Kongsberg Automotive New

Good morning and welcome to the Kongsberg Automotive fourth quarter 2021 earnings call. My name is Jacob Ronebach. I will be organizing the questions at the end of the presentation, but for now I will hand over to our CEO, Jörg Buchheim, for the presentation.

Thank you very much, Jacob, and welcome to our Q4 2021 earnings call. I'm together here with my colleague, Frank Hefter, the CFO, and we are glad to guide you to our agenda today. And looking on the agenda, so I would like to start certainly with the financial highlights, the executive summary, the financial highlights, looking a little bit into the market, referring to the segment highlights, as you well know, coming to the group financial update and via an outlook, we are glad to receive your questions. Starting with the executive summary, I would like to enter from now onwards, we are reporting in our new normal and our new normal is looking in the continued business, so-called, so in our future business, excluding our divested interior segment. So starting with our financials in Q4 and in the entire year, the Q4 when it comes to revenues in 2021 amounted to 205.7 million Euro, which was slightly below the excellent quarter of Q4 2020. So we came out roughly on this level of Q4 2020, despite all the crisis. And if you are looking into the year on year growth, we came out at 831 million Euro, which is a 21% up compared to the year 2020, which is a significantly increase and certainly over average compared to the automotive market. And then looking into the adjusted EBIT, this has amounted to 8.3 million. and it's certainly lower than the Q4 2020. But as very well known, this is caused by reduced volumes and significant higher costs due to supply chain crisis, where everybody is well known about the circumstances. I mean, KA, like the whole automotive industry, suffered under the ongoing global sub-material crisis, as well in particular in Q4 2021. And that concerns foremost semiconductors, but increasingly also resin, metals and transportation capabilities. So this has impacted our adjusted EBIT by around 7 million Euro just in Q4 and overall in 2021 at a level of 21 million Euro. So that's certainly an opportunity in stable outlook, but in 2021, the impacts of the semiconductor crisis were certainly very present. Looking into the whole year EBIT, we're talking about 15.7 million, and I'm glad here as well to confirm that this is four times higher than actually we came out in 2020, but I'm glad as well to confirm that this is matching our guidance, our previous guidance, which we gave for the year end. So glad to confirm that and this is as well a big thanks to the entire Kongsberg family and teams. And we're gonna look then into the next slide and talking about free cash flow and new business wins or free cash flow totals certainly negative when it comes to the Q4. And this is majorly driven by an increased networking capital. because this has mounted up due to the extraordinary supply situation. So as a company, we decided to stay ready for deliveries by strictly honor the customer contracts and call-offs. And looking into the operating cash flow, poorly out of all operations, that was certainly positive. But again, to keep the flexibility here for our customers, we decided to keep a higher networking capital to deliver here as well a second to none service for our honored and preferred customers. When we're looking into the entire year, we're talking certainly about positive cash flow at all of 19.1 million Euro. And we are pretty proud on this result as it increased by 37 million compared to the previous year. And this is a significant outcome here in terms of improvements and certainly respect and honor certainly as well our performance improvement program results. When we are looking into the Ubisoft's Wednesday Q4 2021, they were pretty moderate and at the end of the day, summing up in a book-to-bill ratio of a very solid 1.0 for the last 12 months, which is giving quite good tailwind as well. looking into the upcoming years. To be completed from a gearing factor, and Frank will refer to that later on in his KPI overview, but the adjusted gearing ratio on an LTM basis, so looking into the 12-month rolling backwards, then we're talking about a 3.8 compared to a 5.4, into four, 2020, so a significant increase as well here. And with this, we're returning back to pre-Corona level. So looking into the next slide at a glance, so our business performance, the good message here is certainly our revenue development was spread across all segments and all regions. So all areas outperformed, which is very positively. And in particular, we outperformed in our commercial vehicle segment area, which is our future focus or increased future focus. But as well, passenger vehicle remains strong and in particular in China. Looking into the supply chain situation. So our shift gear, that's a positive news as well. And confirming that we are doing here the right things. Our shift gear performance improvement program that we generated more than 50 million on saving and improvement ideas has partly offset the impact of the supply chain situation, which is very positive and as well for the outlook. Looking then in the revenue impact, that was majorly in P&C, but due to our balanced segments, this was partly compensated due to increasing revenues in specialty products, which, as