Kongsberg Automotive New

Good morning, everyone, and welcome to Kongsberg Automotive's third quarter 2023 earnings call presentation. With me today, I have our interim president and CEO, Linda Nykvist-Evendru, and CFO, Frank Hefter. Due to some time delays, we appreciate if you will submit your questions to the web for the Q&A session as soon as possible during the presentation. Linda, the bird is yours.

Okay, thank you, Mats. And once again, welcome to this Q3 earnings call. I'm happy to take you through our Q3 results in today's call together with our CFO, Frank Hefte. So let's move to the executive summary. Let's start. So our revenues in Q3 ended at €220.6 million, which is equivalent to a 14.8% growth rate year over year at constant currency rates and excluding the BRP sales that we divested end of 2022. Our adjusted EBIT came in on €14.3 million, an increase by €1.4 million year over year, supported by a positive operational one-time effect of €5.7 million, partially related to retroactive price increases and one-time compensations. In terms of our free cash flow, that came in negative with minus 13.4 million euro. This was mainly related to a normalization of accounts payable. It was built up in previous quarters, as well as an increase in networking capital to support the future growth and to facilitate the footprint optimizations. The leverage rate and the net interest bearing debt has further improved, mainly as a result of the proceeds received from the divestiture to BRP completed in Q4 last year. In terms of new business wins, we managed to sign €207.1 million of lifetime revenue of new business wins in Q3, which is an improvement then year over year of €78.2 million.

Let's move into the next slide, please. So let's take a look into the segment starting with P&C.

We can see a revenue increase of 7.4 million euro year over year, equivalent to plus 6.2%, despite the negative currency translation effect of 10 million euros. The revenue growth was mainly driven by increases in the European and Chinese commercial vehicle market. Revenue in the passenger car market grew by €2.5 million on a constant currency base, which was mainly driven by the increase of €5.1 million in the United States. Retracted price increases also supported the growth. Adjusted EBIT amounted to €12.2 million, an increase of €10.9 million year-over-year, mainly driven by the positive one-time effect of €4 million. predominantly related to one-time reimbursements from customers and the release of the provisions for customer claims. Furthermore, adjusted EBIT in Q3 2023 benefited from cost savings in engineering and other outbreaks. New business wins amounted to 144.5 million euros of lifetime revenues or 39.6 million euros in annualized revenues. Within the quarter, P&C was awarded two significant contracts, The first one is to supply the electronic actuators to a major European tier one supplier, 9.2 million euro in expected annual revenues and 73.4 million euros in lifetime revenues. And the second significant contract was supply of year sheet systems to a major American OEM, which is then 20 million in expected annual revenues or 40.1 million euro in lifetime revenues. 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 positive impact also in Q4. Following the reduction in the passenger car market in China, we continue to monitor the situation and to take measures to right-size our operations and organization.

Let's move to the next slide, please. So moving on to the segment specialty products,

Q2 ended up with revenue of 94.8 million euro, 12.9 million euro, or 14.8% higher year-over-year on a constant currency rate, and excluding the BRP sales invested at the end of 2020. This was mainly driven by the growth of the flow control systems revenues in Europe and in the United States, as well as the growth of highway revenues in America. Supported also by retracted price increases, well as a one-time reimbursement of €1.7 million. Adjusted EBIT came in on €7.8 million, an increase of €0.2 million year-over-year, excluding the BRP sales. This increase was mainly attributable to the higher sales volume, partially offset by the unfavorable product mix. During the third quarter in 2023, total new business wins amounted to €62.5 million of lifetime revenues, or €27.5 million in annualized revenues. Within the quarter, specialty product was awarded two significant contracts. The first one to supply fluid transfer assemblies to an American truck manufacturer, which is then expected as a 2.5 million euro annual revenue or 8.9 million of lifetime revenue. The second one is to supply couplings composites to various customers, which is then 12.6 million euros in expected annual revenues or 20.7 in lifetime revenues. Key value creation measures within specialty products are focused on finalizing negotiations to charge our supplier price and labor cost increases, similar to also for P&C, something we are anticipating giving positive impact also within quarter four. Continuous strong focus on operational performance, improvement projects, and cost control in all areas.

