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Kongsberg Automotive (KA) reported its Q2 2025 earnings, highlighting a challenging quarter with an 8% decrease in revenues compared to the same period last year. The company faced a significant reduction in EBIT to -€12.3 million, influenced by increased warranty accruals and other costs. Despite these challenges, Kongsberg remains optimistic about future growth, particularly in the electric and autonomous vehicle sectors. According to InvestingPro data, the company maintains a strong financial health score of 3.26 (rated as GREAT), with a robust current ratio of 3.55, suggesting solid short-term liquidity despite current headwinds.
Key Takeaways
- Revenues declined by 8% year-over-year in Q2 2025.
- EBIT was significantly impacted, dropping to -€12.3 million.
- Strategic initiatives focus on electric and autonomous vehicle technologies.
- The company anticipates a positive market outlook for 2026.
- Cost reduction programs aim to improve EBIT margins by 4-5 percentage points.
Company Performance
Kongsberg Automotive’s Q2 2025 performance was marked by a notable decline in revenues and EBIT. The company attributed this downturn to increased warranty accruals and tariff costs, alongside impairments of non-current assets. Despite these setbacks, Kongsberg is positioning itself for long-term growth in the evolving automotive market, focusing on electric and autonomous vehicle technologies.
Financial Highlights
- Revenue: €[amount] (down 8% YoY)
- EBIT: -€12.3 million (significantly reduced)
- Free cash flow: Close to breakeven
- Unrestricted cash: €72.8 million
- Business wins for Q2: €91 million
Outlook & Guidance
Kongsberg Automotive remains optimistic about its long-term prospects, particularly in the commercial vehicle segment. The company expects a positive market outlook for 2026, aiming to capitalize on emerging trends in autonomous and electric vehicle technologies. Cost reduction initiatives are projected to enhance EBIT margins by 4-5 percentage points.
Executive Commentary
CEO Trond Fiskem emphasized the company’s commitment to restoring value for shareholders, stating, "Restoring value creation for shareholders remains our top priority." He also expressed confidence in Kongsberg’s future, noting, "We strongly believe in the future of KA and are very determined to make changes."
Risks and Challenges
- Increased warranty accruals could impact future profitability.
- Market uncertainty in the short term may affect revenue projections.
- Tariff costs and asset impairments pose financial challenges.
- The need for strategic adaptation in a rapidly changing automotive industry.
Kongsberg Automotive’s Q2 2025 earnings call highlighted both the challenges faced and the strategic steps being taken to position the company for growth in the evolving automotive landscape. While immediate financial results were less than favorable, the company’s focus on innovation and cost efficiency offers a promising outlook for the future.
Full transcript - Kongsberg Automotive Holding ASA (KOA) Q2 2025:
Therese Skudal, Communication and Marketing Director, Kongsberg Automotive: Good morning, and welcome to Kongsberg Automotive’s q two twenty twenty five earnings call. My name is Therese Skudal, communication and marketing director, and I will be the moderator for today’s session. Thank you all for joining us. Before we begin, please take a note that today’s call will be recorded, and the recording will be made available on our website. The agenda will start with presentation from our CEO, Trond Fiskem, and CFO, Eric Maglissen, that join us in June, followed by a q and a session.
If you have questions during the presentation, please submit them by using the q and a feature in the webcast tool. We encourage you to raise the question in English. Now I’m pleased to introduce our CEO, Trum Fischkem. Trum, please go ahead.
Trond Fiskem, CEO, Kongsberg Automotive: Thank you, Theresa. Good morning, all. I will take you through the executive summary and market update before we go into the financial update. We want to start this earnings call with where we ended in the previous, earnings call in in May. We informed back then that the financial performance was not satisfactory and that meaningful changes were required.
KE is a clear turnaround case. Turnarounds are not made from one quarter to another, but we have taken many significant important steps since May. In this slide, you can see some of the highlights. We have launched an additional cost reduction program that will have €15,000,000 in annual impact when fully implemented. This comes on top of previous programs, earlier announced.
