Good morning, and welcome to Kitron's first three quarters and Q3 results for 2019. I'm Peter Nilsson, CEO, and with me today, Cathrin Nylander, CFO. We're coming to you live today from Kaunas, Lithuania, where we spent this week reviewing the Kaunas site and attending the Kitron board meeting, which was held in Kaunas this week. So, looking into the Q3 and what's happened so far this year. We've had a strong revenue growth all year this year and the, and the really hitting the high point of 31% in the Q3, just under 30% year to date with strong growth in our defense and aerospace business as well as offshore marine. The EBIT margin is at 5.4% for the quarter with strong margin improvements in Norway and Sweden.
Strong order backlog, with the, with the most of the contribution really coming from defense, aerospace, and, and, and marine offshore. Our working capital has stabilized, and we're seeing some improvements. This is one of our main focus areas for the next six months really to get this down and really releasing cash back to us. The component availability is better than expected, and we see that that continues on into the next foreseeable future. Earlier this year, I think it was the beginning or end of June, right, we had a flooding in our U.S. facility, where the really the facility became inoperable. And we moved production within a two to three-week timeframe into a new facility, and we were up and running at that new facility.
I'll get back to that a little bit later. In Grudziądz, Poland, our new facility has come online. That increases our capacity with about 8,000 square meters. Production has started and will ramp up now in the Q4 . So the overall picture then, growth around the 30% mark, organically just over 20%. Revenue came in at close to NOK 740 million and close to NOK 40 million EBIT for the quarter. Our order backlog very strong, just over NOK 1.5 billion. Cash flow is favorable at NOK 19 million. But our net working capital has continued up as we've launched major programs this year and continued to battle the allocation with components earlier in the year where we're...
We've seen a turn on that and, and we're targeting some reduction going forward. So for the full year, 28% growth and NOK 2.4 billion. Doesn't seem that long ago we were at NOK 2.4 billion for the full year.
Just a few years ago.
Yeah, yeah. The EBIT NOK 147 million so far this year. With a 6.1%.
Yeah
... I think that's the missing key number here.
Yeah.
It's right there. I see it, yeah.
Okay.
Yeah.
To the flooding.
Yes.
The beginning of July, it was.
The beginning of July, yes. I don't know exactly. Yeah.
Mm-hmm.
So we moved the production to a temporary site. We had some inefficiencies, but we were pretty, pretty quickly up and running with everything, with really minor effects on customers. By now, I think we are almost, if not completely caught up on all deliveries. So there's really no significant financial impact expected from this. We expect to move back into our renovated facility, which is, you know, to the, to the, to the level of almost being a new facility, early next year. We're hoping to get in by Christmas, but it looks like it'll take a few weeks longer.
So we have no significant impacts because of the business interruption insurance, where we already have received the coverage for the period where we actually were standing still. And therefore, no financial impact of any kind basically in Q3, which is good.
So in Poland, the 8,000 square meter facility was completed earlier this year, with all of the equipment required for this year and probably possibly into the Q1 already installed. We're ramping the products. We have approval from one of the major customers, we're just, you know, in the next week or so, waiting approval from the second major customer. About 80 employees so far, 50 of them being direct employees. So we're well, well prepared to start delivering from, from our Polish facility. And actually, you know, we're looking at, at the positive earnings and positive contribution in the Q1 from Poland.
We sent our first invoice yesterday.
Yeah, that's right.
That's a good milestone.
Should publish that.
Put it on the wall.
On the social media.
Yeah. No. So, excellent start, very quick ramp up. And we have had some, we have machinery in there, and we have some more machinery coming in now at the end of the quarter. So, the balance sheet is affected by the investment in Poland, so it's starting to grow a bit. It's mainly machinery and equipment and some building investments so far.
Mm-hmm.
And at the end, we might mention again that we also expanded in China this year.
That's right. That's right.
Mm-hmm.
Earlier this year, end of last year, we signed, we had, we had, we had . We acquire the lease to the building identical to ours, which is right next door. That building has been completely renovated to become a modern electronics manufacturing site. We moved in earlier this year, and we've moved the high-level assembly and all of the, you know, final packing and shipping areas into that, into that new site, new facility.
Mm.
Freeing up space to continue to build on electronics manufacturing where we currently are.
Mm.
So we're really happy about that. I think it's about 3,000 square meters we've added to the Chinese facilities.
I think with that, the Polish factory now running, we might say that we have prepared for the next five years, which we'll start plan all along.
At least we say, we're pre-prepared for next year.
Yeah. No, that's true too, but it's good to finalize those. So the financial statements for the first three quarters and Q3 for 2019. As we said, we had a strong revenue growth. We grew from NOK 563 million to NOK 738 million compared to last year, which is a growth of 31%, and as Peter said, 21% organically. It is a growth of NOK 175 million. So the sector that grew the most, which is, of course, the defense aerospace, it grew with NOK 82 million and 96%. Part of that growth is, of course, due to the acquisition we have, but it's also very much good growth in Norway. So the industry sector grew 12% and NOK 30 million this quarter, a little lower than it has been, but still a good growth because of the size, I would say.
