Earnings call transcript: Kongsberg Automotive faces challenges in Q1 2025

Kongsberg Automotive (KA) reported a challenging first quarter for 2025, marked by a decline in revenue and operating income. The company recorded revenues of €190 million, a 10.9% decrease from the previous year, and an EBIT of €2.2 million, significantly down from €10.1 million in Q1 2024. According to InvestingPro data, KA maintains a "GREAT" overall financial health score, suggesting underlying strength despite current headwinds. The company’s strong financial foundation is evidenced by its healthy Altman Z-Score of 12.25, indicating minimal bankruptcy risk. These results reflect ongoing pressures in the automotive sector, particularly in commercial vehicles and passenger cars. Despite these challenges, KA is maintaining its focus on cost reduction and innovation in transmission technologies.

Key Takeaways

• Revenue fell by 10.9% year-over-year to €190 million.
• EBIT dropped to €2.2 million from €10.1 million in the previous year.
• Kongsberg Automotive is focusing on cost reduction and operational efficiency.
• New business wins in Q1 are expected to generate €136.6 million in lifetime revenue.
• The company is investing in a new factory in India to support growth.

Company Performance

Kongsberg Automotive’s performance in Q1 2025 was challenged by reduced demand in both commercial vehicles and passenger cars. The company is experiencing market uncertainties, which have impacted its financial results. Despite these difficulties, KA has managed to secure strong new business wins, particularly in the commercial vehicle segment, which it expects to contribute positively in the future.

Financial Highlights

• Revenue: €190 million, a 10.9% decrease year-over-year.
• EBIT: €2.2 million, down from €10.1 million in Q1 2024.
• Net Income: Negative €2.2 million.
• Free Cash Flow: Negative €10.5 million, an improvement from negative €14.9 million.
• Leverage Ratio: Increased to 3.1.

Outlook & Guidance

Kongsberg Automotive expects its revenues to remain relatively unchanged in the first half of 2025, with potential upside in the second half. The company is maintaining a positive EBIT margin guidance for the year, focusing on cost reduction and operational efficiency to improve its financial standing. Based on InvestingPro’s Fair Value analysis, the stock currently appears slightly overvalued, suggesting investors might want to wait for a better entry point. For more insights on market valuations, explore InvestingPro’s extensive collection of valuation metrics and financial analysis tools.

Executive Commentary

CEO Trond Fiskem acknowledged the unsatisfactory financial performance, stating, "We fully recognize that KA’s financial performance is not satisfactory." He emphasized the company’s commitment to delivering results, saying, "We will demonstrate that things are different simply by delivering results."

Risks and Challenges

• Reduced demand in commercial and passenger vehicles.
• Market uncertainties impacting financial performance.
• Increased leverage ratio, posing financial risks.
• Potential impact of global tariff changes.
• Dependence on successful implementation of cost reduction programs.

Q&A

During the earnings call, analysts questioned the company’s confidence in market recovery and its strategies to mitigate tariffs. Executives addressed these concerns by highlighting ongoing efforts to strengthen investor relations and reduce executive compensation as part of cost-saving measures.

Full transcript - Kongsberg Automotive Holding ASA (KOA) Q1 2025:

Therese Skoda, Communication Director, Kongsberg Automotive: Good morning, everyone, and thank you for joining us today, and welcome to Kongsberg Automotive q one twenty twenty five earnings call. My name is Therese Skoda, communication director, and I will be the moderator in the today’s session. Before we begin, I would like to remind you that questions can be raised in the webcast tool. We will prioritize questions posted in English. Joining us today as presenters are President and CEO, Trund Fiskem and CFO, Christian Johan Song.

On the right hand side of the slide, you will see the topics that they will present today. Now I would give the word over to our president and CEO, Trond Fischkem.

Trond Fiskem, President and CEO, Kongsberg Automotive: Thank you, Theresa. Welcome to all also from my side. Before we get started with the q one presentation, I would like to introduce myself. I am Trond Tyskum, the new president and CEO of Ka. I took office on March, and I’m based at Ka’s headquarter in Kongsberg, Norway.

I hold a master of science degree from Norwegian University of Science and Technology in Trondheim, and I have done a full time MBA at Essada Business School in Barcelona, Spain. My previous experience from KA. I worked in KA in the period 02/2005 to 02/2015 and held various leadership positions in the company. My experience from k a includes turnaround management, operational management, plant moves, commercial responsibilities, as well as strategic work and development. I’ve been responsible both for plant management on very operational level as well as running a global business area covering 12 different production locations on four continents.

