Kongsberg Gruppen Asa

Welcome to the presentation of Kongsberg's second quarter results. This presentation is done as a webcast only and you will be able to send in questions through the chat function. Please note that this presentation contains forward-looking statements that by their nature involve known and unknown risks, uncertainties and other important factors that could cause the actual results to differ. Today's presentation will be delivered to you by our CEO, Eirik Lie, and our CFO, Martin Wienfjell. With that, I will hand it over to our CEO, Eirik.

Thank you, Jan-Erik. Good morning, everyone, and welcome to this second quarter results presentation. The second quarter of 2026 was characterized by high activity levels across the company, both in new orders and in our production facilities. We continued to sign significant new contracts and we made key deliveries to our customers. Last week I was in Ankara for the NATO summit and industry meeting. The messages from NATO were clear. Europe must continue to invest in its own defence capabilities and seek joint procurements with other countries. The need for high industrial production is increasing and urgent. And the Ukraine war continues to show the importance of air defense, missiles and anti-drone capabilities. There is also a critical need for missiles that can be produced in high volumes, as well as protection against tactical ballistic missiles. In Ankara, NATO countries announced more than 50 billion US dollars in new procurements. Several countries announced major investments in their own defense capabilities. Many of these were relevant for us. Canada joined the German-Norwegian submarine program, for which Kongsberg is a major supplier. Lithuania signed an agreement with Norway for the potential procurement of standardized vessels, which we are designing with salt ship design. And finally, Belgium joined the Netherlands with its intention to acquire multiple NATO systems. The contracts for these systems will come at a later stage, but they are strong examples of the overall trend. Europe and NATO are making investments, and Kongsberg has products that meet current demand. In the second quarter, revenues increased by 31% to 10.4 billion kroner from the same period last year. This is the first time we report revenues above 10 billion, a major achievement. Earnings before interest and tax were 1.7 billion, resulting in an EBIT margin of 16.1%. The results were driven by high volumes across the company, with strong growth in air defense, missiles, and remote weapon station projects. Order intake in the quarter was 17.1 billion, not including the $400 million contract to deliver NASEMS to Kuwait. This took the total order backlog to 158 billion. As usual, Martin will provide further details about the financials in his presentation. Activity levels were high throughout the second quarter. We completed the acquisition of Sound5, which we see as a potential game changer for us. I will come back to this later in the presentation. We are on track with establishing new facilities. The missile factories in the US and Australia are under construction, and we are preparing new establishments, for example in Polen. This summer we are moving into new facilities in Horten in Norway. We also shared our new financial ambitions on our Capital Markets Day, presenting plans to triple revenues to 100 billion by 2029 and 150 billion in 2033. High demand for our key products drove the order backlog to 158 billion. As I mentioned in the first quarter presentation, we expected to see new contracts for the Joint Strike Missile. In the second quarter, new orders for JSM totaled 11 billion. Both Germany and the US placed repeat orders for 3.5 and 2.7 billion, respectively. And at the end of June, we signed a contract to deliver JSM to Canada, making it the sixth country to select a missile for its fighter aircraft fleet. Recent events in the Middle East are driving up demand for air defense and anti-drone solutions. Kongsberg has strong positions in select markets in the region. In June, we signed a contract with our partner Raytheon for deliveries of the NASEM's air defense system to Kuwait through the US Foreign Military Sales Program. While the contract did not impact on the second quarter results and