Q4 2020 Autoliv Inc Earnings Call
Ladies and gentlemen, and welcome to the conference code. The code would ensure please continue thank you.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter trying to try and day to lead earnings conference call.
This time book participants are in a listen only mode. After the speaker presentation that would be of question answer session to ask a question. During this session you will need to press star one on your telephone.
Must advise you that this conference is being recorded today I would now like to end the conference is peak of today.
On the stop Vice President of Investor Relations. Please go ahead.
Thank you Alicia.
From everyone to our fourth quarter and full year 2020 financial results earnings presentation. On this call we have our president and CEO me kind of breadth and our chief financial officer three of the existing <unk>.
On the crop Vice president of Investor Relations.
During today's earnings call of our CEO will provide a brief overview of our fourth quarter results as well as provided an update of our general business and market conditions.
Following Michael.
We'll provide further details on commentary around the financials.
At the end of our presentation, we will provide a status update of our journey towards all of the financial targets.
He was on remain available to respond to your questions and as usual the slides are available on <unk>.
Leave it got cold.
Turning to the next slide we have the safe Harbor statement, which is an integrated part of this presentation and includes the Q&A that follows.
During the presentation, we will reference some non U S GAAP measures.
Reconciliations of historical U S GAAP to non U S. GAAP measures are disclosed in our quarterly press release on the 10-K that will be filed with the SEC.
Lastly, I should mention that this call is intended to conclude of three P. M. Central European time. So please hold of a limit of two questions per person.
I now hand, it over two hours of CPE goes out.
Thank you on Thats looking now into the Q4 2020 highlights on the next slide.
Before we start with the formal presentation I would like to acknowledge our employees for their hard work and commitment to hands on safety of course control quality and delivery of precision in these challenging times.
The COVID-19 pandemic is first and foremost of the human crisis safeguarding the health and safety is our first priority.
I am very pleased to death of our operations reported record net sales record profit and record cash flow. Despite the challenges from the pandemic.
We continue to execute on our strong order book and on sales increased organically by 13%, which was almost 11 percentage points more than the increase of global light vehicle production.
The record operating income was the result of higher sales growth good operational execution structural savings on the forceful actions we initiated early in 2020.
Our structural efficiency programs are on track and delivering savings.
As part of our footprint optimization, we have announced the plans to close one plant in Sweden, and we continue to evaluate sort of footprint optimizations.
It is encouraging that's accounts reported the highest operating and free cash flow in our history of our company.
This enables delivering towards our leverage ratio targets of 0.5 to one five times.
We continue to evaluate opportunities for shareholder value creation.
The order intake share of around 45% in 2020 supports a prolonged period of outgrowth.
By that defending or growing our market share.
Customer sourcing activities was lowered unexpected sourcing of some programs were pushed into 2021.
Our focus throughout this crisis has been the health and safety of all of our employees and to come out of it as a stronger company. Although the COVID-19 pandemic is not yet behind us the second half year performance shows that we have built a solid platform towards our mid term targets.
However, disruption in the automotive industry supply chain economic uncertainty risk from further lockdowns and the risk of increasing unemployment and its impact on consumer demand may temper, the 'twenty to 'twenty, one light vehicle production development.
Looking now on the financial highlights on the next slide.
Okay.
Our consolidated net sales increased by 15% compared to Q4 2019.
This was the highest quarter sales for our passive safety business ever.
As we outpaced the market our global market share increased to 42% with leading market share across all three core product areas airbags, seatbelts and steering wheel.
Adjusted operating income, including cost of oil capacity alignment on excluding cost for capacity alignment and antitrust related matters increased by around 30% to $311 million.
The adjusted operating margin increased by 130 basis points to 12, 4%.
Despite significant accruals for warranty on vehicles.
The accruals include a higher than anticipated accrual of 42 of our previous recall first announced in 2016 and other probably recall that is still under evaluation by the company and its customer.
This is the first time, we have made on accrual of this size and it does not reflect out of these high quality standards and culture.
Operating cash flow of $469 million.
Was the highest cash flow on a record for the company.
Looking now on the sales development on the next slide.
I am very pleased that our organic sales growth outperformed the global light vehicle production by 11 percentage points.
We had a solid sales development in all the major regions with sales in Europe, China, and North America outperforming light vehicle production by 9% to 12 percentage points.
The outperformance was the result of product launches over the past year and a favorable model mix.
In the quarter slowing sales of replacement inflator.
0.7 percentage points negative effect on sales, mainly affecting North America and China.
Looking on the next slide.
We had several high content model launches during the quarter, we did not experience any major delays of losses there.
Model shown on this slide have an ultra live content per vehicle between 110 to 540 U S dollars.
Two of the vehicles are pure Evs and member of the remaining models.
More of it will be available with some sort of electrified powertrain.
The long term trend to higher CTV is supported by the introduction of pedestrian airbags and who lives. This.
For example, Subaru Levered is the first Japanese produced vehicle with a pedestrian airbags from alternative.
Looking now on the next slide.
Our order intake share for the full year continued on a high level.
