Kongsberg Automotive ASA

Good morning, everyone. Thank you for joining us today, and welcome to Kongsberg Automotive's Q2 2024 Earnings Call.

My name is Therese Skurdal, Communication Director, and I will be the moderator for today's session. Before we begin, I would like to remind you that you can raise questions in the webcast tool.

Joining us today as presenters are President and CEO, Linda Nyquist-Evenrud; and CFO, Christian Johansson. On the right-hand side of the slide, you will see the topics that they will present today.

Now, I will give the word over to our President and CEO, Linda Nyquist-Evenrud. So Linda, please begin when you are ready.

Thank you, Therese, and good morning, and once again, welcome to this Q2 earnings call. Christian and I will take you through our Q2 results.

So let's move to the next slide and the executive summary. I am happy to report improved results in the currently challenging automotive markets.

Even though the result of Q2 2023 was impacted by negative onetime effects, our efforts to reduce the cost base in both manufacturing as well as administration are yielding positive results. The improvements in our operational KPIs compared to last year is also encouraging.

I attribute our success to the efforts of our employees who are committed to delivering quality products to our customers and working together to better position KA as a competitive company. So if we take a closer look at some of the key numbers, starting with EBIT.

In Q2, it amounted to EUR 6.4 million, an improvement of EUR 18.9 million versus negative EUR 12.5 million last year, despite decline in volumes due to the challenging market environment. Our revenues in Q2 came in EUR 15.2 million lower than Q2 last year and ended at EUR 209.3 million, a reduction equal to 6.8%, driven primarily by the decline in commercial vehicle market in Europe, partially mitigated by the solid growth in the commercial vehicle market in the Americas.

In addition, last year's revenue was boosted by program ramp-up and post-COVID effects still impacting our customer base such as supply chain issues and maintained high backlog levels at their side. This situation has improved since last year and first half this year is reflecting a more normalized situation within both the Commercial Vehicle segment as well as the European markets.

Despite the challenging market conditions, our book-to-bill increased to a record high of 2.1. New business wins in the quarter amounted to EUR 695 million, totaling EUR 1.1 billion in the first half year compared to a total of EUR 369 million in the first half of 2023.

Free cash flow was negative EUR 4.4 million in the quarter. Having adjusted for accelerated payments of outstanding interest on the old eurobond, free cash flow was positive in the second quarter.

We continue to have a strong focus on delivering positive free cash flow for the full year. We are delivering on the cost optimization program that we launched in 2023.

These sustainable cost savings are valuable contributions in the presently weaker market situation. And at the end of the second quarter of 2024, net interest-bearing debt amounted to EUR 116.5 million, an increase of EUR 16.3 million compared to year-end 2023.

This is primarily driven by the negative free cash flow in Q1 and the payment for interest on all bond notes accelerated in Q2 this year. Christian will come back more on this as well as on a leverage rate to show later on in the presentation.

Moving on to the next slide. You can see the numbers reflected on the previous slide linked to core and non-core business as well as the development over the past quarters.

As already highlighted, our core business revenues in Q2 last year represented exceptionally high revenues in Europe driven by program ramp-up as well as post-COVID and supply chain effects, while Q2 this year is representing a more normalized level. All in all, comparing year-over-year, we increased our operating profitability on our lower revenue.

The non-core business declined in terms of year-over-year revenues, a result of the program slowdown addressed in our Q4 earnings call back in March this year. EBIT for our non-core business amounted to EUR 0.9 million, an improvement year-over-year of EUR 13.6 million, benefiting from onetime effects as well as the impairment -- impaired assets and onerous contract provisions of 2023.

So let's take a look into the business areas, starting with the Drive Control Systems. We can see a revenue reduction of EUR 10.3 million compared to Q2 last year.

Once again, first half last year represented exceptionally high revenues related to the commercial vehicle market and the European region. Additionally, our off-highway business was impacted by the softening in the market.

The impact of declining volumes was offset by operational improvements in variable costs and other operational costs, as well as a favorable product mix and lower warranty expenses than in Q2 last year. New business wins amounted to EUR 624.5 million of lifetime revenues for DCS in the second quarter.

And this was driven by one major win for our gear control unit that was announced on April 26th. And I will share some more details in a few minutes.

Moving on to the business area Flow Control Systems. Q2 ended up with revenues of EUR 79.7 million, meaning EUR 0.6 million higher year-over-year.

As mentioned, a couple of times already, the strong sales related to commercial vehicle market and the European region in first half 2023, also had a positive impact on the FCS business last year. This is the background for the decline in the Couplings revenues of EUR 2 million comparing year-over-year.

