Page 7 - Kitron Annual Report 2011

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Board of director’s report
Restructuring of Kitron Sweden
During the fourth quarter Kitron reached the conclu-
sion to start a process to significant downsize or close
down the Karlskoga site. The background is that the
single largest customer has decided to transfer manu-
facturing to Kitron’s site in Ningbo, China and a weaker
outlook for the defence segment. Kitron’s assessment
is that the future does not provide enough financial
foundation to continue the operations at the site. Ne-
gotiations with the local union will continue and Kitron
aims to be finished within the first quarter 2012. In total
Kitron has a provision for the close down amounting
to NOK 29.7 million per 31.12.2011 (whereof NOK
17.4 million was booked in Q4 2011). The provision is
mainly related to lay off of personnel and facility costs.
Financial statements
The board of directors believes that the annual financial
statements provide a true and fair view of the net assets,
financial position and result for the year of Kitron ASA
and the Kitron group. The group’s consolidated financial
statements are presented in compliance with International
Financial Reporting Standards (IFRS) as adopted by EU.
Profit and loss
Operating revenue for 2011 amounted to NOK
1,656.1 million, compared to NOK 1,643.9 million for
2010, which represents an increase of 0.7 per cent.
The stable revenue reflects the mixed market develop-
ment within which Kitron operates.
The order backlog at the end of 2011 amounted to
NOK 799.3 million, compared to NOK 836.1 million
in 2010. Kitron recognizes firm orders and four-month
customer forecasts in the order backlog, while frame
agreements and similar are not included (beyond the
four-month forecast). The overall stable level of order
backlog is in line with market development.
The gross margin for 2011 was 38.1 per cent, slightly
up compared with 2010 (36.4 per cent). Gross mar-
gins were generally stable for each product category.
Kitron aims to maintain or improve the gross margin
through global sourcing. At the same time transfer
of manufacturing to lower cost countries often has a
negative effect on the gross margin as the material
content increases relative the labour content.
The number of full-time equivalents (FTE) increased
from 1 112 at the end of 2010 to 1 173 at the end
of 2011. The increase is related to the build up of the
new operations in China and US and an increase in
the activities in Lithuania while the number of FTEs in
the Nordica was reduced by 5%. The group’s payroll
expenses were stable and amounted to NOK 431.6
million in 2011 compared with 429.5 million in 2010.
The payroll expenses as a percentage of revenue
was 26.1%, the same level as in 2010. The payroll
expenses have been maintained at the same level
despite the increase in FTEs through the transfer of
operations to lower cost countries.
Kitron performs development, industrialization and
manufacturing services for its customers. Kitron does
not conduct any research activities. Kitron’s develop-
ment activities on the company’s own account are
limited and are primarily aimed at planning and imple-
menting productivity increases, building competency
and enhancing quality. Such costs are expensed
when incurred.
The group’s net financial costs increased slightly
from NOK 14.2 million in 2010 to NOK 15.5 in 2011.
The overall liquidity situation has been satisfactory
throughout the year.
Kitron’s pre-tax profit for 2011 amounted to NOK
23.2 million, a significant increase from a loss of
NOK 6.3 million for 2010. The businesses in Norway
and Sweden have significant tax loss carried for-
ward, whereof NOK 15.2 million is not capitalised by
The group’s net profit for the year amounted to NOK
17.5 million (NOK 25.4 million loss). This corresponds
to earnings per share of NOK 0.1 (NOK -0.15). Di-
luted earnings per share were the same as basic earn-
ings per share.
Cash flow
Cash flow from operating activities was NOK 14.9
million in 2011 (NOK -43.3 million). The difference be-
tween operating profit and cash flow from operations is
mainly due to increase in operating working capital.