Good morning, everyone, and thank you for joining us today, and welcome to Kongsberg Automotive Q1 2025 earnings call. My name is Therese Skurdal, Communication Director, and I will be the moderator in today's session. Before we begin, I would like to remind you that questions can be raised in the webcast tool. We will prioritize questions posted in English. Joining us today as presenters are President and CEO Trond Fiskum and CFO Christian Johansson. On the right-hand side of the slide, you will see the topics that they will present today. Now, I would give the word over to our President and CEO, Trond Fiskum.
Thank you, Theresa. Welcome to all, also from my side. Before we get started with the Q1 presentation, I would like to introduce myself. I am Trond Fiskum, the new President and CEO of KA. I took office on March 31st this year, and I'm based at KA's headquarters in Kongsberg, Norway. I hold a Master of Science degree from the Norwegian University of Science and Technology in Trondheim, and I have done a full-time MBA at ESADA Business School in Barcelona, Spain. My previous experience from KA: I worked in KA in the period 2005 to 2015 and held various leadership positions in the company. My experience from KA includes turnaround management, operational management, plant moves, commercial responsibilities, as well as strategic work and development.
I've been responsible both for plant management on a very operational level as well as running a global business area covering 12 different production locations on four continents. Even if there had been many changes in KA since I left in 2015, I believe I know the company and the business well, and I feel that I can hit the ground running. I'm returning to KA after a decade of working in Brazil at MHWirth, which later became HMH. I was responsible for their business in South America, where I gained additional valuable industrial experience. An important part of my experience is about change management and turnaround management and successfully turning financially struggling businesses into highly profitable and successful businesses.
I'm very happy to be returning to KA and look forward to working closely with the Board of Directors, colleagues here at KA , our customers, and other stakeholders, clearly with the ultimate goal of creating value for our shareholders. I will go through the main messages regarding Q1 financials, and later, Christian, our CFO, will go into the financials in more detail. Revenues fell to EUR 190 million, down from EUR 212.1 million in the same period last year, reflecting a decline of EUR 22.1 million, or down 10.9% at constant currency. The decrease reflected the lower demand in the commercial vehicles and passenger cars markets in Europe, North America, and China. Despite high uncertainty and subdued demand, KA experienced a modest uptick in customer activity early in the year compared to Q4 last year, with an increase of EUR 4.8 million, or 2.6%.
EBIT was EUR 2.2 million in Q1, with an EBIT margin of 1.2%, compared to EUR 10.1 million with an EBIT margin of 4.8% in Q1 last year, mainly explained by a lost contribution from the revenue drop of EUR 22 million and by a positive one-time supplier settlement regarding warranty of EUR 2.7 million last year, which we do not have this year. Overhead cost reductions continued. Costs in fixed manufacturing and sales and administration were lower than last year. EBIT improved sequentially versus Q4, mainly due to volume/mix and lower warranty costs. Pre-cash flow was negative at EUR 10.5 million, though improved from EUR -14.9 million in Q1 2024. Even if we improved in the quarter, we still have a negative cash flow, which needs to be corrected going forward.
On this slide, I will take you through our revenue development by region for the first quarter of 2025 versus Q1 last year and Q4 last year. Starting with our two most critical regions, Europe and North America, which collectively accounted for 84% of our Q1 revenues. In Europe, we saw revenues increase by 5.7% compared to Q4 last year, which was a small improvement. However, year- over- year, revenues declined by 10.3%. This mirrors the subdued market, with markets for heavy-duty vehicles declining by 11.7% and passenger cars declining by 9.2%. North America revenues improved by 4.3% compared to Q4 last year, while when compared to Q1 last year, revenues were down by 11.6%, which was consistent with the steep decline in the market production in heavy-duty and light-duty vehicles in that region.
Moving on to Asia, including China, this was the only region with a quarter-over-quarter decline compared to Q4, down by 15.1%. Year- over- year, the region was also down by 17.9%, primarily due to significantly lower sales of KA's Gear Control Unit to a large Tier 1 customer in the commercial vehicles market, as well as a decline in sales of electric actuators to one of our customers in the passenger cars market. This decline does not reflect the regional market trend, as production output for both heavy-duty vehicles and light-duty in this region grew year- over- year. In South America, KA continued its positive trajectory, with sales growing by 10.4% compared to Q4 last year and by 10.6% year- over- year. The market also expanded in both segments. Globally, our revenues improved by 2.6% versus Q4 last year, marking the first sequential increase after several declining quarters.
