Kongsberg Automotive New

Good morning and thank you for joining Kongsberg Automotive's Q3 2026 earnings call presentation. Today we are here at Danske Bank in Oslo. With me here today is our CEO and President Trond Fiskum and CFO Erik Magelsen. On the screen, you can see today's agenda. And as always, we will host the Q&A session after today's presentation. If you're joining us virtually, you can raise the questions during the call in the tool. And if you're here, you can raise your hand and we will come around with microphones. So with that, I will give the word over to our president and CEO Trond Fiskum.

Thank you, Therese, and good morning, everyone, both those of you that are present here in Danske Bank's offices and those that are participating online. We will start with an update on the business and the overall financial performance. Before I will hand it over to our CFO that will go into more financial details. The main messages here today is that the transformation that we started last year continue to deliver tangible results. We see a stronger profitability, we see improved capital efficiency and a more robust financial situation for KA. And at the same time as we see these results, we continue to take additional structural actions to further improve the business and build the foundation for future improvements and profitable growth. Looking at our financial KPIs, we see a broad-based improvement in the performance in Q3. EBIT increased to 9 million euros with a margin improving to 4.8 compared to 3% a year ago. Net profit increased significantly to 6.4 million euro and we do see a positive net cash flow of 2.2 million. And importantly, return on capital employed continued to improve to 11.4% compared with just 1.7% a year ago. So across profitability, cash flow, capital efficiency, we continue to move the business in the right direction. If we look at the development in a little more detail and over the last seven quarters, we see that the underlying fundamentals continue to improve. Revenue was in Q3 185 million euro, almost 40% above Q3 last year. We now see that our key markets, including North America, have recovered from the drop that we saw during second half last year. And there is some reduction in Q3 from Q2, but this reflects normal seasonality. Due to the summer vacations that several of our customers have and they closed their production during summer. EBIT reached 9 million euro despite both higher material costs that we see across the business as well as tariff costs that continue to impact us. So the results here reflects a wide range of actions that we have systematically implemented across the business. And the higher material costs are being offset by either cost improvements or passed on to our customers. Cash flow was also positive at 2.2 million. This is below Q3 last year, but it's also a reflection of a higher business activity compared to last year and the resulting increase in net working capital. There will be some variations from quarter to quarter. When we look at the longer term trend, we see the positive trend on the cash flow and year to date. We have generated 1.8 million in positive cash flow compared to negative 4.8 last year. So overall we see a stronger top line in a stabilized market environment. We see an improved profitability and we continue to see a positive development on cash generation. We also continue to address our cost base, our structural cost base, and optimize our manufacturing footprint. In October, the restructuring of our Clues facility in France was approved by the authorities in France. And as part of the restructuring, the production of the driveline products in this plant will be transferred to other KA plants in Slovakia and in Brazil. while Clues will become a dedicated couplings production site. The financial rationale is very clear. We expect an annual saving of approximately 5 million euro once it's fully implemented against a one-time cost of approximately 7.5 million. And this results in a payback of less than two years. The restructuring is expected to be concluded during first quarter next year, possibly earlier. Importantly, CLUS is a part of a broader footprint optimization. It follows planned consultations both in Sweden and in China that we have completed during 2026. So taken together, these are important actions for us that structurally reduce our cost base, it improves our competitiveness, and of course it's supporting further profitability improvements. Regarding the warranty and recall related matters that we have communicated previously, there are no fundamental changes to report. I continue to be personally involved in driving the cases forwards and towards the conclusion. It's high priority, and we do have meaningful progress, and we will provide you with updates once we have additional clarity. Moving over to commercial activities, we see an improved momentum in Q3. We secured 142 million euro in estimated contract revenues. These are values that reflect our best estimates of the revenues from these contracts during the length of the contracts. And the contracts you can see that are, as in previous quarters, they're well balanced between the two business areas, drive control system and flow control system. and it's also a mix of incremental business meaning new business and extension of existing contracts and business. What is important here is that we are securing and many more. We also have contracts based on improved Our focus is not only growth for the sake of volumes. We need to ensure that we have a sustainable business financially, and we need to have a fair share of the value creation that we bring to the table. So we're focused on winning the right business on the right terms, and that will support a profitable growth and long-term value creation. You'll see that the contract awards are spread also over the main and the key customer segments. And you also see that the pipeline of business opportunities, they remain solid. When we go behind the numbers, you can see some good examples here of the type of contracts that we are winning. You see here quite diverse examples of different contracts, both Geographically and across different product segments and customer segments. Starting on the top left, we see 34 million euro contract that was awarded as a contract extension. It's cabin stabilizers that we are making for a global truck OEM headquartered in Europe and it will be produced in our plant in Poland. On the top right we have 24 million euro incremental business. These are hose and tube products that we are going to supply to an autonomous people mover in North America. It's an interesting business. It's a new Market segments in many ways, which shows that we are competitive and relevant also for this market segment. These are electrical autonomous vehicles. On the bottom left, we see the incremental couplings business, a 20 million euro contract awarded by an Asian truck OEM, more specifically Japanese. And this is another important step in the gaining and market shares in the air couplings business. and this will be produced in combination between our plant in China and in Raufoss Norway. And finally on the bottom right we have a 15 million euro contract extension for automatic transmission shifters. This is a part of our driveline business and fits well with our revised strategy for that business unit where we are now Selectively Pursuing Attractive Shifter Opportunities or Business Opportunities. So overall, it's a good mix of contracts, both contract extensions and incremental business across a wide range of customer segments products. It also reflects The diversity we have in our customer and product base, which also gives us a lot of strategic alternatives going forward. And interestingly, all these four programs, they have an SOP either this year or next year. So it is business that will contribute to our revenue base already within the next six to 12 months. So, a key takeaway from what I have shown here is that improvements that we are seeing is a result of systematic and deliberate actions across KA. We have been focusing on four priorities. Drive cost efficiency and operational improvements. Improve cash conversion, strengthen the leadership and the CA culture, and accelerate innovation and profitable growth. And we are seeing that these priorities are delivering tangible results. Profitability is stronger, capital efficiency is improved, leverage has come down, we've seen strengthened accountability and execution across the business, and we see a positive trend on the contract awards. At the same time, we see that there's much more we can do. and we are far from being satisfied. We still see significant potential to further improve the performance of the existing business. And at the same time we see that the progress that we made means that we are building A company that is much stronger both operationally and financially. Our position is much better. It gives us a stronger platform for the next phase of KE's transformation where the focus will be on further performance improvements and increasingly on growth and profitable growth. With that, I will hand it over to Erik to take us through the financials in more detail.

