Earnings Transcript for KOA.OL - Q4 Fiscal Year 2021

Jakob Bronebakk: Good morning, and welcome to the Kongsberg Automotive Fourth Quarter 2021 Earnings Call. My name is Jakob Bronebakk. I will be organizing the questions at the end of the presentation. But for now, I will hand over to our CEO, Joerg Buchheim, for the presentation.

Joerg Buchheim: Thank you very much, Jakob, and welcome to our Q4 2021 earnings call. I'm together here with my colleague, Frank Heffter, the CFO. And we are glad to guide you through our agenda today. And looking on the agenda, so I would like to start certainly with the financial highlights, the executive summary, the financial highlights, looking a little bit into the market, referring to the segment highlights, as you well know, coming to the group financial update and by an outlook, we are glad to receive your questions. Starting with the executive summary, I would like to enter from now onwards, we are reporting in our new normal. And our new normal is looking in the continued business, so-called, so in our future business, excluding our divested Interior segment. So starting with our financials in Q4 and in the entire year, the Q4, when it comes to revenues in 2021, amounted to €205.7 million, which was slightly below the excellent quarter of Q4 2020. So we came out roughly on this level of Q4 2020 despite all the crisis. And if we are looking into the year-on-year growth, we came out at €831 million, which is a 21% up compared to the year 2020, which is significantly increased and certainly over average compared to the automotive market. And we're then looking into the adjusted EBIT, this has amounted to €8.3 million, and it's certainly lower than the Q4 2020. But as very well known, this is caused by reduced volumes and significant higher costs due to supply chain crisis where everybody is well-known about the circumstances. I mean, KOA, like the whole automotive industry, suffered under the ongoing global sub material crisis, as well in particular, in Q4 2021. And that concerns for our semiconductors, but increasingly also resin, metals and transportation capabilities. So this has impacted our adjusted EBIT by around €7 million, just in Q4, and overall in 2021 at a level of €21 million. So that's certainly an opportunity in a stable outlook. But in 2021, the impacts of the semiconductor crisis were certainly very present. If we're looking into the whole year EBIT, we're talking about €50.7 million, and I'm glad here as well to confirm that this is 4x higher than actually we came out in 2020. But I'm glad as well to confirm that this is matching our guidance -- our previous guidance, which we gave for the year-end. So glad to confirm that. And this is as well a big thanks to the entire Kongsberg family and teams. And we're going to look then into the next slide and talking about free cash flow and new business wins. Our free cash flow totaled certainly negative when it comes to the Q4. And this is majorly driven by an increased net working capital because this has amounted up due to the extraordinary supply situation. So as a company, we decided to stay ready for deliveries, while strictly honor the customer contracts and call-offs. And looking into the operating cash flow, purely out of our operations, that was certainly positive. But again, to keep the flexibility here for our customers, we decided to keep a higher net working capital to deliver here as well a second-to-none service for our honored and preferred customers. When we're looking into the entire year, we're talking certainly about positive cash flow at all of €19.1 million, and we are pretty proud on this result as it increased by €37 million compared to the previous year and is a significant outcome here in terms of improvements. And certainly, respect and honor certainly as well our performance improvement program results. When we are looking into the new business wins in Q4 2021, they were pretty moderate. And at the end of the day, summing up in a book-to-bill ratio of a very solid 1.0 for the last 12 months, which is giving quite good tailwind as well looking into the upcoming years. We completed from a gearing factor -- and Frank will refer to that later on in his KPI overview, but the adjusted gearing ratio on an LTM basis, so looking into the 12 months, rolling backwards, then we're talking about 3.8% compared to 5.4% in Q4 2020, so a significant increase as well here. And with this, we're turning back to pre-corona level. So looking into the next slide at a glance. So our business performance, the good is here -- the good message here is here, certainly, our revenue development was spread across all segments and all regions. So all areas outperformed, which is very positively and in particular, we outperformed in our commercial vehicle segment area, which is our future focus or increased future focus, but as well passenger vehicle remained strong and in particular, in China. Looking into the supply chain situation. So our Shift Gear, that's a positive news as well and confirming that we are doing here the right things. Our Shift Gear performance improvement program where we generated more than €50 million on saving and improvement ideas has partly offset the impact of the supply chain situation, which is very positive and as well for the outlook. Looking then in the revenue impact that was majorly in P&C. But due to our balanced segments, this was partly compensated due to increasing revenues