Kongsberg Automotive New

Good morning, everyone, and welcome to Kongsberg Automotive's Q2 Earnings Call presentation. My name is Mats Langård. I'm Head of Investor Relations at Kongsberg Automotive. With me today, I have our new Interim President and CEO, Linda Nykvist-Evendru, and our CFO, Frank Hefter. Linda, the word is yours.

Thank you, Mats. And once again, welcome to this Q2 Earnings Call. I'm happy to be elected the interim president and CEO of Kongsberg Automotive. Through my 15 years at KA, I've come to appreciate the strength of all my colleagues, understand the solid bond we have with our customers, and our impressive product portfolio with market-leading positions. And not least, the opportunities this company gives us as a company with a global footprint. In the last few years, KA has faced different challenges, mainly operational. Therefore, going forward, I will focus on operational improvements and employee satisfaction. Together with our highly skilled and motivated team, I'm looking forward to embarking on the journey of continuing the positive revenue trend, and more importantly, regaining profitability as soon as possible. Before we move into the executive summary, I would like to start with the K in brief. and give a short recap about the company and its product portfolio. So let's move to the next page. As most of you know, Kongsberg Automotive is a global supplier of automotive systems and components. The company specializes in providing products related to driver control systems, powertrain and fluid handling systems. We serve various markets, including passenger car, commercial vehicles, off-highway and industrial markets. And we operate in multiple countries with manufacturing facilities, research centers and offices across different continents. Our focus is on innovation and engineering expertise to deliver high quality solutions to the automotive and industrial industry. Our total revenues in 2022 summed up to 906 million euros. Next page, please. Commercial vehicles, the segment, is representing more than 50% of our revenues and include a number of products provided from both business segments. The vast majority of our products are also compatible with EV applications, ensuring a future-oriented product portfolio. On the right-hand side, we have highlighted key products that also represent new product offerings, starting with the electric actuators. K offers a broad portfolio of electric actuators for future commercial vehicle e-drive train requirements, which is patented solutions. We offer actuators, for example, for different differential lock, decoupling or shifting applications. Our actuators are designed for efficient movements, high performance and have a unique cam and spring design. Furthermore, we serve both linear and rotary application requests. In terms of the steel-by-wire thermal valves, KA offers a smart thermal management valve for commercial vehicle applications, which combines both modularity and efficiency, especially designed for its application segments. It comes with an integrated actuator, which is based on a KA long-term expertise and with a smart control. Our compressed air couplings is a technology leader focused on supplying state-of-the-art products to the global commercial vehicle markets. Rayforce ABC product range provides customers with valuable flexible solutions that can be tailored to their specific requirements. Our air coupling ensure an airtight system for vehicle energy savings and optimize system airflow to improve the braking response time and thus consistently reduce vehicle stopping distance. The Rayforce Couplings brand has existed for more than 30 years and is a well-known product in the global markets. The thermal management system is one of our new innovation areas where we utilize existing competence and technology across BUs and segments, adding in a good portion of engineering development to create new coolant lines and couplings for the thermal management systems, both in terms of hybrid and battery electric, as well as fuel cell. This is done in close cooperation with the original equipment manufacturers, or what we say OEM. If we move into the next slide, Slide, please. Moving on to the off-highway segment that represent vehicles and machinery that are not primarily designed for use on public roads, such as construction, agriculture, and mining. Just as for the commercial vehicles, the vast majority of our products for the off-highway segment is designed to also match with the growing EV markets. Some of our key products are showcased on the right-hand side, Starting with the steering columns, which is a modular design that can be configured to all vehicles with both tilt and telescoping features. The anticipated growth rate for this product is in the area of 15 to 18%. Pedals is another key product design for the harsh applications of highway vehicles on Subject 2. We have a hall effect sensor that can be configured for all applications. And our anticipated growth rate for this product is in the range of 8 to 12%. Fluid transfer or PTFE hoses are used for applications such as turbo, exhaust gas recirculation, fuel transfer, hydraulic brake, air compressor, exhaust lines and coolant for various subsystems. Compared to steel and rubber lines, the PTFE hose are lightweight and compared to nylon and rubber, shows a very low permeability. PTFE does have the lowest coefficient of friction of any solid material known, making the fluid transfer smooth with minimal pressure drops. Additionally, PTFE hose can be pre-shaped for a tight packaging on the vehicle. If we move to the next slide and our passenger car segments or the light duty vehicles, the product offering is targeting the growing EV markets and applications such as air suspension. Products that are designed to enhance the performance and safety of the vehicle Adding a bit flavor to the product on the right-hand side, starting with electric actuators, KA Shift and Select actuators with its compact and light packaging offers premium performance with a back drivable gear train, including high position accuracy. Actuators that can be offered both with embedded hardware and software as a standalone unit or with hardware containing only sensor systems