Kongsberg Automotive New

Good morning, everyone, and welcome to KA's Q4 earnings call presentation. My name is Mats Langård, responsible for investor relation. With me today, I have KA's president and CEO, Mr. Jørg Bochheim, and our CFO, Mr. Frank Hefter.

Welcome you all to the Q4 2022 earnings poll. And I would like to have a look with you on the agenda first. So I would like to give you together with Frank an overview about our results, starting with the executive summary. going via the market update to the financial figures. Would like to give you a little bit more insight about our shift gear performance. And then I would like to move to the outlook and then following by the Q&A session. So Mats, let's go to the executive summary and I would like to start with our performance in the Q4. So the revenue from continuing operations amounted to 215.3 million euros in the quarter for 2022. That's actually 9.6 million or plus 4.7% higher than last year's quarter for. This includes positive currency translation effects of roughly 6.6 million euro. And the moderate growth in Q4 was mainly driven by the above market performance, in particular in the commercial vehicle market in all regions, but as well as the passenger car market in Europe. but however, was partially offset by a significant decline in the Chinese passenger car market, as everybody speared with the open up of the COVID restrictions. In addition to that, this quarter revenues did not include the revenue of the divested Canada power sport business anymore, and that's a consequence of the complete sales transaction to VRP executed by end of Q3. Looking on the adjusted EBIT, this amounted to a solid €11 million, exceeding Q4 2021 by €2.8 million or 25%, and as well here without the divested Canada Power Sports business. And here I would like to point out that some special effects uh headed in as we were benefiting certainly from customer price increases booked in q4 2022 in particular in our powertrain and chassis division while on the other side we booked additional provisions for customs claims in north america which we reported already in q3 So the lifetime revenue business wins in the fourth quarter was very strong. It came in with 224.3 compared to 61 million in Q4 2021. Or if you're going to look into the annualized new business wins, we're talking about 73 versus the 28 of last year. So a strong booking, which is encouraging towards the future growth trend. A very good result as well in the free cash flow on a level of 84.5 million euro fueled by the Canadian BRP power spot divestment. Very good news as well. The adjusted gearing ratio in the LTM basis for continuing operations improved to 0.8 compared to 4.2 in Q4 2021. And we will elaborate on that on the financial figures a little bit more. That's a very good figure. And it's a result from all three recent divestments. So let's go, Mats, to the next slide. And this is giving us an outlook or a view on the 2022 full year performance. And here I would like to point out, despite ongoing multiple challenges in the industry, which is continuously going through, KR could achieve respectful results with 905.6 million on revenue, which is an 8.9 percentage growth compared to the previous year. And if you're looking in the EBIT performance of 35.6 million, I'm glad to share that with both of the figures, the company and management delivered on the revised guidance. So the company and the employers did a great job during this rough times. And therefore, I would like to take here the opportunity as well to give my thanks to all colleagues who generated value each day for Kongsberg Automotive. Even more, based on the domestic, we couldn't significantly deliver our company reflected by the high amount of cash flow, net interest bearing and a healthy leverage ratio, which is important for a company's credit rating and security. So good news on this as well. When it comes to the new business wins, we mounted up for the entire year of 760 million respective lifetime revenue, which is 81 million more than the previous year. But with Q4, back on a very encouraging book to build of above one. So looking into... The next slide, and this is giving us a typical glance into our segments, into our major two segments of powertrain and chassis and speciality products. Here we're going to see the 8.9% overall growth as well as the new business wins were in this year majorly fueled by P&C. While the SPP comes out with a very solid performance on revenue, considering the fact, again, that the Q4 2021, in comparison, still included power sports revenue, which isn't considered in the Q4 2022 number anymore. Both segments had a great Q4 new order intake, so which is actually you see that on the new business wins columns on both sides, which actually mounted is three times higher than in the previous year, equal quarter. So that's a very good news. When we're looking into the, let's say, sustainable profit or EBIT margin, then we see here we need to point out two special effects. You see a great 7.8% on the left side at the powertrain division. As I've mentioned here, we're heading in some growth. special effects, and this was the price increases which we got in by our supporting customers, which was valued of 6.7 million compared to Q3 2022. And we had some release of smaller provisions in a magnitude of 3.4 million, which offsetted some time negative effects majorly on the supplier side. So the shift gear one performance negotiations here with our supporting customer base, we had a great success, which we booked partly into the Q4 result. And that's why you see here in 7.8% performance. If we're looking into a normalized performance here in P&C, it's compared to Q3 as well normalized performance. getting better, and we're seeing here a good trend towards the next quarters. When it comes to the specialty products, we saw actually outstanding performance in Q3. We had dropped in Q4 as well here to give you a little bit more flavor into that. We had in Q3 certainly positive effects from customer reimbursements. So