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.