Kongsberg Automotive — Call Transcript 2021

Oct 29, 2021

KONGSBERG AUTOMOTIVE Q3 2021 EARNINGS CALL OCTOBER 29, 2021

AGENDA

SUMMARY AND HIGHLIGHTS PRESIDENT & CEO JOERG BUCHHEIM

FINANCIAL UPDATE CFO FRANK HEFFTER

OUTLOOK PRESIDENT & CEO JOERG BUCHHEIM

Q&A

TODAY'S PRESENTERS

JOERG BUCHHEIM CEO // Zurich (Switzerland)

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 2020 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.

SUMMARY & HIGHLIGHTS

PRESIDENT & CEO JOERG BUCHHEIM

Summary & highlights

EXECUTIVE SUMMARY Q3 2021

€267.4M REVENUES	€5.7M ADJ. EBIT
Growth of 4.8% vs. Q3 2020	Impacted by supply chain situation
1.5 BOOK-T O-BILL RATIO	€7.6M POSITIVE FREE CASH FLOW
Compared to 1.3 in Q2 2021	Liquidity reserve further increased due to positive cash flows

AT A GLANCE BUSINESS UPDATE

• > Company-wide transformation program
• > First gear focused on performance improvement
• > Second gear focused on portfolio modernization
• > Third gear to focus on sustainability

RAW MATERIALS SHORTAGE

• > Shift Gear has offset part of the supply chain situation impacts
• > Interior segment most impacted
• > Improvements include second sourcing of raw materials and streamlining production and supply chain processes beside commercial and operational excellence measures
• > Annual target of 20 MEUR on sustainable effects

SHIFT GEAR PORTFOLIO TRANSFORMATION

• > Shift Gear portfolio transformation aims to ensure KA is a top-3 supplier in all its product areas
• > Two divestments signed (after the balancesheet date)
• > Leverage the significant growth opportunities of KA's On Highway and Off-Highway Portfolio
• > Build on KA strengths of engineering excellence, innovation and strong customer relationships

KONGSBERG AUTOMOTIVE // 6

Summary & highlights

AT A GLANCE BUSINESS SEGMENTS UPDATE

POWERTRAIN & CHASSIS INTERIOR SPECIALTY PRODUCTS

• > Solid performance despite the impacts of supply chain situation
• > Revenues remained stable compared to Q3 2020 and amounted to MEUR 102.1
• > Adj. EBIT was impacted by material shortages and decreased by MEUR 1.6 versus Q3 2020 to MEUR 5.0
• > Business wins amounted to MEUR 122.6 of lifetime revenues (MEUR 40.2 in annualized revenues)

• > Q3 2021 Revenues and Earnings still negatively impacted by semiconductor situation
• > Revenues decreased by MEUR 2.3 (-3.1% vs. Q3 2020) to MEUR 72.0
• > Adj. EBIT declined by MEUR 3.9 to MEUR -2.9 in Q3 2021
• > Business wins in Q3 2021 amounted to MEUR 223.3 of lifetime revenues (MEUR 40.1 in annualized revenues)

• > Strong growth, profitability impacted by supply chain and raw material situation
• > Revenues increased by MEUR 15.1 (+19.3% vs. Q3 2020) to MEUR 93.3
• > Adj. EBIT decreased by MEUR 2.3 versus Q3 2020 to MEUR 12.0
• > Business wins amounted to MEUR 76.2 of lifetime revenues (MEUR 28.5 in annualized revenues)

NEW BUSINESS WINS HIGHLIGHTS

POWERTRAIN & CHASSIS		INTERIOR		SPECIALTY PRODUCTS
€29.3M EXPECTED LIFETIME REVENUES	€9.8M EXPECTED ANNUALIZED REVENUES	€132.7M EXPECTED LIFETIME REVENUES	€22M EXPECTED ANNUALIZED REVENUES	€15M EXPECTED LIFETIME REVENUES Couplings -	€5.0M EXPECTED ANNUALIZED REVENUES contract with a major German OEM
Gear Shift Systems to a major European automobile manufacturer €27.7M EXPECTED	€3.5M EXPECTED	Seat support to a major European automobile manufacturer €77.2M €15.4M EXPECTED EXPECTED		€13.5M EXPECTED LIFETIME REVENUES FTS - contract with a British	€3.4M EXPECTED ANNUALIZED REVENUES OEM
LIFETIME REVENUES Gear Shift Systems to a major Chinese automobile manufacturer, start of production in Q4 2022	ANNUALIZED REVENUES	LIFETIME REVENUES Heat systems to a major European automobile manufacturer	ANNUALIZED REVENUES	€5.6M EXPECTED LIFETIME REVENUES Off-Highway -	€1.0M EXPECTED ANNUALIZED REVENUES contract with major German OEM

