Good morning, ladies and gentlemen. Welcome to Kitron's full year and fourth quarter results for 2016. My name is Peter Nilsson. I'm the President and CEO of Kitron Group. With me today, as usual, Ms. Cathrin Nylander, CFO. Brief summary of 2016. Pretty demanding year for us. Two major factory moves. Pretty much 2/3 of the revenue Kitron generates from those two sites was moved, one in the first quarter of the year and one in the last quarter of the year. It's put a lot of pressure on the company. Still, we're really happy with the accomplishments we've done.
Looking into the fourth quarter results, we had a very strong underlying revenue growth of 12.7%, coming in at just over NOK 570 million versus the fourth quarter last year. Profitability continued to be strong, 6%, generating NOK 34, just over NOK 34 million in EBIT. That's the margin was slightly lower than previous year, but we did have a very large factory move in the fourth quarter. A lot of moving expense and costs taken in the fourth quarter. Of course, as we started up the new site in second week of December, third week of December, some efficiency losses in connection with that.
Very strong demand for the new Swedish site, and a lot of growth in employee and staffing and equipment and automation at that site. There are lots of things that needs to start to work together. We have a higher capital efficiency. Even though our working capital and operating capital remains at a stable level compared to previous year, we are churning more revenue. Our financial gearing remains very low. Cash flow NOK 36.4 million in the fourth quarter. That's way down from fourth quarter previous year.
At the same time, the fourth quarter has a lot of characteristics of preparing for a demand surge in the first quarter, both from our Swedish operations and from our Lithuanian operations. Taking a peek at the full year, revenues came in at NOK 2,093. That's a growth of 7.2%. Overall EBIT margin 5.6% versus 5.3% previous year, generating close to NOK 118 million in profits. Our order backlog, again, all-time high. Over NOK 1 billion, NOK 1.019 billion. That's up 4.5% for the full year. Which is pretty impressive as you, as you also look at, you know, how the Offshore Marine industry continues to develop.
We did have a significant drop again in 2016. actually much below, even below the expectations we'd set for it. both the growth and the backlog is strong. Underlying growth for the full year, excluding oil and gas, was in the 12% range for the group, and actually, just over 19% in the fourth quarter. We're very happy about that. Moving on to some of the important orders that we received in the fourth quarter. A very large contract signed with Northrop Grumman on a Dual Transmit Receiver module for the F-35 for the Joint Strike Fighter program.
The value, the potential value for Kitron is more than NOK 1 billion over the lifetime of the agreement, and the agreement runs until 2036. Initially, we'll start this year with transfers of technical know-how, building manufacturing prototypes, testing, validation, and a lot of challenges that will face our services side of our business and gives a lot of potential to them. We also signed an agreement for a high-voltage direct current product with a global leader in power transmission. The contract's worth has a potential of over NOK 300 million over a 3-year period.
We expect deliveries to start here sometime late this year or possibly early next year. Production of this product is going to take place at Kitron's site in Norway. But it will also have positive effects on the sites in the site in primarily China. It gives some spin-off business to that, we think, over time. Thirdly, a large facility relocation. Really more than we're relocating just a facility. We built an entirely new manufacturing plant in Torsvik, just outside Jönköping in the central part of Sweden. The site was completed according to time plan and budget. No significant technical challenges.
You know, there's always some things that you sort of change during the way, but, we kept our time plan and did the move in the very early part of December. By end of January, all process steps and all technical manufacturing processes were validated. In the meantime, we still face some temporary inefficiencies when it comes to output versus cost and staffing, which is expected because not only was there a move, you know, the demand ramp up has turned out to be much greater than we expected a year ago and even six months ago. So lots of new recruitment has taken place at that site.
Yeah, these are the things you have to do because had we not signed up and decided to build a new site, you know, we'd be stuck in the old site, the 4-story office building with no room to grow and a cost structure twice as high as we had. Now there's some pain involved in doing these things, but fortunately the pain is temporary and you emerge stronger after it. Kitron now has four modern high capacity, high capability sites. We built our China facility in 2010. We extended and upgraded it in 2015. Lithuania, we extended and renovated, pretty much putting a new plant in place in 2014. Norway, new factory in 2015, Sweden, new factory in 2016. The question is, what are we gonna do in 2017?
That'll be...