in Specialty Products, which, as I said, helped to offset, this revenue drop and profits were certainly reduced, as mentioned before, by increasing cost of supply associated with still high freight cost, which the entire industry suffers on. When it comes to our Shift Gear program, and here, I'm talking to about our transformational product portfolio, we are here as well on track. And we are very determined in executing our transformation towards our vision becoming, wherever we are operating, a Top 3 supplier with our second-to-none philosophy. So we are leveraging currently our strength of engineering in regard to innovations and relationships in order to unlock here significant growth opportunities as presented in the Capital Market Day that looks very promising. And when it comes to the divestment, we announced just recently our closing of the Interior Comfort System. And we are very confident that this will be followed very soon with the closing of the Light Duty Cables. And these units are reported separately, as I said, as discontinued operations and our new normal in terms of reporting is certainly the segment Specialty and P&C in future. But nevertheless, I would like to share as well how the discontinued business, the divested business performed, and this is -- we are going to see here on the next slide. And here, you see that despite revenue growth -- respective revenue growth in this area of 18.8%, this area was certainly hit in particular in terms of semiconductor impact and the adjusted EBIT amounted here to a minus 6.8% versus a minus 5.7% in the related year before. So it stays here negatively in terms of adjusted EBIT. And looking then in the cash flow area, we came out here on the discontinued divested business at minus €46 million versus an €18.9 million in 2020. So going then to the next chapter, I would like to refer a little bit more on the financial highlights and the new business wins, and I would like to start here in our quarterly overview in terms of revenue performance. And we see here two messages. First of all, looking into a typical pattern is actually reflected here by the green columns. This is 2018. This is a typical automotive pattern. But we see here since 2019, starting with the Q4, the first, let's say, trade war where USA and China opened up here, we saw here already a variation on the typical automotive pattern followed by 2020 in terms of Corona and then 2021 is due to the indirect impacts with the semiconductor and raw material price increases. So we see a different pattern, but the 2018 is a normal pattern, just to underline that, and we came back in a more normal pattern actually due to the first three quarters, where we ended up with the second place looking into the last four years, which is very positively. But what we saw then as well, and I stated that before, in the Q4, 2021, you see an increased impact again from the raw material price increases and the ongoing semiconductor issue. So the €206 million reported in 2021, Q4 is -- should have been under normal circumstances, €5 million to €10 million, actually higher. Let me then go on to the next slide and doing the same exercise on the adjusted EBIT. Here, similar the Q4 was as at Kongsberg, but as well, following the automotive fall over trend was impacted, and we would have this -- we would have closed here in the Q4, actually as well, €10 million higher following the normal automotive pattern logic if it would be a stable supply situation. So that's good to know if we're going to look forward, but certainly shows here that the impacts in particular in Q4 on the current tension situations in the market are going on and expecting to be getting better throughout the 2022. So then looking into the free cash flow, here, two messages. So first of all, we moved in terms of free cash flow, as you could see on the left side, from a minus €18 million year-end in 2020 to a plus 19%. And again, I would like to underline that here, certainly, the teams did a good -- great job, and the Shift Gear of our performance improvement program hitting. And as well, looking then in terms of the quarterly performance, you see here in the first three quarters and reported in the earnings call last year, adequately, very good cash flow -- free cash flow performance, very positive with a continuous increase. And then in Q4 this was different. And I referred to that before, we saw a minus €14 million, but majorly driven, as you can see as well on the details on the right side on increased an -- in a very much increased net working capital, which is majorly the inventory, which we're keeping as a flexibility for our customers to react. And again, this is the planning process as well for our customers is currently and in particular, in Q4, very dynamic and very difficult to do in a proper way as the semiconductor availability determines the planning process. What is important to underline here as well, we are going to continue in our investing into our growth as outlined in the Capital Market Day. So we're executing here as well the investment into our growth and into our new innovative areas and projects. Looking then in the next slide, a little bit more on the book-to-bill performance. And again, this is continued operations. You may remember, including the Interior segment. The level of the book-to-bill here is in 2021, still on a solid level of 1.0, which is promising in the outlook. But certainly, the entire behavior of new