Kongsberg Automotive ASA (K3A.F) Earnings Call Transcript & Summary

So hi, everyone, and welcome to today's Capital Markets Day to our headquarters and tech center here in Kongsberg. Before we get started on today's presenters, and this is today's agenda and the agenda up on the screen visible for everyone to see. So with that, I will give the word over to our Chair of the Board, Olav Volldal.

Thank you, good to see all of you. Some of you might know that I have been with the company for a few months before -- I'm sorry, 25 years from '85 to 2010, I was the CEO here. And now I'm back as the Chair, which was a surprise to me. So shareholders are responsible for appointing a board with suitable skills, motivation and execution ability. On behalf of the company, I acknowledge Arne Fredly for initiating substantial Board changes last year. And the mandate we got was very clear, bring KOA back to their roots, apply principles, the working procedures and structures that worked well in the past and at the same time, adjust to a different environment. And do not forget practice, the values that KOA used to be respected for and that Kongsberg be the headquarter, not only on paper, but in reality. Based on what I have experienced after I took over the Chair, my judgment is that the company was saved by Arne Fredly and all the other shareholders that supported him. Selecting the right CEO is arguably the Board's most crucial responsibility. And on behalf of the entire Board, I want to express gratitude Trond for stepping up to lead and to Erik as well. Having known both of you previously, you have exceeded my high expectations. You are deeply knowledgeable about our business, dedicated, passionate and embody our core values. We have made many changes, including cost-cutting, restructuring, reinitiating effective procedures and practicing accountability, just to mention a few. While there is more to do, this is a strong beginning. The company succeeds only by being the top choice for the customers, offering quality products, services, cost efficiency and innovation. And the main purpose for this day is to show you some of the products that will give us profitable income in the years to come. I am excited about the future of Kongsberg Automotive, and I feel confident that you all will be after sharing this day with us. So thank you.

