Good morning and welcome to Kitron's second quarter report, 2024. I'm Peter Nilsson, CEO of the Kitron Group, and joining me, as usual, is Ms. Cathrin Nylander, CFO. Following today's brief presentation, we'll have a Q&A, so please post any questions you may have in the Q&A section of the webcast. I see that we already have half a dozen questions come in. So next slide, slide 2, please, and let's jump right into some major milestones for the quarter. We again deliver an operating profit of close to 9%. The Nordic and U.S. operations show positive momentum, with a robust margin largely driven by increased scale. Overall, the region delivers some 15% growth. We expect this trend to continue throughout the year. At the end of the quarter, we announced orders worth NOK 500 million from Kongsberg Defence & Aerospace for electronics for the Naval Strike Missile.
The deliveries will start in 2025 and continue into 2026, taking place at Kitron's facility in Norway. To support the increasing demand for production in Norway, a new 7,500 square meter production facility is being built and will be completed and ready for production in the beginning of 2026. Our CEE operations have met the soft market challenges with cost initiatives while retaining capabilities for rapid future growth. Although consumer demand for EVs and green home technologies has been subdued due to rising interest rates and some reduced government subsidies, we expect the demand to slowly return towards the end of the year and into 2025. Other technologies show promising growth, as well as new customer acquisition, implementation, and ramp-up. Demand has stabilized in Asia, particularly in China, and some previous reductions are now being replaced by new orders, yielding optimism for the future.
Significant restructuring efforts have produced the expected results, positioning the three sites for success in an increasingly cost-competitive market. The Chinese market demand is primarily for the internal market, with a lower share for export. The restructuring program launched in the first quarter is close to completion, yielding expected cost improvements, as demonstrated by second quarter strong margins. Final savings are expected when full integration of IT systems is achieved in the third quarter. We're encouraged by our progress so far and maintain a long-term perspective, focusing on growth opportunities through new markets and customers, as well as increased targeted M&A activities in key markets. Next slide, second quarter trends. Let's take a look at the different market sectors, starting off with connectivity, where sales decreased compared to last year but show an increase compared to last quarter.
Our quarterly outlook for the coming three quarters shows quarter-on-quarter growth, driven by products supporting infrastructure investments, fleet management, or other types of tracking equipment. We see a broader strength return to the sector in 2025. Electrification, the sector shows year-on-year decline, but within the sector, there is strong growth on network grid infrastructure. Other parts of the sector, including many green tech products, continue to suffer from reduced consumer spending on big-ticket items. We project continued very low sales on many of these products. Last year showed a growth of 62%, largely driven to an extent by supply chain concerns. Broader growth is expected from the second quarter of 2025. In addition, several new customers are preparing for a ramp-up in Q4 this year. Industry, the outlook indicates that the cooling off in industrial activity with reduced capital expenditures continues.
Although a destocking is taking place, reducing the supply chain overstock with the combination of economic slowdown and weaker customer demand leads to an extended recovery time. There are a few strong points, for example, the strong development of AI driving infrastructure emulators supporting advanced chip design to continue to grow close to 100%. Medical devices show a slight decline. The decline is slowing compared to the first quarter, indicating more balanced stock levels. For defense and aerospace, the sector continues a growth of 40% amidst continued and accelerated investment in defense and security capabilities. Let's move to the next slide, the order backlog, please. The order backlog comes in at close to EUR 455 million, a quarter-on-quarter book-to-bill ratio of over one at 1.06. Sequentially, the order backlog is increased with EUR 10 million compared to the previous quarter.
The defense and aerospace sector remains robust with an increased defense spending and the NOK 500 million award from Kongsberg Defence & Aerospace for the electronics for the Naval Strike Missile. The connectivity sector continues to demonstrate quarter-on-quarter improvement. Other sectors exhibit shorter customer order horizons, reflecting the current market sentiment, reduced lead times, and continued destocking of customer inventory. That said, let's move on to some second quarter highlights with Cathrin. Go ahead, Cathrin, please. Next slide. You're on mute, Cathrin.
Yep, thank you, Peter. Now on to some highlights for Q2 2024. The revenue for the quarter ended at EUR 167.6 million with a reduction of almost 19% compared to last year and slightly down from Q1 2024. No doubt, the EUR 206 million last year was a very strong quarter. Our EBIT ended at EUR 15 million. It's down from EUR 19.2 million last year. However, the EBIT margin is at 8.9% and in line with our strategic target. ROC and other capital efficiency indicators are at improved levels or same as last quarter. The financial situation is stable with a net interest-bearing debt over EBITDA at 1.6 and at last quarter's level. We have a strong cash flow in the quarter. Net income is at EUR 10.4 million, which corresponds to about 6.2% of revenues, whereas the same percentage was 7.6% last year.
