Kongsberg Automotive New

We are back here at Arctic Securities in Oslo and we are here together with our president and CEO Trond Fiskum and CFO Erik Magelsen. We are joined by participants joining us on the webcast as well as physically here in Oslo. On the screen, you see today's agenda and as always, we will conclude today's presentation with a Q&A session. If you're joining us here physically, you can raise your hand and we will be walking around with a microphone. And if you're joining us through the webcast, you can use that tool to raise your question. So with that, I will hand the word over to our president and CEO, Trond Fiske.

Good morning to everyone. We start with Q4 highlights. Overall we had a good quarter with strong earnings improvements and solid cash generation in a market that is stabilizing. Our Q4 revenues reached 167 million euros compared with 185 million euros in Q4 last year. This is 9.6 percent down from Q4 2024. However, it's up 2.8% compared with Q3. So this reflects that the market conditions are stabilizing, which is positive. Regarding profitability, we delivered a strong EBIT improvement when we compared with Q4 last year. We have a Q4 EBIT of €9.4 million and an EBIT margin of €5.6 million. This is compared with €1.1 million and an EBIT margin of €0.6 million in the same quarter last year. It is an improvement that is primarily driven by structural cost reductions. We have some reduced warranty accruals and it is also supported by one-time positive effects of 4.9 million euro that we'll come back to. Cash flow development was also solid and on an improving trend. Operating cash flow improved to 11.5 million euro up from 4.2 million euro in the same quarter last year. The risk of certain warranty liabilities, they remain. They are well identified and being very actively managed with also mitigation actions in place to avoid a reoccurrence. We held Capital Markets Day in December last year, where we presented our revised EBIT margin target, the long-term EBIT margin target of 6.5%, and also together with how to achieve that. Finally, the market outlook has slightly improved from the second half of 26. This is uh something that provides a more supportive environment for us to continue improving our financial performance overall we see a stabilizing trend in revenues we see a step change in profitability a solid cash flow generation for the quarter and a more supportive outlook as we close 25 and move into 26. Some more details on the Q4 financials. Erik will, of course, go into even more details afterwards. Starting with the revenues, we ended up with, as I mentioned, €167.5 million in Q4. It's €17.7 million less than Q4 last year, 9.6%. A meaningful part of this reduction is related to a weaker dollar, 6.7 million, while the remaining impact reflects basically a weaker market compared to Q4 last year, but in particular in North America. As mentioned on the previous slide, we do, however, see that the market is stabilizing, which is encouraging with the increase from Q3 to Q4 of 2.8%. Moving to profitability and EBIT. In spite of the lower revenue levels, EBIT improved to 9.4. It is a strong improvement from Q4 last year, and as mentioned, a result of structural cost savings. the lower warranty accruals. And it's also important to note that this one-time effect of €4.9 million is a reversal of accruals that we made. These are related to some customer contracts and operating costs, and it's a result of a year-end evaluation of accruals that we made across all legal entities in the group. Finally, on cash flow, our free cash flow reached 11.5 million, which is a 7.3 million improvement compared to Q4 last year. Again, it's a reflection of several elements, cost-saving programs, network and capital reductions, and generally an improved financial discipline. The cash flow development is now positive over several quarters. And we do also see that this has a positive effect on very important financial ratios for the company that Erik will show later in our presentation. Overall, a good quarter in terms of progress. There are still a lot of work that we need to do in order to get to the levels that we want on a longer term view, but it's strong indications that we are on the right track. As we reported in Q3, we did a comprehensive review of our warranty liabilities during 2025 and we did identify some additional risks. The identified cases are related to certain legacy contracts combined with management practice or warranty management practices that were far from optimal. At this stage, the potential financial impact is uncertain. The cases are complex and the variability of potential outcomes is significant. And we have taken proactive measures to reduce future risks and to prevent a reoccurrence. It includes a significant strengthening of our warranty management practice and also an improved process to ensure that we have more robust customer contracts in place. We will provide further details on these cases once there is greater clarity. And due to ongoing discussions and negotiations with customers, we cannot go into more details at this point. We are working constructively with our customers on this and also other stakeholders to resolve this. And handling these cases is a top priority for the management. And I'm personally involved in handling some of these cases. Regarding business wins, we secured in Q4 new contracts with an estimated lifetime revenue of 77.6 million euro. The majority of the contracts came from the business area flow control systems with 56 million euro. Drive control systems contributed with 21 million euro. By customer segment, the largest segment is commercial vehicles, which you see on the truck, trailer and bus. which also reflects that this is our biggest customer segment overall in the company. For the full year, we secured contracts representing €339 million in estimated lifetime revenues. While the business wins are lower in 2025 than previous years, we have not lost any major new opportunities during the year. We do continue to have a very strong portfolio of business opportunities, and we are optimistic and confident about our future growth prospects. Also, as we communicated in Q3, we have revised our investor relations policy, and we will now only announce strategically important business wins for KA. between the earnings calls. What we mean by strategically important business wins are those that are considered basically to be inside information, meaning business wins that are likely to have significant impact on the share price. This is an issue that has been thoroughly discussed in the board of directors. It's also a policy that is in line with the Oslo Stock Exchange disclosure guidelines. And I think in particular, we want to avoid as a frequent announcement of smaller contracts that are not strategic and should not have any significant effect on the share price. And this is in order to avoid unnecessary market volatility and speculations.

