Ladies and gentlemen, apologies for the delay. We warmly welcome you to the Q3 2026 Earnings Call of Kontron AG. I am pleased to welcome Kontron CEO Hannes Niederhauser, CFO Clemens Billek, who will guide us through the presentation shortly, after which we will move on to a Q&A session via audio line. With that, I am handing over to you, Mr. Billek.
Hello, and a warm welcome from my side. Let me guide you through the most recent company highlights and Kontron's Q3 results. We had significant growth in key markets. There was strong growth again in defense. It was actually even stronger than in Q2. In Q2, we had a growth of 32%. Now it is even higher at 36%. The software division grew at 15%, and transportation grew at 5%. All in all, we achieved an adjusted EBITDA of EUR 50 million. That is an EBITDA margin of almost 14%, and it is +5% if we compare it to the third quarter in 2025. The operating cash flow has been reversed from negative, so it is back to the positive in Q3 after negative Q1 and Q2. We expect a strong operating cash flow, particularly in Q4 this year. Most of you already know we had a significant cash in.
We received the EUR 126 million outstanding from the congatec transaction, the COM business deconsolidation in Q3. We told you in summer that we expected it later, but eventually it was already paid out in September. Let me give you some company highlights as well. You are aware that Ennoconn and Foxconn have launched the tender offer in Q3, mandatory tender offer. It has been finalized and concluded already in Q3. Ennoconn has increased its stake from 28% to 48% in that time. Following the tender offer, we are now preparing, we have initiated a significant synergy program with savings of around EUR 40 million per annum for Kontron alone. It had started already and is expected to materialize within the next years. I mentioned that defense is growing. Defense is further growing fast. We expect around 30% growth to around EUR 200 million, could be even slightly above that at year end.
The growth in defense is expected to continue for Kontron, in particular in 2027. The GreenTec restructuring has been completed in Q3. We expect savings out of that restructuring program of around EUR 30 million on a run rate basis. You started to see it already in the recent results. 444 persons, FTEs, have been reduced already out of the target of 500 FTEs. Let us look at the major KPIs of the third quarter. Revenues are down 7%. Well, there was a slight adjustment if we compare Q3 2025 to what it actually meant on an adjusted basis. We take out the IT service operations we have sold in the meantime. But it is still down 7%. Well, the supply chain crisis was weighing on the result. You see that clearly in Q3. At the same time, the order entry, it looks like we had a book to bill of just one.
However, you have to bear in mind that we had a very strong order intake of almost EUR 500 million, and at the same time, we decided to take out EUR 130 million of Volkswagen orders for Wallbox chargers. We took it out of our books. On a net basis, it looks unchanged. However, the order intake was very strong. We will tell you more about the Volkswagen outlook and why we did that in the third quarter later on. The gross profit was also burdened. It was even more burdened by the delinquent backlog, and the supply chain crisis is now at EUR 148 million in the third quarter. At the same time, on the EBITDA level, you start to see a cost discipline.
We had reported EBITDA of EUR 41 million, but you have to bear in mind that we had the third quarter restructuring charges again of more than EUR 8 million, translating into an adjusted EBITDA of EUR 50 million. If we compare that to last year reported EBITDA of EUR 48 million in the third quarter, we had a slight growth of 5%. That translates with the same pattern in net result of EUR 25 million, compared to EUR 22 million reported of net result in the third quarter last year. That is EUR 0.41 a share in the third quarter alone. The operating cash flow, it looks significantly lower, and it is significantly lower, but you have to bear in mind it has been reversed, so it is positive operating cash flow in the third quarter.
It is despite of the supply chain crisis that we achieved EUR 18 million of positive operating cash flow in the third quarter. Looking at the KPIs for the first three quarters, revenues are down around 2%. If we compare to EUR 1.1 billion, order entry versus revenues, book- to- bill, 123, and significant order intake, EUR 1.5 billion of new orders alone. The gross profit was down 7% to EUR 459 million, and the EBITDA is up 7% on an adjusted basis to EUR 151 million. What are the adjustments there with regards to the EBITDA? We had a very strong EBITDA in Q3 2025. It was almost EUR 200 million. Please bear in mind that we had significant deconsolidation effects from the COM business deconsolidation with congatec, where we received EUR 126 million now in the third quarter of this year. Operationally, it was an EBITDA last year of around EUR 140 million.
If we compare that to the adjusted EBITDA this year, taking the EUR 25 million total restructuring cost into account, we have a growth of 7%. These restructuring costs are done, so the by far largest part of the restructuring charges have been taken already in the third quarter, and you should not expect significant restructuring charges on that program going forward. Same pattern with regards to the net result. We had EUR 74 million of adjusted net result, or EUR 1.19 a share on an adjusted basis. The operating cash flow, it is positive also for the first three quarters. You have to remember, we had negative Q1 and Q2. Overall, Q3 had compensated also Q1 and Q2, and we have reversed total cash flow.
We expect a significant cash in on the operating side, significant operating cash flow of around EUR 100 million in Q4 alone, in line with the last years, where always Q4 was by far the strongest quarter in terms of operating cash flow. Let's have a brief look at the Kontron Group balance sheet, which has further improved. The equity grew by 4% to EUR 777 million, translating into an equity ratio now of 43.4%. We came already strong above 40%. Our target is to be, at least in the midterm, above 40%. We were already above 40% at almost 42%, and we're now over 43%, and you still see a growth and improvement in Q4. Total net debt went further down. Obviously, you see the impact of the congatec cash in.