I said, helped to offset this revenue drop, and profits were certainly reduced, as mentioned before, by increasing cost of supply, associated with still high freight costs, which the entire industry suffers on. When it comes to our shift year program, and here I'm talking to about our transformation and product portfolio. We are here as well on track and we are very determined in executing our transformation towards our vision becoming wherever we are operating a top three supplier is our second to none philosophy. So we are leveraging currently our strengths of engineering in regard to innovations and relationships. in order to unlock here significant growth opportunities as presented in the capital market day. That looks very promising. And when it comes to the divestment, we announced just recently our closing of the interior comfort system. And we are very confident that this will be followed very soon with the closing of the light duty cables. And these units are reported separately, as I said, as discontinued operations and our new normal in terms of reporting is certainly the segment specialty and P&C in future. But nevertheless, I would like to share as well how the discontinued business, the divested business performed and this is going, we are going to see here on the next slide. And here you see that we despite revenue growth, respective revenue growth in this area, of 18.8%. This area was certainly hit in particular in terms of semiconductor impact and the adjusted EBIT amounted here to a minus 6.8 versus a minus 5.7 in the related year before. So it stays here negatively in terms of adjusted EBIT and looking then in the cash flow area, we came out here on the discontinued divested business at minus 46 million versus an 18.9 in 2020. So going then to the next chapter, I would like to refer a little bit more on the financial highlights and the new business wins. And I would like to start here in our quarterly overview in terms of revenue performance. And we see here two messages. First of all, looking into a typical pattern is actually reflected here by the green columns. This is for 2018. This is a typical automotive pattern. But we see here since 2019, starting with the Q4, the first, let's say, trade war, where USA and China open up here. We saw here already a variation on the typical automotive pattern, followed by 2020 in terms of corona. and then 2021 due to the indirect impact with the semiconductor and raw material price increases. So we see a different pattern, but the 2018 is the normal pattern, just to underline that, and we came back in a more normal pattern actually due to the first three quarters where we ended up with the second place looking into the last four years, which is very positively positive. But what we saw then as well, and I stated that before, in the Q4 2021, we see an increased impact again from the raw material price increases and the ongoing semiconductor issues. So the 206 million reported in 2021 Q4 should have been, under normal circumstances, 5 to 10 million actually higher. Let me then go on the next slide and doing the same exercise on the adjusted EBIT. Here, similar, the Q4 was at Combsburg, but as well, following the automotive all over trend was impacted. And we would have closed here in the Q4 actually as well, 10 million higher following the normal automotive pattern logic. if it would be a stable supply situation. So that's good to know if you're going to look forward, but certainly shows here that the impact in particular on Q4 on the current tension situations in the market are going on and expecting to be getting better throughout the 2022. So then looking into the free cash flow here, two messages. So first of all, we moved in terms of free cash flow, as you could see on the left side, from a minus 18 million year end in 2020 to a plus 19. And again, I would like to underline that here, certainly the teams did a good, great job. And the shift gear, our performance improvement program hit in. And as well, looking then in terms of the quarterly performance, you see here in the first three quarters and reported in the earnings call last year, adequately very good cash flow, free cash flow performance, very positive, within continuous increase. And then in Q4, this was different. And I referred to that before. We saw a minus 14 million, but majorly driven, as you can see as well on the details on the right side on an increased and then very much increased networking capital, which is majorly the inventory, which we're keeping as a flexibility for our customers to react. And again, this is the planning process as well for our customers is currently, and in particular MQ4, very dynamic and very difficult to do in a proper way as the semiconductor availability determines the planning process. What is important to underline here as well, we're going to continue in our investing into our growth as outlined in the capital market day. So we're executing here as well the investment into our growth and into our new innovative areas and projects. Looking then in the next slide, a little bit more on the book-to-bill performance, and again, this is continued operations, you may remember, including the interior segment, the level of the book-to-bill here is in 2021 still on a solid level of 1.0, which is promising in the outlook, but certainly the entire behavior of new business awards in