order backlog, the overall program has value for Kongsberg of about 400 million US dollars. Preventing and detecting threats and attacks are essential to protect critical infrastructure. Kongsberg has solutions to support countries and industries, and we are now starting to see countries making investments. In June, we signed contracts worth more than 200 million. The project is for an unnamed international customer and will focus primarily on underwater surveillance and protection. One month ago, we closed and completed the acquisition of Zone 5. Zone 5 was founded in 2011 and is based in California. It has about 400 employees and is growing fast. It is an established maker of high-volume missiles, also called affordable mass. These are highly capable interceptors that are designed to be produced in tens of thousands per year. Zone 5 has developed combat-ready strike and air defense interceptors and are under contract with the US government. The Zone 5 portfolio includes two key products. Rusty Dagger is a cost-effective strike missile with long-range and flexible launch options. White Spike is a cost-effective air defense interceptor. We acquired Zone 5 because modern warfare shows that defense capability is not only about the most advanced systems, but also about volume, production pace, stock levels, and having the right cost per effect. This places new demands on both defense capability and industrial capacity. Zone 5 gives Kongsberg complementary capabilities. High-end missiles are still required against demanding targets and in complex threat environments. Together with Zone 5, we have started work to add White Spike to our air defense and counter US offering. Zone 5 is industrializing and scaling up manufacturing in the US. It is well positioned to win more contracts in the US. Kongsberg aims to establish manufacturing of Zone 5 missiles in Europe. We are looking for countries and partners to create European hubs for high volume production. With Soundfire, we can also introduce new and different business models. For very high volumes, it is unsustainable to produce at maximum levels every year. We are therefore proposing a subscription model to countries by which the manufacturer will be paid to secure that they can scale up production fast within a fixed time frame. This model also means we can continuously introduce upgrades and new technology. And this type of scalable production is exactly what Europe needs. Our expectation is for Zone 5 to generate annual revenue of more than 10 billion in the medium term. The pace of innovation in our industry is happening faster than ever before. New entrants, often from civilian sectors, propose novel solutions and established players are pushed to stay relevant. Collaboration between these two types of businesses is often challenging. Kongsberg is in a unique position. The combination of our civilian business in the discovery division and our established defense solutions means we can innovate internally. But we're also looking outside our own company. I would like to highlight two examples of collaboration that address some of the biggest topics in our industry. We recently signed an MoU with the Ukrainian defense technology company DevDroid for large scale production and development of remotely operated robotic combat systems. The cooperation with DevDroid combines the battle proven solutions with Kongsberg's experience in developing autonomous defense systems. We have an ambition to add long-range capabilities to our air defense offering to counter the full spectrum of our aerial threats. Today we are working with Ukrainian and international partners on integrating long-range anti-ballistic missile solutions. This system will be based on NASEMs. These are examples of how Kongsberg finds the right partners to accelerate the time to market. The activities show how Kongsberg is positioned in the market. We are big enough to be a prime contractor to the world's largest customers, but we are also agile enough to move fast and drive rapid innovation, internally and with partners. In today's market, this is a very powerful combination, and I don't see many other companies in the same position. That concludes the first part of my presentation. I'm now happy to hand over to our CFO, Martin. Thank you.

