Quarterly Report • Nov 3, 2022
Quarterly Report
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| IN EUR MIO. | 9M 2022 | 9M 2021 (adapted) |
|---|---|---|
| Revenues from continued and discontinued operations | 1,020.7 | 913.8 |
| Revenues from continued operations | 755.0 | 688.5 |
| Gross profit from continued operations | 272.9 | 255.8 |
| EBITDA from continued operations | 69.5 | 63.0 |
| Amortisation and depreciation from continued operations | 35.8 | 37.4 |
| Result after non-controlling interests | 32.7 | 30.7 |
| Adjusted result after non-controlling interests (before divestment related expenses) | 35.1 | 30.7 |
| IN EUR MIO. | 30.09.2022 | 31.12.2021 |
|---|---|---|
| Cash and cash equivalents from continued and discontinued operations | 162.3 | 296.5 |
| Equity | 442.8 | 423.3 |
| Equity ratio | 34.1% | 31.3% |
| Backlog from continued operations | 1,395.0 | 1,159.3 |
| Project-pipeline from continued operations | 3,317.5 | 2,967.1 |
| Employees from continued operations *) | 4,343 | 4,532 |
| Assets classified as held for sale | 219.5 | 0 |
| Liabilities classified as held for sale | 109.7 | 0 |
*) Number of employees on full time equivalent basis without employees on parental leave, trainees and apprentices
The transformation of Kontron into a pure IoT provider is progressing in leaps and bounds. In Q3, we reached another milestone on our journey by selling a large part of our IT services business to the Vinci Energies Group. The transaction was signed on August 10, 2022. Vinci is a French company with over 200,000 employees that wants to expand its IT service activities in Central and Eastern Europe. The sale still requires antitrust approval, which we expect by the end of the year in order to complete this important transformation step. Kontron predicts proceeds of around EUR 400 million from the sale.
From 2023, the Kontron Group will no longer be comparable with the old S&T – that is why we have already changed the company name in Q2. We are focusing on the IoT market, which is already our biggest margin earner today. The IoT market is generally characterised by higher growth and higher profit margins; Kontron's net profits and EPS in particular will rise significantly. Our organisational structure is becoming simpler and therefore more transparent and our dependence on Eastern Europe has been reduced. As a result, our peers (comparable companies) are also changing. Our business model can no longer be compared with IT service companies; our competitors in the future will primarily be companies such as Advantech, Seco and Mercury.
Why are we rebuilding Kontron? For 10 years, Kontron has been growing steadily with solid profits. Ultimately, a large part of this development has been due to our IoT activities. That is why we have decided to focus our future growth in this area, especially as we also expect significantly stronger growth in our IoT activities over the next few years compared to the IT service sector.
Our Q3 results also reflect the change and cannot be compared with past results. In accordance with legal requirements, we are publishing the results of Continued Operations; activities that are no longer carried out are presented in compact form as Discontinued Operations. As expected, earnings in Q3 are affected by one-off costs from the sale of the service division, but we expect to generate a high profit from the sale in Q4. The adjusted results bring to light our growth trajectory and improved profitability. Revenue increased by 9.6% to EUR 755.0 million in the first nine months compared to the previous year, and Q3 even shows an increase of 10.5% to EUR 262.4 million. Including Discontinued Operations, revenue was EUR 1,020.7 million. Net income (adjusted for one-off costs from the FOCUS divestment) is even higher in the first nine months, increasing by 14.4% to EUR 35.1 million.
Order intake was again significantly higher than generated revenue at EUR 319,8 million and above target for the seventh time in a row, with a book-to-bill ratio of 1.22. This represents a robust path of growth while facing a challenging market environment. The value of overdue orders was reduced slightly to EUR 124 million. Despite the market environment, we remain optimistic for 2022 and 2023. Over the last seven quarters, the order backlog has risen by 63% or EUR 542 million – that is EUR 542 million in future revenue growth.
We therefore expect ongoing double-digit growth for Continued Operations to around EUR 1,100 million revenue in 2022. The consolidated result is expected to rise by 16% to EUR 56 million, significantly more after adjustment for the profit from the sale of the IT services business. Starting in 2023, we plan to replace the lost revenue from IT services with IoT acquisitions in the short term and expect growth as well as an increase in revenue to EUR 2,000 million by 2025 with a significantly increased EBITDA margin of 13%.