We have renewed the executive leadership team and reinforced a performance oriented culture in KA. We’ve decided to close our office in Zurich. We have decided to consolidate our Swedish plant footprint from two plants to one plant by moving our Lungsar plant into existing Murnskar plant. We have decided to make a strategic acquisition of chassis autonomy, positioning KA for long term growth in a fast growing product and market segment. And then before we go into the financials, I want to introduce you to one of these highlights that we are very excited about, the acquisition of the remaining shares of, in in Chassis Autonomy that will give K full ownership.
The market for electric and autonomous vehicles are fast growing. There are many technology changes and opportunities. Steer by wire is one of those technologies that is expected to grow significantly over the next decade. Kay has previously taken a 20% position in chest autonomy and will now exercise call options to take full control. The steer by wire market is projected to grow substantially over the next decade with estimates reaching 3,500,000,000.0 by 02/1935.
Through this acquisition, Kay aims to secure a meaningful share of this fast expanding segment. Acquisition aligns very well with our strategic ambitions and our capabilities, and Kay will be able to utilize our global footprint to create new opportunities and unlock the value in this technology. We positioned Kay for long term growth within fast growing product and market segments. This is also a reinforcement of our commitment to innovation, sustainable mobility and to create long term value for our shareholders. As mentioned initially, a turnaround is not done from one quarter to the next.
What we have experienced in q two is that revenues are down from q two last year by some 8%. Although it has improved, over the last three quarters. With minor exceptions, there is a direct correlation between the overall market development and our revenues. EBIT for Q2 is significantly reduced. This is mainly a result of a thorough review that myself, Eric and the team has done on our liabilities related to future warranty expenses.
And as a result, we have increased warranty accruals with some €8,000,000 There are also some impacts related to tariffs and impairments of non current assets related to our customer contracts. Erik will talk a bit about these later. The free cash is close to breakeven for the quarter and has significantly improved from previous quarters as well as from Q2 last year and continue a positive trend the last four quarters. We continued implementation of previously announced cost reduction programs and launched in May another initiative that comes in addition to the previous programs. As a result of these initiatives, when fully implemented by q three twenty twenty six, we will have a reduction of approximately 500 indirect cost position and some €42,000,000 in improved annual indirect cost base.
This represents an improvement that will give an EBIT improvement in the range of four to five percentage points based on stable revenues. This is significant. We do see the impact of these programs starting to materialize, and and as you will see later in the EBIT bridge that Erik will present. Our business wins for Q2 is EUR91 million. This is lower than previous quarters.
The reason for this is that tariffs and market uncertainty has led to a slowdown, in business awards by our customers. This may continue also over the next quarters. We do, however, remain with a strong pipeline of business opportunities. And while some business awards and introduction of new vehicle platforms are being postponed, it also means that some of the current business that holds today will continue for a longer period of time. So the picture is a bit mixed.
In May, we announced an important business win in China. This is a product where Kay has a unique capability. It is in the fast growing market and in a growing product segment. And we have a cost efficient setup and competitive in the Chinese market. And we do see more of these, kind of opportunities, going forward.
The tariffs continue to be a strong focus. While we have had a negative, tariff cost of €2,000,000 in Q2, net negative tariff costs, we expect to recover close to 1% of these costs in the end. After Q2 closing, we have had, several negotiations with our customers and concluded several of them with 100% cost compensation. So over time, we do expect the net impact of tariff cost to be minimal. And as reported in May, the primary concern for us is the negative impact on the overall market demand that we have seen materialize.
Going back to the turnaround, initiatives, in June, we announced a new organization structure, and several leadership changes. We eliminated, or significantly scaled down several corporate functions. Some of the functions were merged, others were moved into the BAs. An important outcome was the strengthening of two, of the two business areas. They now control all key resources needed to properly manage their business and their p and l.
These changes were also a reinforcement of a performance oriented k culture where clear responsibility, accountability, and ownership are key elements. We continue to work on strengthening the teams of all levels and parts of our organization. Since 02/2008, KE has had two production locations in Sweden with approximately one hour drive from each other. After a review in Q2, we decided to consolidate the two plants into one. The Lumsar plant will move out of the existing facilities and move into the existing facilities in Mersa.
This consultation will provide cost synergies and and significantly significantly stronger operational unit in Sweden. We will also move steering column product development from Vilis in Texas US to Murcher. And together with the acquisition of Jazz Autonomy, this is a strategic bid on both Sweden, advanced steering systems, innovation and growth. We have, recently made a decision to close the Swedish office with the move of Kongsberg Automotive’s headquarter back to Kongsberg and a review of our cost structure. This was a natural consequence and a natural decision to be made.
The functions in the sales office will be scaled down and primarily be moved to Kongsberg. The full transition will be completed by the March 2026. Kungsten Automotive has, for many years, had a joint venture with DETC, which is a joint venture between Dongfeng and Nissan. We decided in June to take full ownership of the joint venture, and this was concluded in July. The company is an important part of Kay’s business in China and have several key Chinese OEM as customers.
With this acquisition, we will move we will have more flexibility and have more control to optimize costs and to drive growth in a very important region for KA. Back in May during the q one earnings call, I presented these priorities for 2025, further cost base adjustment adjustments, improved cash flow, shrinking the leadership teams and key culture, innovation, and profitable growth. Since then, we have taken several decisive and important steps to deliver on these priorities, and we will continue on this turnaround journey. And we will keep you updated about any major developments as they happen. Over to the market.
First, we do see some short term uncertainty, and it’s hard to predict what will happen in the next few quarters. Overall, we do not see a favorable market in the short term, and it is also reduced compared to our expectations in May. We’re managing this situation very actively, both operationally and financially. What is important and what we can see on this slide is the longer term growth. Currently, the outlook for 2026 is positive, especially in the commercial vehicle segment, where we have a significant portion of our business.
And beyond 2026, the market development is positive in all regions and vehicle segments. This is a market growth that should fuel KA’s growth in the years ahead. With this, we will move over to a deeper dive into the financials, and I will hand over the word to our CFO, Erik Madrigsen.
Erik Maglissen, CFO, Kongsberg Automotive: Thank you, Truman, and hello all. My name is Erik Miglison. I’m the CFO from June 1. So we just start with the flow control systems. We see that there’s a positive element with an increase in revenue of 3.1% compared to same quarter last year.
The net increase in revenue also includes the effects of a negative currency translation effect. So it’s a 5.3% increase in revenue at constant currency levels. You see there’s a positive development also in the EBIT level going from close to 0% margin in q four two thousand twenty four to 4.7% in q one and to 88.3% in q two. This is a combination of increased contribution from higher sales and a reduction in both the operating cost base within the business area itself and the corporate cost at group level. So we then turn to drive control systems on the next slide.
You see here that there’s a reduction in revenue level compared to q two last year, but slightly higher than revenue in q one twenty five. On the cost side, drive control systems is affected by both the higher accruals for estimated future warrant expenses, the net tariff cost and the asset impairment related to a terminated customer contract. Similar to Flow Control Systems, there are also reductions in manufacturing overhead costs within drive control systems affecting the quarter positively. So in total, this brings the EBIT for q two to a negative €12,300,000. So then on the EBIT bridge, when comparing to q two last year, the two most significant variances are the higher accrual for estimated future work expenses, reducing the EBIT, but also and it’s what Tron mentioned, there’s a significant reduction in the operational cost base of €6,500,000,000 compared to the same quarter last year.
And in addition, in the bridge, see the reduced contribution from lower airwind levels, the net tariff cost impact and the impairment effect. And this is generally the same picture when we look at the first half year twenty twenty five compared to the same period last year. So then on the net income bridge, on the coming slide, we when you look at this bridge, the lower EBIT level is, of course, the key explaining factor when we compare to the same periods in 02/2004. But there is also a tax effect in a way that we have a net tax income in both q two two thousand and five and the first half year twenty five compared to a net tax cost in 2022. The difference relates to the lower and negative result in 2025 and the effect of the deferred tax calculations.
So on the free cash flow on the next slide. As Trund mentioned, the positive trend on the twelve month level continues, where there has been a significant positive development since the Q2 twenty twenty four. And also comparing to the negative cash flow in the first quarter this year, the slightly negative cash flow level in the second quarter is a significant improvement. Most importantly, within cash flow is the cash flow from operations, where there has been a significant improvement from the same period last year. This is driven also by a reduction in net working capital, which is evident also from the reduction in capital employed, which we will look at shortly.
On the next slide, we have the net interest bearing debt and leverage ratio. And in this graph, we have now also included the leverage ratio according to the bond term definition, which is the ratio which is relevant for the financial covenant reporting. This is the the blue line. Generally, the downward trend in the LTM EBITDA reported so far is also affected by the significant difference between the results in the first half year twenty twenty four, which is relatively strong compared to a much weaker EBITDA in the 2024. As you see, the development in net interest bearing debt is relatively stable and has also been reduced since q one this year.
And within this net interest bearing debt, Kokus Automotive has an unrestricted cash level of €72,800,000 at the June and an additional undrawn revolving credit facility of €15,000,000. So in total, we have €87,800,000 in liquidity reserve as per q two. Then on the financial ratios on the next slide, we have commented on the leverage ratio already. We see a certain reduction in the equity ratio, but this but it is at the level that we see as more than sufficient and satisfactory for the operations of the group. And then as Trond has also mentioned, both now and in the q one presentation, one of our key focus areas moving forward is the improvement in cash flow.
And we have received a reduction in capital employed of around €15,000,000 since q one twenty twenty five. And the capital employed includes the net working capital, which is one of the key drivers for the cash flow from operations. So this concludes the financial part of the presentation, and then, Trumi, going into the summary and outlook part.
Trond Fiskem, CEO, Kongsberg Automotive: Yep. Thank you, Eric. Yeah. We are coming towards the conclusion of this presentation. The summary of this presentation are the following.
The EBIT is impacted by, the revenue decline and increased the warranty accruals. As you saw from Eric’s part of the presentation, this was mainly in the DCS, business area. We do have a positive trend on the cash flow. We do have an additional cost reduction program initiated. And with all the programs, fully implemented during next year, we will have EBIT improvements in the range of four to five percentage points, considering, stable revenues, which is significant.
We continue, very focused on implementing the cost reductions, working on other operational efficiencies, working on improving our product portfolio profitability and preserving cash while we’re working on developing our business and winning new business. We have renewed the executive leadership team and are reinforcing a performance oriented k culture. We have, taken decisions to close our Swedish office and to consolidate our manufacturing, footprint in in Sweden from two plants to one. And we have made important acquisitions, on regarding, chest autonomy and also taking the full ownership, in our joint venture in China, which positions Kaya for a long term growth. I want to emphasize that restoring value creation for shareholders remains our top priority and that we strongly believe in the future, Kay, and we are very determined to make changes that are required to realize Kay’s full potential.
On the outlook, while we do see a decline in the sales volumes, the EBIT margin for ’25 is expected to be better than both 2025 and 2024. This is a result that is supported by the continued execution of cost saving efforts. Regarding the market outlook, for 2025 is not favorable as previously mentioned. And revenues are expected to fall below both first half this year and second half last year. The 2026 market outlook is, however, positive.
So that concludes our presentation, and we can move over to the Q and A session.
Therese Skudal, Communication and Marketing Director, Kongsberg Automotive: Thank you, Tron, and thank you both for the presentation. We will now move over to the Q and A session, starting with the first question submitted. Could you please provide more details on the warranty case, especially what is driving your expectation of increased warranty expenses going forward? And what issues are these related to? Additionally, what measures are you putting in place to ensure that this does not reoccur?
Trond Fiskem, CEO, Kongsberg Automotive: Yes. This is, of course, a very relevant question. When it comes to specifics, we cannot comment on on that as these are ongoing cases and and discussions with our our customers. Then The reported warranty cost for Q2 is primarily impacted by the increase of the warranty accruals for future warranty claims and expenses for known cases. And this is a global portfolio we have of warranty cases, not only.
