Ladies and gentlemen, welcome to Kitron's first half year and second quarter results for 2017. I'm Peter Nilsson, the CEO of Kitron. As usual, with me today, Ms. Cathrin Nylander, CFO. Well, the second quarter for Kitron, the significant things I think were really very strong growth. We reached also our milestone EBIT target of 7%. We've spoken earlier in our Capital Markets Day about 7% being our strategic target in 2020 when it comes to margins. Of course, margins will fluctuate over time, but we had a very strong quarter, and we reached the 7% in Q2. Felt pretty good. Overall, I think the growth has been strong ever since the fourth quarter.
9% in the fourth quarter, about 18%, 17.7% or so in the first, an underlying growth of 16.1% now in the second quarter. As I said, EBIT margin 7%, generating about NOK 45.5 million in earnings, in EBIT or in EBIT. The order backlog is solid. The underlying growth is 2.2%. I think what's interesting to look at when you're looking at order backlog is the order intake. The order intake for the second quarter this year was down compared to the order intake the second quarter last year. The first quarter this year, the order intake was much larger than the order intake last year. We had an order intake growth of 41% in the first quarter.
Overall, for the sixth month period, our order backlog is stronger. Also, significant improvements in operating capital and networking capital. Cathrin will go into those in a little bit more detail, we're really starting to hit our targets when we look at net working capital. Let's go to the next one. Thanks. For the first half of the year, revenue at NOK 1.233 billion. That's an increase of 16.4%. The underlying growth, close to 20% at 19.4%. The profitability, 6.2% for the first sixth months, with that generating an EBIT of NOK 76.3 million. Overall, for the first six months, again, the net working capital looks pretty good.
Order intake, as I was talking about, previous slide, the order intake for the period was 1.2 million. That's about a 10% growth compared to last year. Significant agreements or contracts in the period. We received a NOK 34 million order from Kongsberg Defence Systems. This is for communications equipment, primarily for Hungary, I believe, where supplies start pretty much immediately and will be completed during next year. Our facility in Arendal in Norway will be supplying that. We also signed a new contract with the Husqvarna Group, again, for the robotic lawnmowers, an existing product range to supplement the products we already have. I believe we have five new products that we're going to be supplying to them. Starting this year, we're...
That'll be in the fourth quarter and spilling over into next year, we're talking about NOK 100 million per year, initially growing about 30% beyond that over the five-year period. This is an addition to the Husqvarna business we already have in Kaunas in Lithuania that's growing at a tremendous rate by itself. I'm also happy to say we've received some smaller orders in this period for the Husqvarna Group, and I believe we're now a supplier to all divisions within Husqvarna, from the Husqvarna main division through the consumer division, through the Gardena division, and now also with the construction products division. We received an order on that just a few weeks ago. Over the past years, we've invested a lot in our facilities.
We've spoken about it, on many occasions, starting out with Kaunas, following up with the Arendal facility in Norway, and completing it this year, with the official opening of the new Swedish plant in Jönköping in Torsvik, just south of Jönköping. Now we feel we have the facilities we need, and they're, you know, really beautiful facilities. Looking into what's happening in the next half of 2017 is investments are continuing, but not in facilities. We're now investing in increased capacity and capabilities, primarily in SMT for the U.S. operations, more capacity for Lithuania, more capacity for China, and we've actually sped up some of that investment and are doing it now over the summer.
Additional investments also take place in Norway, Sweden, and Lithuania with focus on automation and robotics. We spoke a lot about automation and robotics in our Capital Markets Day in February this year. We're following up on that. I think the first real robotic line with some significant productivity improvements will be placed later this year in Lithuania. Okay. Cathrin?
