Welcome everyone to Kitron's Second Quarter 2025 results. We're pleased to present the solid quarter characterized by continued growth, strategic wins, and robust financial performance. Today, we'll explore the drivers behind our positive momentum and highlight our outlook for the rest of the year. I'm Peter Nilsson, CEO of the Kitron Group, and presenting with me today is Ms. Cathrin Nylander, CFO. Let's kick things off by looking at some of the quarter highlights. Slide two, please. This quarter was marked by operational strength. Our order backlog increased significantly, up 12% year- over- year, reflecting strong demand. Defense and aerospace stood out with a remarkable 25% growth in revenue, driven by new contracts in advanced defense communications, radar applications, and unmanned systems. Our EBIT margins remained strong, over 9% across all regions, showing resilience despite some localized challenges. Next slide, please.
Taking a look at operations and growth, operationally, we've successfully managed ramp-ups and executed key strategic contracts, particularly in defense and industrial and electrification sectors. Our ongoing M&A project will help us further expand our capabilities. Given our robust order intake and current trajectory, we're confidently raising our revenue and EBIT guidance for 2025, despite ongoing global uncertainties such as trade wars and economic volatility. Next slide, please. Looking at the trends over the sector, we've observed varied trends across the sectors this quarter. Within connectivity, there's slight growth driven by IoT gateways, but offset by softening demand due to tariffs in North America. We expect more broad recovery in the second half of 2025. Electrification: continued challenges, particularly in e-mobility and sustainable energy segments, although power management remains strong.
Business-to-business should pick back up in the second half of the year, whilst business-to-customer is projecting a recovery in late 2026, early 2027. Industry: we see a positive momentum with significant growth in automation and oil and gas segments, driven by successful ramp-ups. Medical devices are facing some headwinds, primarily due to some high comparative base from last year and tariff uncertainties. Forecast and order horizon is short and becoming even shorter, really reflecting on the uncertainty from the market when it comes to tariffs. We expect more strength in the second half of 2025. Defense and aerospace are a standout sector, up 25%, benefiting from high demand of missile systems, UAV optics, and encrypted communications, driven by the geopolitical uncertainties we see. We project 30% growth in the second half compared to the first half of 2025. Next slide, please. Slide five, order backlog.
The strength of our order backlog, now at NOK 509 million, positions us strongly for future revenue growth and generation. Defense and aerospace dominates, reflecting robust long-term customer commitments. Our rolling six-month outlook, R6, continues to support our positive outlook for the second half of 2025, although we remain vigilant about potential market volatility. Slide six, please. On to you, Cathrin, for some second quarter highlights.
Thank you, Peter. Q2 highlights: financially, Q2 showed a steady revenue growth reaching EUR 172.2 million, which is up 4.6% sequentially and maintaining a strong EBIT margin at 8.7%. Our operating cash flow improved to EUR 19.3 million, benefiting from efficient working capital management. Our debt ratios improved significantly, reducing our leverage and improving our financial flexibility, positioning us well for future investments. Slide seven, please. Half-year highlights: the first half of 2024 ended at EUR 336.8 million, and despite a slight reduction of 1.4%, we successfully expanded profitability, increasing EBIT by nearly 8%. The improvement reflects disciplined operational efficiency and cost management across the group. We're seeing growth sequentially in all business sectors, with particularly encouraging EBIT margins consistently above 9%. Operating cash flow has improved with 10% from last year and is at 86% of EBITDA. Slide eight, please.
Business sectors: regionally, the Nordics and North America continue to lead with steady revenue contributions, sequential growth of 2.4%, and solid EBIT growth, and EBIT margin now at 9.8%. Central and Eastern Europe also delivered a strong performance with sequential growth of 9.9% and EBIT margins at 9.5%. While Asia faced minor challenges due to market softness, profitability endured. Efficiency has improved; revenue per employee is up 5.8% from last year. Recent hiring shows a return to growth, aligning with our expanding activities. Slide nine, please. Cash flow and working capital: we delivered strong operational cash flow in this quarter of EUR 19.3 million. Inventory and receivables were efficiently controlled, leading to lower net working capital, down 4% year on year and sequentially. Our investments are at around 1.1% of revenue. Our disciplined approach to cash management provides stability and positions us well for future growth initiatives. Slide 10, please.
Ratios: our financial ratios illustrate our strengthened balance sheet with significantly reduced net interest-bearing debt at EUR 95.9 million and improved gearing ratios to 1.4. Return on operating capital improved to 23%, nearing the strategic target of 25%. Net working capital as a percentage of revenue is at 26.8%, finally starting to move downwards. Our equity ratio also strengthened, forming the foundation for our financial health. Slide 11, and over to you, Peter.
Thank you, Cathrin. Some key takeaways for the quarter. In summary, our strong second quarter outlook bolstered our confidence to raise our guidance for 2025 revenue and EBIT. Defense and aerospace continues to drive our growth, fueled by significant orders and increased NATO spend. Non-defense sectors also show strengthening, positioning us well for balanced growth. Strategic investments in capacity and innovation allow us to scale quickly to meet rising customer demand. Given our current momentum, we're raising our outlook for 2025. We now expect revenue to be between EUR 675 million and EUR 725 million, with an EBIT range between EUR 55 million and EUR 65 million. That said, let's go to the next slide. We have our Q&A session, and I see that there's also already, Cathrin, some questions coming in. Maybe we should start with some questions from Eric here.