So even if there had been many changes in k a since I left in 02/2015, I believe I know the company and the business well, and I feel that I can hit the ground running. I’m returning to k a after a decade of working in Brazil, at MSWirth, which later became HMH. I was responsible for their business in South America where I gained additional valuable industrial experience. An important part of my experience, is about change management and turnaround management and successfully turning financially struggling businesses into highly profitable and successful businesses. I’m very happy to be returning to KA and look forward to working closely with the Board of Directors, colleagues here at KA, our customers and other stakeholders, clearly with the ultimate goal of creating value for our shareholders.

I will go through the main messages regarding Q1 financials, and later Christian, our CFO, will go into the financials in more detail. Revenues fell to EUR 190,000,000, down from EUR 212,100,000.0 in the same period last year, reflecting a decline of EUR 22,100,000.0 or down 10.9% at constant currency. The decrease reflected the lower demand in the commercial vehicles and passenger cars markets in Europe, North America and China. Despite high uncertainty and subdued demand, Ka experienced a modest uptick in customer activity early in the year compared to Q4 last year with an increase of €4,800,000 or 2.6%. EBIT was €2,200,000 in Q1 with an EBIT margin of 1.2% compared to €10,100,000 with an EBIT margin of 4.8% in Q1 last year, mainly explained by a loss contribution from the revenue drop of €22,000,000 and by a positive one time supplier settlement regarding warranty of €2,700,000 last year, which we do not have this year.

Overhead cost reductions continued. Costs in fixed manufacturing and sales and administration was lower than last year. EBIT improved sequentially versus Q4, mainly due to volumemix and lower warranty costs. Free cash flow was negative at EUR10.5 million, though improved from negative EUR14.9 million in Q1 twenty twenty four. Even if we improved in the quarter, we still have a negative cash flow, which needs to be corrected going forward.

On this slide, I will take you through our revenue development by region for the first quarter of twenty twenty five versus Q1 last year and Q4 last year. Starting with our two most critical regions, Europe and North America, which collectively accounted for 84% of our quarter one revenues. In Europe, we saw revenues increase by 5.7% compared to Q4 last year, which was a small improvement. However, year over year revenues declined by 10.3%. This mirrors the subdued markets with markets for heavy duty vehicles declined by 11.7% and passenger cars declined by 9.2%.

North America revenues improved by 4.3 compared to Q4 last year, while when compared to Q1 last year, revenues were down by 11.6%, which was consistent with the steep decline in the market production in heavy duty and light duty vehicles in that region. Moving on to Asia, including China. This was the only region with a quarter over quarter decline compared to Q4, down by 15.1%. Year over year, the region was also down by 17.9%, primarily due to a significantly lower sales of KA’s gear control unit to a large Tier one customer in the commercial vehicles market as well as a decline in sales of electric actuators to one of our customers in the passenger cars market. This decline does not reflect the regional market trend as production output for both heavy duty vehicles and light duty in this region grew year over year.

In South America, KA continued its positive trajectory with sales growing by 10.4% compared to Q4 last year and by 10.6% year over year. The market also expanded in both segments. Globally, our revenues improved by 2.6% versus Q4 last year, marking the first sequential increase after several declining quarters. However, on a year over year basis, sales declined by 10.9%, driven by continued demand pressure on in our largest markets, Europe and North America, as well as a weaker performance in Asia. Market data confirms that production volumes remain under strain in key regions, particularly in the heavy duty segment.

Christian will come back to that later. The cost saving programs to reduce our cost base that was initiated in autumn twenty twenty three was concluded last year, giving a €17,000,000 of annual savings. The overhead reduction program announced in the autumn of twenty twenty four impacting approximately 150 position in Ka continued as planned in the quarter and remains on track for full implementation by Q3 twenty twenty five. This program is expected to yield an annual cost saving of at least €10,000,000 as previously announced. Going forward, there is no doubt that we need to further adjust our cost base.

Additional initiatives are being worked on as we speak. This is a key priority for us. The details of these cost reduction programs will be communicated when we have concluded the plans. As we have shared previously, 2024 was an exceptionally strong year in terms of new business wins. We will now look at how 2025 is developing.

Q1 new business wins were broadly in line with our expectations with 136,600,000 of average lifetime revenues. Flow Control System had the majority of this order intake with €110,000,000 and the Drive Control System booked €25,800,000 Some €42,000,000 of the new business wins, or 2031% of these business wins were incremental, while the rest was replacement business, meaning a continuation of existing business. The new wins were primarily in our Commercial Vehicle segment, with over 60% of the awards in this key market area, with healthy awards also coming in our Passenger Cars, off road and industrial segments. As previously announced, we were pleased to be awarded a significant business extension from one of our major customers for the Ralfos ABC air brake system, supplied out of our facility in Ralfos in Norway. The contract award will ensure supply through 2029 and highlights a strong position we have with this world class product.

We continue to have a healthy pipeline of opportunities that reflect our growth ambitions with our core customers in our key markets. When we took a when we take a look at our new business wins over the last eight quarters, we can see the extraordinary high business wins during 2024, with the majority being extension of existing business. This is positive for KAA, as extension business require less development cost and CapEx. At the same time, we have a good portion of incremental business wins, which is fundamental for our medium and longer term growth. This contract for the fast growing Chinese electrical vehicle segment was announced this morning.

Our dog clutch actuator or DCA is developed by Ka and can be used in passenger cars and heavy duty commercial vehicles. It takes care of gear shifting and decoupling for multi speed transmissions, either electric axles or central drive transmissions for hybrid, battery electric or fuel cell vehicle applications. It has a robust and durable design. It provides great comfort and performance. It is space efficient and easy to maintain.

The customer for this contract is a global Tier one, serving the electric commercial vehicle segment and multiple OEMs. In China, we do have a DCA in production already, and this is the next application with the same customer. Development of the product has taken place at our technical centers in Muleshoe in Sweden and in Wuxi in China, while the production will be in our Wuxi plant in China. I want to point out that this contract was awarded in Q2 and is not a part of the business wins we have reported for Q1. Tariffs.

We at KA are closely monitoring the tariff situation, and we are actively working to mitigate its direct effects. It has been challenging due to the many changes in the tariff rules and different interpretations of the rules. In any case, efforts are underway to recover tariff related costs from customers and to optimize material flows within the supply chain. The direct impact of the tariffs are expected to be limited with the current tariff rules. The primary concern remains the adverse impact of tariffs on overall market demand, most notably in The United States, but also to a lesser extent globally.

We continue to follow development very closely and we take any necessary action related to the tariff situation. I would like to end this first section of the presentation to talk about the key focus areas going forward. A key focus area will be to further adjust our cost base. This goes beyond the current cost saving programs. Additional initiatives are being planned and will be launched to reduce our cost base and to improve profitability throughout 2026 and beyond.

Details of these programs will be communicated when the plans are concluded. Improved cash flow. We focus on strengthening the cash flow through a very disciplined CapEx management and a targeted reduction in net working capital. A high performing organization is key to success, and we need to start with the top. So strengthening the Ka leadership team is another key priority.

We will strengthen the team with the right competencies, mindset and values. The team will be supported by a clear structure of responsibility and accountability. Lastly, we need to develop our future with innovation and profitable growth. We have an attractive product portfolio and a strong pipeline of innovation projects. And we are well positioned to deliver long term sustainable financial performance.

We will need to prioritize which innovation to focus on, ensure that we have solid business cases and manage well the managed challenges and risks associated with innovation, including CapEx and warranty costs.

Christian Johan Song, CFO, Kongsberg Automotive: Okay. Thank you, Trond. And good morning and good afternoon, everyone. Welcome also from my side to this quarter one earnings call. I will start with the market update.

The market data we use are from external sources. So LMC delivers the commercial vehicle market data and S and P Global Mobility, which previously was called IMS market, the light vehicle data. In the first quarter, commercial vehicle production declined globally by 3.8% versus last year. Regionally, North America had the largest decline by 22% year over year. And the production volumes for medium and heavy duty trucks in North America in the first quarter is presently at a low level and has not been this low since third quarter twenty twenty one.

It is worth noting that it was only in February the customs tariff communication from the Trump administration started. Europe had close to 12% lower weaker production versus last year, while in China, Asia outside China and in South America, vehicle production increased. Light vehicle production globally reduced in the first quarter by 0.6%, while production in the North American and Europe was lower year over year by 7%, respectively, 9.2%. If you look at the full year forecast from the institutes for 2025, For commercial vehicle, it is now a growth by 0.3%. It was a growth by 1% when I showed this slide in the quarter four earnings call.

So forecast has been reduced. There are two larger changes. First is North America, where forecast has been reduced from negative 6% to a decline of 21% for full year 2025. And it is also a change in the Chinese market where the full year forecast has been increased from a growth of three percent to a growth of 9.5%. And we also note the forecast for Europe is a full year growth of 3.1% versus last year.

The full year forecast for light vehicle production volumes are unchanged versus 2024, which also were the forecast when this was presented in the last earnings call with only minor regional changes between the present and the previous forecast. But we also note here that the forecast for North America is adjusted downwards to decline by 3.2%. So it’s notably that the market forecast in North America now are reduced for 2025, both for commercial vehicles and passenger cars. If you compare then the first quarter performance of KA versus the market, Tron has already shared the sales performance, so I will be brief. But when we compare KA sales in the first quarter by region and by customer segment, we can conclude on Commercial Vehicle segment side that KA has performed better in North American market as well as in the European market, which, of course, are very encouraging.

In North America, FCS started deliveries to a new vehicle program. And in Europe, DCS held up sales quite well on a broad basis. When it comes to passenger car segment, our sales declined by 13.7% compared to the market performance of a reduction of 0.6%. And our sales development on passenger cars is primarily an effect of the driveline wind down as volumes continue to reduce in line with our expectations. In North America, however, we did better than the market based on increased sales of hoses and assemblies in the FCS business area.

Approximately 12% of our revenues in the first quarter was in other markets, so mainly industrial sales in Europe and sales to off road applications in North America. And here, we note 17% lower sales versus last year. And I should say that the off road and agri construction market is very weak, both in Europe and in North America, and our performance is in line with the market. If we look at the market forecast for the period beyond 2025, it is strong growth and figures are relatively unchanged versus the forecast presented in February. Commercial vehicle market forecast for 2026 year isolated is more than 8% growth versus 2025.

And if you take the four years, six to twenty nine, it’s a 22% growth in the forecast with 2025 as the base. If take light vehicle production, the forecast is that it will grow about 8% accumulated from ’26 to ’29. It was 7% in the last forecast. So if we’re looking ahead, there is still solid growth in the commercial vehicle market, which also has been the case historically for many years based on growing trade and trucks gaining market share versus other transport means in the transport market. And the pent up demand to replace old vehicles where service costs are increasing should also support growth when the market uncertainty eventually would would be reduced.

But presently, though, future demand is very uncertain and difficult to predict. With that, I will move to the financial update. From January, we have introduced a new segment reporting. This the actual segments we report are unchanged, so they are the same. It’s dry control systems, flow control systems, corporate and other and then other operations.

And last is the driveline business, excluding electric actuators, which is reported as non core. So no change here. The change is that in order to give each segment full accountability also for its share of the group costs, we now allocate all expenses reported in the segment corporate and other. And we use the method according to actual usage and otherwise based on sales figures and headcount, so the FTEs. In this slide, you see what it means for quarter one.

You have, for example, flow control systems that have an EBIT in the quarter of EUR 5,800,000.0 before allocation of corporate and other segment cost. And after allocation, FCS has an EBIT of €3,700,000 You can also see that corporate and other had a net cost of €5,200,000 in the quarter before allocation and after allocation, it’s net zero. Total EBIT for K is is, of course, €2,200,000 both before and after allocation. So the change in reporting only impacts the EBIT of the segments. And since this is a change in the accounting policy, the peers in previous year, so in 2024, have been restated, and the restated EBIT after allocations will be used in all comparisons with last year.

It’s also worth noting that there will still be some balance sheet items in segment corporate and other, like tax, pension and financing, since these items are not practical to split by segment. If you move to the business side then, revenues in the segment Flow Control System in quarter one was EUR 79,300,000.0, 4 point 8 percent lower versus last year. We saw positive sales development in North America in commercial vehicles, partially due to start up or deliveries to a new vehicle program as well in sales to passenger cars, which increased sales of hoses. Lower sales in Europe to commercial vehicle market due to the weak demand, as Trond has talked about, and lower industrial sales in North America. EBIT of EUR 3,700,000.0 after allocation was EUR 1,300,000.0, better than in quarter one last year.

Missing contribution from lower sales was more than offset by a reduction of costs in manufacturing and administration. And despite the uncertain times we are in, I would say, area, FCS has done progress and had an overall quite a good quarter. Revenues in Drive Control System decreased by EUR 12,600,000.0 to EUR 79,900,000.0, a decrease by 13.8%. And despite the significant revenue decline, DCS performed better than the market for commercial vehicles, both in Europe and North America. As mentioned before, the off road market was very weak in the quarter.

And here, DCS is a leading supplier of pedals and throttle controls. EBIT amounted to negative EUR 4,400,000.0 in the first quarter, a decrease of EUR 8,200,000.0 year over year. Reduced sales gained lower volume contributions that not could be offset by savings in administrative expenses. Engineering expenses were higher related to an extensive project portfolio, and warranty expenses were higher in the quarter versus last year. And it is also, as we mentioned already then, in quarter one last year, we the company received a positive onetime supply reimbursement in a warranty case, which explained EUR 2,700,000.0 in comparison to last year.

The EBIT bridge for the group for quarter one, EBIT was, as you’ve heard already, euros 2,200,000.0 versus €10,100,000 in quarter one last year, a drop of €7,900,000 Volume and mix were negative €6,100,000 as a total effect from loss contribution from the revenue drop of €22,000,000 as well as some net positive effects from lower variable production cost and product mix. The positive one time supply settlement of SEK 2,700,000.0 has been we have commented. The fixed cost in production and sales and administrative costs continue to be reduced and was positive by €2,900,000 versus last year. Effects from new customs tariffs in quarter one was negative €800,000 which is a timing effect. So new tariffs have been paid while we not yet have received customer compensation.

Warranty expenses, as mentioned, were higher than last year by €1,500,000 And finally, restructuring and severance cost was EUR 1,200,000.0 this year compared to EUR 1,500,000.0 last year. The net income in the quarter one was negative EUR 2,200,000.0 versus negative EUR 400,000.0 last year. Interest expenses remained at a similar level as last year. However, we have less interest income this year since we don’t have any money market assets after repayment of the old bond. And the money market instruments also had a positive fair value valuation in quarter one last year.

Currency net was positive EUR 2,300,000.0 compared to negative EUR 2,500,000.0 last year. And as we have talked about in previous earnings calls, currency net in KIA mainly relate to the development of the NOK, where we last year had a weakening of the NOK versus euro, while with this year had some gains related to a weaker dollar versus NOK and euro. The profit before tax in the quarter was a profit of €500,000, and that led to an income tax expense of €2,700,000 as losses could not be capitalized. Income tax expense was €5,000,000 negative €5,000,000 last year. So that meant year over year, we had a lower tax burden by €2,300,000 If we move to the cash flow, as Thorn already commented, the first quarter cash flow was negative €10,500,000 compared to negative €14,900,000 in the first quarter last year.

So there is an improvement year over year by €4,400,000 Cash flow from operations improved despite then a lower EBITDA, a result by improvements in net working capital and other balance sheet items versus last year. Cash flow from investing activities improved by lower CapEx spend than last year, and cash flow from financing activities improved mainly due to that interest on the new bond is paid on quarterly basis instead of by yearly. But as also as we mentioned, it’s also clear that cash flow is still negative, and further improvements are required. This slide show the net interest bearing debt. And what is that?

It consists of our long and short term interest bearing liabilities, and that also includes lease liabilities, which are primarily when we are leasing buildings and then less our cash. So our interest bearing liabilities, less cash. So and here we see a relatively stable development since the refinancing in mid of last year, and the debt after the first quarter twenty five is EUR 129,100,000.0. The light blue line is adjusted EBITDA last twelve months, which is EUR 41,500,000.0 after quarter one. And the dark blue line is the leverage ratio, which is the net debt divided by the adjusted EBITDA less to advance, and that is one of our financial ratios.

You can also say that the leverage rate is expressing how many years of adjusted EBITA it takes to repay our net interest bearing debt. And the leverage ratio has increased to 3.1 in quarter one, and it is an effect from weaker earnings from the soft demand we have had during the last three quarters. So my final slide, our financial KPIs and net debt to EBITDA, I’ve just talked about. Return on capital employed was 3.3% versus negative 3.9% in the first quarter last year and versus 5.9% in quarter four. The equity ratio was 32.5%, and that increased versus 30.9% in quarter one last year, but decreased slightly from 33.7% at the year end.

Capital employed is lower than quarter one last year, but about eight with about €8,000,000 while it has increased by €3,700,000 versus year end due to a seasonal increase in net working capital. So I will finish there, and I will leave the word back to Trond.

Trond Fiskem, President and CEO, Kongsberg Automotive: Thank you, Christian. To summarize our presentation, we see that lower year on year demand put pressure on our revenues and EBIT for Q1. We have a very strong focus on mitigating the negative impacts of tariffs, both the direct and indirect impacts. The market is increasingly uncertain due to the tariff situation. NK continues to focus on cost reduction programs, improving operational efficiency, reducing warranty costs, improve profitability and preserving cash flow within new and profitable business.

And very importantly, we do fully recognize that KA’s financial performance is not satisfactory. We need to make real and meaningful changes, which is currently being worked on, and any relevant changes will be announced in due time. When it comes to guidance, we expect revenues to be relatively unchanged in the first half of twenty twenty five versus second half of twenty twenty four, with a potential upside in the second half. The tariff situation creates, however, an uncertain situation with more limited visibility. Regarding the EBIT margins, we do maintain our guidance of a positive development for 2025.

This is based on successful implementation of cost improvement programs, which, as mentioned previously, are on track. An important observation is that this guidance is based on our current assessment of the tariff situation and other geopolitical factors impact on cost and demand. Any further potential impact coming from these factors could change the situation. And now we will start with the Q and A session. I will give the word back to Theresa.

Therese Skoda, Communication Director, Kongsberg Automotive: Thank you, Tron, and thank you both for the presentation. We have received many questions in various channels, and we will try to answer as many as we can, starting with the first question. Kongsberg Automotive have delivered record breaking contract, strong order intake and major cost cuts and clear goals for profitable growth towards 2028. Still, market confidence has yet to be restored. You have inherited a company where the previous management have undermined market trust and through poor financial management and weak governance.

What has been what has it been like taking the helm in such a situation, and what can be done to demonstrate that this time, things really are different?

Trond Fiskem, President and CEO, Kongsberg Automotive: Okay. Thank you, Theresa. It’s it is a good question. It’s it is clearly a challenge to take the responsibility as CEO of KA when we are not performing as expected by any shareholders and other stakeholders. I can hear and feel the frustration from many shareholders regarding the many changes that happened over the the years and also with the lack of financial performance.

Why things are different this time? Well, I believe we have established quite significantly stronger platform. We are bringing in people with deep knowledge about k a in the board of directors, now led by Ula Waldahl. We also have board Grumset as a as a member of the board, myself as CEO, and soon to start also the CFO, Eric Magersen. All of us with long experience from KA during a period when the governance and the financial performance was strong.

Think all of us can, you know, hit the ground running as we know the business, we know the company, we know how it should be managed, and how it should be organized to deliver results. Also believe that the KA board has been strengthened also with other board members that are highly competent and definitely are very passionate about k. And I’ve had several positive interactions with them both individually and as a as a team. This is, of course, just a start. There will be further changes coming as a part of reestablishing, high performing KA culture and values like accountability and thrifty housekeeping.

That will have to do in all parts and levels of our organization and all countries that we operate. It is a it is a challenge. It’s a good challenge. We’ll be making more of these changes and improvements. From now, I cannot make and and provide details about these plans.

They will be announced in due time. And I could continue to talk about the background and and plans going forward, but to really able to demonstrate that things are different, we need to produce the actual results. But I can tell you we are strongly committed to produce those results, but I also understand that seeing is believing. So beyond explaining more in words why we believe things are different, the real answer, I I do believe, is that is in the future and that we will demonstrate that things are different simply by delivering results. We will deliver results quarter by quarter and year by year, and then you will see those improvements reflect in our overall performance.

Therese Skoda, Communication Director, Kongsberg Automotive: Thank you, Drum. Next question. The company has made significant cuts in administration headcount headquarter sales offices and consultant use. Can you comment on whether changes to executive compensation and initiative structure as a part of these cost reductions, or is this may come in addition?

Trond Fiskem, President and CEO, Kongsberg Automotive: Well, the answer to to the question is that compensation and incentives to executives are part of the cost reduction activities. To provide some some examples, for the year 2025, no, STI short term incentive bonus was paid out. For 2025, there is no salary increase to be made for company executives. This is also valid for all white collars in the company to the extent that is permitted by law and local regulations. And also in the proposal to the annual shareholders meeting to take place now in May regarding guidelines for management compensation, there will be a significantly lower cost for the company for incentive programs.

It will be reduced significantly. It will also ensure that no bonus will be paid without meeting financial targets.

Therese Skoda, Communication Director, Kongsberg Automotive: Thank you. Next question. The new and larger factory in India is a key investment. Is KA considering moving production from higher cost countries to India to fully leverage duty free access and profitability potential?

Trond Fiskem, President and CEO, Kongsberg Automotive: Well, KA has announced that we are relocating the our operations in India to a new state of the art plant in Faridabad. This is in the Greater Delhi area. The main purpose of the investment is to have a new facility that can serve the Indian market, so we can increase the local production capacity and improve the operational performance, mainly in our, DCS business, for cable shifters, steering columns, shift by wire solutions, etcetera. We’ll also have a base to expand production capability for FCS products, for the Indian market. As as India is one of the largest vehicle markets globally, we see that there is a potential, and we want to be present.

The the vehicle fleet is being upgraded with more modern technologies, and that provides opportunities for for Ka. So we are moving production from higher cost countries to our site in India to be able to improve our competitiveness in that market. At a later stage in the future, with a facility that is well operating, we could also look at potential to serve other markets from India. As of today, it’s it’s it’s not a part of the plan, but it’s it’s definitely something that we look into.

Therese Skoda, Communication Director, Kongsberg Automotive: Thank you. Moving on to a tariff question. What effort is KA taking to fully recover tariff costs from customers? And how does the company access assess and manage the risk associated with potential tariff barriers?

Trond Fiskem, President and CEO, Kongsberg Automotive: Yeah. Since, the tariffs were announced in February, we’ve had a task force in place with multi disciplined members. We are been been closely managing the situation. It has been challenging due to the different tariff announcements. So this has impacted our mainly our business in in in The US and Mexico and also in in China.

It includes imports from China in steel and aluminum and also the non eligible UCMCA parts and other components. So as I mentioned, it has been challenging due to many changes and also different interpretations of the tariff rules. We’ve had a team that we have also strengthened with the experienced resources to to fully understand, and manage the situation. We are engaging with our customers to recover all tariff related costs, and we are also actively working to mitigate the direct impact by optimizing material flows across our supply chain. For example, we are being hit by tariffs in China due to import from a Ka US production sites.

We are producing the same material in Europe, and we are then moving delivery from to China from our US production site, from our European production site instead avoiding the tariffs. So this is just an example of, this this is the things we’re we’re working with. While these actions help to protect our financial position, we also remain focused and are taking any necessary actions due to the broader impact on the market demand, which is, I would say, a larger concern, and particularly on the market demand in The US.

Therese Skoda, Communication Director, Kongsberg Automotive: Thank you. What work is being done related to the stock market? Is there work being done with new investors?

Trond Fiskem, President and CEO, Kongsberg Automotive: Yeah. We had, had some events in the past. We had a breakfast meeting in in December. However, since December, there have been many changes, both in the board of directors and also in in the management. We we do have investor relations high on our agenda, and it is a very important topic.

We do have a plan to to strengthen the the investor relations department, also with, our new CEO CFO that is coming in in June 1. We’ll be working together with him and with the board to prepare a plan for how to, interact with the investor community, in a in a better way, and that will then be a priority going forward.

Therese Skoda, Communication Director, Kongsberg Automotive: Next question. When does the majority of new contracts start making an effort on the revenue, and how vulnerable is Ka to these contract being canceled? And can we expect 2026 to be a year with increased revenue?

Trond Fiskem, President and CEO, Kongsberg Automotive: Yeah. The the majority of our contracts are what we call replacement contracts or basically a continuation of existing contracts. So that that means that it has an immediate effect. So that that is for the majority of them. Then when we have the portion that we call incremental business, it it is a bit different.

Those are contracts that typically requires development, preparation for SOP or start of production, and that can take anything from some months up to three, four, five years. There are exceptions. You know, we have one that is, announced today, which is almost immediate, but normally incremental business takes some years before we start production. When it comes to the 2026 revenues, it’s very hard to say based on the market uncertainty. So, I will not give any indications of the volumes for and revenues for AstraZeneca at this point is, too too uncertain.

Therese Skoda, Communication Director, Kongsberg Automotive: A range of your clients have withdrawn their 2025 guidance, and you stick to yours. Can you elaborate on why you can be more certain on your revenue guidance this year compared to your clients?

Trond Fiskem, President and CEO, Kongsberg Automotive: Well, it’s difficult to assess how our clients are evaluating this. So compared to our clients, it’s it’s it’s difficult to to answer that question. I can I can speak on behalf of KA? We do have our forecast. We do have our dialogue with our customers.

We do have our experience and our best judgment, and and that is what the guidance is is based on. I I cannot speak on behalf of our clients. Yeah. That was the question. Right?

Therese Skoda, Communication Director, Kongsberg Automotive: Yeah. Thank you. EBITDA reached 3.1 times in q one up to 2.5 times at year end 2024. Do you see any risk that the ratio could reach four point zero times government this year?

Trond Fiskem, President and CEO, Kongsberg Automotive: We have done, evaluations of this ratio going forward, until end of twenty five and actually into ’26 based on those, evaluations, including simulations of worse scenario, we do have not seen that we would be in breach of this covenant. However, the market is uncertain. What will happen in going forward is is is always hard to to say, but based on the simulations, we don’t see the any any breach.

Therese Skoda, Communication Director, Kongsberg Automotive: Thank you. Tired up working capital reduced cash flow in q one. Do you expect continued increase in working capital in q two, or do you expect to free up some capital? What about the rest of the year?

Trond Fiskem, President and CEO, Kongsberg Automotive: The working we have ambitions to reduce the working capital. So we do have an expectation to improve our working capital, going forward. I don’t have a number here in front of me, but that is clearly, the the ambition. This will, of course, be dependent on on market development. We have to manage the working capital very tightly when the market, the volumes are are increasing.

We can see a higher working capital and the volumes are going down, we can see lower working capital. So it depends also a bit about how the market develops. But in general, we do expect and are working to improve the working capital going forward. And we have clear targets and actions in place to to address those. Next

Therese Skoda, Communication Director, Kongsberg Automotive: question is related to free cash flow. Can we give some more information related to the generation of the cash situation?

Trond Fiskem, President and CEO, Kongsberg Automotive: Mhmm. I think the the question is when do you ex do you expect to achieve sustainable positive cash flow? I I don’t have a a date for that. We are working, and it will also depend on, the overall market situation. I can assure that it has a high priority within working on on the on the cash situation.

Also lately, we have been reducing our CapEx expenditure for the year quite significantly. And we also, as I mentioned, we’re working on the on the, net working capital. Key here is, however, to deliver, a stronger EBITDA, and that is being addressed by additional cost reduction programs. And we’re also working with the product portfolio to improve profitability on on those.

Therese Skoda, Communication Director, Kongsberg Automotive: Next question. Are we are seeing considered?

Trond Fiskem, President and CEO, Kongsberg Automotive: As of today, we have two business areas, flow control system and drive control system. For now, we will keep those two. We will enter a strategic process where we will look at, this. Currently, no concrete plans to change that in the future. Of course, if it is meaningful for the for the company, we we might establish and and and reorganize how we are set up.

But for now, no specific, plans to do anything different than we have today.

Therese Skoda, Communication Director, Kongsberg Automotive: Next question. Do you supply contract including clauses to pass on the tariffs?

Trond Fiskem, President and CEO, Kongsberg Automotive: So I assume that this is regarding our customer contracts? Yeah. If they include clauses to pass on tariffs?

Therese Skoda, Communication Director, Kongsberg Automotive: Simpsong. Yes.

Trond Fiskem, President and CEO, Kongsberg Automotive: And the answer to that question is that it’s it’s typically not specifically addressed that we are allowed to just pass on tariffs. However, there are always openings in the the contracts to to to renegotiate prices. But there are different mechanisms to to to pass this on, and this is something that we are using to get the the compensation for for the tariffs. So we believe it’s it’s doable to get a quite good recovery of all the tariffs that are occurring and all the cost increases directly from our customers.

Therese Skoda, Communication Director, Kongsberg Automotive: And with that, we will end today’s q and a session. On the screen, you see our financial calendar, and our upcoming event is our annual general meeting, the May 23, where everyone, our shareholders, is able to join. I would like to thank everyone for participating in today’s call, and goodbye.

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