However, on a year-over-year basis, sales declined by 10.9%, driven by continued demand pressure in our largest markets, Europe and North America, as well as a weaker performance in Asia. Market data confirms that production volumes remain under strain in key regions, particularly in the heavy-duty segment. Christian will come back to that later. The cost-saving program to reduce our cost base that was initiated in autumn 2023 was concluded last year, giving EUR 17 million of annual savings. The overhead reduction program announced in the autumn of 2024, impacting approximately 150 positions in KA, continued as planned in the quarter and remains on track for full implementation by Q3 2025. This program is expected to yield an annual cost saving of at least EUR 10 million, as previously announced. Going forward, there is no doubt that we need to further adjust our cost base.
Additional initiatives are being worked on as we speak. This is a key priority for us. The details of these cost reduction programs will be communicated when we have concluded the plans. As we have shared previously, 2024 was an exceptionally strong year in terms of new business wins. We will now look at how 2025 is developing. Q1 new business wins were broadly in line with our expectations, with EUR 136.6 million of average lifetime revenues. Flow control system had the majority of this order intake, with EUR 110 million, and Drive Control System booked EUR 25.8 million. Some EUR 42 million of the new business wins, or 31% of these business wins, were incremental, while the rest was replacement business, meaning a continuation of existing business.
The new wins were primarily in our commercial vehicle segment, with over 60% of the awards in this key market area, with healthy awards also coming in our passenger cars, off-road, and industrial segments. As previously announced, we were pleased to be awarded a significant business extension from one of our major customers for the Raufoss ABC air brake system, supplied out of our facility in Raufoss in Norway. The contract award will ensure supply through 2029 and highlights the strong position we have with this world-class product. We continue to have a healthy pipeline of opportunities that reflect our growth ambitions with our core customers in our key markets. When we take a look at our new business wins over the last eight quarters, we can see the extraordinary high business wins during 2024, with the majority being extension of existing business.
This is positive for KA, as extension business requires less development cost and CapEx. At the same time, we have a good portion of incremental business wins, which is fundamental for our medium and longer-term growth. This contract for the fast-growing Chinese electrical vehicle segment was announced this morning. Our Dog Cutch Actuator, or DCA, is developed by KA and can be used in passenger cars and heavy-duty commercial vehicles. It takes care of gear shifting and decoupling for multi-speed transmissions, either electric axles or central drive transmissions for hybrid, battery electric, or fuel cell vehicle applications. It has a robust and durable design. It provides great comfort and performance. It is space-efficient and easy to maintain. The customer for this contract is a Global Tier one, serving the electric commercial vehicle segment and multiple OEMs.
In China, we do have a DCA in production already, and this is the next application with the same customer. Development of the product has taken place at our technical centers in Mullsjö in Sweden and in Wuxi in China, while the production will be in our Wuxi plant in China. I want to point out that this contract was awarded in Q2 and is not a part of the business wins we have reported for Q1. Tariffs. We at KA are closely monitoring the tariff situation, and we are actively working to mitigate its direct effects. It has been challenging due to the many changes in the tariff rules and different interpretations of the rules. In any case, efforts are underway to recover tariff-related costs from customers and to optimize material flows within the supply chain.
The direct impact of the tariffs is expected to be limited with the current tariff rules. The primary concern remains the adverse impact of tariffs on overall market demand, most notably in the U.S., but also to a lesser extent globally. We continue to follow development very closely, and we take any necessary action related to the tariff situation. I would like to end this first section of the presentation to talk about the key focus areas going forward. A key focus area will be to further adjust our cost base. This goes beyond the current cost-saving programs. Additional initiatives are being planned and will be launched to reduce our cost base and to improve profitability throughout 2026 and beyond. Details of these programs will be communicated when the plans are concluded. Improved cash flow.
