Electronics Production | February 11, 2008
Best annual result in Kitron's history
Norway’s largest EMS-provider Kitron ASA on Monday presented its annual report for 2007. The profit before tax in 2007 was NOK 63.4 million compared to NOK 45.4 million in 2006, and is the best result since the group was established in 2000.
Revenue amounted to NOK 551.3 million in the fourth quarter of 2007, representing 7.1 per cent increase over the same period in 2006. Year on year, revenue grew 14.4 per cent to NOK 1 937.8 million. Profit before tax was NOK 18.0 million in the quarter, which was in line with fourth quarter in 2006. Revenue growth (7.1 per cent in the quarter, 14.4 per cent in the year) NOK 551.3 million in the quarter and 1 937.8 million in 2007 (NOK 514.8 million in the quarter, NOK 1 693.6 million in the year). Stable profit before tax NOK 18.0 million (NOK 18.1 million). Profit before tax amounted to 3.3 per cent (3.5 per cent) both for the quarter and for the full year (2.8 per cent for the full year 2006). Reduced gross margin Normalised gross margin was 39.2 per cent (40.1 per cent) excluding one-off charges. The normalised gross margin for the year has been reduced from 40.0 per cent in 2006 to 38.7 per cent in 2007 due to variations in relative growth between business areas and product mix variations. Operating profit slightly reduced EBITDA and EBIT were NOK 31.6 million (NOK 32.5 million) and NOK 22.8 million respectively (NOK 23.9 million). Good order intake The order intake in the quarter increased by 18.8 per cent to NOK 589 million (NOK 496 million). The order backlog at the end of the quarter and year was NOK 914 million (NOK 959 million). Strong cash flow from operations Cash flow from operations in the fourth quarter was NOK 123.1 million (NOK 139.6 million). Cash flow from operational activities in the year was NOK 78.5 million (NOK 9.6 million). Kitron’s revenue in the fourth quarter was 7.1 per cent higher than in the same period in 2006 and amounted to NOK 551.3 million (NOK 514.8 million). The revenue increase is largely a result of higher activity in the EMS business in Norway and Lithuania. Revenue increased the most within the Data/Telecom and Defence/Marine segments compared to the fourth quarter of 2006. Revenue in the Medical equipment segment in the fourth quarter was in line with the corresponding period in 2006, while revenue in the Industry segment was lower than the fourth quarter of 2006. Revenue in the Norwegian Electronic Manufacturing Services (EMS) operation, Kitron AS, represented 57.9 per cent of Kitron’s gross revenue during the fourth quarter. The Swedish EMS operation, Kitron AB, represented 10.5 per cent of the group. Kitron’s operation in Lithuania, UAB Kitron, provided for 16.3 per cent. As of 1 September 2007, UAB Kitron Elsis has been consolidated into the Kitron group, and it has been included in UAB Kitron. UAB Kitron continued its growth based on its competitive strength from quality and pricing. Consequently, the subsidiary’s share of Kitron’s value creation increased. The EMS sites provided 83.7 per cent of net group revenue in the fourth quarter while during the fourth quarter of 2006 it generated 85.4 per cent. The Kitron Microelectronics sites, which normally achieves higher operating margins than the EMS area, has increased the share of revenue correspondingly. Kitron’s revenue in the fourth quarter of 2007 was distributed as follows: Data/Telecom 28% (23%) Defence/Marine 31% (28%) Medical equipment 22% (25%) Industry 19% (24%) Sales to customers in the Swedish market represented a 37.7 per cent share of the total revenue during the fourth quarter (41.2 per cent). The Norwegian market represented 54.4 per cent of Kitron’s total revenue in the fourth quarter, versus 52.5 per cent during the same quarter in 2006. Strong international economy as well as an increasing degree of outsourcing have contributed to continuing positive development within the industrial EMS-market. Kitron manufactures both electronics, which are embedded in the customers’ own product, and provides box build electronic products as well as high-level assembly (HLA) of products with complex mechanics for its customers. Kitron’s growth within the EMS market is primarily connected to increasing activity with existing customers. Microelectronics Within Microelectronics, Kitron also has a competitive offer within HLA- and box build manufacturing. Kitron is actively seeking growth opportunities in this area as well. The revenue growth in Kitron Microelectronics is largely for existing customers. The demand for microelectronics technology in a strict sense, such