But again, very much in line with this also stock exchange disclosure guidelines.

We want to take a look at one of the interesting contracts that we secured during the quarter. The contract itself, it's not deemed to be strategic, but it's a very good example of how we work in KA. And it's a good demonstration of our ability to innovate and to develop unique and high value add solutions to leading global OEMs. This is a contract with the leading global OEM. It's one of the world's largest and this is for our twist lock coupling solution. It's a contract that in itself represents 22 million euro in estimated lifetime revenues. And it's something that we would call a next evolutionary step of our proven and market leading Raufoss ABC coupling system. The twist lock system itself connects the air brake valve directly to the chassis brake chambers on the axles, and that ensures a leak tight air supply. while still allowing continuous axle movements. It's a solution that is built on the same principles as the Ralfos ABC air coupling system and provides many of the same benefits to customers and the end users of the vehicles. A special feature of the solution is that it's a quick connect and it saves significant time on the OEM assembly line. This is a very important part of the value proposition. and also have excellent serviceability once the truck is out in the field. Easy to replace. It also improves safety, increase overall vehicle uptime, and reduce overall complexity, risk, and cost in a commercial vehicle air brake system. And very importantly, it's a patented solution. So it offers a unique and differentiated product that is only available from Kongsberg Automotive. So overall, it's an extension of the Raufoss air coupling system. It increases the overall revenue potential for this very important product segment. And it's also expected to be a wear and tear part that can contribute over time with attractive aftermarket sales for us. During the quarter, we had Capital Markets Day that we held at our headquarters and tech center in Kongsberg. This was on December 16th. We had quite a few participants, more than 50, including investors and analysts. And during the event, we presented our revised long-term EBIT margin target of 6.5% and also how we're planning to achieve that. We provided some deep dives into some of the key product segments or product areas where we believe that we are well positioned and are able to create value also in the longer term. We organized a tour of the tech center so those that participated had an opportunity to gain some insights about our engineering capabilities and innovations. We also had a live demonstration of Conspir Automotive's Steer-by-Wire technology. This was installed in a demo car that was available in the tech center. So participants were able to test it a little bit. I will share some of the key slides from that presentation for those that did not have the possibility to participate and to repeat some of the important messages from that event. First, we have made very important changes in the leadership in the company. Significant changes in conspired motive was absolutely necessary. And changes in an organization like KA needs to start from the top. And this is what has been done. We have a new board of directors and a new executive leadership team that brings experience. that brings determination and a clear vision for the KA's future. We have Ola Voldahl, who is the chair of the board since December 24. He has previous experience from the company as CEO for more than two decades. We have board Krungsødt, who is the deputy chair of the board. He has also more than a decade of experience from KA, being a previous CEO of the company. The board has also been strengthened with several other new and very highly competent directors. And on the management side, I came in as a CEO in April. I have previous background from the company, being in several leadership positions. Erik Margelsen came in as a CFO in June, coming back to KA and coming in with a deep financial expertise and experience. And finally, in October, we had Tomas Danbolt coming in as Executive Vice President for the Business Area Flow Control System. And he also had previous experience from the company, from the operations in our very important RAVFOS facility. This is a team that has a deep industry knowledge, it has a proven execution capability and a personal commitment to create long-term value. And most importantly, it's a team that knows what it takes to make KA successful. Second is a slide that is also very important for us. It's our business concept. It's very central to our vision and how to make KA successful. It is a concept that is several decades old, originally developed by Ola Voldal. There has been some minor adjustments over the last two decades, but it remains The main principles are remains and it's just as relevant today as it was some decades ago. It's basically built on four different ingredients. One, it's a performance oriented culture with the right people, with the right mindset, with the right values, the right competence that can collaborate