Kitron Asa · OSL:KIT
Kitron Asa — Investor Day (February 2017)
64 slides from Kitron Asa's investor day presentation, Feb 16, 2017
Slide 1: Capital Markets Day 2017
Capital Markets Day 2017 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: Speakers: Peter Nilsson, CEO
Capital Speakers Markets Peter Nilsson Day 2017 Chief Executive Officer Strategy and Markets Operations Break Financials Summary Q&A 3
Slide 4: Speakers: Israel Losada Salvador, COO
Capital Speakers Markets Israel Losada Salvador Day 2017 Chief Operating Officer Strategy and Markets Operations Break Financials Summary Q&A 4
Slide 5: Speakers: Cathrin Nylander, CFO
Capital Speakers Markets Cathrin Nylander Day 2017 Chief Financial Officer Strategy and Markets Operations Break Financials Summary Q&A 5
Slide 6: Growth and margin expansion continue
Financial highlights full year 2016: Growth and margin expansion continue Revenue growth continues NOK mill. 2016 vs 2015 Continued profitability improvement Revenue 2093.0 7.2 % EBIT margin 5.6% (5.3%) EBIT 117.8 14.7 % Order backlog growing Order backlog 4.5 % Defence gives long-te
Slide 7: The essence of Kitron
The essence of Kitron Kitron is an Electronics Manufacturing Services company. Our customers outsource manufacturing and related services to us. We deliver improved flexibility, cost efficiency, and innovation power throughout the value chain. 7
Slide 8: Complex, high-margin products
Positioning of Kitron: Complex, high-margin products Margin/complexity Kitron is the leading EMS provider in Scandinavia Local niche providers High-volume, low-margin providers Volume 8
Slide 9: High-reliability products for high-value sectors
Markets and customers: High-reliability products for high-value sectors Energy/ Energy/ Defence/ Defence/ Offshore/ Offshore/ Medical Medical Industry Industry Telecoms Telecoms Aerospace Aerospace Marine Marine devices devices 9
Slide 10: Key orders and agreements
2016: Key orders and agreements Northrop Dentsply Sirona Aidon Lockheed Martin Industrial supplier Grumman F-35 program New supply 3 years 2 years 3 years Sub-assembly for agreement More than NOK F-35 program NOK 300 million JSF Radar World’s largest 100 million Integrated Po
Slide 11: Diversified growth
Order backlog: Diversified growth Order backlog* Order backlog NOK 1019 million 1000 Underlying growth 9.2% Defence/Aerospace adds visibility, 800 also beyond order backlog horizon 600 Industry and Energy/Telecoms particularly strong in 2016 400 Growth in Medical devices expected 200 beyon
Slide 12: Kitron 2020
Kitron in 2020: Strategic Agenda Kitron 2020 Accelerated Operational Targeted organic growth improvements M&A Existing customers Capital efficiency New geographies New customers Flexibility Existing geographies Life cycle services Execution Value chain expansion Innovation 12
Slide 13: Kitron 2020
Kitron in 2020: Strategic Agenda Kitron 2020 Accelerated Operational Targeted organic growth improvements M&A Existing customers Capital efficiency New geographies New customers Flexibility Existing geographies Life cycle services Execution Value chain expansion Innovation 13
Slide 14: Achieve NOK 3 billion in 2020
Accelerated organic growth: Achieve NOK 3 billion in 2020 New Customers 5% of revenue Existing Customers 10% of revenue Life Cycle Services 10% of revenue 14
Slide 15: Existing customers
Accelerated organic growth: Existing customers • Significant growth potential with present customers base • Existing large customers are market leaders. We see significant growth opportunities going forward. • Current market share with customers won during the last years is small. There is still a l
Slide 16: Short-term and long-term sectors
Accelerated organic growth: Short-term and long-term sectors Years before and after production starts Aerospace Defence Medical devices Offshore/Marine Industry Energy/Telecoms -10 0 10 20 30 Pre production Production The figures will vary from contract to contract and are only meant to be indicativ
Slide 17: Aerospace: visibility beyond order backlog
Accelerated organic growth: Aerospace: visibility beyond order backlog Aerospace characterized by contracts covering 20-25 years Example: F-35 strong growth 2015-2020, but more than 80% remains 200 Expected revenues related to F-35 100 0 2015 2016 2017 2018 2019 2020 2015-2020 Beyond 2020 17