price increases, reimbursement for raw material price, This came in a month earlier in SPP. This is what you see now in powertrain and chassis, but that's what we booked into Q3 already as it came in earlier. And we certainly had some positive variances here in Q3. In Q4, the return had some negative effects when it came to inventory cleanups. As you may remember, the industry is pushing out certain inventory levels, and we took here in Q4 the opportunity to clean up some inventory in the specialty product segment. So overall, certainly, we will see a more stable outlook towards the next quarters. But the industry, I have to admit, is still very volatile. And we will report about special effects as you are well known and used to it over the next quarterly revenues. Looking a little bit in the next page, that's in the market update. And when it comes to the Q4 car production performance, we saw a 1.7% increase in the quarter of four. So compare year by year in the passenger vehicle area. So 1.7% increase, which is a very, let's say, stable on flat number. And we saw even a decline of 6% in the commercial vehicle market. And the China market was here the major differentiator as the Corona open up politics significantly slowed down industrial activities within December. But we saw that as well continuing in January and February, combined with the Chinese New Year season. So that has slowed down. strongly the global commercial vehicle production as China is at the end of the day here traditionally the engine when it comes to growth. Yeah looking into the next slide and here we'll see the current ongoing global market challenges so energy prices coming off highs global inflation still on a high level So, as well here, the KA, the group, has been exposed to market fluctuation in the price and availability of mainly the following raw materials, the steel, copper, zinc, aluminum, and resins, polymer resins, which we are using in particular in our FCS area. So, sudden fluctuations in the market conditions could therefore always impact the group's financial positions, revenues, but as well profits and cash flow. And raw material sourcing costs are also exposed to customs and duties. So in 2022, prices of the above-mentioned raw material as well as electronic components have reached new all-time high levels, which together with the rising transportation costs created an insecure situation. We know that and we reported about that, especially for all the overseas deliveries. Komsberg certainly, and I need to point that out, applied a variety of countermeasures here, ranging from commercial negotiations, which we reported, and I will elaborate on that a little bit later, to, let's say, implementation of raw material price clauses in contracts. We had launch of benchmarking RFQs. We did resourcing, nearshoring activities, and sourcing on lower costs. But we're looking as well to adjust our supply base towards the macroeconomical and geopolitical circumstances in order to increase our independency and being more flexible and reacting better in future on those crises. But summing it up, we see the energy price and inflation still ongoing. We saw that in Q4. We saw that we're going to see the effect as well in Q1. We see still certain semiconductor shortage. In general, it's getting better, as reported as well in Q3. But we see still volatile fluctuations here when it comes to certain specific semiconductors. There, it's really a limited capacity versus an overarching demand. And if it comes to supply chain, what we saw as well, but we could manage that. We saw the first companies did their business model testing and we saw as well the first bankruptcies here. Looking a little bit into macroeconomic performance here, so the overall on the next slide, the overall performance, how Kongsberg performed in the global perspective in the passenger vehicle, as you know this slide, and the commercial vehicle, but as well as a quick look in others, we see certainly that the commercial vehicle market in Europe has increased. Sales to Volvo in particular or Scandinavian customers has increased by 12.4%. So we see here a good performance when it comes to the commercial vehicle in Europe. We see in America as well certain increase when it comes to our commercial vehicle segment. So the commercial vehicle segment here outperformed in Europe, but as well in America our performance. When it comes to the passenger vehicle, we see here A huge drop continuously in the particular in the European market for Kongsberg. That's just simply the demand for manual shifters, which is a big portion in particular in our P&C business area, is going to get reduced with the transformation. That's actually nothing new or surprising for us. But you see it now as well in the figures. But as I said in the return, this could be compensated by outperforming commercial vehicles. And that's underlying as well our strategic pathway to moving more and more out of passenger vehicles in certain areas in particular and moving more to commercial vehicles. So on the highway and off highway. So, this trend you see here, when you're looking on the market, versus Comspect performance is certainly confirming again, is going to be the right choice. Looking then on the next slide, and this is looking forward here, our new business wind performance. And in particular, the green line is here, the line which we should look into it. So as reported in the opening already, good bookings in the fourth quarter, in particular in P&C segments, on-highway business unit, and here in North America has raised the book to build back to our clear growth path. So we are here on the 1.0 or above 1.0, and with our newly centralized sales and business development organization, we feel to laid out the right pathway for the exciting new business wins on our way forward. So this is looking encouraging in particular towards the outlook over the next quarters and years. And I would like to resist to hand over to our financial update. And I would like to hand over to Frank. All yours.

