Kongsberg Gruppen Asa

Good morning and welcome to the presentation of Kongsberg's Q4 and preliminary annual accounts for 2024. Today's results will be presented by Chief Executive Officer Geir Høy as well as Chief Financial Officer Mette Toft-Bjørgen. You may submit questions through the webcast and please provide your name in the question as well. And with that, I'll leave the floor to Geir Høy.

Thank you. Thank you, Jan-Erik. And good morning, everyone. And thank you for joining us as we present our Q4 and preliminary results for 2024. I would like to start by summarizing 2024 briefly in the following four points. We have delivered as promised and started our journey towards our 2033 ambition. All business areas continue to grow year on year. We have reached major milestones and new business has been landed. This is reflected in our order backlog and despite the changing and unpredictable landscape, the outlook is promising. Our results prove our strong and competitive position. Going forward, we will continue to see strong demand for our entire portfolio through exposure connected to two major drivers, security and sustainability. Staying competitive in today's rapidly changing world requires that we have a proactive and adaptive approach to our surroundings. We will continue to embrace technology, prioritize customer, invest in workforce and new talents, be globally aware, and adapt to sustainable practices, always seeking collaboration and competitiveness. Earlier this week, I was in Brussels. I met with members of the Parliament and the Commission, and the general feedback was that Kansberg is highly recognized and that our competence and technology portfolio aligns well with European priorities. I also met with a new EU Commissioner for Defense and Space, Mr. Andreas Kubilius, to work closely with the European Commission, President Ursula von der Leyen, together with member states of European defence. His task is to ensure, in terms of defence, that Europe spends more, spends wisely and prioritise European solutions. In addition, he oversees Europe's space portfolio, reflecting the importance of space and its relevance to overall security and defence. We are pleased that EU is now prioritizing defense and space, and that Kongsberg is perceived as a trusted partner who can contribute on the road to build the future of European Defense Union, closely aligned with NATO. As mentioned, 2024 was an eventful year. We signed orders worth almost 88 billion, growing our order backlog to almost 128 billion. We have significantly expanded our capacity both in Norway and internationally. We have opened several new facilities, including Nexus, the new missile production factory in Kongsberg. We are also in the process of adding new missile production capacity in both Australia and United States. We have also expanded our operations in India with a new facility in Kochi to support customers in the region, as well as preparing for future assembly. We continue to invest in competence and we have hired more than 1300 new colleagues last year. In 2024, we launched the new financial ambition. We have raised the bar and aim for Kongsberg to be a company generating at least 120 billion in revenue in 2033. We will continue to renew our offerings, taking new positions and exploiting new areas for our already comprehensive portfolio of advanced technologies. Investments in R&D are key for future success. Over time, Kongsberg has invested around 10% of our revenue into R&D. Approximately half of this is financed through customer contracts, and the remaining is self-funded. In 2024, we increased the self-funded portion of our research and development to 2.7 billion. This has resulted in new products like Kongsberg Discovery's new drone detection radar system, new service operation vessel concept, and Kongsberg Maritime's new Elegance pod. The Elegance pod, where the EL in the name relating to electric, was developed to address technical challenges associated with mechanical thrusters. So by removing the complex gear arrangement, we will reduce drivetrain losses. We have also entered into new customer finance project such as the new German Norwegian 3SM, the supersonic strike missile development contract we signed in July. The supersonic strike missile is complimentary to NSM and JSM and set to be deployed from 2035. We have initiated and concluded several strategic moves over the past year. Firstly, we signed an agreement to sell our steering gear and rudder business from Kongsberg Maritime to Norvestor. The transaction will be closed in the first half of the year. Right after New Year's, we announced that we are relocating Kongsberg Digital's maritime portfolio to Kongsberg Maritime. This is done to further align with future customer needs in the maritime industry. The industry is undergoing a major transition towards renewable fuels and improved energy efficiency. Digitalization is a key enabler to this, and by consolidating our digital maritime initiatives, we are optimizing our approach to support our customer through this transition. In January, we announced the acquisition of Naxis Technologies. Naxis is, among others, a world leader when it comes to detecting oil and gas leaks through passive acoustics. As a technology company and ocean space expert, we have developed world-leading solutions to map, monitor and understand the oceans. The acquisitions of Nexus is complimentary to our technology portfolio and our growth ambition. Turning our attention to Q4, another good quarter with solid progress and results. Mette will come back to their revenues and operational profits and more details later in this presentation. When it comes to order intake, we signed a record-breaking 44.8 billion worth of new orders in the quarter. The largest one was the 12 billion contract for the air defense deliveries to the Netherlands that first acquired the NASEM systems back in 2006. The new acquisition will improve and expand the country's ground-based air defense capabilities The solution also includes the National Maneuver Air Defence System Nomads, a highly mobile air defence configuration with short-range missiles tailored to protect land forces in a dynamic and contested land warfare environment. This is the first export of the Nomad systems. Nomad is fully integrated with ASAMS and other NATO systems, enabling autonomous and networked operation with multiple vehicles. We also signed the largest missile contract in Kongsberg's history in Q4, when we signed a 10 billion contract with the US Navy for the delivery of naval strike missile. The contract includes option, which if exercised, would bring the total value of this contract to about 12 billion. Another standout performance in the quarter was Kongsberg Maritime's order intake of 9.1 billion, corresponding to a book-to-bill of 1.33, confirmed the strong position we have achieved as a technology provider and an enabler for the maritime fleet. We did sign some large single contracts, both towards offshore and naval vessel in the quarter, but the overall picture shows a very solid and diversified order intake, confirming Kongsberg Maritime's position as the preferred partner in the maritime transition. Looking into 2025, we have already secured 35 billion worth of orders for delivery this year. This is almost 5 billion higher than the corresponding number a year ago, and a solid indication for continued growth. We experienced strong demand throughout our portfolio. Looking at the maritime market, the number of vessels contracted at the yards in 2024 increased from 2023, and we aim to take our fair share of this pie. The world fleet in general requires more sophisticated technology, which is favorable for Kongsberg Maritime. Consumer Discovery signed several orders for Huginn AOEs in 2024 and experiencing continued strong demand. The protection and surveillance of installations and critical infrastructure is becoming more and more relevant. The product portfolio offered by Consumer Discoveries towards these areas are increasing. And in addition to Huginn and other surveillance technology, we introduced our new drone detection radar in 2024. The first order of this system have already been delivered and the demand is increasing. So with that, I leave the floor to Mette to take us through the financial status.