The total net debt went down to EUR 135 million, and it's going to get to around or below EUR 100 million in the fourth quarter. Well, at the same time, working capital, it's up. We have been significantly reducing working capital in 2025. Now it's going up due to the supply chain crisis, and you see where is it coming from. Well, if you look at inventories, it went up from EUR 318 million to EUR 400 million. That's the impact of the supply chain disruptions of EUR 82 million in total. We expect lower inventory at year-end. Could be getting closer to the inventory level at year-end 2025. We expect a level of around EUR 350 million at least. Well, why is that coming from? We expect a reduction in delinquent backlog at year-end, and this will translate also obviously in reduced inventories. Additional disclosures.
In more detail, looking at the revenue growth breakdown, we had reported third-party revenues in the first three quarters of EUR 1.2 billion. If we take the deconsolidation effect of the COM business last year into account, it would be a deduction of EUR 39 million. We sold the part of the IT service business in Bulgaria and in Hungary, another EUR 19 million. That translates in a real organic growth of 1.8%. Why is that? Why is there negative organic growth of 1.8%? Well, we had significant delinquent backlog of almost EUR 70 million in Q3. It started already in Q1 with EUR 33 million, went up to EUR 50 million, and we're now at EUR 70 million, probably the peak in Q3. If we look at the revenue growth with regards to GreenTec, you see that the GreenTec business, which is not a division anymore, because it has basically halved from EUR 120 million to EUR 64 million.
If we deduct that, the effect from the GreenTec business, we had adjusted revenue growth basically of 3.8%. Looking at the EBITDA, I already mentioned we had reported EBITDA of EUR 126 million. The restructuring program cost us around EUR 25 million in restructuring charges, mostly in personnel expenses, layoff payments. It's finished now, and it was expected at the beginning of the year at EUR 25 million, and we are very close to that amount at the end, resulting in an adjusted EBITDA of EUR 151 million. Well, status of liquidity, we now have around EUR 250 million cash on hand and EUR 200 million of available lines. So, acquisitions are possible again. We have presented the new core dividend policy already at the Capital Market Day but let me reiterate it here. Ennoconn, our core shareholder with 48%, rather ask for dividend and share buybacks.
They obviously, they don't want to go in the shareholdings above 50%. It would be detrimental to all stakeholders. They expect dividend growth. For 2024, we had dividend of EUR 0.60 a share. You're aware that in 2025, we did not pay out the dividend as we executed a share buyback program. We have bought back EUR 30 million of shares. For the fiscal year 2026, the dividend proposal is expected to be at EUR 0.65 a share, and that dividend is expected to grow further until 2030, where we expect a dividend of EUR 1.5 per share based on our long-range plan. If you compare it to a current share price, that's a dividend yield of over 7%. The dividend payouts are to be funded from free cash flow. We have a cash conversion target, a cash generation capability measured by free cash flow.
The cash conversion rate target is currently 75% of EBITDA and as operating cash flow, and the larger part of that being the source for the dividend payout. If we take the free cash flow for the last 12 months, we would be at around EUR 46 million. Let's go to the comparison of the last two years, a bigger picture of the Kontron development. You see that revenues grew not over the last two years. You see the impact of the divestments of entities, most notably the COM business, and also in 2026, the impact of the delinquent backlog. We're now at EUR 1.1 billion for the first three quarters. Gross margin pretty much unchanged compared to last year, 41.6%. That is going to grow again, closer to the 43% we had two years ago in Q3.
The EBITDA, you see the first impact of our cost discipline and the first impact of our restructuring program, which cost us EUR 25 million in the first three quarters. Same picture with regards to the net profit, where we are getting operationally stronger. If you look at the equity ratio, that's improving a lot. It's been improved from 35% to now over 43% already, and to be further improved in Q4. The working capital obviously has improved until year-end 2025 to below EUR 300 million. It's been rising over the last three quarters. We expect an improvement in Q4 based on the reduction of delinquent backlog. It was obviously burdened by the supply chain crisis. The operating cash flow, it's pretty insignificant in the first three quarters. Why is that? It's seasonally weak.
We always have the, by far, strongest impact of operating cash flow in Q4, and we also expect a very strong impact this year of around EUR 100 million. If you look at the personnel headcount, you see the impact of the restructuring program, particularly in 2026, while we have not laid off our engineering capacity so far. Net debt development, constant improvement. We are at EUR 135 million now of net debt. We are well within the target range of 0.5 to 1 times EBITDA. In Q3, there was a big step, and we are actually on the lower level of that, on the top side of that, closer to 0.5 times EBITDA due to the cash in received in Q3. This EUR 135 million is going to improve further in Q4, so you're going to see maybe even below EUR 100 million of net debt at year end.
With that first overview, I am handing over now to Hannes.