Thank you very much, Jörg. Also, welcome from my side. I want to. Give you more details on the financials, starting with the revenue development. Again, Q4 came in at 215 million without the contribution from BRP sales from Canada. This is obviously the highest number in the last four years. The contribution of BRP sales in 2021 Q4 was around 16 million, so a comparable base would be 190 million revenues, not 206. The increase was supported by positive currency development in the amount of 6.6 million, notably less than the quarters before as Certain currencies now have changed in the development, and we will also see this going forward. The biggest uplift on the quarter-to-quarter comparison came from more than 20 million of achieved price increases in the quarter, of which 75% are sustainable. The underlying volume was thus in line with prior year. When we look at the quarterly adjusted EBIT development, we came in at 11 million, also here, excluding any contribution from BRP sales in Canada. The margin was 5.1% for Q4. And you might remember in the last Q3 earnings call, we indicated a quarterly margin target of around 7%, which we could not achieve as we had on one hand the additional warranty customs accruals that we built, as well as negative outcome of our yearly inventory counts, especially in the fluid transfer systems business. But also here, corrective measures have been implemented, so this should be a one-time impact. When we look at the earnings bridges, then it's good to note that both operating segments have contributed positively In the quarter-to-quarter comparison, P&C very strong with 2.5 million on the back of the significant price increases, but also SPP was able to nominally increase their adjusted EBIT despite the negative one-time impacts. Smaller items than other and FX then led to the 11 million. On the net income side, Obviously, a significant impact in the quarter resulted from the divestiture of the Canadian manufacturing site to BRP, 30 million, including related taxes. We had some additional restructuring costs in the amount of 3.6 million that we accounted for and that are not part of the adjusted EBIT, but of the net profit. In Europe, we looked at the recent development of our driveline product programs and noted that despite our efforts to increase the prices to compensate for raw material increases, energy cost increases, we were not able to bring certain projects into profitable territory and were thus related. We were forced to account for onerous contracts and also impaired assets related, dedicated to these projects. Total amount, 3.2 million euros. Positive development on the interest side as we have reduced our bond, also the interest amount paid was reduced by 800,000. Other financial items also positive here as we are continuously increasing the share of excess cash that is generating interest. So this is also positively contributing in the quarter to the net profit. The currency development in made currencies like US dollar, RMB was unfavorable and led to currency loss of 8.4 million. Finally, the tax position, 5.7 million. Here also certain adjustments had been made, special adjustments, impairment in Switzerland. as the divestiture of the BRP plant resulted in the loss of a significant contributor to the Swiss principal model. And we therefore impaired goodwill for future losses in order to be conservative and not overstate the potential recovery of tax loss carry forwards. All in all, it resulted in a positive net income of 13.2 million, a 14 million increase versus the same quarter prior year. When we look at the cash flow, we also had a very strong quarter, obviously, again, majorly impacted by the divestiture of the Canadian plant, but also in the operating activities We saw 50 million positive cash flow, mainly driven by a significant decrease in net working capital. The investing activities include the proceeds of the asset sale to BRP in the amount of 63 million netted with investments in capex of 9.4 million. And the financing activities resulted in a cash outflow of 16.9 million, mainly attributable to the share buyback program in the amount of 9.4 million and payment of interest on the bond of 5 million. So in total, 74.5 million. Cash flow, if we were to exclude also the share buyback as a special item and a small repayment of a bank overdraft, then the free cash flow amounts to 84.5 million. When we look at the cash position at year end on a quarter to quarter development, we see again that the operating activities contributed 52.1 million mainly on the proceeds for inventory and other networking capital sold to BRP and only a small fraction still related to the discontinued operations business where we're still collecting receivables that remained with the company. On the investing activity side, again, the proceeds from the sale and the capex led to the 54 million contribution. And we had a true up on the sale of subsidiaries with a sub budget that added another 1.2 million to the cash flow. Financing activities, as mentioned, share buyback and bond main items. The FX effects I have mentioned as well already. So total balance at year end, cash wise, 212.9 million, very solid and very strong. When we look at the cash flow development on a yearly comparison, quarter four 2021 to quarter four 2022, then we see mainly the same big effects from the divestiture. We see as well that the total investing expenditure for CapEx amounted to less than 30 million. So we tightly managed the investment in our tangible assets. And for the full year, you can see on the year over year comparison, you can see that the FX effect is significantly smaller compared to the quarter three to quarter four comparison. It's actually a positive 3.8 million. When we look at our overall liquidity position, then we note that with almost 300 million, we are still in a very comfortable position. 230 million of cash. We still have the 25 million unutilized securitization facility and the undrawn rolling credit facility, revolving credit facility of 50 million. From last quarter, Obviously, the biggest contributors to this increased or strengthened cash position are again the change in total net working capital, the significant reduction, as well as the proceeds from the sale of the BRP business. When we take a final look at the key financial ratios, then we see a positive development in the adjusted gearing ratio that now amounts to minus 0.3, excluding IFRS 16, so basically debt-free. Taking IFRS 16 into account, we are at a very strong 0.8 at Q4 2022, coming from a 3.8 a year ago. So as we mentioned, we have significantly deleveraged the company. At the same time, the divestment above book value led to an increase in the equity so that the equity ratio was strengthened from 27.1% a year ago to currently 35.2%. On the right side, we see that the adjusted ROSI amounted to 4.4%, which is lower than a year ago, despite the fact that the capital employed was reduced by 140 million. Obviously, the lower earnings of the last 12 months also impacted by no contributions from BRP in the fourth quarter. resulted in a decrease of the ROSI. With this, I conclude and would like to hand back to Jörg for the shift gear update.