Putting our growth opportunities also beyond 2021.
This is strong evidence that our company is the leading company in the passive safety automotive industry and it shows that we have managed well when launching previous year's high order intake.
One of our key performance indicators.
Customer satisfaction has continued to improve on is at the high level. The best we have had for several years.
However, this does not mean that we can relax, we always strive for improving products.
Services processes and costs.
We estimate that we book around 45% of available order value in 2020, making 2020, the sixth consecutive year with higher order intake.
Now I will hand over to our Chief Financial Officer, <unk>, <unk>, who will talk more about the financials on the next few slides.
Thank you Mikael.
On the next slide we show on the highlights of key figures for the fourth quarter.
Our net sales were $2 5 billion of 15% increase compared to the same quarter last year.
Gross profit increased by $75 million on the gross margin increased by 40 basis points higher.
Gross margin was primarily driven by the higher sales and direct material deficiency.
Partially offset for cost related to warranty and recall accruals.
The adjusted operating income increased by $69 million to $311 million, mainly due to the higher gross profit.
And cash flow was $469 million, the highest record quarterly operating cash flow for the company.
Reported earnings per share was $2 15.
And our adjusted return on capital employed was 33% and return on equity was also 33% we did not pay a dividend in the quarter.
Looking now on the adjusted operating margin bridge on the next slide.
Our adjusted operating margin of 12, 4% was one of the 30 basis points higher than in the fourth quarter 2019.
As illustrated by the chart. The adjusted operating margin was positively impacted by lower cost of raw materials of 50 basis points and lower combined cost for SG&A and <unk> of.
Of 70 basis points.
Mainly due to lower cost per personnel in relation to sales.
X effects impacted the operating margin positively by 50 basis points. This is caused by transaction of effects from a number of different currency pairs.
Operational improvements contributed with 180 basis points. This was a result of strict cost disciplines put in place during the first half of the year and the effects from a structure of efficiency programs, partly offset by the negative impact of COVID-19 related costs and inefficiencies.
Support from governments in connection with the pandemic was around 2 million net U S dollars in the quarter.
The margin was also affected by the accruals for warranty and recall of 220 basis points. This.
This is the this is the first time in the history of our company that we have such high amount of this type of costs. Since 2010, we have accounted for less than 2% of all of safety related recalls despite our high market share.
Having said that the automotive insurance market has become more challenging with increased insurance premiums and self risks, which could lead to a higher average cost for recalls.
Looking on the next slide.
For the fourth quarter of 2020 operating cash flow was $469 million, an increase of $157 million compared to last year. The increase in operating cash flow was a result of the higher net income effect from deferred income taxes and improved working capital.
<unk> inventory control, our close collaboration with suppliers, but also reduced overdose and improved payables together with positive effects from other noncash items were the main drivers for the improvement in working capital.
Capital expenditures amounted to $111 million in the quarter, which is about four 4% in relation to sales compared to last year capital expenditures decreased by 6%.
Free cash flow of it was $358 million, an increase of 164 million of year over year.
For the full year 2020, operating cash flow was almost $850 million and free cash flow amounted to half of $1 billion.
Capex was $340 million for the full year of reduction by close to 30 per cent compared to 2019, as we suspended or delayed some investments.
More normalized market market will lead to some increase in investments again.
The cash conversion in 2020 was more than 200% as a result of the low capex positive operating working capital development and non cash items.
Now looking on the next slide.
We have as you know of long history of of prudent financial policy and our balance sheet focus remains unchanged. The leverage ratio has improved from a peak of two nine times at the end of the second quarter to.
To one eight times as of December 31, 2020.
The improved leverage in the quarter was a result of our net debt decreasing by three on a $50 million while EBIT on over the last 12 months at the same time increased by $75 million. It is worth noting that our net debt is now half of 1 billion lower than when we spun off be on air in 2018.
Our strong free cash flow generation should allow further deleveraging and we expect to be within our target leverage ratio range before the end of 2021.
On the next slide you can see our key figures for the full year 2019.
2020 was of turbulent year with a low point in the second quarter on the high point in the fourth quarter. Our net sales were $7 4 billion U S dollars with sales declining organically by 12%. This was slightly better than our guidance of a 13% decline with global SVP declining 17%.
Our outperformance was approximately five percentage points, yes.
The adjusted operating margin was six 5% compared to our guidance of around 6% of.
Of dividend of 62 was paid in the first quarter.
Looking now on the light vehicle market on the next slide.
We see risks for near term volatility to light vehicle production from supply chain challenges.
Labor availability and continued challenges around COVID-19 mitigation of efforts.
Although we're not directly affected by the semiconductor supply issues. It will potentially have substantial impact on light vehicle production in the first half of 2021.
According to IHS market more than.
600, 600000 unit impact is highly likely with most of that loss of production expected to be recovered in the second half of the year.
Largest impact is expected in China, followed by Europe and Japan.
