Good morning, and welcome to Kitron's third quarter 2026 presentation. I'm Peter Nilsson, CEO of the Kitron Group, and with me, as always, is our CFO, Cathrin Nylander. Over the past year, Defence & Aerospace has led our growth. In the third quarter, Electrification, Connectivity, and Industry stepped forward alongside it. That's what we mean by broadening the base. Nine months into the year, Kitron is a much larger company than a year ago, and our margins have improved as we've scaled. That's the story I want to leave you with today. I'll cover the quarter, our operations, program wins, sectors, and backlog. Cathrin will then take you through the financials. I'll close with our medium-term ambition and five takeaways, and then we'll open up for questions. Next slide, please. Six numbers frame the quarter.
Revenue was close to EUR 267 million, up 59% from last year, and 49% of it organic. EBIT was EUR 25.2 million, and the margin held at 9.5%, as it did for the first nine months. The order backlog reached EUR 843 million, up 41% from a year ago and 6% from the second quarter, with a book-to-bill of close to 1.2. Year- to- date, revenue is up 66%, and the EBIT margin is 120 basis points higher than a year ago. Growth has come from our own sites and from Kitron Eltech, which joined the group at the start of the year.
Operating cash flow for the first nine months was just over EUR 55 million. Cathrin will explain the quarter. The short version is we built inventory for deliveries in the fourth quarter and into 2027. Revenue was 10% below Q2. The supply chain stayed very tight, as we expected mid-year.
Together with normal summer seasonality, we delivered a quarter in line with our expectations. What matters more is the shape of demand. Orders outside Defence & Aerospace rose 63% from the second quarter. Electrification, Connectivity, and Industry all booked more than they delivered, and that's what we mean by broadening the base. Next slide, please. Three points on operations. First, execution. The margin held at 9.5% through the quarter, with lower volume than the second. That's manufacturing discipline. Ten of our sites now build for Defence & Aerospace. In Horsens, the construction of our new facility starts early next year. In Örnsköldsvik, the site has now been cleared, and construction will begin soon. All of our teams have moved between sites to ramp up production where it's been needed the most. One operating model makes that possible.
A flexible and well-trained workforce is one of our real strengths, and it showed again this quarter. Second, supply. The electronic supply chain stayed tight, and we expect that to continue into 2027. Third, new business. Electrification led the order intake, with a book-to-bill of close to 1.9. Connectivity, almost 1.5, and Industry, close to 1.3. Next slide, please. New program wins show where the future revenue comes from. We had over EUR 57 million of wins in the third quarter, measured as annual run rate. That brings the first nine months close to EUR 259 million. Connectivity gave around half of the quarter's value, and Defence & Aerospace, a little over 40%. Most of the value came from existing customers, and when a customer gives you more of its program, that's the vote on our execution. Winning a program is where the work starts.
Our engineering teams now industrialize these programs together with our customers. Most of them reach volume over the next one to two years, and that's how today's wins becomes revenue in 2027 and beyond. One reminder again on the definition. Wins are estimated run rate, not booked revenue and not part of guidance. Next slide, please. Let's review how the market sectors have developed. Four out of five sectors grew. Defence & Aerospace was close to EUR 124 million, more than double of last year and 46% of Kitron Group revenue. Organic growth in the sector was 126%. This is European rearmament arriving as production orders, unmanned systems, missile programs, combat vehicles, naval hardware, and tactical communications. Industry grew 32%, of which 16% was organic. At the mid-year report, we described Industry as softer. It has turned, with a book-to-bill of close to 1.3.