FINANCIAL UPDATE

CFO FRANK HEFFTER

REVENUES & ADJUSTED EBIT

SEMICONDUCTOR AND RAW MATERIAL SITUATION IMPACTING BOTH QUARTERLY REVENUES AND EARNINGS

SEGMENT FINANCIALS SEGMENTS DIFFERENTLY IMPACTED BY SEMICONDUCTOR AND RAW MATERIAL SITUATION

1. Excluding restructuring costs and impairment in Q2 2020, see details in the quarterly report

FREE CASH FLOW POSITIVE CHANGE IN NET WORKING CAPITAL AND STRICT CONTROL OVER CAPEX CONTRIBUTED TO A POSITIVE CASH FLOW

1. 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.

KONGSBERG AUTOMOTIVE // 12

+23

+4

-12

-9

-3

+5

LIQUIDITY DEVELOPMENT FURTHER INCREASE OF THE LIQUIDITY RESERVE IN Q3 2021

OUTLOOK PRESIDENT & CEO JOERG BUCHHEIM

Outlook

SHIFT GEAR PROGRAM PORTFOLIO TRANSFORMATION IS UNDERWAY

• > Transactions after the balance sheet date are a key part of the second gear, portfolio transformation
• > Proceeds will allow us to deleverage and accelerate our strategy for shareholder value creation
• > Allows KA to streamline and focus

SHIFT GEAR INTERIOR COMFORT SYSTEMS

• > Sale agreed of Interior Comfort Systems (ICS) business unit to Lear Corporation
• > KA reacts early to a market trend of vertical integration of seat suppliers
• > Lear Corporation, a market leader in the seating business, can better compete in this highly competitive business with an "all in" intelligent seat system approach

LIGHT-DUTY CABLES

• > Sale agreed of Light Duty Cable (LDC) business unit to Suprajit
• > Suprajit's economies of scale in this area will be further enhanced by adding the LDC unit's facilities, employees and engineering capabilities

KEY FIGURES OF BUSINESSES TO BE DIVESTED ENHANCED FOCUS IMPROVES FUTURE PROFITABILITY

• > We are evaluating and developing our technology-driven business towards e-mobility in order to position the company effectively and sustainably for the future
• > The divested business units do not fit with our aim to be a top global supplier in the areas where we operate
• > Transactions are strongly valueaccretive on both revenue/employee and earnings/employee basis

OUTLOOK Q3 – Q4 2021 UPDATING GUIDANCE FOLLOWING THE TRANSACTIONS

RAW MATERIAL SUPPLY SITUATION

• > The lack of sufficient global semiconductor industry capacity is creating high stress on all automotive suppliers and OEMs who depend on these products
• > For KA, this concerns primarily the Interior Comfort Systems business unit and the P&C passenger car business, which both have a high share of advanced, innovative products containing semiconductors

• > The shortage causes much longer leadtimes, spot-market purchases at significantly higher costs and potentially production shortfalls in case the required materials cannot be secured in time

• > As a result of the transactions, we expect FY 2021:

  • > Revenue of MEUR ~800 (vs. MEUR 1,100 previously),
  • > Adj. EBIT to remain at around MEUR ~50,
  • > Cash flow slightly positive, incl. over MEUR –15 related to discontinued businesses (the majority being one-time payments).
• > As already demonstrated throughout this year, the current order book will enable us to deliver very solid production and topline numbers
• > Guidance for FY 2022 will be provided in conjunction with the presentation of the annual results 2021

GUIDANCE UPDATED PORTFOLIO TRANSFORMATION

• > The second gear in the Shift Gear program will focus on areas where KA has the potential to grow significantly further and to remain or become second to none
• > The program aims to make KA a highly competitive, top global partner for our customers
• > The program is ongoing, with the aim to strengthen KA's future roadmap and clear positioning
• > More details will be presented at our Capital Markets Day on December 9th

