Q4 2021 Autoliv Inc Earnings Call
Okay.
Welcome to the Q4 2021 also this Inc earnings conference call throughout the call all participants will be in listen.
Andy Mike I'm also itself be a question and answer session I'll now hand, the floor to C. P investor relations on the stock.
Thank you Mark.
Welcome everyone to our fourth quarter 2021 financial results earnings presentation.
On this call, we have our president and Chief Executive Officer, Niko <unk> our.
Our Chief Financial Officer, Christine I've made on the shop, Vice President Investor Relations.
During today's earnings call, our CEO will provide a brief overview of our quarterly results, that's where I'll provide an update on our general business and market conditions following.
Fredrik will provide further details and commentary around the financials. We will then remain available to respond to your questions and as usual the slides are available at Ulta needle Coke 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 this presentation, we will reference some non us GAAP measures.
Reconciliations of historical U S GAAP to non us GAAP measures are disclosed in our quarterly press release available on Altria Dot com and <unk>.
In the 10-K that will be filed with the SEC.
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 now hand, it over to our CEO .
Thank you on this.
Looking onto the next slide.
First I'd like to thank our team once again for their unrelenting commitment in maneuvering through these challenging times.
I would especially like to thank our colleagues in the Philippines.
<unk> restarted our operations after the devastating typhoon that hit the Philippines in December .
All of our employees are safe.
We experienced rising number of Covid cases, resulting in a high number of absences in our.
Of operations, we have managed this without any real effects on our business.
So the supply shortage of semiconductors and other components continue to impact the light vehicle production in the quarter.
It led to a fourth quarter global LDP decline of 13% According to IHS Markit.
Component availability improved somewhat towards the end of the quarter.
Markets with high safety content per vehicle, where the most negatively affected.
MVP in the important markets in Western Europe , North America, and Japan, combined fell by more than 20% compared to a year ago.
The impact from higher costs for raw materials amounted to close to $60 million U S dollars in the quarter and we expect to continue to see substantial headwinds from raw materials also in 'twenty to 'twenty two.
Given all of that I am pleased that we reached our latest guidance for 2021 with organic sales growth of around 8% adjusted operating margin of eight 3% and operating cash flow of 754 million U S. Dollar.
Also I'm happy to report that we estimate that the order intake share was 50% in 2021 supporting our growth target.
And an increasing market share.
Despite the challenging environment, our cash flow was solid both in the quarter and for the year.
And our debt leverage ratio remains well within our target range.
We paid a dividend of 64 cents per share in the fourth quarter. This was 3% more than in the previous quarter.
Looking now on the financial overview on the next slide.
Our consolidated net sales of $2 1 billion U S dollars was 16% lower than in Q4, 'twenty 'twenty, mainly due to lower global light vehicle production.
Adjusted operating income excluding costs for capacity alignment fell from $311 million to 177 million U S. Dollar.
The adjusted operating margin was eight 3% in the quarter.
The lower operating margin was the result of lower sales pricing costs for raw materials and currency effects.
Operating cash flow was a solid 317 million U S dollar despite the challenging environment.
Looking now on order intake on the next slide.
Our order intake share for the full year continued on a high level supporting our growth in the years to come.
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 and is at the high level.
However, this does not mean that we can relax, we always strive for improving products services processes and costs.
We estimate that we booked 50% of available global order value in 2021.
We achieved high win rates with all product types, including front center airbags, and who'd lifters for pedestrian protection.
We are also proud that we were successful in winning many contracts with new pure EV makers.
Our strong order intake and current customers satisfaction makes us confident regarding our mid term sales targets communicated at our capital markets Day last November .
Looking at the next slide.
Our sales in the quarter came in lower than expected with all regions disappointing except China.
This is in contrast to the changes in is in contrast to the changes in light vehicle production reported by IHS market during the quarter.
This suggests that there might have been an element of pull forward of our sales from fourth to third quarter.
Contributing to the lower than expected outperformance.
In China, we did see some improvements of production volumes towards the end of the quarter supporting our sales.
As a result of the declining light vehicle production, our fourth quarter sales declined organically by almost 16%. This was three percentage points worse than the LDP. According to IHS markit.
The regional mix indicate a negative mix impact of close to three percentage points in the quarter.
Markets with high safety content per vehicle declined significantly more than those safety content market.
We see the sales underperformance as a temporary and we expect sales to substantially outperform LBP in 2022.
Based on the latest LBP numbers from IHS Markit.
We underperformed in North America by four percentage points and in China by three percentage points.
In China. The main reason for the underperformance was that production of high end vehicles declined by 10% while production of low end vehicles grew by 2% rigs.
Regarding North America, our sales during the quarter showed a different development compared to what IHS Markit reported.
This difference can be can partly be explained by possible pull forward of our sales from the fourth to the third quarter.
