KONGSBERG AUTOMOTIVE Q2 2023 EARNINGS CALL AUGUST 8, 2023
FORWARD-LOOKING STATEMENTS AND NON-IFRS MEASURES
FORWARD-LOOKING STATEMENTS
This presentation contains certain "forward-looking statements". These statements are based on management's current expectations and are subject to risks, uncertainty and changes in circumstances, which may cause actual results, performance, financial condition or achievements to differ materially from anticipated results, performance, financial condition or achievements. All statements contained herein that are not clearly historical in nature are forward-looking and the words "anticipate," "believe," "expect," "estimate," "plan," and similar expressions are generally intended to identify forward-looking statements. We have no intention and are under no obligation to update or alter (and expressly disclaim any such intention or obligation to do so) our forward-looking statements whether as a result of new information, future events or otherwise, except to the extent required by law. The forward-looking statements in this presentation include statements addressing our future financial condition and operating results. Examples of factors that could cause actual results to differ materially from those described in the forward-looking statements include, among others, business, economic, competitive and regulatory risks, such as conditions affecting demand for products, particularly in the automotive industries; competition and pricing pressure; fluctuations in foreign currency exchange rates and commodity prices; natural disasters and political, economic and military instability in countries in which we operate; developments in the credit markets; future goodwill impairment; compliance with current and future environmental and other laws and regulations; and the possible effects on us of changes in tax laws, tax treaties and other legislation. More detailed information about these and other factors is set forth in the 2021 Kongsberg Automotive Annual Report and the Kongsberg Automotive Quarterly Reports.
NON-IFRS MEASURES
Where we have used non-IFRS financial measures, reconciliations to the most comparable IFRS measure are provided, along with a disclosure on the usefulness of the non-IFRS measure, in this presentation.
TODAY'S PRESENTERS
AGENDA
KA IN BRIEF EXECUTIVE SUMMARY MARKET UPDATE FINANCIAL UPDATE SHIFT GEAR UPDATE OUTLOOK Q&A
KA IN BRIEF KA IN BRIEF
KONGSBERG AUTOMOTIVE IN BRIEF
KA in brief
INCREASING EXPOSURE TO ELECTRIC VEHICLES COMMERCIAL VEHICLES
KEY PRODUCTS
KA in brief
INCREASING EXPOSURE TO ELECTRIC VEHICLES OFF-HIGHWAY
KEY PRODUCTS
KA in brief
INCREASING EXPOSURE TO ELECTRIC VEHICLES PASSENGER CARS
KEY PRODUCTS
KA IN BRIEF EXECUTIVE SUMMARY
EXECUTIVE SUMMARY – Q2 2023
STRONG REVENUE DEVELOPMENT, EARNINGS AND CASH FLOW IMPACTED BY DIVESTMENTS AND HIGHER COSTS
€224.5M
REVENUES |
€0.3M
ADJ. EBIT |
€4.8M
FREE CASH FLOW |
| Decrease of 0.5% vs. Q2 2022 |
Decrease by MEUR 3.7 vs. Q2 2022 |
Increase from the FCF of
MEUR 4.0 in Q2 2022 |
1.2x
LEVERAGE RATIO1,2 |
€77.4M
4
NIBD |
€171.5M
NEW BUSINESS3 |
| Improved from 2.0x in Q2 2022 |
Improved from MEUR 125.5
as of
30/06/2022 |
Increase from MEUR 167.9
in Q2 2022 |
1 Includes IFRS 16; excluding IFRS 16, leverage ratio is equal to 0.3x in Q2 2023 compared to 1.1x in Q2 2022
2 NIBD / Adjusted EBITDA (LTM)
3 Lifetime revenue of business wins during the quarter
4 Net Interest Bearing Debt
- > Revenue grew by 17.5% at constant currency rates, excl. revenues divested to BRP of MEUR 24.7 from Q2 2022.
- > Quarterly revenues negatively impacted by currency translation effects of MEUR 10.8
- > Adjusted EBIT was impacted by:
- » Divested business to BRP at MEUR 1.1 in Q2 2022
- » Operational one-time effects of MEUR 5.4 (mainly related to one product warranty case and inventories write-down in North America)
- » Less favorable product mix (lower sales of higher margin products)
AT A GLANCE BUSINESS SEGMENTS UPDATE
> Q4 2022 with high customer compensations
> Q2 2023
- » Growing business in the commercial vehicles market in Europe and the Americas with relatively low margins
- » Significantly declining sales in the Chinese passenger car market with good margins
- » One-time net effects of MEUR 5.4 hit the adjusted EBIT, mainly related to one product warranty case and inventories write-down in North America
> KA initiatives for value creation
- » Ongoing negotiations to charge out supplier price and labor cost increases to customers (financial impact primarily in Q3-Q4)
- » Rightsizing of organization
- » Promotion of our new SMART Actuator Technology
AT A GLANCE BUSINESS SEGMENTS UPDATE
> Q2 2023
Decline Quarter to Quarter was mainly attributable to:
- Less favorable product mix, and
- Lost earnings related to the business divested to BRP (Q2 2022 at MEUR 1.1)
> KA initiatives for value creation
- > Ongoing negotiations to charge out supplier price and labour cost increases to customer (financial impact primarily in Q3-Q4)
- > Focus on executing operational continuous improvement programs and cost control in all areas
- > People Development and Commitment Program (HR)
KA EXPANDS TO AUTONOMOUS DRIVING ACQUISITION OF 20% OF CHASSIS AUTONOMY
KA signed an agreement to acquire 20% of Chassis Autonomy on July 19, 2023.
