Slides
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Thriving in Uncertainty: Growth and Agility in a Shifting Geopolitical Landscape Capital Markets Presentation Kitron Group, 10 December 2024
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AGENDA 2 • Introduction to Kitron (Peter) • Geopolitics, Macro and sector outlook(Peter) • Sales Strategy and market sector outlook (Hasse) • Defence/Aerospace market sector (Hans Petter) • Capacity and regional growth (Kristoffer) • Finance and outlook 2025 (Cathrin) • Summary, Q&A and wrap up (Peter) Cathrin Nylander CFO Hasse Faxe Global Sales Director H.P . Thomassen VP Nordics & N.A. Peter Nilsson President & CEO Kristoffer Asklöv COO
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Introduction to Kitron Peter Nilsson President & CEO
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Our business 4 Development Industrialisation Sourcing and Procurement Manufacturing Logistics and Distribution Redesign and Repair PRODUCT SERVICES Kitron is a leading Scandinavian Electronics Manufacturing Services (EMS) company, delivering improved flexibility, cost efficiency, and innovation power through the value chain Connectivity Electrification Industry Medical Devices Defence/ Aerospace MARKET SECTORS
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Kitron Group 5 Headquarters in Norway 2500 + Employees 11 Countries 300 + Engineers 30 + SMT lines 60 + Years of experience 100 000 + sq. m of manufacturing China India Malaysia Lithuania Poland Czech Republic Germany Norway Sweden Denmark US CEENordics & N.A Asia Pacific
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Proven track record 6 Revenue growth • Annual growth ~10% (ex. M&A) over a business cycle • Customer development • From 4 to 10 factories globally Margin improvement • World-class operations management • Proven economies of scale concept • Opex reduced from 35% to 21% Capacity expansion • 2 international acquisitions • Greenfield Poland and Malaysia, multiple site upgrades • > EUR 50 million invested in new equipment and capabilities 210 648 2014 2024 Revenue EUR million 1.7% 7.2% 2014 2024 EBIT margin Percentage 2024 figures based on midpoint of communicated range.
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Geopolitics, Macro and sector outlook Peter Nilsson President & CEO
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8 Navigating Dynamic Markets • Strength in Nordic and U.S markets • Recovery in European markets 2026 • Geo-politics, Tariffs and localization • Regional Opportunities • New Partnerships • New Acquisitions 0 200 400 600 800 1 000 1 200 1 400 2024 2025 2026 2027 2028 2029 Growth Targets Timing dependent on market recovery and M&A
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9 Market sectors Connectivity: • Expect > 10% growth for 2025 and 20% 2026 as market broadly recovers • Sensor and tracking equipment performing well in 2024 and 2025 • We expect a broader strength returning to the sector beyond mid- 2025 Electrification: • Expect reduction of 7% in 2025 and 25% growth in 2026 • Electricity transmission and maritime electrification continues to grow and accounts for over 50% of 2025 sales exceeding 15% growth • We expect a broader strength returning to the sector beyond in 2026 Industry: • Sector growth flat in 2025 and 15% growth in 2026 • Localization of production to China driven by investments Medical Devices: • Sector growth 2025 affected by EOL major product line • Strong focus on M&A for renewed growth 124 138 165 182 200 220 2024 2025 2026 2027 2028 2029 Connectivity 175 165 215 235 260 285 2024 2025 2026 2027 2028 2029 Electrification 150 150 170 190 210 230 2024 2025 2026 2027 2028 2029 Industry 55 45 40 41 43 44 2024 2025 2026 2027 2028 2029 Medical Devices
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10 40 000 50 000 57 000 63 000 70 000 77 000 84 000 2023 2024 2025 2026 2027 2028 2029 European Defence Sales (MEUR) 250 000 290 000 304 500 319 725 335 711 352 497 370 122 2023 2024 2025 2026 2027 2028 2029 European Defence Spend (MEUR) Beginning of investment cycle • Nato countries gearing up defence budgets from below 1% to close to 3% or above by 2026 • Close to 80% of European equipment needs were purchased outside of the EU in 2023 • European defence companies outpace the U.S. on growth Next steps: • Large platform orders • Naval vessels, Surveillance Systems, Air defence, Air supremacy assets • Kitron well positioned to serve multiple customers across multiple platforms, sites and regions Defence capable Kitron sites: • Norway, Sweden, Denmark, Poland, Czech, Lithuania and U.S. • Expect > 20% growth in 2025 Customers: • Kongsberg, SAAB, Thales, Terma, Leonardo DRS, Northrop Grumman, L3Harris, Lockheed Martin, Aimpoint, Comrod, Covidence, Axnes, Raytheon, Rheinmetall, Nammo, Mildef • Strong focus on M&A for further growth Defence & Aerospace
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Sales growth Hasse Faxe Global Sales Director
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Our unique selling points 12 Financial strength Global footprint Market sectors with highly specialized requirements and certifications (i.e. defence, medical) Proven track record through excellent customer and project references Speed and agility Sustainability
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Customers and positioning 13 Kitron’s customers are often market leaders in their business. Our partnerships generally date back a decade or more. Sales is strongly characterized by repeat business, continuously renewed by new product generations. VOLUME MARGIN/COMPLEXITY Local niche providers Mass production Long-term, repeat business Customers often market leaders Often high-complexity products Regionalized supply chains and manufacturing KEY TAKE-AWAY Kitron operates in growing market segments. European EMS market expected to grow 7% CAGR, reaching $70 billion by 2028 – no meaningful barrier to Kitron’s growth.