We focus on strengthening the cash flow through a very disciplined CapEx management and a targeted reduction in working capital. A high-performing organization is key to success, and we need to start with the top. Strengthening the KA leadership team is another key priority. We will strengthen the team with the right competencies, mindset, and values. The team will be supported by a clear structure of responsibility and accountability. Lastly, we need to develop our future with innovation and profitable growth. We have an attractive product portfolio and a strong pipeline of innovation projects, and we are well-positioned to deliver long-term sustainable financial performance. We will need to prioritize which innovations to focus on, ensure that we have solid business cases, and manage well the many challenges and risks associated with innovation, including CapEx and warranty costs.
Okay, thank you, Trond.
Good morning and good afternoon, everyone, and welcome also from my side to this Q1 earnings call. I will start with the market update. The market data we use are from external sources. LMC delivers the commercial vehicle market data and SMP Global Mobility, which previously was called IMS Market, the light vehicle data. In the first quarter, commercial vehicle production declined globally by 3.8% versus last year. Regionally, North America had the largest decline by 22% year- over- year, and the production volumes for medium and heavy-duty trucks in North America in the first quarter are presently at a low level and have not been this low since Q3 2021. It is worth noting that it was only in February the customs tariff communication from the Trump administration started.
Europe had close to 12% lower vehicle production versus last year, while in China, Asia outside China, and in South America, vehicle production increased. Light vehicle production globally reduced in the first quarter by 0.6%, while production in North America and Europe was lower year- over- year by 7%, respectively 9.2%. If you look at the full year forecast from the market institutes for 2025, for commercial vehicles, it is now a growth by 0.3%. It was a growth by 1% when I showed this slide in the Q4 earnings call. Forecast has been reduced. There are two larger changes. First is North America, where forecast has been reduced from negative 6% to a decline of 21% for full year 2025. It is also a change in the Chinese market, where the full year forecast has been increased from a growth of 3% to a growth of 9.5%.
We also note the forecast for Europe is a full year growth of 3.1% versus last year. The full year forecast for light vehicle production volumes is unchanged versus 2024, which also was the forecast when this was presented in the last earnings call, with only minor regional changes between the present and the previous forecast. We also note here that the forecast for North America is adjusted downwards to a decline by 3.2%. It is notable that the market forecast in North America now is reduced for 2025, both for commercial vehicles and passenger cars. If you compare then the first quarter performance of KA versus the market, Trond has already shared its performance, so I will be brief.
When we compare KA sales in the first quarter by region and by customer segment, we can conclude on the commercial vehicle segment side that KA has performed better in the North American market as well as in the European market, which of course are very encouraging. In North America, FCS started deliveries to a new vehicle program, and in Europe, DCS held up sales quite well on a broad basis. When it comes to the passenger car segment, our sales declined by 13.7% compared to the market performance of a reduction of 0.6%, and our sales development on passenger cars is primarily an effect of the driveline wind-down as volumes continue to reduce in line with our expectations. In North America, however, we did better than the market based on increased sales of hoses and assemblies in the FCS business area.
Approximately 12% of our revenues in the first quarter was in other markets, so mainly industrial sales in Europe and sales to off-road applications in North America. We note a 17% lower sales versus last year. I should say that the off-road and agri-construction market is very weak, both in Europe and in North America, and our performance is in line with the market. If we look at the market forecast for the period beyond 2025, it is strong growth, and figures are relatively unchanged versus the forecast presented in February. The commercial vehicle market forecast for the 2026 year isolated is more than 8% growth versus 2025. If you take the four years, 2026 to 2029, it is a 22% growth in the forecast with 2025 as the base.
To take light vehicle production, the forecast is that it will grow about 8% accumulated from 2026 to 2029. It was 7% in the last forecast. If we're looking ahead, there is still solid growth in the commercial vehicle market, which also has been the case historically for many years based on growing trade and trucks gaining market share versus other transport means in the transport market. The pent-up demand to replace old vehicles, where service costs are increasing, should also support growth when the market uncertainty eventually would be reduced. Presently, though, future demand is very uncertain and difficult to predict. With that, I will move to the financial update. From January this year, we have introduced a new segment reporting. The actual segments we report are unchanged, so they are the same.
is Drive Control Systems, Flow Control Systems, corporate and other, and then other operations. Last is the driveline business, excluding electric actuators, which is reported as non-core. No change here. The change is that in order to give each segment full accountability also for its share of the group costs, we now allocate all expenses reported in the segment corporate and other. We use the method according to actual usage and otherwise based on sales figures and headcount, so the FTEs. In this slide, you see what it means for Q1. You have, for example, Flow Control Systems that have an EBIT in the quarter of EUR 5.8 million before allocation of corporate and other segment costs. After allocation, FCS has an EBIT of EUR 3.7 million.
