Kongsberg Automotive New

So welcome to everyone participating here at this live event at Arctic. And of course, welcome also to those participating online. Sorry for the technical difficulties that we had here. I want to thank Arctic as well for allowing us to have this call at their facilities. So we jump straight into the key points for the quarter. We have had good debit growth and significant cash flow improvement in the quarter in spite of a challenging market. As most other players in the automotive industry, Kongsberg Automotive has also faced a challenging situation with the market. As a consequence, our revenues are down around 10% compared to the third quarter last year. So we had €162.9 billion in turnover in Q3 versus €181.6 million last year. And this is a direct result of the market situation in the global vehicle industry. The largest impact is in the market in North America due to the ongoing tariff situation there that has caused higher costs, market uncertainties and therefore also lower demand. In spite of those lower revenues, we see an improved EBIT of €4.9 million in the quarter. This is up from €1.1 million in the same quarter last year, which is a solid improvement from both previous quarters and also from Q3 last year. On cash flow, we see also a positive trend. We delivered €6.6 million in positive cash flow, which is 11.8 million improvement from Q3 last year. Cost reductions, we are moving forward with our programs according to schedule. On tariffs, we have been able to mitigate the cost this quarter and the net impact of tariff cost this quarter is close to zero. Then we have some challenges on warranties, and we will get back to that later in the presentation. Here we take a closer look at the financials, comparing those in the quarter versus the last four quarters. On revenues, we see the 10% drop in Q3, which is, as mentioned, caused by the market situation. We also have a currency effect due to a weaker dollar. of around 5.4 million euro, which is an implication of the business that we have in North America, where the contracts are in US dollar. On EBIT, we see the positive trend. We do see the dip in Q2, where we had significant warranty accruals. That was the main reason for the drop, but you see the underlying improvement going back from Q3 last year to until now. We also have some warranty accruals in this quarter. Erik will talk a little bit more about that later. But the positive thing here is that we've been able to improve EBIT in spite of lower revenues, which is good. It's not on the level far from where we want to be. There's still a lot of work ahead, but it's a positive indication. Pre-cash flow, positive trend also here, and you see the positive trend on the last 12 months. So last 12 months, we were close to zero now due to the positive result in this quarter. Result of lower cost base, reduced net working capital due to lower sales, and also more cash discipline when it comes to investments. So overall, I would say a positive indication on the trend on the profitability and cash flow that is very important for us. And as previously announced, we have the cost reduction efforts, which will give us around 40 million euro in improved cost base and a 4 to 5% improvement on EBIT on stable revenues. The cost saving programs are moving forward according to plan. We have completed the program that we launched in 24. We have completed the program that we launched at the beginning of 25. And we are on track with the program that we launched in May, which will be completed fully by Q3 26. We start to see the good results of these programs, which also Erik will show in the EBIT bridge later in the presentation. And also due to the lower market activity, we are also making additional adjustments in the cost base to align with the demand and to safeguard our profitability. This is mainly impacting manufacturing locations. On business winds, we report business wind with an estimated lifetime revenue of around 34 million euro. This is lower than the previous quarter and also during 2024. What we do see is that there is a lower activity in the market when it comes to new contracts. This is a consequence of the tariff situation and that the focus has been more on managing that situation and also the lower demand. We also see some of our customer programs being postponed. We have a strong focus on market activities. We keep a very tight dialogue with our customers. And we do continue with a good and strong pipeline of opportunities. And very importantly, we have not lost any major contract opportunities during 2025. So it's a number that we would like to see higher, but it's also a number I'm not too concerned about due to the current situation and the good pipeline opportunities that we still have. On the business wins, we also have done a revision of our investor policy. We have had a discussion with the board of directors and decided that we will only announce strategically important business wins going forward and our investor policy will be updated to reflect this.

Warranty cost.

