Reading time ( words)
Kitron reported quarterly figures that show continued growth and improved earnings per share despite challenges on the component market.
Kitron's revenue for the third quarter was NOK 563 million, an increase of 5% compared to last year. The order backlog increased by 27% on a comparable basis. Profitability expressed as EBIT margin was 5.3% in the third quarter.
"We continued on our growth path in the third quarter, delivering the highest third quarter revenue in the company's history. I am especially pleased that we were able to do this in the face of industry-wide problems with component availability and some postponed customer programs. The excellent order intake during the quarter strengthens our confidence in the coming months and quarters. We maintain our 2018 outlook and our strategic targets for 2020," said Peter Nilsson, Kitron's CEO.
Continued Revenue Growth
Kitron's revenue in the third quarter amounted to NOK 563 million, compared to 535 million in the same quarter last year. Revenue growth compared to the same quarter last year was particularly strong in the Industry market sector. Marine/offshore is now growing, albeit from a very low level.
Defense/aerospace declined. As previously reported, defense/aerospace will fluctuate, and growth is expected to resume in 2019. Excluding the defence/aerospace market sector, revenue growth in the third quarter was 18% compared to last year.
Strong Order Intake and Backlog
The order backlog is noticeably affected by the implementation of the new accounting standard IFRS 15. Without the effect from implementation of IFRS 15, the backlog would have been NOK 1,279 million, which equals a growth of 27%. Due to the IFRS 15 implementation, the booked order backlog ended at NOK1,123 million.
Early signs of increasing activity among customers in the oil and gas industry have led to a substantial backlog increase in the Marine/offshore market sector, although the absolute numbers are still low.
Improved Earnings Per Share
Third quarter operating profit (EBIT) was NOK 30.0 million, compared to 29.2 million last year. EBITDA was NOK 42.7 million, compared to 42.6 million last year.
Net profit amounted to NOK 21.8 million, an increase of 33%. This corresponds to earnings per share of NOK 0.12, compared to NOK 0.09 last year.
Inventory Build-Up to Secure Deliveries and Future Growth
Net working capital increased by 35% compared to the same quarter last year to NOK 605 million. Operating cash flow was negative NOK 41.0 million, compared to positive 22.4 million in the third quarter 2017.
The increase in working capital is partly related to postponed production programs and partly to a deliberate and temporary inventory build-up to avoid supply disruptions in the face of previously reported electronic components shortages. Component shortages have been an ongoing issue for the electronics manufacturing services business since last year. The situation has not improved, and it is expected to be challenging throughout the year and into 2019.
Expansion in Poland
In July, Kitron announced plans to expand its Eastern European presence through a facility in northern Poland. Production at the 8,000 square meter facility is now scheduled to begin in the fourth quarter 2019.
For 2018, Kitron expects revenue to grow to between NOK 2,500 and 2,700 million. The EBIT margin is expected to be between 6.1% and 6.5%. Growth is primarily driven by customers in the Industry and Energy sectors. Profitability is driven by cost reduction activities and improved efficiency.
Kitron is one of Scandinavia's leading electronics manufacturing services companies for the defense/aerospace, energy/telecoms, industry, medical devices and offshore/marine sectors. The company is located in Norway, Sweden, Lithuania, Germany, China and the United States. Kitron had revenues of about NOK 2.4 billion in 2017 and has about 1 450 employees. For more information, click here.