Next page, please. So moving on to the next slide in book to bill, this is a slide that has been used for some time now.

We have understood that there is an interest to gain more knowledge about the business development in KA and contracts being awarded to our segments. We have evaluated this feedback and decided to both extend our executive summary with additional information linked to new business wins and to release a separate sales report with quarterly highlights. So starting with the book to bill slide, KAA is still on track. New business wins for Q3 amounted to 67 million euros annualized or 207.1 million lifetime revenues. Wins in Q3 was again strongly weighted towards our commercial vehicle and industrial segments. As for Q4, we have a very healthy pipeline of sales opportunities. Due to the customer sourcing behavior, certain key awards could move into 2024. but we feel confident that Q4 will be at least as strong as Q3 with the potential for an upside. Our aim is therefore to close the full year 2023 at book-to-bill ratio above 1.

So let's move into the next slide to see how the wins are divided per segment and per area. On the left-hand side, you can see the lifetime revenues already mentioned per segment.

And on the right-hand side, you can see that 75% of the booked business is linked to commercial vehicles, followed by the independent aftermarket and industrial segments, summing up to 24.5 million euros, or approximately 12%. Within the industrial segment, the awards include new products such as Ultipure and Ultiflex. The awards are centered regionally in North America and in EMEA.

Next slide, please.

So looking into this slide, we can see that products that are driving the book business in Q3, the highest sales are linked to our electric actuators. As per our press release on September 11th, we have received a business award from China worth 73 million euro lifetime revenues for our innovative dog clutch actuator that will be used on e-axles for commercial. In second place, we find our gear shift systems driven by a contract extension of approximately 40 million euros for our gear control units to one of North America's premium suppliers of gearboxes for heavy trucks, as well as 5 million euros for our mining vehicle manufacturer for our gear shifter and shift lever products. 30.7 million euros of awards for our technical hose assembly and technical PTFE hoses, including our unique Fluorocomp product. from a variety of both European and North American OEMs, as well as awards linked to our new industrial products, Ultipure and UltiP. Our ABC Couplings product continues to grow with 21.6 million of awards in the quarter. This includes a 6 million euro win from a key distributor in Africa, as well as Tier 1 and Independent OEMs. And in agriculture and construction and new growth markets, we won €4 million of new sales for our electronic pedals for an off-road vehicle manufacturer.

Next slide, please.

So in our latest press release from October 31st, we announced that KA and the Norwegian research and development company Romalina have entered into a definitive agreement to purchase patents related to camera washing technology intended for vehicles. This is KA's second investment in technology that will be used in vehicles that are on the road today, as well as in autonomous vehicles. Developed in Norway, Romalina's technology is a modern camera cleaning technology. Unlike traditional nozzle cleaners, this technology uses less fluid and sprays away from the camera lens, leading to and optimal cleaning. The product's intention is to improve functionality, quality, environmental impacts, customer satisfaction, and the cost of use. Developing the product into complete systems and sensor cleaning solutions are the potential next steps for KA for our further expansion into this product area. And we expect that this new technology can generate revenues in a two to three years time frame. And with the acquisition, KA now directly and indirectly controls in total 28 patents for technologies relevant to autonomous vehicles.

Next slide, please.

As per our announcement on October 23rd, we have initiated a cost optimization program that we expect will generate 15 to 20 million euros of savings in next year, 2025. Measures that we are anticipating within this programme is cost optimisation, right-sizing of the organisation and our global footprint, as well as workforce reduction. As part of our global footprint evaluation, we have decided as a first step to close our office in Dortmund in Germany, effective as of January 1st, 2024. This initiative and the cost optimisation programme will not change our guidance for this year, fiscal year 2021.

Next slide, please.

Okay, so we are moving into our market updates chapter, where we then start with another well-known page describing how the global production for both commercial vehicles and passenger cars is developing. As you can see, both markets are showing a growth development year over year, where commercial vehicles are driven by higher production volumes in China and the European markets, resulting in a 9% growth year-over-year, an estimated growth of 9.6%, comparing 2023 with fiscal year 2022. The global passenger car production indicates a slight increase of 0.4% year-over-year, triggered by growth in Europe and North America, offset by a reduction in China and South America. Comparing the full year, we see an increase of 6.3%, comparing 2023 production estimates with... Next slide, please. For completeness, we are 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 September report indicate a growth rate of 16%, including China, for commercial vehicles and the timeframe 2023 to 2027.