The higher percentage last year was due to a positive agio of EUR 2.4 million, whereas the agio is zero in the same quarter this year. So the deviation in EPS is therefore primarily explained that half of it comes from the agio difference and half of it comes from the lower revenue. So next slide, slide six, please. And then some quick numbers for the first half year. The revenue ended at EUR 341.5 million and is 14% below last year. EBIT is at EUR 25.5 million, affected by the EUR 4.8 million restructuring charge in Q1 and ends at 7.5%. Adjusted for this one-off, the EBIT margin is 8.9% cumulatively. Cash flow again, EUR 27.3 million, improved this last year and is around 80% of EBITDA where we want to be. The logic of the EPS follows from the quarter, but also affected by the restructuring charge in Q1.
Next slide, slide seven, please. Peter mentioned some of the market effects, but Nordics and North America show 15% growth, increased profits, and profit margins at 9.3%. We have dramatic reductions in revenue for both CEE and Asia, with volume reductions of around and above 40%. Profit margins, however, at 9.2% and at 11.2%, respectively, and up from last quarter's EBIT margin of 8.5% from both. There are substantial cost reductions from further reductions of 300 FTE in the quarter in CEE and Asia. In total, as you can see, a change of 729 FTEs compared to last year and a reduction of 546 FTEs since year-end. Next slide, slide eight, please. Cash flow and working capital. Operating cash flow ended at EUR 18.8 million and almost at EBITDA level and up from EUR 12.7 million last year.
It's positively affected by the EUR 9 million reduction in net working capital in the quarter. Investments are lower than last year. We're running at about 40% or 50% of last year's level. We did increase machine capacity substantially last year on several sites, and now we're moving our capacity around between the sites to optimize. Hence, I estimate investments will be around 1.5% of revenue in 2024. Net financing includes this year's dividend of EUR 14.8 million, which was EUR 8.7 million last year. Net working capital is on or about on the same level as last year, but with a totally different setup. Compared to last quarter, it is decreased with some EUR 9 million, mainly inventory and contract assets. Receivables and payables have been pretty stable for a while, and the inventory going down, which is a very much wanted development. Next slide, slide nine, ratios.
working capital as a percentage of sales is 28% and at the same level as last quarter, but substantially up from last year. The Nordics and Asia are at this level, and CEE is more in line with our strategic target of 20%. We are carrying more inventory as a percentage of top line, partly because Asian sites have declined the top line quicker than we can adjust, but also because the Nordics and U.S. currently are carrying more working capital due to the rapid growth in the last year and has driven some net working capital inefficiency. So we're running a project in Norway to free up net working capital during Q3 and Q4. CCC has similar effects and are at the same level as last quarter. ROC at 22%, same level as last quarter, adjusted for the restructuring charge.
And again, net interest-bearing debt over EBITDA at 1.6 and at last quarter's level. The net debt ended at 122.8 and is basically the same as last quarter as well. So finance cost, the finance net is at EUR 2.4 million. And since we have zero RGO in the quarter, it truly reflects the interest cost of an annualized cost of EUR 10 million. Same quarter last year, we had a positive RGO of EUR 2.4 million approximately. RGO varies usually and is mostly non-cash. Last year, they ended up at a positive EUR 3.3 million. Our interest rate continued to be around 6% and EPS we mentioned earlier. Tax rate for the quarter is down, ended at 18%, down from 24% last quarter. I expect it to stabilize somewhere around 21%-22% for the year. So next slide, slide 10, please. Peter.
Thank you, Cathrin. Let's talk about the outlook for the year. We expect continued growth in our Nordic and U.S. facilities. Demand on the CEE sites has stabilized, and we're focusing now on new customers and new ramp-ups. The Asia facilities are streamlined for competitiveness and continue to target new business. So for the full year, we still expect revenues to be between EUR 660 million and EUR 710 million, with an operating profit or EBIT between EUR 53 million and EUR 60 million, including the EUR 5 million or close to EUR 5 million restructuring costs that incurred in the first quarter. Let's move on to some key takeaways. Slide 11, please. Profitability has been robust in the quarter and continues for the year, particularly in defense aerospace, where we see scale continuing to drive profits. There are some signs of market turnaround, promising signs of recovery in several key markets, including Asia and Europe.