Slide 18: New customers
Sales strategy: New customers Targeted customers • Targeted customers are larger, growing, profitable customers with demanding requirements • Leverage our competence, application New knowledge and references Customers 5% of revenue Targeted markets Focus on selected market sectors Utilize our Ea
Slide 19: Road to success in German-speaking markets
Accelerated organic growth: Road to success in German-speaking markets Focused approach in the Defence, Medical and Industrial sectors Low cost Manufacturing Development Services from CEE Lead, coordinate and compile customer strategy Financial, commercial and Flexible and customized Consultan
Slide 20: Leveraging our competence
Life Cycle Services: Leveraging our competence Close to NOK 200 million sales in 2016 Approaching target of 10% Product development and simulation Test design and development Consultancy and project management Component engineering Product manufacturability analysis Tooling design an
Slide 21: Kitron 2020
Kitron in 2020: Strategic Agenda Kitron 2020 Accelerated Operational Targeted organic growth improvements M&A Existing customers Capital efficiency New geographies New customers Flexibility Existing geographies Life cycle services Execution Value chain expansion Innovation 21
Slide 22: Operational improvements
Operational improvements Capital efficiency Return on Operating Capital Target 25% Flexibility Time to Market Annual revenue growth 10% Execution Cost competiveness and targeted earnings drive Operational Excellence and Lean programs Innovation Robotics and Automation Additive Ma
Slide 23: Kitron 2020
Kitron in 2020: Strategic Agenda Kitron 2020 Accelerated Operational Targeted organic growth improvements M&A Existing customers Capital efficiency New geographies New customers Flexibility Existing geographies Life cycle services Execution Value chain expansion Innovation 23
Slide 24: Exploring along three axes
Growth through targeted M&A: Exploring along three axes Entering new geographies Leverage existing customer relationships Expand customer base Value chain expansion Existing geographies Leverage existing customers’ Synergies value chain 2424
Slide 25: Strong share performance, increasing dividends
Focus on shareholder value: Strong share performance, increasing dividends Market cap 31 December 2014: MNOK 294 Market cap 31 January 2017: MNOK 1173 Free float from 30% to 100% 31 Jan 2017 Included in OSEBX December 2016 NOK 6.66 +292% Proposed 2016 dividend: NOK 0.25 End 2014 NOK 1.70 O
Slide 26: 2020 strategy
Progress on key figures: 2020 strategy 2014 2015 2016 2017 2020 actual actual actual target strategy Revenue 1751 1952 2093 2150-2350 3000 NOK million EBIT 1.7% 5.3% 5.6% 5.6-6.4% 7% margin 2020 strategy Profitability reaching 7 % - increased focus on profitable growth 26
Slide 27: Key messages
Key messages Operational improvement on track Focus on growth and margin expansion Committed to total shareholder return Impressive window view from administration to manufacturing area at the new Torsvik factory in Sweden! 27
Slide 28: Speaker: Israel Losada Salvador, COO
Capital Speaker Markets Israel Losada Salvador Day 2017 Chief Operating Officer Strategy and Markets Operations Break Financials Summary Q&A 28
Slide 29: Modern facilities serving demanding customers
Kitron’s operations: Modern facilities serving demanding customers Operations: Norway Lithuania Sweden Germany China United States About 1350 employees Major upgrades past years Lithuania 2014 Norway 2015 Sweden 2016 29
Slide 30: Improving our value-adding proposition
Evolving business model: Improving our value-adding proposition 30
Slide 31: Long term systematic approach to improvement
Ensuring success: Long term systematic approach to improvement 2015 2016 2017 2018 2019 2020 Flexibility Define and refine product portfolio by site STEP 1 STEP 2 STEP 3 STEP 4 STEP 5 Robust and Capacity, Demand & Supply Planning STEP 1 STEP 2 STEP 3 STEP 4 STEP 5 adaptive processes Supply Chain Man
Slide 32: Simplifying complex matters
Supply chain management: Simplifying complex matters >100 customers Strategy > 55 000 Efficient internal production active part capabilities supported by numbers strong supply partners Kitron Built around customers’ needs 1 400 suppliers o Flexible inventory solutions 15 Preferred o Savings Part