We outperformed in Japan, Europe , and rest of Asia.
Between one and two.
And four percentage points.
We are confident of a solid outperformance in 2022 and all major regions.
On the next slide we can see some key model launches from the fourth quarter.
For the full year 2021, we set a new company record of product launches. We also set a new fourth quarter record.
The models shown on this slide have an hour to lead content per vehicle from approximately 200 to almost 450 U S dollars.
Five of these vehicles are either evs or plug in hybrid further extending our exposure to the grow to this growing market.
The long term trend to higher CTV is supported by the introduction of front center airbags.
Active seatbelts.
Knee airbags on both driver and passenger side.
I will now hand, it over to our CFO <unk>, who will talk about the financials on the next few slides.
Thank you thank you Ed.
Slide highlights our key figures for the fourth quarter of 2021.
Third to the fourth quarter of 2020.
Our net sales were $2 1 billion. This was a 16% decrease compared to the same quarter last year.
Gross profit declined by 27% to $368 million, while the gross margin decreased to 17, 4%.
The gross margin decrease was primarily driven by the lower sales higher raw material costs and negative FX effects.
In the quarter capacity alignments had a $3 million negative impact on the operating profit.
The adjusted operating income decreased to $177 million from $311 million as a result, the adjusted operating margin declined to eight 3%.
The operating cash flow was $317 million.
Earnings per share diluted decreased by $8.04.
The main drivers were $1 four from lower adjusted OIBDA.
Operating income, partly mitigated by 10 cents from financial items, six from lower tax and <unk> <unk> from lower capacity alignment.
Our adjusted return on capital employed declined to 19, 1% and adjusted return on equity to 17, 5%.
We declared and paid a dividend of <unk> 64 per share in the quarter two more than in the previous quarter.
Looking now on the adjusted operating margin bridge on the next slide.
In the fourth quarter of 2021, our adjusted operating income of $177 million.
43% lower than in the same quarter last year.
The fourth quarter in 2020 was exceptionally strong with a record adjusted operating income of $311 million.
By the rapid recovery of light vehicle production, coupled with a very lean cost structure on the back of shutdowns in 2020.
Cost of the recall was $55 million lower than Q4 last year.
The impact of raw material price changes was a negative $60 million in the quarter year on year.
Foreign exchange impacted the operating profit negatively by $50 million, mainly as a result of the full of the Turkish lira.
Support from governments in connection with the pandemic 3 million lower in the fourth quarter compared to last year.
SG&A and R&D net of government support was.
3 million higher.
Mainly lower sales, but also high quality volatility and cost inflation for instance related to logistics and utilities impacted our operations negatively in the quarter.
Excluding foreign exchange raw material cost increases and governmental support there.
Adjusted operating income leverage was approximately 28% the organic sales decline.
The 20%, 28% incremental margin is at the high end of our communicated its normal range impacted by unpredictable customer call offs and the fact that the fourth quarter 2020 was exceptionally strong.
Looking at the full year 2021 sales performance on the next slide.
I'm very pleased that all regions showed organic sales outperformance in 2021 and this was achieved as we continued to execute on our strong order book.
In North America, we outperformed by five percentage points and in Europe by 12 percentage points in China, we outperformed by seven percentage points. Despite high end vehicles being more affected by the semiconductor shortage.
The seven percentage points outperformance in Japan, it was substantially higher than the previous years.
Looking at the next slide.
Our key figures for the full year 2021.
One was again a turbulent year with.
With significantly lower light vehicle production than expected in the beginning of the year, mainly due to shortages of semiconductors.
Our net sales were $8 2 billion with sales increasing organically by 8% in line with our latest guidance, despite MVP being virtually flat year over year.
The adjusted operating income was increased by 42% to $683 million.
The adjusted operating margin was eight 3% compared to our latest guidance of around 8%.
The operating cash flow was $754 million compared to the guidance of around $700 million.
And earnings per share more than doubled to $4 96.
And lastly dividends of $1 88 were paid.
Looking at the cash flow on the next slide.
For.
For the full year of 2021 operating cash flow decreased by 95 million to $754 million compared to last year as.
The higher net income was more than offset by changes in working capital.
For the fourth quarter of 2021 operating cash flow decreased by 152 million to $317 million compared to the same period last year, mainly due to lower net income and less positive effects from deferred income taxes.
Compared to prior quarter working capital improved by $116 million benefiting from an 88 9 million change in trade working capital.
This was mainly a result of a 145 million a reduction of inventories and $68 million from increases of accounts payables.
Partly offset by $124 million from increased receivables.
Decrease in inventories was a consequence of improving LDP volatility and measures taken to normalized inventory levels.
For the full year 2021 capital expenditures increased by $114 million.
Which mainly reflects that the 11 in the prior year was still low due to the pandemic.
In relation to sales Capex net was five 5% in 2021 versus four 6% in 2020.