You can also see that corporate and other had a net cost of EUR 5.2 million in the quarter before allocation, and after allocation, it is net zero. Total EBIT for KA is, of course, EUR 2.2 million both before and after allocation. The change in reporting only impacts the EBIT of the segments. Since this is a change in the accounting policy, the periods in previous year, so in 2024, have been restated, and the restated EBIT after allocations will be used in all comparisons with last year. It is also worth noting that there will still be some balance sheet items in the segment corporate and other, like tax, pension, and financing, since these items are not practical to split by segment. If you move to the business side then, revenues in the segment Flow Control System in Q1 were EUR 79.3 million, 4.8% lower versus last year.
We saw positive sales development in North America in commercial vehicles, partially due to startup or deliveries to a new vehicle program, as well as in sales to passenger cars, which increased sales of hoses. Lower sales in Europe to the commercial vehicle market due to the weak demand, as Trond has talked about, and lower industrial sales in North America. EBIT of EUR 3.7 million after allocation was EUR 1.3 million better than in Q1 last year. Missing contribution from lower sales was more than offset by a reduction of costs in manufacturing and administration. Despite the uncertain times we are in, I would say business area FCS has done progress and had an overall quite a good quarter. Revenues in Drive Control System decreased by EUR 12.6 million to EUR 79.9 million, a decrease by 13.8%.
Despite the significant revenue decline, DCS performed better than the market for commercial vehicles, both in Europe and North America. As mentioned before, the off-road market was very weak in the quarter, and here DCS is a leading supplier of pedals and throttle controls. EBIT amounted to EUR -4.4 million in the first quarter, a decrease of EUR 8.2 million year- over- year. Reduced sales gave lower volume contributions that could be offset by savings in administrative expenses. Engineering expenses were higher related to an extensive project portfolio, and warranty expenses were higher in the quarter versus last year. It is also, as has been mentioned already, that in Q1 last year, the company received a positive one-time supplier reimbursement in a warranty case, which explained EUR 2.7 million in comparison to last year.
The EBIT bridge for the group for Q1, EBIT was, as you've heard already, EUR 2.2 million versus EUR 10.1 million in Q1 last year, a drop of EUR 7.9 million. Volume and mix were EUR -6.1 million as a total effect from lost contribution from the revenue drop of 22 million, as well as some net positive effects from lower variable production cost and product mix. The positive one-time supply settlement of EUR 2.7 million has been commented. The fixed cost in production and sales and administrative costs continued to be reduced and was positive by EUR 2.9 million versus last year. Effects from new customs tariffs in Q1 was EUR -0.8 million, which is a timing effect. New tariffs have been paid while we not yet have received customer compensation. Warranty expenses, as mentioned, were higher than last year by EUR 1.5 million.
Finally, restructuring and surveillance cost was EUR 1.2 million this year compared to EUR 1.5 million last year. The net income in Q1 was EUR -2.2 million versus EUR -0.4 million last year. Interest expenses remained at a similar level as last year. However, we have less interest income this year since we do not have any money market assets after repayment of the old bond. The money market instruments also had a positive fair value valuation in Q1 last year. Currency net was positive EUR 2.3 million compared to EUR -2.5 million last year. As we have talked about in previous earnings calls, currency net in KA mainly relates to the development of the NOK, where we last year had a weakening of the NOK versus euro, while this year we had some gains related to a weaker dollar versus NOK and euro.