Good morning also from my side. Also a warm welcome to our earnings presentation. If we talk about the orders, it was already the same the last years. Kontron is the world champion in receiving a lot of orders, and for some reasons, we are always lagging behind of delivering all of that orders. Also Q3, a lot of people liked our technology. If you look at these slides, we went from EUR 2.5 billion firm backlog to EUR 2.75 billion. In this, there is the reduction of EUR 130 million, what we do not count anymore from Volkswagen. Otherwise, it would be even at EUR 2.9 billion. That translate in, for this year, it is now November, and we have significant orders on the books and scheduled shipments for EUR 1.614 billion. So if we manage, let us say, from our delinquent backlog to reduce it by EUR 45 million-EUR 50 million, we will make our numbers as we said.
Where do these orders come from? Kontron is the company of light and shadow or the two speeds. We see also this quarter, and as in the full year, a lot of tailwind coming from transportation. We won, for example, Germany. You heard probably about the two hours of delay what happened in the train system in Germany. Well, the result of that was a nice order for us with three digits to improve the time of standstill in the worst case. We received a three-digits order from France, also three digits. We have from Belgium an order, we have from Spain an order, and it looks like in this area we are gaining more and more market share. We have also huge orders in the pipeline for train with the biggest order of our history of EUR 250 million coming in Q4. So, train works very well.
Defense works very well. You do not see here defense contracts because it is more or less every of our customer forbids us to talk openly about these contracts. But I have orders in the same magnitude, A, in process, and B, taken in Q3, which are really summing up to several hundred millions. On this, mainly out of the drone business in Europe as well as in America, and we even developed a new technology, a new standard for the drones now called VNX, which is a, let us say, miniaturization of VPX system for communication of drones. So, the coverage for this year is 100%. If we talk about the two segments, what we have, the IoT segment was slightly down in revenues. That is also, you see here, 837 versus 779. That is the divestment of last year.
And so also depressed, we are not doing as good in the IoT division as we do in the software and solutions. If we talk about the supply chain issues, there are four products which are on allocation since six months. It is flash memories, it is DDR4 RAMs, random access memories, Intel CPUs, and at the moment, most problem comes out of PCBs. All of the products are used heavily by AI systems, and prices increased a lot. If we talk about our gross margin, these supply chain issues, we have to buy sometimes part from the gray market, which probably have higher, or from the brokerage, which has probably higher cost. On the other hand, we have a trend of getting gross margin up by pushing our software and solutions, gaining more and more share.
So, delinquent has also some small impact on the gross margin, but that is covered by our software and solutions business. The 6860, we had EUR 30 million in Q1, we had EUR 50 million in Q2, now we have EUR 70 million. First of all, one of the reasons is that we have a strong order intake all the time, but mainly we cannot ship. This EUR 70 million translates right away in EUR 50 million of more inventory, what we bought all the parts, and then one small part was missing to deliver. And it also translates in, let us say, emergency parts. We increased our stock just to be able to deliver in this time. Since around one month, we have partially and more and more access to Foxconn SAP system and their preferred supplier list.
And we hope, or we are sure, that this will solve itself by Q4 by using the purchasing power of Foxconn. Foxconn, by the way, is not suffering so much from allocation of chips. About America and our international business, we have factories in U.S.A. which are also ITAR and US Army approved. AS9100, that is the defense standard. ITAR is the approval of the US Army. They absolutely have to be local, so this gives us tailwind. We consider with the technologies what we have and the products what we have, we should easily raise U.S.A. to 30%. China is not so easy, but especially areas like avionics or high-speed trains, we are also gaining more and more momentum in Asia. And we released our synergy program with Foxconn and Ennoconn at the last Capital Market Day.
We are really preparing on that, and one of the first and biggest synergies is in the U.S.A., where we will cooperate with Ennoconn and Foxconn on the sales channel in America, and creating together one of the strongest supplier bases to that region. And by the way, Ennoconn, Foxconn like our brand, and we also will sell some products of them with Kontron brand, which fits into the IoT space. Better looks, the software and solution that systems had been started 2020. The difference to the common IoT solutions is it is particular solutions for vertical markets. We had last year four divisions where we put the focus here. We closed one, that is GreenTec. We focus now on defense and trains and cybersecurity. All three areas perform very well. The GreenTec burden, we are in a good way to close that, so it is not the problem.
Currently, most of our engineering goes into that segment. Obviously, this was not affected by the cost-saving program. We are even hiring and increasing in this area because we have growing business. Yeah, EBITDA margin is 70% here. That is burdened by GreenTec from the last things what we had there. It should be 20% without it, yeah? The second thing is these special solutions are very close to the customer, a lot of technology and software content. This business is currently mainly in Europe, but we are, since the last months, starting to roll out globally, together also with Ennoconn. For example, one in Thailand, a railway system, yeah? The CRA compatible AI-supported KontronOS, which is taking a lot of our R&D expenses. We, for example, our Wallbox team, which comes from GreenTec, we moved to CRA services and to ARM.
What will be a strong tailwind is we have strong interest in CRA from Ennoconn and Foxconn, which has to create a software center and service center in Taiwan as well as in China to fulfill that needs, and I see here a good request for our CRA cybersecurity products. Transportation, the high-speed trains, we are market leader. We are the only supplier dedicated also for the new standard FRMCS, which is not in place yet, but in all tenders, there is the request for upgrade compatibility to FRMCS, so we have that. We are currently expanding with FRMCS to neighbor areas of that business, to the 112 alert systems needed in that areas, as well as to the service technicians for service of trains and railway stations and so forth. The book to build in transportation is huge, over two. Defense and aerospace is currently our strongest area.