Thank you, Olav, and welcome to everyone. It is a great pleasure to welcome you to Kongsberg Automotive's headquarters and Technology Center here in Kongsberg. This is the birthplace of many bold ideas and decisions that has shaped this company. The story of Kongsberg Automotive is about ordinary people who dare to think differently, who took bold, calculated risks, who innovated and work together to create an extraordinary company. From humble beginnings in Kongsberg more than 65 years ago, Kongsberg has grown into a trusted and leading global automotive supplier. This is a legacy that reflects a strong performance-oriented culture defined by resilience, innovation, strong work ethics and commitment to excellence. In a highly competitive automotive industry, success does not happen by chance. It's a result of long-term systematic efforts built by those that believe in a vision and have the courage to seize the opportunities and also are able to see those opportunities in an ever-changing landscape. And today, the pace of change is faster than ever. But we will embrace change, we will not fear it because change brings opportunities. And we stand ready to write the next chapter of Kongsberg Automotive, one that honors and builds on the remarkable legacy and that will shape the future of the company and create value for all stakeholders. So I'll give you an introduction to Kongsberg Automotive. I think most of you know it. I will not go into all the details, but it's good to take a new fresh look at where we stand today and how the business looks like. We will talk a bit about the history and the recent history and the challenges that we have seen and what we have done recently. And then we'll talk about the strategy process that we have been through and the new strategic targets that we set, and then we'll talk about how we're going to achieve those targets. That also includes the products that Olav mentioned. So we are in the business of automotive. We are global. We are serving all key vehicle segments, and we are trusted by leading vehicle manufacturers around the world. We are serving passenger cars, commercial vehicles, construction equipment, agriculture and also some other segments. We deliver our products globally to customers where they are located across multiple regions, bringing innovation and our products close to where the customers are. Today, we have a run rate of EUR 730 million in turnover. This is the last 4 quarters, Q4 '24 to Q3 '25. We operate with a global workforce of around 4,400 people across 22 plants in 17 countries on 4 different continents. Simply put, we are where the automotive industry is. Most of our plants are located in Europe and in North America, which is also where the majority of our revenues come from. Our headquarters returned to Kongsberg last year, where they truly belongs, and we have been listed on the Oslo Stock Exchange for around 20 years. We have 2 business areas that I'll talk about more shortly. We develop and offer quite a wide range of products, I would say, world-class products for many -- for the different vehicle segments. I'll go through them here on a high level. In general, our products, they are high-performing products. They are reliable, they are customized and they are cost competitive. For Commercial Vehicle segment, we offer 4 main product groups: actuators to the left. These are precise, reliable, durable gear and clutch actuation products, ensuring smooth and efficient powertrain control. We have vehicle dynamics. These are advanced products that enhance stability that provide safer and more comfortable driving and provide system benefits like weight reduction and total system cost reduction. We have fluid transfer system. These are solutions for transporting a critical fluids in the vehicles like fuel, coolant and air that guarantees durability and efficiency during quite demanding conditions, including heats and vibration. We have air couplings, which is an industry-leading system for brake systems, delivering reliability, safety, ease of maintenance in heavy-duty trucks applications. We'll talk more about actuators and couplings during the product presentations. These are 2 of the areas where we do believe that we are very competitive, and we have a bright future. For passenger cars, we have 3 different our main product groups. We have Driveline, which is advanced gear shift systems, both for manual and automated transmissions. More recently, we also developed actuators that are high-performing, precise and durable and efficient actuators for passenger cars, which is also highly relevant for electric vehicles going forward. You have fluid transfer system, which is similar to the commercial vehicles, assemblies that transport fluids like especially fuel and also air and hydraulic for passenger cars. And recently, we have added steering and Steer-by-Wire, where we offer our cutting-edge technology that replaces traditional mechanical steering systems. We will -- and the steering system is our latest addition. This is the result of the acquisition that we did earlier this year of Chassis Autonomy. And this is also a product line that we will talk more about during the product presentation and go into more details. On off-highway vehicles like tractors for agriculture, construction equipment and also some recreational vehicles like golf cars, we offer different product lines. We have fluid transfer system similar to commercial vehicles and passenger cars. We have couplings, although a smaller scope than on trucks. The main product lines we find in the business unit Controls, where we have the mechanical steering columns, and we have the pedals and throttle controls, and we have also here a line of electric actuators. Looking at the market, KA's core markets are in Europe and North America. They represent together 85% of our revenues. By customer segments, its commercial vehicles, which is our largest segment, representing 56% of our revenues and passenger cars around 31%. This is based on the last 12 months. Important here is to note the commercial vehicle segment in Europe. This is a very important market segment for us. This represents almost 1/3 of our revenues, and this is typically a market segment we pay close attention to. We also have an aftermarket business that is important for us that represent around 5% of the revenues. I think we can say here, we have -- the numbers show where we have the strongest value propositions and where we have been successful and it's also an indication where we do believe that in the future, where we have the strongest potential to grow. If you look at our customer base, starting with the commercial vehicles that is the main portion of our business. We do have the 4 large truck, let's say, constellations. It's a Volvo Group. We have TRATON that consists of Scania, MAN, International and Volkswagen Truck & Bus. We have Daimler and we have PACCAR. So these are 4 very important customers for us that have been leading truck makers and that we also expect to lead in the futures. These are key targets and strategic customers for us. Then we have several other customers that are important for us. We have Iveco. We have Tata and Ashok Leyland in India. We have Chinese truck makers like Foton, Dongfeng and FAW. We have Japanese truck makers like UD Trucks and Isuzu. And in Korea, we have Hyundai, then we also have important Tier 1 suppliers like Knorr-Bremse, Eaton, Cummins and ZF. On the passenger cars, you see some of our important customers like Land Rover and Jaguar. We have Volvo Cars, BMW, Volkswagen, Hyundai, Tesla. We have Stellantis, which consists of the brands, Fiat, Chrysler and Peugeot. And also in this segment, we have important Tier 1 customers like Martinrea, TA Automotive and Cooper Standard. On off-highway, we are working with the leading OEMs in that segment. We have Caterpillar, AGCO, Volvo Construction Equipment. We have John Deere, JCB, CNH Industrial, and we also have a significant business with Club Car that is making golf cars. So that was a snapshot of KA today. It's always good to take the big picture when we are looking at our strategies and our plans going forward to see where we're coming from. So if you look at our history, as mentioned earlier, we started in more than 65 years ago in 1957, starting manufacturing of brake components for Volvo Trucks. In 1987, that's when Kongsberg Automotive was established and the management buyout led by Olav was made and from back then, Kongsberg Våpenfabrikk. And during a period here, the company grew through several strategic acquisitions, including Raufoss and the Couplings business we have still today and also through greenfield expansion with new production locations in countries like Brazil, Mexico, Poland, China and India. In 2008, the company acquired a company that was twice the size of KA. This was a big move and transformed KA in many ways. It was acquisition of Teleflex. That was followed by the financial crisis, which was quite a big challenge. And then the period, I would say, of consolidation for the next 10 years or so with some organic growth and some new innovations, but the business was kept as it was. With the pandemic, there were some challenges again. And in 2022, there was divestments of interior systems, light-duty cables and also a part of the Canada or the operations we had in Canada. And with refocus with, I would say, with mixed results. We do see a declining trend that is driven very much by a bit more challenging market situation as well. What we have seen is that over the last few years, combined with a more challenging market situation, the company has been facing several challenges. And without going into much detail, we do see that there are several reasons for that. You had a structure and a setup that was not very effective. We have seen execution that has not been on the level it should be. We have seen a performance or lacking of performance-driven culture, and we've also seen overhead cost that is much higher than they should be. This is not something that is just for the last few years. I think this is something that has developed over a longer period of time. And these are factors that clearly has led to weak financial performance and all the value for the company and for all stakeholders, including investors. You see, although not necessarily comparable because some of the results there might include the business that was divested, we do see still the performance has been very weak over the last few