EBIT came in on EUR 5.3 million or 6.6%. And last year's Q2 EBIT was positively impacted by the onetime customer reimbursement, while the operational improvement in Q2 this year were partially offset by unfavorable product mix.

New business wins amounted to EUR 70.3 million of lifetime revenues for FCS in the second quarter. And the main driver of this result was a large contract with a global power technology manufacturer for several technical hose assemblies used with coolant, fuel and oil transfer applications.

So if you move on to the next slide and our new business wins chapter, starting with the book-to-bill. As I mentioned in the start of this call, our book-to-bill increased to a record high level in Q2, reaching a level of 2.1.

And new business wins in the quarter amounted to EUR 695 million, totaling then the EUR 1.1 billion I mentioned in the first half of this year. And that in comparison with first half last year that resulted in EUR 369 million.

This confirms the improved guidance from our Q1 reporting back in May of new business wins above EUR 1.2 billion or above 1.2 in book-to-bill for the full year. We have announced several significant contracts now in 2024, confirming that we are progressing well and that we continue to build a strong base for KA's future growth with new customer programs coming into production.

We have a sizable and secured order book, including 85% of our anticipated revenues in 2026, already booked or awarded and 70% of 2028 anticipated revenues. Let's move into the next slide to see how the wins are divided per segment and per area.

So on the left-hand side, you can see the lifetime revenues already mentioned per business area amounted to an all-time high total lifetime revenue of EUR 695 million. As you can see from the illustration on the right-hand side, more than 90% of the book business in Q2 is linked to commercial vehicles.

And within the Industrial segment, the awards include new products such as UltiPure and UltiFlex and the awards are shared regionally between North America and EMEA. Our agriculture and construction and new growth markets won close to EUR 22 million in the quarter.

A great start to 2024 with significant wins across all our segments with the most dominant market area being the truck, trailer, bus and coach market, which, as we have stated previously, is our major strategic importance and a clear priority for us. And before we move into the market update, I would like to put some light on a couple of announcements that we have made throughout Q2, and the first one we reported on April 26th.

A major contract extension worth EUR 523 million in estimated lifetime revenues for our gear control unit, or GCU, with integrated clutch actuator. The GCU is a valve-based device designed for manual transmission trucks, allowing them to be driven as automatic transmission truck if desired.

And this innovative technology enhances operator convenience by eliminating the needs to switch gears while preserving the fuel efficiency, typically of a manual transmission. And we have been producing the GCU product for over 7 years, and the contract renewal is awarded by a major global manufacturer of transmissions for heavy-duty trucks.

And this 5-year contract is a continuation of our existing business that will extend until 2028. Our plants in Nuevo Laredo, Mexico and Wuxi, China will produce and deliver the products.

And the GCU with integrated clutch actuation is a world-class product that allows for easy service with rapid and precise clutch activation, securing such a significant contract for us, and this extension is the ideal building block for the ambitions that we have within the actuation area, and it confirms our competitive position in both North America as well as in Asia. The second highlight from our Q2 new business wins reporting is a new contract worth over EUR 55 million of lifetime revenues for our dog clutch activator or DCA.

The DCA is developed by KA, and it's designed for gear shifting and decoupling applications for multi-speed transmissions, either electric axles or central drive for hybrid, battery electric and fuel cell vehicle applications, and it's ranging from passenger cars to heavy-duty commercial vehicles. The production for this 5-year contract starts in 2025 with our Wuxi, China plant producing and supplying the product to one of the leading original equipment manufacturers based in China for electric commercial vehicle markets.

And KA's DCA represents the future of gear shifting technology tailored to a wide range of electric vehicles as well as light and heavy-duty vehicles, providing technical benefits and lifetime value for our customers. So moving into the chapter market update, where we start with a well-known page describing how the global production for both commercial vehicles and passenger cars is developing.

And as you can see, the global commercial vehicle market is showing a growth development year-over-year of 2.4%, including China, driven by higher production volumes in China as well as in South America. If we exclude China, the year-over-year development is turning negative to minus 2.7%, driven by the reductions in Europe as well as in North America.

And this is per my previous comments. If we take the first half of this year, commercial vehicle production outside of China lowered by around 4% versus last year.

Comparing 2024 with full year 2023, we see a negative development, both including and excluding China, and once again, driven by the negative development in Europe and North America as well as in the APAC without China. The global passenger car production shows a slight positive of 0.5% year-over-year, including China, while excluding China, is resulting in the same negative minus 2.7% as we saw for commercial vehicles.