Financial statements, first half-year and second quarter 2017. What we see now is a continued strong growth in several sectors, actually a very strong growth in three out of five different sectors. The revenue top line of NOK 649 million is quite high in Kitron history measurement as well. I think we have to go some 10 years back to see similar levels. Compared to last year we're up about NOK 86 million, have a growth of 15.2%, and as Peter mentioned, 16.1% underlying growth. What drives the growth is of course, industry at 31.6%, followed by Energy/ Telecoms on 21.6%, and then Defense/ Aerospace at 18%. We see similar development in Q2 on the Medical devices as we did in the first quarter.
Of course, we have the offshore marine which is very, very small now, currently at 1.6%. Now we see that the industry sector is actually growing, will be around 40% very soon I think. Very strong growth in three out of five sectors.
Also the interesting thing to remember, I think we commented on that in our discussions earlier today, is it's not just one customer or a few customers that are growing in the industry sector, but it's almost all of the customers we have in the industry sector are growing, you know, at the very least 20%, and some of them even more.
That's right. If you look on the growth on the half year, we ended up at NOK 1.2 billion approximately, up NOK 174 million from last year and 16.4%. As mentioned, a strong underlying growth, 19.4% in total. Again, we have now actually three sectors with over 20% growth for the half year. It's Industry on 26, Medical is declining, but we have Defense/ Aerospace on 29.6, and then Energy/ Telecoms on 22.3%. It's quite strong growth in several sectors, which means we have a quite stable fundament to go forward on the growth side. As Peter mentioned, there are growth not only in one or two customers, in one or two sectors, there are overall growth in those sectors, which is good to have.
When we see what countries are driving the growth or what sites, we see Norway if we start with that, a decline of 5.4% in line with our expectations. They're down to NOK 212 million now. Sweden up 33% compared to last year, at NOK 48 million up, it's actually the, how can I say, the highest growth both in percent and in NOK converted as well. Lithuania up 21.2%, now at NOK 209 million, same size of Lithuania and Norway now basically, I would say. The others containing U.S . And China, about the same level as last year combined for Q2. Now we have about three sites are about the same size I would say going forward. It's also a good sign of stability for the continued business.
If we sum up the half year, Norway around 3% decline compared to last year. Sweden up approximately 30% accumulative as well, Lithuania 21.9% accumulative, and a very strong NOK 422 million for Lithuania for the half year. The others, U.S. and China, 8.5%. In those figures, we can see there is a growth in China, about 10%, they're showing good growth.
Thus we're investing in China.
Exactly. It's good. Looking at the EBIT margin, as we said, we reached a milestone of 7%, which is our strategic target to be on or above 7% over time. We now reached it for the third time, first time, and it's due to the strong volume and profitability. Last year at the same period we had 5.9%, now we have 7%. The difference in margin is basically due to increased personnel efficiency. We use less personnel kroner per kroner sold, if you put it that way. That's the reason for the increase in the margins going forward. We will see at the margins will vary between the quarters, so we won't see 7% every quarter going forward now, but we will be closer and closer as we go. Happy to see this development.
Of course due to the very high volume, NOK 45 and a half is a very high NOK pull-up for Kitron.
Well, I know we had discussions a few years back that strategically we wanted to reach 20% labor cost.
Mm.
of our sales, and, we're extremely close to that now.
Extremely close.
Back then we were up into the 30% range.
Yes. Similar difficult measurement to reach, but now we're just above it. When we look at the sites for the quarter and the profitability, we like to say that profits are improved for all sites in kroner. We see a slight decline in the percentages for Lithuania, but they're still at a high 8.2%. Norway at 5.6% and NOK 12 million for the quarter. Sweden at 5.7% and NOK 11.2 million for the quarter, and then Lithuania again at 8.2%, and China and U.S. at 9.3%. Finally all sites are above 5%, which is also a step stone for us to go. The explanations are basically, as you can see, in Norway it's the cost reduction that they're making that will drive the margin now and forward.
Of course in Sweden we have a strong volume, but also margin improvements, especially when compared to first quarter.
A lot of growing pains in Sweden.
Yes.
A new facility and a lot of growing pains with staff. Whilst more of an established now operation in Lithuania.
Mm.
some pretty significant economies of scale.
