Ladies and gentlemen, good day, and welcome to the Kongsberg Automotive's Q4 2020 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Norbert Lohr. Please go ahead.
Thank you, operator. Good morning, everybody. We welcome to our Q4 earnings call our shareholders, analysts and business partners. Today's presenters are Robert Pick and myself, we are both currently the Co CEOs of Kongsberg Automotive. So let's go to Page 5.
Before we start with the detailed Presentation, let me quickly summarize the highlights of the Q4 and full year 2020. As you know, top line is the first and a fundamental number in our P and L. Q4 2020 set a new record for a 4th quarter in the company with sales of about €300,000,000 That is a true V shape recovery. It does not come without challenges, especially as the supply chain started to suffer under shortages in electronics. But we all know what finally matters is cash and bottom line, and we deliver on both.
An adjusted EBIT of €22,500,000 sets a new quarterly record for the Kongsberg Automotive for the last 4 years. Also, free cash flow improved significantly compared to expectations and reached almost breakeven in the 4th quarter, despite heavy investments in the Q4 of €27,000,000 For the full year, we deliver a first for first time a positive cash flow from operations and investment activities, which is very significant for us. Without the about €100,000,000 revenues we missed from COVID-nineteen effects, Our cash flow would have been positive already in 2020. Looking forward, our strong bookings in Q4 secured further business growth In a challenging market environment. And finally, we continue to benefit from a very significant liquidity reserve that comes close to 200,000,000 Again, by the end of this quarter.
If you go to Page 7, with the highlights of 2020, I want to highlight on that page 2 segments. First, performance and secondly, liquidity. I mean, we had to concentrate on both. When in second quarter, Revenues dropped so dramatically. We went into crisis management mode and contained and flexed cost as much as we could.
At the same time, we envisage that we have a liquidity need and we started various initiatives to improve our liquidity. Most important is the capital raise, which was done with the private placement and with the second subsequent offering. So since Q3, we have liquidity reserves of about €200,000,000 and that is almost the same number in Q4. If you go to Page 9, please, we show you here Over time, quarter by quarter for the last 4 years, our revenue developments. And you see that We had in the Q2 a dramatic decline.
And that's missing top line cost, Of course, lots of missing margins, profits, cash flow. For the whole year, we declined to €969,000,000 revenues from 1.16 months in 2019. When we look into Page 10, Q4 2020 became the best quarterly earnings quarter for the past 4 years in terms of adjusted EBIT. On an annual basis, however, our adjusted EBIT dropped from €71,000,000 to €11,000,000 only in 2020. That was very much caused by Q2 as you can see.
When we look into our free cash flow on a quarterly development, We have stabilized in 2020 our spikes, our peaks in cash flows compared to previous years. The overall was obviously very much impacted by missing revenues and margins. However, we could improve significantly in the last quarter. And I would like to draw your attention to Page 12, where we go show you first a free cash flow Over the last years, and then you see in the shaded box that we have where we show cash flow from operations and investing activities Only where we exclude the cash flow from finance cost and FX. And you can see here that we achieved for operating cash flow, including investments, A cash turnaround in 2020 already is plus €15,000,000 And on the right side, you see how these categories developed over time.
So operating activities is the cash flow and all the details are shown in our quarterly report. Operating cash flow is the result from our operations. And that is a strong positive trend Year over year. In this number also is included the restructuring expense of the past and That we are that this is behind us. So in last year 2019 already, restructuring was very close to 0.
Our investment cash flow is negative, but we could also improve on investment. We have now a pretty high and well invested base, And we don't need to invest as high amounts as we did in the past. The finance cost cash flow increased or decreased to minus 52. This is driven by 2 effects. First, we had additional expense last year on various financing activities.
And secondly, we have a strong translational FX Effect in that as the year ended with a pretty weak dollar and that is the main driver of that effect in 2020. When we go to next page, new business wins, you'll see here that there was In the first two quarters, pretty low activity in 2020, but we could catch up a lot in Q4. The good thing is also that we have a good balance of new business wins across our segments. When we look into Page 14, You can see our new business wins over the last 3 years by quarter that we maintain every single quarter a very healthy book to bill performance. And that positive book to bill performance of our new business wins ensures going forward the growth of Kongsberg Automotive even above market growth.
So I'm handing out over now to Robert to continue with the market summary.
