Welcome to Kitron's third quarter report 2022. I'm Peter Nilsson, CEO of the Kitron Group, and joining me as usual is Miss 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. Thank you. Let's kick off the review. Next slide, please. Slide two. Well, despite vacations in the Nordics, where we find most of our customers, Q3 delivered the highest sales and operating profit ever for the Kitron Group. Revenue in the quarter was at a record high, reaching NOK 1.66 billion, with a growth over 100% compared to previous year. The NOK 1.66 billion generated over NOK 116 million of operating profits and an EBIT margin of 7%. The quarter came in above expectations in almost all market sectors.
Industrial automation products delivered the most revenue growth and was 50% higher than expected. Defense and aerospace revenues were higher than last year, but lower than expected. This market sector still is highly affected by supply constraints. Better linearity in sales over the quarter, as well as continued sales of inventory or prepayments from customers, generated a favorable cash flow of NOK 139 million in the quarter. Order levels continue very strong for 2022 and 2023. In combination with reduced component lead times and the continued ease of supply constraints, we expect continued strong growth over the next few quarters and further improvement of capital ratios and leverage. The order backlog is strong at NOK 4.8 billion, with a growth of close to 90% compared to last year. The order backlog consists of all firm orders and customer forecast within four months.
The operating environment continues to present challenges. However, strengthened by the resources that joined us after the acquisition at the end of last year, we're determined to keep solving challenges and creating opportunities to succeed. The outlook for the fourth quarter continues to improve, and we expect a strong finish for 2022. We have revised our outlook, and I'll come back to this at the end of today's presentation. Let's move on to the next slide. Slide three, please. As I said, demand continues to be very strong in all market sectors. The main drivers are connectivity, electrification, and industry. We expect to see a stronger growth in demand for defense aerospace during next year as increased budgets are converted to specific defense programs. After discussions with our customers, we are already preparing our operations for increased volumes over the next several years.
The R12 demand, which features all of our customers' demand, firm orders or forecasts for the next 12 months, increased to NOK 7.5 billion from NOK 5.8 billion, or close to a 30% growth on a like-for-like basis over previous year. Currently, the R12 demand consists of 60% firm orders and 40% customer forecast. The ratio of firm orders is currently 50% higher than pre-pandemic. As lead times and supply constraints ease further, we continue to deliver on pent-up backlog. I expect the firm order horizon to decrease and again be replaced by customer forecast. This will affect our order backlog, which favors firm orders over forecast.
The R 12 demand shown in this chart is not affected by this change in customer behavior, as it looks at all demand, firm or forecast, within the next 12 months. The R 12 demand will increasingly become a better measurement for outlook. Now let's turn to some detailed figures, and I'd like to turn the mic over to Miss Cathrin Nylander, CFO, Kitron Group. Go ahead, Cathrin.
Thank you, Peter. Slide four, please. Now some comments on the sector revenue. Overall growth in all sectors compared to last year, organically 28% and in total 100%. With the sector growth varying from 11% to 240% compared to last year, at this time, choose to comment the developments in sectors compared to last quarter instead. Connectivity and industry, now the two distinctly largest sectors and strong growing. However, down in Connectivity with 6% from last quarter, mainly due to some components delays. As you saw on the previous slide, demand is strong. For Electrification and industry, supply interruptions have continued to ease, which can be seen with a 15% growth compared to last quarter. Medical devices have quite stable volumes, which is their normal development. Of course, with the odd bump in Q4, depending on availability and budgets.
Defense still affected by material difficulties. Demand is there, but due to the product lifetime of defense products, we expect component difficulties to continue and the output to vary accordingly. Due to this, down 8% compared to last quarter. Thus, we will see, continue to see sector deviations between the quarters due to component delays, but clear growth compared to last year. Again, summary in total, growth 100%, growth like for like, i.e., including BB numbers last year, 37%, and organic, 28%. Next slide five, please. BB, our recent acquisition, has continued on the path from previous quarters where they have delivered revenue, profits, and profit margins higher than planned. On the growth from last year, they stand for 70% and Kitron for 30%. For each of the business sectors, there's a growth in revenue in all and for the group.
