Q3 2021 Autoliv Inc Earnings Call

Welcome to the Q3 2021 Ultimate Inc earnings Conference call.

The call all participants will be in a listen only mode and afterwards, there will be a question and answer session I will.

And also on the top line from Investor Relations. Please begin your meeting.

Thank you Mark and welcome everyone to our third quarter financial results earnings presentation. On this call, we have our president and CEO, Michael Brown, and our Chief Financial Officer.

Well now the team and I am on the stop loss.

Relations.

During today's earnings call, our CEO will provide a brief overview of our third quarter results as well as provide an update on our general business and market conditions.

Following three I think will provide further details and commentary around the financials.

We remain available to respond to your questions and as usual the slides are available on <unk> dot com.

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 us GAAP measures.

The reconciliations of historical U S GAAP to non us GAAP measures are available in our SEC regulatory regulatory filings available on Altria Com lost.

Lastly, I should mention that this call is intended to conclude at three P. M. Central European time. So please follow a limit of two questions per person.

I know.

We will work to our CEO Micaela belt.

Thank you and us looking on the next slide.

First I'd like to thank our team once again for their unrelenting commitment, particularly in managing the volatility and customer call offs.

Thanks to the team's effort.

Handover able to supply our customers and achieved solid performance in our plans despite facing a very challenging market.

This slide quite Wham illustrates how dramatic light vehicle production has developed during 2021, especially since July.

We apply a shortage of semiconductors and other components severely impacted the light vehicle production in the third quarter.

It led to a third quarter global LDP decline of 20%, which was 17% lower than what was expected only three months ago.

And 12% below Q2, all according to IHS Markit.

Markets with high safety content per vehicle were most affected by the dramatic changes.

Europe, Americas, and near Palm oil, so Q3, MVP being 'twenty to.

5% lower than what was expected three months ago.

The decline in like MVP unpredictable changes in customer call offs and high raw material costs resulted in reduced profitability in the quarter, despite strict cost control, including a signature.

<unk> head count reduction.

Looking on the next slides.

Given all that I am pleased that we continued to strongly outperform the global LBP in the quarter.

With strong order intake for the first nine months of the year.

We continue to execute strict measures to mitigate the current adverse business headwinds, including capacity alignment in Europe and in North America.

However, as a result of a significant reduced light vehicle production outlook for the year, we are revising our full.

Indications for sales adjusted operating margin and operating cash flow.

Despite the challenging environment, our cash flow was solid and our debt leverage ratio remains well within our target range.

We paid a dividend of 62 cents per share.

Year and quarter.

Looking now on the financial overview on the next slide.

Our consolidated net sales of $1 8 billion was 9% lower than in Q3, 'twenty 'twenty due to a 20% decline.

So in V P.

With our strong sales outperformance the sales decline would have been almost doubled.

Adjusted operating income excluding cost for capacity alignments.

It fell from $206 million.

Call Us to 103 million U S dollars.

The adjusted operating margin was five 6%.

The lower operating margin was a result of lower sales.

Higher call of volatility as well as rising COO.

We're still raw materials.

Operating cash flow was a solid $188 million despite the challenging environment.

Looking now on sales development on the next slide.

I am very pleased.

Our organic sales growth outperformed the global light vehicle production by almost eight percentage points.

This was achieved as we continued to execute on our strong order book and despite the fact that the largest MVP declines were in high content per vehicle.

It doesn't kits.

We had a very strong outperformance in all regions.

In North America, we outperformed by seven percentage points and in Europe by 16 percentage points.

In China, we outperformed by six percentage points in spite of.

And vehicles being more affected by the semiconductor shortage.

Although all regions showed outperformance only one region rest of Asia showed organic sales growth year over year.

Within this region sales in India, and ASEAN grow strongly.

Hybrid side airbags sales more than doubling compared to last year.

Looking on the next slide.

In the third quarter, we had the highest number of product launches for the single quarter ever.

And we remain on track to launch approximately.