For the fourth quarter capital expenditures increased by 38% to $153 million.
Net capital expenditure in relation to sales was seven 2% versus four 4% a year earlier.
For the full year 2021 free cash flow was $300 million compared to $509 million a year earlier, driven by the lower operating cash flow and higher capital expenditure.
And in the fourth quarter 2021 free cash flow was $164 million and also here impacted by lower operating cash flow and higher capital expenditure.
The cash conversion for the full year 2021 was 69%.
Now looking on our leverage ratio development on the next slide.
In the past two years, we have managed a very difficult market environment with significant declines in light vehicle production raw material price increases and low demand visibility as well as severe disruption of global supply chains and still we have reduced our net debt by more than $750 million since mid 2019 and.
Thereby recovered to a balance sheet position that is in line with our targets.
The leverage ratio at the end of December 2021 was one two times.
Significant improvement since the peak of two nine times in 2020.
In the quarter, our 12 months trailing adjusted EBITDA decreased by $140 million approximately balanced by the net debt decrease of $148 million.
Now looking at the raw material development onto the next slide.
Yeah.
Supply demand imbalances continue to drive prices of raw materials higher during the year.
Cost increases from raw materials generated a headwind of $60 million or three percentage points to our operating margin in the fourth quarter.
In 2021 with limited the impact from raw materials to around 130 basis points, where on $105 million of which $100 million came in the second half of the year.
For the full year 2022, we expect raw material costs to amount to around three percentage points and operating margin headwind with around five percentage points year over year impact in the first half and around 1% to two percentage points in the second half year.
Given this exceptional period of higher raw material prices, we believe that customer recoveries will offset some of these expected raw material cost increases.
It will take time to see the results of these efforts and we do not expect to see much results until the second half of 2022.
For commercial reasons, we will not discuss the anticipated recovery for its nature at this time.
Onto the next slide.
Through a number of actions we have mitigated some of the negative effect from the lower sales and the cost inflation during 2021.
These actions include activities, such as adjusting production shortening workweek hours and Furloughing personnel.
This includes for example footprint and capacity alignment in Europe , as well as moving overhead functions to best cost countries and Americas.
We have also initiated further footprint adjustments in Japan and in the rest of Asia.
In total we have reduced head count by over 8000 since the beginning of the year of which 1400 in the fourth quarter.
Other strict measures include management of inventories and payables negotiating with suppliers and customers to mitigate impacts of raw materials and high call of volatility.
Our supply chain management teams have been working hard to balance inventories to actual demand during the quarter production planning accuracy improved from November as customer call offs are more stable than before.
This concludes 2021 and now switching to 'twenty, two I hand, it back to make it.
Thank you Fredrik looking now at the LBP development on the next slide.
For the first three quarters of 2022 global MVP is expected to remain on a similar level as we saw in Q4.
At just below 20 million units per quarter. This level should be achievable, assuming no further deterioration of component availability.
In North America industry continues to struggle to meet consumer demand for new vehicles due to the shortage of semi conductor.
Inventory of new vehicles in the U S ended December around 1 million units the lowest level seen for at least 35 years.
Despite healthy underlying demand trends in Europe components shorted meant that registrations have not.
The return to the pre pandemic level.
This has led to record long waiting times when you vehicles.
In China, we saw a rebound in December for light vehicles sales, indicating an easing of the semiconductor chip shortages.
As component availability appear to be improving somewhat we expected good demand and low inventories to support the recovery in LBP in 'twenty to 'twenty two.
IHS Markit expects that the global LBP will be around 80 million units in 2022.
9% increase over 2021 .
However, we still see the component availability is a limiting factor for the recovery.
We expect the positive regional mix.
As most growth is expected to come in high content per vehicle markets, such as Western Europe , and North America.
Where possible Oems will likely continue to prioritize production of vehicles with no.
No see at two levels as well as larger vehicles.
Turning to the next slide.
<unk>.
Here you see some of the key models supporting the strong sales growth and outperformance, we expect for 'twenty to 'twenty two.
These models are expected to account for a quarter of our organic sales growth during the year.
Most of these models were launched in 2021.
<unk>, yet to be launched including the Chevrolet Silverado.
Auto.
New steering wins on several new and existing machinists vehicles are also to be launched.
Our content per vehicle on these 12 models is in the range of 140 to 400 U S dollars.
According to IHS Markit global LBP in 2022 is expected to increase by approximately 9% with a positive region mix for <unk>.
<unk> is expected to provide two to three percentage points growth over market. We also expect CTV growth of around 2%.
We foresee substantial sales outperformance in all major regions in 2020 to Japan, and China are expected to be the markets for us with the highest outperformance followed by Europe and North America.
But backed by these recent product launches strong rebound in global LBP and positive regional.
Light vehicle production mix, we expect sales to increase organically by around 20%.
