Kongsberg Automotive Capital Markets Day | 2015
1 Agenda
09:00 Strategy and roadmap going forward
09:30 Automotive market outlook
09:45 Efficient powertrains in the
Light Vehicle segment 10:15 Efficient powertrains trends in the Commercial Vehicle segment 10:45 Break 11:00 Growing within the Seat Comfort segment
11:30 Advanced Fluid Handling
12:00 Financial Review
12:20 Summary and closing remarks
12:30 Lunch
2 Transition towards a more focused KA Hans Peter Havdal, President & CEO
Enhancing the driving experience 3 Strategy and roadmap going forward
• Strategic review of all segments and products concluded with decision to focus on 3 key areas Focus on core – Seat Comfort products to build – Efficient Powertrains sustainable growth – Advanced Fluid Handling • Directing R&D spend and investments to high-growth segments with unique offering
• Conventional products remain important in terms of scale and cash flow to Optimizing fund further growth • Continued review of segments to optimize product offering and reduce conventional complexity product portfolio – Divestment of Light duty cables business unit in 2016 – Phase out Head- and Armrests products
• Securing a robust platform with dividend potential in the medium term Financial platform – Key focus on R&D spending and debt reduction in 2016 to create a with dividend sustainable platform for growth potential – Materialization of R&D investments in revenue growth from new contracts in 2017 will allow dividends to be prioritized
4 Transition toward a more focused KA
Why
▸ OEM customers demanding more advanced products to meet customer expectations & new legislation ▸ Increased focus on end user experience; safety, comfort, connectivity & sustainability ▸ KA has high share of conventional products with modest growth potential
How
▸ Focus on most attractive growth opportunities is required ▸ Prioritize R&D funding & Capex towards growth platforms where KA offers best customer value ▸ Pursue selective growth opportunities for conventional products with limited investment needs - Emerging markets - Attractive niches 5 Our Automotive environment – key trends
KA focus
SAFETY EFFICIENCY COMFORT CONNECTIVITY
AUTONOMOUS DRIVING
▸ OEMs are putting significant effort in developing more sophisticated vehicles
▸ Vehicle content value is increasing; but projects also getting more complex with more software and electronics content
▸ Projects are more R&D intensive, hence KA needs to prioritize
Focus on core products required for product development leadership 6 Focusing on 3 growth platforms
Advanced Fluid Seat Comfort Efficient Powertrains Handling
Interior Driveline Driver Control Fluid Transfer 33% of revenues 24% of revenues 22% of revenues 21% of revenues
PRODUCTS PRODUCTS PRODUCTS PRODUCTS
• Seat climate systems • Shift by Wire systems • AMT systems • Pipe/hose assemblies for • Seat support systems • Inverters & converters • Inverters & converters powertrains • Head restraints • On Board Chargers • On Board Chargers • Couplings and manifolds • Arm rests • Automatic & manual gear • Manual gear- and clutch for air distribution systems • Light duty cables shifters systems • Industrial applications • Shift cables &towers • Steering columns • Pipe/hose assemblies for • Chassis stabilizers chassis systems • Throttle- & brake pedals
Conventional products Growth platforms 7 Focus on growth platforms to regain momentum
Estimated sales (EURm)
▸ Growth platforms expected to increase in revenue share from 30% to above 40% next 5 years CAGR – R&D spending and capex will be ~10%* focused on growth platforms ▸ Conventional products are still key in next 5 year period CAGR – Selective growth opportunities for ~2%* conventional products with limited capex needs will be pursued ▸ Current business mix creates a platform for organic growth and R&D funding
2015 2016 2017 2018 2019 2020
*Kongsberg Automotive estimates Conventional products Growth platforms 8 Growth platforms
Growth platforms: Seat comfort
▸ Increased fitment rate in all segments Estimated sales (EURm) within seat comfort 300
▸ Comfort value per vehicle is increasing
250 ▸ KA offers unique product range & integration expertise CAGR ~10%* ▸ Wide modular product offering from A- to 200 S-class
150 EURm
100
50
- 2015 2016 2020
*Kongsberg Automotive estimates 9 Growth platforms
Growth platforms: Efficient powertrains
▸ Strong trend towards electronically Estimated sales (EURm) controlled transmissions in cars & trucks 90 ▸ KA entering AMT segment to match global market expansion 80
▸ KA bringing innovations in Shift-by-Wire 70 & Power Electronics
60 ▸ Valuable R&D competence synergies between Driveline and Driver Control CAGR 50 ~39%* – Competence and experience from Driveline
and Driver Control used in the development of EURm 40 powertrains of tomorrow
30
20
10
- 2015 2016 2020
*Kongsberg Automotive estimates 10 Growth platforms
Well positioned to take part in AMT growth
Estimated sales in AMT (EURm) ▸ Strong positions with leading European truck producers 160 generating opportunities 140 – High customer credibility provides basis Majority of AMT for taking part of AMT technology growth expected transit 120 post-2020 ▸ Timing is now – solid growth in AMT to come over the period 100
– High growth expected in the years after CAGR ~35%* 2020, especially for AMT 80
▸ Pursuing technology leadership 60 within AMT by focused R&D spending 40 – Replacing a manual system with an AMT system increases our value per CAGR ~36%* truck 5 times 20
0 2015 2020 2025
11 Growth platforms
Growing importance of Hybrid/EV
World electrification forecast ▸ The EU’s goal for average CO2 emissions is 95 grams per kilometer 14% – Electrification is key in order to reach target