We did grow here year-over-year over 30%. We won several drone contracts, and we are a major NATO supplier for encrypted data communication. Talking more into details, if we talk about our cybersecurity, there is more and more AI going into that area. So we are, let us say, technology-wise in forefront of that technology. Now we see also, last time I said still not growing that fast, but now we are starting to see growth in that area as well, which is a 10%-20%. Particularly with this interest from Foxconn and Ennoconn, I would see a huge speed up on that. This year, CRA is a regulatory necessity.
The European Union invented it, and people said, "I do not want to start it and integrate it that fast because it is only cost." But the trend is going ahead, and today, if you have products which are not CRA compatible, you will really lose market share. Our product per se is not CRA product, it is parts of CRA product. Yeah. For example, if we control a welding robot, the welding robot has to be CRA compatible and not our control box internally. But if the control box is not, then the robot has no chance. This year at the SPS show, the biggest industrial show in Europe, which will be in November, the main focus topic will be a Cyber Resilience Act because it is getting more and more important for the industry.
Next week I am in Taiwan, and in two months again, followed by a whole delegation of CRA engineers and cybersecurity specialists to build up that software center in Taiwan. Talking about defense, as I mentioned before, that is growing the most. We have here, our limit is more or less our capacities at the moment. We are winning a lot with VPX, which is our high-speed data communication system with strong encryption to protect sensitive data. We certified meanwhile three factories, and they are in the process of number four for AS9100, that specific requirements needed for defense. We have the ITAR approval. Yes, we benefit from the strong spending of all countries. New is we just released a new standard, VNX. This is the VPX systems in a very light and small form factor, specifically designed for drones.
At the moment, we see really the biggest business coming from the drones. Not to say too much about it, there is a German high-speed drone, ultrasound jet, which is considered the best drone of the world, killing any human fighter jet. That is a business in the double digit, almost triple digit millions. The Deutsche Bundeswehr, what we delivered last year, and they had a contract with EUR 20 million, and that been already more than doubled, and we are delivering full steam on that. That is together with Blackned. We are just in the next step qualifying another product in this direction, a switch for the Deutsche Bundeswehr for the data communication there. Then we have an American drone manufacturer. Well, it is considered startup, but there is already EUR 10 billion of revenues, which is number one in the U.S. drones, which has a high content of Kontron.
What I want to mention, we won this year a EUR 60 million contract, I can say that as well, from Telesat. This is a competition to Musk's Starlink system, and has this low earth orbit satellites, where we do the communication with, and that is EUR 60 million we received from that. Thales is doubling this year, was our customer for a long time. It is the first time we are now involving their AI systems together with NVIDIA. We are also official NVIDIA partner meanwhile. Gogo is also going into that satellite networks in U.S.A. So there is a lot of order intakes in that business, what I am not so allowed to release in big numbers, but the defense business is, I believe, even better doing than the transport business. What is doing wrong or bad is obviously the standard IoT business.
If we talk about trains, as I mentioned, we will hopefully receive in Q4 the biggest order in our train history in a magnitude of a quarter billion or more. That is one. The 50% market share is still expanding, so we are winning market share all the time in that area, and the main reason is that, let us say, competitors did not put that much development energy in FRMCS. There was recently the InnoTrans show in Berlin, which I was there as well, and I really can say almost any country of the world is interested in our FRMCS solutions. It is driven by infrastructure spendings. It is driven by the Silk Road, so a lot of those countries from China towards Europe look for that high-speed solutions. We are on the way outside Europe. We also offering We won Thailand, as I said before.
Last year, we won Egypt, and currently we are quoting India. We are doing that always with big partners. In Thailand, it was with Foxconn. Egypt and India, we are offering with Siemens because we are not set strong in service and so forth in that countries. We are delivering more technology. We are expanding to a lot of countries at the moment. Cost-saving program. As mentioned before, that's finally done. 400 people have been somehow replaced or outplaced within the first nine months. Most of that came out of the GreenTec area, and 44 another contracts have been signed, so we will end up the year even with doing nothing at 6,200 people. There's no more cost to this program to expect. It's done. Everything is prepared and reserved off.
As I said before, it was mainly dedicated to the GreenTec business, which is, let's say, now 25% to what it was three years ago. Just in Solavamp, our top five, six customers, five of them went bankrupt. Like Sonnen recently and so forth. We have no further reduction planned, so we are now seeing the effect of people going up again because we are hiring in defense and in railway and in software. We also reduced external support engineers, 54. That's all of them, by the way, in that area. We also closed locations, for example, Halle, Mauerstetten, and Munich. So some of those factories, we even closed them totally. The cost of the whole restructuring was planned to be at EUR 25 million, and we met that plan, and we kept that plan. What's the impacts of it?