Main drivers for the decline are the negative trends in Europe, South America and APAC without China. While China and North America is contributing with an increase, though not enough to offset the negatives.

And comparing the full year, we see a negative production development, both including and excluding China. For completeness, we are also including a market forecast.

And from the more long-range perspective, we see moderate to strong market growth in the Commercial Vehicle segment. The LMC June 2024 reports indicate a growth rate of 19%, including China, for the time frame, 2024 to 2028.

Excluding China, for the same time frame, it indicates plus 15%. In terms of the global passenger car market, we see a low to modest market growth.

IHS June 2024 report indicate a global production growth of 7%, including China, for the same time frame, 2024 to 2028, and 6% growth if we would exclude China for the same time frame. Looking into the Q2 performance within the different segments and regions, we can see that we have outperformed the growth in the commercial vehicle market in the Americas, mainly due to the sales growth of our clutch actuation systems and gear shift systems.

In China, we have the continuous ramp-up of the new customer programs related to gear shift systems, though reduction in sales linked to our couplings products resulted in an overall sales reduction of EUR 0.8 million year-over-year. As already mentioned a couple of times, Europe sales was relatively low also in Q2, driven by the exceptionally high sales in first half 2023 related to program ramp-up and post-COVID effects still impacting our customer base.

Our sales to the passenger vehicle market declined in Q2, in line with the negative performance of the market itself and our decline in non-core business. However, revenues in the Americas remained stable year-over-year, while the market in this region shrank with 0.6%, and this was driven by increased revenues in North America related to our FCS business.

Moving on to the next page and the development of the global market situation within the automotive industry. As reflected also in the subtitle, we see further improvements in the supply markets.

Labor cost is related to increases in best cost countries such as Mexico, coming from a low base. Energy prices are flattering and have been stable over the last quarters.

Raw materials such as steel, copper and aluminum have shown an increased price trend driven by their geopolitical risks. In terms of our customer demands, it is worthwhile to reiterate that we have limited ability to influence the short-term demand, and we are highly dependent on our larger customer programs.

We see a reduction in customer demands for the second half of this year, both in Europe as well as in North America. North America being impacted by the election uncertainty dampening the demand.

And with that, we conclude the executive summary, and I leave the word over to you, Christian, to take the team through the financial updates.

Thank you, Linda. First of all, it's a pleasure to be in this call.

I'm the CFO of Kongsberg Automotive Group since 2 months. Before that, during more than 30 years, worked in international companies in the industrial and automotive sphere in different managerial role, including several CFO roles, among them as CFO in Volvo Trucks; and Group CFO in SKF, both companies operating in the automotive industry.

My previous relation to Kongsberg Automotive is in the first hand for my Volvo Trucks years, where KA is a very important supplier with a long history. So I'm really happy for the opportunity to join Linda's team.

Next slide, please. So revenues by quarter.

You've already heard about our sales development and revenues in the second quarter was EUR 209.3 million, declined by EUR 15.2 million versus last year and a reduction in percentage by 6.8%. Sales in commercial vehicle market was EUR 108.9 million, declined by EUR 8.5 million, 7.3% versus last year.

And you've heard that Europe revenues declined by EUR 10 million, 15.5%. And as Linda has mentioned, in addition to a soft market this year, sales in the second quarter last year was strong due to ramp-up of a new customer program as well as stock fill up by our customers after COVID supply chain disturbances.

Revenues in America grew EUR 2.4 million, 6.2%, mainly related to positive development in the Drive Control System on highway business. In Asia, including China, commercial vehicle sales declined slightly, 0.8%, to 6.3%.

Passenger car market sales was EUR 67.2 million in the second quarter declined by [ EUR 3.6 million or 5.1% ], reflecting the decision to wind down the Driveline business. In Europe, passenger car revenues was down by [ EUR 1.7 million ].

Americas remained stable, while Asia decreased EUR 1.9 million versus last year. Finally, the revenues in other markets, mainly off-highway for various industrial application businesses, such as construction equipment and agriculture was EUR 33.2 million and declined by [ 4.3% ], in line with softening markets.

Next slide, please. EBIT by the quarter that we have also been commented already.

We delivered EUR 6.4 million in the second quarter compared to a loss of EUR 12.5 million last year. So a significant improvement of EUR 18.9 million despite lower revenues.