for applications where other separate control units is planned to operate. For the shift-by-wire systems, it's worth to mention that K is an established supplier for various types of shifters in shift-by-wire context. With the future trends towards, for example, shift-by-touch screen, Kongsberg Automotive offers a modular concept combined with excellent performance and flexible touch and press characteristics. As a summary, I would like to underline that our product offering for all three end markets are well positioned for the growing EMV markets our continuous focus will be on areas where we can define our position as second to none. And with that, I would like to move into the executive summary and page seven. Okay, so let's start on the upper left side. Our revenues in quarter two ended on 224.5 million euros, which is equivalent to a 17.5% growth rate year over year. at constant currency rates and excluding the BRP sales divested at the end of 2022. Our adjusted EBIT came in on 0.3 million euros, which is a decrease by 3.7 million euros year over year, impacted by operational one-time effects of 5.4 million euro within the P&C segment, as well as the divestment of BRP amounting to 1.1 million euro and a less favorable product mix. Our free cash flow came in positive with €4.8 million, an improvement of €0.8 million year-over-year, while the leverage ratio and the net interest bearing debt improved significantly. Mainly as a result of the proceeds received from the vestiture to BRP completed in Q4 2022. In terms of new business wins, we managed to sign 171.5 million euro of new business wins in quarter two, which is an improvement year over year of 3.6 billion euros. Next slide, please. So looking into the segments, starting with P&C or powertrain and chassis, we can see a revenue increase of 9.2 million euro year over year, equivalent to plus 8.1%. despite the negative currency translation effects of 6.7 million euros. The revenue growth was mainly driven by increases in the European and American commercial vehicle markets, partially offset by the significant decrease of revenues in the passenger car market in China, declining with 9.2 million euros. It is worthwhile to mention that we are pursuing a case related to infringement of our electoral property in the Chinese markets. Adjusted EBIT was, as previously mentioned, hit by operational one-time effects, mainly related to the one-product warranty case and write-down of inventories in North America. In terms of value creation within P&C, our focus is on finalizing negotiations to charge out supplier price and labor cost increases anticipated to give them positive impacts in second half. Following the reduction in the passenger car market in China, we have successfully implemented measures to right-size our organization, an activity that will continue in other regions where needed. We will also continue to promote our new generation of smart actuators with an increased focus on the Chinese and Asian Pacific market, an activity that is progressing well. Next slide, please. Moving on to the segment specialty products, quarter two ended up with revenue of 16.6 million Euro higher year over year, on a constant currency rate and excluding the BRP sales divested at the end of 2022. This was mainly driven by the growth of the flow control systems, revenues then linked into Europe and in the United States, as well as the growth of highway revenues in Americas. Adjusted EBIT came in on 8.6 million euros, a reduction of 0.9 million euro year over year, excluding the BRP sales, where the decline was mainly attributable to the lingering unfavorable product mix. In terms of key value creation and measures within the specialty products, they are focused on finalizing then negotiations to charge out supplier price and labor cost increases, similar to P&C, something that we are anticipating also to give them positive impact within the second half. A strong focus on operational performance, improvement projects and cost control in all areas. And within the business unit flow control systems, there is a high focus level on people development and best practice sharing across regions and plants. Next slide, please. As a last page in our executive summary, we would like to give some light to the good news we shared on July 11th, that KS acquired 20% of the shares in chassis autonomy. with an option to acquire up to 100% of the total outstanding shares within 2027. Chassis Autonomy specializes in design and development of steer-by-wire and brake-by-wire systems for use in highly automated and fully autonomous vehicles, as well as agriculture and construction applications where KA is seeking a strong market position. This technology will allow KA to empower customers to incorporate fail-operational steer-by-wire solutions in their vehicles today, preparing them for autonomous driving for road and farming vehicles. If we go then a couple of slides and moving into the chapter market update, please. Okay, very good. We start with a well-known page describing how the global production for both commercial vehicles and passenger cars are developing. As you can see, both markets are showing a positive growth development year over year. where commercial vehicles is driven by higher production volumes in China and European markets, resulting in 18% growth year-over-year and estimated growth of 7.3%, comparing 2023 with fiscal year 2022. The global passenger car production indicates a 13.9% year-over-year growth, triggered by growth in all regions. And comparing the full year, we see an increase of plus 4.5% comparing 2023 production estimates with the fiscal year 2022. Next slide, please. For completeness, we're also including a market forecast, and on the more long-range perspective, we see a low to moderate market growth in both segments, where China is the primary driver for the growth in the coming years. LMC quarter one report indicated a growth rate of 18 percent, including China for commercial vehicles and the same time frame, 2023 to 2027. And on the passenger car side, a 10 percent growth rate, including China for the same time frame. And this is also what we then showcased in our quarter one earnings call presentation.

If we move into the next slide.