The strongest growth is in others, as BB has its largest site in China. Some comments on the quarter-on-quarter growth by the sites. Sweden, Norway, and China, 15%-18% growth. Lithuania, 50%, and with Poland doubling the growth compared to last year. EBIT margin increased to 7% in the quarter from 6% last year, and 6.3% last quarter. EBIT margin for the Nordics and others had overall improvement. For CEE, the margin compared to previous quarter was affected by currency, as our Polish-based operations has suffered during the third quarter due to devaluation of the Polish zloty. This has now been addressed by more frequent pre-hedging of the balance sheet. We had a very strong quarter overall. As for the employees, in total, 2,786, down from 2,812 last quarter. Next slide, please. Slide six, please.
Operating cash flow ended at a + NOK 139 million compared to a - NOK 70 million last year. Net working capital has decreased in the quarter by around NOK 13 million, basically stable. The stabilized net working capital brings the profit in the quarter through as positive cash flow. Although we continue to have moderate increase in inventory, the increase is partially offset by deposits by customers. Compared to previous quarter, this cash flow has clearly improved, and we expect a further positive development as component availability is easing. Finally, the acquisition of BB was finalized very early in January. Net payment of NOK 872 million, partially financed by the share issue made late December 2021 of NOK 340 million.
The remainder loans of NOK 500 million, which is a euro term loan over five year, where we now pay down 10%. Next slide, please. Slide seven. Positive development in key ratios. All three key ratios has positive development, not only from the same quarter last year, but also have had so quarter-over-quarter since Q3 last year. Net working capital as a percentage of sales at 25.8%, trending down towards our target level of 20%. ROOC at 19.8%, and very close to the strategic level, so 20%-25%, and where we want to be. CCC at 102 still needs working on, although with improvements from last year and quarter-over-quarter.
The main reason for the improvement are consistently higher output, improved profitability, and stabilized DIO, where the value increase in inventory is offset by deposits from customers. We should see reductions in DIO, where we are now working hard to deliver as components are becoming available. That said, we are growing, so rapid improvements is probably not too much to hope for, but a continuous improvement should continue to be visible. Net interest bearing debt over EBITDA decreased from 3.6 last quarter to 3.1 this quarter. The net debt ended at NOK 1,653 million, which is down with NOK 115 million from NOK 1,768 million last quarter. The improvement in net interest bearing debt to EBITDA is a result of both improved profitability and reduced debt. Excluding IFRS, we are at 2.99 net interest bearing debt over EBITDA.
The excluding IFRS of 2.99 is important, firstly because we're closing in on our short-term target of 2.5, but also because our interest expenses are stepped, and being below three is favorable to our interest, it's favorable to our interest expense. Equity as a percentage at 24.7% increased from 24.3% last quarter. On the development, we have had a share capital issue in Q4 of NOK 340 million increase in the equity and the acquisition of BB in Q1 2022 increasing the balance sheet. Covenants in Kitron are now based on loan to value and net interest bearing debt over EBITDA.
Finally, earnings per share increased compared to last year, both for the quarter, and an increase of 245% compared to Q3 last year, and a cumulative increase of 51% compared to last year to date, ending at NOK 0.94 year to date versus NOK 0.62 last year same time. Next slide eight, please. Over to you, Peter.
Thanks, Cathrin. Before we look at the outlook, again, I'd like to remind you about the Q&A directly after this next section. Please go ahead and post any questions you may have in the Q&A section of the webcast. Thanks. Let's now take a look at the outlook. So, slide nine, please. Well, this year has challenged us with a tough operating environment, marked by severe component constraints in the first six months, transportation and logistical challenges, continued tariffs and sanctions, and price increases, inflation, and recession talks. For 2022, we previously indicated that an outlook of between NOK 5.7 billion and NOK 6.1 billion, with an operating profit between NOK 330 million and NOK 400 million.
Our outlook remains strong, supported by growth in customer demand, new program wins in growing market sectors, and a favorable outlook on defense and aerospace-related products. The supply chain delays continued to improve during the third quarter, and we expect further improvement over the next few quarters. This leads us to a more favorable outlook on several product introductions and ramp-ups. We therefore revise the outlook to be between NOK 6.2 billion and NOK 6.4 billion, with an increase in operating profit to between NOK 390 million and NOK 430 million . Next slide 10, please. What are some of the key takeaways as we wrap up the presentation portion? Well, we raised the outlook, and I think that's something we feel really good about. We expect the fourth quarter to continue as strong as the third quarter's been.