Thank you, Geir. Good morning, everyone. It's a pleasure to once again report solid financial performance for Kongsberg. Before we get into Q4, let's take a look at the full year of 2024. 2024 has been a remarkable year for Kongsberg. As illustrated by these four graphs, we made good progress towards our 2033 targets. Our revenues increased by 20% from 2023 to $48.9 billion and all our business areas made significant contribution to this growth, with Kongsberg Maritime with the highest growth rate for the year at 23%. EBIT for the year came in at 6.5 billion, which corresponds to an operating margin of 13.3%, up 2 percentage points from the previous year. Kongsberg Maritime is driving the margin improvement with a 3.4 percentage point EBIT margin improvement in 2024, but all business areas show margin improvement compared to 2023. For some years, we've talked about the project mix being in a period changing towards a less favourable margin mix for Kongsberg Defence and Aerospace. But I'm pleased to see that Kongsberg Defence and Aerospace delivers an EBIT margin at 15.2% for the year, which is an improvement of 0.2 percentage points. We've been able to take out scale throughout Kongsberg, and the margin improvement is a result of solid project execution and strict cost control. I would also like to emphasize the impressive 87.8 billion order intake in 2024, which gives a solid book to bill on 1.8 for the year. This means that we entered 2025 with an order backlog of 127.9 billion. This provides a good starting point for further growth in 2025. So let's get into the fourth quarter. Revenues for the group were up by 17% from Q4 last year, coming in at $13.9 billion. This constitutes an increase of close to $2 billion. Kongsberg Maritime delivers revenues of $6.9 billion and impressive year-on-year growth of 23%. Activity was strong across the board and both the new build market and the aftermarket made solid contributions. We are delivering systems in many different maritime segments. One segment that has been a strong contributor and that is also continue in this quarter is LNG carriers. Our order backlog confirms that it will continue contribute going forward. Revenues also came in strong from the aftermarket and it continues at an increasing level. Kongsberg Defense and Aerospace delivered revenues of 5.5 billion, up 10% from Q4 last year. A solid portion of the growth was driven by missile ramp-up in addition to deliveries on remote weapon stations to the U.S. Cross program. As previously communicated, we are in a period of phasing in our new production facilities. This has slowed down growth slightly in the business area in 2024, but at the end of the year, we have started to see missile revenues accelerating again. Kongsberg Discovery grew revenues by 8% coming in at 1.2 billion. The business area continues to see high demand for their mapping and positioning systems, both from commercial and governmental customers. And as Guy had mentioned, we're happy to see deliveries of drone detection systems in Q4. Kongsberg Digital delivered 0.5 billion, an increase of 17% compared to last year. Recurring revenues grew at the same pace. The growth was driven by improved sales from the simulation business, in addition to an increasing number of users of Cognitwin, the dynamic twin solution. Moving on to operating results, the group delivered an EBIT of 1.7 billion at a margin of 12.4% in Q4. This is a strong improvement versus Q4 2023, increasing EBIT by 460 million and the margin by 1.8 percentage points. Efficient execution combined with a favorable project mixing scale were the main reasons for the year-on-year improvement. All business areas improved operating results compared to last year. Kongsberg Maritime delivered 0.76 billion and a margin of 11%. This is an improvement from 0.54 billion at a 9.6% margin in the corresponding quarter last year. The improved operating results and margin over Q4 last year comes as a result of scale and strong project execution. Kongsberg Defence and Aerospace came in at 0.81 billion with a margin of 14.7% compared to 0.75 billion and 14.9% last year. As we have previously guided, we expect defence margins to continue to trend somewhat downward along with a changing project mix, while we're at the same time ramping up production. Kongsberg Discovery reported 0.23 billion and a margin of 18.4%. This is up from 0.15 billion at a 13.1% margin in Q4 last year. The mix of projects has been particularly favourable this quarter and we expect profitability to vary between quarters. Kongsberg Digital was EBITDA positive for the first time in Q3 and followed up in Q4. Kongsberg remains ambitious