business awards in the industry has -- as well for us, slowed down if you compare to the 2020 as the industry currently looks carefully in the recent developments of the crisis and tensions. So -- but still is on a very positive level of 1.0, which is, as I said before, giving us tailwind for the future. When we then go to the next chapter, which is the market summary. I would like to refer a little bit on the global passenger car production in 2021 and the global truck production. And as we can see here, if it comes from a quarter-to-quarter perspective, we see here in the passenger vehicle, a drop down in the Q4 -- a significant drop down in the Q4 of 13%, and we saw a cool down as well of 33%, which is significantly from Q4, 2020 to Q4, 2021. And majorly, this comes in the commercial vehicle area from a huge drop in China, and when we're looking into the passenger vehicle, that's certainly more than the European area and the U.S. area, which dropped significantly from a quarter-to-quarter perspective. So looking then how does this going to continue in terms of the outer U.S. and moving to the next slide. We see here in a five-years perspective [Technical Difficulty] our production on the left side, including China on the right side, excluding China, and we see actually that we have a significant growth perspective. The industry is in terms of outlook very positive on the long-term view. So going back to normal, it's just a question of time, which is confirmed here by this outlook. So a 30% increase over the next five years. And coming back on a passenger vehicle level in 2025 on a roughly €100 million is actually back to the good days and looking at that as well in terms of commercial vehicle. So including China, we see here and China is referring to 1/3rd of the market. You're seeing here 13% up with a significant growth potential and portion in North America and Europe. So the outlook here in terms of long-term revenue and recovering from the market gives a very positive sign. Looking at the segment highlights then in the next slide, and we're going to see here our segment financials in the first slide, and the segments differently impacted by the semiconductor and raw material situation. So when it comes to the Powertrain & Chassis, we see in the Q4 is a €180 million revenue actually compared to the €117 million in the previous year, exactly what I said before. We lost here to a normal situation, roughly €10 million on revenue. And this has been caused majorly due to passenger vehicle sales reductions in Q4 in Europe and which was majorly hitting our Driveline business. Despite that, we could positively work on the EBIT. You see that despite this drop, we could increase our EBIT margin from 4.9% in the Q3 to 5.7% in the Q4. And this was majorly done by our Shift Gear performance improvement contribution, which positively contributed here to our improvement on EBIT margin. When we are looking into the Specialty Products, the good news is we increased our sales year. That's different like in the automotive area that makes it interesting in terms of balancing product portfolios, we could increase our revenue by 7%. And the good news here is as well, it happened in all business units. So all business units contributed. When it comes then to the EBIT, we see here currently an effect, and this is a big drop from Q3, in particular, Q3 to Q4. But we see that already in the range in Q2 and Q3, the impact of the semiconductor shortage as well reached the Off-Highway business, and I'm talking here, in particular on Off-Highway business, where we're using as well semiconductors in a limited, but we are using semiconductors and it arrived as well in the Off-Highway area. And this is in particular related to actually one customer. So looking then into the segment highlights here in a nutshell, as I referred already to revenues and adjusted EBIT or Powertrain & Chassis. So please keep in mind, this is our Driveline business area and on our On-Highway business area. So in terms of operations, mentioned, we -- in Q4, we were heavily impacted by supply and delivery and material cost premiums due to global commercial conditions. But again, we could partly compensate that to our Shift Gear performance improvement program. And looking then here on the new business wins. We are currently seeing that the market in this area has been less active in 2020 compared to 2020. And we see customers currently pushing out, in particular, in the second half of 2021, pushing out new decisions into the next year, into this year. And this has been shown here or displayed here as well in terms of reduced business wins in this area in 2021. But this is not canceled. This is pushed out and be expecting these new business wins actually in this year. When it comes then to the next slide, Specialty Products. As mentioned here revenue adjusted EBIT, the planned operations remained here stable and performed at pre-pandemic level. So -- and here, we see as well from a new business win perspective, even the Q4 was lower, but that's more the seasonality. We could increase our new business wins. And as I said before, this is really an interesting possibility to balance different performance in automotive versus nonautomotive, which is giving us on a long-term perspective, really two legs to stand and to compensate. If there are no questions so far, I would like to hand over to Frank, who is giving us more insights in terms of group financials.