750, new products for the full year also a new record for the company.

The models shown on this slide have an authentic content per vehicle from approximately 160 U S dollars to almost 700 U S dollars.

It's one of the highest content we have on any of the model.

Six of these vehicles are either evs or plug in hybrids.

Further extending our exposure to this growing market.

Last year's sales these markets accounted for around.

This is 10% our total sales.

We expect an almost doubling of sales to this segment in 2021.

The long term trend to higher content per vehicle is supported by the introduction of front center airbags knee airbags and battery.

A round of switches.

I will now hand over to our CFO <unk>, who will talk about the financials on the next few slides.

Thank you Mikael.

This slide highlights our key figures for the third quarter of 2021 compared to 2020.

Our net sales were one.

Eight 5 billion. This was a 9% decrease compared to the same quarter last year.

And half of the 20% decline seen in the global light vehicle production.

Gross profit declined by 25% to $301 million, while the gross margin decreased to 16%.

Point of gross margin decrease was primarily driven by the lower sales and higher raw material costs.

In the quarter capacity alignments had 4 million negative impact on the operating profit.

The adjusted operating income decreased to $103 million from $206 million.

As a result, the adjusted operating margin declined by four five percentage points to 565, 6%.

The operating cash flow was $188 million.

Earnings per share diluted decreased by 44 cents were the main drivers.

117 cents from lower adjusted operating income.

Partly mitigated by 31 cents from lower cost for capacity alignment and antitrust related matters.

And 26 cents from lower tax.

Our adjusted return on capital employed declined to 11%.

Such a return on equity to 10%.

We declared and paid a quarterly dividend of 62 per share in the quarter.

Same as in the previous quarter, where the dividend was reinstated.

Looking now on the adjusted operating margin bridge on the next slide.

Our adjusted operating.

The address profit of $103 million was 50% lower than the same quarter last year.

The impact of raw material price changes was a negative $37 million in the quarter.

Foreign exchange impacted the operating profit positively by 4 million, mainly as a result of a weaker U S dollar.

Operating support from governments in connection with the pandemic was $10 million in the third quarter last year.

While it was not material to our financial results in the third quarter. This year.

The adjusted operating profit was negatively affected by higher SG&A and <unk>.

Net of governmental support.

Yeah.

Lower sales impact from increased quarter volatility and cost inflation, mainly related to logistics and utilities resulted in operational inefficiencies of $56 million in the quarter.

Excluding foreign exchange raw material cost increases and governmental support.

For me the adjusted operating income leverage was approximately 25% on the organic sales decline.

Despite an unpredictable customer call off the 25% decremental margin is within our communicated normal range.

Looking on the next slide.

Yeah.

There are a number of actions we have mitigated some of the negative effects from the lower sales the increased call of volatility and the cost inflation.

These actions include activities, such as adjusting production shortening workweek hours and Furloughing personnel.

For example footprint and capacity alignment.

In Europe, as well as moving overhead functions to best cost countries in Americas.

We're also evaluating further footprint adjustments.

In total we have reduced head count by over $4 5000, since the end of the first quarter of which two and a half thousand in the third quarter.

However, as you can see.

On the slide our strict measures include much more than just head count and workweek hour reductions.

Demand planning and forecasting are key for achieving efficient operations during the quarter planning of production has been challenging as many customers have initially placed high orders and then at late stage substantially.

<unk> reduced them.

In Q3, we have frequently seen coal of deviations of around 50% and in some cases even higher.

In this environment, we cannot only rely on forecast from our customers for our production planning. This means that we need to do our own assessment on weekly volume demand based.

Customers' behavior over the past months.

We include claims for compensation for lost volumes with short notice and the commercial negotiations with our customers.

Our supply chain management teams have been working hard to balance inventories to actual demand.

Through negotiations and consolidation of the supply base.

Based on desperately mitigated some of the raw material headwinds in the third quarter we.

We have also delayed and reduced capital expenditure plans where possible.