12% ▸ Strong growth in world electrification forecasted from 2015 10%
▸ Wide range of vehicles require complex 8% powertrains
– Hydrogen, hybrid, plug-in hybrid and fully- 6% electric
4% ▸ KA is well positioned to benefit from global electrification with its innovative product range 2%
0% 2012 2014 2016 2018 2020 2022
Hybrid (all forms) Battery Electric and Fuel Cell
12 Growth platforms
Growth platforms: Advanced Fluid Handling
▸ Engine downsizing & turbo charging Estimated sales (EURm) driving up engine temperatures 250 ▸ KA offering unique high temperature products
▸ KA patented quick connectors reducing 200 weight, complexity & assembly time CAGR ~7%*
150 EURm
100
50
- 2015 2016 2020
*Kongsberg Automotive estimates 13 Conventional products
Strategic review of all conventional products
► Conventional products remain important Estimated sales (EURm) in terms of scale and cash flow to fund further growth
- Focus on growth opportunities in emerging markets 900
- Pursue attractive niches 800 CAGR ► Long-term strategic review of all segments ~2%* and products Thousands 700
─ Divestment of Light duty cables business unit 600 in 2016 500
─ Phase out Head- and Armrests products (announced 2Q ‘15) 400
► Continuous focus on optimization of 300 product offering 200
- Reduce complexity 100 - Reduce supplier base - 2015 2016 2017 2018 2019 2020
14 Conventional products
Divestment of LDC business unit
LDC customer Base ► KA considers divestment of Light Duty Cable business Selected Auto ─ LDC represents ~10% of group sales with high- OEMs teen margins and about 1 600 employees
─ Highly attractive & diversified blue chip customer base with long standing relations Selected Auto Tier Ones ► The business unit has a well established position in the market and is expected to grow in line with global automotive Selected market OPE OEMs ─ Low cost manufacturing footprint to serve regional and global customers Sales split in segments ► However, KA needs to prioritize R&D spending and will therefore optimize OPE OEM’s Auto OEM’s product mix ~ 35% ~ 30%
Auto Tier ~ 35%
15 Conventional products Selective growth opportunities for conventional products will be pursued
Estimated sales of MT products in Emerging Markets(EURm) ► Promote manual transmission (MT) products in emerging markets 90
80 ► Focus on fast growing geographies
─ Capturing opportunities with limited capex 70 CAGR 60 ~15%*
► ~40% of LTM business wins for manual transmission booked in Emerging Markets 50
EURm 40 ► Emerging market growth balancing out mature market decline 30
20
10
- 2015 2016 2017 2018 2019 2020
16 FINANCIAL TARGETS AND OUTLOOK
17 Update of 2015 Financials
KEY FACTORS IMPACTING 2015
▸ Higher R&D activity to support future growth opportunities
▸ Market head wind in Brazil and China, CV market down 30%
▸ Higher program launch cost within Driveline
CMD 2014 LTM Q3-2015 In line with 2014 Revenue 1 011 m€ (979.1 m€)
ROCE 13% in 2015 10%*
NIBD/EBITDA < 2x by 2015 2.4x
* Adjusted results 18 Growth is a key element to strengthen ROCE
▸ KA has delivered solid operational improvements ▸ Gross Profit improved by 6% since 2010 – Reduction of manufacturing footprint from 41 to 33 plants – Annual continuous improvement/Lean activities in all plants – Purchase cost improvements of about 2% annually – Increased LCC workforce – Mitigated customer LTA’s ▸ 2.5% of the GP increase is brought to the EBIT line, the remainder is prioritized towards funding long term growth – Increased R&D efforts – Increased Sales and marketing efforts
Top line growth required to harvest benefits from operational gearing 19 Converting R&D to new business
LTM new business wins R&D spending
R&D of sales EURm 24% 8% 80 2014 YTD 2015 7% 70 18% 6% 60 Normalized R&D spending 14% 13% 5% 50
4% 40 8% 3% 30 4% 2% 20
1% 10 ADVANCED SEAT EFFICIENT FLUID 0% 0 COMFORT POWERTRAINS HANDLING 2011 2012 2013 2014 2015 2016 R&D R&D of sales
▸ LTM new business wins pr. 3Q15 at EUR 321m ▸ Increased R&D to develop new technology p.a. value ▸ Supporting growth platforms ▸ Increase proportion of new business related to growth platforms from 2014 (~35%) to 2015 ▸ Normalized R&D spending expected to fluctuate (~47%) around 5-6% of sales
20 Securing a robust platform with medium term dividend potential
Dividend Policy update:
▸ Kongsberg Automotive shall create good value for its shareholders, employees and society
▸ Returns to shareholders will be a combination of changes in share price and dividends
▸ The Board of Directors’ intention is that dividends will be approximately 30% of the company’s net income provided that the company has an efficient capital structure
21 Standing by our long term targets
KPI Targets Comments
Organic ~10% CAGR (2015-2020) on growth platforms 3 – 5% annually growth ~2% CAGR (2015-2020) on conventional products
ROCE > 13% Ambition to deliver above 13 % ROCE
• Continue deleveraging to increase financial NIBD/ robustness < 1.5 EBITDA • Will allow a higher range in periods to facilitate dividends and non-organic growth
Materialization of R&D with revenues from new contracts will lift top line in 2017 and allow dividends to be prioritized 22 Market Outlook Philippe Toth, SVP Business Development and Investor Relations
23 Market drivers
▸ Regional demand – Production moving to the regions where the demand is
▸ OEMs platform strategy
▸ Regulations – Efficient powertrain – Electrification and hybridization push
▸ Market requirements and expectations – Consumer focus on comfort and luxury features
24 Group exposure by end-markets & regions
60%
