Page 5 - Kitron Annual Report 2011

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Board of director’s report
In 2011 Kitron has taken important steps towards
becoming a more global company. Kitron opened a
new factory in Johnstown (US) in Q2 and in Ningbo
(China) in Q3. In parallel Kitron has secured several
new customers in the German market through its
recent acquisition. The global expansion is of crucial
importance both in order to serve our customers in
their key markets and to improve the competitiveness
of Kitron’s supply chain. At the same time Kitron has
continued to streamline its Nordic operations. Kitron
in Sweden is now merged into one company and a
process to close down the Karlskoga site has been
started. Both the global expansion and the restructur-
ing of the Swedish operation are investments into
the future but has had an impact on the short term
result. Kitron’s revenue for the year was NOK 1 656.1
million, which represents a 0.7 per cent increase
compared with 2010. Despite the significant start up
activities in China and USA and the restructuring in
Sweden Kitron has been able to improve the profit-
ability. The operating profit (EBIT) after restructuring
and start up activities was NOK 38.7 million to be
compared with NOK 7.9 million in 2010. Adding back
restructuring and start up costs the operating result
was NOK 81.3 million and the operating margin was
4.9 per cent. Kitron has managed to improve the
profitability and at the same time to build a stronger
operational foundation for future profitable growth.
The business
Kitron’s business model is to provide manufacturing
and assembly services for products containing elec-
tronics. The business model covers the whole value
chain from development, industrialisation, purchasing,
logistics and maintenance/repair to redesign. For cus-
tomers having Kitron as their professional manufactur-
ing partner, this means increased flexibility, reduced
costs and improved quality.
The growing competition among OEMs requires
a high focus on manufacturing efficiency and cost
reduction. Hence, an increasing share of OEMs fo-
cuses on their own core competences and transfer
a larger part of the value chain to specialised EMS
providers like Kitron. When selecting an EMS partner
geographical proximity and access to competitive
manufacturing plays a crucial role in the customer’s
choice of supplier. With its global presence Kitron is
well placed in this market.
The company has operations in Norway, Sweden,
Lithuania, Germany, China and the US. All employees
have been certified in accordance with international
quality standards for the applicable manufacturing.
Market segments
Kitron’s services are most competitive within complex
manufacturing processes that require niche expertise.
Kitron has chosen to focus its sales and marketing
activities within the Defence/Aerospace, Energy/
Telecoms, Industry, Medical equipment and Offshore/
Marine market segments.
The Defence/Aerospace segment decreased by 6.2
per cent in terms of revenue from NOK 353.4 million
in 2010 to NOK 331.6 million in 2011. The segment
accounted for 20.0 per cent (21.5 per cent) of the
group’s total revenues. The longer term outlook for the
Defence/Aerospace segment remains positive. Kitron
is currently involved in defence programs with among
other the Kongsberg Group and Lockheed Martin that
could yield more than 1 billion NOK in revenue in the
years to come. Kitron will manufacture, test, maintain
and repair the Integrated Backplane Assembly in the
F-35 Joint Strike Fighter globally. The contract with
Kongsberg related to deliveries of electronics to the
NSM (Naval Strike Missile) is further supporting the
long term positive outlook. In addition a letter of intent
to co-operate in the first phase of the manufacturing
of electronics for the JSM (Joint Strike Missile) has
been entered into. Defence/Aerospace is also a pri-
oritised area for our new operation in Germany and
Kitron is in promising dialogue with a major German
defence company.
Revenue in the Energy/Telecoms segment was
reduced by 33.0 per cent to NOK 265.5 million in
2011 (NOK 396.2 million). This represented 16.0
per cent of the group’s revenue (24.1 per cent). The
reported loss of a Energy/Telecoms client is explain-
ing the drop in turnover. In general there is a strong
competitive pressure in Energy/Telcoms. Despite this
Improved competitiveness
through global expansion
Board of directors’ report 2011: