Kitron Reports Acquisition, Strong Demand Supporting Growth Outlook in 4Q21

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Kitron reported fourth-quarter results showing very strong demand, but also revenue constraints due to the component supply and covid lockdown in China. A record order backlog and the acquisition of BB Electronics support revenue growth in 2022.

Kitron's revenue for the fourth quarter was NOK 949 million, compared to NOK 992 million last year. Demand is very strong, but revenue growth was limited by ongoing component shortages and a lockdown of Kitron’s facility in Ningbo, China, due to an outbreak of COVID-19 in the area, as previously reported. More than NOK 160 million of demand in the quarter has been delayed into 2022. Nevertheless, there was strong growth within the Connectivity market sector. Adjusted for foreign exchange effects in consolidation, revenue is at the same level as last year.

Profitability expressed as EBIT margin was 5.5 per cent in the fourth quarter, compared to 7.6 per cent in the same quarter last year. The EBIT margin in the quarter is affected by inefficiencies caused by the component situation and the lockdown in China.

The order backlog ended at NOK 2 827 million, an increase of 41 per cent compared to last year. The order backlog increased within all market sectors except Defence and Aerospace.

Peter Nilsson, Kitron's CEO, comments:

“Two forces dominated the fourth quarter: on the positive side, excellent demand and a record order backlog, on the negative challenges caused by lack of components and the covid pandemic. The highlight of the fourth quarter was the acquisition of BB Electronics. I was convinced about the merits of this deal before we announced it, and my conviction has grown even firmer as we have worked with the BB team on common plans. This strengthens my positive view of the coming quarters and years.

Fourth-quarter operating profit (EBIT) was NOK 52.3 million, compared to 75.7 million last year. EBITDA was NOK 78.4 million, compared to 102.2 million last year.

Profit after tax amounted to NOK 40.4 million, compared to 47.1 million in the same quarter the previous year. This corresponds to earnings per share of NOK 0.20, down from 0.26 last year. 

Solid full-year results

Full-year revenue of NOK 3 711 million gave an overall decrease in revenue of 6 per cent for the year, where 3% is due to currency. The decrease is explained by the exceptional Corona-related volumes within Medical devices being normalized from 2020 to 2021, as previously indicated.

Operating profit (EBIT) for the year ended at NOK 240.8 million, compared to NOK 312.6 million in 2020, resulting in an EBIT margin of 6.5 per cent, compared to 7.9 per cent. Profit after tax was NOK 152.8 million, down from NOK 213.1 million, corresponding to NOK 0.78 earnings per share, compared to NOK 1.19 in 2020.

Dividend policy and dividend

The Kitron board has as a consequence of the investment in BB Electronics and the future capital needs of the company decided to change the Kitron dividend policy into: 

“Kitron’s dividend policy is to pay out an annual dividend of 20 to 60 per cent of the company’s consolidated net profit before non-recurring items. When deciding on the annual dividend the company will take into account the company’s financial position, investment plans as well as the needed financial flexibility to provide for sustainable growth

The board proposes an ordinary dividend of NOK 0.25 per share (NOK 0.70).

Ratios affected by constraints in supply chain

Operating cash flow was NOK 9.0 million, compared to NOK 132.2 million in the fourth quarter of 2020.

Net working capital was NOK 1 228 million, an increase of 15 per cent compared to the same quarter last year. Net working capital as a percentage of revenue was 31.7 per cent compared to 26.3 per cent last year. Capital efficiency ratios are heavily affected by the supply situation, with material decommitments and new delivery dates. The material constraints continue to be difficult. Our focus going forward is on balancing demand with the constraints in supply, executing demand into deliveries and improving cash flow.

Acquisition of Danish EMS provider

In December, Kitron announced an agreement to acquire the Danish EMS company BB Electronics A/S, which has production facilities in Denmark, China and the Czech Republic. The deal is clearly earnings accretive and adds significant shareholder value. BB Electronics is a full-service EMS (Electronics Manufacturing Services) provider based in Horsens, Denmark. The group had revenues of about DKK 1,000 million in 2021 and about 750 employees. It has over the past years grown significantly, both organically and through M&A. The customer base is concentrated within connectivity and industry. The acquisition was completed early in January 2022.

Outlook

For 2022, Kitron expects revenue between NOK 5 200 and 5 800 million, including BB Electronics. Operating profit (EBIT) is expected to be between NOK 330 and 430 million. Growth is driven by the Electrification, Connectivity and Industry market sectors. Currently, the growth is constrained by the material supply situation.