In North America, we expect that rebuilding inventory it will push light vehicle production gains above of light vehicle sales increases in 2021 in Europe. The overall production outlook remains constructive given the need to rebuild inventories and support the ongoing domestic sales recovery and increased export activity in <unk>.
China positive economic fundamentals are supporting the ongoing recovery in consumer demand light vehicle production is now forecasted to grow at 7% for 2021 after three consecutive years of decline.
Our full year guidance is based on our customer call offs and light vehicle production outlook. According to IHS Markit.
On the next slide you'll see some of the key models supporting our expected sales outperformance in 2021 day.
These models are expected to account for a large share of our organic sales growth during the year nine.
Nine of these models were launched recently three are yet to be launched our content per vehicle. On these 12 models is in the range of $150 to $600.
Additionally, we continue to see a high number of truck launches in 2021, especially in China, Europe and North America.
Looking to our expected margin development for 2021 on the next slide.
We see some tailwind and some headwinds.
The main of tailwind to include the rebound of global light vehicle production executing on the strong order book and savings from the structural efficiency programs.
The main headwinds include operational headwinds from higher cost of raw material of approximately 40 basis points of gradual normalization of discretionary spending and higher depreciation and amortization price.
Considering these potential tailwind and headwinds we expect of year over year improvement in adjusted operating margin of around 350 basis points.
However supply chain disruption in the automotive industry risk of further lockdowns and the potential increase in unemployment and its effect on consumer demand may still impact this outlook I now hand back to me again.
Thank you Fredrik now looking on to full year 2021 of indications on the next slide.
These indications exclude cost for capacity alignments and onto drops related matters.
Backed by recent product launches, we expect sales to increase organically by around 20% supporting of full year mid single digit outperformance versus light vehicle production.
Our net sales increase is assumed to be around 25%, including positive currency translation effects of around 5%.
We expect an adjusted operating margin of around 10%.
Operating cash flow is expected to be in line with 2020.
It is important to note that the outlook assumes that light vehicle production developed broadly in line with IHS Markit latest forecast.
Turning to page.
During the first half of 2020, we experienced the downturn of historical proportions. Despite this our focus areas for shareholder value creation are unchanged and we have continued to execute on the strategic initiatives presented at a recap of the market say in 2019.
The operations is to ensure we have an adequate cost structure supporting our mid term targets.
Today, I would like to share some updates on our journey with you.
But first I would like to say a few words about how we integrate environment, social and governance into our strategy on the next slide.
On a core business contributes to the United Nations Sustainable development goal for health and wellbeing.
We support the UN global compact and its 10 principles.
An integral part of our sustainability commitment strategy and work.
We are well positioned to support the industry transformation towards clean of vehicles.
Our commitment on strategic priorities include innovating products to save more lives in real life traffic.
At the same time, we are focused on improving resource efficiency and reducing our carbon footprint managing sustainability risks in our value chain.
Committing to the well being of our employees and acting in the best interest of society as a whole.
During 2021, we will especially advanced our position on the climate issue and update our climate strategy.
Now looking on the next slide.
Here, we have on our financial targets as presented on our CMT in 2019.
During 2020, we delivered on the growth on cash conversion targets in.
In 2021, we expect to continue to build towards our profitability targets of around 12% adjusted operating margin.
Looking on the building blocks for profitability growth on the next slide.
Improvement in margins will come from three key levers.
We're executing on a strong order book stabilization of market fundamentals on our strategic initiatives.
Looking more on our three key levers on an update on our targets on the next few slides.
For reference our sales outperformed the global light vehicle production organically by five percentage points in 2020.
We expect that content per vehicle will grow by at least 1% per year.
As a result of higher installation rates and introduction of new products.
These combined weighted sustained higher order intake level allows us to increase our medium term targets for annual growth of 4% to 5% above light vehicle production on average.
This is an increase by one percentage point.
Looking on the market development on the next slide.
The outlook for global light vehicle production looks very different today than back in 2019.
IHS expectation for global light vehicle production has been reduced by roughly 7 million units per year or approximately 40 million of vehicles totally 'twenty 'twenty to 'twenty to 'twenty four.
This reduced light vehicle production environment creates additional challenges.
Looking on the next slide.
To offset that.
On the effects from the expected lower light vehicle production, we expanded the structural efficiency program.
We have seen expected positive effects.
The savings from our two structural efficiency program was around $55 million in 2020 compared to 2019.
In addition to the structure of efficiency programs, we made a provision of around $35 million in 2020 per footprint optimization in Europe involving plant closures in Germany on Sweden.
We are once of targeting to make some of the temporary cost reductions that supported a strong performance in the second half of 2020 permanent.
Despite the pandemic, we have stayed true to our commitment and focus on driving improvements from key areas within operations supply chain management and engineering.
Looking at the progress on the next few slides.
We have increased our optimization activity more than five times in the last 12 months.
From around 50 projects at the end of 2019 to more than 250 projects Inc.
Limitation is at full speed.
For example, we have developed a fully automated line for weaving of curtain airbags. The first line is being taken into production in the first quarter of 2021.
All of the Digitization journey has also been accelerated with more validated use cases.