Okay. Thank you very much, Norbert. As we go to as we talk about market recovery and at the Q3 presentation, we talked about we saw the first signs of recovery. But as we finished Q4, we saw the recovery So if we go to Slide 16, We see here that light vehicle production recovered to pre COVID levels in Q4 after significant downturn in 2020. And on an annual basis, the product volumes still declined by approximately 16% in 2020 when we compare year over year to 20 On the commercial similar to on commercial vehicles, production volumes mostly recovered to the pre COVID levels.
It's important to note here that China is a dominant regional market driving the global demand at approximately 35% growth rate in 2020. As we said, the markets did come back, but much more faster recoveries than what we had expected. And that gives us a strong order book as we roll into 2021. We go into the next slide and we talk about the segment highlights. As we highlighted in Q3 results, the financial performance of each segment was heavily impacted by COVID-nineteen, but we experienced a strong recovery in Q4.
Looking at the financial performance on the segment levels, we still had some COVID-nineteen impacts. However, we see the recovery passed to pre COVID levels. Interior beat Q4 2019 sales by approximately $11,000,000 but the adjusted EBIT came in lower due to one time cost. Also P&C improved its performance beating both Q4 2019 in sales and adjusted EBIT. Specialty Products had a strong operation performance in 2020, topping Q4 of 2019 with basically flat sales.
So we saw a strong recovery in Q4 after the COVID-nineteen shock in Q2 and portions of Q3. We go on to Slide 19 and we look at new business wins per segment. As a company, new business wins almost returned to the pre COVID-nineteen on an annualized basis in Q4, €87,000,000 versus €89,000,000 However, on lifetime sales, we were up approximately A little over $40,000,000 year over year, thus securing the future growth of Ka. In the following slides, we'll cover each segment in more detail. If we go to Slide 20.
And if we look at our carrier segment, it shows strong top line performance And new business wins in Q4. Sales were increased by $11,000,000 despite a negative translational effect of €4,500,000 Sales were mainly driven by strong performance in North America and China due to production ramp up and the gain in market share for KA. EBIT in Q4 decreased in percent of sales and in absolute values compared to Q4 of 2019. However, we saw positive effects of the operational improvements and strict cost controls were offset by one time costs and supply chain stress. As we're all aware, the global supply crisis for electronic components already started hitting interior in Q4.
It is approximately $500,000 we spent in Q4 to secure components and we expect to see this continue well into 2021. If we look at operations, Interior continue to focus on controlling variable and fixed costs and implementing further operational improvements. Interior had a strong Q4 bookings with contracts amounting to $41,300,000 annualized sales Approximately $327,000,000 in expected lifetime sales. This was driven by 2 large contracts For SEEK's support, 1 with a major European OEM and 1 with a major U. S.
OEM. These programs totaled $28,600,000 annualized respectively and $153,000,000 and $80,000,000 in expected lifetime sales. For interior, sales were strong for the Q2 in a row and we are seeing positive evidence of the operational improvements that we made last year. If we move on to Powertrain and Chassis. And Powertrain and Chassis improved sales and adjusted EBIT performance, but had a lower new bookings.
Sales for Q4 were up $4,100,000 compared year over year despite a negative translation effect of $4,800,000 This was mainly driven by market share gain in both passenger car and commercial vehicles in China. Improved adjusted EBIT was driven by efficient Control of variable and fixed cost in Europe and American plants. However, this was somewhat offset by a warranty charge of €5,000,000 that we had to take within the quarter. All plant operations are back to normal and at normalizing volumes. We're starting to see the benefit of the operational performance plans achieved in 2019 and the cost controls implemented earlier this year.
In Q4 2020 global demand wrapping up, we have faced Supply chain issues relating to resin, steel and electronic components and we expect to see these issues continue into 2021, Not just for Powertrain and Chassis, but for most business units. Again, P and C and new business wins were heavily impacted by COVID-nineteen. They were low much lower versus Q4 of 2019. But all in all, it was a very strong quarter for Powertrain and Chassis. When we factor in the $5,000,000 warranty charge that we had to take within the quarter.