We could also have add on the first quarter, and so the first half of the year, we delivered an EBIT of EUR 16.5 million versus a loss last year of EUR 8.9 million, so more than EUR 25 million improvement. So if you stay on the second quarter, even though last year was negatively impacted by impairment of non-current assets and provisions for onerous contracts in the Driveline business as well as other one-timers.

We do see the cost reduction program that was initiated last year is yielding positive results and compensate for lower revenues. Next slide, please.

The EBIT bridge between the year -- between last and this year, we see that the largest year-over-year improvement is in our other operations. The non-core business with EUR 13.6 million, whereof EUR 10.6 million was the negative onetime effects from impairment and onerous contracts last year.

In addition, we had in the quarter a EUR 3 million operational improvement, benefiting from write-downs made and from cost reductions despite lower revenues of EUR 6.2 million. In DCS, EBIT improved year-over-year by EUR 4.8 million despite lower sales of EUR 10.3 million, thanks to favorable product mix, cost improvements in the variable cost and other operational costs as well as lower warranty expenses than last year.

In FCS, EBIT declined by EUR 1.5 million on flat revenues versus last year. And you've also heard that last year FCS got a customer reimbursement with retroactive effect, which impacted positively while operating improvements in this quarter was offset by a negative product mix.

The EBIT from foreign exchange rate and other is positive year-over-year by EUR 2 million and is an effect from cost savings in corporate functions. So next slide, please.

The net income bridge in the second quarter improved by EUR 25.4 million versus last year. We have already commented the improvement of EBIT of EUR 18.9 million.

In addition to that, our net interest expenses are relatively unchanged versus last year. We have other financial items, which are negative by EUR 1.4 million, whereof EUR 1 million is the remaining unamortized arrangement fee on the old bond that we now have repaid and therefore had to expense that arrangement fee in the quarter.

Currency was positive by EUR 7 million, which is a currency gain largely unrealized this quarter of EUR 3.5 million versus realized exchange rate losses last year in the same range EUR 3.5 million, so in total plus positive EUR 7 million. Taxes are lower than last year by EUR 0.7 million, despite that we this year have paid the withholding tax related to a dividend from a group company of EUR 1.3 million that we did not have last year.

Second quarter last year, we had deferred tax assets losses on -- that we could not recognize of EUR 3.7 million. So next slide, please.

So the free cash flow, second quarter ended at a negative EUR 4.4 million. And as you've heard, it includes EUR 4.5 million interest payment on the old bond notes, which was paid in June due to the repayment of the bond.

And in previous years, the interest payments on the bond was done in the third quarter. So if we would consider this, we would have a positive cash flow -- free cash flow in the second quarter.

And we want to assure you that we have a very strong focus on delivering positive free cash flow for the full year. We are working hard on that, including optimizing our working capital.

Next slide, please. Then we come to the liquidity development.

Our liquidity by end of the second quarter was EUR 100.8 million, and that consisted of EUR 85.8 million of cash and cash equivalents and a rollover credit facility of EUR 15 million. At the end of the first quarter, the liquidity was EUR 202.7 million, which means that when we have a reduction during the quarter was [ EUR 102 million ], and the bridge shows this development in detail.

And the big change is the repayment of the old bond notes, EUR 190.2 million, which has been replaced by the new Nordic bond notes of EUR 108 million on net of fees. So if you walk through that the -- from the left to right, we have, firstly, the breakup of the operating cash flow with positive EBITDA of EUR 13.5 million.

We have changed net working capital that was negative in the quarter of EUR 7.2 million, primarily related to an increase of accounts payable. Tax payments was negative EUR 4.4 million, which includes and is withholding tax payments on intercompany dividend, as I mentioned before.

And we have other operating items, which are positive EUR 6.8 million, which are cash flow positive changes in other balance sheet items. Cash flow from investments was negative EUR 4.1 million in the quarter.

If you look at the cash flow from financing activities, it's been a busy period this quarter. We have drawn EUR 25 million on our account receivable securitization facility.

We have the bond replacement, as I just mentioned before. We have interest on the old bond that also have been mentioned that was repaid EUR 4.5 million.

And we have interest and repayment of lease liabilities of EUR 3 million. Currency and translation effects on cash flow was negative EUR 1.2 million.

Our external credit facilities have also been reduced, as you see in the second last column, by that we have drawn on the ARS with EUR 25 million and that the revolving credit facility has been reduced from EUR 30 million to EUR 15 million. However, it's completely undrawn at the end of the quarter.

And I would also add that the available liquidity is satisfying for the present business needs. And as we will see on the next page, some of our financial ratios have clearly improved with the actions taken during the quarter.

