Good morning, everyone, and welcome to the Kongsberg Automotive third quarter earnings call presentation for 2022. I will soon introduce Mr. Joerg Buchheim, our CEO, and Frank Heffter, our CFO. My name is Mads Langaard, and I am responsible for the investor relations. Joerg, feel free to start whenever you are ready.
Thank you very much, Mads. As well from my side, a warm welcome to the entire audience. As usual, I would like to start with our executive summary. The next slide, please. Looking on the numbers, I am glad to share with you that our revenues increased despite challenging macroeconomic circumstances. This reflects a 27% growth from the same quarter of 2021. The numbers, fairly to say, certainly include positive translation effects of roughly EUR 9.7 million out of translation foreign currencies into EUR. Even with this, we could increase the revenue by 17%, which is a very remarkable result. The adjusted EBIT came out slightly above guidance, with a 56% higher value as in Q3 2021.
This includes cumulated time-delayed compensation of roughly EUR 8.2 million for semiconductor spot buy costs, which have been accrued in the first half of the year, it is a very good result if you are looking into the development of Kongsberg Automotive in Q3. The Net Interest-Bearing Debt has been significantly reduced, which you can see on the right side compared to the previous year, which continuously leads to a leverage ratio at a stable 2 times, which you can see above, that is 30% better than the last year. This will be further improved to a very healthy 0.7 post our BRP powersports transaction, which we closed in Q4. If it comes to the free cash flow, still at a minus EUR 1.5 million, as on one side, the net proceeds out of the recent powersports divestment arrived in October.
Secondly, operationally, we decided in Kongsberg to keep the stock high in Q3 for being best prepared to serve the strong order books we have seen in Q4, ensuring availability, in particular, when it comes to our industrial market. Looking more in detail on the segment, on the next slide, please. We see that P&C on the left side came in with higher revenues compared to previous quarter, still did not fully break through in Q3, as the over-averagely profitable truck market in China still has not relighted. Besides this, we have booked crisis expenses into Q3, while customer price compensation payments are confirmed, arriving time delayed in Q4.
Very positively, on the right side, the already seen strong EBIT recovery trend in Specialty Products is really encouraging, because we see here a trend which we have been seeing already in Q2 and which is going to continue with 40% bullish revenue compared to 2022's quarter three. A real breakthrough proven by the third improved quarter in a row. On the next slide, our market update. We are going to see how the global vehicle market has developed in Q3. If it comes to the passenger vehicle market in Q3, we see a 9.4% higher sales in Q2, versus Q2, and a 25.6 higher sales than in the same quarter of the previous year. Looking into KA's major focus market, it's the commercial vehicle market.
This strong passenger vehicle recovery effect is still to come in commercial vehicle, as the global truck market was in Q3, still waiting about the start of demand recovery in China, as mentioned before. This kept the growth so far still flat compared to the previous year and versus the quarter before. For when this recovery is expected, we do see in the outlook session later on in this presentation. Moving to the next slide. When it comes to the ongoing challenges in the automotive market, we do see promising trends, in particular when it comes to semiconductor shortage recovery and when it comes to the raw material sides, as situation getting stabilized and even in certain areas, clearly improved.
The next challenge, on the other side, in the industry, is to master energy prices and inflation, and these are poor consequences of the war conflicts, which are uncertain how long this is going to continue. That means that KA next focus is to accelerate efforts to reduce consumption, increase efficiency, and looking into alternative power supply to further counter the hardly influenceable impacts from external. Looking on the next slide, we see KA's revenue growth in segments versus the market. We do see in particular that KA couldn't fully participate on the passenger vehicle change, and this has two reasons.
First, the passenger vehicle sales at KA has been influenced in Q3 majorly by lower demand for manual shifter business in Europe, which we have honestly seen already in Q2, as still priority is laying on premium segments during these crisis days. Secondly, due to a generation change in the powertrain segment of our passenger vehicle business in China, we're switching to the next generation at new customers, we expect to run up not before the quarter four. Very positively is the development in the truck area in our focus market, in particular in KA's biggest region, Europe, where we are gaining further market share.