This is an area that remains a concern for us. We reported in Q2 increased warranty accrual. In Q3, we have a total warranty cost of 2.7, of which 2.5 is increased accruals for future expenses. Due to the situation that we uncovered in Q2, we conducted a quite comprehensive review of our exposure to warranty liabilities across our entire product portfolio and also in our customer base. As a result, unfortunately, we have uncovered some additional risks on further and future warranty liabilities. The problems we see here is not primarily related to our ability to deliver quality products. The challenge here is historically unfavorable contractual terms when it comes to warranty and also that warranty management has not been very optimal. It is disappointing and it may potentially impact our profitability going forward. Those that have been responsible for this are no longer a part of the company as they were a part of the leadership change that took place in the beginning of the year. It's very hard to make any estimates on the net value of the total liabilities that we may be held accountable for. It's quite complex and a lot of different potential outcomes here. And we are working very hard to address these shortcomings. We have also implemented a much more proactive approach to warranty management and strengthened the team there. At this point, we cannot disclose any further details due to the ongoing discussions we have with the affected customers. And as soon as we have more information, we will provide that when we have more clarity on the potential financial impact.

Tariffs.

We have previously communicated that we will recover 1% of the tariff cost. That has been a clear ambition for us and we were very much aware that this was not an easy task. The process with our customers can be challenging, have been challenging. They request a lot of documentation and there are also some tough negotiations that are taking place. We have been very firm and consistent in all our customer negotiations and that has been basically that we cannot absorb this cost and tariff-related cost has to be passed on to the end consumer. been a consistent message both in the US where we have the biggest impact but also in China where we have also some impact of the tariffs that have been implemented there. The approach has given good results. In Q3 we had zero net impact of the tariff cost We continue to have some costs that we have not been compensated for yet, but we have agreements in place with our customers, so it's more a question of time to get that compensation. And for those of you that follow the automotive business and industry closely, you would have heard about Nexperia, which is a Chinese semiconductor manufacturer that has put a halt on export to out of China because of a dispute and the situation in the Netherlands. So this caused quite a lot of disruptions in the industry. K also have some products that are directly impacted by these semiconductors. We have been proactively managing the situation and been able to secure supply of the semiconductors. So we have had no issues related to that situation. And as previously announced and communicated, the main concern here for us is not the direct cost impact of the tariffs. We have been able to mitigate that. The concern here is the impact that we have already seen materialize on the market demand.

Then some other highlights in the quarter.

Two of the acquisitions that we have previously announced. The first one is chassis autonomy, which is a transaction that we completed in the quarter. We now own 100% of the company and full integration is ongoing. very interesting technology. We received a lot of interest from potential customers so we were very excited about the steer-by-wire technology. This we expect to play an important part of Kongsberg Automotive's future. The transaction and all payments of the shares were done in the quarter and the net cash effect of the transaction was positive also in the quarter. Acquisition of the 25% share of the remaining share of our joint venture in China with Dongfeng and Nissan was also completed. We have now full ownership of that company and that also means all our operations in China. This gives us more flexibility and strategic options in that important market and also this transaction was fully paid in Q3. Last on this slide is the renewal of the €25 million loan facility. We have agreed to renew that. That is a loan facility we have with Nord LB that was established in 2020. It was set to mature in January 26 and this we have agreed to renew with one more year with the same interest terms.

OK, now looking a bit forward.

We have to deal with the current challenges and also look forward, of course, and we have been working very hard during the quarter to work on a new strategic direction for Kongsberg Automotive. End of September we had a strategy seminar with the board of directors. This is still, you know, some work in progress, but a key outcome of that seminar was that we decided that the business unit driveline is no longer going to be considered as non-core. Instead, we recognize that this is a business that continue to create value for Kongsberg Automotive, and we will continue to pursue opportunities within that area. to win new businesses, extend current contracts, and to optimize the pricing. This is also reflected in our financial reporting, so you will see that the numbers from driveline is not now reported separately, but reported as a part of the business area drive control systems. We continue working on the strategy, and the plan is to present this on Capital Markets Day on December 16th in Kongsberg. So you're hereby all invited to that event. I think it will be a great event with some very interesting updates about our strategic goals, our strategies to achieve those goals. And we also give you some hands-on insights and a look at the products that will be a key part of Kongsberg Automotive going forward at our tech center that is also located in Kongsberg. Let's see. We are also trying to see if we can get some opportunities for some test driving. We are checking the possibilities. We will let you know. So we also organized some transport from Oslo, and we will have lunch. So yeah, I hope to see as many as possible on that event. And we will provide more practical information about this during November, and you will see that from us. Okay. We continue to stay focused on our priorities for 2025. We continue to adjust our cost base, as you have seen, and we are taking the additional necessary steps to adjust the money level further because of the market volumes. We continue to focus on generating cash, positive cash flow, with disciplined capex management and targeted reduction of net working capital. We have made changes in the leadership on the top level. We start from the top. We do need to continue working on strengthening the leadership teams across the entire organization. That is a very important priority for us. We need strong leaders and strong teams with the right competencies, values and mindset supported by clear structure of accountability and responsibility. We're also working on the future with innovations and profitable growth. We have a very strong focus on customer needs and very tight dialogue with them on, I would say, all levels. And this is also very important for us to understand what their needs are going forward and how we can create value in that, let's say, space of opportunities. We do believe that the K is well positioned to deliver long-term and sustainable financial performance. The 2026 priorities together with the longer-term goals and strategies will be shared during the capital markets day in December.