All of our improvement in out of lead production system has shown great momentum, 80% of our plants from now reached go level or above during the last 12 months 50 of our 65 plants and moved up one level we're more.
Today, we have no plans on basic or branch level.
Looking on supply chain management on the next slide.
Sure.
Despite the challenging year for automotive suppliers, we managed to achieve a year on year cost reduction of more than 4% for components material analytics, including 90 basis points from raw material price changes.
This level of savings is clearly supporting our midterm targets.
Expanded payment terms is another focus area contributing to a strong working capital improvement.
The potential risks in the supply chain increased during 2020.
We have taken a proactive approach on a record rig recognize.
Recognize the supply chain risk management is a key part of our capabilities.
Looking on engineering progress on the next slide.
In our ambition to reduce <unk> in relation to sales to historical levels of around 4% of sales and to support our optimization journey. We are transforming the way we are doing engineering.
This transformation includes smart connection of systems data processes and tubes.
Faster implementation on improvement projects.
Developing specific simulation tools for substantial reduction of prototypes on testing.
During 2020, we have implemented 12, such improvement project and we are currently driving 40 more projects net eastern we have more than 50 projects in the pipeline.
I Hope. This presentation has shown you definitely have a very high pace in the implementation of on strategic initiatives that we are on track towards our midterm targets.
Now looking on our focus for 2021 on the next slides.
Okay.
The health and safety of our employees is our first priority while continually more activities to further improve efficiency.
We will also continue our efforts of flawless execution of new launches improving customer satisfaction further on.
Thereby supporting our stronger market position.
Sadly there will be millions of traffic accidents in 2021, some fatal some where people will get injured.
Therefore, we will relentlessly continue to innovate and to deliver best quality products that will save more lives.
Turning the page.
We plan to hold our next capital markets day in the fourth quarter, where we will showcase our full potential and provide an update on our strategy and development of the elderly of group.
Additionally, we plan to show further the future products, given an update on opportunities in core and adjacent product areas outlaw.
Outline sort of the potentials.
We see in flexible optimization and digitization and much more.
I will now hand back to Anders.
Thank you Mikael.
Turning to page.
This concludes our formal comments for today's earnings call and we would like to open the line for questions.
I now will turn it back to you Alicia.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question. Please press star one on your telephone Lake for your name to be announced.
While we compile the Q&A queue. Please let me take a few moments.
Please press <unk> once again, so one if you wish to ask a question.
And first of question comes from the line of.
Now from Deutsche Bank.
Question. Your line is open.
Hey does it answer Emmanuel so so two questions first.
First on the raw mats could you go over kind of the impact going forward at current spot rates yet.
Remember correctly, there's usually a lag.
It sounds like it could be.
40 bps this year any sense of how much that might be next year.
And then second question on the order intake.
Been about 50% of past five years could you maybe go over why that's kind of dropped out of 45% in 2020.
Yeah.
Thank you for your questions. There I I can start with the order intake on maybe on the on pass on raw material to Fredric that to give you some more details there.
I think firstly I think it's still very strong.
When it comes to our order intake I mean, we have an order intake for 2020 that will continue to support our outgrowth of the market.
We have said all along here that we have.
The expected.
Market share growth into the mid forty's or around 45.
And that is our focus to protect that market share as we move forward in the coming years here and we the order intake that is higher than we had before.
The increase period here.
Six years of strong order intake is doing exactly that so we are pleased with the order intake and supports the strategic.
Outlook, we have had when it comes to depending on market share.
On the raw materials side. So we are guiding for a of 40 basis points.
Packed on the 2029 financials.
The main negative impact we see is from steel.
But we do expect some offsetting effects from for example of nylon still in 2021.
And we also based on estimates on the assumption that steel spot prices have peaked and that the average steel price would be somewhat lower for the year compared to right now.
And then of course it also takes into account how some of our contracts are faced and how.
Take on the spot prices will turn into an impact based on on how are set up with our supply base.
So that's pretty much the picture on on raw materials.
Alright, great. Thanks.
Thank you. Our next question comes from the line of Chris Mcnally from out of call. It. Please ask your question. Your line is open.
Okay, great. Thank you so much.
A follow on maybe to the to the market share.
Question could you maybe talk about how your sales force and division had parts of that incentivized.
This idea of pace.
To be going after revenue versus going after profitable.
Margin.
Our business can you just talk a little bit about how that net incentive structure works because of I guess people are trying to understand it.
Is business to be one above that 45% market share target.
That's something that they are incentivized to go after.
I think I mean first of all I mean, we always strive to Uh huh.
Net debt as.
As much business as possible of course to support our customers say on doing that.
And there has been as the way here so.
We are focusing on both of our topline on bottom line on and.
I think that is what we have alluded to also when we of talks about.
Our ambition is to continue to grow here.
I mean, EBIT 45, or 50 of some questions as being here in the past.
Considering the last year's order intake.
We have been very key area of that we don't have of market share target per se.
Our focus is to defend the market share that we are growing into and do that in a healthy way from a profitability point of view.