the industry has also slowed down if you compare to the 2020 as the industry currently looks carefully in the recent developments of the crisis intentions. So, but still is on a very positive level of 1.0, which is, as I said before, giving us tailwind for the future. When we then go to the next chapter, which is the market summary, I would like to refer a little bit on the global passenger car production in 2021 and the global truck production. And as we can see here, if it comes from a quarter to quarter perspective, we see here in the passenger vehicle, A drop down in the Q4, a significant drop down in the Q4 of 13%, and we saw a cool down as well of 33%, which is significantly from Q4 2020 to Q4 2021. And majorly, this comes in the commercial vehicle area from a huge drop in China. And when we're looking into the passenger vehicle, that's certainly more than the European area and the U.S. area, which dropped significantly from a quarter-to-quarter perspective. So looking then how this is going to continue in terms of the outer years and moving to the next slide, we see here in a five-year perspective, production on the left side, including China on the right side, excluding China. And we see actually that we have significant growth perspective. The industry is in terms of outlook very positive on the long-term view. So going back to normal, it's just a question of time, which is confirmed here by this outlook. So a 30% increase over the next five years and coming back on a passenger vehicle level in 2025, on roughly 100 million is actually back to the good days and looking that as well in terms of commercial vehicle. So including China we see here and China is referring to one third of the market is seeing a 13% up with a significant growth potential and portion in North America and Europe. So the outlook here in terms of long-term revenue and recovering from the market gives a very positive sign. Looking in the segment highlights then in the next slide and we're going to see here our segment financials in the first slide and the segments differently impacted by the semiconductor and raw material situation. So when it comes to the powertrain and chassis, We see in the Q4 is a 180 million Euro revenue actually compared to the 117 million in the previous year. Exactly what I said before, we lost here to a normal situation, roughly 10 million Euro on revenue. And this has been caused majorly due to passenger vehicle sales reductions in Q4 in Europe. and which was majorly hitting our driveline business. Despite that, we could positively work on the EBIT. You see that despite this drop, we could increase our EBIT margin from a 4.9 in the Q3 to a 5.7 in the Q4. And this was majorly done by our shift gear performance improvement contribution, which positively contributed here to our improvement on EBIT margin. When we are looking into the specialty products, the good news is we increased our sales here. That's different, like, in the automotive area. That makes it interesting in terms of balancing product portfolios. We could increase our revenue by 7%. And the good news here is as well, it happened in all business units, so all business units contributed. When it comes then to the EBIT, we see here currently an effect, and this is a big drop from Q3, in particular Q3 to Q4, but we see that already in the range in Q2 and Q3, the impact of the semiconductor shortage as well reached the off-highway business, and I'm talking here in particular on off-highway business, where we're using as well semiconductors in the limited, but we're using semiconductors, and it arrived as well in the off-highway area, and this is in particular related to actually one customer. So looking then into the segment highlights here in a nutshell, as I referred already to revenues and adjusted EBIT or powertrain and chassis. So please keep in mind, this is our driveline business area and on our on-highway business area. So in terms of operations, mentioned the Q4, we were heavily impacted by supply and delivery and material cost premiums due to global commercial conditions. But again, we could partly compensate that to our shift gear performance improvement program. And looking then here on the new business wins, we are currently seeing that the market in this area has been less active in 2020 compared to 2020. And we see customers currently pushing out in particular in the second half of 2021, pushing out new decisions into the next year, into this year. And this has been shown here or displayed here as well in terms of reduced business wins in this area in 2021. But this is not canceled. This is pushed out and we're expecting these new business wins actually in this year. And it comes then to the next slide, specialty products. As mentioned here, as for revenue adjusted EBIT, the planned operations remained here stable and performed at pre-pandemic level. So in here, we see as well from a new business win perspective, even the Q4 was lower, but that's more the seasonality. We could increase our new business wins. And as I said before, this is really an interesting now possibility to balance different performance in automotive versus non-automotive, which is giving us on a long-term perspective really two legs to stand and to compensate. If there are no questions so far, I would like to hand over to Frank, who's giving us more insights in terms of Zoop Financials.

