Good morning. Welcome to Kitron's 2018 First Quarter Results. I'm Peter Nilsson, CEO. With me today, as usual.
Cathrin Nylander.
CFO.
Good morning.
Good morning. The first quarter, Kitron had a fairly strong growth, just over 11%. Our top line revenue came into, at, just over NOK 650 million, in line with our expectations. The EBIT margin was 6%, up from 5.3 last year, so a clear improvement in profitability, with almost NOK 39 million in EBIT. Our order backlog grew about 10%, also in line where we want it to be. Seasonal cash flow affects the cash flow overall, so cash flow was negative NOK 19.5 million. However, working capital continues to be efficient, with 19.8% return on operating capital and a cash conversion cycle of 67 days. Even with an 11% top line growth, we reduced our working capital with 5%.
In the quarter, we received one significant order, a new order, new product. It was an industry order, about EUR 17 million overall, estimated to start up later this year and run over a four-year period. Production will take place in our site in Kaunas, in Lithuania. Overall, we see a demand increase in all our regions we're in and really in most market sectors. In the first quarter, we won more than 30 new programs, worth more than NOK 230 million on an annualized basis. This is compared to NOK 75 million in the first quarter last year. 70% of these programs come from existing customers, well in line with our strategy, and 30% came from new customers.
Our service sales were just very close to 9% of revenue in the quarter. As you know, our strategic target is to be above 10%. The solid growth and improved profitability in the first quarter indicates that we are on track for our 2018 outlook and our strategic ambitions. Growth was particularly strong within the industry market sector. We've spoken earlier during the annual on the Q4 reporting, and also commented upon it in our annual report, the availability of components and the strong demand in the market for electronic components. The 2017 was a challenging year for many companies in this EMS business. The challenges are expected to continue into 2018 and last throughout this year, possibly even into next year.
However, Kitron's timely and systematic approach, combined with our preferred partner program, has prevented serious supply disruptions. In spite of these challenges, Kitron aims to reduce material costs in the same manner as achieved over the past three years.
Okay, over to the financial statements for Q1 2018. I'd like to start out first with a comment on that we have implemented a new accounting standard, IFRS 15, as of January 1st, 2018. The changes that we're going from over time revenue recognition from point in time, a technical financial term. It will have marginal effects in the P&L, as you can see in the P&L below here. It will have a reclassification effect within the net working capital in the balance sheet, and it has an order backlog adjustment. To put it simply, what we are doing is that each quarter end, we are recalculating all our WIP and finished goods into revenue or corresponding revenue, and we are taking the difference between those balance sheet values into income.
The effects that you can see here in on IFRS is basically then the change in the balance sheet effects. We expect it to be in this area, this size. It could be slightly smaller, slightly bigger, maybe negative, even if we build down our inventory. See note five for a complete overview in our quarterly report on the effects on the balance sheet and also the order backlog. We will comment on this every quarter in 2018. Sector growth, in line with our expectations, we have to say. Peter commented that the industry growth was particularly strong, and it is, yes. We grew from NOK 585 to NOK 651, and NOK 66 million up in the quarter, and it's very much due to industry.
Defense/A erospace is down, as we expected it to be, compared to last year. Medical devices and Energy/T elecoms grow, but, you know, slightly below, slightly above 10%. Offshore/M arine, very gladly up, 31% or 32 almost, but it's very small still. A comment also is that we have reclassified some customers from industry into energy telecoms as of first quarter 2018, but we also restated historical figures to show the correct growth. When we look on the countries, how they contributed on the growth, we see Lithuania continue to have a growth between 20% and 30% in total, and very strong now and clearly the largest sites going forward. Also, China is growing. China is part of the other sector. They're growing well.
What we see on the revenue side is both Norway, Sweden and U.S. are affected on the top line on the changes in, or the development in the defense revenue and/or as we expected them to be. I think we'll say as expected many times.
In this presentation. Like to show this development, how we are continuing to increase our margins, 6% at the end of Q1 2018, we had 5.3% and 30.8% at the end of 2016 or Q1 2016, and then 20.5% and 4.1% in 2016. We are growing well and stabilizing at a higher level, I would say. Another comment is, it is due to improvements in efficiency, of course, but also that the component allocations have not had any significant impact on our results in Q1 this year, even though it requires substantial work to make that effect not happen. Profit. Lithuania continued to show a strong profit improvement both in value and in margin.
Sweden improved from last year from 1% to 3.3%. Below our ambition, but in line with our expectations. U.S. and Norway are, they're more affected by the defense volume reduction in the quarter. A comment here I will do on the tax. As you can see, Lithuania is very strong on profit in this quarter, which means that the tax % is quite low since they have 15% tax in Lithuania, which explains that one. Cash flow. It's very clear that Kitron has a seasonal balance sheet, at least for the first quarters, compared to Q4, which affects the cash flow. As mentioned, we are down compared to last year, albeit our cash flow is negative due to the fact that our...
We have very low net working capital at the end of Q4 normally, and we're building up to Q2. As you can see, the cash flow is basically the same as last year. We have positive cash flows the other quarter normally. Our low financial gearing continues. We're at now at 0.8 compared to 1.3 in the same period last time. Here are reiterated the working capital figures. I think net working capital is still below 20%, which is our strategic target. We continue to be under that, two years before the strategic period ends. The cash conversion cycle at 67 and ROOC below, slightly below 20% or on 20%, I would say. Peter.
So finally, summarizing what we see for the future.
Yes.
The order backlog, NOK 1,161 versus NOK 1,059 last year. That's a total growth of about 10%. We see the reduction as expected and as we spoke about earlier this year for Defense. Medical also slightly down in this order backlog. Very strong growth in industry still, even with taking out some of the volumes from industry and adding them into Energy/T elecom. The growth in Energy/Te lecom, driven a lot by the energy sector. You know, as we said when we looked at the actual revenue for Q1, offshore grew, but we see a continued growth in the order backlog also for offshore. There's an IFRS adjustment here where the incoming and outgoing balances of WIP are reduced from order backlog.
The IFRS 15 backlog is 1,025 NOK. Summarizing this into the outlook for the full year, we expect to be between 2.5 billion and 2.7 billion NOK. Our margins is expected to be between 6.1% and 6.5%. Again, the growth is primarily driven by the Industry sector and the Energy sector for top line growth. Profitability continues to improve efficiency in the sites in our different factories and our different cost initiatives continue to provide the increased profitability. That's all.
Thank you. We'll see you next quarter.