Interview with Kongsberg Gruppen’s Jan Erik Hoff

For those unfamiliar with Kongsberg Gruppen, could you provide a brief introduction to the company, its main business areas, and the markets you operate in?

Kongsberg Gruppen has a rich history, founded back in 1814, which gives us more than two centuries of experience and evolution. Today, we’re structured around four main business areas: Kongsberg Maritime, Kongsberg Defence & Aerospace, Kongsberg Discovery, and Kongsberg Digital. Kongsberg Maritime is our largest segment, contributing around 50% of our total revenue and leading the way in systems and solutions that enhance safety and energy efficiency at sea.

Kongsberg Defence & Aerospace makes up about 40% of our revenue and is highly regarded for delivering advanced defense systems within specialized niches. Many of these systems were developed in close partnership with the Norwegian defense forces, tailored to meet unique requirements and fill gaps that existing market solutions couldn’t address.

Kongsberg Discovery, previously part of Kongsberg Maritime, became a separate entity in 2023. Though it’s a smaller contributor to our revenue, it is an important part of our future growth strategy providing innovative technologies and advanced sensors and robotics for underwater applications.

Kongsberg Digital, established in 2016, provides digital solutions such as digital twins, supporting digital transformation in heavy asset and maritime industries. Each of these areas is in a significant growth phase, contributing to our vision of expansion.

Kongsberg Gruppen operates across several sectors, including defense, maritime, and digital solutions. Which of these business areas do you see as having the greatest growth potential in the coming years?

If we look at the ambitious targets we set during our Capital Markets Day in June, we’re working towards tripling our company by 2033, reaching over 120 billion NOK in revenue. This growth won’t be driven by a single business area; it will come from each segment working together. Two major global trends underpin our growth strategy: security and sustainability.

On the maritime side, the industry is in the early stages of a transformative shift towards a more sustainable and greener industry. The ultimate goal is to achieve net-zero emissions, which will require substantial innovation and new technology. As a technology provider, integrator, partner, and enabler, we play a crucial role in developing both current systems and entirely new solutions to meet this goal. Achieving net-zero in the maritime sector requires technology that, in some cases, doesn’t even exist yet—and we’re excited to be a partner and frontrunner in this transition.

At the same time, global security needs are rising, with defense budgets increasing worldwide. This increased demand is reflected in our order backlog, which now exceeds 100 billion NOK, over 80 billion NOK of which is related to defense. So, while all our business areas are on a growth path, both the maritime and defense sectors present significant opportunities for the years ahead.

Kongsberg Defence & Aerospace is known for its advanced missile systems and defense technologies. How does the competitive landscape look in this sector, and in what ways does Kongsberg differentiate itself from its competitors?

We are a relatively small player in a vast industry. To give a bit of context, global defense spending in 2023 reached close to 2,500 billion USD, while our current defense revenues are about 1.5 billion USD. However, we are a leading player within certain niche segment. These niches are growing.

A unique aspect of the defense market is that there is typically only on customer in each country and when securing a contract for a particular system, such as for example an air defense system, we will be a partner for the specific country for that niche for decades. This also means that there aren’t numerous contracts available in our niches; that one major contract in a single country might be the one within the niches for the next decades. This dynamic means we have to be the world leading provider in our niche to succeed.

Our close collaboration with Norway’s defense forces plays a huge role in differentiating us. Many of our systems were designed to address specific needs that weren’t met by existing market offerings, which makes our product portfolio unique. This focus on niche solutions, developed through close cooperation with our home nation’s forces, sets us apart in the defense industry.

Part of your growth strategy includes the new missile factory in Norway. How does this investment support your long-term strategy, and what impact do you expect it to have on your production capacity?

We foresee a long-term demand for many of our product lines, especially the Naval Strike Missile (NSM) and Joint Strike Missile (JSM). The NSM, for instance, has been selected by 13 countries, and the JSM by four countries. Our missile backlog, following the recent U.S. Navy contract, is valued at over 40 billion NOK—about ten times what we delivered last year. This demand means we’re ramping up our production capacity significantly.