And I think we've shown that we are doing that and that's also how we drive drive the company here and.
We are focusing here on supporting our customers to have quality products to sort of saving more lives that's our focus.
That's great and then the second question is really more on that on the long term target, which you seem to be reiterating of the 13.
13% margin and I think it was mentioned even this 1% sort of organic content per vehicle growth above mark market share and it sounds like we're going to learn a lot more on on the CMT and in Q4, but do you feel I'm pretty confident that there is.
A passive safety Tech story, where there is actually content that can be grown I know, obviously, China is still coming up in terms of you know.
On a lower CPE per per vehicle.
But do you feel confident that there's a there's a growth story get well past when you hit sort of your eventual market share gains on because obviously that the numbers get pretty big if we start putting on of growth to the market and of 13% margin or whatever year that is 2025 et cetera.
Yeah, I think I mean confidence.
I will say, we are making this adjustment based on on the best of our knowledge. When we look at analyst day numbers that we have in front of us here on.
As we said here I mean, we see that the content per vehicle are coming in higher weighted.
With both the development you see in some developing countries, where the content per se in terms of features of increasing but also a bit more advanced.
Products coming into the vehicles across the board I would say, so hence the higher value.
In the CBD coming through above the one percentage we are talking about the year. So that is what we see.
And then combined with the strong order book and as we have and continue to build on OXXO with ECS order intake we feel that.
We can raise the bar without performance here.
Versus light vehicle production with one percentage unit sales so yes.
That's what we see.
Okay.
Great.
Thank you.
Thank you.
Next question comes from the line of Joseph Spak from RBC Capital. Please ask your question. Your line is open.
Thanks.
Thank you very much.
Just to follow on and to clarify like keep me of what you.
You you previously you sort of talked about hitting that 12% margin target later in the planning period because of the change in our industry.
Industry volumes, which is which is understandable, but now.
Since you've taken a lot of.
Cost action to right size for that volume and the the outgrowth of little bit stronger. So so he has the timing of of those margin targets shifted at all or can we go back to sort of the original planning or is it still maybe a little bit later in the planning period.
I think I mean, as we have said all along here is that I mean, we have the medium term target that's defined three three to five years out from where we were in year one 2020.
And of course, we have shown here in the presentation.
Wish you all of our additional headwind compared to where we are in a in a in November 2019 on I mean, roughly 40 million week vehicles lower than this.
Period here seems to be.
Not being there.
So.
On top of that also can deal with.
And the circumstances to operate the business on the COVID-19 together with.
Yeah.
Uncertainty coming out of that definitely have put some more pressure on it then as we have said all along we are holding on to the targets but of course.
And within that timeframe, it could take a little bit longer.
<unk> and unexpected so I mean, we are we.
Still in the timeframe, we are talking about them, we have always been within that timeframe.
Okay, so that anything else.
And then just for some of the 'twenty one.
Guidance I guess is two things one you noted in the in the fourth quarter you mentioned a couple of times on the higher insurance. It sounds like that's more recent is that also of continued headwind into 'twenty. One I didn't see it on your Seesaw chart and then for the first quarter per.
Reduction you noticed you noted the IHS at 14%.
Maybe you could just talk about what you're seeing from your customer call offs in light of some of the semi shortage of et cetera, whether you think it's gonna be.
At that level or maybe a little bit below.
If I start with the first one here about.
Outlook here for Florida for light vehicle production. So we have been.
He indicated here I mean, we are leaning on.
IHS outlook here.
And I mean, when we look at that we see here that I mean, we have.
Compared to the second half of 2020.
New transform nothing too to the full year of 2021, you see actually the slightly weaker.
2021, compared to the second half of this year over around 4% four percentage there and I think when you look at that of course, we did start of the year on year. When we have the Covid. We have also to semiconductor challenged as we mentioned here that is for sure on some some uncertainty in the beginning of the year.
Year, which we are.
Cautious of.
But I would say looking at the full number here, we have no other indications or views on what we see here on is towards the number of full for.
2021, hence them out of our guide out of indication here that we have food on 2021, so but.
We are very much aware of that we are still in the COVID-19 situation here.
And if youll discretion regarding regarding insurance, if that's related to the cost of insurance.
That's where it's been.
Maybe an evolving picture over the last couple of years already.
But we don't expect any significant headwinds from that from the cost of insurance.
For 2021 versus 2020.
That would make it to the assay on.
On our seesaw scalar.
Thank you.
Thank you.
Our next question comes from the line of <unk>.
<unk> from Morgan Stanley. Please ask your price.
Hi, There asked you need morning, everyone I wanted to ask about dividend and cash returns, please and how you'd be thinking about those and you haven't stepped down from Q4. When do you think is the right level and thinking about reinstating the dividend and when you do that do you.
Think that's roughly the sort of split you've had in the past of our range and $2 50 of shares of about 200 million of year and then anything.
Incrementals of that comes into buyback is that still the right structure and that we should be thinking about as you get into your into your target range and so you have some commentary around that please would be helpful.
Thank you.
