Good morning, and welcome to review of Keytrion's Q3 2021. I'm Peter Nelson, CEO of Keytrion, and with me today as usual is CFO, Catharine Nelonde. I'd like to remind you that we will conclude with a Q and A session and I strongly encourage you to post questions during the presentation. Now let's look at an overview of the quarter. Next slide please, Slide 2.
Keytrum's revenue for the 3rd quarter was €831,000,000 versus last year's €1054,000,000 A decrease was expected within the medical devices market sector as the exceptional corona related demand wanes. Customer demand has been very strong. However, revenue growth was limited by ongoing component shortages. The order backlog ended at a record $25,000,000 to $68,000,000 an increase of 38% compared to last year. This is a record and reflects a strong total demand situation.
The order backlog increased within all market sectors. In absolute numbers, the order backlog grew the most within Electrification and Defense Aerospace, while the percentage growth was particularly strong connectivity. Adjusted for currency rates, the order backlog increase was close to 40% compared to last year. Next slide please, Slide 3. Some highlights and important events.
As demand continues to be very strong for both 2021 2022 with significant growth opportunities in most market sectors. The general material supply situation has rapidly become more challenging in the 3rd quarter and continues to be difficult on lead times and deliveries. We currently believe that we're at the worst of these constraints and we expect the situation to start showing some improvements as we progress into 2022. After last year's high deliveries of is a corona driven medical devices driven by the corona pandemic. 2021 has now returned to normal levels with normal seasonality in the Q3.
Given this year's increase of inventory and working capital, we now turn our focus on executing demand into deliveries, improving our cash flow and protecting competitiveness and profitability. Next slide please, Slide 4. So what are some of the activities and actions we're taking to execute the order backlog? While we strongly suggested that our customers should secure demand and components for longer horizon, as supply on some parts is severely constrained and lead times have significantly increased. Customer behavior is changing and the future demand is being secured on a longer horizon.
Last year, in October 2020, less than half of the expected output for 2021 was actively being ordered or forecasted by customers. This year in October 2021, more than 90% of expected output for 2022 is already on order with suppliers. In addition, several customers have secured critical parts for the full year of 20222023. Many customers are also redesigning or approving alternate parts where possible. From a new sales perspective, Keytrion targets growth in market sectors less affected by supply chain constraints such as high level assemblies and others.
Next slide please, Slide 5. So let's talk a little bit about the strategic outlook. While demand continues to be very strong and although supply chain constraints are projected to continue into next year, many constraints should taper off and we'll see a normalization in supply chain. We will continue to monitor the situation and we will continue taking proactive measures. We see long term strong customer demand and well identified strategic program acquisitions to support our strategic path.
And we maintain our long term growth targets. Next slide, please. Now here's CFO, Catherine de Lander, to walk us through the financials.
Slide 7, mixed sector development. Let's go from left to right and start with connectivity. Connectivity has a growth of 45% and SEK 39,000,000 compared to last year, a continued increase from last quarter's connectivity has 2 subsectors, communication and sensors. This quarter, both sectors have grown but sensors more in percent. On to electrification.
Electrification grew SEK 13 percent and SEK 22,000,000 compared to last year. As for the growth in the largest subsector, power transmission continued the strong growth compared to last year. And this quarter also battery technology has strong growth. Power management, however, showed a decline during this quarter. On to industry.
Industry grew 19% and SEK 29,000,000 compared to last year. Subsector automation, which is the largest, grew 35%. The other sectors with not so large differences in absolute figures. Medical Devices is down EUR 227,000,000 and 58 percent and is around the level of last or previous 2 quarters. Last year, there were exceptional volumes in the life support sector in Q2 and Q3, and we're expecting this year to be on 2019 level.
However, we're currently running at 20% above that in Q3. Of course, this is not currency adjusted. Defense Aerospace, a reduction of 36% and 85 36% and 85,000,000. We continue to have a lower revenue here in U. S.
And Norway and in general from U. S. Customers. We see COVID-nineteen related delays from the U. S.
Government, and Sweden is now also performing below last year's level in this sector. The revenue delays in the quarter are spread across the sectors and across all the countries. How much it has affected in net is dependent on how they're able to compensate and move volumes around and how high the demand increase coming into the quarter was. So let's look at the countries. Norway showed a decline of 6% compared to last year due to lower defense volume, was still a strong growth in transmission within the electrification sector.
Sweden showed around 18% decline. However, adjusted for the reduction in medical devices, there is a growth of 20% in all other sectors. CEE has a decline of 7%, mainly demand delay driven and all across the board really. Others in China and the U. S, a reduction of 50% compared to last year.
For China, it's primarily the exceptional medical devices last here and for the U. S, reduced volumes in defense. Slide 8, please. Minor but negative effects on currency compared to last year. There are currency effects on a local level, most sites invoiced in other currencies in addition to their local currencies.