50% ▸ CV segment is mainly exposed toward 40% European underlying growth Asia 30% SA NA ▸ LDV segment is fairly 20% EU balanced between North America and 10% Europe
0% Commercial Light Duty Non Auto Off-Highway/RV ▸ Off-highway and Vehicles Vehicles Recreational Vehicle segment is mainly driven by North American growth
25 GDP growth – in large economies
▸ World GDP growth 10,0% stable around 2.5 to 2.7% 8,0%
6,0% ▸ Eurozone steady improvement 4,0% ▸ North America stable, 2,0% some improvement
0,0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 ▸ Slow down in China a
-2,0% new reality
EU US China
Source: IMF World Economic Outlook (WEO), October 2015 26 MARKET OUTLOOK - PASSENGER VEHICLES
27 Triad markets LDV production Units In Millions Stability Recession Recovery Forecast 30 2015 2016 CAGR:15-20 25 6.1% 1.8% 1.2% 20 2.6% 4.0% 1.7% 15
10 -4.2% 0.2% -0.6%
5
0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: IHS Europe North America Japan/Korea
Good recovery in Western Europe driven by replacement demand
Stable growth in North America, will flatten towards 2020 28 Emerging markets LDV production Units In Millions Stability Recession Recovery Forecast
35 2015 2016 CAGR:15-20
30 5.3%
Millions 1.4% 25 4.1%
20
15
10
5
0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: IHS China India Brazil Russia ASEAN Rest
Chinese market stabilizes at lower levels. 2016 will be driven by tax cut incentives
29 MARKET OUTLOOK – COMMERCIAL VEHICLES
30 Triad markets CV production
Units In Thousands 800 Stability Recession Recovery Forecast CAGR:15-20 700 2015 2016 5.9% 600 5.7% -7% 500 1.7% 10.3% 400 4.3% 4.7% 1.3% 300 4.2% 200 100 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 EU 27 North America Japan/Korea Source: LMC
Mature market (EU, Japan) performing strongly Soft landing in North America in 2016 31 Emerging markets CV production
Units In Thousands 1.400 Stability Recession Recovery Forecast 2015 2016 CAGR:15-20 1.200 12.2% 1.000
800 12.6% 600 -30% 5.4% 400
200
0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 South America China India Russia , Turkey and CIS, OPEC, Africa
Source: LMC
Emerging market remain in turmoil
China will see some improvements in 2016 after strong decline in 2014 and 2015 32 NEW BUSINESS WINS
33 Regional business awards last twelve months
49% 36%
14%
321 MEUR* LTM
1%
Global * Expected per annum value
‣ Continue trend toward booking more business in BRIC than current revenue exposure ‣ ~47% new business booked within growth platforms 34 KA TOP CUSTOMERS
35 Average volume per platform rising further
Source: Roland Berger & IHS
KA Global footprint and technology leadership will support OEM platform 36 strategy 36 REGULATIONS
37 Emissions regulations are tightening world wide
Commercial Vehicle ▸ Toxic gas emissions regulated by EURO and EPA standards (CV shown)
▸ VW issues will spur changes in control methods
▸ High engine cost and requirements for low sulphur content is main delay factor for implementing in emerging markets
38 CO2 emissions fleet reduction targets
g/km
240 ▸ Legal requirements EU Green-House-Gas emission regulations 220 under discussions for new test regime that can compare to real life use as Legal requirements China 200 discrepancy between tests methods and real life 180
160 ▸ Discussions have started on implementing GHG emission ruling in EU 140 also for heavy commercial vehicles. Test regime for this already agreed upon (ref: 120 VECTO)
100
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
39 Lowering emissions & increasing automation
Increased Turbo Fitment (PV) Increased AMT Gearboxes share (CV)
60 % 100% 90% 50 % 80% 70% 40 % 60% 30 % 50% 40% 20 % 30% 20% 10 % 10%
0 % 0%
2014 2007 2008 2009 2010 2011 2012 2013 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Europe AMT/AT North America AMT/AT Sum turbo Gasoline South America AMT/AT China AMT/AT
Favorable to FTS Fluorocomp® high In line with DCS focus on AMT temperature products products and R&D efforts 40 New powertrain solutions will be required
▸ World electrification 14% production estimated to World Electrification forecast 12% grow strongly from 2015
10% ▸ Europe & China will head 8% the growth due to emission
6% and local pollution legislation 4%
2% ▸ Electrification costs will be on-par with ICE vehicles 0% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 ca. 2022-24 Hybrid (all forms) Battery Electric and Fuel Cell
In line with KA focus on Power Electronic business 41 Market REQUIREMENTS AND EXPECTATIONS
42 Increasing consumers expectation
Accumulated growth ▸ Consumers want higher comfort 200% and advanced features 180% – Premium car segment and SUV’s 160% grow more than LV market 140% 120% 100% ▸ Interior Systems is well exposed to 80% the seating comfort segment 60% 40% 20% ▸ Driveline is well exposed with its 0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Shift by Wire & automated gearshift systems to the premium Total world LDV SUV Premium segment
Source: IHS 43 Summary
Market outlook
105 Light Duty Vehicles 100 ▸ 95
Growing global production of vehicles Millions 90 85 CAGR 15-20: ▸ Legislation push will drive 80 3.2% – Efficient powertrains 75 70 – Further electrification of powertrains 65 60 ▸ OEMs to increase average vehicle per platform
4.500 Commercial Vehicles >6t ▸ Consumer needs will drive higher 4.000
products features per car 3.500 Thousands 3.000 CAGR 15-20: 2.500 7.5% 2.000
Source: IHS & LMC 44 Efficient powertrains in the Light Vehicle Segment Ian van Duijvenboode, VP Sales & Marketing, Driveline
45 Driveline product lines
KA growth LTM Q3 2015 sales Product lines expectations