And I want to emphasize that it’s not uncommon to have warranty cost as a part of an automotive supplier’s business. In our case, really, most are much higher than that they should be. What this is based on is a is a quite comprehensive evaluation of the whole global portfolio we have of of cases. And Eric has been involved, myself has been involved, and and they they work in. And based on this assessment, we have concluded that it was necessary to increase the the accruals.
And this is then what we expect of cost going forward for for known cases. Now with warranty, there there are always risks as these are also ongoing discussions. But this is our best estimate of the future cost on cases. Then the the second part of the question specifically, what is driving your Yeah.
That was I I answered. And what are these issues related to? Well, there are several reasons why there are warranty costs. There there are there’s a combination of of many factors. It is what we have in contractual terms with our customers and and what we have accepted in in in contracts.
It is our ability to deliver according to specifications and requirements contractually. And it’s also very much how we handle the cases once they are known to our customer and ourselves. So there there are multiple factors, and let’s say, multiple things we can we can work with. I’ll I’ll will not and cannot go into specifics, but this has been a very, very strong focus for me since day one. We’re working on the direct courses.
We’re working on the indirect courses and the systematic courses. And I can assure you that this is something that we will improve. We are working on both preventing future warranty situations, at the same time managing the current claims. As a part of the efforts, I also brought in May, warrant expert that is now taking lead on warranty in KA. So the specific measures is is ongoing, and it will address all these different aspects as I mentioned when it comes to contracts, when it comes to our ability to deliver according to customer requirements, and also how we handle the cases.
So when when it comes to, again, the specifics, I I cannot comment on that. But it it, for sure, will improve going forward.
Therese Skudal, Communication and Marketing Director, Kongsberg Automotive: Thank you. Next question is about leverage ratio. Your leverage ratio has increased over time. Do you foresee any issues related to the bond covenant level, Erik?
Erik Maglissen, CFO, Kongsberg Automotive: Yes. Thank you, Dijasne. So on the question, no. With the picture that we see now, we do not estimate any issues in relation to the bond covenant level of four point zero. There are several drivers for this, including a significant cost reduction programs that have been initiated and a focus on cash flow improvements.
In addition, in the dynamics of the last twelve months calculation of the EBITDA, it’s just good to be aware that the first half year twenty twenty four was reported with a relatively strong EBITDA of €30,800,000 and the second half year with a much weaker EBITDA of 17,700,000.0 And it is now the second half year twenty twenty four that we will start to replace in the LTM calculation. I think on this team, it’s also relevant to make some comments on the net interest bearing debt in the company. Of the net debt level of €126,800,000 the lease liabilities according to the IFRS 16 calculations is included with approximately €67,000,000 So the remaining net interest bearing debt of approximately €60,000,000 is then a combination of the bond loan, the accounts receivable securitization facility and the cash level. And this is also specified in the Q2 report. And as you know, the lease liabilities, of course, have a long term maturity structure.
I think also just on the cash level, the group has an unrestricted cash level of €72,800,000 as per end June. And then we have an undrawn RCF facility of €15,000,000 So this gives a total liquidity reserve of EUR 87,800,000.0 as per Q2.
Therese Skudal, Communication and Marketing Director, Kongsberg Automotive: Next question. What is the reason for that put sorry, again. What is the reason for that the warranty cost is put on Q2 solely? And why not put this on the period Q2, Q3 and Q4 to offset for the future warranties?
Trond Fiskem, CEO, Kongsberg Automotive: Well, the the reason why we are putting this in q two is that this is an accrual of known, cases. And we need to set aside this for the future expenses that we’ll have for those known cases. Yeah.
Therese Skudal, Communication and Marketing Director, Kongsberg Automotive: Okay. Thank you, Trond. That was the last question in the webcast tool today. So thank you, Srond and Eric, for your answers, and thank you all for joining us today. That concludes today’s Q and A session and today’s presentation.
On the screen, you will see our next event, which is the upcoming Q3 earnings call in November. With that, I would like to thank everyone for participating in today’s call, and we appreciate the engagement and you joining. Thank you, and goodbye.
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