The profit before tax in the quarter was a profit of EUR 0.5 million, and that led to an income tax expense of EUR 2.7 million as losses could not be capitalized. Income tax expense was EUR -5 million last year, so that meant year- over- year we had a lower tax burden by EUR 2.3 million. If you move to the cash flow, as Trond already commented, the first quarter cash flow was EUR -10.5 million compared to EUR -14.9 million in the first quarter last year. There is an improvement year over year by EUR 4.4 million. Cash flow from operations improved despite then a lower EBITDA result by improvements in working capital and other balance sheet items versus last year.
Cash flow from investing activities improved by lower CapEx than last year, and cash flow from financing activities improved mainly due to that interest on the new bond is paid on quarterly basis instead of bi-yearly. As also as we mentioned, it is also clear that cash flow is still negative and further improvements are required. This slide showed the net interest-bearing debt, and what is that? It consists of our long and short-term interest-bearing liabilities, and that also includes lease liabilities, which are primarily when we are leasing buildings and then less our cash. So our interest-bearing liabilities, less cash. Here we see a relatively stable development since the refinancing in mid of last year, and the debt after the first quarter 2025 is EUR 129.1 million. The light blue line is adjusted EBITDA last 12 months, which is EUR 41.5 million after Q1.
The dark blue line is the leverage ratio, which is the net debt divided by the adjusted EBITDA last 12 months, and that is one of our financial ratios. You can also say that the leverage ratio is expressing how many years of adjusted EBITDA it takes to repay our net interest-bearing debt. The leverage ratio has increased to 3.1 in Q1, and it is an effect from weaker earnings from the soft demand we have had during the last three quarters. My final slide, our financial KPIs, net debt EBITDA, I just talked about. Return on capital employed was 3.3% versus -3.9% in first quarter last year versus 5.9% in Q4. The equity ratio was 32.5%, and that increased versus 30.9% in Q1 last year, but decreased slightly from 33.7% at the year- end.
Capital employed is lower than Q1 last year, but with about EUR 8 million, while it has increased by EUR 3.7 million versus year-end due to a seasonal increase in networking capital. I will finish there, and I will leave the word back to Trond.
Thank you, Christian. To summarize our presentation, we see that lower year-on-year demand put pressure on our revenues and EBIT for Q1. We have a very strong focus on mitigating the negative impacts of tariffs, both the direct and indirect impacts. The market is increasingly uncertain due to the tariff situation. KA continues to focus on cost reduction programs, improving operational efficiency, reducing warranty costs, improving profitability, and preserving cash while we are in new and profitable business. Very importantly, we do fully recognize that KA's financial performance is not satisfactory.
We need to make real and meaningful changes, which is currently being worked on, and the relevant changes will be announced in due time. When it comes to guidance, we expect revenues to be relatively unchanged in the first half of 2025 versus the second half of 2024, with a potential upside in the second half. The tariff situation creates, however, an uncertain situation with more limited visibility. Regarding the EBIT margins, we do maintain our guidance of a positive development for 2025. This is based on successful implementation of cost improvement programs, which, as mentioned previously, are on track. An important observation is that this guidance is based on our current assessment of the tariff situation and other geopolitical factors' impact on cost and demand. Any further potential impact coming from these factors could change the situation. Now we will start with the Q&A session.
I will give the word back to Theresa.
Thank you, Trond, and thank you both for the presentation. We have received many questions in various channels, and we will try to answer as many as we can, starting with the first question. Kongsberg Automotive have delivered record-breaking contracts, strong order intake, and major cost cuts, and clear goals for profitable growth towards 2028. Still, market confidence has yet to be restored. You have inherited a company where the previous management have undermined market trust and through poor financial management and weak governance. What has it been like taking the helm in such a situation, and what can be done to demonstrate that this time things really are different?
Okay, thank you, Theresa. It is a good question.
It is clearly a challenge to take the responsibility as CEO of KA when we are not performing as expected by many shareholders and other stakeholders. I can hear and feel the frustration from many shareholders regarding the many changes that happened over the years and also with the lack of financial performance. Why are things different this time? I believe we have established a quite significantly stronger platform. We are bringing in people with deep knowledge about KA in the Board of Directors, now led by Ola Woldal. We also have Board Klungseth as a member of the board, myself as CEO, and soon to start also the CFO, Erik Magelssen, all of us with long experience from KA during a period when the governance and the financial performance were strong. I think all of us can hit the ground running.