3% ▸ By Wire technology is key growth area and key for future efficient 10% powertrains & autonomous Above market driving. ▸ Market growth of 15% CAGR 235 42% MEUR 45% ▸ Automatic shifters will still have significant market share mid term, In line but slow growth With market SbW
Conventional AT systemessystems
Conventional MT systemessystems ▸ Manual shifters will still be the Other main solution for emerging In line with markets market LVP CAGR (2015-2020): 3.2%
46 Efficient powertrains - a growing trend
▸ We see strong future growth opportunities for our products in power electronics and shift by wire
▸ Efficient powertrains are on every OEMs agenda as future mobility will demand more power, less consumption and CO2/NOx emission reduction
47 Bringing new technology to the market TRANSITION TOWARD SHIFT BY WIRE ACTUATION
48 From mechanical to by wire actuation Shift By Wire is a must for
Autonomous drive vehicles
Car has to go between gears by it self Auto park functions require by wire
Innovative shifter designs Crystal in your gear lever Rotate between gears
Electric & hybrid cars
49 “A true shift by wire system supplier”
Conventional AT system with cable Shift By Wire system
▸ Actuator allows for shift ▸ Mechanical connection to by wire on non electronic transmission transmissions (Traditional) ▸ Design freedom ▸ Used in all markets but ▸ Autonomous cars modest growth 50 Shift By Wire have growth in all major regions
7
6 Millions 5
4
3
2
1
0 2014 2015 2016 2017 2018 2019 2020 2021 EU NA Asia SA
▸ Success in North America and China is key for growth
▸ EU has highest penetration today – slower growth 51 Shift by wire technology moving down in segment Million units Mid/Entry Premium 14 CAGR 12 Millions 15% 10
8
6
4
2
0 2014 2015 2016 2017 2018 2019 2020 2021
▸ Shift by was a premium car only technology ▸ Biggest growth comes from mid segment cars ▸ From E&D to C and now B & A segment
Source: Company estimate 52 Shift by wire technology ”A pallet of designs to chose from”
Steering Joystick Rotary Buttons Technology column
Strategic direction to support 3 of 4 technologies
53 Technology differ between OEMs ”It´s not one solution – many OEMs use more then one design”
KA’s strategic direction to support all 3 technologies
54 Shift By Wire addressable market “Fast growth – dominated by Joystick technology” (Million €) 1000 15% CAGR 900
MILLIONS 800
700
600
500
400
300
200
100
0 2014 2015 2016 2017 2018 2019 2020 2021 Joystick Steering Column Rotary Dial Buttons Unknown
▸ SBW expected to grow 15% CAGR ▸ Innovation in these areas is the enabler for new customer development
Source: Company estimate55 How to capture the growth We bring innovation to our customers
EU SBW Democar 3 exchangeable SBW concepts & Actuator (Full system)
SBW Suitcase SBW & Actuator (Full system)
Rotary SBW on Tablet Prototype to be in car Feb 2016
SBW Democar China SBW Shifter and actuator (Full system)
NA SBW Democar 3 exchangeable SBW concepts & Actuator (Full system)
56 SbW – high growth segment
MEUR 35
30
25
KA CAGR (2015-2020): 20 ~32%
15
10
5 SBW CAGR (2015- 2020): 15%
0 2015 2020 *Kongsberg Automotive estimates 57 Still important future for Manual transmissions
Market 2000 2014 2026 share MT 51% 47% 46% ▸ Manual transmissions remain important for KA – Growth driven from emerging Global Manual Transmissions markets 60
50 ▸ In 2026 over 50 million cars will Millions 40 be produced with manual 30 transmission 20
10
0
Global MT Source: IHS 58 Driveline contract wins in 2014
Automatic Cables Automatic Shifters ▸ Total business wins in 2014 worth Shift By Wire Manual Shifters annual 93M€ ▸ 69% of new business in automatic ▸ 16% in growth platform SBW
22% 31%
93 MEUR
31% 16% ▸ SBW contract with a global OEM ▸ Recently booked a breakthrough contract secured on full SBW system with actuator SOP 2017
59 Summary and key take away
▸ Shift By Wire market expected to grow with 15% CAGR – NA & Asia key growth regions – SbW moving down to mid & entry segment cars
▸ Joystick & rotary are the market leaders
▸ Manual shifters still important in emerging markets
▸ 93M€ worth of new business wins in 2014
60 ELECTRIFICATION AND HYBRIDIZATION
61 External market drivers
By 2021, the EU fleet average to be achieved by all new
cars is 95 grams of CO2 per kilometer
Dieselgate has accelerated the electrification push
ICE has reached it´s efficiency peak - electrification is the only way forward
Government incentives in several countries
62 Product Focus of ePower
Kongsberg will prioritize On Board Charger development
Electric Vehicle Control Module
High voltage (240…840 V) On-Board DC/DC Auxiliary Charger Converter Inverter
M Battery 12 VDC 3~ system El. Motor
Our teams of experts, develop unique knowledge about power electronics for hybrid and electrical drivelines
63 On Board Charger A growing addressable market 3000 20%CAGR
Millions 2500
2000
1500
1000
500
0 2015 2016 2017 2018 2019 2020 2021 2022
3,5KW 6,6KW 10+KW
▸ On board Charger market dominated by 3,5kW technology ▸ Pure Electric vehicles (6,6 and up) still small but starts to have growth ▸ Market growth from 400M€ to 2,5B€ Source: Company estimate 64 KA product positioning OBC
3,5 kW 6,6 kW 11-20 kW
Long ranger electric Primary plug-in Primary pure passenger car Hybrid vehicles electric vehicles and Truck / Buss
65 On Board Charger products key features
▸ Best in class package – easiest to fit in hybrid cars ▸ Modular HW customer applications concentrated to few 3,5 kW parts ▸ Modular SW customers and generic SW separated
▸ Scalable customizable power levels for trucks/buses ▸ Modular HW customer applications concentrated to few 11 kW parts ▸ First 800V OBC to market
66 Capturing growth
Volvo 3 VCC 2 Ford Scania Build relation with 3-4 target customers Build relation with Start marketing 3-4 target activities in 2017 customers