Slide 33: Consolidation brings financial benefits
Supply chain management: Consolidation brings financial benefits Preferred Supply Partners Payment terms (days) share of total spend 80 55% 71 60 62 43% 58 38% 31% 32% 2013 2014 2015 2016 2020 2013 2014 2015 2016 2020 1 day = 6 MNOK 33
Slide 34: Increasing efficiency: Kitron's Lean Road Map
Operational excellence: Increasing efficiency Kitron’s Lean Road Map 34
Slide 35: Increasing efficiency
Operational excellence: Increasing efficiency What works? What needs to be improved? What’s the plan to get there? 35
Slide 36: Increasing efficiency 2015
Operational excellence: Increasing efficiency 2015 Setting our Operational Excellence Program Kitron common processes Visualized daily meetings Weekly measurement system reviewing 100 performance indicators 36
Slide 37: Increasing efficiency 2016
Operational excellence: Increasing efficiency 2016 Prepared ourselves for growth • Test Development • New site in Sweden • New Product Introduction 37
Slide 38: Increasing efficiency 2017
Operational excellence: Increasing efficiency 2017 Further improving our processes Value stream mapping – eliminating waste Project Management – enable us to grow smoothly Investment in robotics – 24x7 operations and repeatability 38
Slide 39: Introducing SATS
Improving time to market and cost: Introducing SATS Kitron’s proprietary test system Lower investment cost o Only requires an adaptor – pay as you use o Frigg: Full version o Nanna: Compact version Standard system and common libraries Ensures common platform between customer and supplier F
Slide 40: Taking Kitron to the next level
Innovation: Taking Kitron to the next level Additive Automation Virtual Augmented Manufacturing & Robotics simulation reality (3D printing) 40
Slide 41: Moving to mass production
Additive manufacturing – 3D printing: Moving to mass production 3D printing will soon be as cheap and fast and conventional manufacturing methods Additive manufacturing of composites at all Kitron sites by 2018 Additive manufacturing of metals introduced in 2019 41
Slide 42: Will drive competitiveness
Automation & Robotics: Will drive competitiveness Enables cost efficient flexibility Payroll expense as % of revenue Facilitates growth 30,0 % 25,0 % 20,0 % < 20 % 15,0 % 2013 2014 2015 2016 2020 Manufacturing lines for 2 products fully automated in all sites by 2018 50% of our production lines
Slide 43: Identify improvements early
Virtual simulation: Identify improvements early Before we build a new product, Mass production we will first create and Production cell optimize its digital twin. simulation Design for manufacturability Prototypes Product Simulation Design 43
Slide 44: Great potential in production
Augmented reality: Great potential in production Live view of a physical environment augmented by computer A true value-add device QUALITY Increasing the likelihood that the correct procedure is performed TRAINING Accelerating training of new employees – quick growth OPERATIONAL EXCELLENCE
Slide 45: Focus on technology
Investments: Focus on technology Capital expenditure Major investment cycle on facilities completed 41 Modern, highly competitive 37 11 facilities Shift focus to automation 55 35 29 30 2013 2014 2015 2016 2017 2020 Automation Robotics Facilities 45
Slide 46: From vision to specific goals
Flexibility, execution and innovation: From vision to specific goals Flexibility Execution Innovation Robust and adaptive processes Right the first time, every time Creativity propelled by technology Growth Profitability Life cycle services CAGR 10% 7% EBIT margin 10% of sales 46
Slide 47: Operations: Key messages
Operations: Key messages Preferred partner for high-reliability solutions Operational excellence program pays off Seamless supply chain means true partnership Technical innovation takes us to next level 47
Slide 48: Speaker: Cathrin Nylander, CFO
Capital Speaker Markets Cathrin Nylander Day 2017 Chief Financial Officer Strategy and Markets Operations Break Financials Summary Q&A 48
Slide 49: Growth and margin expansion continue
