Welcome to Kitron's fourth quarter and full year 2017 results presentation. I'm Peter Nilsson, the CEO. With me today, as usual, Cathrin Nylander, CFO. The fourth quarter for Kitron posted a very strong growth over 17% on top line. With a solid EBIT or operational profit development. Operating profit development of over 26% increase. Pretty much one of the strongest quarters we've had with NOK 43 million in earnings. I'm really happy about the order backlog at over NOK 1.3 billion, and order intake was very strong in the fourth quarter with over NOK 900 million in order intake. A growth of the order backlog of just over 28%. Our operating cash flow was also strong in the fourth quarter. NOK 90 million came in.
The rolling three fourth quarter results on net working capital posted 61 days on cash conversion cycle, our strongest number yet. Really a little bit ahead of where we're projecting to be. We were projecting 70 days for the full year when we started out in January, but maintained strong numbers throughout the fourth quarter. Net working capital also down 5%, even though very strong growth of 17%. Looking at the full year, the full year top line growth is just over 16% or an underlying growth of close to 17%. Profitability was strong for the year with a 26% improvement in profitability, coming in at close to NOK 150 million in profit. Again, the order backlog I mentioned.
The operating cash flow for the full year, close to NOK 161 million for the full year, a 48% improvement from the previous year.
Mm.
Important orders in the fourth quarter were actually two. The first one was relating to a production of medical equipment. We value that order to be between NOK 100 million and NOK 150 million over the next two years, and it secures manufacturing in our facility in Arendal. The second large order was from the Husqvarna Group, where we'll manufacture and deliver controller units over to Husqvarna's factory in Sweden over the next four years. This is a very important order for us, and these units are part of transforming Husqvarna Group's products to more battery-powered units such as, and encompassing then chainsaws, blowers, and trimmers. Production's gonna take place in our facility in Kaunas in Lithuania.
We spoke a little bit about the challenging year for the EMS industry in our third quarter webcast in regards to component availability, shortages, extended lead times, and such. You know, over the past four or five years now, Kitron has established a world-class efficient supply chain management and preferred partner supply strategy. Our centralized approach to sourcing and shortages and rapid escalation allows us to leverage Kitron's size, our investment in IT, and our preferred partners to put Kitron in an advantage position and actually gain market share in this situation. We had a few delays in production in the fourth quarter, but nothing significant affecting top line, mostly rescheduling within one or two weeks of production.
Mm.
Finally, with such a strong result on growth, strong cash flow, and a strong earnings report, the board is suggesting an adjusted dividend policy and dividend. The new policy says that Kitron's dividend policy is to pay out an annual dividend of at least 50% of the company's consolidated net profit before non-recurring items. When deciding on the annual dividend, the company will take into account the company's financial position, investment plans, as well as needed financial flexibility to provide for sustainable growth. The board proposes that the annual general meeting decides on an ordinary dividend of NOK 0.35 per share and an extraordinary dividend of NOK 0.20 per share, a total of NOK 0.55 per share.
This represents a total of 97.9% of net profits after taxes for the group.
Mm.
Okay. Cathrin?
Now for the financial statements for the whole year and Q4 2017. We had a very strong growth in industry in Q4. We ended up at NOK 668 million in total for the group, which is on the top, very top end of our guiding, I would say, a growth of about NOK 98 million compared to last year. 70% of that growth is actually on industry. Defense & Aerospace, so the industry growth is about 46.6%. Defense & Aerospace had a growth of around 6% this year compared to 20% last year. Medical devices and Energy & Telecoms, basically stable. On the positive note, we have Offshore & Marine now showing positive growth but at very small levels. A very strong industry quarter.
When we look at the full year, we grew 16% from 2,093- 2,437, NOK 344 million. Strong growth all year for industry as well, 36.5%. Also for Defense & Aerospace, double-digit growth, 14%. Medical devices are unfortunately a slight decline. Basically, we're selling the same amount of products that we did before, but they are slightly lower priced than previously. Energy & Telecoms, also good growth of 18% approximately. Offshore & Marine, that still had a decline for the first three quarters in the year. We're really happy about the total growth for the full year. Looking into we're driving the growth, I will say we have a continuous strong growth in Lithuania and China, specifically in Q4.
Norway had a slight decline as expected, went down from NOK 202 million to NOK 192 million. Sweden grew 10% approximately, slightly lower growth than they've had so far this year, and ended up NOK 193 million in the quarter. Lithuania, close to 40% compared to last year, and ended up at NOK 222 million. Also importantly is China now and the others are growing very strongly in the fourth quarter. As for the full year on the growth, Norway declined for the full year over 4% and ended up at around NOK 740 million. Sweden, 20% growth for the full year, a very strong growth for Sweden, ended up at NOK 708 million, slightly lower than Norway.