Looking to our expected margin development for 2022 on next slide.
Our strategic initiatives continue to yield good results and we are confident in our 'twenty to 'twenty to 'twenty to 'twenty four targets.
In 2021, we reduced head count by 11% and we will continue our strict cost control in 2022 as previously outlined by Broadridge.
This includes executing on capacity alignment footprint optimization strategic initiatives and customer recoveries, partly offset by cost inflation from wages logistics and energy.
The expected sales increase should bring strong margin improvements support while rising raw material costs is expected to amount to around three percentage points in operating margin headwind.
We had a significantly larger year over year impact in first half.
We expect customer recoveries to offset some of these expected raw material cost increases mainly in the second half year.
This would lead to an improved.
Adjusted operating margin for the full year 2022 of around nine 5% compared to eight 3% in the prior year.
Our adjusted operating margin outlook may still be impacted by supply chain disruption in the automotive industry and potential risk of surge in COVID-19 cases, and its effect on us and the automotive industry.
Looking at the detailed indications on the next slide.
Our full year 2022 indications exclude cost for capacity alignment antitrust related matters.
Other discrete.
Discrete items.
Our full year indication is based on the LBP growth assumption of around 9% compared to 'twenty to 'twenty one.
We expect sales to increase organically by around 20%.
Currency translation effects are assumed to be around 3% negative.
We expect an adjusted operating margin of around nine 5%.
Operating cash flow is expected to be around $950 million.
Turning to slide to look at our 'twenty to 'twenty two priorities.
The health and safety of our employees is our first priority.
Continuing with more activities to further improve efficiency.
We will also continue our efforts of flawless execution of new launches.
Proving customer satisfaction further and.
Thereby supporting our new and stronger market position.
Throughout.
Through our capital efficiency program, we aim to unlock capital from receivables inventory and payables for other uses com.
Combined with the execution of our strategy strategic plan.
This should lead to a strong cash flow generation, which sets out to live up for attractive shareholder value creation.
By executing on our strategic initiatives footprint optimization and negotiating compensations from Oems.
We'll mitigate headwinds from raw materials and cost inflation.
We also aim to grow mobility safety solutions supporting our growth targets beyond 'twenty to 'twenty four.
To progress towards our climate targets, we will focus on increased resource efficiency.
And reduction of our carbon footprint.
I will now hand, it back to Anders.
Thank you Nicole turning the page.
This concludes our formal comments for today's earnings call.
And we would like to open the line for questions.
I think I'll turn it back to Mark.
Thank you.
As a reminder, if you do wish to ask a question. Please style sea Ray one on your telephone keypad now your.
Final question is opposite before it should turn to speak you can see right to counsel.
And our first question comes from the line of Dan that Mill Rustler.
Deutsche Bank. Please go ahead your line is open.
Thank you very much two questions.
The first one is around the revenue outlook so.
Very pleased and positive surprise to see you're expecting 11% growth of the market in 2022 as well as your confirmation that youre on track for the midterm targets.
At the same time just at the recent capital markets Day, you had sort of tweaked back down your gross of our markets midterm framework to just four points a year or so on average so based on the cadence of your backlog and it looks like the new business that you have one would you expect sort of like the rest of your license would be below.
Most of our markets.
Thank you for your question.
I think at the capital markets day, we did not lower the expectation we actually increased it.
<unk> in 2019, we talked about these 4% to 5% over over the strategic horizon allow us we have moved for what we talked about.
LBP outperformance for 'twenty, two 'twenty three 'twenty four to be.
LBP plus around 4% so when you compare those numbers.
It's actually a little.
A little bit higher number when you look at our latest update so so what we're saying here is that we are confirming the strong.
The growth that we have the result of the order book built over the last couple of years.
So we have the right track.
Doctor here going forward and that is what you've seen in our.
Guidance for 2022 here.
Okay understood and then second question I guess on the.
Raw material headwind for this year.
And then obviously, partly mitigated by some recoveries I think.
Some of your earlier expectations.
I think you had assumed that you would have you seen more clarity on commercial recoveries earlier in the year and potentially some of these.
Commercial recoveries achieved the rate.
Ed.
So first the second quarter of 2022 your latest commentary they seem to indicate maybe a little bit more backend loaded in terms of clarity on this and sort of like to achieving that.
Can you maybe just I understand you can't once it is my expectation, but can you maybe just characterize.
What drives this I'm, saying, we'll take some of that in a little bit longer.
Your expectation Directionally in terms of.
Magnitude changed in terms of your ability to recover commodities.
No I don't I don't think Theres any change to what we have.
4% previously.
We did have already recoveries in 2021, but as we indicated they were.
At lower levels.
And then we expect that to have larger recoveries in 2022.
<unk>.
Of course on the smaller part of our business, where we are already indexed that reset that happens already earlier during the year. So those recoveries will come in earlier.