That was the summary and I will hand over to Erik to go through the financial updates. Thank you, Troll. Can you hear me?

Awesome webcast. I was last in the KA from 1999 to 2006, and it's very motivating and interesting to be back. I think what we're trying to do is to to merge the best of how KA was managed and run in those days back then, and then with the new best practices and processes. So I think we're starting to see some contours of that, and that's very motivated and interesting. I'll take you through some more of the figures. As commented by Trond, the driveline segment is no part of drive control systems, and it's no longer defined as non-core. And this is also the way that we as management run and manage that business. You see, the revenue level in Q3 was 95.1 million, and before the negative current situation effect, it was around 99 million, and still lower than the 110 million in Q3 24. The revenue is also lower than Q2 2025, and that is also what we communicated in Q2. We did expect the second half of this year to be weaker and lower sales than the first half year. Even though we have lower sales, we record a higher EBIT in Q2 2025 compared to Q3 2024, driven by lower operating costs and lower warranty accruals. I will also comment upon that later. The net effect of tariff costs in this quarter is zero, isolated, which is good. And I think it's the first quarter when we have that. But we still have a balance of tariff costs that will get reimbursed from our customers. That is ongoing work. So then on the other business area, flow control systems, the revenue is significantly lower than in Q2 2025. But if you kind of adjust for the current centralization effects, it's not so much lower than Q3 2024. In this business area, we had an impairment made in Q3 of one million euro. So then we had an EBIT of four million euro before that impairment. And the reason why we do impairment of development asset is part of streamlining our R&D portfolio. and where we want to focus our resources. It's part of that ongoing strategy process that also Trond referred to. The reduction operating cost reduces the effects we have of lost contribution. Ending up in an EBIT of 3 million in Q3. This EBITS bridge, just pointing out some points, you see the effect of the lower operating cost. compared to the same period in 24 with a plus 4.8 and a plus 12.4. This effectively mitigates the effect of the lower volume and mix, which is good. As I commented, the net effect of tariff cost was zero in Q3, and year-to-date we have 2.9 million, we're going to get reimbursement. The warranty cost in Q3, as Trond mentioned, was 2.7 million, and in Q3 24, it was 7.2. So that's the bridge effect of 4.5 that you have there. So this is just to underline that we do have warranty costs also in this quarter in 2025. Both in Q3-24 and in the early quarters, there were reversal of impairments done. That explains the majority of that bridge effect of impairment. Then ending up from the EBIT of 4.9 then in Q3-25, which is significantly higher than the 1.1 in Q3 last year. Coming from a negative EBIT of 8.3 million in Q3 2024. With the effects we see here, we end up with a positive EBIT of 1.6 million in Q3 2025. Then driven by the lower net, the higher EBIT, the lower net currency loss and tax effects. And this also, of course, driving the cash flow together with the operating result, which we'll see coming into now. So the positive result in profitability and working capital effects contributes to the net positive cash flow of 6.6 million euro in Q3 2025. And looking back just compared to Q3 2024, you have higher cash flow operations, lower investment levels, and positive currency effect. And this also gives, which is very positive, significant increase in the 12-month trend. which is now close to zero. And then in line with what we have communicated, one of our key priorities is to generate positive cash flow. And that is much more important than actually having positive results. You have to get the cash flow coming out of that. That's much more potential in terms of automotive, both on the working capital side and the whole capital employed area. So just to underline that, we start to see here that we are then moving into a positive cash flow situation. And that improved cash flow and probability also materializes in the reduction in net interest bearing debt. And then reduction in the leverage ratio, the blue line here, which is the key in relation to the bond loan that we have where we have a covenant level. So we see we go from, it's been increasing since Q4 24 from 2.1 up to 3.1 and now we have 2.6 in this quarter here. Everything we do on profitability improvements, cash flow, we kind of materialize in net interest bearing debt and this, the leverage rate we measure here.