and do extraordinary things. Second, it is about unique products and solutions that clearly differentiate us from competition and that offers significant customer value. Third, it's to focus on the right market segments, attractive market segments, preferably those that are growing and where KA can be a recognized leader. And fourth, cost efficiency, which is essential in order to be competitive in this industry. When all these elements come together, that's where we find value creation potential. And the example I showed earlier, the twist block solution, is a good example of how these four ingredients come together and we're able to create value. Another important message in the capital markets day was that we believe that the K is now at an inflection point moving towards an improved trajectory. We see the indications of that in the Q4 results. We have a new leadership that is driving change. We have a turnaround program led by a new management team and a more streamlined organization. We are very much focused on execution and performance with disciplined cost management and operational excellence to deliver the better and stronger financial results. At the same time, we're investing in growth and innovation with strategic initiatives that strengthen core technologies and accelerate our market opportunities. And we are rebuilding a high performance-oriented KA that is leaner, more agile, more customer-centric, and with a culture of speed, flexibility, and a customer focus that creates sustainable value for both customers, the company, and shareholders. And importantly, we presented the revised long-term EBIT target of 6.5%. It is a target that is based on the current EBIT level and the revenue levels, and also a very thorough assessment of the improvement initiatives that we have identified in the strategic plan and that we're working on. The reference level here you see is the previous four quarters before the capital market day, which was Q4-24 to Q3-25. All the different elements here are initiatives that we have identified and some of them are in progress. Some of them are being assessed and being worked on, but they're all, let's say, very you have specific action items for all the elements. So this EBIT bridge illustrates how we're going to achieve our long-term target. The final outcome might vary a little bit, but it's a clear illustration of how we will get there. So behind all this, we have a lot of details. We're not going into that today. But I think the message here is that we have a very thorough assessment of all this and we have a good and detailed plan to deliver on this. It is something that will require a lot of systematic and hard work. And yeah, I can assure you that we are very determined to succeed on this. Yeah, just comment on the growth. You see on the right side, we have indicated that with an improved market, there is upside potential on the EBIT margin. We have decided not to communicate any revenue targets. And the reason for that is This we can control. We can control our costs. The market development we cannot control. But of course, we will make our best efforts to make sure that we can capture as much value as possible with improved market conditions. Finally, we also looked at our key priorities for 2026, and not so surprisingly, they are not so different from the ones we had in 2025. First, we will continue to drive cost efficiency and operational improvements. We have now established very detailed plans for how to deliver improved financial results for 26. We have more than 500 different action items across the organization. Each action item has a quantified target, has an owner and a deadline. and we're following up very quietly. This is a systematic approach to a relentless, continuous improvement that is key to our success. Second, we are focusing on improving, continue to improve our cash flow. Cash generation remains the top priority. So in addition to the improved earnings, we have improvement initiatives to reduce networking capital. uh and we are taking a very disciplined approach to to investments making sure we spend our resources wisely and where they give the best return third we continue to strengthen our leadership teams and the culture we continue to build stronger leadership capability across the whole organization on all levels and to build a stronger and more performance-oriented k culture and finally we continue to work on innovation and accelerate that and to make sure we have a profitable growth. This means prioritizing technologies and product areas where KA can have a competitive advantage and that with unique solutions that matches our business concept that I presented earlier. So we continue to take very, I would say, decisive actions to deliver on these priorities. We do recognize that it is a marathon. It's not a sprint. There's no silver bullets here. It's a long-term systematic effort that gives results. But I will say we are firmly on the way. We have quite a few initiatives that are ongoing. We believe we have a good momentum and we expect more tangible results ahead. Good. I will move over to the financials.