So next slide, please. So financial ratios, we have the leverage, net interest-bearing debt.

So our loans less our cash in relation to EBITDA results for the last 12 months, and you can say this is a way to express how long it would take us to repay our debt, and 1.7 means it takes 1.7 years with the earnings we have. And compared to last year's second quarter, the net interest-bearing debt has increased due to negative free cash flow during the last 12 months, while the EBITDA results has improved.

The equity ratio has improved quite strongly, 3.4% to 34.3% by the fact that our balance sheet is reduced then by the refinancing done in the quarter. And finally, the return on capital employed, that is then the EBIT for the last 12 months in relation to the average capital employed, that is 1.7%, which is a weak number impacted then by weak results during the second half of 2023.

And if you look at the capital employed, it is stable during the period. So with that, I leave over to you, Linda.

Thank you, Christian. So let's move into the chapter guidance and reviews starting with the group news.

In June this year, we successfully completed the issuance of the new Nordic 4-year bond notes amounted to EUR 110 million, which allowed us to fully refinance the old eurobonds. This will keep our interest costs at a similar level, like with the old bond, which is part of meeting the financial targets outlined in Q1 2024.

In the second quarter, we successfully held the Capital Markets Day where we confirmed our financial ambitions for 2028 of revenues for our core business above EUR 1 billion and EBIT margin at or above 8.5%. We emphasized the significance of innovation and continuous improvements and the strategic aims to become a technology leader within our core business areas.

In the second quarter, we also released our 2023 Sustainability Report. One of the significant highlights was that KA achieved its best safety performance in the past 10 years with only 9 reported injuries.

We have also successfully improved our CDP climate change rating to a B- score. Additionally, our Ljungsarp Sweden plant has become the first plant to operate with zero Scope 1 and 2 CO2 emissions.

Furthermore, we have reestablished the company's headquarters in Kongsberg, Norway and operates now out of Kongsberg going forward. Last but not least, we held the yearly Annual General Meeting on May 30.

Activities coming up in the second half are continuously running are listed on the right-hand side. A new breakfast meeting is planned to take place in Q4 this year, time and place to be announced at a later stage.

In line with our cost optimization program, we continue to evaluate our current footprint as well as offshoring and relocation to countries and areas with lower costs. We have high ambitions to continue to lower our cost base and are on track to deliver on our promises.

We have introduced Hoshin Kanri, our policy deployment, which focuses on strategic planning that aims to set the high-level objectives, which is then cascaded down to every function in the organization. This process aims to get every employee pulling in the same direction at the same time.

As part of our strategic work, we have evaluated all our product areas, and we have ended up defining 5 key product areas, from regulations as well as megatrend perspective, considering the 4 elements: electrification, autonomization, safety and sustainability, we are well positioned in all those 5 key product areas. Moving into the next slide and guidance.

As mentioned throughout this presentation and our quarter 2 report, we have recently observed further volume reductions in our customers' production programs in Europe and Asia, amplified by the general weak economic climates. While the commercial vehicle market in North America remained stable in the first half of this year, it is weakening in the second half of the year due to economic uncertainty and the upcoming Presidential elections.

Based on these recent market developments, we are adjusting our 2024 full year revenue guidance to the range of EUR 790 million to EUR 830 million. We are, of course, adjusting all our variable costs.

However, in the manufacturing industry, you have significant fixed costs, which in the short term is not possible to adjust to the same extent. And this leads us adjusting our EBIT guidance to the range of EUR 28 million to EUR 35 million.

With a record high new business wins, we also need to consider building our path towards 2028 and ambitions released in our Capital Markets Day back in May. Based on the strong new business wins also in the second quarter, we are adjusting and improving our full year guidance to above EUR 1.5 billion and book-to-bill ratio to above 1.5.

As a last note, I would like to emphasize that our improved performance during the last year makes me confident that we are heading in the right direction. Our continued success is due to the dedication of our employees who are committed to delivering quality products to our customers and collaborating to strengthen KA's competitiveness.

And with that, we conclude our presentation and we move over to the Q&A session. So Therese, please take it from here.

Thank you, Linda, and Christian. We will now open the floor for questions.

We will take as many questions as the time permits. Our first question is, what are you doing to offset the effect of declining volumes in customer production programs?

I will give the word to you, Linda.

I can start there, at least. And as I just mentioned a couple of minutes ago, we are, of course, making sure that we are taking out all the variable costs and adjusting in accordance to the weakening in the top line.

But as I also mentioned, we are in the manufacturing industry. And with that, we also have significant fixed cost elements, which is hard and challenging to adjust in the same extent on a short-term basis.