More on the raw material impact on the next slide.

Supply and demand imbalances continue to drive prices of raw materials higher.

We secured a successful mitigation actions the raw material headwinds in the third quarter was slightly lower than expected. However, new headwinds involving for example are higher magnesium and resin costs.

We still expect our full year operating margin headwind from raw materials of around 130 basis points.

Year to date, we have limited the impact with close to zero impact in the third in the first quarter around 8 million in the second quarter, followed by around $37 million in the third quarter.

We have some limited contractual pass throughs to customers.

Given this exceptional period of high raw material.

<unk> prices, we believe it is necessary to request compensations from our customers and negotiations are ongoing.

It will take time to see the results of these efforts and we did not do not expect much impact this year and more significant recovery is expected in 2022.

Onto the next.

Slide.

For the third quarter of 2021.

Operating cash flow decreased by $164 million to $188 million compared to the same period last year, mainly due to lower net income and less positive effects from changes in operating working capital.

Compared to prior quarter, working capital improved with $35 million benefiting from a 74 million change in trade working capital.

This was mainly a result of a 144 million reduction of receivables, partly offset by $49 million from decrease in accounts payables and 21 million.

Increased inventories.

The increase in inventories was a consequence of the low demand visibility and supply chain challenges.

Capital expenditure increased by 46% year over year to $112 million the.

The increase mainly reflects the lower level in the prior.

Due to the extraordinary measures taken in 2020.

Capital expenditure net in relation to sales was six zero percent versus three 8% a year earlier.

Free cash flow was $77 million impacted by lower operating cash flow and the higher capital expenditures.

Here the.

The cash conversion over the last 12 months was 97%.

Now to the next slide.

In the past two years, we have managed a very difficult market environment with significant declines in vehicle production and low demand visibility as well as severe.

Severe disruptions of global supply chains.

Still we have reduced our net debt by $600 million since mid 2019, and thereby recovered to a balance sheet position that it's in line with our targets.

The leverage ratio is unchanged compared to last quarter at one one times at the end of September.

2021.

This is a significant improvement compared to two four times one year ago.

In the quarter, our last 12 months EBITDA.

Decreased by $96 million balanced by the net debt decrease of $42 million.

Now looking at the light vehicle production development.

On the next slide.

<unk>.

In the near term that's the light vehicle outlook will mainly be determined by the evolution of the situation around semiconductors.

In North America, the industry continues to struggle to meet consumer demand for new vehicles due to the shortage of.

Semiconductors in.

Inventory of new vehicles in the U S ended September below 1 million units the lowest level seen for at least 35 years.

Despite healthy underlying demand trends in Europe component shortages meant that registrations have not returned to the pre pandemic level.

<unk> and China semiconductor and energy constraints are affecting production, especially for higher end vehicles.

Demand is also being impacted by monetary policy and rising concerns about property prices.

As a consequence of the supply chain constraints production is expected to remain volatile.

The tile in the fourth quarter.

There are some indications of moderate improvement in semiconductor availability in Asia, and North America, but the visibility remains poor.

For the full year 2021, our assumption is that global light vehicle production will be flat compared to 2020.

Where possible Oems will likely continue to prioritize production of vehicles with no or low C O two levels as well as larger vehicles.

I want to leave this trend should support further outperformance versus light vehicle production.

Assuming that the component availability improves.

We expect the good demand and low inventories to support a recovery in MVP in 2022.

I'll now hand, it back to make yet.

Thank you Fredrik turning to the next slide.

Our revised full year 'twenty to 'twenty one indication.

<unk> exclude cost for capacity alignment.

Our full year indication is based on a flat global light vehicle production compared to 2020.

Our previous indication from July 17.

'twenty one was based on an assumption of 9% to 11%.

<unk> N V P growth for 2021.

We raised our expectations of sales outperformance versus global LBP from around seven to around eight percentage points.

As a consequence of the lower light vehicle production assumption and higher.