Yes, thank you, Jörg. Also welcome from my side. I will again focus on the continued operations in the majority of the slides. So if we again look at the composition of revenues and adjusted EBIT, we see the decline in P&C, is suffering from a very tough comparison in the previous years. Q4, where they had a record revenues of almost 120 million. So still Q4 2021 was somewhat solid, but obviously below the very strong Q4 2020. On SPP, we saw an increase, a slight increase. We exclude the currency impacts. Again, here, all businesses contributing. And then we have had favorable FX developments, mainly coming from Norwegian krona, US dollars. and to a lesser extent CNY that contributed 8.3 million, which then made us ending up at 205.7 million for the quarter. Looking at the adjusted EBIT, I think it's worth noting that despite the significant lower volume in P and C, they were still able to maintain the profitability at previous year's Q4 level. And taking into account the effects from the supply chain crisis, they would have even exceeded the profitability levels from previous year by some 2 million. On FTP, Jörg already mentioned the impacts from the semiconductor crisis, but I think it's also worth noting here that the EDI fluctuation or volatility is not easing in the fourth quarter, which puts a significant burden on managing the efficiency of our operations. And on top, we also have to acknowledge that we are not fully free of any COVID impacts that, be it on the supply chain or be it in our own plants, sometimes still impacts the efficiency. So all in all, Q4 ended up with the 4% profitability, 8.3 million. Taking into account the raw material supply chain prices effects, we would have looked at 7.2% profitability. When we look at the net income development, we see still a positive net income in the fourth quarter, but below the previous year levels, mainly driven by the reduced adjusted EBIT that we just looked at. We have accounted for some restructuring costs related to our portfolio optimization. and had also slightly higher interest to pay. That was offset by, again, positive currency gains here, mainly on intercompany credits in Norwegian kroners. And then higher tax expenses or tax account for 4.3 million as in the previous year, we have also had certain special effects through the impairment and write down of assets. Tax rate for the full year at 25% would still say that is a pretty good level. If we look at the quarterly and full year development on EBIT and net income, we do see quite some volatility in the fourth quarter over the years with the 7 million in this year being somewhat on a low point, also attributable again to the volume and the supply chain. When we look at the full year, we can see that we are certainly back to levels pre-COVID crisis. And even without the restructuring costs, like Jörg said, we have managed 50 million plus on our guidance. And on the net income level, same applies here. On the full year basis, we are definitely back even higher than the pre-COVID levels, also thanks to the improved profitability in P&C. And that is very promising also for us for the outlook into the future. When we take a look at the liquidity development, We ended the third quarter with a headroom of around 191.3 million. We saw some cash drain in operating activities as the positive adjusted EBITDA was offset specifically by the changes in networking capital, where deliberately we did build up a certain inventory to secure supplies to our customers, to also minimize the impact from price increases. So purchasing ahead of coming price increases. And obviously we have had certain cash outflow already for the restructuring of also the to be divested businesses. As this view here shows the whole group, not only the continued business. We invested certainly as well in certain CapEx and had cash outflow there. Minor impacts from interest and taxes. To be noted here is the net drawdown of debt. In the fourth quarter, we took some 20 million out of our revolving credit facility to also ensure enough payment for the net working capital and not to put additional stress on the supply chain by stretching any supplier payments. So we decided to better use our flexibility here. I can note that as of now, this has already been paid back given the receipt of proceeds from the divestiture of the ICS business. So accounting for that on the final position here at quarter four, 2021, We are at 148.3 million, of which 30 million is attributable to the still available RCS. Then we have our accounts receivable, security salvation program still in place, and the cash position of some 58 million. Looking at the net financial items, I think here not much to note. pretty much in line each quarter, the respective accrual for the interest on the bond and the positive effect in the fourth quarter on FX certainly helped to minimize the overall net financial result. Other than that, only smaller items related to the ARS facility here. So that's pretty much in line. And obviously, through the initiated deleveraging, the partial repurchase of the bond, we should see some improvements also here going forward. That was our clear intention. And that will materialize then in 2022. Finally, a look at the financial ratios again here for the whole group on the gearing ratio improvement over a year ago from 5.4 down to 3.8. That certainly is a positive development, although we saw a slight increase from Q3 to Q4 as the very strong Q4 2020 fell off the last 12 months and was replaced by the rather weak Q4 2021, which obviously weighs on the ratio. And in addition, like I've mentioned, we have drawn on the facility, so we increased also our debt by 20 million, which then again weighs on this. With the deleveraging activities, we are expecting this ratio to significantly improve in 2022. Equity ratio remains on a very comfortable, solid level, 30% plus or 27%, including IFRS 16. No big changes here. On the ROSI, Again, we see a significant improvement versus 2020, and also here due to the earnings reduction Q3 to Q4, or Q4 to Q4, a slight decrease from Q3 to Q4. Capital employed. Again, a decrease compared to a year ago where stringent control of capex and ongoing repayment of lease liabilities certainly is a positive. Whereas comparing Q3 to Q4, you see an increase, and here again, it is predominantly driven by a buildup in networking capital that was deliberately taken into account to ensure our availability and delivery capability to our customers. We also invested, but here, clear focus was on specialty products, where we have indicated that we want to increase capacity in our most profitable segment also going forward, and that's what we executed on. With this, I'll hand it back to Jörg for the outlook.