We expect EUR 30 million of cost saving in 2027. Majority of that in staff cost, but also in other costs like these locations what we don't have any longer. You see already almost EUR 5.5 million savings in the Q3 staff versus Q2, which is the first time that the lower cost is exceeding the severance costs. So, that's on the way, and I'm positive the EUR 30 million will be happen, and it will be also integrated in our budget 2027. A key issue what we want to mention today is Volkswagen. We had a contract with them for EUR 260, EUR 270 million of selling close to 500,000 charging station to Elli, that's the subsidiary of Volkswagen, for doing home charging.
Well, they principal did not buy a lot or according by the contract, so we started already to claim money from them, and the order what we have with them is binding, so there's legally no way out. Volkswagen will have to pay a compensation. I expect that to happen in Q4, but you never know. At the moment, we are still negotiating. We are in parallel preparing to put the claim at the court just to increase the pressure. I expect really a compensation, let's say, exceeding EUR 20 million significantly on that. But we do not expect revenues out of that business any longer, which might even be the case different because the customers of this Wallbox charging system so far, they still need service and they still might need products. They can't get them from Volkswagen. We are negotiating with them probably to serve that ongoingly.
That is also part of our settlement discussions. We do not know what will be the result. I do not want to go too much into details because the lawyers of Volkswagen might also listen to this earnings call. But it is something Volkswagen as well as us wants to have that settled, let us say, in the next three to six months. There is a new program what we are working on. We are working permanently. Kontron has relatively high R&D costs because we do a lot of technology. We do not want to reduce our technology, but we want to reduce our cost for the technology. I believe we are the world market leader in low engineering cost, which is currently fully loaded, including social cost and everything, EUR 49. Just in Germany alone, that range would be at EUR 85-EUR 90.
We have a lot of design centers in relatively cheap areas, and we want to further reduce the hourly rate also with the help of Foxconn to get to 43%. We have currently low-cost design centers in Romania and Bulgaria, Macedonia, Slovenia, and Malaysia. With Foxconn, we also talk about getting more capacities in Vietnam and Philippines, China, and Taiwan. All those R&D capacities are clearly focused on software and solutions. Two-third of all of those costs go there. With this new program, that is a significant saving in the next two years of around EUR 30 million, EUR 40 million with this 2% of reduced cost and to reduce the hourly rate. Ennoconn and Foxconn. Ennoconn increased its share to almost 50%. They do not want to go over 50% not to harm our railway or defense business.
Actually, all the synergies I am talking here will not happen with those two divisions, which, let us say, reluctant to work with Chinese people. All the synergies I am mentioning here are happening with the traditional IoT business segment mainly, but also in the software where I mentioned Foxconn is very much interested. One of the synergies what we really will start this year is the joint sales channel using each other products, having contracts in place to calculate for that. That should be happening also by Kontron brand, which is considered as a leading one in the IoT business. Also, Foxconn products will be sold via Kontron in America. Then the next market we want to attack together is Southeast Asia, the so-called Tiger countries. We are discussing with 16 countries and sales organizations within Ennoconn to cooperate in selling our products.
Our revenues in this area is currently zero, but we won, for example, the Thailand contract for one railway station I mentioned before. Europe is the other way out, away. Just next week, there will be electronica show in Munich, and we will the first time offer joint ODM services. We have a ODM department with engineering a lot and also production. We offer the backup of Foxconn Ennoconn production services, which are, by definition, very cheap, but in China. Our customers can have a European production and pay more, can have a China production.
Since all the engineering tools are together, we can interchange between the factories very easily. The customer also can have a product designed in European engineers very close to the customer and produce in China if he wants to, and he has still one hand to be responsible that will be Kontron. So there is no feeling that they would have two suppliers there. We hope also to represent that model the first time next week, but we have already in the forefield a lot of requests for offering that. The second thing, when I started my job, like 40 years ago or 30 years ago, there were a lot of European companies who sold their product in China, and they asked for Chinese manufacturing to be local. Today, the world changed.
There is a lot of Chinese technology companies who want to produce in Europe to have the label made in Europe. That is also something where Kontron wants to benefit from. We have the connections to these Chinese high-tech companies, and Foxconn is one of them. If we talk about technology, I mentioned already before, we will expand the Kontron portfolio with Foxconn products. I give you example. We are doing some modules that is very low-cost control systems for lower-cost forklift or something like that. Elevator. System like that, including software, is less than EUR 100. A leader in ARM is MediaTek. This is the fastest-growing CPU company of the world, growing faster than Intel, growing faster than AMD, well, growing around the speed of NVIDIA, and also having a high market cap.
They are leader in ARM and 5G connectivity, and we will sell in America their SOM module with the MediaTek ARM. We will not design that. We just sell it. It fits into our family. It will get our software on board. So, that is a easy way to expand our product portfolio. With this, there is the world market leader, Advantech, in that area, but Kontron plus that product will have a much wider product range than Advantech. The second thing is we have these 5G NADs, in our cooperation also with Qualcomm. A good business. We have almost $300 million of orders on the books for that, and we just recently started the delivery of the 5G NADs, two months ago, for Mercedes. We also will offer 5G NADs with MediaTek technology, with a different functionality, and this will bring us forward also in the 5G NAD area.