Connectivity grew 26%, all organic, with a book-to-bill closer to 1.5. Electrification grew 16%. The bigger signal is the orders. EUR 84 million in orders in the quarter. A book-to-bill of 1.86. Investments in power grids and power conversion are long-term, and our customers order on that basis. Although Medical Devices declined 5% to EUR 12.6 million, the book-to-bill rose to over 1.2. Orders are ahead of deliveries, and several customers are showing very strong growth into 2027. Next slide, please. The order backlog, that's where our visibility comes from. At the quarter end, the order backlog was over EUR 843 million, up 41% from a year ago and 6% from the second quarter. Organic backlog grew 30%. As a reminder, our order backlog is firm customer orders plus four months of committed customer forecast. It's a measure of near-term visibility, not the full year. The mix is changing.
Defence & Aerospace is 54% of backlog from 60% at mid-year. Defense backlog is still up 38% from a year ago. The orders, however, do come in lumpier. The other sector simply grew faster. Electrification backlog is up 54%. Now let's take a peek at defense orders. After a very strong first half, Defence & Aerospace book-to-bill was just over 0.8. Our established defense primes ordered in line with deliveries, with a book-to-bill of just over one. The adjustment is with new defense tech. Several newer defense technology companies are introducing new capabilities to counter emerging threats. We expect orders to pick up again as new capabilities are launched and industrialized over the next few quarters. Our six-month demand outlook is EUR 613 million. That's the value of our customers' orders to us, slightly above the second quarter. Again, EUR 613 million is also how we book them for delivery.
The challenge will remain a tight supply chain. The R6 is led by Electrification and Industry. That's broadening again now on the forward view. With that, I will hand over to Cathrin for financials. Next slide, please.
Thank you, Peter. On to the Q3 financial highlights. Revenue in the quarter was close to EUR 267 million, which is up 59%, of which 49% was organic. EBIT at EUR 25.2 million is up 74%. The margin was 9.5%, which is up from 8.7% the third quarter last year. The margin improvement comes from cost discipline during growth. Material costs rose to 67% of revenue from 66.3% a year ago. Personnel and other operating costs fell to 21% of revenue, compared to 23.1% last year. EBITDA was EUR 32.1 million, which is just above 12%.
Net income was EUR 17.4 million, which is up 91%. Following on that, earnings per share were at EUR 0.08 compared to EUR 0.05 a year ago. Net financial items were a - EUR 3.8 million, and the tax rate was around 18.6% in the quarter. Operating cash flow was EUR 3.1 million against EUR 44.2 million last year.
I'll come back to the drivers on that on the cash flow side. Return on operating capital on a rolling three-month basis was 35% against 26.3% last year. Net working capital at 16.7% of sales, which is down from 21.6%. The cash conversion cycle moved to 69 days from 78 days. All of those coming very close to our strategic targets over time. Finally, net interest-bearing debt over EBITDA at 0.3x and the equity at 40.2%. Next slide, please. Some short comments on the year-to-date 2026 financial highlights. For the first nine months, revenue was EUR 835 million, which is up 66%, and 56% of that is organic. EBIT at EUR 79.2 million is up 89%. The year-to-date margin, as well as in the quarter, is 9.5%.
For the year end, or for the year, then 120 basis points above the same period last year. Net income has more than doubled to EUR 58.8 million. Earnings per share are at EUR 0.27 compared to EUR 0.13. Again, operating cash flow, EUR 55.2 million against EUR 75.6 million last year. The balance sheet measures are the same as on the previous slide, as they are measured at quarter end. Next slide, please. Business sectors by region. Nordics and North America had revenue of EUR 121.6 million, which is up 33%, and an EBIT of EUR 8.9 million. Inefficiencies due to tight supply chain brings the EBIT margin down to 7.3% in the quarter. Central and Eastern Europe more than doubled revenue to EUR 116.7 million, which is led by Defence & Aerospace product. EBIT was EUR 16.2 million and a margin of 13.9%.