Hannes Niederhauser, CEO
The Kontron Group made a big leap forward in its transformation into a pure IoT provider in Q3 by signing the sale of a large part of its IT service activities to the Vinci Energies Group. The transaction was signed on August 10, 2022. In accordance with accounting regulations, the quarterly results are published for Continued Operations (CO), and the activities to be sold are shown in the quarterly report as Discontinued Operations (DCO). Kontron currently expects the transaction to close at the end of 2022. After closing, segment reporting will be adjusted accordingly in 2023. The comparability of segment reporting with previous years is limited due to the reporting of DCO, particularly for IT service operations.
Operationally, the effects of the chip and component shortage remained visible in the past quarter, although somewhat reduced: Despite another record backlog at the end of Q2 2022 and another strong order intake in Q3 of 2022, the lack of availability of some components and delivery delays for intermediate products is reflected in liquidity development and working capital. Revenue (CO) increased by 9.6% to EUR 755.0 million compared to the same period of the previous year, and Q3 even shows an increase of 10.5% to EUR 262.4 million. Including Discontinued Operations, revenue was EUR 1,020.7 million (11.7% over the same period in the previous year). The increase in consolidated results (adjusted for one-off costs from the FOCUS divestment) was even higher in the first nine months at 14.4%. Adjusted consolidated results amounted to EUR 35.1 million compared to EUR 30.7 million in the previous year. EBITDA from Continued Operations rose by 10.2% from EUR 63.0 million to EUR 69.5 million. The volume of products that could not be delivered due to the chip crisis remained at a high level of around EUR 124 million as of September 30, 2022 (compared to EUR 127 million as of June 30, 2022).
Revenues in the isolated Q3 of 2022 grew from EUR 237.4 million to EUR 262.4 million compared with the same period of financial year 2021, and from EUR 313.2 million to EUR 360.0 million when Discontinued Operations are included.
Consolidated results (after minority interests) increased slightly from EUR 10.2 million to EUR 10.7 million (adjusted for one-off costs from the FOCUS divestment) for Q3 in isolation. Undiluted earnings per share increased in the reporting period to 51 cents (PY: 48 cents). The results already include some of the costs associated with the sale of IT services.
To date, the Kontron Group has been managed using the following three segments:
› "IoT Solutions America": This segment brings together activities in the North America region. Product development and the portfolio focuses particularly on the areas of communication, aviation and autonomous driving.
In financial year 2022, supply chain disruptions associated with the chip crisis also had a significant impact on operating earnings development. While comparability in the "IT Services" segment is very limited due to the sale of a large part of the activities from this segment and marks the reorientation towards support for IoT services, the development of the "IoT Solutions America" segment was characterised by the restructuring of the operations bundled within it. At the same time, the "IoT Solutions Europe" segment developed very positively with its incoming orders and order backlog, even though the current chip crisis has impacted liquidity development.
The situation in terms of development of the individual sectors in the Kontron Group is as follows:
| IN EUR MIO. | IT SERVICES | IOT SOLUTIONS EUROPE |
IOT SOLUTIONS AMERICA |
KONTRON GROUP | ||||
|---|---|---|---|---|---|---|---|---|
| 9M 2022 | 9M 2021 | 9M 2022 | 9M 2021 | 9M 2022 | 9M 2021 | 9M 2022 | 9M 2021 | |
| Total revenues | 161.2 | 173.4 | 627.5 | 538.1 | 100.3 | 81.3 | 889.0 | 792.8 |
| Internal revenues | -6.0 | -6.9 | -117.3 | -88.4 | -10.7 | -8.9 | -134.0 | -104.2 |