▸ Win home market – 2 contracts secured in EU ▸ Expand with selected key customers ▸ Prioritizing OBC development 67 Key business win
3,5 kW On Board Charger
▸ European premium OEM for a C segment car ▸ Production start in 2017 ▸ Plug-in hybrid vehicle to be produced in Europe & China ▸ Estimated Lifetime business value 40M€ 68 OBC – above market growth
MEUR 14
12
10
8 KA OBC CAGR (2015- 2020): ~580%
6
4
2 OBC market CAGR (2015-2020): 20%
0 2015 2020
*Kongsberg Automotive estimates 69 Summary and key take away
▸ Electrification is key to reach CO2 reduction targets
▸ Fast growing market for plug-in hybrids vehicles
▸ KA 3,5 kW sets a new standard in efficiency – KA has secured commercial contracts for passenger cars & busses – Growth activities ongoing to secure next customers
70 Efficient powertrains trends in the Commercial Vehicle segment Espen Moe – VP Driver Control
71 Driver Control Systems
COMMERCIAL VEHICLES OFF HIGHWAY VEHICLES
Product areas: Product areas: Gear & clutch systems for manual Steering columns transmissions (MT) Electronic Power Steering Automated Manual Transmissions (AMT) Displays & Key pads Vehicle Dynamics Pedals & hand controls
Markets: Markets: Truck Agriculture, Bus Construction, Power sports
72 Overview of Driver Control Systems
KA growth 2015 estimated sales Product lines expectations
AMT segment is expected to grow Above above the global CVP growth market 6% 16% AMT
MT MT segment will decline as AMT In line 240 31% penetration rate is increasing globally With Steering systems MEUR Market 32% HMI
15% Other Steering systems is expected to grow Above above market market
HMI should enjoy an average industry In line growth rate With Market
Customers
73 Commercial Vehicles OUR STRATEGY
74 AMT development is a key part of our growth
▸ AMT development is where we see strong future opportunities for KA
▸ Globally we see a rapid shift from MT to AMT in the commercial vehicle market
▸ KA has a strong position among key OEMs to take part in this growth
75 Technology shift within commercial vehicles
Trends Market solutions
From manual …to automated transmissions Fuel transmissions… efficiency
Lower emissions
Driver comfort Benefits of automated transmissions ▸ Computer operated clutch and gearing => no clutch pedal Safety ▸ Higher fuel efficiency ▸ Increased driver comfort and safety
76 Technology shift within commercial vehicles
Global AMT share ▸ EU and NA leaders in 100% AMT technology 90%
80% Europe ▸ Europe and SA to stabilize 70% on high AMT level 60% North America 50% ▸ NA AMT share rapidly increase 40% South America 30% ▸ China will follow, but 20% China still significant MT share 10% 0%
▸ EU in AMT mid-cycle
2021 2024 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2022 2023 2025 renewal 2007
KA investing in AMT EU/NA and continue MT growth in Asia
Note: For heavy duty trucks with GVW>15 ton, Source: LMC, KA analysis 77 KA ambitions in the AMT segment Recap from 2014
KA Targets ▸ KA target is to become a significant supplier of AMT actuator solutions to the global CV industry within the next 10 years – 1-2 major AMT business wins per year over the next 3-5 years – Market share above 10% by 2025
Market potential AMT Globally AMT SYSTEMS MARKET VALUE ▸ Estimated market potential of EUR 1.5 bill. by 2025 MEUR ▸ Major value within clutch & gear box 1.600 actuation 1.400 1.200 ▸ Key suppliers in the market: 1.000 – Wabco 800 – ZF Sachs 600 400 – Knorr-Bremse 200 0 Note: For trucks with GVW>6 ton, Source: LMC, KA analysis 2015 2020 2025 78 AMT– above market potential segment
MEUR
35
30
25
20 KA CAGR (2015-2020): ~36%
15
10
5
0 AMT CAGR (2015-2020): 11% 2015 2020
*Kongsberg Automotive estimates 79 Our customers position in AMT segment
Key KA customers ▸ European truck OEMs are AMT leaders High
▸ Transmission OEMs like ZF (EU), Eaton (US) & Fast Gear (China) are KA customers AMT share
▸ Won significant programs in key markets ▸ Average business wins: 27M€ annual, lifetime revenue: 141M€ Low
Low High Production volumes
Source: LMC, KA analysis 80 AMT Business overview
Gear box actuation Gear shifters
Gear Control Unit Lever with knob
Electronic Control Unit
Stalk shifter
Clutch actuation
Gear shift and select actuators
Concentric External actuator slave cylinder
8181 Strategic growth enablers AMT Engineering expertise and strong customer relations
Excellence in execution - Improved customer responsiveness - Outperforming competition with our systems Global presence & local support AMT -Utilized global footprint Product engineering expertise actuation -Strengthened local customer - Improved systems engineering solutions teams
Strong customer relations Modular product concepts - Good cooperation with key customers - Utilizing our modular building blocks across products
82 KA AMT achievements
▸ Won 2 AMT projects – Launching new business in NA • Gear actuation unit • AMT Shifter
▸ KA well positioned for EU mid cycle renewal – In development with major OEM for future AMT solutions to launch 2020
▸ Utilizing existing patents and continuously applying for more
83 Still significant size in the global MT market
5,0 ▸ Initiated AMT journey 4,5 for future growth 4,0 3,5 ▸ MT volumes 3,0 TOTAL stabilizing in EU & KA 2,5 MT to grow in Asia 2,0 1,5 AMT ▸ KA to benefit from a 1,0 significant aftermarket trucks/year Millions 0,5 in MT 0,0
KA will continue to grow in the MT market to fund ongoing AMT development
Note: For trucks with GVW>6 tons, Source: LMC, KA analysis 84 KA ambitions in the MT segment
Market trends Asia ▸ Increasing premium truck market – Euro5 emission standard 2018-2020 ▸ Increased focus on total cost of ownership