The substantial increase in others, which you'll see on the lower left side, coming from general market recovery, supported by the non-automotive, majorly industrial and aftermarket, where availability is the key for catching additional market share, what we are doing, and where KA's high inventory in this case hurts. Moving to the next slide, we take a look together on our new business wins as usual, we do see here two impacts, as well. First, the sale to BRP impacting our order books in short term, which we see on Q2 and Q3 of this month. Secondly, customers showing currently less activities when it comes to the driveline area, as running programs are rather get extended. Instead, customers spending further resources and new money into new programs. Further, the circumstances, the sourcing originally scheduled for Q3 are literally moved out to Q4.
Yes. These are the main reasons for the current values, nevertheless, we experience in Q4, in general, very encouraging activity already, we are working actively with existing and new customers towards new contracts. In particular, that's promising, in the electrical vehicle area and in industrial. With this, I would like to hand over to Frank to provide us some more insights in the financials of quarter three. Frank, please. Your turn.
Yes. Thank you, Jörg, also a warm welcome from my side, in this early morning hour. When we look at our revenues, again, an all-time high, in this portfolio constellation, with the new continued operation. Certainly good news, although we have to take into account that the 27% growth versus the Q3 a year ago was supported by positive currency effects in the magnitude of EUR 25 million. Additional reimbursements from our customers also contributed with additional EUR 4 million. What's positive is that the price increases added some EUR 15 million to the growth, the underlying business grew around 4% organically. Very strong also compared to the last quarter, a 9% increase, certainly a very positive development. When we look at our adjusted EBIT on the next slide, we came in with EUR 12.8 million in Q3, significantly higher also than a year ago.
Basically in the recent history also here, the best Q3 that we had to report on. The EBIT margin came in at 5.2%. In Q2, we guided that we expect around 5%, slightly better here. The recovery should continue also in the fourth quarter, that we will achieve our respective year-end targets. When we look at the segments, we see that on the adjusted EBIT side, P&C had a decline versus one year ago. That is basically driven by two factors. One, the mentioned challenges in our driveline business, especially in Europe, as well as a one-time EUR two and a half million accrual that we accounted for customs that we still need to pay for prior years as we have decided to go for self-disclosure on errors that lie back up to 2013.
Here we are expecting charges in the magnitude of around EUR 3 million for the whole year. Positive development in Specialty Products. Strong growth in off-highway and Fluid Transfer Systems. On top of that, significant reimbursements from customers for spot buys that have occurred predominantly in the first half of this year. With some positive foreign exchange effects, we then end up at EUR 12.8 million. When it comes to net income, certainly the increased adjusted EBIT supports an increase also in the net income. We had some additional restructuring costs for the portfolio transformation, interest improved on the back of a lower bond that we repurchased, and then smaller financial other items. A positive FX effect supported growth in the net income.
Last but not least, EUR 3.9 million on taxes reported, where we also adjusted for certain tax loss carry-forwards that we intend not to use in the future. At the end, EUR 8.5 million positive net income for the group. When we take a deeper look at the financial items, very positively, it's a net positive EUR 200,000 as the interest and other accounts receivable securitization fees were offset by positive currency effects and smaller other items. Here again, a very positive development, and the lower interest will also serve us positively in the future. When we look at the free cash flow, it is slightly negative for the quarter.
You can see that with the operating activities, we generated EUR 7.5 million, but we continued to invest in net working capital, an additional slight increase in inventory, but also some additional accounts receivables on the higher sales that led to a negative EUR 8.9 million here. Investing activities stayed relatively low with EUR 7 million, and the financing activities came in at EUR 18.2 million, of which around EUR 10 million is used for the share buyback. Which by now is executed by around 70% of shares that we wanted to repurchase, we have already repurchased. That's all going according to plan. Currency translation, also in the cash flow, a positive EUR 7 million. That overall, we came in at EUR -10.7. If we now exclude the share buyback, we end up at EUR -1.5. For the fourth quarter, we definitely expect a positive cash flow development.