Thank you, Trond. So before going through the financial slides, I must say it's very encouraging and motivating for us to see that the restructuring process and transformation is delivering tangible and solid results. The results of Q3 are good. and there are no significant special or external items affecting the results. So when we look at the results for Q2 and Q3, it's a clear demonstration that we are on the right way. So first look at our two business areas. First, drive control systems. The revenue level here is 4.4% higher than in Q2 2025, and we do see a stabilizing upward trend in the top line level. I think as Trond mentioned, the reduction from Q2 mainly reflects normal seasonality. When we look here at the EBIT level over the last seven quarters, there are two outliers. By Q2 last year, being affected by significant warranty cost accruals, and Q4, affected by certain external items. I think, and as Trond noted, the underlying fundamentals continue to improve, and we are on the way to achieving a long-term higher profitability within this business area. The higher material costs that we are experiencing, similar to many other companies compared to last year, have been compensated EBIT-wise within DCS to a large extent by the reduction in the operating cost base. So we turn to our other business area, flow control systems. Here we have volume increases in all business units compared to last year. In total, reported level is a strong 26.7% higher than in Q3 last year. Again, we have a certain seasonality effect from Q2. The increased contribution from increased volumes and revenue is to a large extent here maintained down to EBIT, giving EBIT as a strong 7 million euro in Q3 this year, more than double the 3 million euro we had in Q3 2025. The EBIT margin here also increased to a strong 8.2%. Also here we are affected by higher material costs compared to last year, but they have been offset either by reductions in our cost base or passed on to our customers. So just on the EBIT speed for the group as a total, we have a revenue level which is 13.7% higher than in Q3 last year. and the point there is that we managed to maintain the increased contribution from the increased revenue down to the EBIT line. So this is the key driver for the increased EBIT. We also have cost savings in the quarter and this kind of in total brings the EBIT from 4.9 million euro in 25 to nine million euro in Q3 26. As you see on a year to date basis, Overhead cost reductions and the lower warranty cost that drives the EBIT improvement. And also importantly, we are a very positive increase in our net income, which is our bottom line. As the overview shows, the key driver for the net income improvement are the operational improvements, including the cost reductions and giving the improvements in our EBIT. Then you see here that the net income in the quarter alone has increased from €1.6 million to €6.4 million in 2026. and I think on a year-to-date basis we have managed to turn a loss of 2.6 million euro in 25 to now a 16.8 million euro profit. So all very positive and very encouraging for us. We see that the work we are doing are giving tangible and good result. The networking capital that Trond also touched upon is closely linked to our activity and revenue level. And when we measure our networking capital to our revenue level on an annual basis, we see that the level is fairly stable, as you see in the red line. And we have stronger business volumes in Q3 this year. That gives increased revenue that drives higher working capital requirements. As noted on the comments here, we have several ongoing activities within Networking Capital and we have identified significant opportunities to reduce Networking Capital relative to revenue going forward. So here we have a significant upside potential. As thrown out of the cash flow in the quarter alone was 2.2 million euro positive. Also, in light of the increased revenue level, on a year-to-date basis, we have a positive cash flow of €1.8 million, compared with a negative €4.8 million in 2025. The difference in net working capital is a driver for the variance in cash flow between 26 and 25. And the increase in volumes of revenue, which is positive for the company, gives higher working capital requirements. And this is a timing difference, and increased revenue probability will over time materialize in higher cash conversion. So I think both improved profitability and positive net cash flow materializes in our reduction in net interest-bearing debt. And the net interest-bearing debt has been reduced with 27.3 million euro from Q1 2025. and as you also can see from the slide, the net interest rate ratio has been reduced by more than 50% from the level in Q205, it's now at 1.5. And the leverage per bond term definition is the key in relation to our bond loan and that is now also down to the same 1.5. This post-development strengthens our financial position and gives us increased financial flexibility going forward. So I think the improvements in our underlying profitability that we achieve without increasing our assets at the same rate gives us a significant increase in the return on capital employed. and this measure has now increased over four consecutive quarters as you see from the graph and it's now up to 11.4% level. This is very important for us because it gives us kind of operational leverage and we are managing to kind of get the profit without kind of increasing and keeping the investment levels going at the same rate. And as you see here, the leverage ratio has then come down to 1.5. And it has come down from a level which was way above 3 before Q3 2025. As you also see on the bottom right side, that the X ratio has increased to 34%, which is, of course, also a measure for solidity. and then lastly before I hand over to Trond again, a new dividend policy has been approved by the Board of Directors and this is now available on our website. The long term target is to distribute up to 50% of annual net profit as dividends over a business cycle. We have some extracts of the policy here and you can read the whole policy on our website. I think coming into a position to potentially pay dividends is positive and it will be a result of a significant restructuring and transformation process that we are starting to show results. And then Trond, back to you.