KA Targets ▸ Continue to grow within gear shift systems & clutch actuation systems in Asia
Market potential MT Asia COMMERCIAL VEHICLES MARKET SIZE ASIA
▸ Significant market size of MT in Asia 2,5 CAGR: 9% ▸ Current competitors is a mix of local & (2015-2020) 2,0 Other, Asia- global players Pacific KOREA ▸ KA # 1-2 globally in manual shifters & clutch 1,5 JAPAN operation 1,0 INDIA
0,5 CHINA
0,0
Number Trucks of produced[Millions] 2012 2013 2014 2015 2016 2017 2018 2019 2020 Note: For trucks with GVW>6 ton, Source: LMC 85 KA MT strategy & achievements
▸ Global presence and strong local competence in strategic markets – Significant supplier of MT gear shift systems in Asia
▸ KA has a strong position with key OEMs to take part in further growth
▸ KA Business wins within the MT segment in Asia 35% of total
STRATEGIC OEMs ESTABLISHED PRODUCT PORTFOLIO
86 Off Highway vehicles OUR STRATEGY
87 Market development
Trends Market solutions
From mechanical …to electronic controls… controls and Lower systems Emissions
Electrification
Driver Assistance Benefits of electronic controls and systems ▸ Increase in power & efficiency Safety ▸ Telematics ▸ Safety with vehicle management ▸ Programmable features
88 Development in the Off Highway market
Global Off-Highway Vehicle Market ▸ US and EU electrification of 9,0 vehicle systems continues 8,0
to grow Millions 7,0 6,0 ▸ BRIC seeing a technology 5,0 change due to effect of efficiency regulations 4,0 3,0 2,0 ▸ Increased focus on safety Produced Vehicles 1,0 0,0 2005 2010 2015 2020 2025 Electronics in vehicle Mechanical vehicle Total
KA will continue to grow in the off-highway market with a focus in Steering Systems, & Electronic Controls
Note: Source: PSR, KA analysis 89 KA Ambitions in Steering Systems
KA Targets ▸ Penetrate all of the Power Sports, Agriculture, and Construction markets with steering systems ▸ 2 - 3 platform wins per year over the next 3 years ▸ Market Share above 35% by 2025
Market Potential Globally STEERING SYSTEMS MARKET VALUE ▸ Estimated market potential of EUR 350M by
2025 400 € 350 € ▸ 350 € Major value in the integrated EPS systems 296 € 300 € 70 € 251 € 250 € 55 € 42 € 78 € 200 € 63 € 50 € 150 €
100 € 179 € 145 € 160 € 50 €
0 € 2015 2020 2025
Power Sports Agricutural Construction Material Handling Roadsters Note: Source: PSR, KA analysis 90 Strategic Products, Vehicles, and Customers
Steering Column Electronic Power Steering
Electronic Power Steering System
STRATEGIC OEMs
▸ Electronic Power Steering is becoming a standard on all Power Sports vehicles ▸ Electronic Power Steering is an innovative product for Agriculture with the increase of the vehicle speed & vehicle connectivity. 91 KA Steering System Achievements
▸ Won two projects – Launching Electronic Power Steering on three platforms with a NA Power Sports OEM – Launching a global Steering Column platform with a Agriculture OEM
▸ KA is well positioned to capture the growth in all “Off-Highway” segments
▸ Currently in development on two new vehicle platforms – Snowmobile (EPS) – Agriculture Tractor (EPS Integrated System)
92 Summary Driver Control Systems A strong focus on customers, innovation and AMT development
Commercial vehicles ▸ AMT: – AMT market segment will grow significantly the next 5-10 years – KA has taken first step with this growth opportunity – KA aims to be a significant supplier of AMT actuation solutions – Continue high R&D efforts ▸ MT: – Focus on growth in Asia
Off Highway vehicles – Gain significant growth by focusing on steering systems – Expand from power sports into the agriculture MT & Off Highway portfolio and the construction market growth important to fund AMT initiative
93 THANK YOU FOR YOUR ATTENTION
94 GROWING WITH SEAT COMFORT SEGMENT
Anders Nyström – EVP Interior
95 Interior
KA growth 2015 estimated sales Product lines expectations
▸ Comfort will grow above global light vehicle production on segment growth & market share Above market growth in the seat support segment 17% 33% ▸ Light duty cables for automotive 315 MEUR business will grow in line with In line global light vehicle production With market 50%
HR&AR Comfort LDC ▸ Head & arm rest will decline over the period as Interior will prioritize Below its comfort segment market LVP CAGR (2015-2020): 3.2%
96 Seat comfort at the heart of our corporate strategy
▸ Seat comfort is one of three main growth platforms where we see strong future growth opportunities for KA.
▸ Our customers are spending ever more on comfort features, and smart and comfortable vehicle interiors are becoming important vehicle differentiators for both premium cars, and high volume cars.
97 Ambition, commitment & execution
▸ In 2014, we said: ▸ Since then, we have:
1. Secured business at record levels last 12 months incl. breakthrough contracts with strategic customers
2. Re-organized to a more customer-focused organization
3. Increased product development & innovation activities
98 Breakthrough contracts
New business wins LTM 3Q15 Strategic Supplier Agreement for seat comfort solutions to a leading North American vehicle 30% Seat heat manufacturer worth an estimated Seat vent
50MEUR 65% 5% Seat support
Two contracts for the supply 10-year agreement with a European of seat heat systems to two premium automaker for the global European premium supply of seat heat and seat automakers, with a combined ventilation to mid-size luxury estimated total value of vehicles worth 76MEUR 56MEUR
99 Customer-focused front end organization
Creating a more customer- focused & efficient front end with clear Customer ownership of targets and mandate to Lead Program Sales act cross-functionally to drive Engineer Manager Manager business growth.