years. This is what we're addressing and also has caused many of the changes. Starting, as Olav mentioned, with changes in the ownership. And together with many of the shareholders that are also here today, you saw the new board of Directors with Olav in the lead as Chair. Bård Klungseth is the Deputy Chair, and I also brought in with previous experience from KA. And I would also say that on the Board of Directors, we have also some other changes with fresh perspectives, including that is here today that is really adding a lot of value to the team. I started myself in April as a CEO. I have also previous background from KA, 10 years, leading one of the business areas for a while. Erik, as mentioned, has come in, in June as CFO with also previous experience from the company and other very relevant experience as well. And then latest, we have Thomas Danbolt, who came in now in October. He also knows the business well and has previous experience from managing the very important plant, Raufoss, for a couple of years. So this is a team that is very much aligned on several aspects. We have a deep knowledge about the company, about the industry. I would say we have proven execution capabilities. We have a very strong determination and a personal commitment to create long-term shareholder value. And very importantly, we do believe we really understand what it takes to make KA successful. So going back to our roots, we have to look at KA's business concept and what is it that made KA successful in the past. This is a concept that I believe Olav was developed by you in the 1980s, and it remains just as relevant today, of course, with minor adaptations, but this is -- the essence is the same as 30 years ago. And it's built on 4 key ingredients. It's the performance-oriented KA culture with the right people, with the right mindset and the right values. The second is the unique products and solutions that deliver significant customer value that, of course, is key in order to be able to create value and have unique offering in the marketplace. And then the third element is the market segments, attractive market segments where we can grow. Preferably those market segments are growing or there is space to grow in those market segments, and we want to be recognized as a leader. We want to be invited by our customers to the table when they are looking at new developments and being a recognized leader in the segment is important. And fourth and also very important is the cost efficiency, which is essential to be competitive in your offering, but also, of course, to be delivering financial results and have a healthy financial situation. All these elements coming together, that's where we have the long-term value creation potential for KA. So this is very important for us and is our loss when we are making decisions and making evaluations. Key business decisions, strategies are based on this concept. So when we make changes, we start from the top. So starting with the shareholders, the Board, next level was management. So when I came in, in April, we looked at the structure and the team, and we did see back then very clearly that we had to make changes. So what we did in end of May is to make a change from very functional structure to a more business area-oriented structure. So the corporate functions were either eliminated or scaled down or merged and key functions like sales and purchase, they were put into the business areas. In the past, they were outside. So holding business areas accountable for the results when they didn't control 100% of the sales and 50% of their costs, that was not a successful formula. So we put them into the business areas. For this is -- we do now have two business areas that have full control of the resources. They have full business responsibility, full P&L responsibility with all the functions integrated. Looking at also the team, we made significant changes in the team. There are 12 boxes to the left and counting this morning, 9 of them are no longer a part of the company. So the changes is not only the organizational structure, it's also a change in the team. There was a need to change mindset. And then the ultimate goal here is clearly that we want to have a structure that is supporting the culture and a performance-oriented culture where you can drive accountability and ownership with an ultimate goal of creating value for all stakeholders. Recently, over the last 1.5 months, we have taken another step. We do believe that we need to sharpen the focus even more on our business to have an even more detailed strategies for each part of our business. So you see the 2 business areas, Flow Control System and Drive Control System. We have now 8 different business units below them, 3 of them in Flow Control System and 5 in Drive Control Systems. Each of the business units have the responsibility to deliver their strategies and implement them successfully. And we're doing this without adding, let's say, more overhead and we're trying to put as much as possible of the resources inside the business areas and the business units so they control their business. And we do believe that this is key in order to have more detailed strategy and more detailed plans. We also believe that this will give us more speed and more agility, which we believe is important in a fast-changing environment and that we will be also better at serving our customers. It's also about empowering the teams, drive focus and ensure that all the decisions we're making are moving KA to an improved profitability and growth. So with this, we do believe that we are on the right path. We do believe that we are in what we can call an inflection point toward an improved trajectory when it comes to financial results with a new leadership driving change. The turnaround program is ongoing. We do see some positive results. We have a new management team. We have also a more streamlined organizational structure. There is still a lot to do, but we are very focused on the execution. We're focused on performance. We have a disciplined cost management, and we're working to improve our operational excellence to deliver the financial results that we need. At the same time, we're investing selectively in innovation and growth and are working on several strategic initiatives that will create value for us in the future. And some of these developments we need to accelerate. We need to be even closer to our customers to be able to accelerate the development. And then important also, we need to become leaner, more agile and more customer-centric, so we can also be able to follow the market and have the speed that we need in order to be successful. Over to the long-term strategic target, and this is a result of a strategy process that we initiated back in June actually. We had several sessions with the Board of Directors and spent some time on really understanding our business, going deep into the financials, deep into our operations. This is still we worked on. So it's a continuous process. The focus we had until now is basically twofold. One, how do we restore profitability? And second, what are the parts of our business and what product area of the market segments that we really want to focus on. There is more work to be done, but I'll present here where we are today. And what we're presenting here today is based on facing the brutal facts and dealing with the reality. What we're presenting here is also targets and numbers that we are committed to. Let's start with profitability. We have set a target of 6.5% EBIT as a long-term target at the current revenue level. So it's based on the revenue level of EUR 730 million. It's based on the current run rate, which is the last 12 months, last 4 quarters that we have presented in the earnings calls. And it's also based on initiatives that we have identified. Some of them are in progress. Others are on the actual list, but they're all identified and we have it in our plans. The EBIT bridge here shows the contribution of each element of the plan. As you can see, they are very much about cost efficiency and improving our cost base. With all those implemented, we will have a target and a result of 6.5% EBIT. And if you look at the left -- the right side of the graph, we have illustrated that there is a potential for even improved results with an improved market. We have referred to 2023 level where we have seen a market that was more positive. It's very -- Well, there's a lot of uncertainties in the market today, so it's hard to predict. So that's why we have not quantified this portion, but it's definitely something that we are going to chase an improved EBIT also when the market is coming back. This is an upside. So it's a plan that is based on a very detailed assessment and understanding of the current situation and the reality of our business. There is a -- it's targets that are ambitious. It will require a lot of hard work, but we are very determined to succeed. And on the following slides, we will explain the plan for how to achieve these targets. Basically, there are 3 key elements here. One is the culture, I was talking about. This is key for us. We need to rebuild a high-performance culture. We are in progress, but we want to get this fully implemented in all parts of our business. It's also about restoring the processes and the structures that we had in the past. So of course, some of them modified to reflect the current situation. We're also thinking long term here by launching a graduate program and also the internal development, leadership development programs that we're launching next year to develop future leaders. The second pillar is to drive the cost efficiencies and operational improvements, which is the elements that I presented on the previous slide. And the third is about building our future and accelerating our innovation and growth. And we are working with this with a high level of urgency. We need to have speed and we need to be agile, which also means that we have to be close to our customers to understand their priorities in a landscape that is very well, uncertain. But as we said, we do believe that these uncertainties also create very interesting opportunities for us. Today, we will focus on 3 key product lines, which are the actuators for commercial vehicles, talk about air couplings, and we'll talk about the Steer-by-Wire systems. We will have a presentation here by Erik, our CFO, to talk about the financials, which is addressing the second pillar, which is about the cost improvements.