Outperformance, we now expect our organic sales growth to be around 8%.

Including positive currency translation effects of around 3%, our net sales increase is expected to be around 11%.

We expect an adjusted operating margin.

Around 8%.

Operating cash flow is expected to be around $700 million.

Our strategic initiatives are gradually yielding good results and we are confident of our 'twenty to 'twenty two 'twenty 'twenty four targets Bay.

Based on our internal progress.

Over our expected light vehicle market recovery in the next few years.

Turning to slide.

With relentless focus on quality and execution as well as mitigating near term headwinds. We also continue to drive forward towards our targets.

Some more will be explored at our virtual CMT on November 16.

The event will be virtually only and live streamed more details will be made available at the beginning of November.

And I will now hand, it back to Anders.

Thank you Mikael.

Turning the page.

This concludes our formal comments for today's earnings call.

And we would like to open the line for questions.

I now hand, it back to you Martin.

Thank you.

With which to do to ask a question. Please.

Zero, one telephone keypad, if you wish to withdraw your question you may have.

To cancel.

There will be a brief pause while question Onthe right just to change it.

Yeah.

Yeah.

Okay.

Yeah.

We have the first question, it's from Emami Rosner Deutsche Bank. Your line is now open.

Alright, Thank you very much and Hello, everybody.

I have two lines of questions.

First one is could you please talk a little bit more about the environment the operating environment, you're seeing out there in particular.

What youre seeing so far in the in the fourth quarter you updated guidance.

Some sequential improvement in.

And in earnings and therefore, just curious you know how much things have improved so far sequentially and then as part of this question as well your light vehicle production outlook slide.

Basically speaks about some improvements seen lately.

North America and I was curious if you could just elaborate a little bit more about what specifically you are seeing.

Yeah.

No I think yeah. Thank you for the questions.

I think I mean first of all we are.

In fact that here in the quarter and I would say, we still means stop it.

In around semiconductor question, what we're indicating here is that we see some more direct slight improvements are mainly in Asia and the U S and it's based on a I would say the feedback and dialogue, we have with customers and.

Uh huh.

Ultimately the suppliers here as well and that around here.

But I also want to say to you that the visibility is a.

Still a poor around that.

So for US, it's all about making sure that we continue to focus on our internal.

They're active.

We see it to meet the gate as much as possible of the current situation, which I think we have done successfully in the quarter here and as we had pointed out here, we have managed to deliver to our customer and what they are expected and we have also made the necessary adjustments that we will continue to do it.

In.

Activity months in quarters to come here of course, and so I think.

As far as we can stay it's really about the environment.

Ah connected to the semiconductors are the raw material side, we have seen them.

That increasing throughout throughout.

In DRAM, we gave you the sequential development how it has impacted us on here the supply chain team has done a great job too.

Handoff of as much as possible.

I think what we have seen in the quarter or is that the energy situation has added to the external headwind.

The year, when we come to magnesium and that was I think also here, it's very much connected to the energy challenge as well that so it's a it's a very volatile environment, but.

Focus on what we can do.

Yeah for sure so.

And what is your ability but.

We're getting used to it I would say.

This is very helpful. And then I was actually going to follow up on the on the raw materials.

Okay.

So it is encouraging to see that you're expecting.

More recoveries in 2022.

If we were to exclude.

The recoveries just for a second and focus on the gross.

Impact based on what you've seen so far with raw materials would.

Would you expect an incremental headwind in 2022.

Similar magnitude of what you're seeing in 2021 or less or more that's again, excluding recoveries and then on the magnesium.

<unk> obviously.

An important development can you just remind us where where your exposure is there.

Yeah, I think I mean, we are not giving any forecast on them and the details around 2022.

I'm here today here I think first of all we need to.

Side in Q4 income come to the next earnings call before we started talk about that then of course the.

The current visibility is not helping in that regard either so we will have to come back on on that question later on.

The question on disposal on magnesium its predominant.

