Kitron Asa · OSL:KIT
Kitron Asa — Investor Day (February 2016)
72 slides from Kitron Asa's investor day presentation, Feb 11, 2016
Slide 1: Capital Markets Day
Capital Markets Day Peter Nilsson, CEO February 11th, 2016 1
Slide 2: Disclaimer
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 in
Slide 3: Agenda and speakers
Agenda and speakers § Welcome § Chairman’s message § Strategic overview § Financials Tuomo Lähdesmäki Peter Nilsson Chairman of the Board Chief Executive Officer Break § Markets § Operations § Summary § Q&A Tommy P. Storstein Israel Losada Salvador Cathrin Nylander Sales Director Chief Operating Off
Slide 4: Chairman’s message
Chairman’s message Tuomo Lähdesmäki Chairman of the Board February 11th, 2016 4
Slide 5: Adjusted dividend policy
Focus on shareholder value: Adjusted dividend policy Earnings and dividends “Kitron’s dividend policy is to pay out an annual 42 dividend between 30 and 60 % of the company’s ordinary net profit after 27 tax. When deciding on the 21 annual payout ratio the company will evaluate the 14 cash requireme
Slide 6: Strategic Overview
Strategic Overview Peter Nilsson, CEO February 11th, 2016 6
Slide 7: Significantly improved profitability and cash flow
Financial highlights full year 2015: Significantly improved profitability and cash flow NOK mill. 2015 vs 2014 § Double-digit revenue and order growth § Ongoing margin expansion Revenue 1951,8 Ý 11,4 % § Strong cash flow EBIT 102,7 Ý 242,0 % § Reduced working capital § Solid dividend capacity Order
Slide 8: A Scandinavian company with a global footprint
Brief timeline: A Scandinavian company with a global footprint 2015 2014 New 2010 Expanded facility Arendal 2007 Entered Lithuania 2001 Entered USA Improved Arendal 1999 Entered China 1997 Entered Lithuania 1980s Oslo Stock Sweden 1962 EMS model Exchange Forerunner started 8
Slide 9: What is it Kitron does?
Operations: What is it Kitron does? “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.” Redesign Sourcing & Logistics & Developme
Slide 10: High-value sectors with high-reliability products
Markets and customers: High-value sectors with high-reliability products Energy/ Defence/ Offshore/ Medical Industry Telecoms Aerospace Marine equipment 10
Slide 11: Strategic Agenda
Kitron in the future: Strategic Agenda 1. Accelerated organic growth 2. Continued operational improvements 3. Growth through targeted M&A 11
Slide 12: Accelerated organic growth
Strategic agenda 1: Accelerated organic growth 10% annual revenue growth Service sales: 10% of revenue Existing customers: New customers: 10% annually 5% annually 12
Slide 13: Continued operational improvement
Strategic agenda 2: Continued operational improvement § Kitron Operational Excellence Program Strategic § “A redesign of how we do business. A way of life.” Planning § A number of projects: § Sourcing Direction and Commitment § Production § Quality Metrics Process Management Continuous Improvement T
Slide 14: Growth through targeted M&A
Strategic agenda 3: Growth through targeted M&A Kitron will consider carefully targeted acquisitions in two areas: Electronic Product hardware Manufacturing company services § Competence complementary to Kitron § Competence, customers or market complementary to § Technology of importance Kitron to K
Slide 15: Strong share performance, increasing dividends
Focus on shareholder value: Strong share performance, increasing dividends NOK 4.10 § Market cap 31 January 2014: MNOK 311 § Market cap 31 January 2016: MNOK 709 § Dividend for 2014: NOK 0.05 § Proposed dividend for 2015: NOK 0.21 OSEBX NOK 1.80 “Kitron’s dividend policy is to pay out an annual divi
Slide 16: Key messages
Key messages § Operational improvement on track § Clear strategy for revenue and profit growth § Committed to shareholder value 16
Slide 17: Financials
Financials Cathrin Nylander, CFO February 11th, 2016 17
Slide 18: Significantly improved profitability and cash flow
Financial highlights full year 2015: Significantly improved profitability and cash flow NOK mill. 2015 vs 2014 § Double-digit revenue growth in spite of declining revenues in offshore/marine sector Revenue 1951,8 Ý 11,4 % § Continued profitability improvement EBIT 102,7 Ý 242,0 % § EBIT margin 5.3%
Slide 19: Strong growth in other sectors offsets decline in Offshore/Marine
Revenue Q4: Strong growth in other sectors offsets decline in Offshore/Marine Q4 2015 vs Q4 2014 Share of total revenue 525 Offshore/Marine -27,3 % Þ 6,8 % 489 Medical equipment 9,5 % Ý 27,7 % 476 471 468 Defence/Aerospace 16,2 % Ý 25,0 % 10.1 % Energy/Telecoms 28,3 % Ý 13,0 % NOK million Q4 2014 Q1
Slide 20: Seventh consecutive quarter of improved profitability
