Welcome to a review of Kitron's first quarter 2021. I'm Peter Nilsson, CEO of Kitron, and with me today, as usual, is CFO Cathrin Nylander. I'd like to remind you that we conclude with a Q&A session, and I encourage you to post questions during the presentation. Let's look at an overview of the quarter. Next slide, please. Customer demand was strong in the first quarter, and although component supply has been challenging, Kitron has yet again delivered its strongest first quarter. During the first quarter, the market sectors Electrification and Industry drives growth. Industry products supporting automation and increased industrial capacity have been particularly strong. Our EBIT profit improves by close to 12%, generating an EPS of NOK 0.25 in the first quarter. As usual, when there's a strengthening of our consolidation currency, in Kitron's case, NOK versus USD and EUR, growth looks weaker than it really is.
We primarily see this in our order backlog, which seems to be flat compared to last year, but grows 8% in underlying currencies. The first quarter has been executed according to our sales plan for 2021. Demand for the quarter has been slightly stronger, but challenges in the supply chain has pushed fulfillment into the second and third quarter. Current demand outlook for 2021 confirms our earlier outlook of the strongest year yet for Kitron and puts us in the midpoint for our 2021 guiding. Demand is particularly strong in our CEE group, Lithuania and Poland. Next slide, please. Let's take a look at some Kitron operation status. Despite some additional waves now of COVID-19, there's been little effect on Kitron operations. We've continued with the precautions set in place last year. The challenges with material supply, with shortages in semiconductor supply, have now extended to other component categories.
This results in extended lead times, delays in deliveries, decommitments from suppliers, and price increases. Although we see that these challenges will increase over the next two quarters, the early work done in Q3 and Q4 last year identifying and addressing critical components for our customers has paid off in the first quarter, and we expect it will continue supporting us in the forthcoming quarters. Our strategic partner program, together with a strong dedication and hard work by the Kitron team, has been crucial to meet these challenges with great success. Our continuous improvement program delivers year-on-year value for our customers and ourselves. This is a good way to partially mitigate the impact of material price increases. Next slide, please. A brief summary on what we talked about on our Capital Markets Day, for all our new viewers out there.
Starting this year, Kitron has updated its five market sectors. Two old classifications are retired, gone are Energy/ Telecom, and Offshore/ Marine. This move will help us market Kitron's capabilities more clearly as we focus our teams to further grow business. In addition, each of the five market sectors are built for and allow for multilevel drill-down to truly identify business growth and quickly adjust strategies. Let's start with market sector Connectivity. Within this sector, we find machine-to-machine Internet of Things, sensors, wireless communication, networking products, optical transmission products, and more. Next up, Electrification. Within this sector, we find battery management systems, power grid transmission systems, power and electric drive management, charging and fuel cell technology. On to market sector Industry. Within this sector, we find equipment for automation, robotics, recycling, and equipment for infrastructure and construction.
Finally, two of our traditional areas of growth, Defence/Aerospace, and Medical Devices. Both sectors have extremely high requirements, entry barriers to do business, and long product life cycles. In general, Kitron's diversification shows resilience to variations in the general business cycle. Next slide, please. Some of the important orders in the first quarter. In January, we received the first order for the F-35 radar system under the 2016 NOK 500 million long-term agreement. This initial order has a value of NOK 10 million, and production will take place in Norway. In February, we were awarded production of battery management systems. This initial award covers three years and is valued at NOK 150 million. Production will take place in Poland. In March, we entered an agreement with Corvus Energy covering production of battery management control systems as well as other services.
The initial award covers two years and is valued at NOK 100 million. Production will take place in Norway. In general, we're carefully targeting customers within the defined sectors with good success, actually above average hit rate. Moreover, we see the market in an upwards trend. The number of new potential customers we're engaging with is higher than ever. Next slide, please. Now here's CFO Cathrin Nylander to walk us through the financial results. Cathrin?
Thank you, Peter. I will now talk about the financial results. Next slide, please. Electrification and Industry drives growth. Growth for the quarter is 7%. Growth adjusted for foreign exchange effects in consolidation is 9%. Let's go from left to right and start with Connectivity. Connectivity has a growth of 23% and NOK 16 million compared to last year. It has two sub-sectors. Sub-sector communication, where M2M IoT is being the largest application area. The sub-sector sensors, which is mostly different types of metering. Both sub-sectors also with a growth rate of around 23%. Connectivity has had a fairly stable revenue the last four quarters. The sites which are strong within Connectivity are Sweden, Lithuania, and China. On to Electrification. Electrification grew 26% and NOK 60 million compared to last year.
