Kitron Overview Norne Securities & Xtrainvestor.com Vilnius 23-24 September 2016 Peter Nilsson, CEO September 23th, 2016
Kitron Overview
Norne Securities & Xtrainvestor.com Vilnius 23-24 September 2016
Peter Nilsson, CEO
September 23th, 2016
Speaker
Peter Nilsson
Chief Executive Officer
2
Born in 1964. Joined Kitron in 2014. Almost 25 years
of experience in electronics manufacturing and
related services. Several senior and executive
leadership positions for Swedish and US companies.
Mr Nilsson holds a degree in Industrial Management
and is a Swedish citizen.
Kitron Group
Operations in Norway, Lithuania, Sweden, Germany, China and USA
Manufacturing of high complexity products for global markets
About 1200 employees
Revenue 2015: NOK 1.95 Billion
EBIT 2015: NOK 103 Million
Listed on Oslo Stock Exchange
Main shareholders:
Sievi Capital Plc. (FI ~ 33%)
Kongsberg Group (NO ~ 19%)
Amber Trust II (Int’l ~ 17%)
3
China
Europe
Johnstown
facility
USA
China
Ningbo facility
Kaunas facility
Arendal facility
Jonköping facility
Stuttgart office
Operations:
What is it Kitron does?
Industrialization Sourcing &
procurement Manufacturing
Logistics &
Distribution
Redesign
Repair
Maintenance Development
“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
Defence/
Aerospace
Energy/
Telecoms
Medical
equipment Industry
Offshore/
Marine
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
Cardiovascular imaging Systems
Customer Example:
Industrialization Sourcing &
procurement Manufacturing
Logistics &
Distribution
Redesign
Repair
Maintenance Development
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
Red-Design
and Cost
reduction
ABB HVDC: Efficient alternatives for
transmitting bulk power and connecting
Super Grids
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.
Positioning of Kitron:
High-reliability products and demanding customers
Margin/complexity
Volume
Local
niche
providers
Financials
10
11
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.
Revenue
1951,8
EBIT
102,7
Order backlog
975,6
Operating cash flow
204,1
Net working capital
507,6
12,3 %
4384,1 %
-10,2 %
2015 vs 2014
11,4 %
242,0 %
Financial highlights first half year:
Solid growth
12
Solid growth in revenue and
strong growth in order backlog
Underlying growth 5%
Improved profitability
5.1% (4.5%)
Profitability adjusted for
one-offs in Q1 at 5.5%
Improved capital efficiency
NOK mill.
Revenue
1060,1
EBIT
53,6
Order backlog
989,4
Operating cash flow
35,7
Net working capital
521,5
2016 vs 2015
10,5 %
25,1 %
19,2 %
57,3 %
-6,7 %
Q2 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016
1,5 % 3,0 % 4,4 % 4,5 % 5,6 % 6,4 % 4,1 % 5,9 %
6,9 6,9
14,3
20,8 22,1
26,3
33,6
20,5
33,1
NO
K m
illi
on
379 %M
arg
in
Contributing factors to profitability
improvement
Volume increase ~ 50 %
Cost reduction on direct
materials a result of spend
consolidation and increased
technical service sales ~ 20%
Restructuring of geographical
headcount ~ 20%
Currency translation ~ 10 %
Q1 2016 includes one off MNOK 5
for terminated acquisition.
Quarterly EBIT:
Profitability level improved
13
Balance sheet:
Solid foundation for growth
Equity ratio 44% (43%)
Target range 38% to 48%
Net interest-bearing debt NOK 226,9
million
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
* Net interest-bearing debt divided by earnings before
interest, taxes, depreciation and amortization.