But this is, of course, something we are looking into, and we will continue fighting for that as well and ensuring the best possible outcome for the full year.

Next question. When will this year new business wins materialize in revenues?

Maybe I can start there as well. I mentioned also in the executive summary and also message that we repeated throughout our Capital Markets Day that if we look into the order book we have, we have secured about 85% of our anticipated revenues in 2026, and we have secured about 70% of our anticipated revenues in 2028.

We have also showcased in previous presentations, a little bit about the cycle, how it functions in our industry. And normally, when it comes to those programs from the nomination and our award until SOP, it takes between 2 years to 5 years.

When that's being said, as I also mentioned, and the gear control units that we announced on April 26th, and also highlighted here today, the big extension of EUR 523 million of lifetime revenues is a program that came into effect already second half of this year. So it varies somewhat in terms of being new programs or extensions of existing ones.

Next question, what are the drivers of expected upturn in the global CV production in 2025? Maybe you can touch based on that question.

No, I think if you look at -- I mean, commercial vehicle market is certainly cyclical. It transports, it relates to trade and how much we consume and how much of manufacturing activities you have in the world.

So it's certainly cyclical. And if you look at the 2025, it's like a 5% uptick versus '24, where we have a 5% downtick.

It means more or less that you go back to 2023 years level. So it's not -- I think this is part of it.

It's a cyclical business we are in. So I wouldn't say that there are particular drivers with that.

Sometimes you can have, of course, legislation coming in that impacts the market that you have some prebuy before you get new legislations in. But as far as I know, it's not on the global scale, it's nothing like that.

It's more than normal cycles. We expect some better business simply, economic climate in the world with lower interest rates.

And hopefully, that can come in 2025, supporting this development.

Also a question for you, Christian. Can you explain the decrease in amounts payable in this quarter?

When do you expect the net working capital ratio to return to normal?

No. I mean account payables is, as you know, of course, when we have a bit of a softening market, we order a bit less.

So that's one, let's say, business-related factor in it. Then it is a question about payments.

And I wasn't here by end of last year's second quarter. It depends also end of the month, if it's on a Friday, if it's when you have your payment runs and so on.

But I mean, we had higher account receivables end of last year's second quarter than what we have now. So -- and I would say normal -- we are not abnormal either.

I mean -- but certainly, we see that we have improvements to be made. I mean, we are working very hard to optimize the stock levels.

We are working very hard to collect our receivables, of course, somewhat more difficult in these times, and we are -- want to adhere absolutely to the payment terms with our suppliers. It's important.

Next question is on guidance. Within which end markets do you see the most volume decrease and slower-than-expected recovery?

I would repeat it. On guidance, within which end markets do you see the most volume decrease and slower-than-expected recovery?

Yes. I mean, the guidance, as Linda has commented, it is revised downwards based on the decline in volumes that we have seen in Europe.

I mean, Europe will continue to be weak in the second half of the year. If we not -- we don't -- at least the information we see, it will not decline dramatically from now.

It's already declined, but it will not improve either. North America will weaken now, I mean, compared to the -- what we have done quite well, as you've heard, we've been on programs that has performed well in the market, but we see some declines in the volumes in North America for us.

So that's the main regions for us, simply those 2.

Next question is related to new business wins, across how many years are revenues from the win spread out? And when will the first revenue being seen?

Just to repeat also a little bit what I just said also and the life cycle that we have been explaining a couple of times in previous presentations. So it takes about 2 years to 5 years, normally for a new program from the award until it's up in series production.

You have a ramp-up phase design validation between there, and that's the normal average. Clearly, you have deviations depending also on what kind of markets.

Trailer is a good example where you normally could ramp up something in 6 months from an award. So it depends on the end customer and the program itself.

Then we have extensions such as the gear control units that mentioned as well in today's presentation, where we go directly then from an extension existing program, and we continue to deliver and that will have an impact already then in the second half of this year. In average, I would say we are 5 years to 6 years normally on a program.

It depends also commercial vehicle normally running longer than passenger car in terms of their life cycles.

Next question. Could you indicate when the ramp-up of the new business wins first half will progress?

I guess, we have touched upon that.

I think that's a little bit of a repetition. So a portion of it is already in play with the gear control units.

And I would say, the remaining part then following the normal life cycle in our industry.

Question related to guidance. How will you change guidance play out during Q3 and Q4?

You -- what did you say, how will you...

How will you change the guidance play out during Q3 and Q4...