Through our <unk> business.

Thank you.

The next question is by how impulse and allow hundred bank and the line is now open for you.

Thank you very much.

Sorry for coming back on lean issue, but.

Would it be.

Can you maybe add some flavor on risk do you see and let me give you some shortage given what we're seeing in China or is it just the price situation for you guys.

That's my first question and then second question is related if you could.

And also maybe discuss on order intake I know you want to provide you maybe market share but.

Postpaid maybe you could indicate on how things are trending on the waters and the long term targets, all having a 45% market share at least I'd say no.

Thank you.

Thank you Ron.

On the magnesium side I would say so far for us it's more a question of price.

I.

It of course depends on how the situation in mainland China then develops.

But we all know that the the reason why we have price increases in magnesium means that they have a reduced production in China as a result of.

Power.

I think what it start in the interim.

Term. So I mean that is of course, a topic that we are following very closely to see what alternatives, we have and I would say that right now.

Feel that Oh in terms of availability, we have that under control.

As it looks right.

I'm sure that's something we follow closely on the order intake side.

As we indicated here, we continue to see strong new order intake and it.

Adds to our order book and supports our expected market share that we have talked about before around 40.

Now it sounds so good support for that for Ah.

For the years to come here.

So just one follow up but maybe just maybe you can't answer this but it would just be interesting to know our cruise ship maintenance you may ask them to stand with business or is it could you change that for another.

And in the design of.

5000.

Oh it is crucial.

Of course vessels are part of it is on the.

The main structure of the steering wheel.

There is alternatives, but you don't change alternate alternative materials overnight, there's a lot of requirements to do that together with our.

On the streamers so that's.

That's not a short term option really.

Especially on the I mean under current circumstances, but as I said, we are not at all.

It's not a concern today.

Fair enough. Thank you.

Yeah.

The next question.

Question is by coding long gun, where its Fargo. Your line is now also open for Ya.

Oh, Thanks for taking my question.

The decremental margins on your guidance cut or sort of in the low 20% range, which is actually significantly better than some other suppliers that have recently cut.

Calvin given the cadence sort of volatility and schedules have made it tough to flex labor I mean is that just not structurally an issue for you or are there other cost savings that are offsetting that because it does seem to be a much better performance.

I think it's.

And equally large problem for us.

I am.

They looked at it.

Development here in the second or third quarter, where we've had the sequential.

China volumes also there if you exclude the raw material cost impact.

We've been here in the mid 20% decremental margin range.

And I think that's also what we can see.

Let's just say your sales here for the.

Full year with the guidance that we've now up.

The update today.

If you exclude the raw material cost impact.

Okay got it.

And then there's been some headlines about recalls are around air bags.

Uh huh.

It doesn't look like there was a charge. So I assume you you haven't been directly impacted and is that impacting the competitive landscape at all I think in the past, sometimes you've actually had opportunities to sort of help with the recall needs is there anything changing there because some of the numbers that I'm being investigated seem quite large.

Yeah I think.

Have you been Sun, which recall you referred to we are connected to two one but we are providing the complete module, but we are not providing a the inflator its an inflated at these sourced from Seth S. And this is connected to the Volvo recalls.

Yeah.

The net effect of all reinsurance and.

Seth S liabilities here in that three call we expect.

No material impact from that.

And it's in the larger scope here of other types of recall with under.

This makes our manufacturers and we don't expect to see any.

Yeah.

Volume impact for us in that and so I would say neutral.

Okay, alright, thanks for taking my questions.

Thank you.

The next question is a bit Scott.

Your line is now open for you.

Thank you. My first question is about the capacity alignment actions that you have now in the U S and Europe could you. Please elaborate what you are doing there and also is there any cost or cost savings associated with these actions.

Yes.

Activity that was recorded in the third quarter.

$4 million net is related to a.

In the Americas, we're talking about roughly a 100 head count that we had.

Adjusting and that will all come through here in the fourth quarter.