If we move to Specialty Products, The Rusty Project segment proved to be our most crisis resilient segment with strong sales and margins In the second half of the year and especially in Q4, sales in Q4 grew by 2,700,000 despite a negative translation effect of €5,000,000 This was driven by strong performance in our couplings business group. In terms of EBIT, the year over year increase of 4.9% is driven by positive operation efficiencies and positive effects we see from brass and resin raw material pricing. All the plants are back normal and are benefiting from the operational improvements and cost control measures that we put in earlier in 2020. Likewise, I said, we still have supply chain stress in these business units as well. If we look at new business wins, Overall, the segment achieved good levels.
Companies was awarded a contract with a major European OEM, totaling $6,100,000 in analyzed sales And $43,000,000 in expected lifetime. Likewise, Off Highway secured 3 contracts with major construction OEMs Amounting to $16,200,000 expected lifetime sales. Specialty Products continues to deliver strong results every quarter as we've seen the second half of the year. And now I'll turn it back over to Norbert, and he'll cover group financials.
Thank you, Robert. So we continue on Page 24, which is EBIT and net income year over year, Quarter by quarter, and you see that heavy impact we had in the second quarter, first from operational results, But secondly, from an impairment of €83,000,000 that impairment loss is a non cash effect, But it reduced our equity accordingly and it reduced the balance sheet by impaired assets. Most of them We're good, Bill.
If you go on next page,
Sales and adjusted EBIT improvements, you see here that year over year Q4, interior had the biggest recovery in revenues. P and C and Specialty Products were also strong, but we also have very significant FX effects that reduce the overall Top line growth. When you look into adjusted EBIT, Indeiria could not benefit from the additional revenues, mainly to 2 effects that are already Scribed in the segment area. First, they had some one timers to recognize in the financials. And secondly, Interior has the biggest exposure to our electronics raw material pricing and that already impacted Quite materially, the Q4.
So that was pulling them down in profitability. P and C is only a relatively small increase, huge increase in Specialty Products. If you look into net income, you see here that Q4 2019, Q4 2020, Interior this time on that layer is the biggest contributor to net income improvements with EUR 7,400,000. P and C also with 3.3 and Specialty did not improve so much, but they were already on a very high level in 2019 And could maintain that very high level in 2020. Other financial items, there we have significant FX Variances in it that is impacting that category.
And in Texas, we have a small change only quarter Liquidity Development on Page 27, that's also one of our main focus areas. I don't walk you through every single category here, but I want to highlight a few. So obviously, adjusted EBITDA or profit from operations played a major role in improving from 3rd to 4th quarter €34,000,000 plus. And we had a positive change in net And in networking capital, we have since years very intensive focus of the whole business 1st, to manage better inventories and we could reduce our inventories in 2019 already and in 2020 by focusing on inventory turns and avoiding excess inventory. So this is Pretty well implemented now in our day to day routines and the quality of our inventory and the currentness has improved significantly.
We have very small restructuring payments that is from previous years' restructuring projects where we still have some Long lasting lease agreements where we have to pay for until these agreements are over. This is for facilities we don't use anymore. We had tax payouts in the quarter And we had almost €27,000,000 of net investments. We pushed hard by having all the investment pipeline Implemented in the plants and the cash paid to our suppliers, so that we have from that perspective a clean sheet going forward into 2021. And then finally, what is also worth mentioning is the currency effect on cash.
Currency effects in 2020 were all in all very significant with impacts on top line, on bottom line and on cash. If we move next page, that is the composition of net financial items In the course of the year, and there you see again that currency effects played a major role in that year. Our net interest numbers are pretty stable. This is driven by the bond interest, Which we accrue for in the quarters where we don't have the payments and by our interest payments that come From the IFRS 16 lease payments. And we have also some small effects from the accounts receivables securitization project in Q4.
If you look into financial Ratios, our adjusted gearing ratio obviously took a big hit in 2nd quarter, Where we had such big loss in top line and in EBITDA. And until that Q2 2020 is Part of our last 12 months, we're going to have a gearing ratio that is relatively high. But we keep improving it. You see here quarter over quarter, we are reducing it already. Return on capital investment, 2nd and third quarter was very little due to the operational results, but we're coming back in 4th quarter with Positive returns, even the way below of where it should be.