And an 8% growth rate for passenger vehicles, including China, for the same timeframe. Okay, next slide, please.

So looking into the KA Q3 performance within the different segments and regions, we can see that KA has outperformed the growth in the CD market in both the Americas and in China, a trend that has been maintained for four quarters in a row. The growth is driven by new product launches to a well-known global tier one customer as well as global OEM customers. The growth in the commercial vehicle market is part of the strategic shift for KA. KA sales also outperformed the passenger vehicles market. This is mainly due to the growth in sales of the fuel systems to one of the major European car manufacturers. Revenues from the passenger vehicle market in China were negatively impacted by increasing local competition. The increase in other of 7.9% is based on constant currency rates and excluding the revenues divested to BRP end of last year.

Next slide, please.

So moving into the next page and the challenges that remains within the automotive industry, we still see some clouds on the sky, although situation is improving in terms of semiconductor shortages, as well as for the supply chain situation. On the positive side, we see a flattering and or further reductions related to energy prices and raw materials. On the contrary side, we see increasing labor costs in core markets, i.e. the UAV strike in North America that ended last week. And with that, we conclude the executive summary, and I leave the word over to Frank to take you through the financial updates.

So, Frank, please.

Yes, thank you very much, Linda, and good morning from my side as well to everyone. Let me allow to lead you through the financials in a bit more detail, starting with the revenues. Q3 revenues amounted to 221 million compared to the 246 million a year ago, which still included 40 million of revenues to BRP. If we exclude those revenues, we already see that Q3 2023 was the strongest quarter in the last three years. Taking then on top the negative 15 million currency translation effect into account, then we see a growth from 206 million to 236 million, almost 15%. If we apply the same logic on the Q3 year-to-date numbers, then we would also see growth from 606 million comparable base to 696 million at stable currency, which represents also a 15% growth. If we move on to the adjusted EBIT, then we reported on the next slide, 14.3 million of adjusted EBIT, a strong 6.5% EBIT margin, certainly including the mentioned 5.7 million of one-time effects. that also relate to prior quarters. The comparable Q3 2022 figure, 12.9 million, includes a strong contribution from BRP, reimbursement predominantly of spot buys, total contribution 12.6 million. Absolutely a strong increase that we see from quarter to quarter, also excluding the one-time impacts in each quarter. On a year-to-date Q3 basis, on the right side, we see us now being at 18.7 million adjusted EBIT, 2.8%. adjusted EBIT margin, which is 100 basis points improvement versus one year ago when we take the numbers excluding BRP, 11.2 million and 1.8% margin. With the 18.7, we are also fully on track when it comes to our guidance as it represents 75% of our upper range of the guidance. If we move to the next slide and decompose the revenue and EBIT contribution, we compare on the revenue side against the 205.8 million excluding BRP. and a positive 0.3 adjusted EBIT. As already mentioned, 12.6 million were related to the BRP business in Q3 2022. It's positive to note that other than in previous quarters, now P&C China is positively also contributing to the quarter over quarter comparison with 4.3 million of additional revenues and 1.5 million additional contribution. Also here, it contains partially the named 5.7 million one-time effects around a million is attributable to China. When we look at the rest of PNC, we see growth of 13.2 million coming from both regions, Europe and Americas, and solid fall through, 9.4 million, obviously here as well, around 3 million of one-time impacts are included in the PNC without China. A little bit more challenging is the look at SPT here on the positive note of highway grew on a comparable basis, also supported by the 1.7 million one-time impacts and higher revenues from product sales as well and had a positive fall through. On the other hand, we saw growth in FCS of 8.6 million, but a decrease of adjusted EBIT by 0.3 million. Here we continue to see challenges when it comes to the product mix. Higher margin business contributes with a lower amount of revenue compared to lower margin business. We also see challenges in us creating the output that we target. So operational improvement measures are high on the agenda. In addition, we have to face the fact that although we have quite a big amount of customer contracts with raw material adjustment clauses, that these adjustments do happen with a timely delay. And therefore, we first have to face the higher input costs and then get the reimbursement from the customer, which we again expect also to support in the fourth quarter. When we move on to the next slide and our shift gear performance improvement program, then I'm happy to report that we could improve the expected performance contribution for the third quarter from a negative 400,000 forecasted last quarter to a positive 3.9 million for Q3 2023. This is on the back of, on one hand, being able to increase the positive effects slightly to 18.5 million. but also due to the fact that the risks and negative market impacts that we have anticipated in Q3 did not fully materialize, so that around 3 million of lower negative impacts were reported. Some of it is a little bit pre-ponement on Q4, but some of it like the customs