I hand the word over to Erik. Thank you, Trond.

So just first on drive control systems, the revenue level was lower than in Q4 24. And as communicated earlier, we were expecting a weaker market in the second half of 25 compared to the second half of 24. And 6.4 million of the negative variance is related to currency translation effects. But as Stront commented, we do see indications of a stabilized market by the fact that we see Q4 revenue higher than Q3. And even though we have lower sales, we record a higher EBIT in Q4 compared to the same quarter last year. This is driven by lower operating costs, lower warranty costs, and a reversal of prior period accruals. And this offsets the lower contribution from a reduced sales volume, more than offset. The majority of the reversal of prior periodic rules that Trond mentioned was done here within DCS drive control systems. You see in flow control systems, we also have a low revenue in Q4 compared to the same quarter last year, but the levels are closer than for DCS. You don't see that big a variance, both for drive control systems and flow control systems. Part of the reason of lower sales is the weak commercial market in North America. And also in flow control systems, we have a higher quarter-over-quarter revenue than in Q3, so also indications of a stabilizing market. And similar to drive control systems, flow control systems also record a higher EBIT in Q4 2025 compared to 2024. And this is driven by lower operating costs and improved efficient, more efficient operations. This is good. So we do see improvements. And as I said, this is a continual process working on every day. I think in this EBIT bridge, you see the effect of the lower operating costs compared to the same period in 24, in the 3.3 and 14.2. And this effectively mitigates the lost EBIT from lower sales volume. So then also then when and if the market comes back, we are positioned to get uplift in margins and leverage. And as we have communicated earlier, there is a delay between when the tariff costs occur and when we get the reimbursement process with the customers. But achieving close to full compensation has been and is one of our top priorities. And you see for the fourth quarter isolated, the warranty costs were lower in 2025 than in 2024. But for the full year, the warranty costs were around the same level. That is one of our long-term EBIT targets to reduce the level of warranty costs going forward. The key reason here why there's a higher net impairment cost at 2025 compared to 2024 is that 2024 included a reversal of prior period impairments. That was an income effect in 2024.