APPENDIX

Appendix

BALANCE SHEET & INCOME STATEMENT

(MEUR)	30.09.21	30.09.20	31.12.20
Intangible assets	95.3	94.9	93.2
Property, plant and equipment	232.0	208.7	228.8
Right-of-use assets	87.4	87.8	94.3
Deferred tax assets	34.7	26.2	28.7
Other non-current assets	11.4	11.5	11.1
Non-current assets	460.8	429.1	456.1
Inventories	131.2	83.4	88.9
Accounts receivable	214.4	221.8	237.9
Other short-term receivables	44.7	43.6	47.7
Cash and cash equivalents	81.3	70.8	67.4
Current assets	471.7	419.6	441.9
Total assets	932.5	848.7	898.0
Share capital	103.7	94.9	100.5
Share premium reserve	214.2	196.5	208.1
Other equity	(52.3)	(62.0)	(67.2)
Non-controlling interests	4.4	4.0	4.1
Total equity	270.0	233.4	245.5
Long-term interest-bearing liabilities	354.2	354.5	363.1
Deferred tax liabilities	18.5	20.6	14.9
Other long-term liabilities	19.8	20.3	21.3
Non-current liabilities	392.5	395.4	399.3
Short-term interest-bearing liabilities	14.2	12.8	13.8
Accounts payable	142.5	104.5	137.8
Other short-term liabilities	113.3	102.7	101.6
Current liabilities	270.0	220.0	253.2
Total liabilities	662.5	615.4	652.5
Total equity and liabilities	932.5	848.7	898.0

(MEUR)	Q3 2021	Q3 2020	YTD 2021	YTD 2020	FY 2020
Revenues	267.4	255.2	866.1	670.8	969.3
OPEX	(250.7)	(232.9)	(800.6)	(651.1)	(913.0)
Impairment losses	0.0	0.0	0.0	(82.7)	(82.7)
EBITDA	16.6	22.3	65.5	(63.0)	(26.3)
in % revenues	6.2%	8.8%	7.6%	-9.4%	-2.7%
Depreciation and amortization	(13.1)	(11.1)	(36.9)	(34.9)	(49.9)
Operating profit / EBIT	3.6	11.2	28.6	(97.9)	(76.2)
in % revenues	1.3%	4.4%	3.3%	-14.6%	-7.9%
Adjusted EBIT1	5.7	13.9	31.0	(11.8)	10.7
in % revenues	2.1%	5.5%	3.6%	-1.8%	1.1%
Net financial items	(5.0)	(10.7)	(9.9)	(34.7)	(47.0)
Profit / (loss) before taxes	(1.5)	0.6	18.8	(132.6)	(123.2)
Income taxes	1.9	1.2	(4.7)	5.5	5.2
Net profit / (loss)	0.4	1.7	14.1	(127.1)	(118.0)

CHANGES IN EQUITY & CASH FLOW STATEMENT

(MEUR)	30.09.21	30.09.20	31.12.20
Equity as of start of period	245.5	282.9	282.9
Net profit / (loss) for the period	14.1	(127.1)	(118.0)
Translation differences	9.3	(18.2)	(12.2)
Tax on translation differences	0.0	3.9	1.4
Remeasurement of the net pension benefit obligation	0.0	0.0	(0.1)
Tax on remeasurement of the net pension benefit obligation	0.0	0.0	0.0
Total comprehensive income	23.4	(141.4)	(129.0)
Share-based compensation	1.1	1.6	2.1
Increase in equity	0.0	90.3	90.7
Purchase of treasury shares	(0.0)	0.0	(1.3)
Equity as of end of period	270.0	233.4	245.5