And

The return on capital employed of 1.7% that we have in Q3 is of course not satisfactory and also a key priority for us to improve. The equity ratio increased from 30.7% to 31%. And as our improvement programs continue giving increased profitability, the equity ratio will also continue to increase. And it's kind of continuing workforce to achieve reductions in capital employed. And we want this to be an integrated part of the operations in the business area and something that we do every day and that we will follow up the business areas on every day. And then instead of doing this kind of on a kind of piecemeal basis. So that's very ingrained in us to get this as part of the daily work to get inventory down, accounts receivable down.

And only do the good and best investment levels.

I think all in all, a positive quarter for us, positive results, fairly good cash flow, positive cash flow, increase in the 12-month trend. We do have challenges and difficulties, but we are managing a positive result, increased result with a significantly lower revenue level, which is kind of our priority. The only thing we really can control is our own costs. Then maybe we have to manage with the market that we have. When the market picks up again, we will be positioned to get a very good profitability level out of that.

I think, Trond, that brings us into the summary and outlook. Thank you, Erik.

So to summarize our presentation, just quickly go through the key points again. We do see that we have the positive trend on EBIT and cash flow in spite of a challenging market. We do see that the cost reduction programs are going according to schedule and that we are taking additional measures due to the market situation. The power costs are being effectively mitigated. And we have the warranty liabilities that we are addressing, and we will provide updates as soon as we have more clarity on the financial impact. And we will hold the Capital Markets Day on December 16th, where you are all invited, and we will share some exciting news on strategy goals and the strategies. So I hope as many can participate on that event as possible. We want to emphasize the messages that were given in the previous earnings call, that is to restore value creation for our shareholders. That remains a key priority for us. We are very much focused on that and find the balance between short-term and longer-term priorities. We do believe strongly in the future of KAE and we are very determined to succeed. so we can realize the full potential of KA. And we do believe that we are on the right path. We see some positive indications here. But it's important also to remember this is not a sprint. It's a marathon. We have a lot of work ahead of us. The numbers are going in the right direction, but they're far from where we want to be. I would say the positive thing here, we do see that there is a lot of things to work with. There's a lot of improvement opportunities. Yes, there are some challenges, but eventually we will solve them and also with some help from the market, we will see stronger financial results. Regarding the outlook in the shorter term, we do have no changes on the EBIT outlook. We expect the EBIT to surpass both the first half this year and the second half last year. The rest of the year, we do see a stable outlook compared to Q3. For 2026, we are cautiously optimistic uh but we're very also aware that there are a lot of uncertainties uh the market scenario is is very hard to predict we don't know what is the next coming from over the other side of that antique so uh it's it's something we are monitoring very tightly and we're managing the situation are we prepared for for uh any scenario i would say uh but uh as a base case it's uh cautiously optimistic i think that's uh concludes our presentation And we are ready for the Q&A. We have questions that can be done and made also here in the room and also on web.

So let's get started with the first question from the webcast. What is the reason that driveline is now considered non-core?

Driveline, as mentioned, we had the strategic review with the board. What we see from driveline business is that it is a business that creates value for us. It is profitable. We do also see opportunities in that area that we can capture without two big efforts. There are also opportunities to extend profitable contracts. There are possibilities to optimize pricing. And we also see that the customer base is important for us for new products that we are developing and launching. So that is the reason why we have made that decision.

Thank you. So next question, why will KA change to the new business when reporting going forward?

Yeah, I can answer that. Just to underline, as we also mentioned, that we will continue to announce strategically important contracts. They can be fairly small. They can be quite small, but it depends on the market, the type of contract, new type of customers. We will always summarize the business in the quarterly reports and then a bit more detail than we do now. I think that the fact is that at any given time, we'll have a number of contracts that are being renewed. Now, some contracts expire and we get into new contracts, big and small. I think that doing this change, we're doing it to get a better communication with the market and improve communication. because it's very to kind of summarize this in the quarterly reports instead of kind of doing piecemeal announcements of certain business wins so just underline that we will continue to import report strategic important contracts that could also mean very significant ones in in value and we will always summarize it in the quarterly reports And this is also in line with our peers and I think what our larger companies and also structure change do. We kind of aligning more with that.

Thank you. Is there any questions here in the office?

