Kongsberg Gruppen ASA

OSE:KOG

Earnings Call Transcript 2019-Q3

[Geir Haoy, President & CEO]

Okay. Welcome. Very pleased to see all of you here this morning for the third quarter presentation of Kongsberg Group's status.Together with me, as usual, our CFO, Gyrid Skalleberg Ingerø; and we have also Lisa Haugan, Chief of Value Capture; and also new EVP for Deck Machinery & Motion Control. So they will join me here on the stage after my highlights. We will do the presentation in normal procedure. I will do some highlights. Gyrid will take us through the financial status for the quarter and year-to-date. And then Lisa -- then I will come back to the business outlook, and Lisa will take -- and update you on the Value Capture program. And then we will come back to Q&A after the presentation.As some of you already have seen, we have a good quarter. I'm very pleased with the third quarter of Kongsberg all over. All 3 business areas are growing, also organically. So that is a good sign. And Gyrid will take us through more details on that. But also that we continue to big order -- build order backlog is important for us. It gives us a good foundation for further growth going into 2020.If you look at the highlights for Q3, solid organic growth, not only the acquired companies. And we have a very solid, strong order intake. And then particularly in the defense area. But I also would like to underline the order intake in Kongsberg Maritime. It's a difficult market out there still. Some segments are okay, and some segments are still very challenging, resulting in a record-high order backlog, important for us.On the defense side, we mentioned it in the last quarter, the NASAMS contract in Qatar. The biggest contract ever for Kongsberg Group. The defense area has now a backlog of NOK 20 billion. We also have got this quarter, we have some -- contracted, USD 131 million on the CROWS delivery, the frame contract that we signed 1 year back.And we also have had -- going live at Røst airport, where we do the remote control from Bodø. This was done last week, and Røst is now controlled from Bodø remotely. So this is a milestone in the Remote Tower program. On the Maritime side, again, very pleased with order intake. In this, if we look in the market, in general, it's still very challenging. In particular, in Sensors & Robotics and also the -- especially on the AUV side, both in Horten, but also in U.S. And also fisheries is delivering quite okay. And we continue the life cycle, the aftermarket is important for us, both on the commercial side -- on the Commercial Marine, but also on the previous KM.And Lisa will come back to give an update on the integration of Commercial Marine, but I think we can say that they are ahead of the plan. And then I think also that it was a very good news that we announced the digital -- Dynamic Digital Twin contract with Shell recently. That was an important milestone for Kongsberg Digital, and I'm looking forward with exciting (sic) [ excitement ] this program with Shell. And they continue to grow on the top line and also on the profitability. So all in all, I'm quite satisfied with the quarter. And I think it's looking quite promising also for the next quarter. By that, I leave the word for Gyrid. She will take us through the financial status.

[Gyrid Skalleberg Ingerø, Group Executive VP & CFO]

Thank you, Geir. Yes, sometimes, it's just more fun to go to work than others. So this is the financial for Kongsberg for the third quarter. We continued to grow 92% top line growth in the third quarter and maybe even more impressing organic growth of 22% this quarter. EBITDA of NOK 535 million with 8.8% and an EBIT of NOK 230 million with 3.8%. I will give you some more details on those numbers later.There we are. Improving revenue trend. If you look back from the top year in 2015, we turn around from 2018 and now started to grow, seriously. So 10% up last 10 months rolling. And also I want to bring your attention, if you look at the split here between the different business area, you can see over the last 12 months, Kongsberg Maritime has grown by approximately NOK 1 billion. If you look at the defense side, you see that they started to grow last quarter, and it's in a growing trend with an extreme backlog, which I will come back to. You can also see that Kongsberg Digital now have NOK 800 million in external revenue, so started to pick up really much.Strong order intake. NOK 12.3 billion in order intake for this quarter. Quite impressing from third quarter last year. That's even more impressing, a backlog -- order backlog of NOK 34.2 billion. If you look at the chart on the right side here, you can see that the order schedule for the next year, 36% of the order backlog is already to be delivered next year, meaning that we have more than NOK 12 billion secured for the top line for the next year. At the same time last year, we only had 37% of the NOK 7.6 billion in backlog, meaning that at the same time last year, we were at approximately NOK 6.5 billion. So it's an extremely good situation to be in compared to last year.Then taking notes from you, and I will now go through maritime first then defense, so we don't mix all of them together. In terms of Kongsberg Maritime, they had an extreme good third quarter last year with a lot of Integrated Solution projects. We have both the Grimaldi project, we have the Awilco project and the [ OHA ] project. So we are down order from 3Q last year to 3Q this year by 33% or approximately NOK 1 billion, but we are still building our order backlog and the order backlog of Kongsberg Maritime on NOK 13.4 billion at the moment. If you look at the schedule for the deliveries for the orders, 52% of that order backlog will be delivered already in 2020, meaning that NOK 7 billion of the top line for the Kongsberg Maritime is already secured for the next year. On top of that, all of you know that we have approximately NOK 7 billion in orders from the aftermarket that comes on top of the order backlog. So it's quite promising on growth also for the next year. We have an order intake year-to-date on NOK 11.5 billion, with a book to bill of 1.09. So a really strong quarter, and also a year-to-date figure for Kongsberg Maritime in terms of both order intake and order backlog.We also provide you with where are the orders coming from, which areas. And for comparable figures, we have taken both Kongsberg Maritime excluding Commercial Marine and also including Commercial Marine. You can still see that Sensor & Robotics have been steadily delivering on order intake for the whole year of 2019. It's our subsidiary in U.S., the Hydroid, they are delivering quite steady. And for this quarter, they have almost 40% on Sensor & Robotics, together with Integrated Solution and Global Customer Support or the aftermarket. If we add on the new areas, System Deck & Machinery and Propulsion & Engine from Commercial Marine, you see that approximately 20% of the order intake this quarter comes from those 2 areas.And of course, on top of that, we have a lot or a very extensive area on Global Customer Support or the aftermarket. Year-on-year order intake, NOK 11.5 billion, but actually flat if you look at Kongsberg Maritime as it was except Commercial Marine year-to-date. So flat order intake year-to-date.Looking at the revenue, 21%, or 20.5% organic growth in Kongsberg Maritime. If we add on the acquired growth from Commercial Marine, we are at the growth of 134%. Looking at Commercial Marine, they're growing by 5.5%. So the old Kongsberg Maritime has a higher growth rate than the acquired growth from Commercial Marine. Organic growth year-to-date on approximately 17%. But again, organic growth of almost 21%, quite impressing.This is quite a difficult one. It's the EBITDA, and it's a lot of ifs and buts, but I will try to take you through so it's possible to compare figures from the last year with this year. We delivered NOK 271 million in EBITDA with a margin of 7%. That's the reported figures. To be able to compare with the NOK 205 million last year, we take out the IFRS on NOK 82 million, then we are at NOK 189 million. So with NOK 189 million, in those number is included both integration and restructuring costs. So if you take NOK 189 million and add on the restructuring and integration cost, you have comparable figures of NOK 341 million. So NOK 341 million is the underlying EBITDA without integration. Thus to be able to compare it with NOK 205 million, we need to take out Commercial Marine, which deliver a positive EBITDA this quarter of NOK 47 million. Then we have comparable figures of NOK 294 million. So NOK 294 million, you can compare it to NOK 205 million. And then you see 11.4% last week -- last year, with 13.6% this quarter. And then it's quite impressing because then you can see that Kongsberg Maritime, it's actually developing very, very healthy at the moment. So we put up a small star here for the 13.6%. That's the comparable figures year-on-year.Order intake, it's always nice to see some more figures on Commercial Marine. So this is the clean Commercial Marine without any integration or restructuring costs. This is how this acquired part actually is developing. You can see that the order intake is down 23%, but the revenue is growing by 5.5%. We were very pleased last quarter to announce that we had a positive EBITDA of NOK 22 million in Commercial Marine. This has increased to NOK 46 million for the third quarter. And we have also been able to calculate the IFRS effect since last time. So if we put those on top, we have NOK 52 million for the second quarter and NOK 78 million. So with -- and if you look at seasoning in the quarterly report, you will see that it's developing quite similar to last year when it was owned by Rolls-Royce. But again, we have been able to turn it to positive EBITDA. We have restructuring costs on -- integration costs of NOK 96 million and restructuring costs almost NOK 56 million, so NOK 152 million in total. If you then look at the integration costs, we have a plan on NOK 450 million. And we also have the restructuring cost on top. We have now -- we almost spent year-to-date NOK 229 million on restructuring costs, and we have NOK 111 million left to deliver on the NOK 450 million, and we will be on the plan on that one. What we have done in terms of the integration? That we have been spending on the integration costs, it have been spent on IT infrastructure, branding, legal in terms of competition authorities, harmonization and streamlining, especially on the organizational setup.In terms of the restructuring costs, we have spent NOK 87 million year-to-date or NOK 56 million this quarter. In those NOK 56 million is about NOK 50 million in severance cost on the 260 FTEs that we announced when we first took it over. And in those 260 FTEs, all of those are now closed. So that's the severance cost on those 260. And then we spent some in the second quarter, most of that restructuring cost will be in Rotterdam, where we have the co-location of a huge site that Commercial Marine had in Rotterdam. So out of the NOK 87 million, NOK 50 million is severance cost and NOK 24 million is to the Rotterdam location.Kongsberg Defence & Aerospace. Order intake year-to-date on NOK 13.5 billion. But even more impressing, an order backlog of NOK 20 billion as we go out of the third quarter. If you look at the increase from the third quarter last year is significant, of course, but even more impressing is, of course, the order backlog of NOK 20 billion at the moment. 33% of that or NOK 6.6 billion is already to be delivered the next year. Book to bill year-to-date of almost 3, 2.84. And then again, an order intake year-to-date of NOK 13.5 billion. If you look at where the orders have occurred in Kongsberg Defence, the third quarter is quite similar to the year-to-date. So it's, of course, the 2 large air defense NASAMS contract on the air defense system in Australia and in Qatar, that's almost 50% or approximately half of the order income this year. You should also pay attention to the F-35 program, which has had a very good year this year, with 16% of the order income. And in terms of Protech System, here is where you can find all the orders from CROWS, which Geir will come back to in a moment. Revenues in Kongsberg Defence, organic growth by 23%. And then it's the first full quarter where we acquire AIM or that's now called KAMS, Kongsberg Aviation & Maintenance Service. So Kongsberg Aviation will be the name of that company. If we add on that acquired growth, we have a growth in Kongsberg Defence of 34% this quarter.EBITDA in KDA, NOK 248 million with a margin of 15.7%, but to be able to compare it without IFRS 16, and if we take the NOK 120 million and compare it to the NOK 202 million. So NOK 120 million with 10.2% is comparable to NOK 202 million with 12.8%. So that's the comparable figure. So the margin is also developing quite healthy at the moment in the defense area. That's also almost the same as the margin year-to-date, which is 12.4%.Repayment on our bonds on NOK 250 million in September this year, so we now have the bond debt of NOK 4 billion. We have a cash deposit of NOK 3.7 billion. We have a equity ratio of 35.7%, and we have a return on the capital employed rolling 12 months on 9.5%. And here, you can see that when we now have added on the Commercial Marine for 2 quarters, this will have a dip, and then it will turn the other way for the next year, as I said on the Capital Markets Day. It will be a dip in the return on capital employed this year in terms of the Commercial Marine consolidation.Working capital. Some of you have noticed that the cash flow is a bit down this quarter. And the main reason is the working capital. So the best way to explain that was actually to split it between Commercial Marine -- between the maritime side and the defense side. And as you can see, after we added on Commercial Marine, we have more nominal working capital, but in terms of percentage, it is actually developing quite healthy. I said at the Capital Markets Day that a level of 15%, and we will aim to push it down. You can see here that we already are very down below 15%. But I think this is a very low level. So probably, we will increase a bit, but it's quite healthy though. The reason why we have increased the working capital this quarter is the Kongsberg Defence & Aerospace. They have actually increased the projects. They're working on the new projects, so the projects in the balance has actually increased. You can see here that we are -- we have negative EBITDA when we get the prepayment from the defense customer. We have not got any prepayment, either from the Australian NASAMS or from the Qatar NASAMS yet. So that's why we are building project reserves, and we have not received the prepayment from those projects yet.We will receive the prepayment from the Australian NASAMS in the fourth quarter, and we will also receive the prepayment from Qatar NASAMS, but that could be either in the third quarter or in the first quarter next year. But that's why the working capital has increased in third quarter.So here, you can see it on the cash flow, is the cash flow for the whole year. You see the EBITDA developing quite healthy, but then the change in working capital has increased, both in terms of having on board Commercial Marine, but also the increase in projects that we have started in Kongsberg Defence & Aerospace. The other thing here, it's quite common known for you, it's acquisition, of course, that we have been investing in, and still quite limited investments or CapEx in Kongsberg. We have done -- we paid out dividend in May this year. And then we have paid back the bond, and this is the currency effect when you recalculate the payments as for the third quarter. So NOK 3.6 billion in cash at the end of third quarter. In that, it's also a lot of prepayments from earlier contracts from defense, approximately NOK 1 billion, from air defense contracts earlier this year and last year.And then finally, finally, finally, finish with Commercial Marine. So we have been negotiating also until October this year after we did the closing. So that ended up with a reduction in the price, and the cash effect of this negotiation will be approximately NOK 250 million. We have already received that, so that we will see on the cash flow in the fourth quarter. So then we'll have a final purchase price on Commercial Marine. That will also mean that we will do a recalculation of the purchase price allocation, and there will be a recalculation of the depreciation of that after the fourth quarter. So with that, more business.

[Geir Haoy, President & CEO]

Thank you, Gyrid. Think that was a very detailed run-through on the financials. And as I started saying, I think we are showing a solid quarter in many sense. We will, of course, come back to the working capital. And it's difficult to predict that due to the defense. So -- but I think contract and prepayment is important for us. So we have to live with that fluctuation in the working capital. Business update. Starting with the defense area. I touched up on this earlier, but the activities in defense now is picking up, both on the missile side, on the air defense side. The aerostructure, we touch up on that in the second quarter. The activity is very high. We are ramping up to 150, 160 ship sets a year. And then of course, also the CROWS deliveries, we have this frame contract, which I will come back to. In addition to these deliveries and the activities there, we also have a quite extensive campaigning activity. There's a lot of programs out there where we are in position, and we are working increasingly on these campaigns.When I took over, I started telling you all about taking positions. And I think we can see now that these positions are turned into actual contracts and gave us a solid fundament for growth. I think the coverage that we have now of 30 -- NOK 20 billion in the backlog, gives some promising growth going forward. I will come back to the NASAMS, Qatar and the CROWS in a little bit more detail. We are also doing some structural changes, organical changes in the defense area. We are merging now the old KPS, the Protech part of our business together with the Communications division. And the reason behind that is that both of them are addressing the same market, the land, primarily, the land market, and we see some possibilities for cross-technology development and also not -- at least, that the customer interaction is more coordinated and that we can get more effect out of being one bigger division. So this will be done quite soon. So that is the next step of merging KPS into the Kongsberg Defense & Aerospace. So I'm looking forward to that. And then we have the 2 major contracts or programs that we are -- have secured. The NASAMS contract, of course, obviously, the size of the contract, the biggest ever that we have signed, extremely important for us, but not -- it's not only the size, it's also the extended capability that this will mean for the NASAMS system. We get an extended range and also a more flexible system when it comes to radar interface, et cetera. And that, of course, gives us not -- that gives us bigger market potential, both with new customer but also existing NASAMS customer today because there will be possibility for upgrades on new capabilities. So it's a very important program for us. And then the CROWS frame contract with U.S. that we signed a year ago. That was a frame contract of 5 years. We are now 1 year into the program, and they have already used 80% of the program, which we are, of course, happy with. If we look at the history of CROWS, I think, up to date, from 2008, we have actually delivered CROWS systems for NOK 23 billion. And that is an extensive number. I think we have to go back -- I don't think, we have to go back to 2010, when we have seen a revenue of NOK 3 billion in CROWS for Kongsberg. So now it's the NOK 3.1 billion last 12 months. I think in 2010, we had NOK 3.6 billion on the CROWS deliveries. So the speed of they calling off the frame contract is really high, 80%. So what we are doing now is, of course, to deliver, but also we are working on an extension of the frame towards the U.S. Army.And then this is important milestone for the U.S. Navy, but also for Kongsberg. This is a picture from the Gabrielle Giffords littoral combat ship in the Pacific. They attended the exercise there in with the -- called Pacific Griffin. And then they fired with -- this is now deployed on the -- NSM is now deployed on the littoral combat ship, and they have done successful firings with NSM and demonstrated the capability that these missiles have. So this is, of course -- we are very proud that the U.S. Navy have selected the NSM for their littoral combat ship. It looks a little bit rusty, but it's actually smoke.On the maritime side, another strong quarter, and I don't take that for granted because the market out there is extremely competitive. It's low activities in several segments on the contracting and new contracting. And as I say, I don't take it granted that we can keep at same level as last year. Last year, we also had these bigger Integrated System contracts. So I'm quite pleased with the performance of the order intake in Kongsberg Maritime also in Q3. The marine robotics, an important area for us. We see more and more activities in U.S. and particularly on the underwater -- autonomous underwater vehicles, but also the fishery side is important for us and continuously deliver good income.Global Customer Support, all in all, 43% for this quarter, important for a CM, Commercial Marine, of course, but in general for Kongsberg Maritime, the activities on the aftermarket is extremely important for us. And of course, both as an income, but also that we can support our customer. And that the activities continue in the aftermarket is important for us since the new build market is slower. We come back to the integration of the Commercial Marine shortly.LNG has been strong in 2018, continues strong in 2019, not particularly on the contracting side at this stage. But the first half year, very important, very strong order intake. Now there is a lot of activities -- delivery activities in the LNG area. And it's a market where we are market leader and having a very, very strong position. And there has been players out there announcing that they are going to place orders, significant orders on the LNG side. So I believe that it's going to be -- continue a strong market for us in the next quarter and the next year as well. So we have a 50% growth in the new build orders, and we are getting close to NOK 1 billion in 2019.Then to a very exciting project, the expedition cruise ship that we contracted with Damen Shipyard. This is -- for our engineer, it's a very fun project because we are delivering the -- actually the full scope of what Kongsberg Maritime are capable of delivering today, including also the digital solutions from Kongsberg Digital. So this is going to be a very special ship for -- special ships, and we are also delivering the azi pods from Commercial Marine. So we are very excited about this project. And I think we see that we are taking a position in the -- especially in the expedition for this market going forward. It's approximately NOK 200 million contract, which is a good contract for us. And as I say, technically, high end and, of course, perfect fit for Kongsberg.Gyrid had showed you the overall order intake. This is more based on the -- each segment. And again, just to remind you that this is for the ex KM. We're still struggling a little bit to get CM into this -- into these segments. So all in all, year-to-date order intake for the merged Kongsberg Maritime is 11.5%, as Gyrid mention. But if you look at order intake for KM, ex CM, year-to-date, 7.2%, approximately the same level as last year. And if you look at the percentage in the different areas, it's basically the same, a little bit higher on the offshore side due to the LNG's business, but then a little bit down on the SEABORN & PAX. But in general, quite similar to last year as we look at it. It's still very diversified, which I believe is also the strength of Kongsberg Maritime, that we have different segments that we can approach our full scope with.Yes, Kongsberg Digital continue working very hard on development, positioning themselves into oil and gas marine and renewable, have a book to bill so far this year of 1.7. I will come back to the breakthrough contract. And then we, of course -- also the Vessel Insight, the data capture infrastructure, cost-efficient infrastructure that we now announced during Nor-Shipping, we are continuing to roll out that. So still delivering or trending the right way, both on the top line, but also on the bottom line.Patria. They have a slight increase also on the top line, mainly due to the acquisition of BEC, Belgium Engine Company, which was part of the AIM company that Kongsberg and Patria bought. So the growth is mainly coming from that. Still we are struggling -- or Patria is still struggling to conclude and win contracts, particularly in the land business. And that's where you see the reason for the low activities. So we are increasing the -- and strengthening the campaign and capture teams in Patria, supporting them as much as we can on the capture team. And you see the EBITDA for Q3 was EUR 3 million. Last year, EUR 10 million. And the profit is not very positive to say. But we have a very strong focus on Patria these days, and recently, we also got a new CEO there, and there has been some changes that we are following up very, very closely.Yes, this was a good news. We were also very happy when this was coming in. We have been working on very many -- a lot of pilots for different oil companies on the digital side. This is the first ever Dynamic Digital Twin, which is going to be delivered to oil company. This is put in [ Nyhamna ] the gas process site connected to the Ormen Lange area. And of course, this is not only a important contract for Kongsberg Digital. But this is, I think, it's an important contract for the oil companies out there because now we have a full project where we can show the effect of having a digital twin and how many things you can do with it. So this is going to be extremely exciting. And we are on delivery already. They're currently working on it, we will have the first phase of delivery already in Q4. So I guess this is a good reference for us, and we are also working on several other pilots -- not pilots, programs that we are looking forward to conclude in the months and year to come.Then Lisa, Head of Value Capture, you take us through the latest.

[Lisa Edvardsen Haugan, Executive Vice President of Finance]

Yes. And again, I'm extremely proud to say that after 6 months of reporting, we are now having NOK 170 million in savings year-to-date. And that is a significant change from what we had after the Q2 reporting, which was NOK 87 million. So we have revised our savings for 2019, and that is now adjusted up to NOK 250 million.When it comes to the head count reduction, as Gyrid mentioned, we are now completed the first announced round of rightsizing, where we have taken out 260 FTEs. We are now working on the execution of the second announced rightsizing program, which was announced at the Capital Markets Day. And their aimed target there is between 180 and 200 FTEs. When it comes to footprint, we have closed down Gdansk, or we are in the process of closing down that production facility. We have so far co-located 13 sites. That is up from 12 sites in Q2. The latest site that we have co-located is Oslo. We will, when we come back after the Q4 presentation, revise the total savings for the Value Capture program. So again, we will come back to that when we are doing the Q4 presentation.If you look at the total savings that we have so far, more than 70% of the savings is within SG&A. And that is promising for our competitiveness and also for our profitability going forward.So that was the latest update from the Value Capture program. And again, very proud of the team and the work that they have done.

[Geir Haoy, President & CEO]

Thank you, Lisa. And I can assure you that when Lisa say that she will deliver NOK 250 million, she will do it. That is at least my experience. So Lisa is also of course, now in charge of the Deck Machinery & Motion Control division or business area. And as we have said that is an area that we really need to turn around, and she is well on way to do that. So I'm very pleased with that Lisa said yes to do this. Then the latest outlook. Kongsberg Maritime. I think I can be pretty sure that we will deliver growth compared to the last year for Kongsberg Maritime from 2018 to 2019, we will see growth. And with a backlog and with a steady, positive development of the life cycle or aftermarket, I think we can also be pretty sure that we will see some growth also in 2020. And I think, again, I just want to remind you that there is -- don't take it granted the delivery of order intake for Kongsberg Maritime these days because the market out there. Some of the segments are really challenging. And as you know, offshore is still not picked up on the new build market. So I think Kongsberg Maritime are doing a good job when it comes to secure orders in the segments that we see some activities in.The backlog for Kongsberg Defence & Aerospace, we will see growth in 2019. And definitely, we will see growth in 2020, even though if we should not secure new orders going forward, which I doubt. We are good -- in a good position for several programs. We are high activities on the campaign as we speak. And I'm pretty sure that we will see orders coming in the next quarters and next years. We will continue to develop -- on the Kongsberg Digital, we will continue to develop new applications. We have the platform in place, we have the Dynamic Digital Twin in place, we have Vessel Insight infrastructure in place. We will continue to develop applications, applications for the clients to be used out there. So that is a priority, together with the Kongsberg Maritime, of course. And we are accelerating our campaigns when it comes to the Dynamic Digital Twin. Of course, the focus is now to deliver on the Shell contract, but there is also other lease out there that we are currently working on. And then of course, we will continue to optimize and work on our product portfolio and also monitoring any other strategic opportunities as we go forward. All in all, I think I'm quite -- have a quite positive outlook also for Q4 and also in 2020 that we will -- we can expect some continued growth on -- in Kongsberg. So with that, thank you for that. And then I open for Q&A.

[Geir Haoy, President & CEO]

Shouldn't be many questions now on the financial, I think, is there?

[Eivind Sars Veddeng, Analyst]

Yes. Eivind Veddeng from DNB Markets. I have 2, if I may. The first one is on order intake and the outlook for maritime. The book to bill in the quarter is below 1. And Gyrid, you mentioned comments on you have NOK 7 billion booked contracts for 2020 and NOK 7 billion aftersales. That takes you to NOK 14 billion. That is roughly in line with current run rate. So can you please elaborate on how you will able -- be enabled to grow the top line year-on-year for maritime? And the second question -- or I'll pause and take the second question afterwards.

[Geir Haoy, President & CEO]

Maybe, I can start. First, we, as I said, it's a -- I would say, it's still a challenging market out there. And we have said, and I can repeat it, that you will see variation within the quarters when it comes to order intake because that's because of the Integrated Solutions. These will, unfortunately, not come every month. A year-on-year comparison, as Gyrid mentioned, was Grimaldi and Awilco project. Of course, if you get that in a quarter, then that makes a big difference. But in general, I foresee that the LNG market, in particular, will continue to be strong in 2020. And as I said, we have a solid position in that market. And then I guess also that I hope, at least, that we will see some shift in the market when the IMO 2020 comes into play in 2020, then I hope that some of the shipowners will do their strategic decisions, and that will result in either more scrapping or making decisions on what kind of solutions they will go for to comply with IMO 2020.And then on the aftermarket, the NOK 7 billion, this is something coming, so of course, we hope that, that will be the same level or even more next year. But again, this is running recurring business.