as thick film technology and chip and wire bonding, has been weaker than expected in 2007 but seems to recover at the beginning of 2008. Stable order intake In the fourth quarter Kitron entered into or renewed a number of long-term manufacturing agreements and received a number of significant manufacturing orders in the Defence/ Marine and Medical equipment segments. Kitron’s total order intake during the fourth quarter amounted to NOK 589 million which was 19 per cent higher than the order intake in the fourth quarter in 2006. The order intake of the year 2007 was NOK 1 893 million, on par with 2006 order intake. Kitron’s order backlog includes four months customer forecast plus all hard orders for later delivery. The order backlog has in 2007 remained stable at a satisfactory level, corresponding to about six months revenue. At the end of the quarter, the order backlog was NOK 914 million. Defence/marine Following low activity in the Defence/ Marine segment in 2006 the activity has stabilised at a higher level in 2007. Revenue was 24 per cent higher than in 2006. The high activity level, especially in Kitron AS, is expected to last throughout this and next year. Both upgrading and the development of new technology contribute to the strong market. Kitron has a strong position in the Defence/Marine market segment. The outlook for 2008 for both the defence and the marine part of this market segment is promising in Norway, but less attractive in Sweden. Medical equipment Kitron’s activities in the Medical equipment segment are mainly based on HLA competency and development and industrialisation capabilities. The high activity and growth in the segment is expected to last for several years. Customer and product specific circumstances caused Kitron’s revenue to be slightly lower both in the fourth quarter and the full year 2007 than the year before. Significant orders were received in the fourth quarter, indicating better prospects for 2008. In addition to expected growth with present customers in Norway and Sweden, the Swedish market provides promising opportunities. In the fourth quarter, Kitron received an order of NOK 130 million from a customer in this segment. The activity at Kitron’s assembly line in Horten, Norway, is expected to increase in 2008. Also in the fourth quarter the manufacturing agreement with CellaVision was renewed, with an expected annual revenue of about SEK 25 million. Furthermore, Kitron received from Dignitana a development order amounting to about SEK 5 million for cooling devices for use in connection with cytotoxic treatment. Industry Kitron’s revenue within the Industry segment is cause for concern. Albeit revenue in 2007 grew by six per cent, the second half of 2007 was eight per cent lower than second half of the year before. Order intake is correspondingly down. The reduction is largely related to one customer. Price seems to be a more important factor in the Industry segment compared to the other segments, where quality and competency are more emphasised. Prospects Kitron’s main markets are Norway and Sweden, but most customers sell their products on the international markets. Kitron also has manufacturing operations in Lithuania. Machinery upgrade investments in all sites during 2007 and the addition of the Kitron Elsis facility in Kaunas, Lithuania in September 2007 have enabled capacity increases to meet the order volume. The negotiations with possible property developers for the resolved construction of a new facility in Kaunas have lasted longer than expected and have not yet been completed. New orders under agreements in the Defence/Marine segment provides for an expansion by another 1 700 square meters at an assembly site near Kaunas, Lithuania. The expansion will be operational in the second quarter. Kitron operates at virtually full capacity, and seeks to increase the capacity in order to improve productivity and to serve customers’ requests. Machinery upgrade investments will continue at the same level as in 2007. At the beginning of the year Kitron expects a growth in the full year 2008 in line with the strategic ambition of about ten per cent annual growth. Fourth quarter announcements from EMS providers serving the same market as Kitron and the recent unrest in the financial markets may indicate that the market situation could become more difficult. Strong competition within the EMS market contributes to continuous pressure on the margins. Kitron expects to grow with its customers and realise margin improvement through economy of scale, productivity improvement and materials sourcing.
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