Then on

net income so coming from a negative net income of minus 13 million euro in q424 with the key effects you see in the bridge we report a positive net income of 2.8 million in q425 the higher ebit and the lower tax expense in 2025 are the key drivers for this increase And for the full year 2025, we report a positive net income, although small, but at 0.2 million euro. It's also good that we don't just look at EBITDA and EBIT, but also at the bottom line. So we are coming out of this challenging year with, we can say, a positive net result, although I admit it's quite small. But of course, the priority is going building that further. And we also see lower interest expense. We have a lot of initiatives all around the P&L. So I'm happy to report a slight positive net result for the year 2025. And we look at this bridge the same time next year. Our core ambition is to show the same trend here. so the positive result in the period and the networking capital effects that contributes to the strong net positive cash flow of 11.5 million in q425 and i think compared to the same quarter in 24 it's a higher cash from opera from operations lower investment level and lower cash outro related to financing which gives a significant and positive increase in the 12-month trend And as we have communicated earlier, one of our key priorities is to generate positive net cash flow over time. And at the end of the day, that's more important than the results themselves. I think you see here that also the improved cash flow and profitability also materializes in a significant reduction in net interest-bearing debt and reduction in the leverage ratio. This leverage ratio per bond term definition is key in relation to our 110 million euro bond, where the covenant is maximum four. I see we have our bankers here today, so we're happy to announce this graph as well. I think it's a very important development for Kongsberg & Motte. And this gives us increased financial flexibility going forward. And I think this is the last, before we go into the kind of summary outlook and Q&A, that we do have reported now some improvements in return on capital employed, the ROC. But this is, of course, far from satisfactory, also key priority to improve. The equity ratio has increased from 30.7 at the end of Q2 to 31.3 at Q3, and now 32%. And as our improvement programs continue giving increased probability, this will also continue to increase. And as Ron mentioned, it is continual work for us to achieve reductions in capital employed. And this is also an integral part of the operations in the business areas. Although we have improvements in working capital, I think we have much more work to do in this area.

To summarize our presentation here today, let me conclude on the summary and outlook. As a summary, we do see a strong momentum. It's positive development in terms of both earnings and cash generation. And we do see that the market is stabilizing, which is positive for us. And you see the revenue development that reflects this market stabilization, which is, well, it creates a good... good environment for 2026 results. Our cost reduction programs are moving according to schedule. We are done through most of the big programs that we have announced earlier. Of course, we are working now on the continuous improvements, which also have a big and major and important impacts for us. And as mentioned, the warranty liabilities, they remain, and we will provide information when we have information that we can provide. And we reaffirmed our long-term value creation ambition with the long-term EBIT goal of 6.5. Again, we have as a top priority to restore value creation for this company. And we do believe in the future we are very determined to make the changes that are required to realize KA's full potential.

Finally, on the outlook.

The margin for 26 is expected to continue an overall positive trend from 25 levels. The market outlook has improved for the second half of 26. We still want to be cautiously optimistic as just the last week's events shows that there are uncertainties and they persist. Yeah, so this concludes our presentation here today, and we will open up for the Q&A session.

Thank you, Trond. Let's get started with the first question. It's for you, Erik, and you have already touched upon it, but let's go ahead with this one. The US dollar have weakened compared to other currencies. How does this affect the financial result of KAA?

Yes, that's a good question. I think for KA, it's primarily the relationship between US dollar and euro, which is important. And the US dollar has weakened around 16% over a 12-month period compared to the euro. So how we see that for our results, you mainly see it on the revenue level, where I think we had a currency translation effect of 6.7 million in Q4. and then reducing revenue and then for the full year 25 I think it's around 17 million euro and that is mainly predominantly the US weakening US dollar since we have this quite large part of our operations in the US. But we also have quite a good natural hedge in the sense that we have significant cost base also in dollars. So we will look at both EBITDA and EBITDA. The currency translation is not an explaining factor. So we have quite a good balance. The other way it impacts us is that it also impacts our balance sheet. So when the US dollar, the value reduces, it will also reduce the balance sheet. And then it reduces the equity we have in the US when it converted to Europe. There you see a negative effect in year end, but that will go up and down, and we still have an increase in the equity ratio. So it's not, in a way, the weakening dollar has not been significant in a large sense on the equity. So I think we're fairly balanced on that.

Thank you. How does the recent development in the U.S. tariff situation impact KAA?