Customer Director
100 Increased investment in R&D for future growth
Fast track innovation Innovations into new vehicle programs • New generation pumps & valves • New seat ventilation system • Secure flawless project launches • Next generation seat heaters
Investing in future growth
101 Driving the growth TRENDS & CUSTOMER NEEDS
102 Seat comfort trends
OEM direct sourcing LIGHTER & SMALLER
Less noise & less Down segment Down Luxury power usage trickles down segments
Vehicle images used for illustration purposes only 103 Market growth Global LV production growth per segment
80 CAGR= 2,8% Largest growth potential for
70 comfort products Millions 60 Premium segment shows highest 50 CAGR
40 CAGR= 2,3% 30 CAGR= 20 3,6%
10
0 Entry Mid Premium
2015 2022
104 Increasing fitment rates of all comfort systems
▸ Examples of seat heat fitment rates in premium segment 2015 2020:
Front: 80% Front: 90% E-Segment Rear: 40% Rear: 50%
D-Segment Front: 60% Front: 70% Rear: 20% Rear: 25%
C-Segment 45% 55%
B-Segment 40% 50%
Vehicle images used for illustration purposes only 105 Increasing content per vehicle Example: Multi-contour seat
▸ Premium OEMs strive and drive for high content of contour and dynamic pneumatic seat comfort features
▸ Configuration example includes – adjustable side bolsters – lumbar support – shoulder support – backrest massage and – cushion massage
Static adjustments
Dynamic features 106 Seat Comfort – above market potential segment
MEUR 300
250
200 KA CAGR (2015-2020): ~10% 150
100
50 PV CAGR (2015-2020): 3.2%
0 2015 2020 *Kongsberg Automotive estimates 107 Our product strategy WELL POSITIONED FOR GROWTH
108 KA offers a wide range of comfort features
Seat ventilation Massage systems
Lumbar support systems Seat heat
Bolster systems
109 Key success factors
System integration
One-stop Scalability shop
Modularity
110 A look into the future
Electric Vehicles Active seat & driver alert
Health and Autonomous medical vehicles benefits
Connectivity and upgrade options Body sensors in seat
111 New market segments Example: Panel heating Top roll Door panel ▸ Market demand from premium Door handle/armrest OEMs for heated arm rests, door panels, foot rests and even floor mats to offer ultimate comfort
▸ Shows additional growth potential for KA based upon existing product technology.
Steering wheel
112 Maximizing the growth potential BEING WITH THE RIGHT CUSTOMERS
113 Premium OEMs
Est. share of KA 2015 comfort ▸ Premium OEMs deliver high products revenue content & fitment rates for 3% comfort products & have strong and reliable sales. 8%
▸ KA‘s comfort products are 12% well positioned with premium OEMs today 12% ▸ Plan to capitalize further on this 14%
114 Selected growth with volume OEMs ▸ Increasing seat comfort product penetration to mid & low segments (A, B & C) and vehicle price classes (Mid & Entry)
▸ Modular & scalable products support this growth by offering more standardized options for volume market
▸ KA targeting selected growth with volume OEMs
115 Well-positioned to capture growth in all major regions
NORTH AMERICA
• Comfort is lagging behind EU premium cars
• Catch up to achieve best seat comfort driving market demand for KA systems
JAPAN • Increasing customer interest in high-end pneumatic systems EUROPE CHINA • High fitment rates & • High market growth rates increasing penetration into • EU premium OEMs carry lower segments over comfort features into China models • Comfort products as differentiator for consumers
116 Questions? THANK YOU FOR YOUR ATTENTION
117 ADVANCED FLUID HANDLING David Redfearn – VP S&M Fluid
118 Advanced Fluid Handling – Our focus & journey
Business focus ▸ Growth opportunities & competitive advantages as a supplier of air handling & high performance hose products for vehicle & industrial markets
Our Journey ▸ Implemented business area focus teams; Introduced advanced manufacturing processes & equipment ▸ Breakthroughs: contract for China; new product development for US market ▸ Globalizing current & future product portfolio ▸ Engineering the industry’s most innovative, reliable, and safety orientated products matching industry trends & customer needs
119 Fluid Transfer Systems - Product lines
LTM Q3 2015 sales Product lines KA growth expectations
▸ CV OEMs further adoption of 12% lightweight couplings with safety Above features should yield an above market 35% average global CV growth 211 ▸ Product development allows to MEUR grow for target segment as well 39% Above to reduce manufacturing costs by market automotive approach 14%
• Couplings ▸ Niche player in high performance In line with • Industrial tube products (powertrain CV and market • Tube assemblies high PV) performance • Tube assemblies ▸ Small player in standard tube products (PV chassis ) Below CVP CAGR (2015-2020): 7.5% market PVP CAGR (2015-2020): 3.2% 120 Breakthrough contracts
New business wins Q4 2014 – Q3 2015
Secured 100% supply award for Industrial 12% 8% European Truck Manufacturer on ABC coupling range & Couplings 34% received first award from China 46% Tube Assemblies based OEM High Performance Tube assemblies €45m
Industrial Business awards Awards for fluoro-comp high for PTFE hose and temperature hose increasing assembly portfolio totaling presence with global OEM €9.5m €37m
121 AIR HANDLING SYSTEMS - COUPLINGS
122 CV Airbrake Couplings – Growth drivers
CV AIRBRAKEAIR BRAKE COUPLINGS COUPLINGS - GROWTH - DRIVERS DRIVERS
QUICK SAFETY CONNECTIONS, FEATURES REDUCING ASSEMBLY TIME BUILT IN MODULAR, REDUCING COMPLEXITY
GLOBAL LIGHTER LEGISLATION SAVING CO2 INCREASED DURABILITY, REDUCING EMISSIONS
123 Airbrake Couplings - within a high potential segment
▸ EU dominance continues
▸ USA product launch
~74E MEUR ▸ Asia fitment increases 68MEUR Sales Sales ▸ Increased air actuation in Truck & Bus area
2014 2015 2020 Europe South America Asia *Kongsberg Automotive estimates
Well positioned to enter USA and Asia 124 Airbrake Couplings EU dominance, USA launch, Asia fitment rate increases
9% 63% 5% 0% 55% 0% CAGR (2015-2020): 9 %
CV CAGR (2015-2020): 7.5 % 15% 21%