Thank you, Trond. For me, it's great to be back in Kongsberg Automotive after some years. And I think it's very good to see that, let's say, the cornerstone and the cultural foundation is still here. The purpose of the next slides would be to give more insight into how we're going to achieve the EBIT improvement plan and give you more understanding of that. And we have to position and structure this company so that it can be profitable and earn money regardless of what market we are facing, and we are in the process of doing that. The only thing we can really control is our own cost and efficiency operations. That's the only thing that we can manage ourselves truly. One key element of the EBIT improvement plan is the reduction in overhead and other fixed costs. You see the element of the fixed cost as we have defined it in the box on the left side here. And that's a mix of costs that are key to the operations and the management of the company and some costs, which are more overhead related nature. The target is to reduce the fixed cost in percent of revenue with 2 to 3 percentage points, as you see, and that will, on the present current revenue level, increase EBIT with EUR 15 million to EUR 22 million on a sustainable level, it's important to note that this is targeted net reduction after the effect of inflation and salary increase. And our ambition is also to maintain that targeted cost level when we are getting new and increased revenue. So that's our commitment, and we are fully committed to achieving that. So I think this cost reduction will be achieved through a combination of the already initiated cost reduction programs and also new initiatives that we have started. And I think that you see that we are also looking at all indirect purchases. For instance, we have just concluded a process in relation to the audit of the company, just one step, and I think our new auditor is here today. So I think the audit starts today. Yes, that's good. So we are looking at many effects here. And I think also the new organizational structure, which we will refer to several times with clear accountability and P&L responsibility for each leader will be one key driver of achieving these cost reductions. Achieving operational improvement is another key element of the EBIT improvement plan. And it is important to note that this is an ambitious target because to achieve this net effect of 0.5 to 1 percentage points of revenue, we first have to compensate and cover the customer price reductions that are normal in the LTA agreements and the effect of inflation and salary increase. And then this gross operation improvement, which we have illustrated in the bottom part here is the one that we are working on to give this net effect. And this is a truly continuous process that starts in the plant each day. And the plant manager and his team or her team will be much more important in the new structure and then will be part of the new business units with kind of a clear P&L responsibility. So this is one way to achieve operational improvement. It doesn't happen and managed by us here in the headquarter. It is in all the 22 plants that we have. And this will be followed in a structured way now with the business areas and the new business units that Trond showed. So -- this is one key element. Another is warranty cost is the third key element. And reaching the target that we have set of reducing this cost element with 1 to 2 percentage points of revenue, we will increase the EBIT of EUR 7 million to EUR 15 million. As you see on the box to the right, KA has historically been on an even lower level, which you can call -- which is kind of more a best practice in the business. Having said that, that is in a time when the company was somewhat smaller and less complex to say. But it's just to underline that we have been on these levels, and we're going to get back to that. And one of the key measures here is the implementation of improved execution of the whole warranty process. And that includes a very strong involvement from Trond as CEO, he is on top of managing all these key cases now with the new team. In addition to Trond, we have also another person coming in from -- who has been in KA for many years, who has deep experience with the warranty situation. As you can see from the comments to the right? It's more about the handling of the whole warranty process, the analysis, the contractual measures and, let's say, internal compliance, much more about that than the quality of our products itself. This is -- so this is something that we can as a new management team and with the new people that are already here can do quite a lot of work on -- without kind of -- we just need to be better internally and handle this more in a better way from start to finish. And then in the second -- the fourth element of the plant that builds us up to 6.5% EBIT margin on the current revenue level is the structural cost improvements that we have already implemented and have identified. And as you know, that KA has quite a significant global footprint today. We have operations in 17 countries with 22 plants. And as you have seen that we have already announced the consolidation in Sweden, where we are closing the Ljungsarp plant and moving those operations to Mullsjö. Those 2 plants are around an hour drive between each other. So it kind of makes sense from many perspectives. And that will be a good process also for us to learn, and we will learn from that to be able to do all the consolidation around the world. That is planned to be completed by Q3. We're also looking at the office structure and the closing of the Zurich office is aligned with the reorganization of the group and moving the complete headquarters back here to Kongsberg. And it's just not the lease, but it has also other cost elements attached to it. And we have identified several consolidation opportunities that we are looking at, at this point. So these 4 elements here are what they're kind of building up the EBIT improvement plan that Trond showed. And now we are turning our focus to innovation, R&D and the products that will give us continued growth. So with this, I'd like to give the word to Ivar.

Yes. Thank you, Erik. My name is Ivar Haug. I've been in the company 31 years these days. And last December, when I heard that all of us coming back into the Board, it was great news, in April when Trond started, even better news, more from set and others. And I'm visiting a lot of customers. In May this year, when I had a meeting with a big customer, they asked what is going on in KA? You're changing all the management. Is it a crisis? What's going on? I said this is the best news in a long, long time. So I've been through the whole journey. So I really like what I'm seeing. And it's a really good start, I must say, after being here so many years. Actuators, an actuator is basically a product that turns a signal into movement, linear or rotary. So actuators, this is one of the important and maybe one of the most important areas for KA. It has been for many years, and it is today and will be in the future. Now we'll have a small deep dive in 10 minutes about actuators. The focus will be on powertrain solutions for commercial vehicles, so basically truck and bus and other similar vehicles. We are actuating clutches, as Trond mentioned, gear shift and various other functions in a truck. So we'll start with a small movie showing some of our products from our history. Let's see if we can get this started. [Presentation]

So as I said, one of our core competencies is actuators. As you saw in the movie, we have been working on that for many, many years, electric pneumatic, also to some extent, hydraulic. And it's been a transition in the last years from manual transmission systems where we had to change gears itself, we had to operate the clutch with a pedal. That has been changing over the last years. And now we are facing also electric trucks. That's the next step, which is coming and partly has started. To the left, you see a typical combustion engine powertrain application where we have 1 transmission, 1 clutch, you have multiple gears, 12 to maybe up to 18 speeds that you need. And here, we have products, and we are in this market because of our unique solutions. We have been competing with bigger companies on us. We have developed unique high-performing products. For example, on the clutch actuator side, in the gear control unit here, we have a self-adjusting clutch mechanism that compensates for clutch wear and is the most fast and most precise pneumatic actuator in the whole market, developed and patented by us, and that made sure that we came into this market. It's also integrated in the gear control unit as all in one unit, which no one else in the market has today. In addition, we have developed an electric clutch actuator, the first in the market with this performance. Also here, we had to develop according to very tough requirements when it comes to functional safety, cybersecurity, full software electronic development and all the mechanical parts, so this has made us a significant player in that market. And it's very important to be on those platforms. If you are on that transmission, it costs in the range of EUR 300 million, EUR 400 million to develop auto transmission. That's not something that our customers do on a frequent basis. So if you are on, you are on for a long time. And if you are out, you are out for a similar amount of time unless you are able to get in. So these transmissions also live for a long time, both in production, typically 10, 15, maybe 20 years. And they also have to survive for a long time in the field, tough environment. This is a truck is a working space for people, and it's basically a business for many, many people around the world. So what happens when -- the goal electric. Still in a commercial vehicle, you need gears. Many of you probably have an electric car, there's only 1 gear. It's a reduction gear. There's not 2 speeds unless you have a Porsche Taycan and an Audi e-tron GT that has 2 speeds. It's all about trading off between a big electric motor, more copper, less complexity or more gears, which creates more complexity. And I think Elon Musk learned a hard way in his early Tesla that have multiple gears and he is now only running with 1 gear. What about trucks then? They have multiple gears. We see everything from 2 up to 8 gears. Typically, you have an electric axle, 1 or 2 of them, and you can have up to 4 actuators per axle, means up to 8 actuators per vehicle. So when we look at the revenue on the left side for combustion engine trucks, those actuators is a fairly good scope per vehicle. What happens then when you go to electric is not so bad. It's quite comparable due to the number of actuators and also different new functions that we are working on. So scope per vehicle will actually be quite good. We focus on performance, precision, durability, as also Trond mentioned, compact solutions to achieve cost efficiency. And again, very important to be on that E-axle. Same as the transmission, more or less same development cost, maybe EUR 300 million, EUR 400 million to develop that will live for a long time. So it's important to be on those platforms. And we are working with Tier 1s that are making E-axles or more transmissions or the OEMs and truck makers that have their own development of transmissions or E-axles. That's very important. We have very smart engineers, a lot of experience. We have a good mix of young and senior people in our team that complement each other. We fit our compact solutions in where it's basically there is no space. Still, we are able to find solutions. It's actually in a truck, even though it sounds strange, it's quite tight with space. So we have to be smart. We have to also make it fit into wherever it's needed. Quiet electric trucks, they also need quiet actuators. If you have a compressed air actuator, you have the exhaust air whistling noises from a quiet electric truck. It's not something we want or the customer want. So even though the first generations of electric trucks today are with pneumatic actuators for gear shift and the other functions there, we strongly believe that the next generations where it's more optimized solutions will be electric actuators. There are also new requirements coming when you remove the combustion engine, for example, in the truck, we heard from one customer that the heating in the cabin was under-dimensioned because you don't have the diesel engine anymore, creating a lot of heat. Also, when you have an E-axle, instead of a suspended transmission in the frame, all the shocks from a bumpy road goes directly into transmission and can cause other effects that we don't see today in the traditional vehicles. These are the things that we have learned together with our customers and are developing solutions that prevent jump out of gear, and we add also other functionalities into our products, so it makes the full system solution more optimized. Precise control, especially when it comes to electric versus pneumatic actuation, have got confirmation from one of our customers that have done quite a lot of testing in an E-axle that the wear of the transmission itself with more precise gear shifts with an electric actuator versus a pneumatic is significantly reduced. You can do quick gear shifts when needed when you go upwards full load 50 ton, need to have quick gear shift to have a high average speed and electric actuation with precise control from us has a much better performance than the solutions out there today. In addition, we have, of course, electric cars are comfortable to drive, same with electric trucks. And there is a shortage of drivers around the world. So when you have a very comfortable truck to drive, it's easier to find people to drive them. So what happens in the market? As you see up to the left, the emission targets from the different countries, for example, in EU by 2040, have to reduce it for 90%. This is a tough requirement. Things seem to take more time. We read in the newspapers on a daily basis almost that Ford, for example, changed the strategy when it comes to electric cars, Porsche, the same. They are introducing again combustion engine vehicles, even though they announced some years ago that by 2030, no more combustion engine. That's not happening. Also the same in the truck side. So there are truck makers that are lobbying in EU, and I believe they will renegotiate these targets, set new targets and the combustion engine will live longer. Down to the left, you see an example from Volvo. Far to the left, the dark color battery electric vehicles. So basically lower mileage, lower usage on the Y-axis and yearly mileage on the X. So you see that the dark color, then you can go electric when it's more heavy load, more heavy material and machines, then you need a combustion engine steel. And then you have something in between in the Volvo case, it could be fuel cell, could maybe also be hybrids for a period of time until battery prices come down and so on. The fleets also or the truck makers, they need a certain amount of zero-emission trucks in their fleet to avoid fines. That's why Elon Musk is selling a lot of CO2 quotes to manufacturers that don't have that much electric cars in their portfolio. And today, for trucks, I think we are in this year around 1.5% electric trucks in Western Europe out of 310,000 trucks produced, give or take. So it's a very low share per today. Another reason for that is, of course, lack of infrastructure. In Norway, we have a well built out infrastructure with charging for passenger cars, 300, 400 kilowatt fast charging. For a truck, heavy-duty truck, you maybe need almost 1 megawatt chargers. And basically, I think in Europe today, according to the CEO of Daimler, it's around 1,200 public charging stations for heavy truck in Europe today. They need around 35,000 by 2030, which means you need around 500 charging stations per month, which is not happening. And it's not enough power [indiscernible] grid. So this is a real limitation for the growth of electric trucks. For us, we are ready for that. And even though the electric trucks are coming later in volume, we have products for combustion engine trucks. And because the customers also see that they will live longer, they need to do upgrades. Obsolete electronics, you can't buy the components anymore. You need to do updates, maybe some improvements or increased comfort and various other stuff. So we see that there is basically a new wave of opportunities coming our way, which is actually quite interesting and good for us. So we are turning challenges into breakthroughs. We are in it to win it. We have excellent problem solvers in our team. And when we combine technical skills with proper customer and market understanding, it's really a winning recipe. We have developed products over the years. I think Olav, you can confirm things that were seen as more or less impossible by other competitors or even customers, we did it. We're not giving up. Some customers are also tired of being treated like take it or leave it approach. This is the product you have to design your truck around our products. We are not changing anything. Some of those suppliers are even bigger than the customers. So they are very strong, not very flexible, not very easy to work with. So they appreciate a company like us, which are more flexible and I think in general, our culture. We are continuously searching for new innovations and our engineers, they do magic things, I would say, all year around. We take a leading position for our actuators, especially for the market that is coming now for electric trucks, even though it takes more time, we are ready. We are in dialogue with our customers. We cannot just put it on hold until 2030, and then please come back when you are ready. We have to be there, help them the projects are running. And as I said, even though electric trucks take more time for those actuators, it's okay for us because we have products also for combustion engine transmissions. So that is it from my side in this round. We will have a look at some more physical products later on over there. And then I hand over to Thomas.