Medical devices, rather stable, has been and will continue to be. Grew NOK 6 million and 4.8%. Energy and telecoms up NOK 23 million and 25% this quarter, also good, I think. And then offshore marine starting to show good figures as well. Grew from NOK 32 million, grew NOK 32 million to, compared to last year, and 300%. We have to add, though, that when it comes to offshore marine, it is, there is a foundation of stable revenues, but there is also some project revenues on top. So we will see that revenue varying from quarter to quarter going forward. So in all, NOK 175 million of growth.
Fantastic.
It's good. So, where are we standing right now after three quarters in 2019? So we're at NOK 2.4 million. We grew about NOK 530 compared to NOK 1 million compared to last year, and 28%, of which 20% is organic. The reason why we don't have the same growth on total as we seem, we have a very steady organic growth is, of course, that we only bring in revenue from the acquired site as of February 15th, so we're missing one and a half month, and that's more or less making up for the difference in the growth on total level. When we look on the figures, of course, we've had a very strong growth in offshore marine, which grew NOK 130 million compared to last year, a totally different scenario than what we had before.
We're getting close to where we thought we'd be.
Mm.
I think I said in one meeting NOK 150 million- NOK 180 million.
Mm.
In offshore marine for the full year.
Yeah.
Looks like we're going to be somewhere in that area.
True. Right about that. We have grown NOK 158 million on defense aerospace, and 50% approximately, again, being aided by the acquisition, but also underlying growth, which is good. Energy and telecoms grew NOK 86 million and 28%. Medical devices, NOK 38 million and 10%, and then industry, around 14% and NOK 160 million. So what we see now is that when you look in the full year, we see we have growth above 10% on all sectors, which is good. So, coming into the different regions, and Norway continue to grow good, 25% so far, and a growth of NOK 36 million in the quarter compared to last year. Sweden is rather stable, about the same top line and slight reduction in percent here. And Lithuania grew 20% compared to last year, up NOK 43 million.
The U.S., of course, a strong growth where the acquisition in the U.S. stands for about NOK 60 million out of the NOK 83 million in growth there. And then we have a good growth in others where mainly China, which grew NOK 17 million and 25%, compared to last year in the quarter. So a good spread as well on where the top line comes from. And, after the first three quarters, we see something here that it's rather exciting, and that is in Norway now that's grown 27%, but in NOK, they've actually grown the most of all of the sites compared to last year. So they grew NOK 128 million accumulative this year compared to last year, and Lithuania has grown NOK 126 million. So they just barely beat Lithuania to it, so impressive.
Sweden, rather stable. I think we'll see that coming into next year too. And Lithuania, 17.5% growth and NOK 126 million. U.S. grew NOK 190 million, most of that, again, is the acquisition, the others grew NOK 66 million and 36%. China is having a good year too, I would say.
Well, despite the trades and tariffs and all that.
Despite the trades and tariffs. So, we like to show this to show the development that we have. So the profit is around NOK 40 million this year, and we have a profit margin of 5.4%. Last year, we had NOK 30 million and 5.3%, the year before in Q3 we had NOK 30 million. So, a substantial change in the actual value of the EBIT that we earned in the quarter. There is a seasonality, of course, because many of our customers are Nordic, and they prefer not to have deliveries in July, so that's affecting the profit and the top line in the quarter and will continue to do so.
We see, we would have hoping in general to have a higher percentage. But we are the startup of the Polish facility in the figures for the quarter. And qe also have some customers where we are have growth and ramping up that also affecting total the profitability.
I think we'll see that. We'll be looking at the site or the country slide next, I think, on profitability.
Yeah.
Yeah.
You can see it. So, I'm very happy to see that when we start we have a continued profitability and improvements in Norway and Sweden foremost. So they're going from 3.7% last year in this quarter to 4.6%. And a profit in 5.2% to 8.1% in Norway. So Sweden also improving from 5.6%- 6%.
And wven, you know, with a reduction on top line.
Yeah.
Good job. Good job.
It's good. It's good. Yeah, so around slightly above NOK 8 million. Lithuania's also improving compared to last year one percentage point, from 5.1 to 6.1, and now at NOK 14.8 million in Q3. And the U.S. is profitable, and the profits are coming from tech basically in this quarter. And when we look at the others, we have China. China is performing well and, but in the figures for other we also have the startup costs for Poland, which affects the totality of it. But in general I would say a strong quarter for Kitron in Q3. Taking into consideration we are opening a factory and we had the flooding, so. And the first three quarters, in general we see a continued profitability improvement.
So again, Norway above 5%, 5.1% compared to 4.4% last year and now at NOK 30 million in profit. Sweden over 6%, 6.3% and 4.8%. I can say both Norway and Sweden actually show months with 7% also in this quarter. Good.
I think every site was over.
Yeah.
In September, yeah.
Lithuania at 7.5, slightly down from last year, and that's where we have the ramp-up effects from the larger customers that we have.