Also for the full year, we are still targeting the positive overall cash flow. When we look at the walk from December 31st last year to September 30th, we see a very positive development in our cash position from EUR 58.3 million up to EUR 135 million. Certainly, the divestment proceeds supported this. On one hand, EUR 162.8 million that we received, as well as the positive contributions from the discontinued and continued business in the operating activities. We have used around EUR 137 million here to fuel the financing activities by repurchasing our bond with EUR 75 million, repayment of our revolving credit facility in the magnitude of EUR 20 million. As I said, by now we have repurchased around 55 million shares as of September. EUR 14 million went into the share buyback so far.
Positive translation effects added some EUR 16.8 million, bringing us to a very comfortable EUR 135 million cash on the balance sheet. This is nevertheless slightly lower than in Q2 2022 or at end of Q2 2022, as we have also in the third quarter used EUR 10 million for the share buyback in the financing activities. We did pay the bond interest in the third quarter of EUR 5 million, whereas from the operating activities, we earned enough cash to also finance our investing activities of EUR 7 million in the quarter. When we look at our headroom and the liquidity development overall, we are still in a very comfortable position of EUR 210 million of headroom, slightly lower than at the end of Q2. Also here, I want to highlight the share buyback, EUR 10 million, which basically constitutes the difference.
The other items, adjusted EBIT, is kind of financing the working capital and investment activities, the smaller items wash each other out against the currency effects. Very comfortable, as we will continue with the share buyback program, that is a planned development, and we accept that for sure. Last but not least, looking at some key financial ratios, very positive development here as well. The gearing ratio stayed at two, including IFRS 16 effects, 1.1 excluding these, same as in quarter 2. The ROCE even increased on the higher EBIT and basically stable capital employed. The increase in net working capital did not lead to an overall increase in capital employed as fixed assets and IFRS assets decreased. Once the net working capital elevated levels normalize, the capital employed should improve even further.
Last but not least, on the lower left side, our equity ratio slightly improving from 35.8% to 35.9%. Also here, very healthy and strong. On this end, we can be very sure that we have enough equity to also fund our future. With this, I would like to hand it back to our CEO, Joerg Buchheim. Please, Joerg.
Thank you very much, Frank, for the good insights. I would like to continue with our Shift Gear update. When it comes to KA's well-known performance improvement program, we call it the Shift Gear I, our program to offset the negative market impacts from the supply chain, inflation, and volume effects majorly. I would like to emphasize again that every employee continuously support on KA's way for further increasing contributions, as you could see in the diagram. Coming from EUR 52 million, marked here with the blue arrow or marked with week 31, for the full year outlook reported in the last earnings call, we are in the meantime at EUR 59 million as of today. Out of this EUR 59 million, EUR 46 million has been year to date already implemented.
Looking into the focus in the remaining Q4 of the year is now really on executing the remaining ideas and maximizing the positive impact. A major driver is here, as reported, the fair price increase initiative at our customers in order to compensate the direct and indirect crisis. How successful the teams have been is going to be displayed on the next slide. Here we see the compensation of material cost, where more than 100% could be passed through either to our customers or got renegotiated with our supplier, shows here our successful efforts of the teams and involved employees in this program. When it comes to the indirect cost, that means energy cost, inflation, and logistic cost, we couldn't completely so far close this price cost scissor, but we are on a promising level of 59%.
Overall, KA could achieve year to date a promising 84% on charge through of all special costs so far. As said, we are working very engaged and very motivated here further throughout the Q4 to counter additional impacts, external impacts. The next step here to emphasize is now to negotiate terms and conditions with our customers and suppliers to normalize this logistic uncertainties and volatile of ordering behaviors, which can then allow us to stabilize the manufacturing and avoid this additional cost in future. Looking then on the subsequent events and outlook, here I would like to touch our second initiative when it comes to our Shift Gear program, our Shift Gear II, the product portfolio transformation program.