Frank Heffter: Yes. Thank you, Jorg. Also welcome from my side. I will again focus on the continued operations in the majority of the slides. So if we again look at the composition of revenues and adjusted EBIT, we see the decline in P&C, which is suffering from a very tough comparison in the previous years, Q4 where they had a record say revenues of almost €120 million. So still Q4 2021 was somewhat solid, but obviously below the very strong Q4 2020. On SPP, we saw an increase -- a slight increase if we exclude the currency impacts. Again, here, all businesses contributing. And then we have had favorable FX developments, mainly coming from Norwegian kroner, U.S. dollars, and, to a lesser extent, CNY that contributed €8.3 million, which then made us ending up at €205.7 million for the quarter. Looking at the adjusted EBIT, I think it's worth noting that despite the significant lower volume in P&C, they were still able to maintain the profitability at previous year's Q4 level and taking into account the effects from the supply chain crisis, they would have even exceeded the profitability levels from previous year by some €2 million. On SPP, Jorg already mentioned the impacts from the semiconductor crisis. But I think it's also worth noting here that the EDI fluctuation or volatility is not easing in the fourth quarter, which puts a significant burden on managing the efficiency of our operations. And on top, we also have to acknowledge that we are not fully free of any COVID impacts that, be it on the supply chain or be it in our own plants sometimes still impacts the efficiency. So all in all, Q4 ended up with 4% profitability, €8.3 million, taking into account the raw material supply chain crisis effects, we would have looked at 7.2% profitability. When we look at the net income development, we see still a positive net income in the fourth quarter, but below the previous year levels, mainly driven by the reduced adjusted EBIT that we just looked at. We have accounted for some restructuring costs related to our portfolio optimization and had also slightly higher interest to pay. That was offset by, again, positive currency gains here mainly on intercompany credits in Norwegian kroner. And then higher tax expenses or tax account for €4.3 million. As in the previous year, we have also had certain special effects through the impairment and write-down of assets. Tax rate for the full year at 25% would still say that is a pretty good level. If we look at the quarterly and full year development on EBIT and net income, we do see the quite some volatility in the fourth quarter over the years with the €7 million in this year been somewhat on a low point, also attributable, again, to the volume and the supply chain. When we look at the full year, we can see that we are certainly back to levels pre-COVID crisis. And even without the restructuring costs, like Jorg said, we have managed the €50 million plus on our guidance. And on the net income level, same applies here on a full year basis. We are definitely back even higher than the pre-COVID levels, also thanks to the improved profitability in P&C. And that is very promising also for us for the outlook into the future. When we take a look at the liquidity development, we ended the third quarter with a headroom of around €191.3 million. We saw some cash drain in operating activities as the positive adjusted EBITDA was offset specifically by the changes in net working capital, where deliberately, we did build up a certain inventory to secure supplies to our customers, to also minimize the impact from price increases, so purchasing ahead of coming price increases. And obviously, we have had a certain cash outflow already for the restructuring of also the -- to be divested businesses as this view here shows the whole group, not only the continued business. We invested certainly as well in certain CapEx and had cash outflow there, minor impacts from interest and taxes. To be noted here is the net drawdown of debt. In the fourth quarter, we took some €20 million out of our revolving credit facility to also ensure enough payment for the net working capital and not to put additional stress on the supply chain by stretching any supplier payments. So we decided to better use our flexibility here. I can note that as of now, this has already been paid back given the receipt of proceeds from the divestiture of the ICS business. So accounting for that on the final position here at Quarter 4, 2021, we are at €148.3 million, of which €30 million is attributable to the still available RCF. Then we have our accounts receivables securitization program still in place and the cash position of some €58 million. Looking at the net financial items, I think here, not much to note, pretty much in line each quarter, the respective accrual for the interest on the bond. And the positive effect in the fourth quarter on FX certainly helped to minimize the overall net financial result. Other than that, only smaller items related to the ARS facility here. So that's pretty much in line. And obviously, through the initiated deleveraging the partial repurchase of the bond. We should see some improvements also here going forward. That was our clear intention and that will materialize then in 2022. Finally, a look at the financial ratios. Again, here for the whole group. On the gearing ratio improvement over a year ago from 5.4% down to 3.8%. That certainly is a positive development, although we saw a slight increase from Q3 to Q4, as the very strong Q4 2020 fell off the last 12 months and was replaced by the rather weak Q4 2021, which obviously weighs on the ratio. And in addition, like I've mentioned, we have drawn on the facility. So we increased also our debt by €20 million, which then again weighs on this. With the deleveraging activities, we are expecting this ratio to significantly improve in 2022. Equity ratio remains on a very comfortable solid level, 30% plus or 27%, including IFRS 16, no big changes here. On the ROCE, again, we see a significant improvement versus 2020. And also here, due to the earnings reduction in Q3 to Q4 or Q4 to Q4, a slight decrease from quarter three to quarter four. Capital employed is again, a decrease compared to a year ago where stringent control of CapEx and ongoing repayment of lease liabilities certainly is a positive, whereas comparing Q3 to Q4, you see an increase. And here, again, it is predominantly driven by a buildup in net working capital that was deliberately taken into account to ensure our availability and delivery capability to our customers. We also invested, but here, clear focus was on Specialty Products, where we have indicated that we want to increase capacity in our most profitable segment also going forward, and that's what we executed on. With this, I'll hand it back to Jorg for the outlook.