EBIT Q4: Seventh consecutive quarter of improved profitability § Improvement in both 33,6 nominal value and EBIT margin 26,3 22,1 20,8 § Increased sales quarter-on- 14,3 quarter 6,9 6,9 § Strong contribution from 2,0 NOK million service sales, both from 1580.0 % development and engineering Q1 2014 Q
Slide 21: Increasing effect of actions taken
Historical financials: Increasing effect of actions taken Revenue EBIT 1952 1656 1695 1632 1751 103 71 39 30 25 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 Operational cash flow EBITDA 204 144 107 72 60 65 42 32 17 -5 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 21
Slide 22: Accelerating growth: NOK 3 billion in 2020
Growth outlook: Accelerating growth: NOK 3 billion in 2020 § Focus on existing strengths and Organic growth segments 3000 § Target annual organic growth of 10% New § Existing customers 2500 § New customers 2000 § Grow service to 10% of revenue NOK million § Organic target 2020: NOK 3 billion 1500 §
Slide 23: Ongoing improvements
Cost control: Ongoing improvements § Combining increased revenue and Cost control taking hold tight cost control 33.7% 32.6% 34.9% 32.6% § Payroll expenses limited by leveraging 29.1% investments in lower-cost countries 7.6% 7.1% 7.7% 7.3% 25.0% § Key cost-oriented initiatives ongoing: 6.3% § Contin
Slide 24: EBIT target 7% in 2020
Margins: EBIT target 7% in 2020 § Operational improvements have EBIT margin 7.0 % taken hold in 2015 § Expect approximately 5–6% margin in 2016 5.3 % § Expect ongoing margin increases in coming years 4.2 % § Key elements: § Growth 2.3 % § Improved operational efficiency 1.5 % 1.7 % § Growth of servi
Slide 25: Solid foundation for growth
Balance sheet: Solid foundation for growth NIBD/EBITDA* § Equity ratio 44% (43%) 5.0 § Target range 38% to 48% 4.4 § Net interest-bearing debt NOK 226.9 million 3.5 § NIBD/EBITDA 1.6 (5.0) § Target below 2.5 2.4 § Capacity to combine growth and 1.6 dividend payments § Stronger profitability and redu
Slide 26: Major investment cycle nearing end
Capex: Major investment cycle nearing end § Major investment cycle: modern, Capital expenditure highly competitive facilities 3.8 % 3.9 % § Lithuania 2014: NOK 37.0m (facility) and NOK 13m (equipment) § Norway 2015: NOK 40.5m (facility) and NOK 7.0m (equipment) 41 2.3 % § Will be considerably lower
Slide 27: Major focus area
Net working capital: Major focus area § Company-wide initiatives launched Net working capital § Results started to materialized in 2015 32% 32% 30% 30% § Improvement expected to continue 26% § Short- and long-term target: 566 522 Approximately 20% of revenue 489 505 508 ~20 % NOK million 2011 2012 2
Slide 28: Improving use of capital
ROOC and CCC: Improving use of capital § 2015 increase in return on operating Return on operating capital capital primarily due to higher profit 25.0 % § Improvement expected to continue: § Higher profit § Lower net working capital § Lower capex 13.8 % § Long-term target 25% § Cash conversion cycle*
Slide 29: Expect solid free cash generation
Cash flow: Expect solid free cash generation § Strong improvement in operational Improved free cash flow* cash flow in 2015 204 § Improvement expected to continue in 2016 128 § Ongoing profitability improvements § Focus on working capital 42 32 § Lower capex from 2016 17 19 3 § Expect strong cash ge
Slide 30: Financing of potential acquisitions
M&A: Financing of potential acquisitions New bank financing Cash and loan Cash NOK 100 million NOK 200-300 million NOK 300-500 million 30
Slide 31: Strong commitment to shareholder value
Dividends: Strong commitment to shareholder value § Share price up 129% (1.70 – 3.90) in 2015 Earnings and dividends § Firm dividend policy 42 § Favorable outlook for dividend capacity § Proposed 2015 dividend NOK 0,21 per share 27 21 “Kitron’s dividend policy is to pay out an annual dividend betwee
Slide 32: Financial targets 2016
2016: Financial targets § Revenue NOK 2.05-2.25 billion § EBIT margin 5.3-6.3% § CCC 80 days § ROOC 20% § Dividend 30-60% of net profit 32
Slide 33: Long-term strategy 2020
2020: Long-term strategy § Revenue NOK 3 billion § EBIT margin 7% § CCC 50 days § ROOC 25% § Dividend 30-60% of net profit 33
Slide 34: Key messages
Financials: Key messages § Better capital management leads to strong cash generation § Solid balance sheet enables growth § Focus on shareholder value and dividend 34
Slide 35: Markets
Markets Tommy Storstein Sales Director February 11th, 2016 35
Slide 36: Large, well-established market
Electronics Manufacturing Services (EMS): Large, well-established market Initially printed circuit board assembly for IT sector Regional Established markets, business but global Industry model since competition turnover: 1980s USD 423 billion * Deeply Provides flexibility and integrated in productio
Slide 37: Outsourcing, nearshoring or reshoring?