Here, when it comes to our certain investments within our product portfolio modernization and transformation, we have reported in October the successful closure of the sales of our powersports business in Canada to BRP. The related enterprise value has been CAD 136, which is equal to EUR 104 million. We came out with a net proceeds of CAD 128 million and a net gain of CAD 46. This is underlying here a successful sale. Looking then on the next slide here, we are looking forward in terms of market developments into our long-range plan, this is the market forecast. I would like to share this IHS view when it comes to the market development, which looks in particular promising when it comes to growth perspective in the truck segment from 2022 to 2023, with an expected restart in China.
Looking there on the long-term base as well for the passenger vehicle. This is encouraging, in particular, the question on when the truck market supposedly should relight in China, this is displayed here on the left lower side, this 11% from 2022 to 2023. You see here, this is majorly driven in our focus market in China. There's an 11% increase, whereas on the right side, in comparison, without China, the market is expected to grow in 2%. In their five years plan, we see that we have a continuously strong growth, back strong growth as expected, as a post-crisis effect with 18% on a five-year space, in passenger vehicle and 28% in commercial vehicle when it comes on the business without China and respectively 19% and 8% when it comes on a global perspective, including China.
A second item, and with this, I would like to move to the next slide, is very interesting and exciting topic, because I would like to share here, as a prominent topic, on how we are transferring from, let's say, our traditional industrial area towards the electrification. On this, I would like to share with you the expected transformation speed from ICE to EV, and one time according IHS expert market view, and on the other side, on our view. Here we see that with the passenger vehicle market in 2025 will be at an expected electrification level of 20%-25% when it comes on the typical battery electrical vehicle sales, which then raise up to roughly 35%-40% in 2028. It is expected to be more than ICE from around this year and onwards.
In commercial vehicle, we see this trend as of today, delayed by roughly 10 years. If you would look into off-highway, like agro and construction or mining or other profitable niche markets, this would be even later. With the transformational change of KA from less PV to more commercial vehicle means on highway, and from even more to agro and construction and towards profitable niche markets, this is expected still to be a prosperous market segment for KA for decades and even provides further significant growth for our Specialty Products segment. How to grow? We will see on the next slide. Here you can see this is our expected further outpace speed when it comes to how KA is growing towards electrification versus the market.
In particular in SPP, in our Specialty Products segments, with 40%-16% EBIT margin, which is our most profitable product segment, we expect to outpace the market with 10%-12% compound annual growth rate. Versus the market growth of just 3% in passenger vehicle and 7% in commercial vehicle during the same time. We see a significant over average growth when we look on our overall market, but not at all, KA expand and adapt their product portfolio exactly or slightly advanced towards this trend to greatly react here on time with upgraded product variants and completely new products and systems. As I've laid out a couple of times already, when it comes to our thermal management or battery thermal management system or high performance couplings as just mentioning two examples.
This is displayed very well on the right side of the slide, where we grow with lightning speeds, in particular, again, on the SPP area, displayed here by 78%-141% when it comes to the perspective 2022-2026. Versus the market e-vehicle CAGR of 36%-40%. This can be well viewed in the following slide. In here, we see our average annual compound growth rate is 64% in average versus maximum 36% in commercial vehicle, according to IHS, and maximum 45% in passenger vehicle. We are outperforming here our transition from conventional electrification, the typical ICE concept to the electrification. Which is 80%-90% faster at the end of the day than the market, and therefore underlines our irresistible runway towards electrification. With this good news, I would like to go to the next slide.
Here I would like to share with you our guidance. Again, summing that up, we certainly have seen a drop or stabilization for many raw material price increases in the last quarter, which is positive, but it is still staying volatile. Certainly the next focus is here, as mentioned before, is to counter and offset the accelerating electricity, labor, and rental cost increases. This has certainly a continuous effect on all players in the market and certainly as well on KA's profitability numbers. Looking into our specific situation, despite challenging macro environments as laid out, we still have a very healthy order book, and we are excited for how that works out in Q4. We see an increased interest on our, let's say, most profitable products. As elaborated before, we see this good increase and over average increase in our Specialty Products segment in particular.
