Welcome to a review of Keytrum's Q1 2021. I'm Peter Nelson, CEO of Keytrum, and with me today as usual is CFO, Katri Neelande. I'd like to remind you that we conclude with a Q and A session, and I encourage you to post questions during the presentation. Let's look at an overview of the quarter. Next slide, please.
So customers' demand was strong in the Q1. And although component supply has been challenging, Ketron has yet again delivered its strongest Q1. During the Q1, the market sector's 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 Q1.
As usual, when there's a strengthening of our consolidation currency, In Keytrion's case, NOK versus USD and euro. 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 Q1 has been executed according 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 Ketron and puts us in the midpoint for our 2021 guiding. Demand is particularly strong in our CEE group, Lithuania and Poland. Next slide, please. So let's take a look at some Keytrion operation status. Despite some additional waves Now of COVID-nineteen, there's been little effect on Keytrion 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, de commitments from suppliers and price increases. And 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 Q1, and we expect it will continue supporting us in the forthcoming quarters. Our strategic partner program, together with the strong dedication and hard work by the Keytrion 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. So a brief summary on what we talked about on our Capital Markets Day for all of you new viewers out there. Starting this year, Ketron has updated its 5 market sectors.
2 old classifications are retired, So we're gone our energy, telecom and offshore marine. This move will help us market Keytrion's capabilities more clearly as we focus our teams to further grow business. In addition, each of the 5 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, 2 of our traditional areas of growth: defense, aerospace and medical devices.
Both sectors have extremely high requirements, entry barriers to do business and long product life cycles. In general, Keytrion's diversification shows resilience to variations in the general business cycle. Next slide, please. So some of the important orders in the Q1. In January, we received the first order for the F-thirty 5 radar system under the 2016 NOK 500,000,000 NOK Long Term Agreement.
This initial order has a value of NOK 10,000,000 and production will take place in Norway. In February, we were awarded production of battery management systems. This initial award covers 3 years and is valued at €150,000,000 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 2 years and is valued at $100,000,000 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. So now here's CFO, Katri Njlander, to walk us through the financial results.
Katri?
Thank you, Peter. I will now talk about the financial results. Next slide, please. Electrification and the industry drives growth. Growth for the quarter is 7% and 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 16,000,000 compared to last year and it has 2 subsectors, subsector communication, where M2M IoT is being the largest application in area, and the subsector sensors, Which is mostly different types of metering. Both subsectors also with a growth rate of around 23%. Connectivity has had a fairly stable revenue the last 4 quarters. The sites which are strong within connectivity are Sweden, Lithuania and China.
On to electrification. Electrification grew 26% and €60,000,000 compared to last year. As for the growth in the largest subsectors, 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 CHF 43,000,000 compared to last year. Subsector automation, which is the largest one, grew 36%. Oil and Gas grew 24%. Recycling was up 37%. And 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, are expecting an even more significant rebound in the Q1. Lab support and hospital care grew 15%, whereas we have reductions in diagnostics and home care. Defense Aerospace, a reduction of 24% €60,000,000 We see lower demand in the U. S.
And in Norway. And in general, from the U. S. Customers, we see a COVID-nineteen related delays from the U. S.
Government this year. And if you look on the countries on the right hand side, we see growth between 8% to 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.
As said, revenue was 7% and the underlying growth 9%. Underlying the term adjusted for exchange differences in consolidation, what that means is that we calculate the reported values with last year's exchange rates. However, there are also currency effects in local levels in most sites as well as 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% to 40% of the revenue. For euro, 35% of the revenue approximately 2nd NOK 10% to 15% each and C and I about 5% or below. So that's the Total value. This, of course, varies over time and depends on what site that has the largest volume.
But taking the invoicing currencies into Duration at the sites, the currency effect of growth is actually a negative 5% compared to the negative 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 1st quarter profit was at €65,400,000 compared to €58,400,000 last year. This corresponds to 7% EBIT margin, which is up from 6 point 7% last year and profitability is in line with the year end outlook of 6.8% to 7.2%. We talked about the currency effects on revenue and dependent on the currency sites the 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 minor effect, it's actually 0% and last year it was a negative 0.4%. And below EBIT, we have a non cash negative ARGEO of SEK 6,000,000 in the finance net compared to positive ARGEO of SEK 2,400,000 last year.