Joerg Buchheim: Thank you very much, Frank, for the comprehensive financial overview. And I would like to guide now through the outlook session. And I would like to start in our post divestment business segment, as a glance to recall here, where do we focus in terms of our business. And as mentioned before, we're talking about after the divestment of our Interior segment, on a focus on two segments, and this is the Powertrain & Chassis segment on one side and on the other side, our very promising Specialty Products business segments. And starting on the Powertrain & Chassis. This is a global Tier 1 business, and it's , focusing on, let's say, from an application point of view on driver control and driveline products and focusing on a passenger vehicle segment and commercial vehicle, automotive market, where our focus certainly moves more and more, as mentioned, to the commercial vehicle segment and to niche applications. So looking into the business units underneath of the P&C segment. We're talking about the Driveline business segment and the On-Highway business unit, sorry, and in the driveline, we're having the Shifters and Actuators business, and the driveline business unit is very much focusing still on passenger vehicles and very much related to European regional business. And in terms of product mix, we are delivering by our shift by cable and shift by wire technology. The difference is, one is a mechanical shifting, the shift by cable. The other one is electronic shifting, which was a shift by wire. We're assessing here with a shift by cable certainly, the classical combustion engine-driven vehicles, while the shift by wire, addressing the combustion engine vehicles and the electrical vehicles. So if you're looking here in our competitive situation, we determine ourselves among the Top 10 suppliers in the segment, which is a very diversified segment. When it comes on our very promising On-Highway area, we're talking about a product segment of actuators, gear actuators, for passenger car and commercial vehicle with a clear focus and higher portion in terms of commercial vehicle, and we're talking here about as well about our vehicle dynamic business. We're looking into the ratio in terms of e-vehicle versus combustion engine-driven vehicles. Both of these technologies or both of these areas can be served with our product portfolio and due to our transformation product portfolio program or Shift Gear 2, we're currently enhancing and upgrading this product portfolio. We're moving into two directions, more and more in applications towards e-vehicle and more and more in applications towards the commercial vehicle area. So very promising and interesting for our product growth throughout the next years. When we then come into the Specialty Products, we're talking about segment where we are design and manufacturing products for both the automotive and commercial vehicle market and with a very bright assess or wide assess to different markets. We're talking about power sports. We're talking about construction, but as well agriculture, outdoor power equipment, power electronic applications and as I said as well, the whole scope of automotive. And we are talking here about three business units, the classical Off-Highway business unit and the FDS, our Fluid System Business unit and our Couplings business unit, which is coming originally and strongly out of our origin of the Company, Norway. So when it comes to Off-Highway, we're talking about displays, we're talking about operating control systems, pedals, displays, but we're talking here about as well advanced electronic power steering systems with a high degree on software and certainly, as well a high degree on functional safety, cyber-security know-how. And we have a low exposure here, as mentioned to the automotive sector, this focusing more on the construction, agriculture, but as well outdoor power equipment when it comes to ATV, and we're rating ourselves here among the top suppliers in the segment. On the fluid system as well, very flexible, very broaden in terms of market assess, and as well usable as both for combustion engine-driven applications, but as well for e-vehicle. So a very diversified, very flexible, very promising, and it's a huge growth perspective here in this area. And as well here, we are among the top suppliers in the segment. And when I'm talking about top suppliers, I'm talking about always our one, two, three position. Couplings, clearly as well top supplier, number one to number two depends on technology and regions, but very competitive. We have coupling systems from -- started with coupling systems for compressed air with a huge upside potential and growth perspective, looking into enhancing that and that's what we're doing towards liquid, liquid transformation and certainly as well into looking into new segments. We referred to this in the Capital Market Day. It is at the end of the day, looking into health or other new business areas. So when we're going to go then into the next slide and referring quickly to our Shift Gear product portfolio. So looking into that, we certainly are going to continue our product portfolio transformation as outlined in the Capital Market Day in December. And