We'll find something exciting to do, I'm sure. Overall, looking at the highlights of last year, the growth on the top line, the improvement in profits, the capital efficiency of the company, the board has decided to propose an increase of a dividend to NOK 0.25 per share, up from the NOK 0.21 per share in the previous year. This represents 60% of our net profit after tax for the group. It's in line with the dividend policy, and we're comfortable with sharing that with our shareholders. Over to you, Cathrin, on some of the details of the financial statements.
Thank you, Peter. The year ended strong. The revenue of NOK 70 million, growth of 8.7% and NOK 45 million over last year's NOK 525. We saw strong growth in several sectors in Q4. Industry grew 27%, energy, telecoms, and defense aerospace around 20% each. Medical devices is slightly down. I think that's merely a result of a very strong fourth quarter last year. Offshore/Marine, again, down 18%, quite substantially, and NOK 23 million down from last year. As Peter mentioned earlier, in the growth, underlying growth of the sectors ex Offshore/Marine is actually 20% in the quarter, very strong. The underlying growth in total is 12.7% for the quarter. As you can see now, there are two main, defense sector and industry sector, which are the largest one by far.
If you look at the full year revenue, we ended up at NOK 2,093, up 7.2% from last year, which ended at NOK 1,952. It's an NOK 141 million increase. The underlying growth for the year is slightly above 5%. Also here, we see that the driver of the growth is industry for the full year with a growth of 27% or 28%. Energy /Telecoms at 12%, Defence/Aerospace ended at 7%, Medical devices a small growth of 2%, and then Offshore/Marine 68% reduction. All in all, a very, very strong year for the industry sector. That shows to us that we have a robust mix that can take reductions and variations in the different sectors we have going forward as well. If you look at the revenue by country, we start with Norway.
Norway ended at NOK 202 million. It's down 11% from last year, actually the reduction that we see from last year in Norway for fourth quarter equals the reduction that we have in Offshore/Marine. The other sectors for Norway are very, merely stable. Sweden had a very strong quarter, ended at NOK 176 million, the largest growth of all sites for the quarter, 26%, in spite of the fact that the move was started actually end November. It's a fantastic achievement to deliver this kind of top line during a move. Lithuania ended NOK 160 million, a growth in the fourth quarter slightly lower than the last quarters, it's basically due to currency changes. The others, consisting of China and the U.S., are basically a reduction of 6.7%.
Here, China is growing, whereas the U.S. Is not. That is basically the reason for it. If you look at the full year, how did we end? Norway ended at NOK 767 million, in line with slightly below our expectations, a reduction of 11%. Again, the reduction from last year coincides with the reduction in the Offshore/Marine sector. The other sectors are, in total, stable for Norway as a whole. Norway, Sweden made a good year, total increase of 23%, ended at NOK 593 million, slightly below NOK 600 million. We'll see them cross the NOK 600 million line soon. Lithuania, a fabulous year with growth of 35% for the full year and ended at NOK 636 million in total.
The others, again, China and the U.S. have shown a similar growth path during the year, where China is growing and the U.S. is, have a reduction compared to the year before. I would say that we now have a profitability that has stabilized at a higher level. We ended at 6% in Q4 and a profit of NOK 34 million. Slightly above last year's NOK 33. The percentage is slightly lower. As Peter mentioned, you know, this is a moving quarter. We have inefficiencies in relocations as we had in the first quarter in 2016. We have to mention that we had a one-off effect in Q1 in 2016. All in all, you know, we had 5.9% in Q2, 6.5% in Q3, and now 6% in Q4.
It's clear to see that we are at a different profitability level than we had before. Going forward now, the cost reductions that we have implemented by doing all these facility changes, which we can run at a lower operational cost and the changes that we'll do, we'll see our profitability grow towards our long-term target of 7%. If we have a little peek at what happened in the profitability at each of the sites, we see Norway, in spite of having a revenue reduction in the quarter of 11%, managed to deliver approximately the same result in the quarter, which is NOK 11 million, which means that the profitability as measured as EBIT margin is increased from 5.0%- 5.4%.
Sweden, in spite of an extensive growth of 26% in the quarter, shows a lower profitability than last year. It's down. Profitability as measured in, as an EBIT margin, is down from 4.8%-2.8%, basically due to the inefficiencies and the relocation costs that we're having in the quarter.
Yeah, it costs money to grow.
It costs money to grow.
That's what's driving a lot of these inefficiencies.
Yes.
You know, growing at the same time as ramping up the new facility.
Yes. It's been difficult. We hope to see improvement now soon.
Yeah.
