Kitron posts best-ever third quarter revenue

Kitron reported third quarter figures that showed continued growth and improved earnings per share on Friday, despite challenges on the component market

The Norwegian electronic manufacturing services company said revenue for the third quarter was NOK 563m (£52.3m) - an increase of 5% compared to last year.

It said its order backlog increased 27% on a comparable basis, while profitability expressed as EBIT margin was 5.3% in the period.

Kitron said revenue growth compared to the same quarter last year was “particularly strong” in the Industry market sector, adding that Marine and Offshore was now growing, albeit from a “very low level”.

Defence and Aerospace declined, with the board reiterating that the sector would fluctuate, with growth expected to resume in 2019.

Excluding the Defence and Aerospace market sector, revenue growth in the third quarter was 18% compared to last year.

The company said the order backlog was noticeably affected by the implementation of the new accounting standard IFRS 15.

Without that effect, it said the backlog would have been NOK 1.28bn, which equated to growth of 27%.

Due to the IFRS 15 implementation, the booked order backlog ended at NOK 1.12bn.

It said early signs of increasing activity among customers in the oil and gas industry had led to a “substantial backlog increase” in the Marine and Offshore market sector, although the absolute numbers were still low.

Third quarter operating profit was said to be NOK 30m, compared to 29.2m a year ago.

EBITDA was NOK 42.7m, up marginally from 42.6m.

Net profit amounted to NOK 21.8m - an increase of 33%, which the board said corresponded to earnings per share of NOK 0.12, compared to NOK 0.09 last year.

Net working capital increased by 35% year-on-year to NOK 605m, with operating cash flow standing at a negative NOK 41.0m, swinging from a positive NOK 22.4m in the third quarter of 2017.

The board said the increase in working capital was partly related to postponed production programmes, and partly to a “deliberate and temporary” inventory build-up to avoid supply disruptions in the face of previously-reported electronic components shortages.

Component shortages had been an ongoing issue for the electronics manufacturing services business since last year.

The company said the situation had not improved, and it expected it to be challenging throughout the year and into 2019.

In July, Kitron announced plans to expand its Eastern Europe presence through a facility in northern Poland.

It said production at the 8,000 square metre facility was now scheduled to begin in the fourth quarter of 2019.

Looking at the rest of the year, Kitron said it expected revenue to grow to between NOK 2.5bn and 2.7bn.

The EBIT margin was expected to be between 6.1% and 6.5%, with growth to be primarily driven by customers in the Industry and Energy sectors.

Profitability was being driven by cost reduction activities and improved efficiency, the board explained.

“We continued on our growth path in the third quarter, delivering the highest third quarter revenue in the company's history,” said chief executive officer Peter Nilsson.

“I am especially pleased that we were able to do this in the face of industry-wide problems with component availability and some postponed customer programs.”

Nilsson said the “excellent” order intake during the quarter strengthened the board’s confidence in the coming months and quarters.

“We maintain our 2018 outlook and our strategic targets for 2020.”