If you look into equity ratio, You see here that we could maintain through the crisis despite that heavy impairment loss and the heavy Operational losses, but thanks to the capital raise and the capital addition from our shareholders, Very healthy equity ratio that is now around 27% and that is A sound balance sheet. If you look into capital employed, these numbers are relatively Stable, slightly increasing in Q4 with the continuous investments we make into our installed base. Next page is outlook 2021. So if you look into top line first, we believe that we can deliver EUR 1,100,000,000 in revenues Based on our order book, based on market intelligence, and that is a strong recovery of our revenues. And we really build here on our book to bill ratios of the past.
And we also have an increasing ratio of electric vehicle related products in our Actual revenues and in our order pipeline. When we look into adjusted EBIT, We will come back. We envisage here a €60,000,000 adjusted EBIT for 2021. This is still a careful forecast. We will build on the operational improvements we did in 2020 on our cost reductions, Fixed cost flexing,
and
we have big focus currently on effectively managing The increasing shortages of electronics, and so far, we could successfully do that. But it's a key challenge right now to management to secure and maintain supply chain and deliveries to our customers. On free cash flow, and it's a complete free cash flow definition, for clarification, we added it here on the page. It is also from the APM section of our annual report. So free cash flow negative 2020, Positive 2021 in our outlook, that is a swing of almost €50,000,000 And we believe that we can generate positive free cash flow in both half years, Assuming current FX rates, current market demand, The very strong order book we currently have and also we make an assumption there that electronics availability is given.
That's a key product In our sophisticated technical products, this swing in free cash flow is possible Since we can harvest now from the investments in the past, from all the years where we had restructuring efforts And from all the investments in CapEx that were between €60,000,000 €70,000,000 for a few years. So this is what we have prepared in our presentation. And operator, if we now Look into Q and A.
Thank you. Ladies.
I would think the first question is for you, Robert.
That's the question was, who do you make new contracts with Q4. We typically don't announce the final OEM of who the contracts are until we get to production Due to the contracting agreements that we have in place with the OEMs. But as I said, we won business with premium European OEMs In both truck and passenger car, likewise, major U. S. OEMs in passenger car As long as 3 premium construction OEMs that we secured business with.
So as we get closer to production, You'll start to see who those customers are when we talk about how we focus on our customers and how the customer portfolio builds up. Next question.
Okay. Next question, I read it here. It's a brief comment. EBIT, 7.5 In Q4 2020, do we still stick to our target of double digit EBIT? In principle, yes.
With our products, our installed base, our customers and markets, that is The potential of Kongsberg Automotive. We are not Having that outlook already for 2021, I mean, there is very significant uncertainties in the market, as you all know. But with underlying operational capabilities, that target is Not impossible, but we are not making here statements on when we can achieve it. That is subject to the development over the next quarters, I would say. And Then the company will come back to these statements.
So the next question is, going forward, Is this level of sales higher or lower than in Q2, Q4 2020? How do you consider opportunities In China, we currently see in Q1 similar levels Of revenues and profitability as Q4 2020. So for that Short term view, the answer is yes. Yes. For a longer view, we just have to be extremely careful Since there are so many uncertainties around the marketplace.
China, how do you consider opportunities? We consider opportunities Great. We have the right product in our passenger car business for China, especially in interior in ICS And in our P and C segment in driveline, where we can sell a lot of our product, Where we have profitable growth and where our product exactly meets market needs And the demand of OEMs who build the cars, the customers like in China. Next question, Robert, I would suggest for you.
The question is how is KA prepared for the change to electric vehicles, Cars, trucks and off roaders. We are very prepared to answer the needs for electric vehicles in all segments. As we've spoken in the past presentations, if you look at our Shift by Wire technology that we have in P&C, You look at the new electric clutch actuator that we've developed also in P&C for commercial vehicles. Interior on their seat heat, Comfort products, we are in the latest new EVs and continue to grow in that market. And likewise, when we look at off highway, are working with the major OEMs in all segments, construction, agriculture and powersports, to meet their needs to be able to help them with the transition over to So all in all, we're working in all segments and we continue to win new opportunities in those segments.
And also the next question is for you.
Question is when will you later announce who you win contracts with? We typically announce that when the product goes into production. That's when we have the green light from our OEMs to declare new business wins. And any other questions? As we see none on the no other ones on the screen.
So these are all the questions posted In the Q and A section of the screen, so is there any other question? If you please put it in, Then we will answer your questions.
Thank you. We'll take our first question from Mats Liz from Kepler. Your line is open. Please go ahead.