2015 market share 2020 market share 125 HIGH PERFORMANCE TUBE ASSEMBLIES
126 127 Tube Assemblies CV+PV Powertrain – Growth Drivers
TUBE ASSEMBLIES CV + PV POWERTRAIN - GROWTH DRIVERS
BIO FUELS SAFETY ENGINE FIRE RESISTANCE DOWNSIZING CRASH RESISTANCE
GLOBAL FUEL REDUCTION LEGISLATION WASTE HEAT TAILPIPE EMISSIONS VEHICLE EMISSIONS RECOVERY
128 Tube Assemblies Powertrain for CV & PV ▸ Fluoro-Comp global growth ~73E 69MEUR MEUR Sales Sales ▸ Increased fitment in Asia
▸ Downsizing & safety driving growth
▸ Globalization opportunity
2014 2015 2020 Fuel/Bio Fuel Turbo EGR Airbreak bulk Coolant Others
*Kongsberg Automotive estimates
Focus on high performance tube assemblies
129 High Performance Tube Assemblies CV + PV Downsizing & Emission drives fuel line growth
8% 8% 5% 5% 0% 1% CAGR (2015-2020): 5 %
CV CAGR (2015-2020): 7.5% PV CAGR (2015-2020: 3.2% 0% 0%
2015 market share 2020 market share 130 INDUSTRIAL
131 Industrial – Growth Drivers
INDUSTRALCV AIR BRAKE DRIVERS COUPLINGS - GROWTH - DRIVERS DRIVERS
PRODUCT SUPPLY CHAIN DEVELOPMENT MANAGEMENT CUSTOMER MODULAR, EXPERIENCE REDUCING COMPLEXITY LEVERAGE AUTOMOTIVE TOOLS
TRAINING CUSTOMERS STATE OF GLOBAL ART EQUIPMENT FOOTPRINT
132 Industrial Attractive niche growth segment
▸ One Stop shop for PTFE hose
~30E MEUR 26MEUR Sales ▸ Wide segment base Sales ▸ Increased product range
▸ Globalization opportunity
2014 2015 2020 Catalogue/General Bikes, motorbikes Construction, hydralic Medical, pharma, cosmetic Food, beverages Breathing
*Kongsberg Automotive estimates
Focus within high end segments
133 Industrial Strong growth with a broad segment portfolio & globalization
17% 25% 7% 12% 1% 8% CAGR (2015-2020): 12 %
- -
2015 market share 2020 market share 134 BEING WITH THE RIGHT CUSTOMERS MAXIMIZING THE VALUE POTENTIAL
135
Unparalleled Customer Relationships
Selected
customers PV customers
Selected
customers CV customers Industrial
Selected customers Selected 136 Est. share of KA 2015 revenue within CV+PV The Right partners 19% 9% • CV customers leading the market in 8% USA & EU with partnerships in Asia 6% 5% • Customers value drivers such as safety 4% & durability match those of KA FTS 3% 3% • Largest Auto customer is the global 2% leader in SUV segment & globalizing at high pace
Est. share of KA 2015 revenue within Industrial • Wide Mix of Industrial customers that 10% lead in each niche segment they serve 8% 4% 3% 3% 137 Questions? THANK YOU FOR YOUR ATTENTION
138 Financials TROND STABEKK, EVP & CFO
139 Revenue growth still on the soft side
Revenues EUR Million
▸ Trend influenced by 1.005 1.011 981 979 993 exchange rates
▸ Underlying revenue down approx 2.5 %
Q3 14 Q4 14 Q1 15 Q2 15 Q3 15
140 Slightly reduced run rate on Group EBIT
EBIT and EBIT Margin EUR Million and percent ▸ Positive improvements from productivity and reduced purchase prices 52.5 63.2 57.8 57.9 57.6 ▸ Higher cost in R&D accross the group 5,9% 5,6% 5,4% 5,0% 4,8% ▸ Some operational issues in Driveline related to Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 launch in 2015
141 EBIT improvement levers over last 4 years
• Yearly contractual price • Improved gross margins through reductions • Improved productivity and • Inflation material cost • Increased R&D and project • Reduced plant fixed cost resources
142 Significant increase in R&D to address future growth
143 FINANCIAL TARGETS
144 Ambition still above 13 % Return on capital employed
Return on Capital Employed (ROCE) Multiple levers for improvement Percent
Revenue growth has been slower than expected – key lever to deliver improvement
Improved margins in Driveline has been slower - increase in R&D has been higher than expected
Higher capital efficiency, Have been positive, but still more to do on working capital
145 Focus to continue reduction in gearing towards target
Need to improve cash flow through NIBD/EBITDA Times ▸ Growth in top line
▸ Improved margin
▸ Continue to manage capital side
Target
146 TREASURY
147 Current funding structure
▸ Loan agreement with DnB, Danske Bank and BNP Paribas
▸ Maturity 2018 with possible extension with 1 + 1 year gives ultimate maturity 2020
▸ Tranches in EUR (162 MEUR) and USD (172 MUSD)
148 Significantly reduced interest expenses
Interest expenses (LTM) 25 ▸ Interest expenses
20 reduced by 50 % over last 4 years 15 through a
MEUR combination of 10 reduction in debt and improved 5 terms
0 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 11 12 12 12 12 13 13 13 13 14 14 14 14 15 15 15 149 Summary
Revenue EBIT Capital employed • Need to • Continue to improve • Need to continue continue with margins in Driveline to optimize high level of • Continuous improvement usage of asset business wins & in cost base base & working launch orders • Operational gearing of capital ratio and booked over last revenue growth balance capex years versus growth
Focus to improve return on capital employed
150 Hans Peter Havdal, President & CEO SUMMARY: TRANSITION TOWARDS A MORE FOCUSED KA
151 Key takeaways
• Strategic review of all segments and products concluded with decision to focus on 3 growth platforms Focused strategy – Seat Comfort – Efficient Powertrains – Advanced Fluid Handling
• Directing R&D spend and investments to high-growth segments with unique offering Enhancing growth with technology • Growth platforms expected to grow significant post 2020, timing for stepping up R&D effort is now
• Conventional products remain important in terms of scale and cash flow to fund further growth Optimizing product portfolio • Continued review of segments and product offering to reduce complexity with divestment of Light Duty Cables unit in 2016, and phase out Head- and Armrests products
• Securing a robust platform with dividend potential in the medium term Financial platform – Key focus on R&D spending and debt reduction in 2016 to create a sustainable platform with dividend for growth potential – Materialization of R&D investments in revenue growth from new contracts in 2017 will allow dividends to be prioritized 152 THANK YOU FOR YOUR ATTENTION QUESTIONS & ANSWERS
153