Chassis Autonomy specializes in design and development of steer-by-wire and brake-by-wire systems for use in highly automated (L3) and fully autonomous (L4 and L5) vehicles and also in sectors that KA is seeking a strong market position.
The agreement includes an option for KA to acquire up to 100% of the total outstanding shares within 2027.
The parties have agreed not to disclose the purchase price.
MARKET TRENDS STRONG GROWTH IN CHINA
MARKET DEVELOPMENT
GLOBAL PASSENGER CAR PRODUCTION, million units
| REGION |
Q2-23 vs. Q2-22 |
2023 vs. 2022 |
| China |
+63.6% |
+25.4% |
| APAC w/o China |
-2.4% |
+1.1% |
| Europe |
+15.4% |
+10.0% |
| North America |
+3.6% |
+0.9% |
| South America |
-23.3% |
-33.3% |
| Rest of World |
+1.9% |
+0.5% |
| Total |
+18.0% |
+7.3% |
| Total (excl. China) |
+2.2% |
+0.4% |
| China |
+18.0% |
-0.6% |
| APAC w/o China |
+13.2% |
+6.4% |
| Europe |
+11.6% |
+8.8% |
| North America |
+13.5% |
+7.4% |
| South America |
+9.4% |
+2.4% |
| Rest of World |
+4.3% |
-1.5% |
| Total |
+13.9% |
+4.5% |
| Total (excl. China) |
+12.9% |
+6.8% |
MARKET FORECASTS GROWTH IN COMMERCIAL VEHICLE DEPENDS ON CHINA
GLOBAL PASSENGER CAR PRODUCTION, sales in million units
Source: LMC Global Commercial Vehicle Forecast (Q2 2023); IHS Light Vehicle Production Base (June 2023)
DEVELOPMENT OF THE GLOBAL MARKET SITUATION LABOR COSTS REMAIN AN ISSUE, SUPPLY MARKET IS GRADUALLY IMPROVING
KONGSBERG AUTOMOTIVE // 17 KONGSBERG AUTOMOTIVE // 17
MACROECONOMIC UNCERTAINTY POSITIVE DEVELOPMENT FOR KA WITHIN COMMERCIAL VEHICLES IN KEY REGIONS
• Change in revenues at constant currencies and changes to vehicle production levels for selected regions and markets from Q2 2022 to Q2 2023. The split across vehicle types does not correspond to our business unit segments – see p. 7 and 8 in the quarterly report for details.
Source IHS and LMC Market Reports as well as Q2 2023 Quarterly Report
- > KA has outperformed growth in the commercial vehicle market in both Europe and the Americas for a third quarter in a row
- > KA's revenues from the commercial vehicle market in China has more than doubled compared to Q2 2022, as one of the biggest customers has significantly increased its market share and production. KA has significantly outperformed the market
- > KA's revenues within the commercial vehicle segment in the Americas increased by 26.3% and outperformed the market
- > KA's sales in the passenger vehicles market were mainly impacted by increasing local competition in China
- > The decrease in "other" is related to the sale of the Powersport business to BRP completed in Q4 2022, hence it is not included in the Q2 2023 revenues. However, excluding these revenues from Q2 2022, the other revenues would have increased by 25.4% on constant currencies basis
BOOK-TO-BILL MAINTAINING STABLE BOOK TO BILL RATIO TARGETS STRONGER BOOKINGS IN COMING QUARTERS
BOOK-TO-BILL PERFORMANCE, MEUR
- Lifetime sales assumptions are based on IHS and LMC production estimates at the time of the booking
FINANCIAL UPDATE
Financial update
REVENUES STABLE Q2 REVENUES
QUARTERLY REVENUES (continuing operations), MEUR
ADJUSTED EBIT EARNINGS IMPACTED BY OPERATIONAL ONE-TIME EFFECTS AND LESS FAVORABLE PRODUCT MIX
QUARTERLY ADJ. EBIT (continuing operations), MEUR and % of revenues
ADJUSTED EBIT BRIDGE FROM Q2 LAST YEAR
IMPACTS FROM UNFAVOURABLE REGIONAL & PRODUCT MIX AND ELEVATED COST
P&C
- > Sales in Europe and the Americas increased by MEUR 22.8; adjusted EBIT increased by MEUR 0.8
- > Sales and adjusted EBIT in APAC (excl. China) slightly decreased by MEUR 0.6 and MEUR 0.9, respectively
- > Sales in China declined by MEUR 4.4, and adjusted EBIT decreased by MEUR 2.8
- > Furthermore, one-time net effects of MEUR 5.4 hit the adjusted EBIT, mostly related to the warranty and write-down of inventories in North America
SPP
- > Sales of FCS grew by MEUR 10.2; adjusted EBIT decreased by MEUR 0.5 due to inefficiencies
- > Excluding the sales from the business divested to BRP (MEUR 24.7 with adjusted EBIT of MEUR 1.1), OFH sales grew by MEUR 6.4 with adjusted EBIT declining by MEUR 0.3