(MEUR)	Q3 2021	Q3 2020	YTD 2021	YTD 2020	FY 2020
Operating activities
Profit / (loss) before taxes	(1.5)	0.6	18.8	(132.6)	(123.2)
Depreciation & Write-off of tangible assets	12.1	10.1	34.7	32.1	43.7
Amortization & Write-off of intangible assets	1.0	3.4	2.2	5.2	6.2
Impairment losses	0.0	(0.0)	0.0	82.7	82.7
Interest income	(0.0)	(0.0)	(0.1)	(0.1)	(0.2)
Interest and other financial expenses1	5.9	5.5	17.4	17.5	24.2
Taxes paid	0.3	(1.4)	(7.2)	(4.9)	(11.9)
(Gain) / loss on sale of non-current assets	(0.0)	0.1	0.4	(0.1)	(0.3)
Changes in receivables	32.5	(71.9)	23.5	(5.0)	(21.1)
Changes in inventory	(15.2)	4.0	(42.3)	19.5	14.0
Changes in payables	(13.6)	48.6	4.6	(26.1)	7.3
Currency (gain) / loss	(1.5)	5.2	(3.7)	17.3	23.0
Difference between pension funding contributions paid/pensions paid and the net pension cost	(0.1)	0.0	(0.3)	0.0	(1.0)
Changes in other items2	3.5	9.3	14.8	31.6	30.7
Cash flow - Operating activities	23.3	13.4	62.7	37.0	74.1
Investing activities
Investments1	(7.8)	(10.8)	(23.4)	(33.9)	(60.6)
Sale of fixed assets	(0.0)	0.0	0.2	1.8	1.8
Interest received	0.0	0.0	0.1	0.1	0.2
Cash flow - Investing activities	(7.8)	(10.7)	(23.1)	(31.9)	(58.6)
Financing activities
Proceeds from increases in equity	0.0	27.3	0.0	90.3	89.7
Sale/purchase of treasury shares	0.0	(0.4)	0.0	(0.4)	(1.3)
Net draw down of debt	(1.4)	(0.0)	(2.4)	(10.0)	(9.3)
Interest paid and other financial items	(9.1)	(10.7)	(20.1)	(22.4)	(24.1)
Repayment of lease liabilities and other	(3.3)	(2.9)	(9.9)	(9.2)	(13.5)
Cash flow - Financing activities	(13.8)	13.2	(32.4)	48.3	41.6
Currency and translation effects on cash flow	4.4	(1.4)	6.7	(7.8)	(14.9)
Change in cash	6.1	14.5	13.9	45.6	42.2
Cash as of beginning of period	75.2	56.3	67.4	25.2	25.2
Cash as of end of period	81.3	70.8	81.3	70.8	67.4
Of this, restricted cash	0.4	0.4	0.4	0.4	0.4

POWERTRAIN & CHASSIS (P&C) SEGMENT

STABLE REVENUES AND ADJ. EBIT IMPACTED BY SEMICONDUCTOR SITUATION

REVENUES, MEUR ADJ. EBIT, MEUR

Adj. EBIT margin (%)

Despite revenues being constant, the adj. EBIT declined due to the negative impact by material shortages of electronic components, resin, and steel throughout the automotive sector.

The P&C segment suffered negative impacts of MEUR 4.3 of EBIT effects, caused by the increasing constraints of the global supply chain situation.

OPERATIONS

Raw material shortages and OEM plant shutdowns due to chip shortages continued in Q3. An additional challenge of rolling power outages for our China operations was overcome. Shift Gear workshops in our plants contributed to continuous improvement / cost reductions in our labor utilization.

NEW BUSINESS WINS, MEUR

Within the quarter, Powertrain & Chassis was awarded two significant contracts: one to supply Gear Shift Systems to a major European automobile manufacturer (MEUR 29.3 in expected lifetime revenues and MEUR 9.8 in expected annualized revenues) and one to supply Gear Shift Systems to a Chinese automobile manufacturer (MEUR 27.7 in expected lifetime revenues and MEUR 3.5 in expected annualized revenues) with start of production in Q1 2023 and Q4 2022, respectively.

Appendix

INTERIOR (INT) SEGMENT

REVENUES AND EARNINGS IN Q3 2021 STILL NEGATIVELY IMPACTED BY SEMICONDUCTOR SITUATION

REVENUES, MEUR ADJ. EBIT, MEUR

The Interior segment consists of two business units: Interior Comfort Systems (ICS) and Light Duty Cables (LDC).

Revenues of MEUR 72.0 in Q3 2021 decreased by 2.3 (-3.1%) compared to the revenues of Q3, including negative currency translation effects of MEUR 0.2. On a constant currency basis, ICS revenues slightly increased by MEUR 1.6 compared to Q3 2020 and LDC decreased by MEUR 3.7.

In Q3 the capacity utilization in EU dropped because of multiple plant shutdowns of our customers due to the electronic shortage. The move of the ICS operations to the new plant in Shuofang was successfully concluded.

The transfer project of the Injection Molding production from Mullsjö to Pruszkow has been kicked off. This project is part of our vertical integration strategy.

OPERATIONS NEW BUSINESS WINS, MEUR

Within the quarter, Interior was awarded two large contracts to supply seat support and heat systems to major European automobile manufacturers. The programs totaled MEUR 132.7 and MEUR 77.2 in expected lifetime revenues and MEUR 22.0 and MEUR 15.4 in expected annualized revenues.

SPECIALTY PRODUCTS (SPP) SEGMENT CRISIS-RESISTANT SEGMENT WITH STRONG REVENUES AND MARGINS

REVENUES, MEUR ADJ. EBIT, MEUR

The Specialty Products segment consists of three business units: Couplings (COU), Fluid Transfer Systems (FTS) and Off-Highway (OFH).