The new missile production facility we opened in Norway this summer increases both capacity and efficiency. We also announced new facilities in Australia and the United States, which will handle production, maintenance, repair, and overhaul of missiles. This long-term investment is a testament to our commitment to meeting the sustained demand in this area for years to come.

With increasing emphasis on sustainability and green technology in the maritime industry, how is Kongsberg Maritime adapting its products and services to meet the demand for more environmentally friendly solutions?

We’re adapting every day. It’s also worth noting that Kongsberg Maritime has a long history of developing technology aimed at making vessels more energy-efficient. We’ve been working on emission reduction for decades, so this focus isn’t entirely new for us. However, achieving net-zero emissions by the industry’s target dates requires substantial technological shifts and new developments.

We invest a solid portion of our revenue each year in developing systems that enhance energy efficiency. We work closely with shipowners and shipyards to innovate and find solutions that address current energy needs, improve energy utilization, and explore new renewable energy sources. This collaboration is key as we continue pushing forward in sustainable technology.

Could you give us insight into your acquisition strategy? Are you actively seeking new acquisitions, and if so, what types of businesses are of interest to Kongsberg?

We have ambitious growth plans to reach 120 billion NOK in revenue by 2033. This could also include acquisitions. Our approach is to continuously monitor our business portfolio and adapt it to align with our growth objectives. We actively seek opportunities that will help us expand along the lines of our core strengths.

The Norwegian government is a significant shareholder in Kongsberg Gruppen. How does this ownership influence your long-term strategy and decision-making?

The Norwegian government is a professional owner and brings stability and confidence to our operations. With such a large shareholder, we benefit from a stable framework that allows us to focus on long-term strategic goals. This ownership provides a solid foundation for both day-to-day operations and long-term planning.

What do you consider to be the main challenges and opportunities for Kongsberg Gruppen in today’s geopolitical landscape?

The geopolitical landscape presents both challenges and opportunities. There is a clear need for enhanced security and sustainability worldwide, and our systems play a crucial role in addressing these needs. Our primary challenge is scaling up to meet the growing demand, and we’re focused on expanding our capacity to continue delivering high-quality solutions in this evolving landscape.

Kongsberg Gruppen recently secured a major contract for the Naval Strike Missile with the U.S. Department of Defense, valued at 10 billion NOK. Could you elaborate on the strategic significance of this contract for Kongsberg Gruppen’s business development and discuss how the company plans to scale production to meet the increased demand, particularly with the new missile facility in Virginia?

The strategic significance of this contract is substantial. The U.S. has the world’s largest defense budget, and securing a contract for critical defense equipment with the US Navy is a strong endorsement of our systems. It also sends a signal to other clients about the quality and reliability of our solutions.

This contract, initially valued at 10 billion NOK over five years, with options that could increase its value to 12 billion NOK, is a cornerstone within our missile business. Establishing production in the U.S. further reinforces our long-term commitment to this market, which we expect to generate substantial business for the group over the coming years.

Your Q3 report showed strong growth, with nearly a 20% increase in revenue and a significant improvement in both EBITDA and operating margins. What factors contributed to this performance, and do you expect this trend to continue in the coming quarters?

Kongsberg has long-term growth ambitions, and our Q3 report reflects strong performance across all areas. Our goal of reaching 120 billion NOK in revenue by 2033 requires steady growth, averaging around 11% per year. While quarterly results can fluctuate due to project mix and seasonality, we are positioned to continue on a long-term growth trajectory.

What are three key reasons you would give to potential investors as to why Kongsberg Gruppen is an attractive investment today?

Ultimately, it’s up to investors to assess the value, but from our perspective, Kongsberg has strong growth ambitions both in revenue and profitability. We have a unique position within major global trends, security and sustainability, which will remain relevant for decades. We’re committed to creating value for our investors by seizing the opportunities that arise.