certainly, we will consider divestment and investments on both sides according to our road map and future fit for the -- or program fit for the future. And certainly, as mentioned, we are proving all opportunities always in our so-called second-to-none logic. So we're looking in -- let me emphasize that again, in -- are we competitive in this area? Or are we going to be here in the Top 3 -- as one of the Top 3 players, and that's certainly mandatory in terms of investing and growth perspective. Looking into our Interior. So as mentioned before, we sold the Interior Comfort System and closed it at the 28th of February. So again, congratulations here for Lear and big things here internally as well to the teams. And as mentioned, Lear is certainly here a market leader in the seat business and is going to unlock very confident here, unlock further system potential, which we, at a component supplier couldn't raise. In the Light Duty Cable, we are intended to close this in Q1. This is slipping out into Q2 to some administrative issues, but we're expecting a closer very soon in the beginning of Q2. And as well here, Suprajit, the Indian company can here certainly generate economy of skills as one of the leading suppliers in this area. And yes, we are looking forward here on and looking forward here to our teams to help Suprajit here to a second-to-none position. So then with the next slide, I would like to come to our Outlook 2022. And first, I would like to underline as well in 2022, we will certainly strongly continue to execute on our Shift Gear program. And when we're going to look here, we do see that semiconductor shortage and higher cost of supply and logistic stay certainly on for the time being, and that's as well for 2022. And when it then actually is coming more to the recent development -- geopolitical developments, war in Ukraine, then we certainly see here an very unpredictable case and certainly a new market challenge as reported. So looking into the war in Ukraine and the impact, we looked into the direct impact here on this regard and on the indirect. So the good news is certainly when we're looking into the direct impact, we does not see a huge impact here for Kongsberg. Our exposure to Russia and to Ukraine is limited, but certainly, when it comes to looking in the indirect impacts -- so how the market, from a macro economical point and the automotive industry market is going to be impacted, we are very cautiously in terms forecast. So the potential indirect effects are impossible currently to quantify. That's not only for us, the case it's for the whole industry. We see entrants of the war at 24th of February, it's pretty unpredictable. So expecting here interactions at customers and customer plans. We certainly see here a risk for reduced availability and higher cost of raw materials, and we see higher energy or labor cost development as a potential risk, which is currently, as I said before, very uncertain and it's very difficult to predict at the early stage of this war situation. Nevertheless, we stay firm in our use of proceeds from divestments when it comes to, for instance, deleveraging our debt, as mentioned by Frank. So we [indiscernible] our bond, and we reduced debt or going to reduce debt as announced by €75 million, and this is going to help us as well certainly throughout the entire year with an annualized interest saving of €3.75 million. The other topic is we repaid the revolving credit facility, which we drawn in Q4 as well outlined by Frank. And important as well, we would like to reiterate our intention for share buyback, but subject to obtaining more clarity on the impact of the Ukraine crisis and certainly, as announced before, subject to completing the LDC divestiture, which we see here in the early Q2. So when it comes then to the guidance, we discussed that certainly here among the management team and the Board, and we want to stay here currently very cautionary in terms of guidance. As mentioned before, the situation on the geopolitical and economical site is currently very uncertain. And we are very cautious here in predicting the impact. We know our direct impact. As I said, that's limited, but we don't know the indirect effects. This is hard to predict for us. So we would like here to be very cautious at the moment, and we would like not to issue at this point of time, any 2022 entire year guidance. Absent this uncertainty, certainly, we would have expected further revenue growth in 2022 and with a similar or let's say slightly lower conservative adjusted EBIT than in 2021, depending at the end of the day on the availability and cost of supply. And what we definitely do is we're going to closely monitor this development over the next weeks. And we are coming back on that and going to publish a guidance -- a clear and reliable guidance as soon as this can be done in terms of news and upcoming developments. In Q1, just to share that as well, our revenue was pretty stable. So we won a similar level like in 2021, Q1. So that is promising. But again, due to this war situation, we are very cautious to guide here at the current stage. With this, yes, we are through to the presentation, and we would like to be open for any questions.