This is mainly revaluation of group internal loads and specifically, euro 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 the higher share 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 are expected to end between 18% to 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% to 10%. Central 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 NOK 50,000,000 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, But unfortunately, U. S. Had a very weak quarter. This is due to the demand for a quarter which is lower than expected And the fact that we're working out some orders below profitability as well. The expectation is better progress going forward.
But 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 1035,000,000 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. So the CHF 22,000,000 increase from last year, which is a net effect last year's consolidation currency. It's about CHF 101,000,000 increase And a currency negative effect of SEK 89,000,000 Net drivers in Norway and the contracts they have. There is large activity from the defense That industry that has long lead items to procure for the future, which does affect the numbers in Norway.
Trade payables Our 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 at the same level as last Yes. Overdue is around 4%, down in value and percent from last year, where it was 5.4% and mainly clear by now. DSO was 66, up from 62 last year. In total, R3 net working capital percentage of sales is 28%, same level as last year.
Cash conversion cycles reduced 103 days from 105. R3 ROC 16.6, up from 15.3 last year. As a positive cash flow, dollars 78,000,000 in the quarter, slightly below last year's $102,000,000 It's driven by profitability and reduction in working capital. Net interest bearing debt EBITDA is improved from SEK 2.5 last year to SEK 1.6 this year. If we adjust for IFRS 16 Of around SEK 115,000,000 it is SEK 1,400,000,000 Net debt is SEK 670,000,000 and reduced from SEK757,000,000 last year.
A comment of the right of use assets which we specify in the balance sheet. And we're mentioning the development in the report Into machinery and buildings and cars. So 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 SEK 124,000,000 As for 2021, dividend of SEK 70 per share is proposed, which is a total of €125,000,000 1 tranche to be paid in May and the other tranche to be paid in October. The general meeting is later today, so the minutes will be presented also later today. So even though we are less satisfied with the capital efficiency for the quarter, the capital situation in Keytrion is satisfactory.
Next slide, please. And now back to you, Peter.
Thank you, Kathleen. Let's start with our order backlog. So next slide please. We have strong confidence in our order backlog that it will support our 2021 targets. The current demand outlook confirms that 2021 be the strongest year yet for Key Tron.
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 CE 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 start up due to corona related travel restrictions. Next slide, please. So let's move on to our guidance. Next slide, please.
For 2021, we reiterate, Keytrion expects revenue between NOK 3,900,000,000 and NOK 4,200,000,000. EBIT margin is expected between 6.8% 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. So what are the key takeaways? Well, Q1 2021 is our strongest Q1 yet despite unfavorable currencies and challenges in the supply chain. Our order backlog is and full year demand outlook supports continued growth. For 2021, our previous guidance and outlook is reconfirmed and maintained.
Now this concludes the presentation portion and we are ready to move on to Q and 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, Katrin, is from Aurel where he asks, do we have any plans on stock on share buybacks? We have discussed the issue.
We have discussed the issue and not concluded on the matter. So there is no plan yet.
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.
Peter, Looking at the guiding and the revenue we had in the Q1, we're quite back ended this year, right?
We are, yes. And one of the things, yes, we could have delivered a little bit more in the Q1. Some of that has been replanned and reshuffled out as lead times on constrained component supply has stretched out. But I think overall, When we looked at this year and we planned this year, we're pretty much on plan for the Q1. You're always unhappy when you know you could have done a little bit more, but that's the name of the game.
And we've won some new business in the Q1 also where There is a lot of undelivered demand, but 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. So There's had we won it 3 months earlier, it would have been higher. We've got some more questions here from Carl Jorgen. Could you give some more color on the backlog conversion for Defence Aerospace Sector this quarter? It seems that it's lower than historically.