But referring to that in terms of the other.

On go activities is the two the continuation or the Finalization of the structural efficiency program number two.

Which is over 90% completed but there is still a small part left to be contributed in Europe during the fourth.

And then and then also the ongoing footprint activities in Europe related to Germany and Sweden.

We are referring to I think as we said we also continue to evaluate further footprint activities and actions and then we would communicate them has the time to be appropriate.

Perfect and until that point arent, you afraid that you might maybe be more or it would be more difficult for you to ramp up the production. If we see the recovery in the global car production, if youre doing this kind of actions.

No I think I mean.

The the food clean the adjustment.

Refers to is is a I would say a combination of short term needs together with a long term productivity efforts that we are driving that on top of that we are then doing more short term initiatives, resulting in reduction in head count in and also the stoppage days in.

Further plans to talks at AR.

I would say both the volatility on the lower volumes and that's we believe it can quickly ramp up. So we are not taking out any capacity that would limit us from ramping up so it's more effectively usage there and that's what we're working on.

So we don't see.

In outreach.

Yeah perfect. Thank you and my second question is about the discussions that you're having with the Oems about getting compensated for that kind of fill volumes. How are these discussions preceding or do you expect on the compensation.

Yeah, I mean, it is part of a larger negotiations that are ongoing.

And it's of course raw material is the.

I mean.

Evident that we are discussing but then also due to the past behavior of the Oems with keeping call offs at high levels and then at the very very short term canceling that I'm gonna reducing them quite substantially.

Now discussing.

I've done a compensation for that's not only related to the inefficiencies in production, but also in terms of inventory carrying costs and so on.

It's we have to see how much of that will be successful. It is so sad part of larger negotiations that tend to happen towards the end of the year.

With with the customers, but it is definitely something that people seek compensation for Ya.

Perfect. Thank you.

Okay.

The next question is by Eric goes along with it.

Your line is now open for Ya.

Yeah.

Thanks most of.

Year, I've been honest or something else, but another one on raw materials, perhaps a bit differently on in 'twenty. Two I mean, I appreciate the color, you're giving their unexpected more compensation, but but on a net basis do you still see it.

Drag from raw materials, even with that or is it now with positive.

Based on that conversation.

My question. So I think first of all we have to see how it plays out in 'twenty two here, but that's perfect said here I mean, there is a discussion ongoing for the current situation. Then it depends also on how are the raw material over the course of the development overall will.

And be in a more let's say medium to long term development here and then of course, that's a different discussion that is needed with the customer if that would be more long term scenario with significantly higher.

Raw materials.

So I think basically we have to come back to that.

Let's see how the developments are.

How it develops here in the next quarters here, but.

Of course, okay.

Thanks, and then one specific question.

Yeah, Okay. One more specific question on magnesium, maybe I remember that's wrong, but it.

It wasn't similar situations now where you're expecting your protocol correctly.

That's a conversation for my niece or what's actually more straightforward to because he was very specific in what Colin said it component to it.

It was and how much it was is that is.

Is that a fair reflection of phase three or is that just something that.

No.

I don't think you can generalize like.

Getting Don on the specific remind me my nasty them here, but of course, what it is it's about I would say is of course, if it's a structural change to the cost are in its nature.

Meaning that there's more long term and it's also more critical.

Component in all products.

That just has a different magnitude than in the dialogue then.

Are those raw materials, but it's very difficult to generalize like that it is a case by case with the customer by customer situation.

Okay. Thank you.

Yeah.

Yeah.

The next question is by Joseph.

At RBC capital markets.

Thank you very much.

So the decremental margins quarter over quarter, we're a little bit worse this quarter versus last quarter, I think that that probably speaks to some of the volatility you were talking about but then as we look at what's implied for.

Spano fourth quarter sequence over third quarter.

Again, you're you're pointing to some improvement here, it's like 15%, which I think is below historically, what you convert on the upside so it.

Is that sort of the right level, we should think about here in the very near term while a lot of this uncertainty.