3,5
2,4
4,4
5,0
1,6
2011 2012 2013 2014 2015
NIBD/EBITDA*
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
29 30 35
37
41
1,8 %
3,8 % 3,9 %
2,3 %
2013 2014 2015 2016
Capital expenditure
Other Facilities Capex as % of revenue
Historical financials:
Increasing effect of actions taken
1656 1695 1632 1751 1952
2011 2012 2013 2014 2015 2016
Revenue
39
71
25 30
103
2011 2012 2013 2014 2015 2016
EBIT
17 42 32
-5
204
2011 2012 2013 2014 2015 2016
Operational cash flow
72 107
60 65
144
2011 2012 2013 2014 2015 2016
EBITDA
16
Strategic Overview
17
Financial targets
Revenue BNOK 2.05 – 2.25
EBIT margin 5.3-6.3%
CCC 80 days
ROOC 20%
Dividend 30-60% of net
profit
Target 2016:
Revenue BNOK 3
EBIT margin 7%
CCC 50 days
ROOC 25%
Dividend 30-60% of net
profit
Strategy 2020:
1. Accelerated organic growth
2. Continued operational improvements
3. Growth through targeted M&A
Kitron in the future:
Strategic Agenda
19
Accelerate organic growth
Existing customers:
10% annually
New customers:
5% annually
Service sales:
10% of revenue
- 10% growth annually
- 10% of revenues to stem from service sales which typically enjoys higher margins
- For existing customers, Kitron anticipates to grow through winning replacement
contracts, up- and cross-selling
- For new customers, Kitron seeks to leverage its competence within core sectors and
utilize Eastern European base to penetrate selected markets
Continued Operational 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%
26,1% 25,5% 27,2%
25,3% 22,7%
7,6% 7,1%
7,7%
7,3%
6,3%
33,7% 32,6% 34,9%
32,6%
29,1%
25,0%
2011 2012 2013 2014 2015 2020
Cost control taking hold
Other opex as % or revenue
Operational Improvement Projects
Q2-2016 Q3-2016 Q4-2016 Q1-2017 Q2-2017
Consignment Stock
Supply Chain Concept
New NPI Process
New Quality Management System
Process Standardization (80-20)
New Product Structures
Operational Excellence Toolbox rollout
Site Sourcing Plans
Emergency Response Plan
Business Continuity Plan
IFS Manufacturing Enhancement Package
Data Warehouse
Routing Times Storage
Conflict Minerals
Inter Company EDI
STEP 2
STEP 1 STEP 2
STEP 1 STEP 2 STEP 3
STEP 1 STEP 2
STEP 2 STEP 3
STEP 2 STEP 3
STEP 1 STEP 2
STEP 1 STEP 2
STEP 1
STEP 3
STEP 1 STEP 2
STEP 1 STEP 2
STEP 1 STEP 2
STEP 1 STEP 2
STEP 1 STEP 2 STEP 3
STEP 1
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
ROOC and CCC:
Improving use of capital
* Days inventory outstanding + days sales outstanding - days payable outstanding.
3,7 % 4,0 %
13,8 %
25,0 %
2013 2014 2015 2020
Return on operating capital
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
2,3 %
4,2 %
1,5 % 1,7 %
5,3 %
7,0 %
2011 2012 2013 2014 2015 2016 2020
EBIT margin
Kitron will consider carefully targeted acquisitions in
two areas:
Growth through targeted M&A
Electronic
Manufacturing
services Competence, customers or
market complementary to
Kitron
Product hardware
company Competence
complementary to Kitron
Technology of importance
to Kitron customers
NOK 100 million NOK 200-300
million
NOK 300-500
million
New
bank
financ
ing
Cash
and
loan
Cash
M&A:
Financing of
potential
acquisitions
26
Shareholder value Share price evolution
0
1
2
3
4
5
6
7
0
100
200
300
400
500
600
700
OSEBX
Oct 2010 2011 2012 2013 2014 2015 Sept. 2016
NOK
5.5
NOK
2.35
Q2 Market CAP = 950 million ( from 300 million average 2013/2014)
Financial targets
Revenue BNOK 2.05 – 2.25
EBIT margin 5.3-6.3%
CCC 80 days
ROOC 20%
Dividend 30-60% of net
profit
Target 2016:
Revenue BNOK 3
EBIT margin 7%
CCC 50 days
ROOC 25%
Dividend 30-60% of net
profit
Strategy 2020: