A year of operational and financial progress
Kongsberg Automotive Holding ASA's, (KOA) Q413 results demonstrated that the group has delivered both operational and financial progress throughout the year. With €200m of new wins in 2013, the group has more than replaced the c 15% of revenue required to offset annual project completions. In addition, with operating margins improved and net debt decreased, KA has greater financial flexibility to deliver its strategy of increasing its global exposure. With over 25% of wins coming from China, we see this as a significant future market for the group, along with the other BRICs.
Numbers affected by EURO VI pull forward
KA’s 2013 numbers were in line with guidance at €991m, with an acceleration of 4% growth in Q413 (vs Q412). Three of the four divisions also managed to perform as expected in EBITDA margin terms with the group achieving 9.8% for 2013 as a whole (7.9% in 2012). This masked a poorer performance in Driver Control as higher revenues ahead of EURO VI implementation occurred at the same time as new programme investment and caused increased overtime and a costly fourth shift to be added. In addition, there was a year-on-year shift in bonus accruals.
Longer-term strategy supported by wins
KA’s strategy is built around four key pillars: 1) Innovation to support the move from mechanical to electrical actuation; 2) Grow electronics across the business areas; 3) Secure growth in BRICs (to double revenues in next five years); and 4) Secure competence in critical areas through talent management. Q4 results have shown the signs of each of these strategic aims with new programme launches, capacity investment, global contract wins and improving financial governance. Key to this is the identification of strong global partners (eg expansion at Normanton, UK to support Jaguar Land Rover), while maintaining rigorous financial controls. These map onto the external macro drivers in the automotive market: environment, technology, globalisation and global leadership.
Valuation: Consensus eased, but stronger financials
The company outlook for 2014 revenues is flat, which is slightly below consensus estimates. However, there are several improved financials that should support the valuation. Net debt:EBITDA decreased from 3.8x to 2.5x; ROCE improved to 10.9% in Q4, heading in the right direction for the 15% by 2015 target; and with lower gearing, interest costs are declining. As a result, we feel KA will see the benefits of the improved operational and financial performance in the rating.
To Read the Entire Report Please Click on the pdf File Below