Kongsberg Automotive

Q4 2020 Earnings Call

February 26, 2021

Kongsberg Automotive

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.

Today's presenters

Norbert Loers

Co-CEO, CFO Zurich (Switzerland)

Interim Co-CEO and CFO responsible for Group finance since joining in 2017
15+ years in executive positions in the automotive industry with deep expertise in finance
Graduated from University of Bonn with a MSc degree in Economics

Robert Pigg Co-CEO, SVP Off-Highway Wilis (USA)

Interim Co-CEO and SVP Off-Highway responsible for Specialty products segment
15+ years experience with Kongsberg and Off-Highway segment
Holds a BA in Mechanical Engineering from Auburn University and a BA in Physical Sciences from Freed-Hardeman University

Content

Executive summary

Financial highlights Market summary Segment highlights Group financial update Q&A

Highlights Q4 and FY 2020

As defined in APM section in annual report – 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 drawdown/ repayment of debt and proceeds received from capital increase/ purchase of treasury shares.

Free Cash Flow1

New business wins

Sales Best Q4 of the last four years with sales of ~300 MEUR

Adj. EBIT Best quarterly earnings of the last four years with an adj. EBIT of 22.5 MEUR and a margin of 7.5%

Significant improvement compared to prior quarters, almost breakeven in Q4 – without COVID-19, FY2020 could have been Free Cash Flow positive

Strong bookings in Q4 after challenging market environment in Q2 & Q3 with continuous high book-tobill performance

Liquidity Significant liquidity reserve of ~200 MEUR by end of 2020 after successful equity refinancing

Highlights Q4 2020

Sales	> Q4 2020 sales amounted to 298.5 MEUR, 17.8 MEUR (6.3%) above Q4 2019, including negative currency translation effects of 14.3 MEUR
	> At constant currencies, the YoY growth was around 11.4% which is above the overall market development for the quarter
Adj. EBIT	> Adj. EBIT in Q4 2020 grew significantly amounting to 22.5 MEUR compared to 15.1 MEUR in Q4 2019, an increase of 48.7% YoY
Free Cash	> In Q4 2020, Free Cash Flow totaled -3 MEUR continuing the cash flow improvement we have started to show in Q3
Flow	> Operating cash flow improved to 37.0 MEUR from 25.5 MEUR in Q4 2019
	> Currently, Free Cash Flow is expected to turn positive in H1 2021
New	> Driven by steadily improving order levels throughout the quarter, similar volumes to those of Q4 2019 have been achieved
business wins	> New business wins amounted to 86.7 MEUR on an annualized sales basis, corresponding to 471.3 MEUR of expected lifetime sales during Q4 2020
	> This represents a strong rebound from Q2 and Q3 2020 bookings and totaled in last 12 months expected lifetime sales of 1,346 MEUR
Gearing	> The adjusted gearing ratio (NIBD/Adj. EBITDA) deteriorated from 3.1x in Q4 2019 to 5.4x in Q4 2020 still impacted by the ongoing COVID-19 pandemic

Highlights FY 2020

COVID-19	> 2020 was a year dominated by the effects of the coronavirus disease (COVID-19) - the virus and a weak start to the year 2020 have impacted the automotive industry heavily
	> However, from Q3 on sales and new business wins rebounded significantly with production levels in Q4 stronger than expected
Sales	> In 2020, sales declined by around 16.5% from 1,161 MEUR to 969 MEUR
	> This decline is similar to production volumes reductions in the passenger car and commercial vehicles markets of -16.7% and -2.7%, respectively
	> Most notably in 2020, China sales grew strongly by 36.2%, proving the recognition as a trusted supplier in this regional center of gravity of new automotive entrants and rapid EV adoption
Performance	> Although significant attention was on crisis management, improving and developing the business was our key focus
	> 2020 new business wins amounted to more than 282 MEUR based on expected annualized sales, a 14.7% decrease from 2019's 330 MEUR
	> From a lifetime sales perspective, new business bookings of ~1,350 MEUR exceeded normalized annual sales levels securing future growth
	> With these strong new business wins, a strong sales foundation has been built ensuring continued top line growth in the coming years
Free Cash Flow	> Free Cash Flow improved by +7 MEUR from a negative FCF of 37 MEUR versus a negative FCF in 2019 of 44 MEUR
	> The negative FCF was caused primarily by the significant decline in revenues of 192 MEUR and related contribution margins
Liquidity	> In Q2 2020, a Private Placement capital increase of MNOK 700 (~63 MEUR) was successfully completed.
	> In Q3 2020, a subsequent offering with MNOK 300 (~27 MEUR) was successfully completed.
	> The combination of operational savings, strong improvements in working capital, the capital increases, change in size and terms of the RCF, and the implementation of the receivable securitization program led to a very significant liquidity reserve of 197 MEUR by year-end 2020