Financial highlights full year 2016: Growth and margin expansion continue Revenue growth continues NOK mill. 2016 vs 2015 Continued profitability improvement Revenue 2093.0 7.2 % EBIT margin 5.6% (5.3%) EBIT 117.8 14.7 % Order backlog growing Order backlog 4.5 % Defence gives long-te
Slide 50: Growth, margin expansion and solid cash flow
Historical financials: Growth, margin expansion and solid cash flow Revenue EBIT 1952 2093 118 1632 1751 103 25 30 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Operating cash flow EBITDA 164 204 144 108 60 65 32 -5 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 50
Slide 51: Cost control: Progress continues
Cost control: Progress continues Combining growth and tight cost Cost control taking hold control improves operational 34,9% expenses in % of Revenue 32,6% 29,1% Investments in low cost countries 7,7% 7,3% 27,6% 25,0% reduce payroll expenses as % of 6,3% 6,1% revenue Closing in on strategic am
Slide 52: EBIT target 7% in 2020
Margins: EBIT target 7% in 2020 Operational improvements EBIT margin 7,0 % continued in 2016 Expect 5.6-6.4% EBIT margin in 2017 5,6 % Expect further margin improvement 5,3 % in coming years targeting 7% Key elements: Revenue growth Improved operational efficiency Growth of life cycle
Slide 53: Low gearing
Balance sheet: Low gearing NIBD/EBITDA* Net interest-bearing debt 5,0 NOK 216 million (227) 4,4 NIBD/EBITDA 1.3 (1.6) Target below 2.5 Equity ratio 43% (44%) Solid platform for organic growth, acquisitions and dividends 1,6 1,3 2013 2014 2015 2016 * Net interest-bearing debt divided by ear
Slide 54: 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) 3,1 % Norway 2015: NOK 40.5m (facility) and NOK 7.0m (equipment) 11 41 Sweden 2016: NOK 10,7 (f
Slide 55: Continued downwards trend in net working capital
Net working capital: Continued downwards trend Ongoing effort to lower ratio of NWC Net working capital to revenue as sales are growing 32% 32% Increase inventory efficiency Improve payment terms with 26% 24% suppliers Target: < 20% of revenue NOK million 566 522 508 512 2013 2014 2015 2016
Slide 56: Improving use of capital
ROOC (R3) and CCC (R3): Improving use of capital 2016 increase in return on operating Return on operating capital capital primarily due to higher EBIT 25,0 % Improvement expected to continue: Higher profit Capital efficency 17,8 % 18,5 % Long-term target 25% Cash conversion cycle is a ke
Slide 57: Solid free cash generation
Cash flow: Solid free cash generation Cash flow Operating cash flow in line with EBITDA going forward 204 Operating cash flow and free cash 131 flow to increase in 2017 108 Strong cash generation to continue 64 32 9 -5 -71 2013 2014 2015 2016 2017 Operating cash flow Free cash flow* * Operatio
Slide 58: Strong commitment to total shareholder return
Dividends: Strong commitment to total shareholder return Share price 2016 6.03, 55% increase from 2015 Earnings and dividends Total shareholder return ~250% from 2014 42 43 Firm dividend policy Favorable outlook for dividend pay out Proposed 2016 dividend NOK 0.25 per share 25 21 “Kitron’s
Slide 59: What we said, what we did, what we aim for
Scorecard: What we said, what we did, what we aim for 2014 2015 2016 2016 2017 target actual Target Revenue 1751 1952 2050-2250 2093 2150-2350 NOK million EBIT margin 1.7% 5.3% 5.3-6.3% 5.6% 5.6-6.4% Return on operating 7.8% 17.8% 20% 18.5% 20% capital (R3) Cash Conversion Cycle 106 90 80 79 < 70 (R
Slide 60: Financials: Key messages
Financials: Key messages Better capital management leads to strong cash generation Solid balance sheet enables growth Focus on Total Shareholder Return 60
Slide 61: Speakers: Peter Nilsson, CEO
Capital Speakers Markets Peter Nilsson Day 2017 Chief Executive Officer Strategy and Markets Operations Break Financials Summary Q&A 61
Slide 62: A clear path for growth and profitability
Summary A clear path for growth and profitability. 62
Slide 63: Questions and answers
Capital Markets Day 2017 Questions and answers 63
Slide 64: Definition of alternative performance measures
Appendix: Definition of alternative performance measures Order backlog Return on operating capital (ROOC) % Days of Payables outstanding All firm orders and 4 months of committed Annualised Operating profit (EBIT) / 360/ ((Annualised Cost of Material + customers forecast at revenue value as at Opera