A - Jakob Bronebakk: Thanks, Jorg. I have -- there's a number of questions and a number of people asking the same questions. So rather than give the name of the person who's asked, I will often just paraphrase. And I think there's a number of questions around the specific reasons for the EBIT decline in Specialty Products. And could you or Frank give some background on why is that Specialty Products is particularly impacted? And if there are any specific customers, specific materials, et cetera, that we could highlight.

Joerg Buchheim: Yes, certainly. As mentioned before, we are impacted on the Off-Highway segment in terms of semiconductor. So as I said, this now swapped over as well to the Off-Highway segment. And yes, it's majorly semiconductor, as mentioned before, and it's majorly one customer who is affected here, which is reducing here revenue because on the availability of this part and certainly causing as well additional cost by spot buy and by increasing flexibility in terms of planning and production processes. And this is -- the one and only reason is here one part on semiconductors.

Frank Heffter: I think in couplings, we have seen higher raw material prices, especially on brass, that is impacting this business unit, and although we have mechanisms in place to pass on these increases to customers. There is a certain time delay. So you don't see it materializing necessarily in the same quarter.

Joerg Buchheim: When it comes to fluid systems, there, we do see a lot of industry customers who need very high flexibility in terms of ordering and planning process. And this certainly requires additional efforts in our production planning, which slightly increased cost. But again, this is temporary and overlookable.

Jakob Bronebakk: Thanks. And we are also getting some questions around energy costs. Are they a significant portion of our cost of goods sold? And also how much if any of that is hedged.

Frank Heffter: Yes. So multiple questions, here. When it comes to overall share of costs, I'd say it's for sure not -- the biggest portion is not rocking the boat. Overall, but yes, we do see significant increases depending also on geographies. Some countries, you see multiplying compared to previous levels. And certainly, we also take this into account when discussing with customers about price increases. It's utility cost, it is freight. So it's a multitude of elements. Hedging is, I would say, partially yes, partially no. The majority, we are buying on a regular basis without a specific hedge but with firm prices from the utilities for a certain amount of time. And then same with hedging, sooner or later, it is going to hit you. So also hedging only heals it for a limited amount of time.

Jakob Bronebakk: Thanks, Frank. There's a related question, which also refers to raw materials. Given the continued uncertainty and the potential for raw material price rises, how much and how quickly can you pass this on to the customer?

Joerg Buchheim: This is part as well of our partnership approach here, the discussions with our customers. So in general, you have a pass over time of six months. contractually, but these in the current circumstances are discussable points, and that's what we did discuss this with our major customers here, and we narrowed the gap so far to a level of one to three months and on very dynamic cases, as I said, even on a lower than one month base. So that was one of the negotiation points with our customers. And yes, we are majorly now in the execution phase of these new conditions.

Jakob Bronebakk: The related follow-up is whether we can quantify the impact at all of raw material headwinds in the coming quarters and how these will be relative to the Q4 that we've just had?

Joerg Buchheim: As we said, the impact is going to continue. So it's the topic on what we've seen in 2021 as well in Q4 is going to continue the situation in 2022. But on the other side, certainly, our countermeasures or improvement measures of Shift Gear in particular, negotiations, pass-through's to the customers are hitting in and going to partly offset. So it's -- as I said, it's difficult to quantify, but that's why we said without the green war, we are seeing a stable development, slightly tensioned, but stable outlook for 2022. So on a similar level and impact of 2021. So -- and our program is continuing to counter that as we did in 2021. But the big uncertainty and allow me to emphasize that again is certainly the current geopolitical topic where we don't have any crystal ball at this time to really predict the impact, because, as I said, from a direct impact, we are very limited, but it's for us impossible to predict the indirect impact.

Frank Heffter: And maybe to provide a general magnitude not taking into account any spot buy impacts, because they always come kind of on top as a one-timer. We are talking about significant amounts, not talking about €1 million here, €1 million there. It's more, let's say, in the magnitude of €25 plus million that is hitting us on the raw material side, but also the same amount or more that we are targeting in terms of recovery from the customers.

Joerg Buchheim: So €25 million and compare that to 2021, where we reported a €21 million impact. So it's continuous in regard on the impact.

Jakob Bronebakk: Okay. We have a number of questions around the proceeds from the divestment, which I will try to summarize that late. But before that, if we could say something -- there are some follow-up questions from the news that we had at the Capital Markets Day regarding how we see the product development in Specialty Products. Are there sectors other than, for example, automotive that we are considering and how is the progress on those. And another question was regarding the battery thermal management system that was mentioned at the Capital Markets Day. Is there any progress on development there?