[Gyrid Skalleberg Ingerø, Group Executive VP & CFO]

And we still have a healthy LNG market and also the Sensor & Robotics is developing quite healthy. So.

[Eivind Sars Veddeng, Analyst]

That's very clear. And secondly, on the dividend, with the new adjusted purchase price for Commercial Marine and your reported debt at the end of Q3, you're basically net debt 0. In Q4, you have a net interest-bearing debt-to-EBITDA target of 1x. Can you please remind us, how you look upon your balance sheet and your capital distribution targets?

[Gyrid Skalleberg Ingerø, Group Executive VP & CFO]

Yes. That's another discussion that we are starting with the Board, and they wanted to look into that in the fourth quarter, and we'll come back with something when we release the fourth quarter on that one.

[Knut Erik Løvstad, Equity Research Analyst]

Knut Erik Løvstad, Kepler Cheuvreux. Congratulations with an excellent quarter. I just wanted to ask about the NASAMS. You have had a very, very strong order intake related to a couple of NASAMS contracts. You deliver those together with Raytheon. How should we think about sort of the margins in those types of projects that you co-deliver with Raytheon compared to other types of projects that you conduct on the defense side?

[Geir Haoy, President & CEO]

Well, how you should think about it? I think it's not so much to co-delivering of Raytheon. I think it's more what type of contract, whether it's a cost-plus contract or it's open competition. That's at least one difference. These NASAMS contract, we are a market leader in that area, in that segment. And of course, we are fighting every time for our margins. It's not so much the Raytheon part, it's the customer side, of course, that we have to do the negotiations that is -- so it's difficult to say any particular on that.

[Gyrid Skalleberg Ingerø, Group Executive VP & CFO]

But what we can say is that it's more healthy margins that one we sell to the Norwegian customer that we have. And it's also fair to say that out of the order backlog that -- or the new orders that we have in Kongsberg Defence now, 92%, it's outside Norway. So that's good.

[Geir Haoy, President & CEO]

But it's very good to have the Norwegian customer as well.

[Hans-Erik Jacobsen]

Hans-Erik Jacobsen, Nordea. With regard to Patria, could you be a little bit more specific on what's being done to raise the profits in that company?

[Geir Haoy, President & CEO]

I mentioned that we have done some changes in the management. And there is also some changes in the second-level management. Then we have also announced -- or not we, Patria has announced capacity adjustments recently, I think, today, on the capacity on the land business in particular. So that is, of course, a cost adjustment in the Patria because we have not been successful in securing any land business. So the business activities in land is going down, and they have to take measure on that. So that is initiated as we speak. Then, of course, for us, it's important that we capture the opportunities that we are working on. And I think that Kongsberg Defence & Aerospace have some possibilities to contribute to the sales campaigns. So we are working very closely with them now how to set up the capture teams, particularly in land, but also in other areas outside Finland because it's the international market where you can see the real big growth for Patria. We have a healthy business in Finland, in Norway the Millog, the MRO business...

[Gyrid Skalleberg Ingerø, Group Executive VP & CFO]

Nammo is there.

[Geir Haoy, President & CEO]

And Nammo is still delivering their share of that. The challenge is to get it out there in the international market. And I think Kongsberg Defence & Aerospace has something to contribute to that. And then as I say, also expect that the changes that we have done in the management now will also give us some effect. But we have to do some cost adjustment in Patria. And clearly those participating in the Board meeting last week, were they, so then it was also initiated programs to take down the cost and, of course, then to improve the -- but the -- so that is done, but we need to get in orders.

[Gyrid Skalleberg Ingerø, Group Executive VP & CFO]

And I think it's fair to say, you mentioned it, that the both Millog and Nammo is developing quite healthy. So it's differences between the deviations or in the business areas in Patria. And then in terms of waiting for capture opportunities in land, we now take on cost programs there.

[Geir Haoy, President & CEO]

We are impatient.

[Gyrid Skalleberg Ingerø, Group Executive VP & CFO]

Okay.

[Geir Haoy, President & CEO]

Okay. Thank you so much for joining us this morning. Have a good Wednesday.