Asia grew 34% to EUR 31.3 million with EBIT of EUR 3.2 million and a margin of 10.2%. At quarter end, we had 3,241 full-time employees against 2,781 a year ago, which is an increase of 16.5%. Next slide, please. Organic and inorganic growth. Kitron Eltech has been consolidated since 1st of January, so it has no prior year comparable. This slide's separated out. Excluding Eltech, revenue grew close to 49% to almost EUR 250 million, and Eltech added just above EUR 17 million, mainly in Defence & Aerospace and in Industry. Organic growth was 126% in Defence & Aerospace and 16% in Industry. Organic backlog at EUR 778 million, which is up 30% from a year ago. Kitron here added EUR 65.2 million. Next slide, please. Order intake. Order intake was EUR 315.8 million, up 11% from second quarter. Organic intake was over EUR 290 million.
Book-to-bill was 1.18 for the group and 1.16 organic in the quarter. For the first nine months, book-to-bill is 1.16, of which 1.09 is organic. Orders outside Defence & Aerospace rose 63% to EUR 250 million from the second quarter, and Electrification had a book-to-bill of 1.86, Connectivity 1.48, and Industry 1.27. As Peter commented on, Defence & Aerospace was at 0.81 after a very strong first half. As a reminder, book-to-bill is order intake divided by revenue for the same period. Next slide, please. Cash flow and working capital. Operating cash flow was EUR 3.1 million in the quarter against EUR 44.2 million a year ago. Two things explain the difference. First, we built inventory. Inventory and contract assets rose by EUR 40 million in the quarter. This is material for deliveries in the fourth quarter and the first quarter of 2027.
In a tight supply market, securing material early protects deliveries. The inventory buildup was partly offset by higher trade payables. Second, the comparison. The third quarter last year included large initial customer deposits and hence the deviation. Net working capital rose to 16.7% of sales. Still a strong number. Customer deposits came down by EUR 13 million- EUR 110.5 million. Deposits and prepayments are held under contract as security for receivables, inventory, and non-cancellable material and are released as that exposure runs off or product is shipped. The cash conversion cycle moved to 69 days from 60 days in the second quarter. Capital expenditure on property, plant, and equipment was around 2% in the quarter. Next slide, please. On the financial ratios. Net interest-bearing debt at EUR 38.3 million at quarter end against EUR 58.6 million a year ago, which is then 0.3x last 12 months EBITDA.
Net gearing was 0.10. Our equity ratio is now above 40%, and this balance sheet gives us capacity to fund continued growth with capital discipline. With that, back to you, Peter.
Next slide, please. There we go. Thank you, Cathrin. Let's talk about our medium-term ambition of EUR 1.5 billion. It's really anchored in what we see today, a backlog of over EUR 843 million with over EUR 1.3 billion of order intake over the last 12 months. EUR 1.5 billion is a number we can trace back to programs, customers, technology development, capacity, and the increased need for manufacturing expertise and the speed that Kitron can deliver. Three themes carry it. Electrification, orders of EUR 84 million in this quarter, shows the theme of our order book. Grids worldwide must carry more power over longer distance at higher capacity. At the end of the line, the power must be converted into the right form for industry, homes, transport. At each step, electronics and systems are needed to control, convert, protect, and monitor power. That's where Kitron comes in.
We build these electronics and systems from circuit boards to complete and tested units, and we do it close to our customers in Europe, North America, and Asia. Second, industrial digitalization. The Industry sector outlook has turned with the book-to-bill of close to 1.3, driven by advanced manufacturing solutions, mining and construction, maritime and subsea operations. This sector continues to be a core pillar of the company. Finally, European defense rearmament. Programs run over many years, even when orders come in unevenly. 10 manufacturing sites now build Defence & Aerospace on one operating model. That's the platform we grow from. We'll say more about the road ahead on our capital markets day on December 8th this year. Next slide, please. Five things to take away. One, growth with stable margin.