The challenge which we see, and this is the remaining challenge for KA, we see this volatile ordering behavior still of our customers, which is causing still a lot of indirect impacts on our production efficiency, and that is a major, big thing which we are tackling here in Kongsberg within Q4. Good thing here to mention, around 40% of KA's direct cost is from countries where we don't have the similar inflation like in Europe. That is a promising perspective when we are looking into 2023 as well. Nevertheless, we would like to slightly revise our guidance when it comes to adjusted EBIT. We certainly stick to our top-line guidance from Q2, but with a slightly lower EBIT assumption, which is EUR 3 million discounted.
Our revenue stays at an expectation of EUR 870 million to EUR 905 million, but our adjusted EBIT is slightly dropping down here towards a window of EUR 35 million to EUR 41 million towards the year-end, coming from the last guidance, EUR 38 million to EUR 45 million. A slight drop, but the decision has been made in course of latest developments within an ongoing U.S. customs audit, where we decided to accrue further cash for higher expected subsequent payments in course of an ongoing investigation here. This is a U.S. customs audit which is looking into classifications and new regulations which is affecting retroactively from 2015, our customs payment. This here leads to a EUR 3 million more careful guidance when it comes here to the lower level. Certainly important to say here, this has certainly all based on my latest automotive industrial production forecast, the typical IHS industry forecast, certainly together with our internal modeling.
Looking on the next slide, here I would like to underline again, and we saw that in the financial figures, KA's financial structure is very strong and due to the product transformation program in particular, but as well due to our performance improvement program, we have been in the position to deleverage, as mentioned before. We see here as well that there is in Q4, an expected drop-down as well when it comes to our gearing ratio from a 2.8 to 0.7. That certainly generates for our company very good flexibility in the market. When it comes then to shareholder value, so here as well, we are continuing on our commitment. We are in the 10% share buyback program, which is running well, and certainly I would like to underline that we, beyond that, are looking continuously into opportunities to buy back shares when the stock is undervalued.
Last but not least, on the right side, that's exciting as well. This is liquidity. We further invest into organic growth and innovation, we're looking as well, certainly, into investing into our environmental footprint, so our going green and ESG ambitious roadmap, we're looking as well into anorganic opportunities in general when it comes to M&A. With this, I would like to close the presentation and, yeah, I'm more than happy to start the Q&A session. Mads.
Thank you, Joerg. We have received a couple of relevant and interesting questions here. The first one is: Is there a plan to do something with P&C, for example, selling it? I'm not sure if you could hear me on that.
Thanks a lot for the questions. We're looking certainly in continuously, let's say, divestment and acquisition opportunities, certainly when it comes into further steps of product portfolio, cleanups or modernization. As I said, we proving our product segments always in the second to none constellation and how we can improve it from the operational side, but as well in terms of what could be added or what could be divested. This view is ongoing, and it's part of our Shift Gear II program.
Another question, could you please elaborate on the development within commercial vehicles in KA and the markets you find attractive outside the passenger vehicles segment?
As mentioned. Thanks a lot for the question. The commercial vehicle market is substantial for us and a clear focus market when it comes to our on-highway strategy. Our second focus is certainly the off-highway segment, where we're moving more and more in two steps out of passenger vehicle into on-highway, into off-highway, and into niche markets. This path is continued, and we are fully on track in our transition phase. We see in the commercial vehicles that China is going to recover. We saw that as well in the IHS data when it comes to 2023, and this is a clear growth market for us. We see as well on the long-term perspective, as shown as well in the IHS long range plan, that we see a significant growth as well in our major market segment as of today in Europe, with a 28% growth.
Commercial vehicle is, for me, underlined business numbers, the clear decision of Kongsberg and the right decision to focus on this market. Looking on off-highway here, the agriculture and the construction market is coming back from 2023. That's what we're seeing in particular when it comes to, let's say, regaining the industry and the economics after the crisis. Niche markets, as mentioned, we're looking into that. Industrial is a strong further growth segment of Kongsberg, and we see here in particular huge potentials when it comes to fluid systems and coupling business. Exciting outlook and, let's work on it.
Thanks. It seems like that's it. If some of you have other questions, please don't hesitate to contact me, and we will get back to you shortly. To all of you, many thanks for joining us for the call. We hope to see you all for the Q4 figures next year.
Thank you very much.
Thank you and bye.