on behalf of Kongsberg Digital and we are satisfied with the growth trajectory that we have seen. Going forward after the transfer of the maritime digital business that accounts for approximately 600 million revenues to Kongsberg Maritime, we will from Q1 2025 report Kongsberg Digital as part of other business. Net earnings came in at 1.47 billion resulting in an earnings per share at 8.27 NOK for Q4 and 29.14 for the full year 2024. Networking capital significantly improved this quarter and this is an area with high attention in the group. The main driver for the improvement of the absolute figure was related to contract payments from defence customers reaching milestones in existing contracts and payments from signing new contracts. If we look at the relative percentage, I'm pleased to see that we have improvements within all business areas. This proves that we are able to scale our operation also when it comes to working capital. The improvement comes from targeting inventory levels and customer payments, and we now see the results of the persistent work within the business areas. As I have previously stated, the working capital is subject to fluctuations from quarter to quarter and is affected by the deliveries and payment structure of the contracts signed. Our two largest associated companies are Kongsberg Satellite Services and Patria. Kongsberg Satellite Services... delivered revenues of 577 million in Q4, which is in line with Q4 last year. For the full year, KSAT delivered 2.2 billion in revenues, representing a year-over-year growth of 18%. With this, KSAT continues its impressive growth journey from previous years, resulting in the company more than doubling its revenues over the past five years. The EBIT for the quarter is 73 million and 385 million for the full year. The EBIT margin in KSAT this year is affected by investments, which is important to deliver on the solid 5.1 billion backlog. Patria reported a very strong Q4 with €348 million in revenue and an EBIT margin at 17.2%. The revenue growth was driven by ramp-up of the vehicle production, while the EBIT benefited from strong development in Patria's subsidiaries and increased volumes in Patria's core business. For the full year, Patria delivered revenues of €826 million with operating results of €82 million. I would like to remind you that we report four months in the fourth quarter for Patria. Patria reported a strong backlog of 2.4 billion euros, which is a solid foundation for further growth. The backlogs of our associated companies are not recognized in Kongsberg's reported backlog. And for the full year 2024, the contribution to Kongsberg from these two companies were 425 million, which is recognized as income from associates. 2024 has been a year of exceptional cash conversion for Kongsberg. Cash position at year end was 14.3 billion for the group compared to 6 billion when entering the year, driven by strong operating results and supported by the improved working capital. In terms of outflows, investments continue at a high level and the dividend at 2.5 billion was paid out last year. For Kongsberg, capital allocation is key to securing continuous profitable growth. Our strong cash position enables us to handle the fluctuations in working capital, maintain a growing dividend and continue to invest in capacity and product development. As mentioned on our capital markets day in June last year, we expect to increase our combined investments in PPE self-finance product development and customer finance R&D up to 15% in the medium term. This is an increase of investment from historical levels at around 12 to 13%. Kongsberg's dividend policy is to pay a stable or growing ordinary dividend, and last year we significantly raised the floor for our ordinary dividend payout. This year, the Board of Directors has decided to propose a further increased ordinary dividend of 10 NOK per share, which is 43% up from last year's level. In addition, the Board will propose an additional dividend of 12 NOK per share, which brings the total dividend to 22 for the fiscal year 2024. Financially, Kongsberg is much stronger compared to only a few years back. When considering our performance, outlook and solid foundation, the board proposed to raise the floor even further this year. The proposal entails a payment to shareholders of more than 3.8 billion and represents 75% of net earnings. Like last year, payments are to be made in two tranches, with the first tranche in May and the remaining tranche in October. The Board will further propose a five-to-one share split to the Annual General Meeting in May. Now with that, I'll leave the floor to Geir for some final remarks.