Thank you very much, Frank, for the comprehensive financial overview. And I would like to guide now through the outlook session. And I would like to start in our post-divestment business segment at a glance to recall here where do we focus in terms of our business. And as mentioned before, we're talking about after the divestment of our interior segment on a focus on two segments. And this is the powertrain and chassis segment on one side and on the other side, our very promising specialty product business segment, and starting on the powertrain and chassis. This is a global tier one business, and it's focusing on, let's say, from an application point of view, on driver control and driveline products, and focusing on a passenger vehicle segment and commercial vehicle automotive market, where our focus certainly moves more and more, as mentioned earlier, to the commercial vehicle segment and to niche applications. So looking into the business units underneath of the P&C segment, we're talking about the driveline business segment and the on-highway business unit, and in the driveline, we're having the shifter and actuator business, and the driveline business unit is very much focusing still on passenger vehicles and very much related to European regional business. And in terms of product mix, we are delivering by our shift by cable and shift by wire technology. The difference is one is the mechanical shifting, the shift by cable, the other one is the electronic shifting, which is the shift by wire. We are setting here with the shift by cable certainly the classical combustion engine driven vehicles, while the shift by wire addressing the combustion engine vehicles and the electrical vehicles. So if you're looking here in our competitive situation, we determine ourselves among the top 10 suppliers in the segment, which is a very diversified segment. When it comes on our very promising on-highway area, We're talking about a product segment of actuators, gear actuators for passenger car and commercial vehicle with a clear focus and higher portion in terms of commercial vehicle. And we're talking here about as well about our vehicle dynamic business. We're looking into the ratio in terms of e-vehicle versus combustion engine driven vehicles. both of these technologies or both of these areas can be served with our product portfolio. And due to our transformation product portfolio program, our shift gear tool, we're currently enhancing and upgrading this product portfolio, moving into two directions more and more in applications towards e-vehicle and more and more in applications towards the commercial vehicle area. So very promising and interesting for our product growth throughout the next years. When we then come into the specialty products, we're talking about segment where we are designing and manufacturing products for both the automotive and commercial vehicle market and with a very bright future. assess or wide assess to different markets. We're talking about power sports. We're talking about construction, but as well, agriculture, outdoor power equipment, power electronic applications, and as said, as well, the whole scope of automotive. And we're talking here about three business units, the classical off-highway business unit and the FDS or fluid system business unit and our couplings, business unit which is coming originally and strongly out of our origin of the company, Norway. So when it comes to off-highway, we're talking about displays, we're talking about operating control systems, pedals, displays, but we're talking here about as well advanced electronic power steering systems with a high degree on software and certainly as well a high degree on functional safety, cybersecurity know-how. And we have a low exposure here, as mentioned, to the automotive sector. This focusing more on the construction, agriculture, but as well outdoor power equipment when it comes to ATV. And we're rating ourselves here among the top suppliers in the segment. On the fluid system as well, very flexible, very flexible, broaden in terms of market assets and as well usable as well for combustion engine driven applications, but as well for e-vehicle. So very diversified, very flexible, very promising. And it's a huge growth perspective here in this area. And as well here, we are among the top suppliers in the segment. And when I'm talking about top suppliers, I'm talking about always our one, two, three positions. Couplings, clearly as well, top supplier, number one to two, depends on technology and regions, but very competitive. We have coupling systems from, started with coupling systems for compressed air with a huge upside potential and growth perspective, looking into enhancing that, and that's what we're doing towards liquid transformation and certainly as well, into looking into new segments. We refer to this in the capital market day, if it is at the end of the day, looking into health or other new business areas. So then we're gonna go then into the next slide and referring quickly to our shift year product portfolio. So looking into that, we certainly are going to continue our product portfolio transformation as outlined in the capital market day in December. And