And the spread of the currencies for Q3 is U. S. Dollars €39,000,000, euros 27%, SEK 17%, not 15% and Chinese RMB 5%. So we have less currency effects in Q3 than in the previous quarters this year. The graph below shows the Norwegian bank averages and closing rates per quarter for average and closing rates per quarter.
Euro is down 3%, RMB is up 2, U. S. Dollar down 4% and SEK down 2%. With the mix Keytrion has, there's an average effect of 2% in the quarter. So not significant compared to the the development we've had in the last quarters.
Slide 9, please. Is affected by material supply constraints and seasonality. The 3rd quarter profit was SEK 50,000,000 compared to SEK 90,000,000 last year. This corresponds to 6% EBIT margin, which is as expected down from 8.6% last year due to the economies scale and exceptional utilization of overhead we had last year. In addition, the revenue delays of around SEK 200,000,000 in the quarter creates a lower contribution margin and lower EBIT, consequently.
Year to date profit margin is 6.8% and in line with the lower end of the current year outlook. That said, apart from in 2020, Q3 had normally had a weaker profitability than the other quarters due to seasonality and lower activity in the vacation months. We have talked about the currency effects on revenue and dependent on the currencies besides the business in, there are some local effects is due to revaluation of net working capital in Q3. And this has a loss effect in Q3 of 0.4% and whereas it was 0.8% last here. And below EBIT, we have a non cash net negative ARPU of SEK 4,400,000 in the finance net compared to a negative ARPU of SEK 4 NOK 1,000,000 in last year.
And this is mainly group internal loans, specifically euro loans in Poland. Year to date, we have negative audio of 12.6% compared to 0 last year.
Could we have Egna verify that the sound is working for is Catherine. There is because there are so many comments all the time. Sorry, go ahead.
Yes. Tax rate is higher than last year's 24%. This is due to a noncash correction of temporary differences on write down of assets and consequential effects of those. It's a long time non cash adjustment and it will not have an effect on the general tax rate going forward. Slide 10, please.
Every by country, mixed margin trends. Norway and Sweden continue staying at the margin levels of 6.5% or 7%. So Norway is at 6.5%, was last year and Sweden at 6.4%, up from 6.2%. Good margins despite the lower revenue. Year to date, both Norway and Sweden is at 7% EBIT margin.
Central and Eastern Europe, consisting of Lithuania and Poland, we reduced EBIT margins from 5.5% last year compared to 5.0% this year. Even though Poland has substantially improved margins compared to last year, both Poland and Lithuania are affected by the volume delays. So year to date, CE is at 7.9% EBIT margin. Yaris consisting of U. S.
And China showed 6% profitability in Q3. China is performing well, but obviously not at the same level as last year, and the U. S. Still needs improvement. EBIT margin in others of 6% is up from 5.7% in Q2 and actually 1.7% in the 1st quarter.
Year to date dollar is at 4.6%. Slide 11, please. Capital buildup due to material supply delays. Working capital ended at SEK1157 1,000,000, an increase from SEK1134 million last year. Adjusting for foreign exchange effects in consolidation, it is around 6% increase on last year's level.
Last year, working capital was driven by the exceptional demand for ventilators. As this graph shows, after the Q3 2020, working capital was reduced with around SEK100 1,000,000 down to SEK10.35 million, mainly a reduction of trade receivables. The change in the last quarter this year gone from $10.34 to $11.57, an increase of $123,000,000 And the main driver is mainly inventory, partly compensated by increase in trade payables. A late push out of SEK 200,000,000 in revenue will have consequences for the inventory, hence the increase. Our main focus is to bring the bring in inventory in line with what is delivered well going forward and to secure allocated components into consign.
Thirdly, in addition to the inventory, we're carrying in our books out of our books, we're carrying a couple of $100,000,000 of inventory for our customers. Trade payables are increasing as a result of the high buying activity and off balance sheet activity. Trade receivables increase in percent of revenue as we're invoicing consigned material prepayments to a higher degree than before. Overdews are slightly below last year's level. In total, R-three net working capital percentage of sales is at a staggering 31.8% and slightly higher, you might say, than last year's 25.1 cash conversion cycle is up to 124 days from 96 last year, main drivers of course, DIO.
ROC at 12.8%, down from 22.4% last year. And so thus, there's a negative cash flow of SEK 70,000,000 in the quarter compared to a negative SEK 3,000,000 last year. The negative cash flow is driven by the increase in net working capital and partly compensated by profitability. So what do we expect for the next quarter? We expect stabilized net working capital, a slight reduction in inventory and a reduction in payables and an increase in trade receivables due to higher sales, which should also give a positive cash flow in Q4, we should also give an improvement in ratio together with the higher volumes.