Content

Executive summary

Financial highlights

Market summary Segment highlights Group financial update Q&A

Sales: Strong recovery from COVID-19 impact to the best Q4 in the past four years

Quarterly sales1, MEUR

Sales1 , MEUR

2017 sales includes MEUR 15 relating to Headrest & Armrest (divested in Q2 2017)

288 281 Q1 Q2 Q3 Q4 2018 2019 2020 2017 2018 2019 2020 2017 2018 2019 2020 2017 2018 2019 2020 2017 2018 2019 2020

Adjusted EBIT: Best quarterly earning in the past four years

, MEUR and % of sales

2017 2018 2019 2020

, MEUR, % of sales Quarterly adj. EBIT1

Adj. EBIT1

2017 adj. EBIT includes MEUR 1.8 relating to Headrest & Armrest (divested in Q2 2017)

Free Cash Flow: More stabilized FCF compared to previous years, heavily impacted by COVID-19 – almost breakeven in Q4

Free Cash Flow: Significant improvement compared to prior quarters – without COVID-19 FY2020 could have been FCF positive

New business wins: Strong bookings in Q4 after challenging market environment in Q2 & Q3

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

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

Book-to-bill performance: High ratio in 2020 despite crisis with booked business volumes exceeding revenues to secure future growth

Book-to-bill performance, MEUR

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

Executive summary Financial highlights Content

Market summary

Segment highlights Group financial update Summary Q&A

Market trends: Significant downturn in 2020 – first signs of recovery in Q3 confirmed by further growth in Q4

Source: IHS Light Vehicle Production Base (February 2021); LMC Global Commercial Vehicle Forecast (Q4 2020)

Content

Executive summary Financial highlights Market summary

Segment highlights

Group financial update Q&A

Segment financials: Strong recovery in Q4 2020 after COVID-19 shock in Q2 and Q3

% Adj. EBIT margin (%)

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

New business wins per segment: Return to pre-COVID-19 levels in Q4 securing future growth

SPP P&C INT

New business wins per quarter, per annum sales, MEUR New business wins per quarter, lifetime sales1, MEUR

Interior (INT) segment: Strong top line performance and new business wins

% Adj. EBIT margin (%)

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

Revenues in Q4 2020 showed an increase of MEUR 11.0 despite negative translation effect of MEUR 4.5. This was mainly due to the ICS strong performance especially in North America and China due to production ramp up and a gain in market share.

Sales, MEUR Adj. EBIT, MEUR

Adj. EBIT in Q4 decreased in % of sales and in absolute values compared to Q4 2019.

The positive effects of operational improvements and strict cost controls were offset by one-time costs and supply chain stress.

The global supply crisis for electronic components already impacted Interior's cost by about MEUR 0.5 in Q4.

In Q4 2020, Interior continued to focus on controlling variable and fixed costs and implementing further operational improvements as we have ramped up production to above pre-COVID levels.

Since the Q4 2020 global demand has surged, Interior has faced major supply issues relating electronic components. We will continue to see these issues well into 2021.

Operations New business wins, MEUR

Interior had strong Q4 bookings.

Combined, contracts amount to MEUR 41.3 in annualized sales or MEUR 326.9 in expected lifetime sales.

ICS was awarded two large contracts for seat support: one with a major premium European OEM and one with a major US OEM. These programs total MEUR 17.0 and MEUR 11.6 in expected annualized sales and MEUR 153.3 and MEUR 80.9 in expected lifetime sales.

Powertrain and Chassis (P&C) segment: Improved sales and adj. EBIT performance and lower new bookings

% Adj. EBIT margin (%)

5.9 0.5 ¹¹³ ¹¹⁷ The Powertrain and Chassis segment consists of two business units: On-Highway (ONH) and Driveline (DRL).

Revenues in Q4 2020 showed an increase of MEUR 4.1 despite a negative translation effect of MEUR 4.8. This was mainly due to the market share gain in both Passenger Car and Commercial Vehicles in China.

Sales, MEUR Adj. EBIT, MEUR

Higher profitability is driven by efficient control of variable and fixed costs in European and American plants. However, this was partially offset by a warranty charge of about MEUR 5.0.

All plant operation are "back to normal" at normalizing volumes; we are benefiting from the operational improvement plans achieved in 2019 and the cost controls implemented earlier this year.

With the Q4 2020 global demand ramping up, we have faced supply issues relating resin, steel, and electronic components. We will continue to see these issues well into 2021.

Operations New business wins, MEUR

Again, P&C new business wins were heavily impacted by COVID-19.