Revenues in Specialty Products increased by MEUR 15.1 (+19.3%) to MEUR 93.3 compared to the third quarter of 2020, including positive currency translation effects of MEUR 1.8. All business units contributed to the revenue increase with the average revenue growth of around MEUR 5.0 each.

Adjusted EBIT was MEUR 12.0 in the third quarter of 2021, a decrease of MEUR 2.3 compared to the same quarter of last year. Despite higher revenues in Q3 2021, adjusted EBIT declined mainly due to the disproportional increase in costs related to impacts of the electronic components supply chain situation.

The shortage on semiconductors led to negative effects on adj. EBIT of around MEUR 4.6.

Many customers in Europe are impacted by semiconductor situation which results in rapid change of their demand. The supply chain and transportation slowdown had greater impact than in previous quarters. However, the capacity increased in multiple KA plans to support the growth in the coming years. Many projects and initiatives launched as part of the Shift Gear project helped to offset supply chain and labor challenges KA is currently facing.

OPERATIONS NEW BUSINESS WINS, MEUR

Within the quarter, Couplings was awarded a contract with a major German OEM that totals MEUR 5.0 in expected annualized revenues and MEUR 15.0 in expected lifetime revenues. FTS won a contract with a British OEM. This program totals MEUR 13.5 in expected lifetime revenues and MEUR 3.4 in expected annualized revenues. Furthermore, Off-Highway was awarded a contract with a major German manufacturer to supply mechanical cables that totals MEUR 5.6 in expected lifetime revenues and MEUR 1.0 in expected annualized revenues.

Adj. EBIT margin (%)

QUARTERLY REVENUES & ADJUSTED EBIT

The impact of supply chain situation on adj. EBIT shown here does not include the shortfall in revenues.

Q3 2021 REVENUES AND ADJ. EBIT

1. Variances excluding FX translation effects

NET FINANCIAL ITEMS

The foreign exchange effects in Q3 2021 are made up of:

• > realized foreign exchange losses of MEUR 0.7
• > unrealized foreign exchange gains of MEUR 1.5

INTEREST

The main elements were the IFRS16 interest of MEUR 1.2 and accrued interest for the bond and RCF of MEUR 3.7

ACCOUNT RECEIVABLES SECURITIZATION – EXPENSES

This position includes expenses related to AR Securitization such as Commitment fees, Administrator fees, Servicing fees

Appendix

Q3 2020 VS Q3 2021 NET INCOME DEVELOPMENT

> Adj. EBIT lower by MEUR 8.2 compared to Q3 2020 due to the extremely negative impact of the global supply chain situation

INTEREST

> The interest expenses in Q3 2021 remained at the comparable level as in Q3 2020 (MEUR 5.0 in Q3 2021 vs. MEUR 5.3 in Q3 2020)

FOREX GAINS/LOSSES

> Foreign currency gains were MEUR 0.8 in Q3 2021 compared to the losses of MEUR 5.2 in Q3 2020.

TAXES

> Tax income in Q3 2021 amounted to MEUR 1.9 compared to MEUR 1.2 in Q3 2020. The tax income in Q3 2021 is driven by reduction of valuation allowance on Deferred Tax Assets.

Appendix

FINANCIAL RATIOS RECOVERED FROM COVID-19

Excluding IFRS16 Incl. IFRS 16 effect

CAPITAL EMPLOYED3, MEUR

1. Excluding restructuring costs and impairment losses in Q2 2020 2. Net interest-bearing debt 3. Capital employed at quarter end

Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021

1. As the indices are calculated based on the figures from last 12 months, they are impacted by the capital increases in Q2 and Q3 2020

NEW BUSINESS WINS

NEW BUSINESS WINS PER QUARTER, PER ANNUM SALES, MEUR NEW BUSINESS WINS PER QUARTER, LIFETIME SALES1 , MEUR

NEW BUSINESS WINS LTM, PER ANNUM SALES, MEUR

Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Q3-21

1. Lifetime sales assumptions are based on IHS and LMC production estimates at the time of the booking

NEW BUSINESS WINS LTM, LIFETIME SALES1 , MEUR

KONGSBERG AUTOMOTIVE // 30

MARKET FORECASTS

Source: IHS Light Vehicle Production Base (September 2021); LMC Global Commercial Vehicle Forecast (Q3 2021)

GLOBAL PASSENGER CAR PRODUCTION, SALES IN MILLION UNITS, EXCLUDING CHINA

GLOBAL TRUCK PRODUCTION, SALES IN THOUSAND UNITS, INCLUDING CHINA GLOBAL TRUCK PRODUCTION, SALES IN THOUSAND UNITS, EXCLUDING CHINA