Kitron: Q1 2019 – Very strong growth and earnings improvement

Kitron reported very strong growth as well as earnings improvement in the first quarter. Revenue, order backlog and operating profit all reached record levels.

Kitron’s revenue for the first quarter was NOK 813 million, an increase of 25 per cent compared to last year. Organic growth, excluding the acquisition of the EMS division of API Technologies Corp., was 20 per cent.

The order backlog ended at NOK 1 466 million, an increase of 43 per cent compared to last year. Organic order backlog growth, excluding the API acquisition, was 28 per cent.

Profitability expressed as EBIT margin was 6.3 per cent in the first quarter, up from 6.0 in the same quarter last year.

Cathrin Nylander, Kitron’s CFO and acting CEO, comments: 
“The record performance in the first quarter demonstrated our ability to successfully combine organic growth and M&A with operational and earnings improvements. In 2019 we will significantly increase our capacity in the US and Poland. On the demand side, the anticipated upturn among customers in the oil and gas industry is gathering momentum and boosting growth. All these factors strengthen our confidence in the new strategic ambitions that we outlined at our capital markets day in March.

Very strong revenue growth 
Kitron’s revenue in the first quarter amounted to NOK 813 million, compared to 651 million in the same quarter last year. All market sectors grew significantly. In absolute numbers, first quarter revenue growth compared to the same quarter last year was particularly strong in the Industry market sector. Percentagewise, Offshore/Marine grew the most.

Record order backlog
The order backlog ended at NOK 1 466 million, compared to 1 025 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.

Improved earnings
First quarter operating profit (EBIT) was NOK 51.2 million, compared to 38.8 million last year. EBITDA was NOK 68.6 million, compared to 53.0 million last year.

Profit after tax amounted to NOK 37.5 million, compared to 26.2 million in the first quarter the previous year. This corresponds to earnings per share of NOK 0.21, compared to NOK 0.15 last year.

Inventory build-up to secure deliveries and future growth 
Net working capital increased by 76 per cent compared to the same quarter last year to NOK 927 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.

Component shortages have been an ongoing issue for the EMS industry over the past quarters. The situation is expected to be less challenging throughout 2019 and Kitron expects that a 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 positive NOK 25.4 million, compared to negative 19.4 million in the first quarter of 2018.

Acquisition in the United States
In the first quarter, Kitron completed the acquisition of the EMS division of API Technologies Corp., substantially strengthening its position in the US market. Kitron consolidated the acquired business effective 15 February.

Implementation of new accounting standard IFRS 16 “Leases”
Kitron implemented the new accounting standard IFRS 16 “Leases” from 1 January 2019. In the first quarter, this had a minor effect on profits, but it affected certain balance sheet items. See the quarterly report for details.

Outlook
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 per cent. 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.

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