Financial update
NET INCOME BRIDGE IMPAIRMENT AFFECTS THE QUARTERLY NET RESULTS
NET INCOME (continuing operations), MEUR
IMPAIRMENT LOSSES (NON-CASH ITEM)
> Impairment losses recorded in Q2 2023 relate to Driveline business in Europe and China
INTERESTS AND OTHER FINANCIAL ITEMS
- > Interest expense remained stable compared to Q2 2022
- > Other financial items in Q3 2023 include the change in fair value of investment in money market fund of MEUR 0.8 in which KA invested in Q4 2022
CURRENCY LOSSES
- > Currency losses amounted to MEUR -3.5 in Q2 2023 vs. MEUR -1.5 in Q2 2022
- > Currency translation effects are made up of realized currency loss of MEUR 3.6 and unrealized currency gains of MEUR 0.1 in Q2 2023 (Q2 2022: realized gain of MEUR 1.9 and unrealized losses of MEUR 3.4)
TAX
> Change in income taxes was predominantly impacted by the losses considered not to be usable in the foreseeable future and therefore not capitalized as DTA in Q2 2023
KONGSBERG AUTOMOTIVE // 24 KONGSBERG AUTOMOTIVE // 24
Financial update
NET FINANCIAL ITEMS
OTHER FINANCIAL ITEMS, MEUR NET INTERESTS, MEUR
FREE CASH FLOW FREE CASH FLOW SLIGHTLY IMPROVED DUE TO NWC MEASURES
FREE CASH FLOW1, MEUR
Q2 2023 FCF DETAILS
|
|
Operating activities |
+12.7 |
|
|
Therein: NWC decrease |
+2.5 |
|
|
Investing activities |
-4.6 |
| +76.5 |
+84.5 |
Investment expenditures |
-5.1 |
|
|
Financing activities |
-7.6 |
| +19.1 |
+16.2
+8.8
+8.1
+4.8
+4.1
-0.2
-1.3
-3.5
-6.7 |
Therein:
Payments for lease liabilities
and interests on lease liabilities |
-3.4 |
|
-10.8
-14.0 |
Repurchase of own bond notes |
-3.5 |
| -18.1 |
-30.8 |
Currency and translation
effects on cash flow |
+0.6 |
|
|
Total |
+1.1 |
FY 2020
FY 2021
FY 2022 |
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023 |
excluding repurchase of own bond
notes & others |
+3.7 |
|
|
FCF |
+4.8 |
- Free Cash Flow is measured based on sum of cash flow from operating activities, investing activities, financial activities and currency effects on cash (together described as change in cash), excluding net draw-down/repayment of debt and proceeds received from capital increase/purchase of treasury shares.
Financial update
LIQUIDITY DEVELOPMENT
Financial update
FINANCIAL RATIOS
CONTINUING AND DISCONTINUED OPERATIONS
EQUITY RATIO, %
- Adjusted EBITDA refers to continuing operation only 2.Excluding restructuring costs 3. Net interest-bearing debt 3.Capital employed at quarter end; as the indices are calculated based on the figures from last 12 months
ADJUSTED ROCE2 ADJUSTED GEARING RATIO 1,2, NIBD3/ADJUSTED EBITDA, LTM , %, LTM
468 508 487 472 451 523 560 539 519 492 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023
CAPITAL EMPLOYED3, MEUR
SHIFT GEAR UPDATE
Shift Gear update
SHIFT GEAR I
Q2 2023 RESULTS IN MEUR
PERFORMANCE IMPROVEMENT GEAR I
- > Throughout Q2, the focus was on customer price negotiations and continuous operational improvements
- > Negative impacts in Q2 were significant, as on top of supply chain price increases and inflation, also warranty cost, inventory revaluation and weaker demand in Driveline impacted the P&L
- > For Full Year 2023, the NET Effect is reduced to EUR 0.7m, reflecting slightly lower revenues in H2 2023
Q2 RESULTS:
OUTLOOK
OUTLOOK
GUIDANCE
For the full year 2023 KA is confirming the revenue guidance of MEUR 880 – 900 and updates the adjusted EBIT guidance to MEUR 20-25, considering the one-time costs in Q2.
STRATEGIC REVIEW
In Q2 2023, KA initiated a strategic review of the company with the aim of evaluating options to maximize future shareholder value. For this purpose, KA engaged the investment banks Rothschild & Co and ABG Sundal Collier.
Over the coming quarters, KA will inform the market as soon as relevant results of the review are obtained.
UPCOMING EVENTS FOR Q3
Breakfast meeting with the new CEO in Oslo, Norway, targeted for September.
Venue and time to be determined.
Q3 to be released November 7, 2023.
MOBILITY SOLUTIONS FOR THE FUTURE