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Growth strategy in market sectors 14 Connectivity: Medium-term 7-15% annual growth • Focus: IOT, sensors, optical networks, intelligent asset tracking • Drive for high utilization, high automation – economies of scale • Take advantage of application know-how and rapid time-to-market Electrification: Medium-term 7-15% annual growth • Focus: E-Mobility, energy storage, power grid solutions, load balancing. • Manage emerging tech and build high-level assemblies • Deliver on scale, technology and time-to-market Industry: Medium-term 5-10% annual growth • Focus: Industrial automation, robotics, infrastructure • Manage cost competitiveness, use purchasing strength, effective automation and rapid demand-change flexibility Medical devices: Medium-term 0-5% annual growth • Focus: Ventilators, In vitro diagnostics, digital morphology • Position as strategic partner for innovation and product management Defence/Aerospace: Medium-term 20-30% annual growth • Focus: Surveillance, communication, infrastructure, training and more • Take advantage of market entry barriers • Capitalize on long-term relationships, NATO defense spend and localization of manufacturing
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Medium-term ambition 15 Revenue EUR million 209 210 219 225 261 273 335 369 366 641 775 648 1000 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 … Target Revenue Growth target EUR 1 billion in revenue 9% EBIT margin Timing dependent on market recovery and M&A
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Defence & Aerospace market sector H.P . Thomassen VP Nordics & N.A.
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• Long-standing commitment to the defence sector • Strategic vision that aligns with industry growth • Strong, sustainable partnerships with leading defence OEMs • Management protocols fully compliant with defence contracting requirements • Stringent security measures are prioritized • Comprehensive cybersecurity framework that meets regulatory demands • Strategic geographic expansion of factory locations enables Kitron to efficiently serve leading OEMs across the transatlantic sphere • Capability to qualify the entire European footprint for defence manufacturing Kitron’s strategic defence sector positioning 17 23% 40% 45% 56% Nato total Nato Europe Nato equipment Home countries equipment Spend growth 2022-2024 KEY TAKE-AWAY Entering the defence industry is challenging due to complex contracting requirements. Kitron's advanced skills and strong market presence make us well-positioned for growth
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Reindustrialization of European Defence Capabilities 18 138 167 200 224 249 274 2024 2025 2026 2027 2028 2029 Defence outlook Kitron • Scaling up production capabilities and infrastructure • Qualify further European sites for defence manufacturing • Transfer of production from the Nordics to the US for US end-user products • Leverage growth opportunities with current customer base • Target identified home market opportunities in the national long-term defence equipment acquisition plans and use of civilian assets in traditional military tasks KEY TAKE-AWAY Annual growth potential in Kitron’s relevant market exceeds 20% YoY
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Reindustrialization of European Defence Capabilities 19 • Focus efforts on systems where Kitron has strong application knowledge • Long range precision munitions • Weapon control systems • Communication equipment • Radar systems • Target companies with disruptive technologies providing faster fielding and less expensive mass- volume capacities • Unmanned “swarm” capacities • Countermeasure systems 0 50 100 150 200 250 300 2025 2026 2027 2028 2029 MEUR Kitron estimate
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Capacity and regional growth Kristoffer Asklöv COO
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Main short-term priorities 21 Growth Profitability Existing customers Focus on competitiveness to win new products & follow -on generations New customers New customer acquisition is key Acquisitions Actively pursuing value-creating M&A agenda “More with same” Utilization, capacity adjustments and program transfers Cost control Competitive costs through optimization and streamlining
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Local ownership and Global synergies • Common operating model and performance metrics • Strong local management teams with full P&L responsibility • Common systems and a digital toolbox • Standardized equipment strategy gives global leverage • Strong group functions providing leading edge support • “One Kitron”, Leadership, employee development, Harmonization, Standardization & Digitalization • We strive for each site to be able to deliver 100-150 MEUR Global and local strategies 22
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Regional strategies 23 Regional operations • Nordics • Leverage growth in Defence sector • High complexity & tough regulatory requirements • Proximity & Best-in-class service • Europe • Market sector diversification • Best-in-class in Operation Excellence • Costs, capacity and resource utilization • North America • “Made in America” • Defence and Electrification sector in focus • Market sector diversification • Asia • “China-for-China” focus • Asia-non-China offer • Best-in-class engineering services