First of all I mean, we we.
Normally don't communicate the dividends in connection with our quarters, because as you know we have quarterly dividend.
<unk> taken by the board on a quarterly basis.
So.
Not connected to two.
On a Q reports.
Secondly, I think the maybe it's too early to to pose that question I think we are still in an.
Uncertain period here on we are still outside of range, but with that said I also want to reiterate here that our clear ambition on target here is to have a shareholder friendly approach to how.
How we return on them.
Cash to our shareholders.
Timing and and also in which way on form and we'll do that we'd have to come back to I mean as I said.
So the decision to be made by the board of eventually but we.
We need to get into more stable territory in terms of the business cycle moving forward we are there.
Okay. So you think that many of the market uncertainty is still too high.
Got to be a realistic discussion right now.
Yeah, I think the this.
Correct.
The cycle is too uncertain and.
And also we still have some way to go on till we are within our range, but we haven't said also that we have of programmatic views that we don't need to be within the range, but we need to see that three of them.
Track through that on and Noah more stable business second.
Alright, thanks very much.
Thank you.
Thank you.
Question comes from the line of Mathias.
Ian.
Please ask your question.
Hi, Thank you, but he is one of them.
From the end of the year.
I made some comments on a slight headwind in the quarter from nowhere sales of in play to replacement and I believe that you're about a year ago said that more of it.
Yeah.
Last of that of course, the replacement would be made during 2020 and that we shouldnt expect this slight headwind that we've now seen.
Pete.
Just briefly update this on the state of states.
Placements that I noticed for instance, this board of just a couple of days ago.
It's a pretty significant recall on the scale of relating to lease in pesos.
Yeah, I think I mean, we are still where we are on.
Kind of communicated before we see diminishing.
Sales of connected to that replacement and when it comes to what you sort of late is there I don't.
I see that we have any.
Upside coming from that two two office here so.
I would say that the diminishing trend continues here.
So no change to the previous statement basically.
Great and they could you give us an idea of how much of 2020 sales roughly it was relating to the replacement.
Okay.
Decline.
But once of your question about the decline or how much sales did you have to replacement.
How much of that 2020 sales force relating to the replacement.
So around <unk>.
$155 million.
Sales in 2020.
Probably a half of that in 2021, so it's continued to diminish that.
Very clear thank you.
Thank you.
Our next question comes from the line of Ryan Brinkman from Jpmorgan. Please ask your question.
Great. Thank you.
I appreciate your comments on the dividend too maybe just another capital allocation question. You know as you returned this year of two of your targeted leverage range. How should we think about the level of gross cash that you hold which I think is still towards the high end of what you've had on the balance sheet historically at least since the time of the veneer spin and then.
What is the first debt to be paid down I don't know some of the sovereign debt you've taken on there if that needs to be prioritized.
And how should we think about you.
You know debt pay down versus other uses of cash.
Yes, we still have a fairly comfortable cash position and if you look historically, we've been paying in more stable.
Times, we spend up at about a half of of the cash that we would have today on the balance sheet.
But as we said before I mean, we still believe that there are some level of risks in the market and that it is prudent to maintain a slightly higher cash position at this point of time.
Is that would normalize sort of it has if it would normalize we can then build on that cash position here.
We have very few maturities coming up here both this year of next year.
Most or the next larger one is the repayment of the U K on.
SDK sorry, no one that we took out earlier on during 2020.
That's the first of major majority of that's that's next year.
Okay, great. Thanks, and just last question.
On things that you might contemplate doing in the future of apart from passive safety. So for example, this battery disconnect switch I don't know if you've got any update there.
And if that means that you see on.
Opportunities on addressable markets beyond airbags, seatbelts et cetera.
Yes, I think when it comes to the electrical vehicles for example.
Power safety switch is a component that.
We are selling on where we see opportunities to further grow in wherever you need to tie of power safety switches those good opportunities there and we continue to explore.
What we have called adjacent piece of art.
Calling adjacent business opportunities, where we are building on our core competencies here, but.
Right now our higher no more details to give you a round up more on that we have work in progress there and we will come back to Q1, we have more to say there.
Okay, great. Thank you.
Thank you and our next question comes from the line of Vijay Rakesh from each of them.
Just your question your line is open.
Yeah, and we got on just on the order intake I was wondering you highlighted E. Do you see any difference in content between ice and EV anything structurally that of kind of similar.
I think when it comes to electrical vehicles.
Neutral to positive in terms of sales value of from from from our side here.
And.
Have a good a good presence in the <unk> segment here on where flex very amongst our overall market position here. So.
As of.
Interesting and good development from our perspective to see the EV development there.
Got it and on the N V D and demand outlook I'm, just wondering if you sort of down I actually look at the dealership level, where do you see dealership inventories in North America versus China versus Europe.
Thanks.
Overall, the inventory situation of Suez.
Sure.
Good I would say.
If you look at the U S actually the inventory levels is relatively low I mean, we were around 48 days, which is too.
To be compared with 60 days.
And outside of some kind of normalized inventory level. So that there is still some.