declaration release of provisions certainly is something that will also last for the full year. Therefore, the total expected net improvement for the full year increased from a positive 700,000 to 2.1 million. If we switch to the net income bridge, then we compare against an 8.5 million of net income in Q3 2022, This includes the positive impact from BRP and therefore the adjusted EBIT swing is also only in brackets 1.4 million. But this means we have more than compensated the loss of the BRP business in the respective quarter. Impairment only minor changes. In the restructuring costs, we accounted for the change in sea level management as well as cost related to the strategic review that were slightly higher than the restructuring costs reported in the previous year. Interest remained unchanged. Other financial items slightly improved on lower expenses related to the securitization program. and other financial items then we had the positive currency gain net of 2.1 million and then we see a significant negative swing in the tax position here previous year was only in brackets minus 0.7 million, whereas the tax position amounted to minus 6.4 million in Q3 2023. Fact is that in this 6.4 million, we considered losses not to be usable in the foreseeable future and thus did not capitalize the deferred tax assets on the balance sheet and therefore we faced higher tax expenses than in the previous year. When we move on to other net financial items, then we see the expected positive swing in our net currency effects, 5.6 million for the quarter, which brings the accumulated net currency effect back to minus 1.5 million only. Here, the favorable development of the NOC is the main impacting factor. So that is definitely positive. On the other financial items, we continue to stay in the positive territory, which certainly is also positive. And we see on the net interest side. Also a slight improvement quarter over quarter, given that we continue to repurchase smaller amounts of the bond and we continue to invest our excess cash in areas where it generates interest income. Moving on to the free cash flow, we saw a decline. in the free cash flow of 13.4 million in the third quarter. If you decompose the free cash flow, then you see operating activities contributed negative 1.4 million, predominantly driven by an increase in net working capital, which I will elaborate on on the next page. Investing activities amounted to 7.6 million, so continuous stringent management of these expenses and careful investment in order to safeguard cash on one hand, but also allow for future growth in the coming quarters. Financing activities amounted to minus 14.8 million as we, on one hand, paid the bond interest in the third quarter. We made smaller acquisitions and repurchased own bond notes in the amount of 5.8 million, which is also highlighted in the lower part as it does not account for in the free cash flow. Last but not least, we could record positive currency and translation effects on the cash flow of 4.6 million. Obviously, the situation overall, looking also at the first three quarters in total, is all but satisfactory. And that is also the reason why we continue to implement additional measures in order to improve our cash flow generation. When we look on the next page in even more details of the cash flow composition, then we see that the adjusted EBITDA contributed a positive 22.2 million. Restructuring cash outflow was 4.5 million for the quarter. Other items, 3.4. And then we see the change in total net working capital of 15 million in Here, again, we saw a slight increase in inventory ahead of transfer of production to other locations and bank build, also certain last buys and buys ahead of price increases. That was a repetitive pattern. At the same time, we had a reduction in accounts payable compared to the previous quarter as we had to pay due payables to our suppliers. Tax payments, the cash out only amounted to 0.7 million. The investment expenditures, capex amounted to 5.6 million. And the small acquisition I mentioned was the investment in the 20% shares of chassis autonomy amounting to 2 million euros. Interest payment 5 million and other smaller items 0.6. Then the leasing liabilities that we repaid amounted to 3.4 million for the quarter. And the mentioned bond notes, 5.8 million, that certainly helped us to further the leverage. So from an overall liquidity perspective, we were at 255.8 million a year ago. On a comparable basis, we would have been at 236.6 million a but we reduced the size of our revolving credit facility when we prolonged it from 50 to 30 million and thus we stand at the end of Q3 at available liquidity of 216.6 million. Still very comfortable. Let me close on the next page with some important financial ratios. The adjusted gearing ratio slightly increased from 1.3 a quarter ago to 1.5 on the back of the negative cash flow. Still... an okay level, I would say, and definitely an improvement towards last year, where we still stood at 2.0. The adjusted ROC improved to 4.9% from 4.6 previous quarter. That is positive. It needs to be said that it is a decline of half a percentage point towards the Q3 2022, which again was very much supported by the positive BRP contribution. Equity ratio improved back to 33.4% from the 31.7 a quarter ago, still slightly below a year ago on the back also of the losses occurred in the first half of the year, including the impairment of assets on the driveline business. Last but not least, capital employed, stable at 492 million, despite the slight increase in networking capital, and significantly reduced by almost 70 million compared to a year ago. With this, I hand it back to you, Linda, for the next chapter of the strategic review.