Gains in the schedules into even into the early part of 2022.

No man.

The one that's a seasonality factor that we have.

In the fourth quarter, if you want to look at it sequentially is that we expect a higher we typically have a higher engineering income in the fourth quarter.

And that then of course.

You remain impacts that that sequential calculation that you that you just made it too here.

But on the other arm and we that's me.

Before we do expect a.

More significant headwind from some raw material price increases in the fourth quarter versus the third quarter.

But overall also sequential volume.

Okay improvement or almost MBP improvement that should help.

So I think those are the main.

One is that you need to consider.

Okay, I guess, what I'm asking is like even if volume is higher given like there's still a lot of volatility in the schedules.

Should we expect that you.

On your conversion on volume would be a little bit below what you sort of aim for over over the midterm because of that volatility.

No.

We expect that the visibility remains low also into the fourth quarter and that volatility will most likely remain at similar levels. So we don't expect any significant change.

Okay and then the second question is.

Just on the volume planning based on customer behaviors that you've seen over the past couple of quarters.

I think you just sort of alluded is mentioned here that you like not adjusting capacity, but that does that would that at all hinder your ability to ramp up.

Faster if your customers decide to do so or is there enough flexibility in the planning that you know you'd be able to accommodate customer requests.

No of course, I mean, it's a part of the exercise here to make sure that we can flex up when needed.

When we talk about.

Uh huh.

Now here is really about optimizing our own production scale.

Based on the electric call it the Nast volume over certain time periods here. So we are more effective in in in that.

So we can have some stop dates and so on and run more stable the other days and so on.

It will optimize our own production schedule there.

Just on on the experience that we have here now from the volatile a call.

Cool off situation here.

So we're looking back and then base.

Our forward looking on that.

Yeah.

Thank you for that.

It's more the next question is by Martin pulling back of Dnb. The line is yours.

Thank you one question left for me and if we take a step back and try to look at the bigger picture.

In particular on your medium term targets I'm, just trying to understand if there's anything in the.

Situation with the short term volatility.

That impacts your trajectory or your ability to reach these targets.

<unk>.

One year further down the road now than they did the years of the medium term or starting to get closer. So I'm just trying to get your thinking on.

On the wall.

Currently that in order to get to that level.

I think the way we see it here is that I mean, we are holding on to all day improvement initiatives are done.

We have lined up to get towards our target and that these are paying.

D C C positive result, yielding from those activities.

I would say.

That goes on at the same time, we manage the short term we believe.

Also that and as we have stated here and in our report here is that we assume.

So that the volumes normalize, meaning the LBP volumes normalize.

In the years to come here.

We had one year down the road, but there is still a numbers of years left within this time around somewhere.

The next phase of expansion.

So I'll leave that we are.

Have less volatility and I'll say it was a more normalized level of absolute number of vehicles being produced.

The combination there are.

Makes us.

Comfortable in stating that we believe in the targets that could be kept.

It would be absolutely.

Great. Thank you.

The next question is Brian Johnson Barclays.

Yeah, a couple of questions first I just wanted to kind of as we kind of think through modeling decrementals with the production volatility can you help us.

Understand where which of your product lines really airbags and steering wheels.

Is fungible and you can kind of keep the factories running smoothly and just send the trucks to different factories, and which are really start stop depending on customer schedules and then.

How that feeds through to kind of decrement.

Rental margins.

I'm not sure I really followed your question there are you.

Asking for more of a flavor on how the different product lines are being impacted by the volatility or.

Yes, and how that translates into your overall decrementals.

Yeah I think.

One is we are not breaking it down by product line are as you know.

I wouldn't say that one product line is easier done than another or one is worse than the other here I think it's the same challenges here.

Two to manage.

I mean, the the volatility in the production and then of course, if you go down into certain process as it may look differently. Because some is more optimized and then Andreas way of course in and optimize the production level can have maybe more.

Inventory and smoothing it out that way.

