Welcome to Kitron's 2018 first half and Q2 result presentation. I'm Peter Nilsson, CEO of Kitron. With me today is Cathrin Nylander, CFO. The Q2 highlights are we have the highest revenue ever in the Q2 . The underlying growth, however, only 2.6%. Our EBIT margin came in at 6.8%, slight reduction from last year. However, the EPS, the earnings per share, came in at NOK 0.20 per share, up from NOK 0.18 last year. The order backlog had a comparable growth of more than 12%. Looking at the first half of the year then, the first half of the year again shows the highest revenue ever. Underlying growth is close to 7%.
The EBIT margin in line where our expectations are for the year, 6.4%. The EPS, earnings per share, for the first half of the year, I think is a record high, so far in Kitron, with NOK 0.34 per share. Again, order backlog at just over 12%. Some of the additional highlights in the quarter. You know, these, the first half of the year, I think, really increases our confidence in the 2018 full year outlook and our strategic ambitions for EUR 3 billion and 7% earnings by 2020. We're especially happy with the performance of our supply chain in the face of the very challenging component allocations we see in the marketplace.
We have a strong cooperation with our customers and all of our strategic partners, working diligently to solve issues and try to stay ahead of the game. Another very gratifying indicator is when we look at future prospects. What's in our pipeline, and what are we, what have we delivered RFQs on, and what are our expectations when we look to the future. Our pipeline growth is 60% compared to last year. Really strong improvement. On top of that, the oil and gas market sector shows some strong signs of recovery, and we expect significant improvements from 2019. A little bit about this component, allocation and shortage situation. You know, it has its root cause in a very strong growth in Internet of Things and automotive industry.
It has its root cause in consolidation on the supplier side, with the, you know, reduction in manufacturing capacity on the component side, along with some hesitancy to, you know, in investing in new capacity. We started working on this early last year. We work very closely with our customers. We work very closely with our preferred partners, and been able to so far stay ahead of the problems. However, we have seen some increase to our working capital, primarily, you know, bringing in inventory a little bit early, bringing in inventory in order to secure the second half of the year and possibly even the first half of next year. Cathrin?
Thanks, Peter. Over to the financial statements for the first half year and Q2 2018. First, we'd like to comment again on the new accounting standard that we implemented as of first of first, 2018, where we go for over time revenue recognition instead of point in time, meaning that we convert our working process and our finished goods into income. The effect for the Q2 is very, very small. It's EUR 2.4 million, a reduction in revenue of EUR 2.4 compared to this IFRS adjustment, and barely visible on the result. See Note 5 in the report for a complete overview. The revenue for Q2, we see a sector growth in line with expectations. We have very strong growth in the industry, as you can see, but we only grow 2.8% compared to the same quarter last year.
We're only up NOK 18 million. We have a NOK 70 million growth in the industry, whereas the expected decline in Defense & Aerospace in 2018 has a reduction of NOK 74 million, taking out the full growth of the industry growth. If you look on the growth between the years and the quarters, we have a growth of approximately 20% excluding the Defense & Aerospace downturn, which we know is only temporary. If we do a comparable match for the first half year, we see a stronger growth. We have almost a 7% growth between the years. Again, industry shows very strong growth, NOK 33 million, or 33% and NOK 150 million. A reduction of 30% for Defense & Aerospace with NOK 109 million down.
Again, looking at the other sectors, accumulative, excluding Defense & Aerospace, they have a growth of over 20%. We're quite happy with that, and we are in line with our expectations and our guiding for the year with a 7% growth for the half year.
I think even on medical devices.
Yeah.
We're ahead of our expectations.
Yeah, we are. That's right, Peter. Thank you. When we look on the countries, we see consequences on the defense downturn because it's basically something in Norway and in Sweden. We see Norway is going down 16% and Sweden 11%. NOK 34 million down and NOK 21 million down respectively. In Lithuania and China, we see very strong growth. Lithuania is up 20%. The others up 24.3%. The others are China and the U.S. China is growing more than 24%.
China had, you know.
Mm.
an impressive growth of more than 50% in the Q2 .
Yes. It's very, very strong. We see the same picture for the first half year. Slightly less reduction though for the first half. Norway down 15%, Sweden down 7%, Lithuania growing 23 approximately, and the others around 16%. Norway is down NOK 60 million between the years, and Sweden NOK 26 million between the years. Lithuania is up actually almost NOK 100 million compared to first half year last year. The others show a growth of NOK 30 million. When we convert that into profits, we had a profit of NOK 45 million. We had slightly higher last year in the same quarter. A very, very strong quarter last year with 7% margin.