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Strategic initiatives for expansion Capacity, capabilities & current facilities • 10 manufacturing sites in 9 countries • We will invest in competitive capabilities in existing regions • Our service offer is a key element for further growth Greenfield projects & New regions • We will enter new regions and countries in next five years • Investment anchored by CAPEX 2-3% • Focus on customer needs, regional access & labor market 24 Acquisitions • Seeking long-term growth through strategic acquisitions • Leveraged through debt and equity financing • Criteria: regional presence, customer base expansion, value addition Targeting 10% annual growth over a business cycle KEY TAKE-AWAY Kitron is strategically expanding with greenfield investments and targeted acquisitions to enhance global market presence and operational capacity
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Parallel projects ongoing to identify acquisition targets: Region Europe • Europe, Dachs-region • Market sectors: Defence, Medical and Industry Region North America • U.S., low-cost Americas • Market sectors: Defence, Medical, Industry, Connectivity, Electrification M&A strategy 25 What we look for: • Geographical expansion • Customer portfolio • Purchasing power • Cost advantage • Other synergies • Ability to support existing customers
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Expansion updates 26 Malaysia We have just opened a new manufacturing plant in Malaysia to support our customers different needs in Asia. Key facts: • Area: 3000 m² • Operational Q1 2024 • Capabilities to serve electronics build, PCBA production, box build and High-level assembly • Market focus: Asia non-China, export U.S., India and Europe • Localized Supply Norway New site under construction in Longum, Norway. This site will support growth within the Defence & Aerospace sector. Key facts: • Area: 7000 m² • Operational Q1 2026 • Current operations at Kilsund will focus on electronics - PCBA production • New Longum operations will focus on High-level assembly and systems integration
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Finance and outlook 2025 Cathrin Nylander CFO
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Setting the course for sustainable financial success 28 Five financial goals Development 2020-2024 CAGR % 5 year EBIT margin % ROOC % CF % EBITDA NIBD/EBITDA 7.9 % 6.5 % 7.1 % 9.1 % 7.2 % 9.0 % 2020 2021 2022 2023 2024 Target 15% 19% 12% 27% 27% 20% 25% 2019 2020 2021 2022 2023 2024 Target 2.8 1.8 1.7 2.6 1.5 1.5 2.5 2019 2020 2021 2022 2023 2024 Target 57% 37% 23% 67% 75% 80% 2020 2021 2022 2023 2024 Target 11% 10% 20% 23% 14% 10% 2020 2021 2022 2023 2024 Target Revenue: ~10% organic growth Targeting 10% yearly organic revenue growth over a business cycle, with M&A adding upside NIBD/EBITDA: <2.5 NIBD to EBITDA ratio maintained below 2,5 for financial health Cash flow: 80% of EBITDA Cash flow from operations projected at 80% of EBITDA ROOC: >25% ROOC above 25%, indicating a strong business model Profitability: 9% EBIT margin 9% EBIT margin, leveraging growth and efficiency. 8% in 2024 excluding one offs Promoting enduring profitability and a robust balance sheet for strategic growth and shareholder value 2024 figures are estimates. CAGR and EBIT margin based on midpoint of communicated range.
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29 Financial Strength Positioned for growth self funded organic expansion Investments capabilities and efficiency M & A attractive and growing sectors 35% Equity / Asset % 1.5 NIBD/EBITDA 118 MEUR Net debt
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30 Free cash flow development and outlook EUR Million EUR Million 2025 - Improved profitability - Reduced Working capital - CAPEX at 1.5% 17.1 42.9 0 10 20 30 40 50 60 70 2022 2023 2024 2025 Free cash flow
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• Revenue expected between EUR 600 and 700 million, reflecting market risk and growth opportunities • Operating profit (EBIT) expected between EUR 42 and EUR 63 million • Midpoint equals EBIT margin of 8.1% • Defence/Aerospace • Expected growth > 20% ~ 30 MEUR • Connectivity • Expected growth > 10% ~ 15 MEUR • Other sectors • Risk of decline ~ 5% , ~ 20 MEUR • New customers • Expected to contribute about 10 % or 75 MEUR Outlook 2025 31 2024 GUIDANCE Revenue: EUR 635M to 660M EBIT: EUR 44M to 50M 2025 GUIDANCE Revenue: EUR 600M to 700M EBIT: EUR 42M to 63M * Including one-off of 4.8MEUR in 2024-Q1
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Summary Peter Nilsson President & CEO
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• Strong growth on and Defence & Aerospace for 2025 • Other market sectors to recover over 2025 and beginning of 2026 • Over mid to long term Kitron’s ambition is to achieve more than 10% organic growth each year from market sectors and product applications supported by strong megatrends • Focus on capacity utilization and maximizing economies of scale ensuring competitiveness and profitability • Balance sheet positioned for growth • Strong focus on new customer acquisition and M&A • Continue delivering superior performance to customers and shareholders 33 Key take-aways 2025 GUIDANCE Revenue: EUR 600M to 700M EBIT: EUR 42M to 63M
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Q&A
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35 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 Equity ratio Total Equity / Total Assets EPS Earnings Per Share