I think, you know, there's a difference between growing 17%, 20% on stable customers.
Mm.
And actually introducing completely new customers.
Yeah.
And ramping 2-3 x faster than you expected to, and that's what's cost us on efficiency.
Mm.
It's, it drove revenue up, way up, and it did not give us the contribution we, we were looking for.
Mm.
Beacuse of having to really put a lot of resources into ramping very quickly.
Right.
Positive, and, you know, short-term negative.
Good. Yeah. We're building for the future in that sense. So again, accumulatively, China's performing well, and we have the startup costs in the other, there, over there. Working capital, we talk about that all along. The working capital is lower this quarter. It's NOK 887, I'm starting at the end now, compared to NOK 933 and NOK 927 in the other quarters. Of course in these figures we took in about NOK 100 million of net working capital when we did the purchase, but we do have a quite a substantial growth in spite of that. But we start to see now it's stabilizing in spite of growing, continue to grow, which is good. And we will see improvements going forward.
All the net working capital ratios of course are not, not good. Part of it is that it is a bit big the working capital, but it's also Q3 where we only have activity on full level for two months, which makes the rolling average look worse than they are actually. Cash flow. Positive cash flow in the quarter, NOK 20, an improvement of NOK 60 million compared to last year where we had a negative NOK 41. Year-to-date cash flow is about NOK 100 million positive cash flow compared to negative NOK 20 last year same time. Our gearing, which is important, we measure the gearing without the IFRS 16 effects, the effects from the leasing standard.
So in our net interest bearing debt, if you look into the balance sheet, we have NOK 115 million of an interest bearing debt related to IFRS 16. Adjusted for that, our gearing is 2.6. Including the IFRS adjustments it's about three. So the net working capital, I told you the ratio, I won't go through them, but they are rather high and we prefer not to stay at this level any longer, I will say. And one of the reasons we are sure that this will end quite rapidly is that the lead, the supply lead time from the from the sub suppliers. And now we see it's closing up to what we've had before all along.
You see the yellow line to the left there, that's the average that we had before the allocation situation. Now we're basically only a few days away from that. So that means we start to see very shorter lead times when we actually order and can see the effects of it now. The components and allocations substantially reduced. And there's only a few sites and that has to battle the allocations with long lead times on the products. And that has to do with those products that are oldest and largest. Raw materials stabilized.
What we see, which is not very clear on this picture, so we see that the material that's in raw materials are very different to what it was before. And there are certain reasons for the status right now, and we have shifted a lot of the allocation material that was there from before. So all these three graphs show us that the situation in the working capital will improve going forward. So that was me, and now back to you, Peter.
Let's look at, let's summarize and look at the market development. We've spoken about the strong order backlog. You can see that year-on-year growth compared to the Q3 last year, it's a growth of order backlog of just over 40%. Very, very strong growth in defense. And I, you know, looking back one year or so, we've always said that towards the end of 2019 we expect it to grow and we expect 2020 to be, to be strong in, in, in the defense area. Even, you know, nice growth in medical with close to 36%. Energy telecom growth, offshore very strong growth going up to, you know, the levels we've spoken about. But also then we're seeing sort of a softer growth to no growth on industry.
Mm.
Which is to be expected when, when, when, yeah, countries and, and, and the economy in general is sort of expecting recession in certain areas. We'd expect to see it first in our larger industry sector. We're seeing some customers there, not all, some customers having a softer forecast or a shorter lead time on their forecast horizon. And that affects our order backlog if the horizon is shorter and lead times grow shorter. Overall, our organic growth then is 27% in our order backlog. So then looking at our outlook. We expect between 3.2 and 3.4 billion NOK for the full year 2019. Earnings in value are above previous outlook, but our margins are expected to be between 5.9% and 6.3%.
Really the effect of the ramp-ups of new customer programs with stronger growth than expected, we expected to have, you know, a, a, a nice stable ramp-up to learn the product, give us efficiency. That didn't happen. So that resulted in lower efficiencies and more costs for the ramp-up. We also have a slight effect of the start of the Polish factory. We expect the factory in Poland to contribute to profit in the Q1. I don't expect it to be able to hit those levels in Q4. So but these margin challenges should be solved as we move into 2020. The ramp-ups are completed in Lithuania. We see that the margins are at the target levels or very close to the target levels as of the end of September. The, the, the growth for...
Part of the growth this year, the acquisition of the EMS division of API Technologies, and that, that drives big contribution of growth in defense aerospace. Also somewhat in Industry and Medical for, for the API part. Offshore and Marine driven by customers in Norway.
So basically maintaining it says earnings, above the previous outlook, and that was the outlook that was in Q1.
Mm-hmm.
This is the same outlook that we presented in, in Q2, basically.
Correct.
Mm-hmm.
Very good. I think that's it.
That's it. That's all.
So we're looking forward to Q4 and finishing off the year strong.
Yes, definitely.
Thanks for listening and watching.
Thank you.
We'll talk to you at the end of, or in the beginning of the Q1 .
February. Yeah, February.
February. That's right.