Lithuania, good year, ending at 6.1. Its profitability, NOK 9.9 million. Very strong quarter for China and the U.S. Basically it's cost cuts in the U.S. that take effect and China has very good margins in Q4. Q4 is for China is a bit unusual. I think we can expect slightly lower margins going forward for China. If we sum up the full year. On the profitability side, we can now see that Lithuania is the main driver of the results for the year with NOK 48.3 million. We see that U.S. and China also has good results of NOK 35 million. Sweden ended at NOK 28 million. Norway basically at NOK 28 million too. The reasons that we say is basically running there.
Very, very strong year for Lithuania, I would say.
They've done an excellent job.
Yes.
A very.
They also grow very much.
Very, very strong team there, the growth is tremendous.
Yes. Looking at that, as was said, cash flow NOK 36 million. For the full year we have a cash flow, operating cash flow of NOK 108 million. It's decidedly lower than last year, which was NOK 208 million. It's still a solid cash flow, and we can expect a solid cash flow going forward too. When we look at the working capital, I said it's stable compared to last year, a slight improvement, but we are growing our revenue, so our capital efficiency is increasing, especially measured as working capital in percent of revenue. We also see it in our other key metrics, which is the cash conversion, which we measure on a rolling three months average, which where we ended at 79%.
When we started measuring this in this way in 2014, we were at NOK 103 million, and then we went down to NOK 90 million last year, and now we're at NOK 80 million. We're completing our plan on delivering a reduction of 10 days a year going forward, ending at approximately 50 days in 2020. Our ROOC also improved, ended at 18.5%. It's improved from 17.8% last year. We have to say that we were aiming for a slightly higher figure, but we didn't really come through with our working capital even though it's stable for the year. Okay, over to you again, Peter.
Thanks, Cathrin.
Mm-hmm.
Market development. Let's take a peek at the order backlog of NOK 1,019 versus NOK 976 last year. Underlying growth is 9.2% in the order backlog. Stable growth in defense, around 6%. Medical, you know, not much happening in medical. We have a few customers that are, we're seeing a little bit of a decline, not market related, but more project related. We have a few customers that are growing at a great rate. Industry sector overall 6% growth in the order backlog. Energy/T elecom, which is, you know, not surprising. We did win a big contract with Aidon last year, so 21% increase in that order backlog.
I think a lot of that was converted to orders into our order backlog and not just placed on forecast outside a six-month horizon. That went into the order backlog. Surprisingly, again, Offshore, then now down to NOK 12 million in our order backlog, down from the very low number of NOK 23 million last year. We're taking a look at how long we're going to continue actually separating out the Offshore as part of our reporting structure to the public. We'll get back to you on that into the next quarter.
I think what's also strong here is, you know, we see that the most of the growth is coming from the industry sector. Most of our industry customers have a shorter horizon of the future, and they can have that because most of the products are a little bit more standardized. They are not necessarily customized towards an end customer program, which means lead times are shorter. They're shorter on the material side. They're shorter on the manufacturing side. Overall, that gives us our industrial customers a greater flexibility in how they project demand and how they place orders. We know that the growth is primarily driven or strongly driven by the industry sector.
We wouldn't have been surprised to see a reduction in our order backlog as a result of that or at a stable level. We continue to see growth which is good for the long term. And in addition to this, you know, our RFQ base, which is on top of what we're not doing today, has grown 40% year-on-year, looking at the end of 2015 versus end of 2016. We have an extremely strong RFQ base, and I think that that's the feedback we're getting from all parts of our organization, with the people working on quoting new products and also implementing new products. Happy about that. Anything I missed out on here?
No.
No.
You mentioned all.
Okay. The overall outlook for 2017, I'd like to start out by saying, 2017 is maybe, we've been a bit cautious. We've, we see some challenges when it comes to timing on revenue and projects. But we've decided to set our expectations to be between NOK 2,150 and NOK 2,350 on the top line, and net margins is expected to be between 5.6% and 6.4%. Again, the growth is primarily driven by customers in the industry sector. We've said that the industry sector has a shorter lead time.
this growth is coming from industry customers with some very large projects, where timing on the investment in that infrastructure is somewhat unsecure. As always, the profitability increase has continued to be driven by cost reduction activities, improved efficiency and overall, I'd say a strong focus on service sales from our organization. We have a long-term target of 10% on our service sales, and we were very close to hitting that target in 2016, and came in just under NOK 200 million in service sales for the full year. That is a big part of Kitron's gap to its competitors in margin. With those words, thank you so much.
We're hosting our Capital Markets Day later today, and I hope you'll join us, either here in person or online. Thanks.