Thank you, Frank. Okay, so let's move into the next slide. So, strategic review. In Q2, or more precisely in March, KA's former board of directors and former CEO and management decided to initiate a strategic review of KA with the aim of unlocking the full potential of the company. The purpose of the strategic review was the investigation into other paths for KA to create more shareholder value than running the company ourselves. Future-proofing the company by exiting certain segments, divestments or mergers. Developing KA's growth path by exploring bolt-on acquisitions in related growth areas. And right-sizing, improving organizational and operational efficiency. Ultimate objective has been value creation for KA's shareholders. There have been several constructive dialogues with KAA's advisors and market participants in recent months, and the process has given valuable insights into different areas of improvement, both operationally and financially. In Q3, KAA's new board of directors and management have decided to conclude the structural consideration of the strategic review. The cost optimization measures are seen as a continuous measure for the company.

Next slide, please.

So coming back to the timeline for the strategic review, we have received feedback that this process has been ongoing for a long time. We would like to point out that two quarters is not defined as a long time in this type of process. As you can see of the timeline on this page, there has been a number of activities that have influenced on the strategic review, including also now, lately we've announced cost optimization program on October 23rd, as well as the acquisition of patents from the Norwegian company Romeline, announced on October 31st.

Next slide, please.

So a conclusion made by the KA Board of Directors and Management is that by retaining and developing the current activities, we will create the highest value for KA and its shareholders. Our focus is on regaining acceptable levels of profitability and secure a positive cash flow in the next year. We have to continue to explore options for mitigating the earnings pressure deriving from the business units in the declining segments. And we are to focus on growth areas where KA is well positioned. And as well to allow for bolt-on acquisitions in the coming year so we can strengthen businesses in areas where we are well positioned. As a conclusion, as I said, KA's board of directors and management have decided to conclude a structural consideration of the strategic review.

Next slide, please.

So moving on to outlook and our last chapter for this presentation, we start with the guidance. So based on the year-to-date quarter three results, we can see approximately then 75% delivery of the full year guidance, both in terms of revenue and as well as adjusted EBIT. And with that, we maintain the full year guidance for 2023, meaning revenues of 880 to 900 million euro and adjusted EBIT of 20 to 25 million euros.

Next slide, please.

Other activities that we would like to highlight under the outlook section is that the board of directors have decided to launch a new share buyback program of 2.5% of the total outstanding shares or upwards limited to 4.2 million euros. This will now be initiated with immediate effects. As already stated during the executive summary, we have a very healthy pipeline of sales opportunities. So our clear target is therefore to close the full year 2023 at a book-to-bill ratio above one. In terms of upcoming events, we would like to highlight the following. We are invited to a breakfast meeting in Oslo, Norway, on Thursday this week, November 9th, at Danske Bank's facilities. We have an exhibition called Agritechnica in Hanover, Germany, that goes from November 12th to 18th, where we will also then exhibit. In terms of our Q4 release and 2023 annual publication, that is set to March 12th next year. And last but not least, we are also planning a new capital markets day within quarter one 2020. And with that, we conclude our presentation and we move over to the Q&A session.