So net working capital to be in the high 20s in percent of sales and ROC to be between 15% to 20%. And finally, net interest bearing debt over EBITDA increased from SEK1.9 billion last year to SEK2.2 billion this year. And adjusted for IFRS, it's about SEK2.0 million. Net debt is at SEK791 1,000,000. So Now back to you, Peter.
Slide 12, please.
Market development. Thank you, Catherine. Let's start with the order backlog. Next slide please, Slide 13. The order backlog, as previously stated, ended at €25,000,000 to €68,000,000 which is an increase of 38% compared to last year.
It's a strong reflects a strong total demand situation, but it also includes delays in revenue due to extended lead times. The order backlog has increased within all market sectors. And as we've said in absolute numbers, we see the strongest growth in Electrification and Defense Aerospace. Adjusted for the currency rates, the order backlog shows actually a growth of 43% compared to last year. Next slide, please.
Slide 14, let's move on to our guidance. So next slide please, Slide 15. As we've stated many times, total demand is very strong and the order backlog is at a record level. However, in the very short term, supply shortages have somewhat limited Keytrion's ability to turn demand into revenues and the outlook for 2021 is adjusted to reflect this. For 2021, Keytrion has previously indicated the revenue outlook between NOK3.9 billion and NOK4.2 billion an EBIT margin between 6.8% 7.4%.
Due to the constraints in the supply chain and resulting delays of revenue, the revenue for 2021 is now expected to be between €3,700,000,000 €3,900,000,000 and EBIT margin is expected to land between 6.9% and 7.1%. Growth is expected within Connectivity, Electrification and Industry is where there is a decline this year within Medical Devices and Defense Aerospace Sectors. Next slide please, what are the key takeaways? Slide 16. While we believe it's a solid quarter despite the challenges and the normalization of last year's exceptional demand and deliveries of medical devices.
Order backlog and 2022 demand outlook supports continued growth and we see a long term customer demand and well identified strategic program acquisitions to follow our strategic trajectory. This concludes the presentation portion, and we're ready to move on to Q and A. Are you ready, Catharine?
I am.
Okay. Well, this time around, actually, we have questions from the start are the
Very good. So
no delay here. First question, can you explain and elaborate on the well identified Keytrum Program Acquisitions to support your strategic trajectory, right? And yes, I can. Let's just say from on without going into things we haven't announced yet that we're working on several programs within the areas we have identified as growth areas. So most targeted is the market sector electrification and all of the subsectors that are connected to electrification.
So a lot of infrastructure projects, infrastructure products, power storage solutions, things like that. Those are types of programs that we're working on. And then of course, there's a continued increase within defense aerospace programs that are coming online over the next 2 to 3 years. So as we're prepared to announce those, we'll obviously do that, but currently, we're not in the position to do that. The next question is again from Johannes Nordem.
We'll just take it from Johannes in order. Keytrum seems to be somewhat harder affected by shortages than its peers. Is this correct? And is it driven by sectorproduct exposures or other measures? I would say your first conclusion is a little bit correct here.
It's driven by sector and product exposure. We see, for example, if we look at where do we have less fact, even if we if there is effect, we see less effect within our Swedish and Norwegian operations where we have a higher level assembly of products. We do more of a complete build. We have also from a market point of view, we have the Nordic customers tend to have been standing more on their toes when it comes to forecasting, proactively redesigning product and securing material in the past 12 months. Whilst other international customers maybe have not sort of really been on that same level.
But more likely it's what kind of products are you building. The highest effect we see is within our Central Eastern European operations where there's a lot of PCBA build, so pure electronics build, those sites are most affected and they also have the more shortages that they work on. Moving on to Thomas Tang says, how is the development in the order backlog adjusted for the changed customer behavior by placing more long term orders to secure components. We have no adjustment, right? We're reporting order backlog as is.
And order backlog versus all fixed and firm orders and the 1st 4 months of forecast. If we look at the order backlog and look at as a percentage of the order backlog, are fixed and firm orders more or less than last year. I mean, you would probably maybe expect them to be to have a higher degree of fixed and firm orders. And it's very similar to last year. It's a little bit higher.
I haven't calculated the exact percentage, but it's a little bit higher than last year. But still it's the 1st 4 months of forecast. So it's not like we're looking the order backlog now looks at all of next year just because we have forecast in place to secure material. Jonas says, do you think the ongoing component shortage should sustainably change restructure and in your perspective, lead to higher amount of fixed orders. In the short term, right, it's necessary.