You're stating non-defense sector strengthening outlook for the second half, but at the same time, it looks like you've pushed the recovery somewhat on connectivity and electrification compared to the Q1 commentary. Is it industry and/or medical where you feel comfortable in the second half? Really pretty comfortable in all market sectors. Industry, we see a strong momentum right now over the past month or so, where we see a lot of orders coming in. Industry was the only sector that we actually were almost flat versus sequentially. At this point, the outlook looks stronger, particularly when we see it in R6. Connectivity, I spoke about connectivity being a bit softer, shorter horizon, more competition, less investment in maybe industrial capacity, pushing out some of the investments there. The tariffs in the U.S.
affect one of our major customers on tracking, where a big part of their market is in the U.S. That demand is softer than expected, whilst the tracking units we have for containers and refrigerated containers continue to grow, even though some of that is shifting more towards the higher volume and lower value part of production. Medical, it looks stronger for the second half, we expect. It's not massive growth, but it's always good to see strengthening. In Q1, we commented we made our numbers in the back half of the quarter. Fortunately, and what's the indication of how Q2 developed in terms of relative speed? You want to take that, Cathrin?
No, I think it's more even in Q2, I will say. I think the revenue is quite evenly distributed in Q2.
Right, which means also when we look at margins, every month the margins were pretty good.
They were.
There was nothing special coming in towards the end of the quarter, and we're happy about that. That means there's efficiency in production. In terms of 50% ramp-up in defense volumes in Norway, how far are we towards that target? Did you progress in Q2? I think we progressed really well, and we see it when we look at the margins of Norway in particular. They're not all the way there, but I don't think we should. We expected them to be all the way there. There is a continued ramp-up into Q3 and into Q4. Basically, Q3 volumes are on the Q2 level, even though we have some summer vacations. Traditionally, we have summer vacations in Europe. This year, we expect Q3 to be in line or higher than Q2. Am I right or am I right?
You're right.
Yes, thank you.
Not any more questions currently. Maybe we should talk a little bit about the revenue second half now. It's higher than the first half, right?
Yeah, that's what we see, at least. We don't have historical proof yet, but the demand sure looks stronger. The bookings are stronger. Even as I just walked into this meeting, I participated in another meeting for one of our Central European sites. Right now, before the vacation period, all of the customers are coming in with increased demand into the third quarter. New NPIs, new product introductions. They were pretty excited. Of course, that helps me because it was our Polish facility where we've struggled a little bit after the sustainable energy reduction in demand.
We are changing the guiding now. We've EUR 725 million as a top level from EUR 675 million, and the mid-guiding of EUR 700 million. When you look at the R6 demand that we have, Peter, that's slightly higher than we actually brought in, right?
Yeah, it is. I mean, you always need a little bit of a buffer. The defense part, which is in Q, if we look at revenue, right, revenue in Q1 was EUR 90 million, just over EUR 90 million on defense, right? In the first half of the year.
Yeah, it was.
First half, yeah. First half. Second half now, 118. That's what the R6 shows. You know that's a substantial ramp. A lot of that is taking place in Norway, but I think there's a little bit of increased demand in Sweden. There's a new defense coming online in Poland also during the second half of the year. That helps drive that. All of that is on order. Like all the 118 is on order. Medical, industry, electrification, about 65% of that is order, firm orders today. The rest is forecast. Connectivity, it's lower. It's like 35%, 40% of that EUR 60 million is on order. The rest is forecast from the customers. Why is it forecast? I mean, one of the largest customers there has a call-off, you know, 24-hour call-off or 36-hour call-off on the products. That's when the order comes in. Yeah. That gives us pretty strong underlying demand.
Also, that number has been increasing week over week, month over month for the past three months. That helps build some confidence that the low point has been passed and we're seeing growth.
Also, we are upping the guiding from EUR 47 million - EUR 55 million, but we've kept the EUR 65 million as a top level. I would assume that maybe we should have upped it a little bit, but we have decided not to.
We'll leave that for Q3 and see what happens, right? We're spending a decent amount of money on our M&A activities. That has some bearing on the overhead cost. The underlying sites are all, they all delivered over 9% in the past quarter of the operating margin.
Yes.
There was some extra cost on the group level.
We are also ramping up in Malaysia, which brings a little bit more cost.
That's right. I mean, so far the costs there have been very, very moderate. Now, there's some sort of investment in headcount and organization prior to actual volume coming online.
It's not huge. Not easy to say that at the current level we will reach 65 easily. That's the point.
Vincent wonders if we can give an update on the progress on potential M&A activities.
Probably can't.
I think we can't.
The project is running and, as Peter said, we're spending money. That will give you an idea of where we are in the process.
I think that's about it, right? We managed to report the second quarter here in just about 15 minutes. That's got to be a new record.
It is. There are no more questions coming in.
Okay, everyone. Of course, we're always available to meet with you either virtually or in person over the next quarter. Just get in touch with Cathrin and we'll see how we can continue our discussions.
Yes. Okay.
Thanks, everyone.
Thank you.