But that's the bulk of it will be.
Based on negotiations.
They will have an effect on more than towards the second half of the year.
And just to be clear.
Is there some level of recovery baked in newer materials baked into this nine in house with some guidance.
Oh, yes, yes. So we were in the three percentage points headwind, we're guiding for on the raw material side is the pure headwind, we're seeing on the cost side. So that is not that is not net of any recovery. That's just a pure cost element.
But if you look at.
The high level of waterfall, we're giving to get to the nine 5%.
Even if you take an average.
Leverage on the incremental volume you can also infer from that that there is a recovery assumption also baked into the nine 5%.
Perfect. Thank you.
Thanks.
Thank you Chris.
Comes from the line of Humphrey Angola.
Please go ahead your line is open.
Thank you very much two questions for me.
First just on the order intake you can maybe you could discuss a little bit on the drivers behind getting back to 50% market share compared to $45 million.
And also.
If there is an element of.
How we should think about pricing in regards to.
Stepping up in market share again in orders. That's my first question second question is more related to the shortage.
If I'm reading Oems and looking at IHS seems like simply to assume that there will be similar.
A shortage in first quarter.
Fourth quarter and it'll be interesting to get your comments on that.
Thanks.
Thank you help us.
On the order intake.
No I think.
As we said last year that I mean, we were pleased with that order intake we had.
Yes, well of course every year, it's not the same so.
As you know, we don't have a market share target per se, but we need to.
<unk> four.
The business here and we believe that we have a strong.
Order book that we have continued to build and we are having towards around 45% market share in the few trusts. We have indicated and that is what we intend to defend here, but of course defend it would help the business and that is what we are focusing on here. So.
50%, one year around 45% in a year and Thats really.
No no no drama and.
Development of either up or down there so so.
We.
We have no real differences there I would say.
So for US the market share is not the top priority is to have helped the business defending our position in the market that's not recurring warranty.
And then on the CMA shortage.
Syed.
<unk>.
I definitely believe that we see in our indication. So you don't so we believe that we will have.
Disturbances.
Aleem.
Mutations to to the MVP grows due to semiconductors.
So the major part of 2022 as well I think it's very difficult to have a very clear opinion when semi conductor challenges will be behind us because we all know the growing need for semiconductors not only in ophthalmology.
But also.
And society at large here and it's a catch up game that needs to be done here from from the semiconductor manufacturers and thats not a.
Quick fix but what we think the areas that we have come to some kind of a more stable situation overall and as we commented here we saw the volatility in the call ups coming down.
Towards the end of the quarter.
And we believe that we will have a more stable situation. However, still.
Growth are being hold back due to Kodak.
Conductor shortage.
Thank you.
Yeah.
Thank you. Our next question comes from the line all six story.
Morgan Stanley . Please go ahead your line is open.
Good morning afternoon, and a couple of questions from me. Please I wanted to go back to your top line guidance, please and so production.
9% MVP and based on the IHS, and then making it up to 20% and <unk>.
700 basis points.
<unk>.
But I can think of I guess several factories that are publicly and additional to normal than just the new business in that 1100 basis point positive geographical mix, you mentioned CPC growth of about 200 basis points I guess some of that is coming from some regional mix. Some of it will be coming from the orders and maybe there is an element.
Price increases in the topline guidance also could.
Could you talk us through I guess, how much of that 1100 pain.
In 2022 is somewhat unusual factors like the geographical mix.
Much of it is state and.
Can you start.
The second question is on share buybacks, and we'll be kind of a more of a procedural question than anything else and you obviously set the target.
2002 to 2024 and <unk>.
Up to $1 5 billion, how would you expect to execute on that could you give us a specific number for 2022 or should we think about this as more opportunistic.
Thank you for your questions there.
You touched most of the components there when it comes to the outperformance as you correctly said I mean.
Mix.
And content per vehicle.
On top of the of the MVP growth stands for I would say that.
Two thirds of the developments here and then the remaining part is really then our our our growth as a result of the order book level build there so.
I think that's the that's the.
The short of it.
On the share back buyback side.
I think we have nothing to comment around out here I mean, we we.
We have.
Presented our our buyback program here, leading up to 2024, and we will take those.
Steps.
Towards that.
We are still committed to that but we will not have any pre announcement on that we will inform in due course here when we take the different steps towards that but we are still of course fully committed to that and we believe.
We have more to say when a.
When we have something to talk about that.
Great. Thank you.
Thank you. Our next question comes from the line of materials Homebuyer of Dnb. Please go ahead. Your line is open.
Thank you.
Sorry to get back to the two to four percentage point outperformance guidance for 'twenty two to 'twenty four but.
I didn't really understand the answer so it would just like to get clarified.
4% should we expect that you grow at least four percentage points faster. So in 'twenty three 'twenty four despite.
The much stronger outperformance now in 'twenty two.
Yes, I mean as I said here I mean, we we.
We have.
<unk> indicated that we put in coming three years 'twenty to 'twenty, three and 'twenty four should have a LBP outperformance of around 4%.
Per year, then of course as it comes out here, we will not be a linear development.
We have only guided you here now for 2022 and when it comes to 'twenty three 'twenty four we will come back down.
I can also add a little bit I mean as you might.
<unk> seen that we did not perform as well as we had expected our outperformance whether that's expected in the fourth quarter.
Largely due to negative mix of almost taking out almost three percentage points, we think that some of that negative mix. We will recover in 2022, which was not part of the original 4% per year growth over market.
That's an average for 'twenty two three and four so therefore, it might be somewhat how you actually the combined compared to what I said before due to this mix effect.
That's when you'll see positive in 'twenty two.
Great that's clear second one for me.
And that 50% market share on order intake can you say what market share you have on sales. Please.
We are now ready with us calculation, yet so it's more data required in order to conclude on that calculation. So we have no no updates when it comes to the.
Let's call it running portfolio market share there and we're still waiting for.
Competitors reported.
Some more market intelligence to conclude on those calculations here.
Understood. Thank you.
Thank you. Our next question comes from the line of Rod Lache Wolfe.
Research. Please go ahead your mindset.
Hi, everybody.
On the commodities your slide 14.
On commodities it looks like it ends in Q3.
Still looks like it's been coming down a lot since that timeframe hot rolled coils are now 11 or $1200 a short ton.
I am wondering if that is reflected in your guidance and maybe you can just educate us a little bit on how that flows through what kind of lag.
You typically experience.
If it stayed at spot levels.
How does that factor into your 12% margin target.
Yeah, No I think it's a format thing things around the axis.
Q4 that is also included in those developments.
But you're right. We're also here during the first part of Q1, we've seen those.
On certain commodities.
Continuing.
The direction for us.
And the main impact that we see here for next year.
Continued headwinds here on steel.
And that is based on how our contracts are structured and the timing of.
How we rolled those over but then we also see an increased impact from nonferrous metals, mainly aluminum and magnesium.
I also yarn.
Especially have polyester and poly Amit or nylon.
Have a significantly larger impact in 2022 than it had in 2021.
So those are the main components of.
The raw material headwinds that we're seeing.
The guidance is based on a one off.
I'd say our contract structures so.
<unk> on when we have to roll these contracts over.
And then also on the price trends that we're seeing in the market.
So theyre not necessarily.
Based on current spot price levels as we have indicated before.
We're always I mean time lags.
They roll into our contractual setup.
Also the duration of our contracts also play a role, but it's our best estimate at this point of time.
How are you.
At the current raw material price situation and trends will be reflected in our cost base.
And at the moment, we were working hard both on the operational efficiency.
Also I mean.
Value added value engineering activities with our supply base and our customers.
Obviously on the commercial recoveries to ensure that we can still hit the 12% margin target that we've set out.
Okay, and maybe second can you give us an update on the status of <unk>.
This is the automation and Digitization projects I think you had $160 million of savings from that it was maybe $80 million of footprint changes R&D over the next year or two is going to come down by about 100 basis points. So how should we any update on how we should be we should be looking for in 2022.
Yeah, Hey, Gary I think in the.
The waterfall chart that we're giving here for 'twenty to 'twenty, two we ordered infer from that that there are.
Further improvements.
Also included there from from those activities. So we see that continuing automation in.
More operational activities with the shorter payback periods and then the footprint activities tend to have longer payback periods.
Such a significant component.
Packed from the second part here.
2022.
But those are the main components why we are able then to mitigate the effects from raw material headwinds that are quite significant at three percentage points and still.
Are you able to give a nine 5% margin target here for next year or for this year.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Colin Langan at Wells Fargo. Please go ahead. Your line is open.
Oh, great. Thanks for taking my questions.
Just to follow up on the raw material question.
I just want to understand that can you remind us the split of your exposure by steel nonferrous in nylon.
I would kind of anticipate maybe a six month lag between when maybe the spot and your contracts. So does that mean in the outlook that steel maybe more.
Flat in the second half of the year and then the bulk of the impact just seem so.
Just any color there in terms of how that would operate.
Yes, so on the commodity breakdown Steve.
And that's roughly 45% of our commodity exposure.
That is followed by Jan or textiles, that's down 20%.
Followed by residence or plastic inputs.
15% and then non ferrous metals.
Yes.
10%, 15% and then the others makeup.
Went to 10%.
That's the competition, we have and then as you said I mean, we were expecting that the majority of the headwinds on steel to be in the first half of the year we had.
Limited impact in the first half of 2021 due to our ability to postpone the impact on all of our contractual setups.
But now as those contracts expire and we have to roll them over we will see a significant headwind in.