The last point, I mentioned already before, Foxconn, as well as Ennoconn, is very interested in our CRA and KOS software. We are set to market software. We already started to hire people in Taiwan as well as China. Taiwan is the first step. We will install CRA on Foxconn products. There is a high interest from that area, particularly on AI-controlled ones. What is the impact? The total impact from this sales channel is $84 million by 2029. Next year, we will split that 50/50. For next year, I see EUR 14 million additional EBIT for Kontron on that. The last word, the cooperation on that should go up to EUR 36 million in 2029, which is our 50% on the $84 million, what I mentioned before. Supply chain, as I mentioned before, we have now a BI bridge to Foxconn SAP.
We can participate in their preferred supplier list, and that will help us to reduce the delinquent backlog. Hopefully, everything in Q4. Which ends to say about our forecast, we confirm the current guidance of around EUR 1,600 million of revenues. EBITDA, the 225 is organic, so EUR 200 million will be after the restructuring program, what we did. We also stick to our 2030 forecast to increase the share of EBITDA significantly to 16%. That's mainly done by increasing our software and solutions business. Thanks for your attention. If you have any questions, please go ahead.
Thank you so much for the presentation. Ladies and gentlemen, now it is your turn. Today, we are taking your questions in person via audio line. For that, please click on the raise hand button below to ask your question. Should you be dialed in by phone, please press star key nine to raise your hand and star key six to unmute yourself. We already do have some risen hands. Mr. Daniel Lion, you should be able to unmute yourself and ask your question.
Yeah. Hi, good morning. Thanks for letting me on. I would have a few. Maybe to start with your backlog, can you please clarify this EUR 511 million that you state as backlog for 2026? How much of delinquent orders are included in this backlog still? Is there still some part of Volkswagen orders included, or have you taken those orders out of backlog fully?
I like to answer that pretty fast. There's no Volkswagen orders included in that. Volkswagen released the information that they withdraw from that market, and they are ordering nothing since three months. The delinquent backlog, let's say a major portion of that is included because we are positive to ship it.
Okay. With regards to the guidance, especially now focusing on the EBITDA and the margin, how much of a compensation would you have included in the guidance? Or is this on top of the guided EUR 225 million EBITDA, adjusted EBITDA?
We have already invoiced some costs to them, so this is included. That is probably 30%-40% of the total amount what we expect. The rest is not included.
So 30%-40% is invoiced?
Thirty, I want 30 is invoiced roughly, yeah?
Yeah. Okay.
The rest, we did not include. If we would have a settlement, it will be an improvement in the EBITDA.
Okay. Good. When focusing on your defense business, it is growing strongly. Have you seen any negative reactions in latest tenders, defense tenders, where you might have been excluded due to the, not majority stake, but still high stake of Ennocon since mid of the year?
We have never been included by any tender because we have a unique product what they need, but we got verbal reactions that this is not, let us say, great for them, yeah? So, I believe they would have a better stomach feeling giving us an order when the stake would be lower. As long as it is under 50%, there is no official reasons to exclude us, so we never had been excluded.
Okay. And then another strategic one. You said you want to expand your mission-critical communication or suits to blue light organizations from transportation basically. How much of synergies would there be, and what are you exactly aiming to tackle within the blue light organizations?
I would say the synergies are very high. For example, one of the products what we showed at InnoTrans was some kind of FRMCS iPad, a special computer which has connectivity to all the train networks as well as FRMCS, secure communications, and it shows the technician how to whatever he has to do when he just repairs some equipment on the station, yeah? This has high synergies. It is also FRMCS, I would say, from our technology, we can do that with 80%-85%, and also the customers are the same.
Would this be rather like control center equipment, or is this basically the on-the-road equipment or the-
No, not on. It is more on the railway stations.
The
And we're doing, yes.
But also for the blue light organizations. It's
It is not replacing signaling at the moment. It is equipping service technicians. All those 20,000 people who work for Deutsche Bahn should have such a system. And the opposite is also the ops crews, yeah? As for all the people who work for Deutsche Bahn and for subcontractors of Deutsche Bahn who fulfill tasks at the railway systems. The synergies is high. And the 112 system synergies is also high because security is the highest part in that. And we have that, and it's no big step from our railway control system to a 112 system to alert firemen and all those others, yeah?
Okay. And two more. Can you provide an update maybe or outlook of what you would expect in terms of cash conversion for 2026? Obviously, you expect a really strong fourth quarter. Not only P&L-wise, but also cash-wise. So, where do you think that we could end up in terms of cash conversion, and when would you expect to reach the 75% cash conversion going forward?
I believe operating cash flow, we always had 75%. If you go historically on Kontron, you always see that the last quarter is by far the strongest. In the last quarter, we do operating cash flow from EUR 60 million, EUR 70 million and more. That happened in 2025, that happened in 2024, that will happen in 2026. It's a normal process.
Okay. Last one, just a clarification on the 5G NADs business. When I understood you correctly, you mentioned that you started delivering Mercedes NADs.
Yes.
Already?
Yes. Produced in Düsseldorf. I had the Minister of Nordrhein-Westfalen in my factory.
Okay. But wasn't this aimed actually to start the NADs business in the fourth quarter, the end of the fourth quarter, with the Asian clients and Mercedes to join later? Maybe can you provide an update on the timeline of the NADs business and the impact?