So Max, please take it from here. Thank you, Linda and Frank.

We will now welcome questions from the audience. We also, during the quarter, received some questions from our shareholders related to Q3. We will try, of course, to answer all of them in this session, but due to some available time, I will kindly ask all of you that have additional questions to reach out to me after the call, and I will make sure that every one of them will be answered. That said, as Linda said, we have also communicated that we will host a breakfast meeting Thursday morning at Danske Bank's premises at Aker Brygge, Oslo, Norway. They will be possible to meet management and raise your questions directly to them there. Then we start with the questions here. Frank, this one goes to you. Have there been any further bond buybacks in fourth quarter 2023? What are your plans for addressing the 2025 bond maturities? I think the question there is whether there have been any bond buybacks in the third quarter.

So far, we have not done any additional repurchases of bond notes in the fourth quarter. And on the refinancing, that certainly is on our agenda, but not yet. We will start activities on that in early 2024.

Yes.

Can you talk through costs associated with cost optimization measures and facing through the air of action savings in addition to the Dortmund office closure?

So when it comes to the... severance payments or restructuring costs related to the announced rightsizing, then we are currently looking at the expected expenditure in the magnitude of around $3 million. On the Dortmund office, that was the first concrete measure that we can implement pretty fast, i.e. until the end of the year we can conclude. And that is why we have also decided to go for it. In addition, we do a complete review and evaluation of our global footprint in order to see whether there are additional savings and optimization opportunities.

Thanks, Frank. Can you comment on...

market environment for the fourth quarter this year. Your guidance EBIT of 2020 to 25 million implies a meaningful drop in the fourth quarter EBIT versus previous year of 11. Can you give some color around the assumptions behind this forecast decline?

Maybe I can start there as well. That's one of the last slides I showcased And clearly we have a little bit of an uptick now in the quarter three, as mentioned, also driven by some one-time effects, primarily then related to also coming into conclusion with customers about price increases that has also been having a certain time lag effect. All in all, we are on a 75%, both in terms of revenues and adjusted EBIT, as we said. So we are keeping up a good pace. and in line with our anticipation and expectations for the four years.

Can you comment on the sustainability of commercial vehicles' outperformance in China? Were there any one-off items driving outperformance in the third quarter?

In terms of the commercial vehicle revenues as well and the performance in China, Clearly, we have, as also showed under the macroeconomic slide, there is tremendous growth in there. You could see in terms of percentage. And that also then indicates that we are in a ramp up phase of some of those new programs. So that is, of course, one of the reasons behind that. But that also means that we are going in towards a good lifetime cycle and upward trends. And in terms of one-off items, there is primarily then, you know, driven by the increase of volumes and then partially also then in terms of a retroactive price increase.

Thank you, Linda.

How far has CA come with the development of the BTMS platform?

Okay, BTMS, we actually have in a way readapted that to TMS. BTMS stands for Battery Thermal Management Systems. Why we now call it Thermal Management Systems or TMS is primarily because we're not only focusing on battery management. We also focus on the thermal management system across the vehicle itself. And in general, to start with, thermal management systems will then play an important role in the transition from internal combustion engines to electrical vehicles. And in terms of further information about our engagement into the product area, we will also share a bit more of that in our Capital Market State next year. To be a little bit more specific then in terms of current status, we are running development projects and we're not in serious production yet. We have delivered prototypes to key customers and we also act as a development partner in several customer projects.

There's also some questions related to our buybacks.

So is this buyback program a part of the LTI bonus program? That's one of them. And when will the buyback program be initiated and what is the time horizon for the buyback program? We have touched upon some of it, but maybe we can just repeat.

So it will start with immediate effects, as I also mentioned in the presentation. And in terms of the timeline, I would say that that depends on the volume itself. And it will then partially cover for the LTI program. Frank, anything you would like to add?