I mean, I guess the question is some kind of time facing off, and what it impacts in Q3 and Q4. We don't have an answer.

We cannot give an answer on that today. I mean, we see obviously the decline coming, and we are adjusting accordingly.

So -- but we cannot give you an EBIT number for the quarter, let's say.

Exactly.

We see how it turns out.

And then just to add in then. So we are flexing out our variable cost, as we said.

And then the fixed cost is, of course, a bit more of a challenge, and that's something we are working on as well to follow them. And then it's also, as I mentioned, with the high new business wins and bookings that we've had now and our ambitions towards 2028, it is important that we don't forget what we also need to do now, especially from an engineering perspective to make sure and ensure those programs and the launches in the coming years.

I mean on that quarterly split also, I think you're aware that quarter 3 is a weak quarter. I mean, we have the vacation period.

I mean, if we are European having like we are as a company in our portfolio and European vacations are primarily in the third quarter. So it is a bit of a seasonality in that underlying that you need to be aware.

Good. Are you affected by inventory correction in the supply chain in any of your segments?

I mean, in generally, what happens in an industry like automotive, I mean, you have your, let's say, normal levels in the different steps of the value chain. You have your -- the OEMs have their inventory levels, they have their dealers.

And of course, if you have a change in the market, this whole thing adjusts and it comes back then to us has a, let's say, supplier. And in our case, we will communicate that back to our suppliers.

And then, of course, it depends on how fast the whole chain are adopting to that and how it looks. And we don't have the full visibility out, of course, in the dealerships of our customers on cars and trucks side.

But I mean, yes, the answer is yes. We are part of a value chain, a tight value chain and it impacts us also, yes.

Next question is related to investments needed for new business wins. What kind of investment do you need to implement to handle new business wins?

I would say, first of all, a big chunk of the investments that we are doing now is for the growth and for new programs. And the level that we have had, I would say, is pretty stable over the past couple of years is also what we are anticipating going forward.

So I don't know if you want to add anything there.

So maybe the question is also what type of investments. I mean, if you are in -- which we are, I would say, to the large extent in technology areas where -- which we know and business that we have, and we are getting, let's say, new businesses with the products we have.

I mean, you have tooling, you have engineering, you might have some machine to have increase the capacity. And this all you bake into the business case before you quote and you go after the business.

So there are certainly some investments to win new business. But it's not to build completely new factories.

We have there a footprint we have. We have -- we know what we do.

We have to adjust to see to that we utilize, maximize the utilization of what we have. And then additionally, we have to, of course, adjust for capacity if needed.

Question here, I think, in some ways has already been answered in ways talking about new business wins. But the question is, on average, how long does it take to translate order intake into revenues?

And it's -- as we have already said, it depends on the program. But normally in the automotive industry, it will take 2 years to 5 years from an award until we go into series production.

But you can have short-term periods as well, especially on extensions.

We have a question here related to what is the minimum level of liquidity required to run the business? Are you comfortable with the current levels?

Yes. As I commented already during the presentation that we are comfortable.

I mean, it all relates to the business. But I mean, it's quite well, let's say, set for that business we have now.

If we would come in a situation where we would acquire a new business or we would have some significant like we talked about on investments, some significant larger investments to be made. Of course, we have to reconsider that.

And that's all for now, we are fine, absolutely.

Next question. Can we accept new contracts to have higher margins to achieve our goals of at least 8.5% by 2028?

I think we have been touching based on this also in our Capital Markets Day as well as also for the road show we made in June. And clearly, our first priority focus area is commercial vehicles.

That's what we said. We feel is the stage we want to really grow.

We had 90% of our wins now in Q2 that is supporting that. And a big chunk of the business that we have been booked.

And as I mentioned, 85% anticipated for 2026 and 70% anticipated for 2028 revenues. A big chunk of that is into commercial vehicles.

And with that in mind, and of course, then the length that we've been discussing a couple of times from award into SOP, that's also then how we are anticipating building the bridge from the current state to our ambitions for 2028.

It's a question here related to cash flow and debits. How do you plan to address the negative free cash flow and increase debit?

Yes. I mean, the increased debt, yes.

So I mean, there is no miracles in this. It is to make more money on what you sell and it is to minimize the capital needed to run our business.

And that's the 2 areas it's all about, and that's where we are focusing in our daily operations. And it sounds, of course, easy, but it's a lot into that.

If you look at the supply chain just in time one within automotive, but that's what it's all about. And for sure, we can confirm that we have to see positive free cash flows in this company, absolutely.

Could you please comment on your current cost structure, fixed and variable?