I think you can see that also that we have higher inventory as a result of.

The volatility but.

I wouldn't point out specific product line here.

Uh huh.

Compared to another in these.

With regard.

Okay and second question kind of.

Is on chips first are the chips used in your restraint control systems at all.

And the whole global chip shortage, and secondly, while I'm talking about chips would you have any interest in the restraint control electronics business of your former subsidiary.

On your last question I can answer first I'll say that that's nothing we are entertaining and it's not oh, our interests to to look at that I mean.

We spun it off a number of years ago, when we spun it off for a reason on that are there.

It's still valid.

And then on where are we using you always see me semiconductors, it's for.

I would say most of our product lines here and to various extent, but.

We are are not sourcing semiconductors.

This directly ourselves as true.

Various tier two suppliers, but of course, we are working very closely with them to support them in and therefore top securing semiconductors and we also have of course, a direct contact with the semiconductor suppliers here in.

And that work.

So far I think we have worked very well together.

Two to secure semiconductors for our own value chain, and we have been able to deliver to our customers. What we are committed to deliver to them that so.

Good job from our.

China team here.

Okay. Thank you.

The next question is by Rock lost voice. Your line is now open for you.

Thanks, I was hoping just to follow up with two points of clarification.

People have asked about this but.

The decremental margins of 25% are quite good just considering the production volatility.

And at some point that volatility will diminish and youre going to see some increases in production so would it be reasonable to expect.

Back to that your Incrementals would be better.

When that happens there or do you have any estimate of what that that volatility is costing you and then secondly.

There is a lot of scrutiny, it's being applied to.

The inflator.

Of your competitors still including non.

Cotton insulators, and I think you referenced the.

The Volvo recall, where that that's actually instead F inflator.

Just how how are your customers thinking about this and why wouldn't auto leads gain in some way from from what's happening around you.

My bad.

So the second question I'll try to take the first there and.

I don't really I don't comment.

Competition situation here I mean, our focus is to.

As always have.

Quality on top of our.

Focus list.

I can still speak and.

We are are are securing that.

Our efforts here and.

We of course are.

Work with our customers and support.

To support them whenever needed.

Quality, we believe that the.

Certain proven quality to our customers the best way to to look at business opportunities in the future.

And then on the detrimental margin.

Anyway.

We want to highlight is that we have maintained a very strong cost and capital discipline will stay at throughout this.

And as we indicated if you look at our headcount developments down 45000, since Q1 and done.

The reduction by 2000 and also during the third quarter.

I think that that shows.

How are.

The discipline, we have been on how focused we have been on this.

CRC, the SG&A cost coming down sequentially.

And then that is also together with what we do on production overhead is also then the effect of the structural efficiency program that we implemented and that gets again then get the benefit from that so I think those are the main components of that.

The decremental.

And then he also so far and again, if you exclude that the raw material headwinds on the incremental side of course, we want to achieve there not as high margin as possible.

Going into the vote in a recovery once that starts to kick in.

But how that plays out for the next year, we would have to come back to that when we talk about the 22.

More than <unk>, but.

We also laid out here that.

We expect a meaningful progression towards the midterm target.

We should then pull through on that incremental volume.

Fair enough.

Execution. Thank you.

Thanks.

As a reminder, if you.

Guy that's a good question Keith press zero and one.

Yeah.

Yeah.

Yeah.

Yeah.

Yeah.

Right.

Yeah.

Okay.

Okay.

Yes, no further questions until I hand back.

Thank you.

Thank you Martin.

While we cannot control short term market headwinds.

I want to focus on what we can control, including keeping each other safe.

Our progress make us confident in our journey towards our targets and our opportunities for shareholder value creation.

Our fourth quarter earnings call is scheduled for Friday January 28 2022.

Thank you everyone.

One for participating in today's call. We sincerely appreciate your continued interest in ultra leave hope to see you again in November until then stay safe.

Yeah.

Yeah.

Before.