certainly we will consider the investment and investments on both sides according to our roadmap and future fit for the program, fit for the future. And certainly, as mentioned, we are proving all opportunities always in our so-called second to none logic. So we're looking in, let me emphasize that again, in are we competitive in this area or not? Are we going to be here as one of the top three players? That's certainly mandatory in terms of investing and growth perspective. Looking into our interior, so as mentioned before, we sold the interior comfort system and closed it at the 28th of February. So again, congratulations here for Lear and big thanks here internally as well to the teams. And as mentioned, Lear is certainly here a market leader in the seed business and is going to unlock, very confident here, unlock further system potential, which we at a component supplier couldn't raise. In the light duty table, we are intended to close this in Q1. This is slipping out into Q2 to some administrative issues. but we're expecting a closer very soon in the beginning of Q2. And as well here, Superjet, the Indian company, can here certainly generate economy of sales as one of the leading suppliers in this area. And, yeah, we are looking forward here on and looking forward here to our teams to help Superjet here to a second to none position. So then with the next slide, I would like to come to our outlook 2022. And first I would like to underline as well in 2022, we will certainly strongly continue to execute on our shift gear program. And when we gonna look here, we do see that semiconductor shortage and higher cost of supply and logistic stays certainly on for the time being, and that's as well for 2022. And when it then actually is coming more to the recent development, geopolitical developments, the war in Ukraine, then we certainly see here a very unpredictable case and certainly a new market challenge as reported. So looking into the war in Ukraine and the impact, we looked into the direct impact here on this regard and on the indirect. So the good news is certainly when we're looking into the direct impact, we does not see a huge impact here for Kongsberg. Our exposure to Russia and to Ukraine is limited, but certainly when it comes to looking in the indirect impacts, so how the market from a macroeconomical point and the automotive industry market is going to be impacted, we are very cautiously in terms of forecast. The potential indirect effects are impossible currently to quantify, and that's not only for us the case, it's for the whole industry. With the entrance of the wall at 24th of February, it's pretty unpredictable. So expecting here interactions at customers, at customer plants, we certainly see here a risk for reduced availability and higher cost of raw materials and we see a higher energy or labor cost development as a potential risk, which is currently, as I said before, very uncertain and very difficult to predict at the early stage of this war situation. Nevertheless, we stay firm in our use of proceeds from divestments when it comes to, for instance, deleveraging our debt, as mentioned by Frank, So we partially dampen our bond and we reduce that or going to reduce it as announced by 75 million. And this is going to help us as well certainly throughout the entire year with an annualized interest saving of 3.75 million Euro. The other topic is the repay to revolving credit facility, which we drawn into for as well outlined by Frank, and important as well, we would like to reiterate our intention for share buyback, but subject to obtaining more clarity on the impact of the Ukraine crisis, and certainly as announced before, subject to completing the LDC divestiture, which we see here in the early Q2. So when it comes then to the guidance, we discussed that certainly here among the management team and the board. And we want to stay here currently very cautionary in terms of guidance. As mentioned before, the situation on the geopolitical and economical side is currently very uncertain. And we... are very cautious here in predicting the impact. We know our direct impact. As I said, that's limited, but we don't know the indirect effects. This is hard to predict for us. So we would like here to be very cautious at the moment, and we would like not to issue at this point of time any 2022 entire year guidance. Absent this uncertainty, certainly we would have expected further revenue growth in 2022. And there's a similar, let's say, slightly lower conservative adjusted EBIT than in 2021, depending at the end of the day on the availability and cost of supply. And what we definitely do is we're going to closely monitor this development over the next weeks. And we are coming back on that and going to publish a guidance, a clear and reliable guidance as soon as this can be done in terms of news and upcoming developments. In Q1, just to share that as well, our revenue was pretty stable. So we were on a similar level like in 2021 Q1. So that is promising, but again, due to this war situation, we are very cautious to guide here at the current stage. With this, we are through to the presentation and we would like to be open for any questions.

