5 days ago
Kongsberg Automotive Holdings ASA (KGAUF) Q2 2025 Earnings Call Highlights: Navigating ...
Revenue: Down 8% from Q2 last year.
EBIT: Negative EUR12.3 million for Q2, impacted by increased warranty accruals and asset impairments.
Free Cash Flow: Close to break-even for the quarter, showing significant improvement from previous quarters.
Cost Reduction Program: Expected EUR42 million improvement in annual indirect cost base by Q3 2026.
Flow Control Systems Revenue: Increased by 3.1% compared to the same quarter last year; 5.3% increase at constant currency levels.
Flow Control Systems Margin: Improved to 8.3% in Q2 from close to 0% in Q4 2024.
Drive Control Systems Revenue: Slightly higher than Q1 2025 but lower compared to Q2 last year.
Net Interest-Bearing Debt: Unrestricted cash level of EUR72.8 million and an undrawn revolving credit facility of EUR50 million.
Liquidity: Total liquidity of EUR87.8 million as of June 30.
Business Wins: EUR91 million for Q2, lower than previous quarters due to tariffs and market uncertainty.
Net Tariff Cost: Negative EUR2 million in Q2, with expectations to recover close to 100% of these costs.
Capital Employed Reduction: Approximately EUR15 million reduction since Q1 2025.
Warning! GuruFocus has detected 4 Warning Signs with KGAUF.
Release Date: August 12, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Kongsberg Automotive Holdings ASA (KGAUF) has launched an additional cost reduction program expected to have a EUR15 million annual impact when fully implemented.
The company has renewed its executive leadership team and reinforced a performance-oriented culture.
Kongsberg Automotive Holdings ASA (KGAUF) has made a strategic acquisition of chassis autonomy, positioning the company for long-term growth in the fast-growing electric and autonomous vehicle market.
The company reported a positive trend in free cash flow, which has significantly improved from previous quarters.
Kongsberg Automotive Holdings ASA (KGAUF) has a strong pipeline of business opportunities, despite a slowdown in business awards due to market uncertainty.
Negative Points
Revenues for Q2 2025 are down by approximately 8% compared to Q2 2024.
EBIT for Q2 is significantly reduced due to increased warranty accruals and impacts related to tariffs and impairments of non-current assets.
The company's business wins for Q2 are lower than previous quarters due to tariffs and market uncertainty.
The market outlook for the second half of 2025 is not favorable, with expected revenues to fall below both the first half of 2025 and the second half of 2024.
Kongsberg Automotive Holdings ASA (KGAUF) has increased warranty expenses, which are higher than they should be, impacting financial performance.
Q & A Highlights
Q: Could you please provide more details on the warranty case, especially what is driving your expectation of increased warranty expenses going forward, and what issues are these related to? Additionally, what measures are you putting in place to ensure that this does not reoccur? A: Yes, this is a very relevant question. We cannot comment on specifics as these are ongoing cases and discussions with our customers. The reported warranty cost for Q2 is primarily impacted by the increase of the warranty accruals for future claims and expenses for known cases. This is based on a comprehensive evaluation of our global portfolio of warranty cases. We are working on both preventing future warranty situations and managing current claims. An expert has been brought in to lead warranty efforts, addressing contractual terms, delivery specifications, and case handling.
Q: Your leverage ratio has increased over time. Do you foresee any issues related to the bond covenant level? A: No, we do not estimate any issues in relation to the bond covenant level of 4.0. Several drivers, including significant cost reduction programs and a focus on cash flow improvements, support this. The dynamics of the last 12 months' EBITDA calculation also play a role. The net interest-bearing debt includes lease liabilities and a combination of bond loans, accounts receivable securitization, and cash levels. We have an unrestricted cash level of EUR72.8 million and an undrawn RCF facility of EUR150 million, providing a total liquidity reserve of EUR87.8 million as of Q2.
Q: What is the reason for the warranty cost being put solely on Q2 and not spread over Q2, Q3, and Q4 to offset future warranties? A: The reason for putting this in Q2 is that it is an accrual for known cases. We need to set aside this amount for future expenses related to these cases.
Q: Can you elaborate on the strategic acquisition of chassis autonomy and its expected impact on Kongsberg Automotive? A: The acquisition of the remaining shares in Chess Autonomy positions Kongsberg Automotive for long-term growth in the fast-growing electric and autonomous vehicle market. The steer-by-wire technology market is projected to grow significantly, reaching EUR3.5 billion by 2035. This acquisition aligns with our strategic ambitions and capabilities, allowing us to utilize our global footprint to unlock value in this technology and reinforce our commitment to innovation and sustainable mobility.
Q: How is Kongsberg Automotive addressing the current market uncertainties and preparing for future growth? A: We are actively managing the situation both operationally and financially. While the short-term market outlook is uncertain, the 2026 outlook is positive, especially in the commercial vehicle segment. We are implementing cost reduction programs, consolidating operations, and making strategic acquisitions to position ourselves for long-term growth. Our focus remains on restoring value creation for shareholders and realizing Kongsberg Automotive's full potential.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