I think we have commented already, clearly, in terms of the variable cost side, that's something that you need to flex also with your revenues going up and down. That's also what we are doing.

In terms of fixed cost is a big chunk of being in the manufacturing industry, as we said, that is an element. And it's, of course, more challenging to flex that up in the same extent as you do with the variable.

But that is something that is being considered. And as we also said, the cost optimization program that we launched in October last year is, of course, also now benefiting for us in a weaker market situation supporting us as well in the coming months.

No. And I mean, you can always say in the school book that all costs are variable.

It depends on what time horizon you have. So, but if you have a quick adjustment on volumes, it's more fixed in the short term.

But on long term, you should, of course, see all your costs as variable. And I mean, you have -- it's a white collar positions.

We always have to evaluate and you have seen, we've taken out what color positions in this company structurally. It is -- we need machines.

We need buildings, and it's -- we have to optimize that. So it's not -- and that we always have to question.

I mean, are we optimal in what we have? Could we reduce number of sites?

Could we work on this? And that's what we do.

I mean, same comes for offices and other, let's say, fixed locations.

Next question, how do you plan to deal with the future one-off effects? And do you expect any such in the coming quarters?

How to answer on that one? Clearly, we are monitoring our business in the best possible manner.

And there were clearly related to our non-core business last year, both midyear and end of the year on the impairment and onerous contracts that was impacting last year as well as on warranty side. And I would say that, that trend line is not -- has not continued in the same way in 2024.

And what else to say, Christian, in terms of...

No, I mean, I don't have. I mean, obviously, we don't sit and plan on one-timers let's say that we don't do.

So -- and you have also seen that there has been -- I mean, there has been onetimers in the past and one way to show it is to have a reporting in adjusted and non-adjusted results. And now we are focusing on the bottom line.

So -- and then it can be an explanation, of course, if it happens. But I mean, yes, we don't have plans for that, at least for now.

But of course, if there will be, for example, like we talk about the structural change in our manufacturing footprint for various reasons, I mean, there might be onetime effects to do that, and that will be communicated to you as part of the decision. And then we have to defend that this is a good thing for you as shareholders.

Next question is related to book-to-bill. With a record book-to-bill of 2.1, what measures are you taking to ensure that you can meet demand effectively?

I think we have answered that out in the different questions already raised. And Christian also mentioned in terms of -- we spoke about investments, which I spoke about our footprints, and we feel confident that we have the footprint that we need to also then handle what we have in our book-to-bill over the coming years.

But that's something we need to then also find a good balance on where do we have potentially free up space and how we utilize that going forward. And as we said, we don't see any significant upticks in our investments in the future years related to the new programs and wins that we have taken on.

Let's jump to next question. Is there any specific strategies that the company is having related to buying company's shares?

We have had a couple of share buyback programs. The last one was running out, I believe, in March, April this spring.

As of now, that was an initiative by the Board and to be set. And as of now, we are not aware of any new programs being planned and initiated by the Board.

If that could come up in the future, I leave that open. But as of now, there are no plans.

We have a question, what level on FCF, do you expect in full year 2024?

Free cash flow?

Free cash flow. Anyone so answer that.

No. I mean, it's been communicated that our target is to be positive for the full year.

And we have repeated that we are working very hard to -- on the free cash flow. We have commented this several times, but I don't have -- I cannot give you a forecast for the full year today.

But that's our aim. Our target is towards positive free cash flow.

We have one question related to efficiency. Is there any examples in terms of efficiency measures that has been done in the last year?

What did you say now? Can you repeat?

Efficiency measures.

Efficiency measures...

How have you improved the operational efficiency?

Yes. Okay.

We mentioned as well that we see also an improvement on operational KPIs and also as part of our optimization program last year, that is also impacting on our operations to optimize that even further. I think on other parameters to be mentioned, scrap as one example, also improving.

So what we see is a general then improvement versus what we had last year on our operational KPIs.

I have one question related to Chassis Autonomy. Is there any new development in collaboration with Chassis Autonomy?

Chassis Autonomy is related to the steer-by-wire solutions as well, and we are closely monitoring the operational and technology developments of Chassis Autonomy as well as the market for the autonomous driving that those applications are developed for.

That will be our last question today. For any additional questions, please reach out to our Investor Relations mailbox.

Thanks to Christian and Linda. As we come to an end of the call, I would like to thank you all once again for joining us.

We appreciate your support and interest in Kongsberg Automotive. This concludes our earnings call.

Thank you, and goodbye.

Thank you.

Thank you.