Thank you, Mette. We have already touched on our solid position and strong prospects for the future. But I would like to emphasize that we continue to see strong demand throughout our portfolio. The maritime fleet is aging and the race for a more energy efficient maritime fleet is on. The key to more sustainable shipping is technology and Kongsberg Maritime is a front runner in this field. We see an increased demand for our portfolio of defence systems. Defence spending is increasing both in Norway, NATO and other allies. The order backlog in Kongsberg defence and aerospace is now above 100 billion and we continue to experience strong demand. Kongsberg Discovery is experiencing growing demand for its world-leading portfolio of sensors, robotics and hydroacoustic products. Through both existing and increased offerings, the business area is positioned for further growth. A month ago, we announced that Kongsberg Digital Maritime Business will be transferred to Kongsberg Maritime. Going forward, Kongsberg Digital will prioritize further development of digital work surface, mainly for the energy and process industries. Overall, Kongsberg's market position and the demand we are experiencing throughout our businesses are strong. We have the right people with the right competence and motivation, so I'm confident that we will continue to deliver on our commitments and ambition also in 2025. With that, I would like to open for questions from our viewers.

Thank you. The first question comes from Håkon Fuglø, SEB. Can you elaborate a little around why others and eliminations are very positive on EBITDA for the quarter?

Sure, I can answer that. Well, I think we saw a 79 million improvement in the quarter on EBITDA and the main reason for that is the improvement in KDI.

Thank you. Second question from Poulos Masoutis. We see that the margin is increasing across all activities, but slightly lower in Kongsberg Defence and Aerospace. Can you elaborate on this and share your expectations regarding the margin in Kongsberg Defence going forward?

Sure. I think I alluded to it in the presentation. We have been expecting a slightly different project mix in Kongsberg Defence and Aerospace over the last few years. And in Q4, we also see that we're following the trend that we have been communicated. But I also am very pleased that we actually improved the margin in 2024 versus 2023. We still see very good project execution and scaling up the business with the growth that we're experiencing. But we're in a period with a slightly different project mix than we have seen previously.

Thank you. And a question from Carlos Perez, Bank of America. How should we think about the conversion of the 2024 Kongsberg Defence and Aerospace order intake into sales? And how should we think about KDA's order intake in 2025 and going forward? Do you see a possible growth year on year in KDA order intake in 2025 despite the strong order intake in 2024?

I think we can say that we still believe that it's going to be a strong demand for our portfolio in the defense. We have just finished a very, very strong year also on the order intake for Kongsberg Defence and Aerospace. And I should be careful to, let's say, speculate in what we can achieve in 2025. Just say that we are quite optimistic about the ongoing programs and also the potential going forward.

Thank you. And then three questions from Lukas Dahl, Arctic Securities. The first one is on currency. And how is weaker Norwegian kroner versus US dollars and euro impacting your competitive position and results?

