Kongsberg builds defence capacity, but analysts flag weakness in maritime business

Norwegian engineering group Kongsberg is building up production capacity to meet growing orders for its defence products, especially missiles, as European nations bulk up their military spending.

Kongsberg, which has customers in defence, aerospace, maritime, energy and fishing industries, booked orders worth NOK18.18 billion ($1.80 billion) in the second quarter, five per cent more than last year, it said on Wednesday.

The Defence Aerospace business made up 54 per cent of those, as CEO Geir Håøy said the company was experiencing record-high market activity in the sector.

Many European nations have pledged to significantly increase defence budgets in response to Russia's invasion of Ukraine and as US President Donald Trump's administration has threatened to scale back military support for the region.

Kongsberg has opportunities to increase production in Norway and is building up capacity in Australia, Håøy said in a call with analysts and media. Later this year, it will also start building production facilities in the United States.

"We are quite comfortable with our own capacity going forward," Håøy told Reuters.

He said that the facility in Australia was being built and funded by the government, which is also the customer, and Kongsberg will equip and lease the plant on a long-term basis. In the US, it is making an investment of its own.

The group will invest three per cent to five per cent of its sales into capacity expansions, mainly on the defence side, finance chief Mette Toft Bjørgen added.

It is also continuously working with its supply chain, which Håøy said was as important as building its own capacity.

Kongsberg's second-quarter core earnings (EBITDA) rose 28 per cent to NOK2.33 billion, while five analysts polled by LSEG were expecting NOK2.25 billion on average. Its revenue of NOK13.9 billion was 1.7 per cent below the consensus.

Kongsberg's shares were nine per cent lower at 09:54 GMT, the second biggest fallers on Europe's benchmark STOXX 600 index.

Equity analysts from ABGSC Capital Goods Research, Arctic Securities and Sparebank 1 Markets said they saw some weaknesses in different parts of the results, most of them stemming from a soft performance in the maritime division.

(Reporting by Marta Frąckowiak in Gdansk; editing by Milla Nissi-Prussak)