Mercedes was, let's say, pressing on the speed. That's why they were first. Asians have samples. I would say Asians might have the first deliveries in December. Mercedes had the first deliveries in October.
With regards to the volume, how should we think of the volumes when going into 2027?
We have this 300 million of contracts on the book. What we see, A, at the moment is car manufacturers are slightly slower than they should, which is very normal in technology things, except Mercedes, who's pushing. What we also see is that some competitors really are behind in R&D. So our system is one of the first one that really works. There's quite a lot of technology challenges in that. I can tell you that. Obviously, we are not finished on that yet, but our NADs are more expensive than Asians, but they will have car compatibility. Not now, but let's say in the next five, six months.
Okay. But you targeted like EUR 100 million in annual revenues at 10% EBITDA margin, right?
Yeah.
Are we there yet, or are we higher, or are we lower
No, we are lower.
When it comes to 2027? Yeah, to
2027, I said 2026, we are lower than the target, but not significantly.
And 2027 would meet this range?
We think we will be in the range, yeah. It depends how the cars ramp up.
Okay. Perfect. Thanks a lot.
Thank you very much. Now, Mr. Knud Hinkel, you should be able to unmute yourself and ask your question.
Yeah, good morning. Can you hear me?
Yes.
We can hear you.
Thank you very much. First of all, backlog. How do your customers perceive that? My question would be, do they have alternatives? Do they require discounts or other concessions, or are they prepared just for the shipping? That would be my first question. Second question, you said that there won't be any restructuring anymore in Q4. Is that also true for 2027? Do we have something on the horizon already which might need restructuring? My third and last question would be on your 2030 outlook. You roughly guide for EUR 1 billion of additional revenues compared to 2026. Can you give us a rough idea what you have currently on your mind? How much of that should come from organic growth, and how much should come from acquisition? That would be helpful. Thank you very much.
If you look at our products, software and solutions is very unique. We are single source in that areas, and customer have no power to replace us. That's, let's say, the lower the technology content, the more they are able to find replacement for us, the lower is the threshold. If I go to the other direction, like EMS services, there is what we inherited or what we bought from Kathrein. There is a higher chance that it would be replaceable. Since we moved that business to ODM, it's also very, very secure. I cannot remember, I'm 40 years in the business, I cannot remember losing a customer except for bankruptcy. The CSP is over. We don't see any more cost-saving program cost in Q4. We don't see them in 2027.
What we mentioned, and just to say it again, we have this EUR 25 million of Volkswagen issue, which I don't know the number yet. The auditor will define this non-cash effective, but we will have no cost savings anymore. When we talk about the EUR 1 billion, where they come from, as Clemens Billek mentioned before, we have quite good money in our pockets. That's one. Two, I also don't worry about the cash flow because usually the Q4 is the strongest one in the last five years. It will come. We have enough money to do acquisitions. We're looking at it carefully. They will be mainly in the software and solutions area. I would say from that EUR 1 billion, more than 60% will come out of organic growth, 40% from potential acquisitions. More organic.
The second answer is, within our company, we are the company with the two speeds, and the software and solutions defense, particular trains, will deliver most of that organic growth.
Yeah.
Thank you. That's helpful.
Thank you very much. There is another person with a raised hand. Mr. Tim Wunderlich, you should be able to unmute yourself, and it would also be awesome if we would limit the questions to two to three questions per person so that everybody gets to ask. Thank you.
All right, thank you. Thank you so much for taking my questions. Can you hear me?
Yes.
Perfectly.
All right. Yeah. Good morning. Thanks for the presentation. I will try to be brief, then jump back in the line because I do have more than two to three questions. But, sorry, I could not listen to the entire call, so my apologies if some of this has been discussed. First of all, gross profit, you said, and I am talking about gross profit in Q3, you said it was burdened by the delinquent backlog. Can you just explain this in more detail? The gross margin was down almost 3 percentage points. I was thinking maybe about higher component costs, chips, memory, and so on, that that is the burden. What are you doing to counter this? That would be my first question.
My second question, there is a big other income position in Q3 versus close to zero in the year-ago quarter, and this contributed EUR 12.5 million to EBITDA. Could you explain what is behind this?
Yeah.
Finally, how big was the EBITDA burden of GreenTec in Q3 when you are not only including the final restructuring expenses, but when you are also including the operating losses? Thank you so much.
The gross profit, Clemens, at least I myself don't see that we are 3% down. Also, Q3 should be 41%.
It's 41.6%.
Yes. It's not 3% down. It is in the same range than last year. What we see, we see a burden, like you stated, that we sometimes buy chips from brokers. They're more expensive. Usually we have the power to expense that to the customer, but the process is also not always fast enough. So there is a burden from the brokerage chips, but on the other hand, we have our defense and transport business growing faster. They're not impacted at all by delinquent backlog, and this brings the gross margin up. So both effects wave each other. The second question, the income, we had that stated already before. We have invoices to Volkswagen in. It's also not sure if this will qualify at the end for the income or not. We have to discuss that for auditor.
There is already compensation invoices to Volkswagen in, and that replaces the revenues, let's say, what we didn't do with Volkswagen, as well as the depreciation and damage what we had.
Okay.
That is two.