Thank you, Ivar. It feels good to be back in KA, and I'm very proud to be part of this team that is driving change and improvement. But now we will speak of Couplings, an important part of the business area of FCS. We will start with a little animation giving you an overview of the products and how they are used and work. [Presentation]

Coupling -- but let's start with the beginning. The Coupling business dates back to 1896 in Raufoss, where an ammunition factory was established on the left side of Lake Mjøsa to protect from Sweden and at that time was seen as a potential enemy. Through the years of military production, there were spin-offs into civilian products and brass, a very important material used in cartridge cases then we spun off into couplings, first for water. But in 1978, Raufoss Engineers launched a development program for taking -- developing air brake couplings for trucks. And this starts the very important area of the Raufoss Couplings. In 1987, won a big contract with Volvo, then it followed with different new customers in the early '90s, Iveco, for instance, and this laid the foundation for a high-volume serial production. In 2007, '08, we launched the ABC system, air brake coupling, the world's first composite program for air brake couplings. And also 2004 is a very important milestone because then Raufoss Couplings became part of the Kongsberg Automotive family. From 2008, when ABC system was launched, we have become a global market leader. And today, we produce more than 155 million couplings yearly, supplying 115 different customers worldwide. So what that started as a little spin-off at the manufacturing site in Raufoss is now a global operation, where we produce Couplings spanning from Norway, France, Mexico, Brazil, China and Korea. So what that started as a bold vision has become a global standard. Going back to the product groups itself. It's all designed around flexibility and modularity. The building blocks and different components, it all fits together so that you can design the system to any commercial vehicle on the market. It's leakage-free, sustainable, and it has a security feature so that when you do this assembly, it gives a clear signal that it is mounted in the correct way. So what do we add to our customers? Of course, this adds assembly time reduction. And when you reduce the assembly time, you reduce the cost of assembly as well. You reduce logistics costs, and you optimize weight and weight is very important because in battery electric vehicles, the battery adds weight. And then all components that can reduce weight will, of course, be very, very important, particularly moving forward. And this system today saves up to 6 kilo compared to a metal system on one truck alone. It's easy to maintain and you can reuse tubes and Couplings. But a world-class product will not succeed without world-class production. And our production is highly automated. Every day, we produce 500,000 couplings, 24/7 from different facilities around the world, but the main plant for couplings is in Raufoss. Looking forward to the future, how can this part of the business support future growth? First of all, we will continue to grow the air brake system. We will gain market shares. Our core market is Europe. We will defend Europe and continue to be the market leader in Europe, but we also will focus strategically on North America and Asia. Key components of this is local production in the regions, and we are currently ramping up the facilities in Mexico and China to ensure responsiveness and cost efficiency. In addition, we are also adapting our products. Our ABC family built on the metric system in North America, they use inches. And then we have adapted the entire family also now to inches so that we seamlessly can fit to the local standards in the North American market. But we are also launching new products, the Twistlock Hose Module, where we combine our expertise within Couplings and hoses, supplying a complete assembly that will ease the installation of the connection between the axle and the chassis, Air Suspension Couplings for passenger cars, but most importantly, we have a future pipeline of breakthrough innovations under development, reinforcing our leadership position. So why will we succeed? Yes, because we have an ABC system with track record, trusted by leading customers worldwide. We are aligned with the market trends of sustainability, weight reduction, lower total system costs. We protect our innovations, and this gives us long-term competitiveness. And we are future ready. Upcoming innovations will deliver even greater benefits, making sure that KA is in front of the curve. And not at least, we are committed to execution excellence because what I said, you can have the best product in the world, but if you can't produce it in the right quantities and deliver at the right place at the right time, you will not succeed. So we have a very strong commitment in the team to deliver growth and profitability moving forward. And this is summarized why I very strong believe that Couplings will be very important, securing growth and profitability moving forward. Thank you for your attention. [Presentation]

My name is Gunnar Eriksson. I'm appointed leader of the newly formed business unit steering within Kongsberg. And it's a great honor for me to have this position. I bring to the table more than 30 years of experience in the automotive industry, project, sales, most of all, product development of steering components, steering systems and universal joints. In a few moments, we will take you into the future of mobility where there are big challenges, but also big opportunities for us, and we are prepared for that. With me today, I have Peter Johansson. Peter is the inventor and founder of our new unique road wheel actuator used for Steer-by-Wire. Peter? Thank you.

