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Kitron has reported strong growth and record operating earnings in the second quarter, led by the defense/aerospace and offshore/marine market sectors.
Kitron's revenue for the second quarter was NOK 860 million, an increase of 29% compared to last year. Organic growth, excluding the acquisition of the EMS division of API Technologies Corp., was 19%.
The order backlog ended at NOK 1,453 million, an increase of 44% compared to last year. Organic order backlog growth, excluding the API acquisition, was 28%.
Profitability expressed as EBIT margin was 6.6% in the second quarter, compared to 6.8% in the same quarter last year.
Cathrin Nylander, Kitron's CFO and acting CEO, comments: “The second quarter was characterized by strong growth, leading to record revenues. Meanwhile, we have been preparing to handle further growth through our announced capacity expansions in the US, Poland and China. I am also happy that the challenging component situation in the industry is now improving, and this is expected to gradually reduce working capital over the coming quarters.”
Strong Revenue Growth
Kitron's revenue in the second quarter amounted to NOK 860 million, compared to 667 million in the same quarter last year. All market sectors grew. In absolute numbers, second quarter revenue growth compared to the same quarter last year was particularly strong in the defense/aerospace and offshore/ marine market sectors.
Strong Order Backlog
The order backlog ended at NOK 1,453 million, compared to 1,009 million last year. All market sectors except energy/telecom increased the order backlog substantially. Increasing activity among customers in the oil and gas industry has led to a particularly strong backlog growth in the offshore/marine market sector.
All-Time High Operating Profit
Second quarter operating profit (EBIT) was NOK 56.4 million, compared to 45.0 million last year. EBITDA was NOK 75.1 million, compared to 58.6 million last year. Both figures are all-time highs.
Profit after tax amounted to NOK 36.3 million, compared to 34.5 million in the second quarter the previous year. This corresponds to earnings per share of NOK 0.20, in line with last year.
Inventory Build-Up to Secure Deliveries and Future Growth
Net working capital increased by 55% compared to the same quarter last year to NOK 933 million. The increase is primarily related to the deliberate and temporary inventory build-up to avoid supply disruptions in the face of previously reported electronic components shortages.
This situation is now improving. The number of components on allocation are reduced by half compared to the peak in the third quarter 2018 and supplier lead times have a similar development but are still above the levels before the allocation situation. Kitron expects that a continued gradual improvement over the year will lead to a reduction of working capital, both in absolute numbers and as a percentage of revenue.
Operating cash flow was NOK 45.7 million, compared to 42.7 million in the second quarter of 2018.
For 2019, Kitron expects revenue to grow between NOK 3,200 and NOK 3,400 million. Earnings in value are above previous outlook, however EBIT margin is expected to be between 5.9% and 6.3%. Stronger growths than expected due to ramp-up of customers temporarily drive inefficiency in existing facilities. Start-up of Polish facility is also expected to affect margins. We expect the margin challenges to be resolved as we move into 2020. Growth is primarily driven by the acquisition of the EMS division of API Technologies Corp. and growth for customers in the defense/aerospace, industry and offshore/marine sectors.
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 2.6 billion in 2018 and has about 1 700 employees. www.kitron.com