We will certainly execute it as also the first share buyback program under safe harbor conditions. Thus, we can only repurchase a certain amount of trading volume. But given the current liquidity in the stock, we should be able to conclude that in a couple of weeks.

Thanks. How is the cost optimization proceeding? Has the number of employees already been reduced? How many employees are impacted in Norway? Is the headquarter moving back to Norway?

Okay, many questions in one. You know, in terms of the cost optimization program, yes, that is proceeding. And as we also then said, we are not anticipating any effects into 2023 or the 2023 guidance. This is now coming into play from 2024. The press release went out on October 23rd. So that also indicates that we are now in the progress of, you know, informing both internally and sharing more information about that one. For Norway specifically, I believe we already have made a comment on that in the past. And that is, you know, less than 10 employees, as I can recall, that is under that matter. In terms of headquarter moves to Norway, that is not yet part of any plans as of today. And we as a company and management will continue to evaluate what is the best location or locations for us in the future.

Yeah, there's also a question related to, are there any savings plans possible at C-level considering the cost optimization program? And for example, no bonus payment for the next two years at the C-level. We can just state that some of this is, of course, a question for the board of directors and not the management. But maybe we can touch upon briefly, Linda, a little bit more about the cost optimization program and how we run it.

Yeah, no, how we run it, it's a little bit as I said as well, clearly this is a great amount of internal coordination for the time being, ensuring also that we take good care of our people and employees, both the ones that unfortunately need to leave as well as the ones that are to stay. So that is a process that is in progress in terms of commenting on the level and bonuses as well for next year. As you said, that is a decision that is sitting with the board of directors and will not be commented by the K management.

Yeah.

Another question. Why is SPP so significantly underperforming?

Yes, I think, you know, maybe to just rephrase, or not rephrase, but recap a little bit also on one of the first pages we had today. We tried also to showcase the development excluding the BRP sales divested end of last year. And if we are to consider that one, we see then that we have, you know, a 14.8% revenue growth. On top of that, we also are, you know, over outperforming our adjusted EBIT from last year with 200,000 euros. Clearly, as I also mentioned, in terms of the key value creations being on focus area is to ensure then that we finalize the negotiations to chart out our supplier price and labor cost increases. There has been a bit of a delay in there as well, as also mentioned, and we had a catch-up effect in P&C, and we are anticipating that also now for specialty products in the quarter four. On top of that, we have a continuous strong focus on our operational performance and ensuring good cost control in all areas.

Frank, what has been built up on accruals in the second quarter and what has been released on accruals in the third quarter? Yeah, let me just look at the balance sheet and we see partially.

I will look it up. It will take me a moment.

Yeah. The book-to-bill ratio is continuously below one, which means the company is shrinking. What is the growth scenario? We've already touched upon it and given some sort of guidance, but maybe you can elaborate a little bit more, Linda.

Yeah, and I think we've also said that in the previous quotes as well, that there is something also about the dynamics and cycles of our customers as well. And there is a tendency as well that, you know, the contracts are settled end of the year. So as we said, we see now, you know, the uptick as well within the quarter three versus also previous quarter and last year. So even if we are currently on 0.9% or 0.9 in book-to-bill ratio, with the strong pipeline we have, we are confident that we will come in with a book-to-bill ratio above one. And clearly then, as also mentioned, with this claim in terms of also some of the key awards coming in, where customers potentially would delay that into quarter one next year. But we don't see any concerns regarding this one. We see then that we have a healthy pipeline of sales opportunities also for the coming quarters.

And Frank, another question for you. How much of your annual guidance of 25 million on EBIT is based on customer price increases?

This one is easier to answer.

The shift gear COMEX work stream is targeting to contribute slightly above 30 million, three zero, in the year. So that is what we are counting for and there is still not insignificant chunk of that that we want to conclude in the fourth quarter. And that is part of our 25 million guidance.

20 to 25 million.

Are the cost reduction measures sufficient or shouldn't it be even stronger to achieve a positive cash flow?

We've been doing those evaluations and we will clearly continue to do those evaluations. Yes, we believe that that is sufficient and this will also then ensure that we can also ensure the right focus for the company and its future and ensuring then that we also have the necessary organization and set up to continue then build on a future growth rate as well for the company.