Lithuania, growth for the full year of about 30%, and now the largest site, as we said before, on NOK 818 million. The others of China and US grew 10% in total for the full year and now at NOK 400 million. Strong year all in all for most sites. When I will now look at the quarterly profits for the group, we ended up at 6.5%, as Peter said, and NOK 43.1 million, a strong value result as well. Slightly below Q2, which was extremely strong, but more in line what we expect going forward for some of the quarters. We have commented in before on the inefficiencies in Q1, in Q4 2016 and Q1 2017.
What I'd like to comment on this slide as well is something below the EBIT, which has to do with the tax and the finance net, if you look into our accounts. We have reclassified a group internal loan, which affected Agio previously in the quarter, and which has a positive effect on the Agio NOK 3.9 million in fourth quarter. That means we have reduced our exposure to Agio through the P&L going forward. The tax rate is quite high in the quarter. That comes from a NOK 4.4 million write-down of deferred tax assets in the U.S. and in Norway as a result of reduced tax rates. It's a reduction of 13% in the tax rate in the U.S., which is the main driver for this.
A comment on the outside of the EBIT. Looking at the sites, it's very clear that during Q4, it's Lithuania that drives the profit with its almost 22 million NOK in total, and an increase of about NOK 12 million compared to last year in profitability. That drives the whole improvement for the group. In all, for us, the sites ended up in line with our expectations for the fourth quarter. I have to add. You can see that some of the margins are not so high. They showed actually higher margins, but we had a group cost realignment in Q4 that drove the net margin slightly down for the sites. For the full year, the profits improvements.
Norway, they have a decline in revenue, improved margins due to cost reductions and efficiency improvements. A good improvement compared to last year and ended up with 4.3%. Sweden, I will say that the whole year is affected by the move in the first quarter. We've had improvement, efficiency improvements during the year, but they still ended around slightly below 4% EBIT margin. Lithuania at 8.4%, a very strong margin for the year and NOK 70 million in results. To be mentioned are the others, China and U.S., and ended up at close to NOK 40 million and 10% profits for the full year.
As Peter said, cash flow is strong in the quarter, NOK 90 million approximately mostly driven by the improved profits, but also a reduction of factoring debt and some other items. Year-to-date cash flow for the full year is NOK 161, up almost NOK 50 million, over NOK 50 million from last year. The main driver for that is the EBIT and reduction in net working capital. really happy about the improved cash flow, which also results in a improved financial gearing. It's now at 0.9, the net interest-bearing debt or EBITDA, compared to 1.3 last year. The working capital, we are improving our capital efficiency. We're continuing to do that, and it's and the reduction we see now is due to improved inventory processes and further spend consolidation and improved payment terms.
A reduction of 5% in spite of a growth of about 16%-17% on the top line. Net operating working capital, our measure when it comes to top line and working capital, is down to 17.5%, below 22% last year. We have talked earlier about strategic target of 20% on this, we're quite happy to be below that, and we're working to improve it even further. Cash conversion ratio, 61%. Down 18 days from last year. The contributing factors are DIO, about 9 days, and trade payables, 9 days as well. They're equally measured. About the same on DSO. For the ROC, 23.2%, compared to 18.5% last year. Closing in on our strategic target on 25%.
I would say there are many items here that we are satisfied with in the midst of the strategic period. Peter, market development.
Thank you, Cathrin. Looking into some of the details of our order backlog, I said earlier it was just over NOK 1.3 billion, up NOK 300 million almost from last year. Growth 28%, underlying growth 24%. Industry we see growing to NOK 504 million, even though we know that the industry in 2018 will not be as strong as it was in 2017. Medical, NOK 158 million, 13% growth. That's a nice growth to get in this time of the year, because usually the first quarter outlook on medical is weaker. A strong growth in the order backlog at this point of the year is good.
Industry order backlog growth of 70%, which is pretty incredible, especially consider that section of or that market sector tends to have shorter lead times and place orders on very short horizon. Energy & Telecoms basically flat versus last year. However, we're seeing some more pickup in telecom now during the first parts of this year. Energy, we said earlier when we looked at the actuals for 2017, in the fourth quarter we saw growth. We see even more growth in the order backlog. Again, you know, we're growing from very low levels of NOK 12 million in order backlog to NOK 21 million.
The order backlog for defense, as we said, during several presentations last year, we expect big orders to come in and then they will sort of be eaten away as times moves on before the next big orders is placed. We're seeing more of a bulk order placement tendency from our large aerospace customers.
Mm-hmm.
The full year outlook from Kitron for 2018. We expect to be between NOK 2.5 billion and NOK 2.7 billion in sales. We expect our EBIT margin to continue to improve and come in somewhere between 6.1% and 6.5%. We see the growth in 2018 is primarily driven by the industry sector and somewhat in Energy Telecom. Profitability is continued to be driven by cost reduction activities in our sites. We have improvements to continue to do in both Sweden and Norway, improving efficiency at those facilities and getting more economy of scale out of our facilities in China and Lithuania. With those words, we're happy. It's been a good year, 2017, and we think we have a strong outlook for 2018. You're welcome to join us in our next webcast. Thank you so much.