It's necessary to have a close regional, preferably sustainable supply chain. And that's what the corona pandemic and this supply Sorted situation has shown us with everything from difficulties in transportation globally to the ongoing, I hate to say, energy crisis in China, but let's say, constraints in power and electricity in China has shown us. So it's obviously, if you have a closer supply chain, if you're in your region or in your home market with your supply chain, it is easier for you to deal with some of these issues. That said, components and electronics, that's a global supply chain. You can't find all of it in Europe even if you wanted to.
Let's move on a bit. Could you give us some from Vincent asks, could you give us some details about capacity and load for your plants Q4 versus Q3, what makes you confident that the supply chain issues will improve in Q4. Do you feel like talking, Katrin? No?
No. I think why we feel more secure for Q4 is that we've spent, I think, some weeks now looking into Q4 and moving out volumes that we're not able to deliver. And we has looked at all the orders we have and if we are secure the components that we need and if we have the in house, whether or not, etcetera, etcetera. So it's been a quality work to bring the expectations in Q4 down to what we actually can deliver. When we started looking at Q4, obviously, the demand was much higher again
I think we talked about it and you spoke about it also, but on back on Slide 3, we're looking at the revenue waterfall. If you sum all of those things up, that's what we were looking at as we entered Q3. We thought Q3 is going to be a record quarter. And we thought it was going to be a record quarter up until mid August. And beyond even beyond that, there seemed to be a possibility of at least being close to NOK1 billion close to NOK1 1,000,000,000.
However, a lot of de commitments on confirmed orders from customers in mid August through late September, really pushed or delayed our sales to a lot of customers.
So enormous has been contacting suppliers and asking for recommitment on the deliveries, which are for the components that are
and also cutting back down we have on hand. So that gives us But still, the outlook is there's still a spread, right, you know, we can't be more detailed than we are right now. Could you give us some Bjorn asks, can you give us some input, some information on input costs and selling prices, how are they affected through the shortages. Thank you very much. Well, thank you, Bjorn.
Most of the time, we work with a cost plus model with our customers. So we pass along any extra cost that's and that's the usual business model within our industry. We've seen some of our competitors actually announced that some of their top line increase this year has been driven by increase in material costs and prices. I think for us, it has had a marginal effect. It's not it's maybe in the tens of 1,000,000 and not in 100 of 1,000,000, but we are securing ourselves to a very large extent on extra cost are spot market buys where component prices could be up to 100x the normal price.
And we work with our customers to come to a resolution on those things and works out pretty well. Vincent has come back here and asked about the order intake, excluding Defense the order included in the decline quarter on quarter.
Yes. That's medical disadvantage.
Defense and medical declined strongly strongly quarter on quarter, €608,000,000 versus €858,000,000, you've seen change in customer behavior in the wait and see mode. I'm not entirely following here.
So we have to look into when we order backlog is just part of what We know, as we talk about because it's a fixed and firm orders and 4 months forecast. Obviously, we're not looking at that. We're looking at the whole demand situation that we have, and that's increasing strongly quarter on quarter. And we're talking are numbers that are well above these numbers.
Okay. His question is if you exclude defense and medical, the order intake and the order backlog has decreased on electrification and the others.
Yes. However, the demand has increased. So in total, we have more, but that's over the 4 months forecast.
Has a follow-up question on the order backlog. Can you help quantify how much of the growth in order backlog is due to long term orders, I think I've addressed this already. We use the same time horizon. And as a percentage, the fixed and firm orders are not so much greater than last year.
No, they're not higher than last year,
I was just looking at the chart. Still firm and then to Gil Holmen asks, you're still firm on the long term strategic financial targets?
Yes.
Yes, we are. And it looks like that is it. So we'll give, we'll give
a few more minutes.
A few few, another in a few seconds to see if there's any follow-up.
I understand that the sound fell out, Peter, for some time, basically, what we're trying to say in the first slide there is that most of the sectors are affected all of the sectors are affected by the revenue delays in all of the countries, but Norway and Sweden seems to be less affected, I have to say.
Well to win, okay. I'm not seeing any further questions. So here's the final one, right, from Ludwig. How will you address your capacity in the medium term given what seems to be a strong demand growth. We will address the way we do all along, I think when you look at the financial results in Sweden and Norway, they've continuously, they're working on adjusting and hence the year to date financial results in Sweden and Norway are strong.
They are also in Lithuania and Poland. However, and then the Q3, there was an expectation there of being able to deliver more and hence they had more production capacity than they needed. That's been adjusted even though we see a growth in Q4 again coming back strong and coming back even stronger into the Q1 of next year. But we are more careful and we are more analyzing and looking at actually having a stronger confirmation of being able to have supply before we commit to capacity increases. From a footprint point of view, we have a lot of capacity.
We've talked about this before. And that's that. Pretty good, 59 viewers remain. I'll thank you for sticking with us and hope to talk to you in February for our 4th quarter update and looking forward to presenting stronger numbers then. Thank you all.
Thanks. Bye.