| Revenues | 155.3 | 166.5 | 510.1 | 449.7 | 89.6 | 72.4 | 755.0 | 688.5 |
| EBITDA before HQ Charging*) |
4.3 | 6.7 | 60.5 | 50.6 | 1.6 | 2.9 | 66.4 | 60.2 |
| EBITDA after HQ Charging**) |
13.3 | 15.1 | 55.8 | 46.6 | 0.3 | 1.3 | 69.5 | 63.0 |
*) EBITDA adjusted for headquarter charging of Kontron AG
**) EBITDA after all headquarter charging of Kontron AG
| IN EUR MIO. | IT SERVICES | IOT SOLUTIONS IOT SOLUTIONS KONTRON GROUP EUROPE AMERICA |
||||||
|---|---|---|---|---|---|---|---|---|
| Q3 2022 | Q3 2021 | Q3 2022 | Q3 2021 | Q3 2022 | Q3 2021 | Q3 2022 | Q3 2021 | |
| Total revenues | 49.3 | 59.5 | 223.2 | 182.8 | 39.0 | 28.6 | 311.5 | 270.9 |
| Internal revenues | -2.3 | -2.1 | -42.7 | -28.5 | -4.2 | -2.9 | -49.2 | -33.6 |
| Revenues | 47.1 | 57.4 | 180.5 | 154.3 | 34.8 | 25.7 | 262.4 | 237.4 |
| EBITDA before HQ Charging*) |
0.3 | 2.1 | 18.4 | 15.0 | 0.7 | 1.9 | 19.4 | 19.0 |
| EBITDA after HQ Charging**) |
3.6 | 5.0 | 16.7 | 13.6 | 0.2 | 1.3 | 20.4 | 19.8 |
*) EBITDA adjusted for headquarter charging of Kontron AG
**) EBITDA after all headquarter charging of Kontron AG
The "IT Services" segment contributed 20.6% to segment revenue for Continued Operations in the first nine months, the "IoT Solutions Europe" segment 67.6% and the "IoT Solutions America" segment 11.8%. The EBITDA (before headquarter charging) of the "IT Services" segment can in fact only be compared with previous years to a very limited extent due to the reorientation of this sector. While revenue in the "IoT Solutions America" segment rose by 23.8% to EUR 89.6 million in the first nine months, EBITDA before headquarter charging in this segment fell from EUR 2.9 million to EUR 1.6 million. In the "IoT Solutions Europe" segment however, EBITDA rose by 19.6% from EUR 50.6 million to EUR 60.5 million in the reporting period. Despite the shortage of components, the segment benefitted from a very favourable environment for selling IoT components and software.
The net assets and liquidity situation in the current financial year remains satisfactory: Equity increased from EUR 423.3 million as of December 31, 2021 to EUR 442.8 million, due to positive earnings development and despite payment of a dividend of EUR 22.3 million. The equity ratio increased to 34.1% as of September 30, 2022 (December 31, 2021: 31.3%). Cash and cash equivalents of the Continued Operations however, fell compared with December 31, 2021, from EUR 296.5 million to EUR 118.7 million: This is primarily due to the dividend paid, the repayment of financial liabilities and, in particular, due to the build-up of inventory as a result of supply chain distortions in chip deliveries. The decline also reflects the additional costs of purchasing and redesigning products based on available components as well as part of the sales costs associated with the FOCUS transaction. The current and non-current financing liabilities of Continued Operations amounted to EUR 313.2 million (December 31, 2021: EUR 310.7 million), bringing the Kontron Group net debt to EUR 194.5 million as of September 30, 2022 (December 31, 2021: net debt of EUR 14.2 million | September 30, 2021: net debt of EUR 87.5 million) (Cash and cash equivalents minus current and non-current financing liabilities).
Operating cash flow was impacted by the chip shortages in the first nine months: Working capital increased from EUR 149.9 million by EUR 61.1 million to EUR 211.0 million since December 31, 2021 (June 30, 2022: EUR 246.8 million). The main reason for this is in particular an increase in inventory of EUR 55.4 million to EUR 242.7 million (December 31, 2021: EUR 187.3 million), due to the additional purchase of components and the general increase in the stock of products that could not be delivered due to the shortage of some components. Kontron expects a gradual reduction in component bottlenecks and a significant improvement in operating cash flow in 2023.