Thank you, Eirik, and good morning to all of you following us through the webcast. I'm happy to present what is yet another solid quarter for Kongsberg. Before I get into the figures, I will kindly remind you that consistent with our first quarter and our capital markets day, figures include the proportionate share of 50-50 owned joint ventures. This is relevant for order intake, order backlog, revenue, and EBIT. This is done to align the external reporting with internal governance and highlights the significance value that these represent. Starting with this quarter order intake and backlog. The total order intake for the quarter came in at 17.1 billion. Once again, this resulted in a record high order backlog, which is now at 158 billion. Eirik already talked about the quarter's most significant contract wins, but I think it is worth repeating that we received three significant JSM orders, totaling 10.9 billion. Looking at our division defense systems, it experienced lower order intake in the quarter after having reported record order intake in first quarter. This is a natural fluctuation, and the announced nascent agreement with Raytheon for an FMS sale to Covite highlights the current demand. For our Discovery division, orders were up from last year and at a steady level. The nature of our Discovery business is that orders come in at higher volume, but at a lower contract value. On the slide, you'll find our backlog split by both division and by delivery time. 77 billion of our current backlog is in defense systems, 68 billion belong to missiles and air structures, and the remaining 12 billion belong to discovery. 13% and 21 billion of the backlog is to be delivered during the two remaining quarters of 2026. 44 billion is for the delivery in 2027 and the remaining 92 billion spans out into 2028 and beyond. This clearly shows the long-term growth pathway that we are on and provides a solid foundation going forward. Then let's move on to revenue. Kongsberg delivered another strong quarter. Revenue came in at 10.4 billion at an increase of 31% compared to second quarter 2025. This is the first time that we report revenues above 10 billion, and it's really a milestone that we are proud of. All three divisions contributed and it ranged from 19 to 53 percent. Activity is high across all areas and we are working continuously on scaling operation, ramping up production capacity in order to deliver on our backlog and the future demand that we see. Defense Systems grew revenues by 53% in the quarter, from 3.3 billion to 5.1 billion, a continued strong development. The division continues to execute well on several air defense projects. Also in the quarter, we saw particularly strong roles within the weapon stations, partly driven by the initial progress on the KUAS for Poland. Our Missiles and Air Structures Division delivered a top-line growth of 19%, resulting in a revenue of 2.9 billion, up from 2.4 last year. The ramp-up of our missile production continues, and the program is well on track. In June, we completed the acquisition of Zone 5, and as a result, three weeks of operations have been included in the second quarter. Discovery grew revenues by 21% in a quarter, which is a solid growth. The main driver was increasing deliveries relating to space, and in particular the production of small satellites. Turning our attention to profitability, EBIT came in at 1.7 billion with a corresponding margin of 16.1%. This compares to 1.1 billion and a margin of 14.2% last year. As a result, we are increasing our EBIT margin by 1.9 percentage points. The absolute EBIT improvement is 49% versus the 31% revenue growth, and it clearly demonstrates the successful scale-up of our operations. Our profitability will continue to vary between quarters. In the period, we also included the IFRS impact of the revoked export license to Malaysia. We had other positive one-off effects in a quarter, more or less offsetting this effect. Due to the ongoing negotiations, we will not go into further details. Looking at the divisions, defense systems delivered a growth in operating results of 38% in the quarter, resulting in an EBIT of 902 million. The margin came in at 17.7%, down from 19.6% in Q2 2025. This is due to a varied product and project mix, which is to be expected between quarters. Specifically, the quarter included the non-Norwegian donation projects to Ukraine and associated with this is lower margins. Missiles and Aerostructures delivered an EBIT of 488 million. This yields a growth rate of roughly 18% due to higher missile production volume. The margin is around the same level as in second quarter 2025 at 16.9% versus the 17.1% We are managing to scale and extract benefits from our existing missile production. The production ramp-up in SOM 5 is expected to impact margins going forward, as we also saw when it came to the scale-up of our NSM and JSM missile production. In short, we expect single-digit profit margins for the next 12 to 24 months for SOM 5 before normalizing at normal Kongsberg levels. Discovery increased EBIT from 330 million last year to 347 million this quarter, a percentage increase of 5%. The margin ended at 15.3%, down from 17.6% last year. This was driven by a less favorable product mix in the quarter. Also, as we have communicated earlier, the division is in a phase of significant investment and moving into new facilities that will impact margins. For this quarter, we saw an adverse effect of about 1 percentage point. Adjusting for this, underlying EBIT margin was 16.5%. The new facilities will allow for improved efficiency and support margin expansion. Beyond the divisions, the other segment contributed positively, and we have realized positive development in Falkor, previously known as Kongsberg Digital, following the successful cost reduction program that we initiated in the first quarter. And Falkor has now turned EBIT positive in June. In addition, the other segment includes other positive periodization effects this quarter. This brings the EBIT margin for the quarter up to 16.1%, which we believe is a good representation of the underlying performance of Kongsberg for the quarter. Next, let's look at Patria, which is not included in our APMs, as our ownership share is less than 50%. As always, the Q2 numbers presented on the slide include March, April and May. Patria reported revenues of 321 million euros and an EBIT of 50 million. Kongsberg's share of net income for the quarter was 215 million Norwegian kroner. EBIT margin was doubled in this quarter compared to the same quarter last year, and continued improvements in margins are expected. The revenue growth of 42% was particularly driven by the protected mobility business area and the recently acquired Elias business. Patria has over time grown their backlog and secured several significant contracts. The backlog stands at 3.5 billion euros as of May, up from 2.5 billion last year. Note that this is not included in Kongsberg's reported backlog. Similar to Kongsberg, Patria continues to invest in increased production capacity to meet the significant demand. We continue to have joint business through our remote weapon stations and the 6x6 vehicles. Finally, I will turn to cash flow and working capital. The cash position was reduced from 16.4 billion at the start of the period to 4.9 billion at the end of the quarter. Dividend payment of 5 billion, cash payment for some five of 3.7 billion and 1 billion bond repayment were the main drivers. Our working capital position remains strong at a negative 9.1 billion. Customer advances and milestone payments will result in natural fluctuations. Our focus is to manage working capital efficiently while ensuring that inventory, supply chain capacity and project funding are at a satisfactory level. Overall, we continue to have strong financial position that provides a solid foundation for further growth. And with that, I will leave the floor to you, Eirik, for some final remarks.