We now reach 6.8%, again in line with our own expectations and the strategic target for the year and for the.
I mean, it's an impressive result.
Mm.
considering the reduction in the Defense and Aerospace sector and how that affects two of our sites.
Yes.
Those two sites have been able to almost retain their.
Mm.
their margin on a margin percentage point of view. Obviously, it does affect the profit level.
It does. Looking at the profits, as you can see, Lithuania and China are improving their profits. Sweden and Norway are going down. Norway has a reduction in top line of NOK 34 million, and they're managing to keep profit margin over 5%, which we're happy about. The same thing with Sweden, they're keeping about the same level as last year, although they're down about NOK 21 million in top line for the quarter compared to last year. Lithuania is improving and so is actually China, however, U.S. is bringing the figure down for the quarter in total. There's been a lot of work both in Sweden and in Norway to keep up with the revenue downturn compared to last year and to keep the margins higher.
For the first half year then, where are we at? Norway, currently now at 16.7% compared to 20% last year, 4.7% in total. Last year, they had 5.1%, so a slight reduction in the margins. We are hoping them to cross the 5% accumulatives shortly. Sweden, an improvement compared to last year, 4.5% profit margin compared to 3.6%, and an improvement in the results as well, in spite of reduction in revenue of NOK 26 million compared to last year. Lithuania at a healthy 9.5%, cumulatively and NOK 49 million in profit. They're clearly driving the profits in Kitron, in total, Lithuania does. It does also affect the tax percentage that we have.
Since Lithuania is so strong, our tax percentage is quite low, or it's below 20% in the quarter or in first half year too. The others, even though we have a very high growth in China, unfortunately, the U.S. situation because of the Defense downturn is slightly reducing those figures.
Correct.
That's right. You see a seasonal effect our, which is a point here on the cash flow and the working capital. Normally, we have a positive cash flow in Q2, which we have also this year. However, not as strong as last year. Basically, it has to do with an increase in inventory and increase in working capital on total level to cater for the material allocation situation in Kitron. We are choosing now to prioritize the deliveries to our customers and to secure more inventory than we normally would in this situation. It's actually the first time when we're not improving our capital efficiency targets for a while, but it's a deliberate decision which we stand by. Financial gearing is at 1.3% compared to the same figure last year, also 1.3%.
We were at 0.3%, I think, at the end of the year. The rather high dividend that we yielded, as well as the increase in capital binding, gives the gearing to 1.3%, a figure we are planned to have at this point in time. Net working capital, again, we want to be below 20% of revenue, but we're actually slightly above now. We're at 21.6% compared to 20.6% last year. The cash conversion cycle is also slightly higher than last year, as well as the ROC is slightly lower. Still on a healthy over 20% on 21.3%. The capital efficiency is temporary. It is by effect of our own choices.
We want to keep more capital because, to secure deliveries to our customers going forward due to the material allocation. Peter.
A little bit about the market development. I think in face of all of these, the component challenges and allocations and shortages and the strong performance we've had with our current customer base has given us a strong reputation when it comes to winning new business. We see a lot of movement on the marketplace in more business heading our way. I think that's part of what we see in our very strong prospect list and RFQ base. Looking at the actual orders then placed with Kitron, the order backlog on a comparable level with last year was 11.41 million NOK up from 10.18 million NOK. That's the growth of 12%.
I think a little bit more stabilized on the Defense side. Basically the same order backlog as we had last year. Slight increase in medical of 6% to NOK 171 million. The growth in industry continues around the 40% level. Energy and telecom is down a bit, about 10% down, primarily driven by the telecoms business. The energy business is growing in this market sector, and we have, it's one of the pillars in growth when we look at the manufacturing operations in Norway for the coming year. Offshore, well, up 142%, you know, but again, the number is not high here, it's the order backlog is NOK 29 million. Our expectations is that this continues into next year.
We have one significant new win with an existing customer for a completely new product generation, a subsea product. We have another new customer coming online August, September, I believe. And both of those will be up and running and generate, I think, you know, a healthy market sector revenue for next year. We stand by our outlook for 2018. We've said all along we expect to be between 2.5 and 2.7 billion NOK. The EBIT margin is expected to be between 6.1% and 6.5%. Growth is primarily driven by the industry sector. We know we have a down year in Defense & Aerospace and probably we've now passed the low point in that, right?
We see increases coming into end of Q3 and Q4 coming some increases. The profitability is driven by cost reduction activities and improved efficiency. We have a lot of good improvements, especially on the financial side. I think the EPS is a testament to the activities on the financial side. Very good. I wish you a happy summer, welcome to join us in our Q3 reporting.