In the first half and then.
As you say a much lower impact in the second half on steel.
Okay. So the second half is mostly the nylon in the nonferrous type of stuff hitting.
And so the impact is.
It was 105 million that we had this year.
Basically three quarters almost of that was from steel.
And after.
Three.
<unk> hundred basis points, we have for 2022.
Much more evenly spread between steel nonferrous and textile Sam correct.
That's very helpful.
And then just to follow up on the growth over market one of the things that I struggle with is understanding product mix because 2021. It seems like all the luxury full size pickups and stuff like that.
Sure.
Favre sort of help mix overall.
Or are you thinking about that in your guidance, obviously geographic mix makes total sense with North America and Europe outperforming.
Have you factored in a negative product mix or do you think it's going to be steady this year.
Thoughts there would be helpful. Thank you.
No I mean of course.
As a part of our estimation here in <unk>.
I would say right now you have a growth in content per vehicle across the board here I mean also.
Also the low end vehicle, if we call them that as well as the premium.
Gradually increase and I think the activity.
Gap between.
The lower end in the <unk>.
Premiums remains as both are two large extent of that both are growing so so thats.
I would say a minor factor there if you look at the total development of the industry and then of course in a single quarter single months you can have.
Doses swing, depending on which model it is but.
Principally outside the mix effect is mainly then the regional.
Side of things.
Okay. Thanks for taking my questions.
Thank you.
Thank you next question comes from the line of Joseph Spak RBC Capital markets. Please go ahead. Your line is open.
Thanks very much.
Sorry, but one more on commodities.
And I guess, maybe this is a.
I wanted to clarify something because I think.
There was maybe an assumption that fourth quarter would have been the peak for raw materials and now clearly it's more first half, but I'm wondering when you talk about these numbers either absolute like $105 million in 'twenty, one or the 300 basis points.
This fourth quarter versus 500 in the first half is that a is there like a net versus gross because I think an answer to.
Our next question earlier, you mentioned the.
300 basis point impact for 'twenty, two is a gross number but when you talk about it in the actual results is that also a gross or is that netted.
No. It's the same same basis, yes. It is.
Okay. So.
Sure.
It's not the full risk or exposure, we would have on commodities that would be even higher if we were transacting on spot market and so on the raw material impact would be higher. So there are already a lot of mitigating actions in the 300 basis points for NIM for this year or the 130 basis points for last year and Thats.
I mean delaying price increases.
Switching suppliers.
And so on so there are already a lot of mitigating activities in the 300 basis points.
It is as I said, it's a <unk>.
Number how we expect to hit.
We hit our P&L in terms of cost.
Increases year over year from raw materials.
But then right so public park, but the recovery part from our customers is not included in as I said, we already had recoveries in 2021.
But for commercial reasons, we prefer not to disclose those because the negotiations are ongoing.
Okay that makes sense.
And then just on the comment about.
Okay.
You may have seen some some pull forward.
From the third quarter, the fourth quarter can you just expand upon that a little bit.
Does.
I guess everybody is what youre trying to imply that there may have been some.
Vehicles, you ship to that maybe werent completely assembled because they were missing components and so they've got assembled in a in a quarter later, which may have sort of created a mismatch and outgrowth. When you sort of compare it to production or maybe you could talk a little bit more about about your views there.
I mean is exactly right I don't think as I indicated here I mean, we have had a very volatile 2021, especially Q3 there.
We're.
We had short term changes to the production schedules.
And.
We believe that some of the material that was actually cooled off at the end of day.
We're going into vehicles that will produce later in Q4 so.
The whole volatility sedation has made it more difficult to read here and as we have said here I mean, we.
What we can see the production numbers for Q4 is a little bit higher than what <unk>.
LBP side, a little bit higher than what activity, we could see from our side here. So.
We believe that there is.
Effect of that that some of the volumes in Q3 belonged relate to Q4 in terms of MVP.
Maybe just a quick follow up.
How do you see.
Recent schedule volatility and is your expectation that that will improve the stability will improve as we move through the year.
We believe so and as we said towards the end of the quarter, we saw stabilization and when.
When we look into 2022.
We are not seeing anything that would indicate that we have increased volatility, but there is a lot of things going on.
And the world around us here with with raw material prices energy situations.
So so.
We of course keep a very close eye on the development here, but no indications of today that volatility should return.
Thank you.
Thank you. Our next question comes from the line of Chris Mcnally Evercore. Please go ahead. Your line is open.
Thanks, so much team.
Just questions around the general pace of the production recovery.
First of all on that.
The orders.
You talked about the 50% sure, but if you actually look at the absolute I was kind of surprised to see that the absolute level of orders and this year was back to 2019 and it seems quicker than expected also would not expect to get back to that peak production levels.