Backfill needs of the in there.
China is very much in balance I would say and on.
So Europe.
Maybe.
On the high side in terms of balance balance.
Balance definition, but overall and in healthy healthy position, so I would say so.
Nothing there that.
Jose is of concern.
We view west on maybe the opposite actually.
Got it.
Thank you.
Next question comes from the line of pressure Goldman from Jefferies. Please ask your question.
Yes, good afternoon good morning.
On a couple of questions.
First question is in your introductory remarks, he said you're continuing to value measures push for shareholder value generation, what's that basically related to your capital allocation or how should I interpret that statement.
I'd say its all of above I think I mean, yes.
When it comes to us of side before being shareholder friendly company of returning cash to our shareholders over time.
But then also of our focus tools to drive towards our mid term targets and here we have done in all of those strategic Roadmaps that we have talked about so.
It's a it's sort.
We do here.
Okay. So nothing specific in terms of further measures you could highlight today that have been kind.
Kind of discussed in the past.
No not more on a day level here I mean, it is really connected to our <unk>.
Improvement on on on our.
Earnings capabilities.
Cash return.
Okay Perfect and then just two very quick model question. The first one.
Warranty.
Provisions you booked when do you expect that to be cash effective if that kind of of 50 million cash out of this year or is it tracked over longer periods.
So.
And there are two components of that for the OTA part, which is one larger part of the $55 million.
Their expectation is that that would be settled within this year of on the <unk>.
Other part.
A more of a certain to say in terms of timing here.
So that's as much as I can say at this point of time.
Okay, Perfect and then very last day on the DNA of headwind do you have a rough number how much you expect D&A to be of headwind in 'twenty one.
I think if you look at the year over year development in Q4, 2020 versus 19, I think that gives you some indication.
By quarter than for for next year.
That's great. Thank you very much for the clarity.
Thank you.
Thank you.
Our next question comes from the line of Brian Johnson from Barclays. Please ask your question.
Alright, thank you.
In relation to the question of new business in that 45%, 50% share of that was discussed earlier.
How would you characterize the pricing environment.
That's the safety of business I've always been struck by the enormous cost that competitive products are slipping up on their Oems.
With that kind of on cost cutting and price reductions OEM seems to pause.
At least historically pushed pour in the passive safety business day.
With this massive recall activity, which keeps going on buses like Ford has there been any change in procurement.
Well its price.
No I think yeah, I mean, as I say here I mean, it is a very competitive industry and that is.
The two to four 2% to 4% price reduction expectations on of year over year here.
No no changes too.
200, <unk> playing out so I can reconfirm their net it's the same.
No no changes.
Okay, and then secondly, just in terms of.
So some of the D&A question.
Yes.
With all of the new business coming in how could we should we think about modeling our D D.
You know sort of lumpiness in the quarters in 'twenty, one as well or should we be thinking about four and half of it.
Right right.
Yes.
As we indicated in the.
Guidance, we expect below 5% on on Ardine, we're on for NASA.
And I think that's the we will of course see the topline benefit from that and then our ambition is to have the efficiency improvements on the gross engineering costs.
That we have we wanted to show or that we just showed you was on the on going activities.
And then we also have factored in there are assumptions on the engineering recoveries, which is always a bit there's always a bit more uncertainty around that but.
About four 5% of software what we're guiding for it.
And then over time that this was.
And then over time that this will then come down too.
4% as we indicated.
As the cost become more and more efficient and with a further topline growth.
Okay.
Okay. Thank you.
Thank you. Our next question comes from the line of Eric go run from SAP.
Please ask your question.
Thank you two questions on follow up firstly on the <unk>.
The expected cost of development in 2021, and you said you didn't expect anything additional in terms of recall related costs, but does that assume that you have assumed that they are on a similar net.
As in 2020, I E around $55 million.
And then related to order intake was there a <unk>.
We didn't make sector of explaining perhaps the lower share of it that it would be in before sort of.
Awards, given in China versus the Western World and then also if you could comment on your share in sales.
Market share and sales force for 2020. Thanks.
Yeah, so on on that.
On the recall costs.
Not at this point of time.
The provisions that we booked in the fourth quarter as what we see as the current risk on recalls.
And sort of 2020 on it.
And so on that is what we see after that at the moment.
Of course, we cannot rule out any further potential actions, but the forecast is not based on any of <unk>.
Significant recall cost to the same industry of magnitude of that.
Yes.
Our share in sales as we said here we had 42%.
Market share of sales in 2021 percentage points higher than what it was in 2019, so sort of market share growth and continued on a.
As we deliver on the on the order book here and when it comes to the order intake yeah, I wouldn't say that there is anything that sticks out into that I think we had a.
Fairly even distribution in terms of how we we continue to build on our different positions into different regions here. So.
Oh, no no dramatic change in the balance there.
Okay.
Thank you.
Thank you. Our next question comes from the line.
On July <unk> from.
Please ask your question your line is open.
Thank you very much from sorry to come back from the order intake.
Ben.