Thanks, Georg. There's a number of questions and a number of people asking the same questions, so rather than give the name of the person who's asked, I will often just paraphrase. I think... There's a number of questions around the specific reasons for the EBIT decline in specialty products. Could you or Frank give some background on why it is that specialty products is particularly impacted, and if there are any specific customers, specific materials, et cetera, that we could highlight?

Yes, certainly. As mentioned before, we are impacted on the off-highway segment in terms of semiconductor. So, as I said, this now swapped over as well to the off-highway segment. And, yeah, it's literally semiconductor, as mentioned before, and it's literally one customer who is affected here, which, yeah, is reducing here revenue because on under availability of this part and certainly causing as well additional cost by spot by and by increasing flexibility in terms of of planning and production processes and this is the one and only reason is is here uh one one part on semiconductor

In couplings, we have seen higher raw material prices, especially on brass, that is impacting this business unit. And although we have mechanisms in place to pass on these increases to customers, there is a certain time delay. So you don't see it materializing necessarily in the same quarter.

When it comes to fluid systems, there we do see a lot of industry customers who need a very high flexibility in terms of ordering and planning process. And this certainly requires additional efforts in our production planning, which slightly increased cost. But again, this is temporary and overlookable.

Thanks. We are also getting some questions around energy costs. Are they a significant portion of our cost of goods sold? And also, how much of any of that is hedged?

So, multiple questions here. When it comes to overall share of costs, I'd say it's for sure not the biggest portion. It's not rocking the boat overall, but yes, we do see significant increases depending also on geographies. Some countries you see it multiplying compared to previous levels. And certainly we also take this into account when discussing with customers about price increases. It's utility cost. It is freight. So it's a multitude of elements. Hedging is, I would say, Partially yes, partially no. The majority we are buying on a regular basis without a specific hedge, but with firm prices from the utilities for a certain amount of time. And then same with hedging, sooner or later it is going to hit you. So also hedging only yields it for a limited amount of time.

Thanks Frank. There's a related question which also refers to raw materials. Given the continued uncertainty and the potential for raw material price rises, how much and how quickly can you pass these on to the customer?

This is part as well of our partnership approach here, the discussions with our customers. So in general, you have a pass over time of six months contractually. But these, in the current circumstances, are discussable points. And that's what we did. Discusses with our major customers here. And we narrowed the gap so far to a level of one to three months. And on very dynamic cases, as I said, even on a lower than one month basis. So that was one of the negotiation points with our customers and we are majorly now in the execution phase of these new conditions.

A related follow-up is whether we can quantify the impact at all of raw material headwinds in the coming quarters and how these will be related to the Q4 that we've just had.

As we said, the impact is going to continue. So it's the topic on what we've seen in 2021 as well in Q4 is going to continue the situation in 2022. But on the other side, certainly our counter measures or improvement measures of shift gear in particular, negotiations, pass-throughs to the customers are hitting in and going to partly offset So it's, as I said, it's difficult to quantify, but that's why we said without the Ukraine war, we are seeing a stable development, slightly tensioned, but stable outlook for 2022. So on a similar level and impact of 2021. So, and our program is continuing to counter that as we did in 2021. But the big uncertainty, and allow me to emphasize that again, is certainly the current geopolitical topic where we don't have any crystal ball at this time to really predict the impact. Because, as I said, from a direct impact, we are very limited, but it's for us impossible to predict the indirect impact.

maybe to provide a general magnitude, not taking into account any spot by impacts, because they always come kind of on top as a one-timer. We are talking about significant amounts, not talking about a million here, a million there. It's more, let's say, in the magnitude of 25 plus million that is hitting us on the raw material side, but also the same amount or more that we are targeting in terms of recovery from the customers.

Right. So 25 and compare that to 2021 where we reported the 21 million impact. So it's continuous in regard on the impact.