Another year. So just if you can you can comment on the general pace of industry orders I mean, the numbers are the same 50%. So I know you are pleased with the 50%, but how about just the rfps that are out there.
Yes.
If I understand your question right here I mean, the order value or <unk> that we are winning of course are based on our customers' expectation on these different programs here.
So I don't think you can compare it to 2019, where we have.
In terms of production schedules or anything like that so this is the.
For the future and some of these programs may go into production in 'twenty four.
And even in some cases beyond but I would say more 'twenty four 'twenty five 'twenty six time horizon. So there is of course different basis for that.
Yes.
I guess my only point my only point was.
Okay.
We hear a lot about lack of confidence in the future.
Future and this would sort of say that we're getting back to some level of pre COVID-19 normalization.
Customers.
Yes, I think I mean, the underlying demand.
At least I don't see any.
What about the strength in that I think.
Have a very strong underlying demand driven by the fact that.
There isn't much older fleet out there.
There is replacement need do we have the several year with relatively low production and it has not been low because of demand. It has been low because our first COVID-19 undone.
Semiconductor shortage and other challenges here on the material side and it's still hampered by the fact that the availability is not there.
So underlying demand is very strong we have pipelines for example in U S that there are a record low levels as we indicated here I mean, the 1 million vehicles.
Two 3 million, yes to refill that pipeline to what's what's normal.
<unk>.
So very strong there and then on top of that also you have to ship to electrical vehicles.
Strong interest from from from.
Consumers here to go into new vehicles with new technology here. So.
When the.
Ship shortages and material shortages is behind us.
We believe in a very strong strong recovery here.
I mean.
And the comment that we expect to see the lifetime sales that we were quoting on to be even higher for 2021 at the beginning of the year. So we've seen some protests.
Projects being pushed out into 2022, but we do expect that at the moment that 2022 would be.
Also step up from 21 in terms of business that will be out.
For for sourcing from our customers.
I appreciate the detail and then maybe just a little bit more near term question about recovery sequentially. I think on slide 16, you talk about the next couple of quarters being relatively flat.
Light vehicle production of that sort of what IHS has.
But what's interesting is we're hearing from some of the customers like Toyota I think he is talking about April being 35% higher than February is there potential that while Q1 seems pretty flat that by Q2 as we get out of sort of some of the COVID-19 related shutdowns that Q2 could be actually up.
Sequentially I know some of the other forecasters are up 4% to 5% in Q1 to Q2.
I think I mean.
You're referring to the one customer here.
It will be.
Various reasons, but as an industry.
It's to the best of our knowledge.
What we have described here today and once again I think the delay.
Pure limiting factor is the availability of material here.
So if that is.
You can see quicker.
Ups here, but.
That's the best.
Data, we have as of today and of course as you know the visibility we have is not that far out in terms of really call offs.
Perfect. Thanks, so much.
And again the underlying assumption for the full year is that Q1, two and three will be relatively flat versus Q4, so that the industry should be able to hold up at those at the Q4 volumes and then.
A slight increase sequentially into <unk>.
Fourth quarter this year.
So I think we have time for one one more question.
And that will come from the line of Sasha Komal Jefferies. Please go ahead. Your line is open.
Good morning. Good afternoon. Thanks for squeezing me in two quick ones actually the first one is on working.
Working capital you mentioned that you see further improvement potential. So I was wondering if you can give us a bit of stope and measures.
For the main capital item.
That you see and then secondly on the share buybacks again more of a procedural question question is it a management or board decisions like the dividend.
Yes on the dividend.
It's a board decision as you know we have quarterly dividend.
Decided by the board.
Quarter by quarter, and buybacks as well as buybacks a management decision.
<unk>, we have a mandate from the board and that is the amount that we have present present up to that level. So that's an operational question after that.
Thank you.
Then on working capital and I think you can see that.
We did talk about some of the capital markets day, how we're focusing especially on accounts payable and I think if you look at the <unk>.
A multiyear trend you can see a.
<unk> improvement also into 2022, and we are expecting that we will see further improvements from that here over the next.
A few years.
On inventory I think we.
It proved also here that's been very very challenging times, we were able to reduce inventory sequentially by almost $150 million.
Which also shows that we have a lot of focus and traction or sell those initiatives.
Also here, we expect to see more going forward and I think we have a good setup for these improvements so I think we're well on track.
Get to the $800 million, we've talked about with 2019 as a basis point.
Alright, thank you.
Thanks.
So that was the last question.
Okay.
Okay.
Thank you very much.
Before we end today's 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.
Unfortunately, there will be millions of vehicles.
Collisions.
2022 outlet continue to focus on our vision of saving more lives, which is a key contribution to the sustainable Society.
Our first quarter earnings call is scheduled for Friday April 22.
The 'twenty to 'twenty two.
Everyone for participating on today's call. We sincerely appreciate your continued interest in outlet until next time stay safe.
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