Yes. Hi. Thank you. Two questions, please. First, I mean, we have seen this supply chain Constraints in the due to semiconductors, shortness and so on and Many of your customers have sort of indicated production disturbances.
Have you seen any impact of that already or are you still waiting for them What changed there?
Yes, we already see impact of that. So for global first quarter light vehicle production, Forecasts are already reduced by 1,000,000 units, and it's across all regions. It varies from OEM to OEM. Some are more impacted, others are less impacted. But there is huge focus on it.
And we have established with our suppliers and our customers very close communication lines On Electronics, Availability and Logistics and Planning.
And your company well, have you also difficulties in The supply of the semiconductors.
We are a normal member of the industry family. The answer is yes. However, we have a very professional purchasing team and that team is capable Of sourcing all the products we need. However, we have to go in sometimes different ways. So we have to go in some cases to spot markets, which is not the normal way to source for automotive, But that's where we still have product availabilities.
And regarding the raw material cost in some Vallejo, for instance, have increased by substantially. How do you handle that? Is it sort of passed on to customers in from a period In the contracts, so what impact
do you Yes, we have raw material adjustment contracts With customers or clauses, when we have product that is purely driven by raw material and that applies to the brass Components we have in couplings, but also to some steel components we have in powertrain and chassis.
So you don't expect any more limited impact of the cost increases in No,
I mean, We can balance these things.
Okay, great. And regarding the outlook, I mean, you see a Pretty strong improvement in 2021. But could you give some sort of indication how that play out throughout the year during the quarters?
As I said, it's very hard to give firm statements On the quarters that come further down the road, I mean, from a basic economic perspective, I believe if the overall COVID uncertainty is Mitigated and we all hope for that, that this comes with springtime. And secondly, that the electronics availability crisis Remains manageable, then we are very optimistic for our second, third and fourth quarter. Yes. But it is when you look into our outlook, we are not putting All that optimism in our outlook, that is a basic outlook.
Okay, great. And the final one then, the tax line was a positive surprise, I guess, And the use of tax loss carry forwards, I guess, to some extent, do you expect to see that in 2021 as well? Or Should it go back to normal, Nick?
Yes. You need to see that the major loss we had in 20 'twenty was the impairment and losses from impairments are normally not tax effective. So they didn't contribute to losses carried forward. But We have something that is a development. And of course, with the positive outlooks we have, we're going to utilize that.
I was just referring to the Q4 where you had a positive very small tax impact. Right. So you're able to use some of Tax loss carry forward in 2021. So we should expect a normal tax rate around 20. Yes.
We should expect A normal tax rate going forward in 2021. Okay. Absolutely.
Okay. Thank you very much. Yes. Thank you.
You're welcome. The next question is, and I'm reading here questions that came through the web. What actions will you do to Future inform investors better. So we continue our quarterly calls. We are approachable as management through our investor communications line to set up meetings With investors like we were in the past.
And we have Probably going forward also more resources on looking after that. So but if investors are interested and looking for meetings with management, you can please Lock your interest with Investor Communications and we will respond. Next question is, What are the expectations of a new CEO? I can make only a personal statement here. They are great.
I believe it's a very good choice. We have talked already, and I'm really looking forward to work together with Jurgen going forward. Next question is what's the final date for the new CEO? I think that was clearly stated in the announcement. It's at the latest by May 1 In 2021.
Next question is, do you expect to see any increased pressure from OEMs Regarding your receivable collection based on trends Q1 so far. And I can give you a clear answer, no. I don't see increased pressure. I see a remarkable discipline in the industry to pay on time. And if we have a proper delivery, then customers pay on time.
Yes. We have sometimes extra efforts if something on the labeling or on the invoice or whatever is not correct, Then we sorted out and the customer pays. Next question is, are you still seeing that cost in 2021 are covered by the capital raise that was done in 2020? Maybe I do not understand the question in full. If the question is whether the Costs we have going forward are covered by positive cash flows, the answer is yes.
So but I don't know what to answer differently to that question. So maybe you can rephrase your question. Okay. So there is no further question coming through, neither through audio nor through the question list. So we all invite you for our next call at 10:30, where we're going to walk you through an updated company presentation That will walk through the whole company, set up our products, innovations, also looking a little bit into the future on trends.
And we are looking forward to meet you again at 10:30.
That concludes today's conference call. Thank you everyone for your participation. You may now disconnect.