Okay, thanks. We have a number of questions around the proceeds from the divestment, which I will try to summarize shortly. But before that, if we could say something, there's some follow-up questions from the news that we had at the Capital Markets Day regarding how we see the product development in specialty products. Are there sectors other than, for example, automotive that we are considering and how is the progress on those? And another question was regarding the battery thermal management system that was mentioned at the Capital Markets Day. Is there any progress on development there?

Definitely. So on all areas, there is a certain progress. As we said, we are very determined and working with high focus on upgrading our products to assess additional market fields in all areas. So we're looking, for instance, in the on-highway segment to increasing our share significantly for e-vehicle and hydrogen-powered vehicles, and in particular, on mid and heavy truck areas, but as well the mid-range truck area. So the last mile vehicles are on high interest here. So this is one of the focus topics as outlined in the Capital Market Day. We have a focus team on that, and Dr. Amsel is leading these innovations. So certainly the second topic as mentioned when it comes to markets, we are progressing in our roadmap in upgrading the specialty products in different areas. So looking in transferring off-highway know-how into other areas to enabling here our system competence. But as well, when it comes to looking into the additional market opportunities, and I mentioned that before, for instance, in the health area, We are working on that and we are determining and we are executing here our roadmap. And if it comes to looking into additional products, we certainly as well going here our path into assembling our know-how for, as mentioned before, for system upgrades and coming back to our battery thermal management system. We are here in close alignment and discussions with development partners out of our customer base. So we are currently in close cooperation with two customers in particular here, one on the truck business and one on the passenger vehicle business, which are leading customers in the e-vehicle area. And that looks very promising. So we are full on track in this roadmap. And certainly, I'm confident that in the next earnings call, I can give you a clear insight.

Let me take the question on use of proceeds. I would summarize it that from these two transactions, roughly, we're expecting the 200 million. Half of that basically is attributed to deleveraging, like we have said, bond repurchase, repayment of debt. And then the other half we will use to invest in profitable growth or return it to shareholders, like we have indicated. And that still stays as communicated earlier.

Thanks Frank. I think that's obviously a question a lot of people are asking. There's a question regarding the remaining 200 million euros of bond after this latest redemption. Is there any plans to refinance this at the moment or will that wait until market conditions improve over the next few years?

Currently, there are no concrete plans to refinance that. It still has a certain tenure. It provides us with good liquidity. No, no focus on that one at the moment. I think we have other topics to execute on and not to tackle the bond at this time. It still has a sizable amount, 200. So I think it is being traded in the market. So good instrument.

Besides, certainly we're looking into those constructions like green bonds, certainly, but that's separately.

There's also some questions around the share buyback that was announced at the capital markets day. One is just around the timing and when that will go ahead, but also I think if you perhaps could explain a little bit about the mechanics of how the share buyback will work and how the shares will be deleted at the end of the share buyback. Especially within the retail risk base, I think that there's a lot of questions around that.

I think on the timing, like we have mentioned, first of all, we want to wait, or not wait, but want to execute on the closure of the LDC divestment. and also get more clarity on the geopolitical and automotive market sector development, which then provides us more visibility to also plan for our cash flows internally. And that is then the time to discuss and decide on the tough timing, when to start. Whenever this start will happen, We intend to follow good market practice, which means that we will adhere to certain safe harbor regulations in terms of maximum repurchase of volumes given previous trading days so that we are not influencing the overall underlying share price through this program. There are very established procedures in the market that's pretty routine and we will follow this. So depending on the volume, it will be a duration between three to six months. which will take the time to execute an up to 10% increase. And then, you know, following the repurchase, they will just be eliminated and deducted from the equity. It's very simple. So straightforward, established process.

Thanks Frank. There's also a question regarding whether we can provide the exact cash proceeds from the ICS that was closed, now that we have visibility on the transaction.

We could, certainly, because we know how much we received, but there was an agreement not to disclose that. I think I gave you the magnitude in terms of proceeds from both transactions that should be sufficient.

Just to underline, it's both in the range of 200 million.

Great. I think we have gotten to the end of the questions. that we received from listeners. So with that, I think we will just wrap it up. And we thank you all for attending the Kongsberg Automotive Q4 2021 earnings call presentation. And look forward to seeing you again in May when our Q1 results are available. Thank you very much. Thank you and bye bye. Good day.