As for the growth in the largest sub-sectors, power transmission doubled since last year, power management had 13% growth, and battery technology grew 25%. China and Lithuania are strong within battery technology, Lithuania and Poland within battery management, and Norway within power transmission. On to Industry, familiar name, but with different content. Industry grew 25% and NOK 43 million compared to last year. Sub-sector automation, which is the largest one, grew 36%. Oil and gas grew 24%. Recycling was up 37%. For transportation and infrastructure, there was a slight decline. Medical Devices are at the same level as last year, which is actually above our expectation. With the extraordinary revenues for life support last year, mainly in Q2 and Q3, we were expecting an even more significant rebound in the first quarter. Life support and hospital care grew 15%, whereas we have reductions in diagnostics and home care.
Defence/Aerospace, a reduction of 24% and NOK 60 million. We see lower demand in the U.S. and in Norway, and in general from the U.S. customers, we see COVID-19 related delays from the U.S. government this year. If you look on the countries on the right-hand side, we see growth between 8%-12%, except for the U.S., where there is a decline in this quarter. That said, let's talk some more on growth and currency. I said revenue was 7% and the underlying growth 9%. Underlying the term adjusted for exchange differences in consolidation. What that means is that we recalculate the reported values with last year's exchange rates. However, there are also currency effects in local levels in most sites, as most sites invoice in other currencies in addition to the local currencies, or for some, only in other currencies.
To give an indication of what the invoice currency are. U.S. dollar, we invoice about 35%-40% of the revenue. For EUR, 35% of the revenue approximately. Second NOK, 10%-15% each. CNY about 5% or below. That's the total value. This, of course, varies over time and depends on what site that has the largest volume. Taking the invoicing currencies into consideration at the sites, the currency effect of growth is actually a -5% compared to the -2% in consolidation, so another 3% i.e., if you adjust for all currency effects, the growth was 12%. Next slide, please. EBIT development. Profits are returning to strategic levels. The first quarter profit was at NOK 65.4 million compared to NOK 58.4 million last year.
This corresponds to 7% EBIT margin, which is up from 6.7% last year, profitability is in line with the year and outlook of 6.8% to 7.4%. We talked about the currency effects on revenue, dependent on the currency sites they're business in, there are in fact some local effects on EBIT on the lower level too, due to the working capital. In Q1, this has a minor effect. It's actually 0%, last year it was a negative 0.4%. Below EBIT, we have a non-cash negative agio of NOK 6 million in the finance net compared to positive agio of NOK 2.4 million last year. This is mainly revaluation of group internal loans, specifically EUR loans in Poland and some USD items elsewhere. Tax rate is quite low at 15%, which is lower than last year's 22%.
This is due to the income mix and a higher share of profit in lower tax countries, specifically CEE. In addition, there is a taxable loss in the U.S. that reduces the group tax percentage in the quarter. The tax percent will vary between the quarters, and I expect it to end between 18%-20% for the year. Next slide, please. EBIT by country. Norway and Sweden continues at strong margins, Norway at 7%, but down from 7.3% last year, and Sweden at 7.1%, up from 6.3%. Both show solid numbers with a revenue growth of 8%-10%. Central and Eastern Europe, consisting of Lithuania and Poland, improved EBIT margins from 6.6% last year to 9.9%, keeping the level from Q4. In total, a NOK 15 million increase in EBIT, and main contributor for the profit increase in the quarter.
The others, consisting of U.S. and China, show a low profitability in Q1. China is performing at the same levels as last year, or even more. Unfortunately, U.S. had a very weak quarter. This is due to the demand for a quarter which is lower than expected on last year's level, and the fact that we're working out some orders below profitability as well. The expectation is better progress going forward. In all, solid from all sides, but U.S. brings it down in the quarter. Next slide, please. Capital stabilized. Working capital ended at NOK 1,035 million, an increase of 2% compared to last year. Adjusting for foreign exchange effects and consolidation, it's around 11% increase on last year's level. The NOK 22 million increase from last year, which is a net effect, last year's consolidation currency, it's about NOK 101 million increase, and the currency negative effect of NOK 89 million.
Net drivers in Norway and the contracts they have. There is large activity from the defense industry that has long lead items to procure for the future, which does affect the numbers in Norway. Trade payables are increasing as a result of high activity and higher share of preferred vendors with larger payment terms or longer payment terms. Trade receivables are in line with revenue, same level as last year's. [inaudible] [DIO] around 4%, down in volume percent from last year where it was 5.4%. Mainly clear by now. DSO 66, up from 62 last year. In total, R3 net working capital in percent of sales is 28%, same level as last year. Cash conversion cycle is reduced 103 days from 105. R3 ROC, 16.6%, up from 15.3% last year. There's a positive cash flow, NOK 78 million in the quarter, slightly below last year's NOK 102 million.