For sure. Basically the quarter there. Half year, again, the same, basically the same comments for the full year. You see the differences in Sweden which had a very low first quarter with the troubles they had for the relocation and the efficiency problems. They're still behind last year, but as you saw for Q2, they're gaining and will be cumulative on a totally different situation after Q3, we think. Lithuania now NOK 37 million, not the strongest by far, but we can see that Norway and Sweden are picking up a bit. Then U.S. and China are also delivering for the total. It's good.
If you look at the cash flow and the working capital, cash flow has been meager for the last three quarters, but now again up at 60 over, slightly over NOK 60 million and in line with last year. Year-to-date cash flow about NOK 47.5 compared to NOK 35.7 last year, an improvement there. We are growing on the top line, which drives more capital for sure, which it makes it hard to have a very good cash flow. We're happy with Q2. Our financial gearing is improving also this quarter compared to last year. We ended up at 1.3, the net interest-bearing debt divided by EBITDA, and we're at a level where we want to be over time. We're happy on that part too.
When it comes to the working capital, we see that the capital efficiency is further improved. The net operating working capital is at 20.6%. That is a reduction from 23.4. Our strategic target here is actually to be below 20%, we are nearing the level where we can and want to be in the first place. The cash conversion cycle, that is the days of inventory outstanding plus the days of trade receivables outstanding minus the trade payables outstanding is now at 73. It was 88 last year, we're closing in on our target for the year, which is 70. I have to mention that our strategic target is 50, we have some leeway to go there, we're closing in for sure.
I think we closed last year.
Mm.
at NOK 80.
Yeah.
At Q4, significant improvement since then.
Return on operating capital at 23%, which is up from 17.6% last year. Strategic target at 25%. We see that our strategic measurements are definitely reachable in months when we have 7% margin. That was all I was gonna say, I'll leave the word over to you.
Market development.
Mm.
Taking a look at the order backlog, not a big increase compared to last year. If you look into the details of it, you can see that the defense part of the order backlog is down approximately NOK 75 million. Some reduction in medical, a significant increase of more than NOK 100 million in the industry. Increases also in energy telecom, a little bit further reduction in offshore. I think it's important when you look at the industry and energy telecom because the lead time in the order backlog tends to be shorter. A large increase of the order backlog in energy telecom tells us from a management point of view that we'll be shipping that in the near term, the near term being the next four to six months, really.
The defense order backlog could be over a longer time period. Our defense order backlog has tended to be somewhere out around six to maybe nine months of aging in our order backlog there. We expect now as we move forward, as we move into next year, that more volume purchase orders will be issued from our main customers there, primarily the F-35 program. This will be done in order to get some economies of scale again on volume. If you buy a, you know, 1,000 aircraft or 500 aircraft, the price for those parts is different from when you buy much lower quantity of three to six months worth of demand.
That'll, that'll really boost our order backlog periodically as we get those orders, and then it'll shrink again as we, as we eat into them before the next one is issued. I think that's what we're the sort of change we'll see as we move forward into the next year and a half of the order backlog. Overall, I think the order backlog supports, where we're heading and where we wanna take the company. Getting to the finally, getting to the outlook. In conclusion, getting to the outlook.
We started out the year and said for 2017, we expect revenues to grow and to come in at the very low end of NOK 2,150 to a high end of NOK 2,350, and the EBIT margin to be between 5.6% and 6.4%. We've now decided to narrow the gap a little bit and we expect now revenues to come in at the higher end of the indicated range, so closer to the NOK 2,350 part of the guidance. As we've spoken about many times today, the growth is driven by customers in the industry sector.
The profitability increase is also continued activities on cost reduction, continued activities on efficiency, and also economies of scale as we, as we climb into the higher revenue sector per month and per quarter. The fixed cost then tends to stay the same. Overall, I think we're pretty happy with the quarter. We're looking forward to the next part of 2017. Thank you so much, all, for listening.
Have a good summer.
Have a good summer.