Revenue up 59%, 49% of it organic, and an EBIT margin of 9.5% in both the quarter and for the first nine months. Second, order intake broadened. Orders outside Defence & Aerospace rose 63% from second quarter to a book-to-bill of close to 1.2. Three, order backlog, EUR 843 million, up 41% from a year ago. An all-time high. Four, Defence & Aerospace revenue more than doubled. Orders come in lumpy and long-term drivers remain in place. And finally, our 2026 guidance raised in the quarter, and now we project between EUR 1,015 million and EUR 1,150 million of revenue and EBIT between EUR 97 million and EUR 112 million. We will enter 2027 on a broader base than we started 2026 with. Next slide, please. Thank you for listening. Before we take your questions, two dates.
In the near term, our capital markets day of December 8th this year, and we report the fourth quarter on the February 11th, 2027. Cathrin and I will now take your questions. Have you had a peek, Cathrin, on what's going on
Yeah, I did.
on the Q&A side?
First, Stefan Sundegard asks, "Would a share buyback program come in consideration?" We will say currently, no, Stefan. We are in a quite strong growth path. We will prioritize that, our M&A strategy and our dividend policy.
What is next?
Stefan as well says, "Hit on security levels." We are a little bit unsure what you actually mean there, so if you can expand on that question, Stefan, later, that would be nice. Then we have Jeppe. "How does management see the timing of order recovery from new defense tech customers as their capabilities become industrialized? What indicators should investors look for over the coming quarters to confirm this recovery is underway?" Peter, maybe you.
We have several projects that we are currently working on and traveling on also with project teams to make this happen. If we see an order increase on this, it will probably be part of our capital markets presentation in December. Otherwise, the next point to look out for is the increase of the order backlog, in February. Unless it is an order that corresponds to over 5% of our annual outlook. That case, we will do a press release on it. There are several projects that have come pretty far, so I am very happy about that. Martine continues: "Hi, and congrats with the results. Book-to-bill on defense is 0.75 organic.
It is a dip due mostly customer program change. Yes, it is all new defense tech. As I said, on the prime side, it is just around one. I think it is above one on the organic. Many of the large orders we received over the past, over last year and into this year have been delivered now into the early parts of Q3. So we are into new generations of products. Martine continues with several more questions here, quite a few. Cathrin, you want to take a couple?
Yes. Martine says, "Can you comment on net financial costs in the quarter and expectations forward?" So we had a net financial of EUR 3.8 million, EUR 2.2 million of that is interest cost, and EUR 1.6 million of that is agio, what is agio in this case. So I think you should focus on the interest cost because the agio is sort of hard to predict is our experience going forward. So an interest level around there is not unlikely, I would say.
Martine continues, "Electrification, how much of the order intake is data centers and grid?" Well, there are two really large customers on that front, and of course, from a volume perspective and a value perspective, it is the largest. But when you look down the list on other customers, we see probably 60% of the customers are growing on Electrification. However, it becomes such a smaller part of the top-line value on the order backlog. But it is there, the growth on a broad base. Long-term orders is really where the two largest have placed orders for well into next year and a little bit into the following year also. Then finally, a couple of questions on price increase this quarter. I said around 5%-7% in Q2. I really do not have a number on it now.
There was a few percentage points of new pricing that went up in the beginning of July as we closed the second quarter and made sure that we repriced Q3 versus the material cost. We see the list on every single component supplier and what the price increases have been quarter on quarter on quarter for this year. It was part of our webcast presentation on supply chain and sourcing that was held, I think about two weeks ago. It's still available to watch online, and the presentation's there also. You can see the manufacturer's names and how they have increased prices. Every quarter they've increased prices from a 20% increase to 40% increase to 60% increase. If we've had parts in stock, then we haven't been affected. Otherwise, the price has gone up. Also, the lead times on new orders are very long, so 50 weeks, 60 weeks.
If you ordered something in Q1 this year, probably you'll see those price cost increases in Q1 next year. If you're ordering now, then you'll see the price increases in the third quarter next year. But 5%-7% over the year is probably a good number to hold on to. Then she continues and finalizes here on what are our expectations on EBIT margins in the Nordics and the U.S. into Q4 in 2027. You have a comment, Cathrin?
