, -51% (0.067 )

Order backlog

• Order backlog: 445.0 €M, -24.1% (585.9 €M) year-over year. Sequentially the order backlog is reduced with 10% compared to the previous quarter.
• Strength in the Defence/Aerospace sector connected to heightened defense spending amidst global security concerns, regional conflicts, and increased government investment in defense and aerospace capabilities
• Other sectors Shorter customer horizon on order placement reflecting the current market sentiment, reduction in lead-times and continued de-stocking of customer inventory.

The Order backlog features all firm customer orders and the first 4 months of customer forecast. Historically, the Order backlog has been a good representation of the next 5-6 months of sales.

Business sectors

• Nordics & North America show 15 % growth, increased profits and profit margins at 8 . 8 %
• CEE volumes reduced with 12 % , profits reduced with 26 % , profit margins at 8 . 5 %
• Asia volumes and profits halved vs last year, profit margins at 8 . 6 %
• Restructuring charge of 4 . 8 MEUR
• No of employees 2 771 and reduced with 418 compared to last year
  • o Nordics +11%
  • o China -39%
  • o CEE -14%

* includes restructuring charge

Cash flow and working capital

• Q1 Cash flow from operating activities at 8.5 €M (10.6 €M).
• Net working capital at 196.8 €M (183.7 €M), up 7% from last year, up 2% from last quarter.

				€M
Cash Flow	Q1 2024	Q1 2023	Change	31.12.2023
Profit before tax	8.6	16.3	-7.7	64.7
Depreciations	4.7	4.1	0.6	17.6
Change in inventory, accounts receivable,
contract assets and accounts payable	-3.1	0.1	-3.2	-10.2
Change in net other current assets and other
operating related items	-1.7	-10.0	8.3	-13.2
Net cash flow from operating activities	8.5	10.6	-2.1	59.0
Net cash flow from investing activities	-2.6	-3.4	0.8	-16.3
Net cash flow from financing activities	2.1	-6.1	8.2	-29.5

				€M
Net working capital	31.03.2024	31.03.2023	Change	31.12.2022
Inventory	155.5	188.7	-33.2	166.4
Contract assets	75.8	59.4	16.4	77.9
Trade receivables	123.8	152.0	-28.2	131.3
Trade payables	158.3	216.6	-58.3	181.9
Net working capital	196.8	183.7	13.3	193.7

Ratios

• Net gearing and NIBD/EBITDA 0.65 and 1.5
• Adjusted for restructuring- charge
  • o ROOC% 22.4
  • o Earnings per share 0.051

				€M
Ratios	31.03.2024	31.03.2023	Change	31.12.2023
R3 NWC % sales	28.0 %	23.7 %	4.3 %	24.4 %
R3 ROOC % sales	15.4 %	28.4 %	-13.0 %	26.9 %
R3 Cash Cycle Conversion	113	90	23	95
Net Interest bearing debt €M	123.1	140.7	-17.6	129.4
Net gearing	0.65	0.91	-0.26	0.71
NIBD/EBITDA	1.5	2.0	-0.5	1.5
Equity percent	33.3 %	25.7 %	7.6 %	31.6 %
Earnings per share quarter	0.033	0.067	-0.034	0.062
Earnings per share ytd	0.033	0.067	-0.034	0.258

Outlook full-year 2024

• In the face of a challenging market, Kitron is preserving its profitability.
• Outlook for 2024 has been revised, with an expected decline of about 12% from the previous year, attributed to ongoing reductions in customer orders and forecast cancellations.

Revised outlook

▪ For the full year, we anticipate revenues to be between 660 and 710 EUR million, with an operating profit (EBIT) of 53 to 60 EUR million, including 5 EUR million in restructuring costs incurred in the first quarter.

Previous outlook:

For 2024, Kitron expects revenues between 700 and 800 EUR million with an operating profit (EBIT) between 60 and 74 EUR million.

Key take -ways

• Q1 revenue – markets sector development. Continued strength is Defense and a few product sectors in Electrification and Industry.
• Outlook for 2024 has been revised, with an expected decline of about 12% compared to previous year.
  • o Nordics and U.S showing solid growth of 20% for 2024.
  • o CEE region expecting decrease of 30%.
  • o China expecting decrease of 50%.
• Activities amounting to €12 million savings to preserve profitability and competitiveness.
  • o Common business platforms .
  • o Streamlining organizational structures
  • o Driving cost to regional best practices
• The first quarter results includes €5 million in restructuring charges.
• Full impact of these changes to materialize from the mid-second quarter onwards.
• Focus on onboarding new customers during second half of 2024.
• Stand ready to quickly ramp-up volumes when market conditions improve.
• Remain committed to strategic target in line with operating margins of 9%.

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 defined as underlying growth. Change based on the change in exchange rates are defined 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)

Return on capital employed (ROCE) EBIT/(Total assets - short term debt)

Return on equity Net Income/Equity

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 Outstanding (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

Free Cash flow Net Cash Flow from operating activities – Cash flows from acquisition of tangible fixed assets – Cash flows from acquisition of other intangible assets

14

Equity ratio Total Equity / Total Assets

EPS Earnings Per Share