As we know the business, we know the company, we know how it should be managed and how it should be organized to deliver results. I also believe that the KA board has been strengthened also with other board members that are highly competent and definitely are very passionate about KA. I have had several positive interactions with them, both individually and as a team. This is, of course, just the start. There will be further changes coming as a part of re-establishing a high-performing KA culture and values like accountability and thrifty housekeeping. That will have to do in all parts and levels of our organization and in all countries that we operate. It is a challenge. It is a good challenge. We will be making more of these changes and improvements. For now, I cannot make and provide details about these plans. They will be announced in due time.
I could continue to talk about the background and plans going forward, but to really be able to demonstrate that things are different, we need to produce the actual results. What I can tell you, we are strongly committed to produce those results, but I also understand that seeing is believing. Beyond explaining more in words why we believe things are different, the real answer, I do believe, is that it is in the future and that we will demonstrate that things are different simply by delivering results. We will deliver results quarter- by- quarter and year- by- year. You will see those improvements reflected in our overall performance.
Thank you, Trond. Next question. The company has made significant cuts in administration, headquarters, sales offices, and consultant use.
Can you comment on whether changes to executive compensation and initiative structure as a part of these cost reductions, or if this may come in addition?
The answer to the question is that compensation and incentives to executives are a part of the cost reduction activities. To provide some examples, for the year 2025, no STI, short-term incentive bonus, was paid out. For 2025, there is no salary increase to be made for company executives. This is also valid for all white collars in the company to the extent that it is permitted by law and local regulations. Also in the proposal to the annual shareholders meeting to take place now in May regarding guidelines for management compensation, there will be a significantly lower cost for the company for incentive programs. It will be reduced significantly.
It will also ensure that no bonus will be paid without meeting financial targets.
Thank you. Next question. The new and larger factory in India is a key investment. Is KA considering moving production from higher-cost countries to India to fully leverage duty-free access and profitability potential?
KA has announced that we are relocating our operations in India to a new state-of-the-art plant in Faridabad. This is in the greater Delhi area. The main purpose of the investment is to have a new facility that can serve the Indian market so we can increase the local production capacity and improve the operational performance, mainly in our VCS business for cable shifters, steering columns, shift-by-wire solutions, etc. We will also have a base to expand production capability for FCS products for the Indian market.
As India is one of the largest vehicle markets globally, we see that there is a potential, and we want to be present. The vehicle fleet is being upgraded with more modern technologies, and that provides opportunities for KA. We are moving production from higher-cost countries to our site in India to be able to improve our competitiveness in that market. At a later stage in the future, with a facility that is well operating, we could also look at the potential to serve other markets from India. As of today, it's not part of the plan, but it's definitely something that we will look into.
Thank you. Moving on to a tariff question. What effort is KA taking to fully recover tariff costs from customers, and how does the company assess and manage the risk associated with potential tariff barriers?
Yeah.
Since the tariffs were announced in February, we've had a task force in place with multidisciplinary members. We have been closely managing the situation. It has been challenging due to the different tariff announcements. This has impacted mainly our business in the U.S. and Mexico and also in China. It includes imports from China on steel and aluminum, and also the non-eligible USMCA parts and other components. As I mentioned, it has been challenging due to many changes and also different interpretations of the tariff rules. We've had a team that we have also strengthened with experienced resources to fully understand and manage the situation. We are engaging with our customers to recover all tariff-related costs. We are also actively working to mitigate the direct impact by optimizing material flows across our supply chain.
For example, we are being hit by tariffs in China due to imports from a KA U.S. production site. We are producing the same material in Europe, and we are then moving delivery to China from our U.S. production site, from our European production site instead, avoiding the tariffs. This is just an example that this is the things we're working with. These actions help to protect our financial position. We also remain focused and are taking any necessary actions due to the broader impact on the market demand, which is, I would say, a larger concern, and particularly on the market demand in the U.S.
Thank you. What work is being done related to the stock market? Is there work being done with new investors?
Yeah. We had some events in the past. We had a breakfast meeting in December.