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
Slide 38: Focused market approach
Kitron’s offering: Focused market approach Energy/ Defence/ Offshore/ Medical Industry Telecoms Aerospace Marine equipment § High-value sectors with high-reliability products § Complex and changing customer needs § Specialized competence-driven company with in-depth application knowledge § Proximity
Slide 39: High-reliability products and demanding customers
Positioning of Kitron: High-reliability products and demanding customers Margin/complexity Local niche providers Volume 39
Slide 40: Diversified growth
Order backlog: Diversified growth § Order backlog NOK 976 million 1000 Order backlog* § Positive trend in most sectors 800 § Industry and Defence/Aerospace particularly strong 600 § Diversification compensates for weakness in offshore 400 § Increased number of prototypes in 200 Energy and Industrial
Slide 41: Geographic markets
Development expectations: Geographic markets § Strong position in Norway and Sweden § Sweden the biggest market in Scandinavia § Germany 5 times bigger than the Scandinavian market § Several opportunities in the US Revenue 2015 Others USA Rest of Europe Norway Sweden 41
Slide 42: Key orders won
2015: Key orders won Northrop Grumman SAAB Global energy company Rheinmetall • 20 years + extensions • 20 years • 3 years + 1 • 3 years • Electronic modules • 400 million NOK • 100 million NOK • 100 million NOK • Technical services • Printed Circuit Board • Electronic modules • Printed Circuit Board
Slide 43: Customer Example
Customer Example: Sourcing & Logistics & Redesign Development Industrialization Manufacturing Distribution Repair procurement Maintenance § Prototyping § Cost reduction § Production § Re-cycling § Repair and § Test programs planning and disposal Overhaul development § Obsolescence § Quality manageme
Slide 44: Customer Example
Customer Example: Redesign Sourcing & Logistics & Development Industrialization Manufacturing Repair procurement Distribution Maintenance § Design § Prototyping § Supplier § Production § Packaging and studies § Test selection and planning labeling development optimization § Quality services § Sustai
Slide 45: Achieve 10 per cent annual revenue growth
Sales strategy: Achieve 10 per cent annual revenue growth Service sales: 10% of revenue Existing customers: New customers: 10% annually 5% annually 45
Slide 46: New customers
Sales strategy: New customers § Focus on selected market sectors § Leverage competence, application knowledge and references § Utilize our Eastern European base to penetrate selected European markets § Target local business within defined sectors in China and the US § Support Northern European compa
Slide 47: Existing customers
Sales strategy: Existing customers § Win replacement product generations § Up-sell of services to climb service ladder § Cross-sell between business units and regions 47
Slide 48: Service sales
Sales strategy: Service sales § Win prototyping and new product introduction (NPI) services § Win repair and overhaul § Target warehouse and distribution services § Innovate new services to increase revenue streams 48
Slide 49: Strategic targets
Markets: Strategic targets § New customers: 5% annually § Existing customers: 10% annually § Service sales: 10% of revenue 49
Slide 50: Key messages
Markets: Key messages § High-reliable products in high-margin sectors § Positioned for growth and increased profitability § Clear, credible targets 50
Slide 51: Operations
Operations Israel Losada Salvador, COO February 11th, 2016 51
Slide 52: Global reach, European strength
Kitron’s operations: Global reach, European strength § Headquarters: § Norway § Manufacturing: § Norway § Sweden § Lithuania § US § China § Sales office: § Germany 52
Slide 53: What makes us special?
