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Kitron reported quarterly figures that strong growth and underlying earnings improvement despite challenges on the component market. The company's revenue for the fourth quarter was NOK 739 million, an increase of 11% compared to last year. The order backlog increased by 16 per cent on a comparable basis. Both figures are all-time highs.
Profitability expressed as EBIT margin was 5.7% in the fourth quarter. Adjusted for one-offs, it was 6.6%.
"The fourth quarter showed us continuing to deliver on Kitron's growth strategy. Organic growth was strong, leading to all-time high revenue. At the same time, we announced the acquisition of the EMS division of API Technologies Corp., illustrating our targeted approach to mergers and acquisitions and answering customer demand for a stronger presence in the US market. We expect further progress in 2019, and in March we will announce longer-term ambitions at a capital markets day," said Cathrin Nylander, Kitron's CFO and acting CEO.
Strong Revenue Growth
Kitron's revenue in the fourth quarter amounted to NOK 739 million, compared to 668 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.
As previously reported, demand within defense/aerospace will fluctuate, and growth is expected to resume at the end of 2019.
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 1 519 million, which equals a growth of 16%. Due to the IFRS 15 implementation, the booked order backlog ended at NOK 1 335 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.
Underlying Earnings Improved, One-Offs Impact
Fourth quarter operating profit (EBIT) was NOK 42.3 million, compared to 43.1 million last year. EBITDA was NOK 54.6 million, compared to 56.9 million last year. EBITDA and EBIT are negatively affected by NOK 6.7 million of one-off costs relating to the acquisition of the EMS division of API Technologies Corp. All figures below include these one-off costs, unless otherwise noted.
Profit after tax amounted to NOK 27.7 million, compared to 29.6 million in the fourth quarter the previous year. This corresponds to earnings per share of NOK 0.16, compared to NOK 0.17 last year.
Full-year Growth and Profit Improvement
Full year revenue of NOK 2 619 million gave an overall revenue growth of 7.5% for the year. Operating profit for the year ended at NOK 156.1 million, compared to 148.7 million in 2017, resulting in an EBIT margin of 6.0%, compared to 6.1% in 2017. EBIT margin excluding fourth quarter one-offs was 6.2%. Profit after tax was NOK 110.3 million, up from 99.0 million, corresponding to NOK 0.63 earnings per share, compared to 0.57 in 2017.
The Board of Directors proposes a dividend of NOK 0.40 per share for 2018. Last year Kitron paid an ordinary dividend of NOK 0.35 per share and an additional dividend of NOK 0.20 per share. The reason for the additional dividend last year was the clearly improved cash flow.
Inventory Build-up to Secure Deliveries and Future Growth
Net working capital increased by 60 per cent compared to the same quarter last year to NOK 780 million. Operating cash flow was negative NOK 26.8 million, compared to positive 90.8 million in the fourth 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 is expected to be challenging throughout 2019 but has entered a more stable phase.
For 2019, Kitron expects revenue to grow to between NOK 2 900 and 3 200 million. EBIT margin is expected to be between 6.2% and 6.6%. Growth is primarily driven by the acquisition of the EMS division of API Technologies Corp. and growth for customers in the Industry and Offshore/Marine 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 2.6 billion in 2018 and has about 1 600 employees.