It's driven by profitability and reduction in working capital. Net interest-bearing debt, EBITDA, is improved from 2.5 last year to 1.6 this year. If we adjust for IFRS 16 of around NOK 115 million, it is 1.4. Net debt is NOK 670 million and reduced from NOK 757 last year. A comment of the right of use assets, which we specify in the balance sheet. We're mentioning the development in the report split into machinery and buildings and cars. The machinery is related to leased equipment according to the previous standards, and buildings and cars are related to IFRS 16, and the value is about NOK 112. As for 2021, a dividend of NOK 0.70 per share is proposed, which is a total of NOK 125 million, one tranche to be paid in May and the other tranche to be paid in October.
The general meeting is later today. The minutes will be presented also later today. Even though we are less satisfied with the capital efficiency for the quarter, the capital situation in Kitron is satisfactory. Next slide, please. Now back to you, Peter.
Thank you, Cathrin. Let's start with our order backlog. Next slide, please. We have strong confidence in our order backlog that it'll support our 2021 targets. The current demand outlook confirms that 2021 should be the strongest year yet for Kitron. Demand is driven by Connectivity, Electrification, and Industry. All operations benefit from this demand growth. The trend with increased investment in industrial capacity and infrastructure drives strong growth in our CEE group with Lithuania and Poland. Market sector Medical Devices is down after an extraordinary 2020 with a strong corona-driven demand. Levels for 2021 and onward are now back on a normalized level. The order backlog for Defence has weakened, and the full-year outlook is expected to be down slightly. The primary reason is delays in new program startup due to corona-related travel restrictions. Next slide, please. Let's move on to our guidance. Next slide, please.
For 2021, we reiterate Kitron expects revenue between NOK 3.9 billion and NOK 4.2 billion. EBIT margin is expected between 6.8% and 7.4%. Current demand outlook supports the midpoint in this guiding. Growth is driven by Connectivity, Electrification, and Industry sectors. These sectors show an average growth of close to 30%. Next slide, please. What are the key takeaways? Well, Q1 2021 is our strongest first quarter yet, despite unfavorable currencies and challenges in the supply chain. Our order backlog and full-year demand outlook supports continued growth. For 2021, our previous guidance and outlook is reconfirmed and maintained. This concludes the presentation portion, and we are ready to move on to Q&A. So far, we see only one question, so go ahead and get them in there if there's anything you're wondering about.
First question, Cathrin, is from Arild, where he asks, "Do we have any plans on share buybacks?" We have discussed the issue.
We have discussed the issue and not concluded on the matter. There is no plan yet.
Yeah. Right now, currently we proceed with the dividend payouts and that strategy, and if there's any change, it'll come through the board later this year. That is it so far.
Yeah, Peter, looking at the guiding and the revenue we had in the first quarter, we're quite back-ended this year, right?
We are, yeah.
Yeah. We are. Yeah.
You know, one of the things, yes, we could have delivered a little bit more in the first quarter. Some of that has been replanned and reshuffled out as lead times on constrained component supply has stretched out. I think, overall, when we looked at this year and we planned this year, we're pretty much on plan for the first quarter. You're always unhappy when you know you could have done a little bit more.
Yeah.
That's the name of the game. We've won some new business in the first quarter also where there is a lot of undelivered demand. Unfortunately, when we bring it aboard, we've got a big setup to do, and we've got to chase down all of those parts. Had we won it three months earlier, it would've been higher. Got some more questions here from Carl Jörgen. "Could you give some more color on the backlog conversion for Defence/Aerospace sector this quarter? It seems that it's lower than historically." Yes, right. We had a NOK 60 million reduction, as you mentioned, in the first quarter alone, and we have about the same when we look at the rest of the year.
We see a backlog down about $115 million all in all, driven solely, I would say, by delays in the U.S. government in approving products and in allowing travel for certification of product startups in Norway and also in the U.S. That reflects on the order backlog. Also, the order backlog is very heavy in U.S. dollars. The U.S. dollar impact of basically, compared to last year, we have about a one NOK reduction. On NOK versus U.S. dollar. That has a big effect also on the backlog. We're not concerned really about it because we continue to win new business and have strong growth in parts of it. This is the way it is. That sometimes you have a very strong order backlog on defense, sometimes it goes down a little.
Yeah. You didn't see the whole question says also that, is it driven by delays of certain programs due to COVID-19? The answer is yes, in that sense. Yeah.
That's right. Yeah.
Mm-hmm. Carl Jörgen has another question.
He follows up here. "Even though you've coped well with the ongoing component shortage, do you see any risk for delayed orders from your customers as they might face challenges in accessing other necessary components?" Not so far.
No.