Most customers communicate growth in 2023 and strong outlook for the following years. Our order backlog in general supports continued strong growth. As lead times are decreasing and these component categories continue to ease supply constraints and we have continuously improved operating conditions, we expect the year to finish strong. Kitron will also host a Capital Markets Day on December 13th. This is gonna be held live at SpareBank 1 Markets in Oslo, as well as online. Our Capital Markets Day will focus on the 2023 outlook and target range, but also our new five-year ambitions through 2027 and the strategy to take us there. Next slide, please. The Q&A. Cathrin, that wraps up the presentation portion here of the third quarter review.
What are your expectations when it comes to full year earnings per share? I think that's a good question.
Well, I think it's going to improve, Peter, compared to where it's at. I mean, basically, if you look at the mid-guidance, you see that we anticipate Q4 similar to Q3, which will imply earnings per share increase similar to the one we had in Q3, basically.
Yeah.
I think this is a, yeah, reasonable assumption. We had a very strong Q3, I have to say.
Mm-hmm. Well, we have one question here from Carl Jørgen Flaen.
Mm-hmm.
Congrats to a very strong quarter. Can you say something about the order intake for this quarter? Well down from Q2. Any signs of weakening?
Mm. I say we-
I know we've talked, we discussed it a little bit before. What's your view?
Yeah, the order intake is in the same level as the revenue in Q3.
Yeah.
Basically the same number. I think a very small difference.
I mean, as I said also, we're starting to see a little bit of change in behavior. We don't have real numbers on it yet, but you know, usually I said that the firm part of our forecast of our customer demand is 50, close to 60% actually. It's 60% of the total demand, which on normal levels, on a normal year pre-pandemic, it used to be, you know, in the low 20s, never above 30% really.
Mm.
Insecurities from customers and willingness to commit and take some risk to be able to get the parts have driven this demand up. As we now, you know, take care of some of that pent-up demand and deliver on it, new forecast comes in and replaces firm orders, it'll drop out of the order backlog to some degree. We expect that to happen. That's why we look at the R12 demand and I see every week it continues to increase a little bit with a, you know, few million or tens of millions over the 12-month horizon. I'm not worried about any weakening so far.
We have a few customers that are very consumer-oriented but also very seasonal that have shown some weakness in the past quarter already. Nothing that really has a significant effect to the group. We have over 80 people watching us, but so far I guess they like what they see.
I think we have to wait a little bit on the questions. I think we're still on the delay section.
Mm.
Mm.
Are you excited about the Capital Markets Day?
I am, yes. Finally. You know, we thought it was a, you know, a good thing to do to postpone it when the war broke out. We now have some more visibility and makes sense to have it as well. We have some news, and we have some thoughts, and we'd like to communicate those.
Mm.
Yes.
I think we have a better outlook over what's happening over the next several years. Also, you know, we're sort of through the worst of it on this component constraints and, you know, hopefully by the mid next year it should be very much back to normal.
Yes. The inventory as well. Going back to normal, that is.
Hey, it's never been this quiet.
No, it's like, should we do a refresh somewhere? There is nothing.
I think that's.
No, there is nothing more.
Oh. You know, when the numbers aren't good, then the questions are, you know.
Leggy.
Yeah. Well, okay, guys, I know we'll meet many of you in meetings here over the next few days, and I'm looking forward to that. Until then.
Mm.
Oh, look, something happened here.
Yeah. Conflict between U.S. and China affects Kitron in the future.
Well, yeah, I mean, we see increased sanctions now from the U.S. specifically on some really high-end components. Fortunately, you know, most of those are mostly found in some advanced applications in AI and things like that. We don't build those products or import those components or use those components in China. We have very little effect. However, you know, the continued lockdown in China, the very hard line COVID policy is now, you know, having customers reconsider where they build their product. It's difficult not to have access to your main manufacturing site. There is movement on product transfers, more regionalization as we tend to say.
More products that are sold in Europe are built in Europe. Even if they're sold in the U.S., they're built in Eastern Europe. Transfers going on from China to Eastern Europe. At the same time also, China is a you know the world's second biggest market after the U.S. A lot of products are sold in China. We have many customers or European customers in China, and those products and that demand for the Chinese market is being transferred out of Eastern Europe and into China instead. That's our take on this. So far there's been little effect but just continued growth for our Chinese operations. However, we track this and follow this carefully and try to stay ahead of what's going on.
So far the effect is nominal at best.
Mm.
Yeah. That question was from Joakim.
Mm.
Okay. Hey, well, I'll see you guys on the Capital Markets Day on December 13th, and looking forward to that. Thank you so much and have a great rest of the week. Bye.