The number of employees as of September 30, 2022, was 6,084 – including 4,343 employees in Continued Operations – compared with 6,206 employees as of December 31, 2021 (number of employees on a full time equivalent basis excluding employees on maternity leave, interns and apprentices). The average number of employees during the first nine months of the current financial year was 6,048, compared with 6,122 in the first nine months of 2021.
| STATEMENT OF OTHER COMPREHENSIVE INCOME IN TEUR |
9M 2022 | 9M 2021 (adapted) |
Q3 2022 | Q3 2021 (adapted) |
|---|---|---|---|---|
| Net income | 32,300 | 30,657 | 8,486 | 10,530 |
| Items that will not be reclassified to profit or loss | ||||
| Results from remeasurement of financial instruments at fair value through other comprehensive income |
-2 | 2 | 0 | 1 |
| Items that may be subsequently reclassified to profit or loss | ||||
| Unrealised gains/losses from currency translation | 12,603 | 5,852 | 3,307 | 2,503 |
| Net loss on debt instruments at fair value through other comprehensive income |
-47 | 0 | -1 | 0 |
| 12,556 | 5,852 | 3,306 | 2,503 | |
| Other comprehensive income | 12,554 | 5,854 | 3,306 | 2,504 |
| Comprehensive income | 44,854 | 36,511 | 11,792 | 13,034 |
| of which attributable to | ||||
| Owners of non-controlling interests | 1,168 | 665 | 232 | 936 |
| Owners of interests in parent company | 43,686 | 35,846 | 11,560 | 12,098 |
| ASSETS IN TEUR |
30.09.2022 | 31.12.2021 |
|---|---|---|
| NON-CURRENT ASSETS | ||
| Property, plant and equipment | 100,571 | 132,536 |
| Intangible assets | 103,503 | 104,207 |
| Goodwill | 181,402 | 208,251 |
| Financial assets non-current | 10,534 | 12,594 |
| Contract assets non-current | 51 | 194 |
| Other non-current assets | 13,916 | 21,018 |
| Deferred tax assets | 37,456 | 40,179 |
| 447,433 | 518,979 | |
| CURRENT ASSETS | ||
| Inventories | 242,724 | 187,349 |
| Trade receivables | 164,482 | 232,546 |
| Contract assets current | 30,924 | 32,834 |
| Financial assets current | 18,570 | 19,902 |
| Other receivables and assets current | 56,832 | 64,011 |
| Assets classified as held for sale | 219,478 | 0 |
| Cash and cash equivalents | 118,717 | 296,512 |
| 851,727 | 833,154 | |
| Total assets | 1,299,160 | 1,352,133 |
| EQUITY AND LIABILITIES IN TEUR |
30.09.2022 | 31.12.2021 |
| EQUITY | ||
| Subscribed capital | 63,631 | 66,096 |
| Capital reserves | 123,432 | 168,283 |
| Accumulated results | 249,887 | 239,431 |
| Other reserves | 3,407 | -8,405 |
| Treasury shares | 0 | -46,848 |
| Equity attributable to owners of interests in parent company | 440,357 | 418,557 |
| Non-controlling interests | 2,412 | 4,706 |
| 442,769 | 423,263 | |
| NON-CURRENT LIABILITIES | ||
| Financing liabilities non-current | 196,240 | 238,376 |
| Other financial liabilities non-current | 31,569 | 54,084 |
| Contract liabilities | 4,297 | 16,952 |
| Other liabilities non-current | 488 | 488 |
| Deferred tax liabilities | 11,499 | 13,206 |
| Provisions non-current | 24,570 | 25,056 |
| 268,663 | 348,162 | |
| CURRENT LIABILITIES | ||
| Financing liabilities current | 116,990 | 72,319 |
| Trade payables | 196,247 | 269,975 |
| Contract liabilities | 67,233 | 85,025 |
| Other financial liabilities current | 23,860 | 47,712 |
| Provisions current | 25,243 | 31,436 |
| Other liabilities current | 48,444 | 74,241 |
| Liabilities classified as held for sale | 109,711 | 0 |
| 587,728 | 580,708 | |
| Total equity and liabilities | 1,299,160 | 1,352,133 |
| CONSOLIDATED CASH FLOW STATEMENT IN TEUR |
9M 2022 | 9M 2021 | Q3 2022 | Q3 2021 |
|---|---|---|---|---|
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||
| Earnings before taxes | 38,467 | 31,643 | 10,852 | 9,333 |
| Depreciation and amortisation | 42,934 | 47,225 | 12,794 | 15,537 |
| Interest expenses | 7,739 | 7,697 | 2,407 | 2,580 |
| Interest and other income from the disposal of financial assets | -897 | -993 | -359 | -184 |
| Increase/decrease of provisions | -3,791 | -8,876 | -3,660 | -2,391 |
| Gains/losses from the disposal of non-current non-financial assets | 433 | -1,005 | 72 | 2 |