Not so far. Usually, if we have an order, we deliver on our orders anyway. There could be an issue, t heoretically, there could be an issue where we have forecast from our customers, and they never convert it to orders. At this point, I think most of our customers have a very good understanding of what the supply situation is and how important it is to execute when you can execute and not delay. If we were to delay component supply, ask for it later, or cancel and try to put in place a new purchase order, that demand allocation is gone. You're in the back of the queue for mid-next year on a supply. Not too concerned about that, haven't seen any of it yet.
How bad was the result in the U.S. in Q1, and when will you break even? Well, we will definitely break even in the second half of the year. We hope that it'll take a turn now in the second quarter. The whole first part of the year, we are stuck with delivering out a significant program, which is pretty much half of the revenue at this point, where the profitability is nonexistent. That doesn't help. On top of that, you have delays with the medical customer rollout that we won last year, continued prototyping, continued design changes. I think those are pretty much complete by now, and we should start to see that roll out in the second quarter and really gain volume into the third quarter. I don't know if you want to comment on the result specifically, Cathrin, in the first quarter.
No, it was a negative, but it was substantial. It was below $1 million, but in that area.
It was close to $1 million for the quarter.
Jonas says, "How would you describe the M&A field in general? Have the valuations increased during the last year? How the quality of the companies?
How is the quality of the companies?
Yeah. Looking for a new owner. I would say the answer to the first questions is valuations are very high.
Even for unlisted companies. Really, specifically for unlisted companies because most of the transaction proposals or projects that we look at are unlisted companies. Valuations, I would say, are high. Even though getting to some of the performance and the quality, historically, some of these companies are not doing well. The outlook is always roses and sunshine. Looking at that and looking at their valuations, we're not really seeing anything that has piqued our interest in general on the market now. There've been a couple of companies we've talked to and approached, but really nothing that's solid and that we're working on.
He also follows on, Jonas, with a question, "Has the structure of your order backlog changed in any way? For example, share of fixed orders versus customer forecast?" Yes, it has changed. The share of fixed orders has increased a lot. I would say we have never seen, if you extend the definition of order backlog, because ours is pretty strict. It's fixed orders and only forecasted demand inside a four-month window. If you look at the full year, I don't think we've ever had as a strong demand outlook as we've had this year. Starting in January, increasing in February, increasing in March, and to a level now where we have a demand outlook which is within the window of our current forecast outlook.
We know that not all demand is in there because we know some of the products come later. We know some of the products don't have prices. Demand is in there, but there's no price and no value on some of the demand. I think that that's changed, and that's changed because we've held these monthly or bi-monthly webcasts for the general community on the supply situation, and then specifically followed up with every month, a dozen or so one-on-one meetings with large customers. Bringing them up to speed, bringing their management teams up to speed of what's going on and what they need to be doing. That drives, I think, demand. Sophie says, "Do you expect to win more business within Connectivity next quarter?" Yes, I do. I'm not going to tell you what it is.
We have at least one large quote I'm thinking about. Again, you know, unless there's a confirmed supply on that, it could take a little while before a ramp-up takes place.
Mm-hmm. I would say we expect Connectivity to grow more the next few quarters than it has.
Connectivity growth in Q1, I think was 45%. We haven't talked about it specifically because it's not the biggest market sector. You know, of Industry, Electrification and Connectivity is the smallest, but it actually grew in a percentage measurement the most.
Mm-hmm. We expect a higher revenue on Connectivity going forward than we had in the first quarter.
Mm-hmm. Yeah.
Jonas follows up again here. Oh, I think that's the one he just asked, so.
From orders. Henrik says, "Referring to your contract with Corvus Energy, can shareholders expect similar agreements with other energy suppliers in this sector? Which geographical market is of most interest to Kitron? I hope you can expect more. We are working on more agreements. very actively in this sector. Which market is of most important, we're working a lot with the market in Sweden. We're working with the market in the DACH region, German-speaking part of Europe, Germany, Switzerland, Austria, and so forth, even the Netherlands. Specifically, when we look at charging technology, because that, as everyone knows, is set to grow dramatically when large parts of the European auto industry converts also to electrical.
There's a lot of business opportunities out there and many, many, many companies that are big today. Some of those we're in active discussions with also. That's it from a question point of view. We're at exactly 9:00 A.M., so 30 minutes. It's our longest webcast so far.
Good. Yes, a few seconds only since there is a little delay and see if something else comes in. It seems to have quieted down.
Yes.
Okay, let's stop.
Okay. Well, I'll be meeting some of you later today in one-on-one meetings. I'm looking forward to that. If not, well then hopefully we can get together at the end of Q2, or in the beginning of Q2, Q3, to look at the second quarter results.
Yeah.
Thank you so much. Thanks.
Bye.