So first, thank you, Thomas, for seeing Sweden as a friend and not an enemy. Steer-by-Wire, Steering Reimagined, Steer-by-Wire replaced the mechanical linkage. That could be scary, but it has so much advantage. It's not only that you can experience, enhanced driving experience and a steering feeling life-like a premium vehicle. There is an improvement in the system that you can get. You can get lower weight, you can have left hand drive -- right-hand drive. That is a huge advantage for the OEM and also when you're driving different speeds, you can change the ratio of the steering. You're parking, for example, you don't have to overlap your hands, so you can do so much more. But everything starts with autonomous vehicle because today's system, you need to have redundant -- you need to have fail-operational. So that's the key. And why is Kongsberg Steer-by-Wire unique? It's ground-up design because you cannot take the EPS of today and then just do an evolution into fully redundant autonomous vehicle. You have to have 2 different systems running with a motor, with the sensor, everything, and that needs to be decided in another way. So it's like a transition from today to tomorrow's driveline system and steering system. And it's this concentric drive that we have that is it eliminates the failure that you have for a belt drive, for example, you have the motor around the ball screw. You load the ball screw in a perfect way. You don't put silos. That's good for the lifetime. You have sealed the shaft, so you don't get ingress in. It's a pure actual movement of the shaft. And very important, fail operational is not fail safe. Every car of today, except Nio is fail safe. If you have a steering failure, it's just try to stop as fast as possible. But you have to continue. If you are on a highway, for example, you don't have the mechanical backup, there is no human that can actually steer. You have to make sure that it can continue even if you have very sincere failure, motor failure or sensor or whatever, it has to just continue to operate. And that is the big change that you need. What is driving this? It's legislation, the market that is -- has to come into place in order to put the regulation in place for having failed operation instead of fail safe. It's like for everyday user, think about aviation. It's another way of having redundant system in. And we are targeting for one failure in time, a FIT. And the legislation 26262 says 10 FIT, but you have to have a tough target, and we are targeting 1 FIT. What does that mean if you go look into it? It's like more than one failure is not supposed to happen in 1 billion operating hours. That is 114,000 years. And you can just imagine if they are running the test rigs here, we will be very old when that is happening. So it's statistic and so on, and you have to build it up in a certain way, so you make sure that what is the probability that you get a failure. So it's nothing that you see today in the steering system, it's for tomorrow, and that is what we have built. So we have more than 30 patents on this and are prepared when the market take off. And that is exactly what's happening now. So it's not when it will happen, it's happening right now. And it's the passenger vehicle that is the driver. It's the human driven when you have the steering wheel in, but the next one is when you have it fully autonomous when there is no in charge of the vehicle, there is no driver in there, but this is happening now '25. And the forecast for 2035 is EUR 3 billion to EUR 7 billion, depending on how many OEMs will adopt to this. It's not if, it's just when in time. So the market is incredible that we have in front of us, and we should try to get meaningful and as big share of this as possible. And we are prepared for it now. So that's -- yes, it's a challenge, but it's definitely something that we will be able to make.

So when it comes to our capabilities, we are going for success. We are passionate, we are determined and we are committed. Over the years, Peter has built up our team of world-class engineers with decades of experience from, for example, working for some of the top OEMs. We have also built demonstration vehicles. One of them is in China. The other one is actually here in Kongsberg today, and you will be able to see it if you have time. And some of you might even be able to touch and feel a little bit. We are thinking modular, focus right now is on the L3. It's the passenger car segment. Further down the line, we see that L4, L5, which is the shuttles, the people movers will come in. And we are thinking modular when we are designing. We are trying to reuse and we are reusing the building blocks and the core technology to the fullest extent as much as we can. And we are well positioned to capture both the mainstream market and the future mobility. Finally, our global manufacturing footprint is a big advantage for us. Also the experience of assembly and delivering complex actuators to demanding customers on a global market. We can produce and deliver from different best cost countries in Europe, in Asia or in the Americas. So we are there where the customers are. Thank you very much for listening.

[Operator Instructions]. Yes, we're there.

I'm a private investor. This goes to you, Trond. why didn't you move the HR function into the divisions?

Why we did not?

Yes. You mean resources. Yes, why did you keep that in staff and did not move it into the operating divisions?

Yes. Look, we have some corporate functions that we are keeping very, very lean and very small as we consider them important. HR is one of them. Finance is another one. Legal is another one. So we're keeping them on a corporate level to have someone that is responsible for the overall processes and the function, but they are very lean. So most of the HR resources and the same thing with finance, they are inside the business areas. So what is left in the corporate function is a very small team. I think today, we are 4 or 5 -- so that is the thinking. And we're doing the same thing with the other functions.

Can I add one question for here, it's okay. So on your base case with EUR 730 million run rate and your 6.5% EBIT, approximately what is the capacity utilization across the company on that level, meaning I can potentially calculate the effect of marginally increased revenues going forward?

Yes. That's a good question. It' a good question. I think it's very hard to give an exact answer to that because typically, we invest in different programs with our customers. So it varies a lot. But if you look at, let's say, overall market, I would say, if you compare it to 2023, we may be down 15% or so. And you can -- that is easy reference. And I would say that we have then an additional upside of, I would say, at least 20% of available capacity in general, but it can depend from case to case.

Any other questions? Yes, there's one over here. You do not mention army or military vehicles. Are they part of the commercial vehicles? Or is that something you would talk a little bit about?