Joerg Buchheim: Definitely. So on all areas, there is a certain progress. As we said, we are very determined and working with high focus on upgrading our products to assess additional market fields in all areas. So we're looking, for instance, in the On-Highway segment, to increasing our share significantly for e-vehicle and hydrogen-powered vehicles, and in particular, on mid and heavy truck areas so -- but as well the mid-range truck area. So the last mile vehicles are on high interest here. So this is one of the focus topics as outlined in the Capital Market Day. We have a focused team on that. And Dr. Amsel is leading these innovations. Certainly, the second topic, as mentioned when it comes to markets, we are progressing in our road map in upgrading the Specialty Products in different areas, so looking in transferring Off-Highway know-how into other areas to enabling here our system competence. But as well, when it comes to looking into the additional market opportunities, and I mentioned that before, for instance, is a health area, we are working on that. And we are determining and we are executing here our road map. And if it comes to looking into additional products, we certainly as well going here our past into assembling our know-how for as mentioned before, for system upgrades and coming back to our Battery Thermal Management System. We are here in close alignment and discussions with development partners out of our customer base. So we are currently in close cooperation with two customers in particular here, one on the truck business and one on the passenger vehicle business, which are leading customers in the e-vehicle area, and that looks very promising. So we are fully on track in this road map. And certainly, I'm confident that in the next earnings call, I can give you a clear insight.

Frank Heffter: Then let me take the question on use of proceeds. I would summarize it that from these two transactions, roughly, we were expecting the €200 million, half of that basically is attributed to deleveraging, like we have said, bond repurchase, repayment of debt. And then the other half, we will use to invest in profitable growth or return it to shareholders like we have indicated. And that still stays as communicated earlier.

Jakob Bronebakk: Thanks, Frank. I think there's -- that's obviously a question a lot of people are asking. And there's a question regarding the remaining €200 million of bond after this latest redemption. Is there any plans to refinance this at the moment? Or will that wait until market conditions improve over the next few years?

Frank Heffter: Yes. Currently, there are no concrete plans to refinance that. It still has a certain tenure, it provides us with good liquidity. So no focus on that one at the moment, I think we have other topics to execute on and not to tackle the bond at this time. It still has a sizable amount, €200 million. So I think it is being traded in the market. So good instrument.

Joerg Buchheim: Besides certainly, we're looking into those constructions like green bonds, certainly, but that separately.

Jakob Bronebakk: Yes. Then there's also some questions around the -- when that will go ahead. But also, I think if you perhaps could explain a little bit about the mechanics of how the share buyback will work and how the shares will be deleted at the end of the share buyback. There's some -- especially within the retail risk base, I think that there's a lot of questions around that.

Frank Heffter: Yes. I think on the timing, like we have mentioned, first of all, we want to wait or not wait, but I want to execute on the closure of the LDC divestment and also get more clarity on the geopolitical and automotive market sector development, which then provides us more visibility to also plan for our cash flows internally, and that is then the time to discuss and decide on the timing when to start. Whenever this start will happen -- we intend to follow good market practice, which means that we will adhere to certain safe harbor regulations in terms of maximum repurchase of volumes given previous trading day's, so that we are not influencing the overall underlying share price -- through this program, there are very established procedures in the market that's pretty routine, and we will follow this. So depending on the volume, it will be a duration between three to six months, which will take the time to execute up to 10% increase. And then following the repurchase, they will just be eliminated and deducted from the equity is very simple. So straightforward established process.

Jakob Bronebakk: Thanks, Frank. There's also a question regarding whether we can provide the exact cash proceeds from the ICS that was closed now that we have visibility on the transaction.

Frank Heffter: We could certainly, because we know how much we received, but I think there was an agreement that not to disclose that. So I think, I gave you the magnitude in terms of proceeds from both transactions that should be sufficient.

Joerg Buchheim: So just to underline, it's both in the range of €200 million.

Jakob Bronebakk: Great. I think we have gotten to the end of the questions that we've received from listeners. So -- with that, I think we will just wrap it up, and we thank you all for attending the Kongsberg Automotive Q4 2021 earnings call presentation and look forward to seeing you again in May when our Q1 results are available.

Joerg Buchheim: Yes. Thank you very much.

Frank Heffter: Thank you, and bye-bye.

Jakob Bronebakk: Good day.