Okay, understood. If I may just quickly jump in here. I think you said in total you expect compensation payments from Volkswagen to the amount of EUR 20 million. Was that correct?
More.
More than EUR 20 million.
I do not want to say the exact numbers because if I would say it, the Volkswagen lawyers would say, "Hey, he said he only wants 20.
Just so I understand, the EUR 20 million would come on top of the EUR 12.5 million?
They will come on top of the so far invoiced, and we did not invoice 12. We invoiced probably in the range of nine.
Okay.
This were other income.
Okay, thanks.
But that comes on top. That is correct, and it is not in the forecast.
Thank you very much, Mr. Wunderlich. We will get back to you after the next person. Mr. Malte Schaumann, you should be able to unmute yourself and ask your question.
Yes. Good morning. Can you hear me?
We can hear you.
Actually, Tim asked both my questions. On the cost savings, the EUR 20 million target. This is on the EUR 30 million target. Out of that is, as you had EUR 3.5 million in the third quarter, probably EUR 6 million-EUR 7 million in the fourth quarter. You will incur something like EUR 10 million in savings this year, stand wide, and then with a EUR 30 million run rate, there should be EUR 20 million in incremental savings next year. That would be the right way to see it?
We had EUR 5.5 million in Q3, and we still had some restructuring costs in there. You should see for sure more than EUR 5 million in Q4. Let's say EUR 5 million, EUR 6 million. Next year, you should see the full EUR 30 million, maybe EUR 28 million, because we still have some, let's say, smaller things still to come, but they are reserved for. The 27 program, it's fully in.
Okay, good. On the Q4 sales uptake, did that already come through in October? I mean, if I take the EUR 500 million you have as a target for the quarterly sales, divide that by three, the monthly average would be EUR 160 million, EUR 170 million. Is that the sales number you had already seen in October? Is there proof, or do you have gained visibility through the month that you are able to actually catch up?
Can you say that again?
Do you already see the expected catch-up in sales in the fourth quarter coming through in October? That was the question.
Q4 will have, like every year, higher, let's say, significant higher revenues than Q3.
Yeah. This year we need about EUR 500 million in comparison to less than EUR 400 million, so I think the ramp will be quite steep. So is this still the number you are shooting for?
I am shooting somewhere between, let's say, EUR 440 milliion-EUR 510 million, depending on the delinquent backlog what we deliver.
Okay, so without any deliveries, the worst case, so to speak, would be EUR 440 million, and then with a good chunk or the majority would-
We will reach the EUR 500 million, yeah.
Reach the EUR 500 million. Okay. What is your visibility on the supply for the delinquent backlog? So, how confident do you feel in regards of achieving sufficient parts?
It is hard to be 100% confident because we are using new sources. We are using Foxconn, yeah? That is a new process, but what we see is that Ennoconn and Foxconn do not have delinquent backlog. So, as long as we get that rolling with them, we should be able to deliver everything, yeah?
Okay, good. Last question from my side would be on the PCB side. This had come up as a kind of a new issue in the supply chain. Do you see any risks then going into 2027 around PCBs or other parts that the red lights might come up?
My new supplier is Zhen Ding, which is a subsidiary of Foxconn and the biggest PCB manufacturer of the world. They have no capacity problems. They have no material problems. I hope that with Zhen Ding, my problems with PCBs is over for the rest of my life.
Okay, good. Thanks.
Thank you very much. With no further persons in the queue, Mr. Tim Wunderlich, if you would like to ask your remaining questions, you are very welcome to do so.
Yeah, thank you. I had one more question, which I already asked, but I think the answer was missing. It was the EBITDA burden of GreenTec in Q3, including both the operating losses and the restructuring expenses. What did it look like in Q3? Then what do you expect in Q4? How big should be the swing to profitability, stripping out the operating losses and the restructuring expenses? Thank you.
You want to answer, Clemens?
Yeah, let me jump in here. Obviously, we have been doing the restructuring with a view of improving the remaining GreenTec business and taking out significant amount of costs. Yes, so the EUR 25 million we have incurred in cost was largely also with a view to reducing our cost base in the GreenTec area. However, the EBITDA of GreenTec was, as you rightly guessed, also negative. So if you take out the impact of around EUR 10 million in the first three quarters, negative impact of the GreenTec operations still in place, we would have a significantly higher EBITDA. What's to be expected in the fourth quarter? The fourth quarter, well, the restructuring is done, so there is no significant further negative EBITDA impact to be expected.
On the EUR 10 million operational impact, there might be still some things because just the last quarter, GreenTec got in half for revenues again. There might be still some portions, but for sure not from restructuring costs. So there might be still something in Q4, but it's not major.
Understood. Thank you so much.
Thank you very much. Now, last reminder to everybody, should you have questions, you are welcome to ask them via audio line by clicking on the raise your hand button. Since we do not seem to have received any further questions, we come to the end of today's earnings call. Thank you for your interest in Kontron AG. If you have any further questions at a later date, please feel free to contact Leon Kleiss of Investor Relations. A big thank you also to Mr. Niederhauser and Mr. Billek for your presentation and your time. I wish you all a successful day and hand over to the board once again for the closing remarks.
Thanks a lot from my side, and if you want to reach out, you can also reach Hannes or myself. We are available on our line.