Look, it is a segment that we have on the radar that we are evaluating. We are serving that segment indirectly through the commercial vehicle segments primarily. It's not a big contributor, but there's some. And typically, we see some of the military requirements and standards are built into those requirements. So we are capable in terms of technical requirements. When it comes to the military segment and working directly with military customers, it comes with a lot of extra requirements. So -- but it is in our radar. We haven't made any decisions, but it's something that we are evaluating. No breaking news on that topic today.

The Steer-by-Wire, you say that it's already running now in 2025. How is it with our system? Are we in production? Or are we going to soon? Or where are we?

We have what we call a B-level two on the Road Wheel Actuator. I think further details, you can get from the experts here, Gunnar and Peter. In terms of production, to have a complete system, there are, I would say, quite some development to have a product that you can go with SOP and have in serial production. Then we probably talk about several years, 3 to 4 years before we can be in an SOP. So there's work ahead to take that to production. What we are working with is to find a lead customer that -- and a lead project that can enable that to happen. In the meantime, we are investing in the development, but we have, I would say, dialogue with the customers that can enable that timeline. 2029, 2030, I would say, as a realistic plan for SOP. SOP means start of production and zero production.

I have one more question, and that's about the money. You said 6.5%, EUR 730 million. What if the market goes to EUR 800 million or the turnover goes to EUR 830 million. What are we talking about the EBIT and is it changing positively? And how much are we calculating for additional you said 20% capacity?

I think you can, let's say, get an indication of the graph that Trond show that we published with the kind of the box to the right there. It can give you kind of an indication of -- it gives a reference to have a turnover level, so you can kind of see how that kind of add on to the EBIT. It will definitely be a plus, of course. We will get the leverage from the increased revenue.

I guess it depends also where the revenue comes from. But if you assume a general market improvement and we're able to keep our -- with the target of keeping our fixed costs flat, you will see a nice conversion rate, let's say, in the area of 25% of additional revenues that will flow down to the EBIT. That is what we're working towards. That will be the target, but then you can do the math. Any other questions?

Yes, one more in the back.

Talking about the Steer-by-Wire, can you say something about the competition and where you are in relation to the peer competitors? And also on the manufacturing side, have you considered fabless manufacturing? Or will you produce this yourself? That may be important, of course, due to IP, but...

When it comes to competition, yes, there are competitors out there. There are competitors that have this in production today, and some of them are very big, which is, I would say, both a plus and a minus. There are -- but there are opportunities. So that is what we see. So -- but there are competitors out there that are strong, but as E-WIRE and you see this from the team, we don't share that. And we do think that we have an offering here where we are able to compete. But we will not go with the mainstream solution. We are probably going to go for more a premium segment and where, let's say, the value from our system is the largest and where the requirements are higher. When it comes to manufacturing, look, we haven't come that far. We have several options we have on our radar. It will depend on the customer preferences where they are located. It will depend on our make and buy strategy, but yes, so it will -- what we're seeing today, we're looking at Europe, China and North America as location, and we have the locations and capabilities to do the manufacturing in-house. The very important topic here is our -- who will be the suppliers because these will be suppliers we have to have long-term partnerships with because to change out key components here. That's a big jump. So we have to have a very careful selection of the partners, business partners.

Good. Any other questions? Yes, we're here.

The warranty issue that you addressed in the Q3 report, how long time does it take to get those problems under control regarding the kind of contracts and I reckon some years or if you can say something about it.

Yes. I can say what we have said previously. It is something that we're working on. In terms of timing, it will depend because these are discussions we are having with our customers on a high level in order to conclude the cases. In terms of the issues, I would say that we have plans and actions in place to solve them. So it is more a commercial discussions on the values, and that's something we're dealing with. These can take a long time. If our customers accept our proposals, it can be made very quickly. But it's something that we expect that will take some time to conclude. It's not done over a couple of months. And I think we will revert with more updates in the next earnings call.

2026 is coming very soon. How do we look at the market? Do you see any positive changes? Or is it still as it's been in 2025? What do you reckon?

In the last earnings call, we said that we are cautiously optimistic, and that remains our position till today. So what we hear from our customers is first half relatively flat, second half potentially an upside, but with uncertainties. So I think that what we hear from our customers is that, look, the range of uncertainty is higher today than in the past, and we have to be prepared for both scenarios. And we can all imagine there's scenarios here. If there's conclusion on the peace agreement in Ukraine that will drive demand most likely. If the tariff situation in the U.S. are, let's say, getting into more normal situation and reducing the uncertainty, that will also help. But these are factors that we know that there's a lot of uncertainties around. So I think in general, our base case is cautiously optimistic and potential upside in the second half of '26. That's a short-term view. The longer-term view, we are more optimistic.

Good. Any other questions?

Yes. There's one more in the back.

How is the trend on business wins compared to previous years? Are you having same amount of business wins or is it slowing down? Or how do you see that going forward?

Yes. You've seen on our quarterly earnings calls and reports that it has slowed down over the last, I would say, 2, 3 quarters. It's something that I think reflects the uncertainty in the markets that we have seen over this year and the changes. We've seen some of our programs being delayed. Some of the business awards has been postponed. In terms of impact for us, it's not something we are too concerned about because we see that our programs currently will run longer. So in terms of impact, it's, I would say, very limited. So we do see that these business wins, let's say, cycles, they go up and down. We had a very good year in 2024. That was also as I see it, business wins that reflected an improved market. And now that the market is a bit more challenging and uncertain, the business -- the number of business awards has gone down. But we don't have any, let's say, any concerns related to it. We do have still a pipeline of opportunities and contracts that we are negotiating with our customers. So we do expect this to improve again in '26.

Any other questions?

No.

All right. Thank you for good questions, and thank you for participating and attending the Capital Markets Day. I think with this, we conclude the formal presentation. And yes, thank you very much.