However, since December, there have been many changes, both in the board of directors and also in the management. We do have investor relations high on our agenda, and it is a very important topic. We do have a plan to strengthen the investor relations department, also with our new CFO that is coming in on the 1st of June. We'll be working together with him and with the Board to prepare a plan for how to interact with the investor community in a better way. That will then be a priority going forward.
Next question. When does the majority of new contracts start making an effort on the revenue, and how vulnerable is KA to these contracts being canceled? Can we expect 2026 to be a year with increased revenue?
Yeah.
The majority of our contracts are what we call replacement contracts, or basically a continuation of existing contracts. That means that it has an immediate effect. That is for the majority of them. When we have the portion that we call incremental business, it is a bit different. Those are contracts that typically require development, preparation for SOP or startup production. That can take anything from some months up to three, four, five years. There are exceptions. We have one that is announced today, which is almost immediate, but normally incremental business takes some years before we start production. When it comes to the 2026 revenues, it's very hard to say based on the market uncertainty. I will not give any indications of the volumes and revenues for 2026 at this point. It's too uncertain.
A range of your clients have withdrawn their 2025 guidance, and you stick to yours. Can you elaborate on why you can be more certain on your revenue guidance this year compared to your clients?
It is difficult to assess how our clients are evaluating this. So compared to our clients, it is difficult to answer that question. I can speak on behalf of KA. We do have our forecast. We do have our dialogue with our customers. We do have our experience and our best judgment. And that is what the guidance is based on. I cannot speak on behalf of our clients. Yeah. That was the question, right? Yeah. Thank you. EBITDA reached 3.1 times in Q1 up to 2.5 times at year-end 2024. Do you see any risk that the ratio could reach 4.0 times governance this year?
We have done evaluations of this ratio going forward until the end of 2025 and actually into 2026. Based on those evaluations, including simulations of a worse scenario, we have not seen that we would be in breach of this covenant. However, the market is uncertain. What will happen going forward is always hard to say, but based on the simulations, we do not see any breach. Thank you. Tied up working capital reduced cash flow in Q1. Do you expect continued increase in working capital in Q2, or do you expect to free up some capital? What about the rest of the year? We have ambitions to reduce the working capital, so we do have an expectation to improve our working capital going forward. I do not have a number here in front of me, but that is clearly the ambition. This will, of course, be dependent on market development.
We have to manage the working capital very tightly. When the market and the volumes are increasing, we can see higher working capital, and when the volumes are going down, we can see lower working capital. It depends also a bit on how the market develops. In general, we do expect and are working to improve the working capital going forward. We have clear targets and actions in place to address those.
Next question is related to free cash flow. Can we give some more information related to the generation of the cash situation?
I think the question is, when do you expect to achieve sustainable positive cash flow? I do not have a date for that. We are working, and it will also depend on the overall market situation. I can assure that it has high priority. We have been working on the cash situation also lately.
We have been reducing our CapEx expenditure for the year quite significantly. Also, as I mentioned, we're working on the working capital. Key here is, however, to deliver a stronger EBITDA, and that is being addressed by additional cost reduction programs. We're also working with the product portfolio to improve profitability on those.
Next question. Areas being considered? As of today, we have two business areas: Flow Control System and Drive Control System.
For now, we will keep those two. We will enter a strategic process where we will look at this. Currently, no concrete plans to change that. In the future, of course, if it is meaningful for the company, we might establish and reorganize how we are set up. For now, no specific plans to do anything different than we have today.
Next question. Do you supply contracts including clauses to pass on the tariffs?
I assume that this is regarding our customer contracts? Yes. If they include clauses to pass on tariffs.
Assumed so.
Yes. The answer to that question is that it's typically not specifically addressed that we are allowed to just pass on tariffs. However, there are always openings in the contracts to renegotiate prices. There are different mechanisms to pass this on, and this is something that we are using to get the compensation for the tariffs. We believe it's doable to get a quite good recovery of all the tariffs that are occurring and all the cost increases directly from our customers.
With that, we will end today's Q&A session. On the screen, you see our financial calendar and our upcoming event. Our annual general meeting is the 23rd of May, where every one of our shareholders is able to join.
I would like to thank everyone for participating in today's call, and goodbye.