| Changes in inventories | -72,242 | -40,367 | -13,812 | -22,020 |
| Changes in trade receivable and contract assets | 3,935 | -311 | -9,688 | -8,374 |
| Changes in other receivables and assets | -13,467 | -531 | -4,826 | 6,289 |
| Changes in trade payable and contract liabilities | -35,976 | -29,041 | 14,945 | -2,807 |
| Changes in other liabilities | -14,390 | -11,688 | -2,861 | 1,206 |
| Other non-cash income and expenses | -9,653 | 16 | 1,933 | 48 |
| Cash and cash equivalents from operations | -56,908 | -6,231 | 7,797 | -781 |
| Income taxes paid | -8,001 | -8,341 | -1,653 | -1,191 |
| Net cash flows from operating activities | -64,909 | -14,572 | 6,144 | -1,972 |
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||
| Purchase of non-current non-financial assets | -28,608 | -32,266 | -11,464 | -9,559 |
| Purchase/sale of financial instruments | 0 | -4 | 0 | 0 |
| Proceeds from sale of non-current non-financial assets | 2,101 | 2,245 | 49 | 1,084 |
| Disposal/purchase of financial instruments | 7,162 | -285 | -3,625 | -413 |
| Payments to acquire subsidiaries less cash assumed and plus current account liabilities assumed |
-13,678 | -3,059 | -5,378 | -1,490 |
| Proceeds /Payments from disposal/sale of subsidiaries less cash disposed and plus current account liabilities disposed |
-966 | -3,580 | 0 | -3,580 |
| Interest income | 547 | 624 | 247 | 85 |
| Net cash flows from investing activities | -33,442 | -36,325 | -20,171 | -13,873 |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||
| Increase in financing liabilities and financial liabilities | 95 | 52,725 | 0 | 7,306 |
| Decrease in financing liabilities and financial liabilities | -46,191 | -35,027 | -15,628 | -12,817 |
| Interests paid | -6,080 | -4,595 | -1,662 | -1,055 |
| Acquisition of non-controlling interests | -3,155 | -1,003 | -1,500 | -275 |
| Dividends to owners of interests in parent company | -22,271 | -19,183 | 0 | 0 |
| Payments for acquisition of treasury shares | 0 | -20,586 | 0 | -4,569 |
| Net cash flows from financial activities | -77,602 | -27,669 | -18,790 | -11,410 |
| Changes in exchange rates | 4,149 | 2,992 | -15 | 625 |
| Changes in financial funds | -171,804 | -75,574 | -32,832 | -26,630 |
| Financial funds as of the beginning of the period | 267,934 | 254,951 | 128,962 | 206,007 |
| Financial funds as of the end of the period | 96,130 | 179,377 | 96,130 | 179,377 |
| Overdrafts | 60,995 | 34,991 | 60,995 | 34,991 |
| Restricted cash | 5,173 | 4,210 | 5,173 | 4,210 |
| Total cash and cash equivalents | 162,298 | 218,578 | 162,298 | 218,578 |
Further details available under https://ir.kontron.ag/Financial_calender.en.html.
Our annual report, quarterly reports and other bulletins are available at https://ir.kontron.ag/reports/Reports.en.html from the day of publication. Any changes to schedules and dates are also announced on our website in good time. This quarterly statement was published on November 3, 2022. The report is available in German and English. The English version is provided for convenience only. The German version is definitive. No liability is assumed for any typographical or printing errors.
This quarterly statement contains statements that refer to future developments. These are based on assumptions and estimates made by the Executive Board. Although we are of the opinion that the assumptions and estimates are realistic and correct, they are subject to certain risks and uncertainties that may cause actual future results to diverge materially from the assumptions and estimates. Factors that may result in a discrepancy include changes in the overall economic, business, financial and competitive situation, exchange and interest rate fluctuations as well as changes to the business strategy. We cannot guarantee that the future development and actual future results will coincide with the assumptions and estimates expressed in this quarterly statement. Assumptions and estimates presented in this half-year report will not be updated.
Kontron AG, 4021 Linz, Industriezeile 35 Investor Relations: +43 1 80191 1196 | [email protected]
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