Within the quarter, P&C was awarded a contract with a major US OEM. This program totals MEUR 4.3 in expected annualized sales and MEUR 25.7 in expected lifetime sales.

Specialty Products (SPP) segment: Crisis-resistant segment with strong sales and margins

% Adj. EBIT margin (%)

4.9 ⁹¹ ⁹⁴ The Specialty Products segment consists of three business units: Couplings (COU), Fluid Transfer Systems (FTS) and Off-Highway (OFH).

Revenues in Q4 2020 showed an increase of MEUR 2.7 despite a negative translation effect of MEUR 5.0. This was driven by a strong performance from the Couplings group.

Sales, MEUR Adj. EBIT, MEUR

The YoY increase of MEUR 4.9 is driven by positive operational efficiency and positive effects from brass and resin raw material pricing.

All plant operation are "back to normal" and we are benefiting from the operational improvements and cost control measures put in place earlier in 2020.

With the Q4 2020 global demand ramping up, we have faced supply issues relating resin and electronic components. We will continue to see these issues well into 2021.

Operations New business wins, MEUR

The segment achieved good levels of new business wins.

Within the quarter, Couplings was awarded a contract with a major European Truck OEM. This program totals MEUR 6.1 in expected annualized sales and MEUR 43.0 in expected lifetime sales.

Likewise, Off-Highway secured three contracts with major construction OEMs. These program total MEUR 5.4 in expected annualized sales and MEUR 16.2 in expected lifetime sales.

Content

Executive summary Financial highlights Market summary Segment highlights

Group financial update Q&A

EBIT & Net Income: Full-year profitability heavily impacted by COVID-19 market shock and impairment loss in Q2

Includes impairment losses of MEUR 82.7
Impacted by impairment losses of MEUR 77.4 (net of tax)

Q4 2020 sales and adj. EBIT: Improved sales performance across segments reflected in adj. EBIT compared to Q4 2019

Variances excluding FX translation effects

Q4 2020 Net Income: Improvement due to higher adj. EBIT

Net Income development, MEUR

Group

Best Q Sales in the last 4 years contributed to the adj. EBIT higher by MEUR 7.4 compared to Q4 2019

Interest

The interest expenses in Q4 2020 remained at the same level as in Q4 2019 (MEUR 5.4 in Q4 2020 vs. MEUR 5.6 in Q4 2019)

Other financial items

Mainly due to net FX effects (net loss of MEUR 5.7 in Q4 2020 vs. net gain of MEUR 0.6 in Q4 2019) and Account Receivables Securitization expenses of MEUR 0.5 in Q4 2020 other financial items negatively impact Net Income in Q4 2020

Taxes

Tax expense in Q4 2020 amounted to MEUR 0.3 compared to tax income of MEUR 0.1 in Q4 2019. Any tax expense related to the positive result in Q4 2020 was offset by deferred tax income on future deductible differences and losses

Liquidity development: Significant liquidity reserve of 197 MEUR by yearend 2020 with cash, RCF, and securitization facility

Liquidity development, MEUR

Net financial items: Slight decrease due to currency effects

Currency effects

The currency effects in Q4 2020 are made up of:

realized currency loss of MEUR 1.4
unrealized currency loss of MEUR 4.3

Interest

The main elements were the IFRS16 interest of MEUR 1.6 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 and so on

Financial ratios: Recovered from COVID-19 shock, yet mostly still below Q4 2019 levels

Adjusted ROCE1 Adjusted gearing ratio1 , NIBD2/EBITDA, LTM , %, LTM

Excl. IFRS 16 effect

Capital Employed3 , MEUR

Equity Ratio, %

Incl. IFRS 16 effect

Outlook 2021 Sales

969 2020 ~1,100 2021 ~130

These forward-looking statements are based on several key assumptions incl.:

FX rates
Market demand

increase/ purchase of treasury shares.

Electronics availability

excluding net drawdown/ repayment of debt and proceeds received from capital

Defend strong position and build on our strong book-to-bill ratio in all segments incl. EV-related products, OFH & electronics
Further expand our global customer base and continue to gain market shares
Adj. EBIT > Further build on operational improvements and stability achieved in the last years and continue to improve overall profitability
Effectively manage increasing shortages of electronics components while keeping additional costs to a minimum
Generate cash with a positive Free Cash Flow in H1 2021 and in each following half-year
Capitalize on effective working capital mgmt. and realize CapEx efficiency improvements
Harvest cash generation from prior investments in restructuring, products, and growth

Content

Executive summary Financial highlights Market summary Segment highlights Group financial update

Q&A

AI assistant

Kongsberg Automotive — Call Transcript 2021

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Kongsberg Automotive