Yeah, I think, you know, on the export side, of course, the weak kronor has an impact on that. It makes our, let's say, competitiveness slightly better. But again, I think for us, it's about, you know, the technology and, you know, the... let's say the product and systems that we are providing and addressing the needs for the customer out there that eventually make the difference.

Thank you. And second question from Lucas Dahl. It's regarding the 2033 targets. And can you elaborate a little bit around the split of this target between business areas? And should we expect the same split as today?

I think there's good reasons that we didn't split the targets because we are in a very dynamic market position with all our business areas and I think that over the last 10 years we've really changed the The company and the business area split is completely different than what it was 10 years ago. And we also have to expect that this will shift going forward. So we are confident about the ambition level, but we're not going to split into different business areas.

Thank you. And then last question from Lucas Dahl. It's on margins in Kongsberg Maritime and the seasonality around the margins. And especially between Q3 and Q4, what impacts margin differences between those two quarters? And secondly, in Kongsberg Maritime, you are delivering to numerous sorts of vessels. And what sort of vessels are the most profitable for you?

You want to start on that?

I can start and then you can go on to the vessel types. When it comes to the Q3, and I think we're also very clear on this when we're reporting Q3, that we have a seasonality due to a lower cost level in Q3. And this is because... We are on holiday and we don't have the same salary payments for the full Q3. So we are always affected by a positive cost effect in Q3. And this year, we also saw that the momentum out of Q2 was very strong. So there was some periodization that also affected Q3 positively. But in general, the seasonality is that we have a lower cost in Q3 on the maritime side.

Yeah, and when it comes to the outlook, I think what we saw in Q4 with a quite diversified split of our order intake and what we see in the order backlog of the yards now, I think it will remain quite the same, actually. It has been a very strong LNG market for Kongsberg the last few years. That has also continued in 2024. It remains to see how that will be affected in 2025. But in general, I would say it's vessels that fits Kongsberg Maritime quite well because what we see is that the requirement in the specification are increasing even for what we could call more, you know, standardized vessel. The technology requirement is increasing. I think that Congressional Maritime also has a strong market potential in 2025. It will be diversified as it has been in 2024.

Thank you. And a question from Jesper Prus regarding Kongsberg Discovery. The growth of this business area is impressive and can you say a little bit about the key reasons why Kongsberg Discovery has been able to grow as it has?

I think Congress with Discovery, you know, they have a very, I would say, solid technology backbone addressing very complex technology, actually, with specialized sensors, underwater sensors and autonomous robotics. What we see is that these are really addressing, I would say, two of the major drivers in the market today, and that's security and sustainability. And these kind of capabilities, I would say, Kongsberg Discovery is among the world leaders. And that is one of the reasons why we see this strong growth. And we also see that with this technology backbone, which we now also have some add-on in the portfolio with Nuxys, further open up even other areas for addressing with that type of technology.

Thank you. And a question from Steinar Haugseng regarding your deliveries into the fishery industry. Do you see any signs of increased sale towards fisheries, either vessels or with regards to surveillance and new regulations, et cetera?

I think the fishery area is quite, let's say, stable. In the fishery industry, I think it's very important for continuously innovation. And as long as we can be in the forefront of taking these kind of equipment that we are delivering one step further, we see a quite interesting market. I don't see... so much on the commercial fishery at least. But then, of course, if you look into the research area, I think we see a quite strong market here for Kongsberg Discovery, where we actually then contribute both in research and also to consider and decide on the quotas of the fish. And that is an area where Kongsberg Discovery is the world leader.

Thank you. Also around fisheries on the fish farming side, you have delivered equipment to fish farms before. Do you see any sort of increased sale towards that side of the industry also when it comes to regulations and surveillance and the same subjects?

I think it's still a market which is premature, and this is a market that we are following with interest. But right now, I think it's kind of, as I say, a lot of different concepts out there, and we are following on that. But it has not been really taking off this market yet. But with consumer expertise, especially when you go let's say offshore, I think both Kongsberg Maritime and Kongsberg Discovery has product and competence to contribute to that kind of market.

Thank you. That concludes the questions from the webcast viewers.

Okay. Thank you. Thank you everyone for joining us this morning. Appreciate that and have a good Friday. Thank you.