Reported <unk> per cent for so long so I guess, yes, it's got to get used to that but.
Is this on.
I know sometimes.
When discussing pricing versus market share et cetera.
I'm sure you don't have of market share.
But are you starting to see some rising competition, which finished that you're on more.
<unk> been focusing more on profitability is that.
And that has impacted your market share.
That's my first question and then second question is on there.
And.
Outperformance on.
On organic growth of 4% to 5% instead of three to four.
I guess my question is that this is based on your backlog and you had your back of some time.
Most of the day, you know how much of specified on basketball so.
How has that kind of changed going forward is there a mix issue or have you been given edition.
Based on existing contracts that you have had on your backlog or how should we think about that that's all my two questions.
And I think of first on the order intake here I think as we've said before here, where we are focusing on doing both I mean are driving the growth on I'm doing investing in our health and effective way.
It comes to the bottom line here.
And.
As we have said all along 50% is not a target.
But it is to defend our market share.
We believe we were doing that and then of course. This year. We came in around 45 and this is an isolated year on.
So how you come out in a year also depends a little bit on on how does your.
Different customer base.
Renewing their programs and how is your income mostly looking at that particular year et cetera et cetera. So there's many different components and I think when you look at our seasonally elective and you've come in around 45, I think it's a very strong year in <unk>.
<unk> long term.
On direction here on this as we have leased it also the outperformance I think that's a very good.
No indication that that's a theory holds so to speak of.
Is it calms down from how our order book.
Have been built and are being built as we move forward on.
Depending on which platform since that day.
Our on and we see them.
Now.
The content increasing on top of that so the combination makes us comfortable to adjust that target to two.
On one percentage points higher.
Alright, thank you.
Okay.
Thank you. Thank you and our last question comes from the line of Scott Zeller.
From Nordea. Please ask your question your line is open.
Thank you.
Could you help us of the EBIT bridge for 2021, and especially touched upon the savings components. So it would be helpful. If you could quantify the kind of short term savings that you had in 2020, you said, that's probably some of the those sort of turn for a moment. So what kind of delta that you expect for 2021.
And also on the permanent cost savings side.
You, obviously youre running of a project stereo, but you also say that you could have some scope for further improvement when it comes from the footprint. So could you. Please elaborate on that and whether you include the Dutch in your margin outlook for 'twenty two of them. Thanks.
Yes on the ultra keeps you should.
Look at the contribution of the structural efficiency programs. So that the first one that was started in 2019 will have its last contribution.
The year over year effect of around $10 million and then we expect around $40 million.
From the second problem that we initiated last year.
Overall 50 million impact from that on when you look at the footprint.
This will take longer time, we're talking about time periods of 'twenty three 'twenty four.
When they will be finalized so they will not be any contribution from them in.
In the 'twenty, one EBIT walk here.
And then we have not disclosed.
The savings from discretionary spending and it's difficult to forecast on what exactly they will phase in north of here during 2021 at the moment they are pretty much running at the same of say run rate as they were in the third and fourth quarter.
But our assumption was that they would normalize it during the year, but that's also of course connected to how the pandemic.
Evolves and how quickly we go back to a more normal way of working.
So it's a bit yes.
We've not disclosed exact of Mt.
But there will be some normalization of those type of discretionary spending during 'twenty one is our assumption.
Okay, Perfect and then just lastly, what kind of operational leverage do you assume sort of full year.
I think as you can calculate your sales from the guidance I mean, you have the top line you have the adjusted operating margin on from that you can you can look at what are the leverage will be here.
Net loss.
And then just the very last one on the recalls.
Are you sure that you will not see any kind of flooding impacts from that with sort of their products being recalled.
Well, what do you think about that.
Yes, I think I mean, you need to look at this quarter.
That's a very exceptional quarter in terms of recall cost saving because of being booked as before and this is an old.
I mean old situation and combined them with.
Yeah.
Another.
Casey It comes up in the same quarter here.
This is not a new level you should expect that our focus on driving.
Quality has been high always on we have.
Also of history of.
Around 2% of of the recall share considering that in our total market share. So I think that's of performance that we intend to continue to secure as we move forward on here.
Maybe one comment is also that of the recalls are not related to each other and yes. It is.
A lot of systemic issue or anything they are just to recall, what we have to book the charges you're on the same quarter based on the recent development.
Okay. Thank you.
Thank you we have no further questions at this time.
Please go ahead.
Thank you Alicia.
Full round of todays call I would like to say that we are operating from a position of strength in many aspects, including market position growth and dedicated employees.
We will continue to improve efficiency and continue to implement our strategic roadmap to support 2021 being a solid stepping stone on the journey to our 'twenty to 'twenty two 'twenty 'twenty four targets.
Our first quarter earnings call is scheduled for Friday April 23rd 2021.
Thank you everyone for participating in today's call. We sincerely appreciate your continued interest in order to leave on the next time stay safe.
Ladies and gentlemen that does conclude your conference for today. Thank you first day CBD.
You may now disconnect.
Okay.
Okay.
Okay.
[music], Inc.