Yeah, first of all, the tariff situation until now, we have taken a very firm position on that with our customers. And that is basically we are not in a position to absorb those costs. And ultimately, this has to be passed on to the end customer and the end consumer, which is ultimately the US consumer. And as we have shown both in Q3 and Q4, we have been able to neutralize those effects. So that is also what we will work on. And I'm very determined to achieve that also on any new tariffs that are now coming. But the last week's events has The consequence of that is that we will have to again sit down with our customers, suppliers, to go through the agreements and how we handle this. We are going to take the same position and we are very confident that we will achieve and be able to neutralize the direct cost impacts of this. In Q1, it might be because of the changes that there might be some delays in getting that compensation. You have to also understand how this impacts us. We had a meeting with the broker a couple of days ago and the customs broker, and they didn't know how to apply the taxes. So there's all kinds of uncertainties around this that we have to figure out. But we will get... compensation for the direct cost. So that is not our biggest concern. It's almost like business as usual, in a sense, because we're dealing with these kind of issues when it comes to supplier cost increases, raw material cost increases, et cetera. So we're dealing with that and handling that. And yes, sometimes there are some delays in the effect, but over time we will get it recovered. That is part of our job. And this we can influence. Our bigger concern here, as we also flagged on the previous tariff situation, is what we cannot control, which is the market uncertainty. And this is problematic. So we're flagging that there are uncertainties and they persist. And this is a very good example of that. So this is what we closely monitor. We have not received any feedback from our customers that this is negative, but obviously uncertainty is not good for the market. That is our biggest concern and that remains our biggest concern when it comes to all the tariff discussions.

Thank you. Before we go ahead with questions here from the room, let's have one more from the webcast. Do you see potential for strategic collaboration or project opportunities with Kongsberg Gruppen going forward, given the overlapping technologies and market? Can this be a meaningful growth catalyst for KA?

I cannot comment on specific customer initiatives. We are located in the same city. We have a dialogue with them and are exploring opportunities to collaborate. It's a part of our agenda. It's nothing that has materialized into any things that we are able to announce. And then the question is, does it fit into our business concept and our vision for this company? So it's not something that is high on our agenda. But we are, of course, evaluating opportunities that could be interesting, where we could create value for the company. But it's most likely not the type of opportunity that would fit best with our our business concept and and how we're the direction that we take the company thank you is there a question here in the audience yeah you just get um i can repeat the question so the question was regarding the warranty liabilities and then we will have more more clarity on on that It's very hard to say because this process can take a lot of time. And that said, we are not in a rush to conclude it. We need time to do the proper investigations, the proper negotiations, and we want to solve this in the best possible outcome for the company. Very hard to say how long time it's going to take. Some of these processes can drag on for a long time. And then I mean years, potentially. It could also solve quicker. So it's very hard to say. This is a part of the, let's say, all the variability of the outcome. It's also in terms of time. We don't know. But it's very strong focus. And we want to solve it as soon as we can. But we're not going to make any, let's say, If we need more time in order to get to the best possible outcome for the company, we are going to take more time.

Very good. Then just one more question.

My English isn't good enough, so I have to take the question in Norwegian, okay? Sure. Now we know that we have lost 6.7 million in the dollar fall that has occurred. Are the guarantee fees a gain in the opposite direction in relation to the fact that the guarantee costs will increase in dollars?

The question was if the warranty accruals that we made, if the weakening US dollar has any positive impact on the warranty accruals. What I can say is that if the warranty costs are in dollars, they of course in Euro will have a lower impact. The accruals have been made and they were made in the past. So maybe Erik, you can comment on how the accruals itself will impact.

Yeah. I'll do that. The accruals are made in each entity. So for instance, the US part is made in dollars and then it's converted to Euro. But it's a good question. I think that when and if any payments are made in the future, if they're made, of course, a weak dollar will kind of, we will use the value for the Euro to pay that. So it's the, that in just isolated that sense, the weakening dollar is good. And the majority of the accruals are related to the U.S. side.

Yeah.

I think just for, let's say, competitive reasons and the customer negotiation, I don't think we want to go into details on the specific... Yeah.

Yeah. But it's... Any further questions?

If not, we can conclude.

Yeah, then thank you for participating on this earnings call and also thank you to Arctic for having us here. Thank you.