Given the challenging market and I guess declining revenue growth on your current revenue base, how much could you improve profitability with improved product mix but also potential further cost improvements?

I cannot give you a number at this point, but there are obviously opportunities to improve. If you take the current cost base and assume that we can capture most of the market and volume growth without adding much fixed costs, it can give a quite positive case. That will be an ambition going forward. Then you can do the math. It depends on the market development. What we do see is that there is a lot of uncertainties in the shorter term. In the longer term, we do expect growth. Then the question is how big growth that will be. I think we are well positioned to capture that growth. And we will then work very hard to maintain our cost base and not increase our cost base further. And then we can have a good gearing effect. When it comes to product mix, I think it's more on the revenues overall. And of course, we will work to optimize both our variable cost and pricing going forward. And when it comes to also profitability, a key element here is to resolve our challenges when it comes to warranty and remove that from our current cost base. So yes, there are challenges also on the warranty, but I also remember that it has been a part of our cost base over the last years, so it also represents an improvement opportunity for us.

Any further questions here in the room?

I am regarding the the new business that we have bought. Uh, what is the business cases in those three? Sorry, two parts justice, autonomy and the China part.

Uh, just told me has a steer by wire technology that has a. Very interesting, uh, let's say future. Uh, there's a big demand for it of the forecast. uh estimated need for and market development for for that kind of technology is is uh very large by 2035 the estimate is more than three billion uh euro uh and the target is to capture a meaningful portion of that that market um the specific uh ambitions and targets, I would like to come back to you on that on the Capital Markets Day, and then we can share more information. That will be one of the products that we will highlight in that event. And then we'll talk more about how we see that market developing and what is our business case. But it's a new development. There are always risks when it comes to taking on that. but we do believe that we have both the customer relationships, we have the technology, and the capabilities to take that technology to the market. And so far, I would say the interest is very strong, so it looks very promising. But we'll come back to this on a capital markets day and we'll share more insights about that in that event. On the China case, we had a situation where our joint venture partners wanted to lead the joint venture. So we decided to make the acquisition. The alternative had not been so very positive for us. For us not to buy that share, someone else could have done it. And now we have the flexibility and Let's say the possibilities to look at alternatives and strategic alternatives for that market that we didn't have before. Also there, we are working on a strategy that we will be able to share on the Capital Markets Day regarding China. I don't have the exact numbers if you were asking for that, but we will share the strategic rationale and what our plans are for both those two businesses on the capital markets day.

So let's take a question from the webcast. Have your demand to pass on 100% of the tariff cost affected your new business wins?

The answer is no, I cannot say that.

I think those discussions have been very constructive, we've been very firm, but I don't see that the tariff discussions as such have had any impact on our business wins.

Thank you. How is the merger between the two factories in Sweden coming along?

It's moving forward. The merger between those two plans to move Lungsarp plant into Mølsjö is moving forward according to plan. We have monthly reviews with the team and the plan is to conclude that transfer by Q3 next year. So that move is going according to plan.

Any more questions here in the room?

You have proven today that you are able to manage the situation in the market, reducing costs. If the market increases again, or when the market increases again, will you be able to keep the cost base as you have it today, or do you need to also parallel increase the cost? So how do you see that in the future?

The clear ambition is to maintain the cost base as we have today. We know that there are some costs on our fixed cost base that are, let's say, semi-variables. But the clear ambition is to maintain the cost base as it is today. we will work very hard to achieve. There are new technologies like AI and other technologies that can enable us to do that. It can be challenging if the volume increases are significant, but that will be a clear mission to maintain the cost base as low as we can. There are further opportunities to streamline our operations, so that is also a work in progress. But what I can confirm is that that will be an ambition, definitely.

Yeah. Just to supplement on that, that is ambition. I think to a large extent, we will be able to do that. Of course, we will increase cost later than earlier, so we'll always drag it along. But we have to make sure that we deliver the products in the right quality to the customer at the right time. But that will be the clear ambition. That's also part of the benefit that we get from all these cost reduction programs, that we will try to find better and smarter ways to work with the people and the cost base that we have.

I have to take the opportunity to congratulate and applaud what you have done so far. It's looking really promising for us shareholders.

Thank you.

so no further question in the webcast tool if there are no further questions here in the room we can conclude thank you very much for your participation thank you for arctic again for hosting this for us at their facilities that was excellent and have an excellent