And yes, right, we've had some we had a SEK 60,000,000 reduction, as you mentioned, in the Q1 alone. And we have about the same when we look at the rest of the year. We see a backlog down about SEK 115,000,000 all in all, driven solely, I would say, by delays in the U. S. Government in approving products in allowing travel for certification of product startups in Norway and also in the U.
S. So 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 1 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. But this is the way it is, right? That sometimes you have a very strong order backlog on defence, sometimes it goes down a little.
You didn't see the whole question. It says also that is it driven by delays of certain programs due to COVID-nineteen? And the answer is yes In that sense, yes.
That's right, yes.
And then Kai Jorgen has another question.
Harry 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. Not so far. And usually if we have an order, we deliver on our orders anyway.
Theoretically, there could be an issue where we have forecast from our customers and they never converted to orders. But at this point, I think most of our customers are well 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. Because if we were to delay Components Supply asked for it later or cancel and try to put in place a new purchase order, that demand allocation is gone. Then you're in the back of the queue for mid next year on the supply. So not too concerned about that.
Haven't seen any of it yet. As Olaf says, how bad was the result in the U. S. In the Q1 and when will you breakeven? Well, we will definitely breakeven 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 pretty much half of the revenue at this point where the profitability is non existent. 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 Q2 and really gain volume into the Q3.
I don't know if you want to comment on the result specifically, Katrin, in the Q1.
No, it was a negative, but it was substantial Below US1 $1,000,000 but it's not in that area.
It was close to US1 $1,000,000 for the quarter. Jonas says, how would you describe the M and A field in general? Have the valuations increased during the last year? How the quality of the company
is
looking for a new owner. I would say the answer to the first question is valuations are very high, even from listed companies and really specifically for unlisted companies because most of the Transaction proposals or projects that we look and valuations, I would say are high. And even though, so getting to some of the performance and the quality, Historically, some of these companies are not doing well, but the outlook is always roses and sunshine. So looking at that and looking at the evaluations, We're not really seeing anything that has peaked our interest in general on the market now. There have been a couple of companies we've talked to and approached, but really nothing that's solid and that we're working on.
And he also follows on, Jonas, with a question, has the structure reorder 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, Bizar is pretty strict.
It's fixed orders and only forecasted demand inside a 4 month window. And if you look at the full year, We've had 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. And we know that not all demand is in there because we know some of the products come late. We know some of the products don't have prices. So 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 bimonthly webcasts for the general community on the supply situation. And then specifically followed up with every month a dozen or so 1 on 1 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. So, 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, but we have at least one large quote I'm thinking about. But again, unless there's a confirmed Supply on that, it could take a little while before ramp up takes place. But I
would say we expect The connectivity to grow more the next few quarters than it has I
mean, connectivity growth in Q1, I think, was 45%. We haven't talked about it specifically because it's not the biggest market sector of Industry Electrification and Connectivity. Connectivity is the smallest, but it actually grew in the percentage measurement the most.
But we expect A higher revenue on connectivity going forward than we had in the Q1.
Jonas follows up again here with, I think that's the one he just asked.
So from
orders and Henrik says, referring to your contract with Corbus Energy, can shareholders expect Similar agreements with other energy suppliers in this sector, which geographical market is of most interest to Ketron. I hope you can expect more. We are working on more agreements very actively In this sector, which market is the most important, we're working a lot with the market in Sweden. We're working with the market in the DAX region, so German speaking part of Europe, Germany, Switzerland, Austria and so forth, Dave in 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. So there's a lot of business opportunities out there and many, many, many companies that are big today.
So, some of those we're in active discussions with also. And that's it from a question point of view. We're at exactly 9 o'clock, so 30 minutes. It's our longest webcast so far.
Good. Just a few seconds only and see if there's since there's a delay and see if something else comes in. It seems to have quieted down. So, Okay. Let's stop.
Okay. Well, I'll be meeting some of you later today in 1 on 1 meetings. I'm looking forward to that. And If not, well then hopefully, we can get together at the end of Q2 and or in the beginning of Q3 to look at the Q2 results. Thanks so much.
Thanks.