Kitron’s unique value proposition: What makes us special? Employees Operational Customers Excellence Equipment Supply and Partners Facilities 53
Slide 54: Highly competent and motivated
Employees: Highly competent and motivated Employees § Approximately 1200 employees § Areas of particular expertise, e.g. testing § Partnership with technical educational institutions § More than 20,000 hours a year of training, close to 20 hours per employee § No serious accidents in 2015, absenteei
Slide 55: When failure is not an option
Customers: When failure is not an option Customers “Kitron specializes in manufacturing products with the highest reliability requirements. This fundamentally shapes our operations.” 55
Slide 56: Satellite launching rockets
Example: Satellite launching rockets Customers § Electro-mechanical units for civilian expendable launch vehicles used to place satellites in space § Aerospace manufacturing demands highest quality standards (AS9100) § Kitron also involved with the design for manufacturability and test development 5
Slide 57: Ultrasound machines
Example: Ultrasound machines Customers § Kitron fully manufactures latest generation of premium 4D ultrasound systems § Printed circuit board assembly, cable harnesses, high level assembly and various functional tests, all of it following medical standards (ISO13485) 57
Slide 58: Remote Weapon Stations
Example: Remote Weapon Stations Customers § Remotely controlled weapon station for light and medium calibre weapons § Kitron manufactures the control system § Manufactured to highest quality standards and put through Highly Accelerated Life Testing (HALT) 58
Slide 59: Control equipment for trains
Example: Control equipment for trains Customers § Kitron manufactures the Vehicle Control Unit § Responsible for collecting train usage data in order to define the maintenance program § Directly related to safety and therefore extremely well tested § All tests designed by Kitron based on proprietary
Slide 60: Consolidation and preferred partners
Supply partners: Consolidation and preferred partners Supply partners Number of suppliers Preferred Supply Partners share of total spend 1603 55% 1400 1305 40% 1000 32% 31% 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 § Reduced cost § Better on-time supply § Improved payment terms § S
Slide 61: Following the market
Equipment and facilities: Following the market Equipment and facilities § Product life cycle dramatically shorter over last decade Design § Large companies with complex products more risk averse: Industrialization § Subcontract value-adding services § Demand for increased flexibility Box build and h
Slide 62: Value add means following entire life cycle
Equipment and facilities: Value add means following entire life cycle Equipment and facilities § Kitron’s success depends on our ability to: § introduce new services and technologies § move up the value adding pyramid § provide services beyond traditional manufacturing 62
Slide 63: Major investment cycle nearing end
Equipment and facilities: Equipment Major investment cycle nearing end and facilities § Lithuania (2014), Norway (2015), Sweden (2016) § Foundation in place for offering more advanced services § Very competitive facilities for foreseeable future 63
Slide 64: Comprehensive program started 2015
Operational excellence: Comprehensive program started 2015 Operational Excellence § Step change for entire organization § Continuous improvements going forward 2015 2016 2017 2018 Implement Operational Performance Metrics (OPM)* STEP 1 STEP 2 Implement Kitron Lean Program * STEP 1 STEP 2 STEP 3 STEP
Slide 65: Operational Performance Metrics - OPM
SEJON SEJON Current Inventory (value) - Inventory - No demand in MRP (value) - WIP Inventory (value) - Manufactured/Finished Goods (value) 110 000 6 000 25 000 18 000 Operational excellence: 5 344 15 581 15 778 4 985 5 030 5 102 5 103 16 000 105 000 5 000 20 000 13 201 12 075 14 000 Operational Perf
Slide 66: Main focus: Return on Operating Capital
Operational Excellence: Main focus: Return on Operating Capital Operational Excellence § Inventory – DIO (Days of DIO* Inventory Outstanding) 118 § From 104 days in 2014 106 to 50 days by 2020 102 101 100 99 91 § Accounts payable 89 § Ongoing negotiations of terms 70 § Consolidation with preferred p
Slide 67: Targets
Operations: Targets § Reduce cost by 5% annually § Drive operational excellence to achieve ROOC of 25% § Enable NOK 1 billion business in Norway, Sweden and Lithuania 67
Slide 68: Key messages
Operations: Key messages § Preferred partner for high-reliability solutions § Moving up value-adding pyramid § Major investment cycle nearing end § Operational excellence program in force 68
Slide 69: Summary
Summary Peter Nilsson, CEO February 11th, 2016 69
Slide 70: Long-term strategy
Summary: Long-term strategy § Revenue NOK 3 billion § EBIT margin 7% § Dividend 30-60% of net profit 70
Slide 71: Key messages
Summary: Key messages § Operational improvements ongoing § Strong cash generation § Focused market strategy § Clear plans for organic growth § Potential acquisitions § Focus on shareholder value 71
Slide 72: Questions and answers
e Ki tron Your ambition. Our passion. Questions and answers