Well, I'm not going to comment on 2027 currently. But we have to realize that where the efficiencies hurt more is when we have hiccups in the supply chain in the Nordics and the U.S., for sure.
Being realistic, I would say they will not be at the level they have been before, but slightly above where they are currently. I will not go into more details than that basically for Q4. It is very difficult to foresee what's going to happen in Q4, but I don't think it's going to be below that, for sure.
No, I think the situation in the U.S. has stabilized. We saw a strong finish over the quarter in the U.S.
Yeah
Their projection is that they have things under control and volumes will continue to increase. It is really the fastest-growing market when we look at new business also.
The U.S. is doing fine, I would say.
Yeah.
Noyos has the questions, "Congrats on the results." Thank you very much. "I like it very much that the revenue base is diversifying. How do you see Q4 and 2027, driven mainly by Defence or should other segments play a bigger part? In addition, is any guidance for 2026 dividend?" I think that is a bit too early and not even been discussed on the board level yet.
Yeah.
The diversifying continues, but I expect order intake to increase on Defence also. When those orders will happen, will they happen in the second half of 2027? I know some customers are expecting that to happen.
But if you haven't placed orders or secured material yet, that's going to be a tough challenge.
Defence is going to continue dominating, then we have new defense tech with further orders coming in. We'll see how much of that will happen.
Mm-hmm. We can give Noyos some guidance. We did comment on share buyback saying that we need the cash because of growth and M&A programs and dividend. However, we have had the dividend about 30% of net income the last few years. So you need a number, you should enter that one. I think that's-
Mm-hmm. Yeah.
Okay.
Eric asks here if we can share how they grow compared to the rest of the base. I do not have the breakdown with me right now.
Oh.
I know we have looked at it, but if you look at smaller customers, they can have a 60%-70% growth in next year in the order backlog or the demand outlook. It really does not show up on the top line because, if you are small, then you are small.
So-
It's a very nice broadening of the growth within the Electrification sectors this quarter. Many of the customers growing at their size.
There are customers doing EUR 20 million a year, and then when we look at the demand now, it's EUR 30 million. Then they grow 50%. It's EUR 10 million for the top line, so it doesn't really move the needle much. Many of those together, of course, have an impact.
Price hikes for Q4, is that still the case? Prices for Q4 should have been implemented on September 1st." I haven't heard a big deal about it, so I can't comment on it.
New significant programs won in Connectivity, predominantly from existing customers. What sort of products are driving the new wins in Connectivity? The largest one was an expansion of the win. The part of that win happened in the second quarter and was announced in the second quarter and basically was probably an 80% increase on that program. More volume for the same product. I don't want to get into the specifics and the product, but it's part of an advanced 5G design. What's your confidence level that the new defense orders will pick up towards the end of the year? We have almost one month now into Q4, so I can't comment on what other orders we've already picked up. We are working actively with those programs and additional several customers have approached us also to start up production.
You will know when we know and when we are ready to announce. I do not like speculating. We are prepared, I can say that. In the second quarter, you pointed to HBM memory, high-end processors, high reliability to be PCBAs. I would add FPGAs to that, which is probably one of the most constrained components as the main supply constraints. Is that still the case, or has the situation improved or worsened since the summer? Which of your market sectors are affected most by the shortages today? All market sectors are affected, right? It is a broad spectrum from semiconductors to the broad base of electronics, into PCBs, into plastics. I think where we have seen a slight ease is the capacity on aluminum, right? But advanced steel solutions, things like that, there is a constraint across the board.
You have to work very proactively and all the time have your finger on the pulse of what is happening and talk to your suppliers and talk to management, and that is what we have done and continue to do.
Okay.
That is what we have for the Q&A, and we are out of time, so we have to get going and into our other meetings. Thank you everyone for listening to our Q3 report, and we will see you again, hopefully in December on our Capital Markets Day.