Thank you, Martin. At the end of the second quarter, the order backlog was 158 billion. About 21 billion of this will be delivered during the rest of 2026. Call-offs from framework agreements and aftermarket services will come in addition to this. As communicated in the first quarter presentation, we expect revenue growth in 2026 above the 2025 level. The development we have seen in the second quarter makes me confident that we are in a good position to realize our long-term ambitions in 2029 and 2033. We have a strong market position. We have a significant order backlog and solid financial position. This provides a good basis for continued growth in 2026 and beyond. Thank you.

Thank you, Eirik. We will then open it up for questions. First from Fabian Jørgensen in Pareto. Can you please quantify the margin effect of the Ukraine donations and the others segment?

So, as we have said earlier, our margins are a combination of project and product mix. And when it comes to the Ukrainian donation programs, that is one example of how our EBIT margins are impacted. When it comes to quantification, I will not go into those kind of details in this call.

And also from Fabian, the NATO summit revealed several co-production agreements for US systems in Europe, including Patriot. How does this affect the full spectrum air defense outlook?

I think it really supports our ambition to have a full-spectrum air defense system going forward. And it also points out how important anti-ballistic missile defense is in general for Ukraine and for Berlin in all aspects. Our ambition is to take part in this. And the US has also an ambition to secure and support Ukraine in their efforts as well.

And then from Benjamin Healan in Bank of America. There has been a strong decline in the margin year over year in defense system. Is there anything in particular driving these? And are there other dynamics that we should be thinking about in margins for the midterms?

What we see in defense systems is a very successful ramp-up of production. So they are growing rapidly. And when it comes to the margins, this is natural development. And again, it's back to the project mix that is really driving the composition of the margins.

And then another question from Benjamin, on what you talked about, Eirik, about the subscription models. Have you already proposed the subscription model for missile production to countries, and what have the responses been?

Yes, we are in dialogue with several countries. I will not mention the specific countries, but the interest is definitely there because this is needed. And the need for a different model, a business model, how to handle a production of tens of thousands per year is very, it needs to be sold. And I think we will see a very positive outcome of this when we look at Europe in general.

And then from Ole Petter Sjøvold in Sparbank 1. What specific IFRS impact from the revoked export license to Malaysia did you include in Q2? And what positive one offsets?

So, as we mentioned, Malaysia, or the contract to Malaysia, had a revoke of the export license from the Norwegian government. And accordingly, we have taken the appropriate effects into our figures. But at the same time, we've had similar positive effects as other one-offs. When it comes into the quantification, we cannot go into details on this due to the ongoing negotiations.

And then from Kevin Landor, journalist with Defence Nordic. At the Capital Markets Day, you presented very ambitious growth targets. One month later, what gives you the greatest confidence that those ambitions are achievable, and what worries you the most?

First of all, I think what we experienced during the NATO Summit in Ankara confirmed the need for investments into defense and security and the confirmation from NATO countries. So I think that confirms and plays into our high ambition level for 2029 and beyond. So that is one relevant aspect of that. We also see and discuss with the customers the demand they have. That will also support our ambitions. So I think this is very much relevant for our goals for 2029.

And then from Hans Erik Jakobsen in Arctic. Can you give some guidance on revenues from Zone 5 this year and next?

So, as Eirik said, we are aiming for revenue of 10 billion in the medium term. And right now, you know, it's three weeks since we concluded the acquisition, and our focus is fully on both integrating the company into Kongsberg and also being able to deliver on the exciting growth opportunities that we have had.

I'd like to come back to the previous question because there was also about either challenges or that could impact our ambitions. I think we have to be realistic in the sense that we always stated that the biggest challenge is to secure the supply chain. And that is still relevant even though we have a very positive look at the supply chain. and this is our most important job actually to secure the supply chain and the deliveries there both for investments and secure that we have multiple sources and also that we are building up a what we call a strategic approach a buffer capacity so that with hiccups in the supply chain we are able to continue our production so I think even though we don't see major issues in this area we are aware of it we're working on this every day.

Thank you. That concludes the questions from the webcast, and that also concludes today's presentation. So we would like to thank all of you that have followed us online for following us, and we wish all of you a great summer.