What are the main moving parts to reach either the lower or higher range of the guidance? What do you expect for working capital movement in Q4 and trend for upcoming quarters?

Do you want to take that, Frank, or?

Can you say again, Matt? Sorry. Yeah. What are the main moving parts to reach either the lower or higher range of the guidance? What do you expect for working capital movement in Q4 and trend for upcoming quarters?

Okay. So on the moving parts, obviously one big element is customer demand, creation of revenue. Then the other one, important one, is what I've just mentioned, the contribution from the comics work stream. So the price increases to customers is another important one. I would say these are the two main elements that will help us to either reach the upper range or not. When it comes to networking capital, we are expecting and targeting a decrease in inventory. I've mentioned this bank build ahead of moves. Some of these moves will be completed before year-end. That should support a decrease in inventory. We also expect a decrease in accounts receivable on the back of lower revenue in the last two months of the year compared to August and September. That is also a reason why somebody asked the decline in the fourth quarter. Certainly, we have to take into consideration that there is the December months, which is traditionally a rather low month, and that weighs on the revenue but supports the networking capital development. When it comes to the further outlook, we continue to see optimization potential in inventory. On the other hand, we also want to continue to grow. And that obviously then brings some needs for networking capital with it. but I do not expect it to be as pronounced as we have seen it in 2022 and 2023.

Thank you, Frank.

What are you doing against the continuous erosion of the stock price? Can you elaborate more on this? We just recently dropped below two Norwegian kroners. So to that, we can, of course, as management, not comment explicitly on the share price. That's for the market to do. But we see the trend and we can comment on that. But more important, what are we doing? Maybe some brief comments, Linda or Frank.

Yeah, I think in general, clearly we are focusing on running the company as best as possible and ensuring adequate communication with the capital market. that is what we will continue to do as well now so we have now a q3 that is solid from that perspective and this is now clearly a trend line we want to continue on including also then ensuring a good free cash flow situation for the company so that is our focus and with that we also expect that will reflect into our share price as well um

When you expect book to be above one by the end of this year, does that mean that you expect big contracts in the fourth quarter?

Clearly, as we said, we have a healthy pipeline with opportunities and the current timeframe for that in consideration with our discussions with customers as well, all to close that out within quarter four. So I would say, you know, taking then the uptick from 1.9 to 1.0, there is, you know, some good opportunities in that pipeline.

Yeah. So I think we have one last question then. Do you expect to see any impact from the U.S. automotive and truck-related strikes?

Yes. As I mentioned as well, the UAV strikes were concluded last week. And clearly, you know, we need to see and wait and see then how that will also impact in the North American market primarily. All in all, I believe, Frank, we have some numbers showcasing that the revenue impact of that one is less than 2 million euros with just a little bit effect of less than half a million euros if I recall correct.

Absolutely, yeah. And then maybe let me quickly come back to the question on change of accruals and provisions. So in the second quarter, in total, we had around 6.5 million of change in provisions in terms of build. And in Q3, we had around 4 million of net change in terms of release. And that includes warranties, payroll, customs, you name it.

Yes, and just to avoid any misunderstandings, there is another question. Could you please clarify if the strategic review is still ongoing and whether Rothschild and ABG Sundal Collier continue to be actively involved in it? I think we've already touched upon it, but maybe give one final comment, Linda, if possible.

Yeah, no, as we mentioned as well, under the section of strategic review, clearly Rothschild and ABG Sundar Collier has been involved into that activity and the structural consideration, as we also mentioned. And as also then said, we have concluded that together with the new board of directors for the structural consideration. So that means that that is then a bit of a closed chapter and our continuous focus will then be on those bullet points mentioned And, you know, the cost optimization is, of course, always a continuous activity in our company, in our industry.

Thank you very much, Linda. On that note, we conclude the Q3 earnings call presentation. And as earlier said, please reach out to me either by email or by phone, and I will make sure that we get all of your questions answered. And then we, of course, hope to see as many of you for the breakfast meeting Thursday morning. Please also reach out to me if something is unclear or if you have some questions regarding time and venue and so on. Thank you very much, everyone, and see you soon.