Investing.com -- Moody’s Ratings has today adjusted its outlook on Norway-based Kongsberg Automotive ASA (KA), a supplier of automotive parts, from stable to negative. The group’s B2 long term corporate family rating (CFR) and B2-PD probability of default rating (PDR) have been affirmed.
The change in outlook was triggered by KA’s weaker than expected financial results for Q1 2025. The group’s performance was hindered by a slow demand and a reduction in production in its primary passenger car and commercial vehicle markets. Consequently, KA’s group sales dropped by 10.4% year-over-year in Q1 2025 and its reported EBIT decreased by 78%, further impacted by increased restructuring and warranty costs.
Moody’s decision was also influenced by lowered economic growth expectations for this year and the likely continuation of sluggish consumer sentiment due to increased trade protection measures in the US and China. This adds significant uncertainty to the forecast at this stage.
KA’s Moody’s adjusted credit metrics currently show weakness for its B2 rating, as illustrated by a 0.1% EBIT margin, gross debt EBITDA ratio of 7.0x, and a €13 million negative Moody’s adjusted free cash flow (FCF) for the last 12 months (LTM) ended March 2025. The ratios are expected to remain weak and FCF negative, albeit improving through the remainder of this year.
For fiscal year 2025, Moody’s forecasts KA’s sales to decrease in the mid-single-digit range. However, its profitability in terms of Moody’s adjusted EBIT margin should recover to over 2.0%, backed by savings from a cost reduction program launched in 2024, improved product mix, and lower warranty costs. The profit growth should also support a gradual reduction in KA’s leverage, which is expected to remain above the defined 5x maximum for a B2 rating in 2025. Moody’s also projects KA’s Moody’s adjusted FCF to remain negative in 2025, and possibly also next year.
The affirmation of KA’s B2 rating is supported by the group’s continued adequate liquidity, with a good cash balance and no significant debt maturities other than lease liabilities before 2028 when its €110 million bond will be due. The group’s profitability is expected to steadily strengthen and its leverage to reduce to more appropriate levels for a B2 rating in 2026.
Other factors supporting the B2 rating include KA’s diversification in non-automotive end markets, such as construction or agriculture, strong market positions in very profitable specialty products, good customer diversification, over €1.2 billion in order intake as of LTM March 2025, and its conservative financial policy.
However, the rating is constrained by KA’s exposure to the cyclical and competitive markets for trucks and passenger cars, its relatively small size compared to other automotive suppliers that Moody’s rates globally, and its exposure to volatile raw material prices.
As of 31 March 2025, KA’s liquidity remains adequate. The group had cash and cash equivalents of €74 million and full access to its €15 million revolving credit facility (maturing in 2028). Over the next 12 months, the group is expected to generate about €20 million funds from operations, which is insufficient to cover annual capital spending of around €27 million and a standard working cash assumption of 3% of group sales.
The negative outlook indicates a possible downgrade of KA’s ratings, if the group fails to significantly strengthen its current weak credit metrics to the defined ranges for a B2 rating over the next 12-18 months. A weakening of the group’s liquidity would also put negative pressure on the rating.
The rating could be downgraded if KA’s Moody’s-adjusted EBIT margin remains constantly below 3%, leverage exceeds 5x Moody’s-adjusted debt/EBITDA beyond 2025, Moody’s-adjusted EBITDA/interest remained below 3.5x, Moody’s-adjusted FCF failed to gradually improve and reach break-even by year-end 2025, or if its liquidity started to weaken.
The rating could be upgraded if KA’s Moody’s-adjusted EBIT margin sustainably exceeded 4.5%, Moody’s-adjusted gross debt/EBITA reduced sustainably to well below 4x, Moody’s-adjusted EBITDA/interest reaches 4.5x, Moody’s-adjusted FCF turned sustainably positive.
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