We're positioned to sustain growth in these key sectors and markets. We have a strategic focus on new sales. We're adding resources where we see opportunities. A new NOK 500 million defense order secures growth for Norwegian operations, with a new production facility being built in Norway to secure future capacity. Our strong development on defense, parts of electrification like grid networks, connectivity, and AI continues. But when we see a turnaround on green technologies and investments in the industrial base, we are clearly positioned for further growth. The restructuring efforts have been effective. Expected cost savings benefits largely materialize in the quarter. We have some more savings expected in the quarters to come. And we remain committed to the strategic target of operating margins of 9%. That said, let's move on to the next slide, which is our Q&A section in our webcast.
For you that are looking online or looking at the actual slide, the white facility on the bottom left is our new site in Czech, and the original site is seen there on the middle right, the one with a darker black wall. The extended capacity we added last year is in the bottom left. Yet again, we can see that we are dimensioned for more growth. Let's move on to the Q&A, Cathrin.
Yes.
So we have many questions from Marcus coming up first. With busy facilities in the Nordics and the U.S. and slow markets in CEE and China, have you been able to move products from the Nordics, U.S. to CEE and China? Not to any greater extent during the second quarter. However, plans that started in already to some extent in the fourth quarter last year, but developed into more firm plans in the first quarter, with execution to be done in the second quarter, have been even more firmed up. There's been some delay because when you actually have to transfer products, you need to secure, especially if you're starting up as a second source to Norway, you need to secure production test equipment, and those tend to have a little bit of lead time.
Also, customers have wanted us to actually not just do some partial transfers, but actually complete product setup, for example, in our Polish facility. So that's going to take some more time, even that. So I would expect the large part of capacity output or increased capacity to be really output coming out of Q4 this year. So it's not the lack of effort on our side, but there's coordination with the customers. There's approval of the customer, of the setup and the production, and there's availability of product or production unique equipment that drives lead time on some of these things. But we have approvals now from customers and firm plans, so I expect that output to take place in the fourth quarter. We'll come back to it in the third quarter report and give you a status update. How has the M&A pipeline continued for Marcus?
Has it increased when markets have slowed down? I would say so. We're seeing a lot more opportunities. Many of them are smaller, or not really what we're looking for when it comes to market sectors or products. We've more started up a more targeted project where we're out looking now on what we feel is the right size and the right market sectors and products for us. So again, we'll have to report back on that in the third and fourth quarter where we are. Also, a question about the NOK 500 million order from Kongsberg. When will it be included in the order intake and order book? It has been since it arrived in the third quarter towards the end of June. So it's in the numbers we presented now. Why have you stopped providing the R12 number? If so, is it decreased visibility?
Yes, it is decreased visibility. There's a change in many customers' sort of policy or how they place forecasts and orders, including how we're changed, how we treat long-term forecasts, especially long-term forecasts. So I'd say the final three months of the R12 is very basically empty, right? So there's no point in showing the R12 from that perspective. We'd have to start to show the R9, but I think we're better off giving you our outlook on what we see instead of providing numbers out of our IT systems. Thomas Skåve says, "Just to clarify, the NOK 500 million orders included in the backlog?" Yes, it is in the Q2 ending order backlog as it came in then. So those were the top questions. Anything to add, Cathrin, to my answers there?
No, not much, but this order from Kongsberg relates to 2025 and 2026 we have to mention. So the change that Peter mentions of the difference in acting is also from actually the defense companies too, also placing several of the orders much shorter lead time than before.
Yeah. They're able to do that because they've already purchased the material and the components are on hand to a very large extent.
Yes. Nothing more coming in here.
I think that may be it. Any additional questions, just send us an email. We'll try to get back to you or we'll meet you at one of the investor meetings coming up.
Oh, okay.
Okay. The split between 2025 and 2026 on the Kongsberg order, I don't even have those numbers.
No. It's about when we can produce it. But I think that the larger part will be in 2026 at least. Okay.
The NOK 500 million order from Kongsberg doesn't seem to be included in the backlog. Can orders be retracted? Usually, orders are not retracted. Usually, when we have an order, it's a binding agreement. It's a binding document. It's a contract to build and produce. So in very rare cases, an order canceled or allowed to be canceled. There's always some sort of agreement. But in this, we have a firm order. We have quantities and variants and all of what we're going to be building.
We also carry some forecast in the order backlog, which is the next four months of forecast. If forecast is pushed out of those four months, then it might reduce the order backlog, but not in this case, at least not for Q1.
Emily, Cathrin asks if, just to be clear, the EBIT guidance is not adjusted for one-offs of EUR 5 million in Q1.
It is not.
Okay then.
Okay.
Yeah. Thank you all. We'll see you next time. Have a good summer.