Q4 2022 Autoliv Inc Earnings Call
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Good day, and thank you for standing by and welcome to the ATA leave fourth quarter 2022 financial results and webcast. At this time all participants are in listen only mode.
After the speaker's presentation, there will be a question and answer session.
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Please note that today's conference is being recorded.
I would now like to hand over to your speaker, Mr. Anders Trapp, Vice President Investor Relations. Please go ahead.
Thank you Ross welcome everyone to our fourth quarter and full year 2022 earnings call on this call, we have our president and CEO Mikhail blocks, and our Chief Financial Officer Christine.
Oh, Yeah I'm on this drop VP Investor Relations.
During today's earnings call me cannot predict when among other things provide an overview of the strong safety margin development in the fourth quarter.
Given update on the price negotiation outline the expected sequential margin improvement in 2023, and the journey towards our medium term targets. That's what it is.
Provide an update on our general business and market conditions.
We will then remain available to respond to your questions and as usual the slides are available on our belief that corn Tony.
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.
In the 10-K that will be filed with the SEC.
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 over to our CEO nickel down.
Thank you Anders looking on the next slide.
I'd like to recognize the entire team for delivering another strong quarter, which I believe reflects our strong execution culture.
The fourth quarter and full year 2022 were important steps towards our medium term targets as we through price adjustments manage to gradually offset the highest raw material cost inflation at our industry has seen in a decade.
In the fourth quarter, our organic sales growth outperformed light vehicle production significantly.
A result of price increases product launches and higher safety content per vehicle.
Our sales in the quarter were well over $2 3 billion U S dollar.
Despite a 7% currency headwind.
We also achieved a strong profit recovery.
We increased the adjusted operating margin to 10% for the fourth quarter and the six 8% for the full year in line with our full year guidance.
Our strong performance in the fourth quarter is especially encouraging considering the market conditions continued to be challenging with significant inflationary pressure and continued high level of customer call off volatility.
We generated strong operating cash flow meeting our full year indication.
This combined with improved EBITDA lowered our leverage ratio to one four times from one six times last quarter.
In the quarter, we paid 66 cents per share in dividend, an increase of around 3% from third quarter and repurchased and retired 650000 shares.
Additionally, we retired 10 million of our treasury shares from previous stock repurchase program.
The second half year development in 2022 strengthens our confidence in our mid term targets.
In addition, we expect that our balance sheet and positive cash flow trend will allow for higher shareholder returns looking.
Looking now on an update of the 'twenty to 'twenty two margin progression on the next slide.
Yeah.
During 2022 we reduced our cost base in a challenging market environment.
We implemented hundreds of cost efficiency projects, especially in production and supply chain.
As illustrated by this chart, we started the year at the very low adjusted operating margin level, mainly from severe inflation in raw materials, but also due to inflation and other cost categories, such as labor and freight.
We then manage to gradually improved adjusted operating margin came from three 2% in the fourth quarter to 10% in the fourth quarter as a result of successful negotiations with our customers regarding cost compensation.
This sequential improvement reflects our high volumes and our strong focus on continuous improvement.
Throughout the organization and our strategic roadmap initiatives.
We managed to offset these raw material related cost structure successfully by year end 'twenty to 'twenty two for 2023. The main challenge is to tackle the inflation in the non raw material cost base.
Without neglecting the raw material cost risks.
Looking on the next slide.
To support our sustainable business model in an inflationary environment. We continue to work closely with our customers to secure price increases to compensate for inflation volatile MVP and supply chain disruptions.
During 2022, we reached agreements with almost all Oems on non raw material.
Raw material related price adjustments as well as to a limited extent also for other cost category, such as labor and freight.
At the end of the year product pricing largely reflects the cost level for raw materials.
We have initiated discussions with our customers on non raw material cost inflation.
Labor logistics and energy.
We believe price adjustments will offset the non raw material cost inflation.
With small positive effects in the first quarter of 2023 and gradually larger positive effects as the year progresses.
Looking now on the order intake on the next slide.
Yeah.
Our order intake for the full year continued to develop well.
<unk> long term growth in a rapidly changing technology environment with many new Oems and fast growing in the number of EV platforms.
The lifetime value of the 'twenty to 'twenty two order intake was in line with last year, despite currency headwinds and a more negative MVP outflows.
This strong order intake over the past year is an evidence that our company is the leading company in the passive safety automotive industry.
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.
Our strong order intake and current customer satisfaction.
Support our confidence regarding our mid term.
Sales targets.
Looking on the order intake in more detail on the next slide.
Okay.
In 2022 order win rates for new EV platforms were higher both with new EV.
<unk> and traditional Oems.
We estimate that 40 is around 45% of our order intake in 2022 was for future battery electric vehicles.
We are proud that we were successful in winning many contracts with new Ulta makers.
Throughout the makers, mainly in North America, and China accounted for over 30%.
Order intake.
Up from 12% last year.
We won multiple awards supporting new markets and industry trends like knee airbags side airbags and India into.
Integrated child seat seatbelt, specifically designed for electrical vehicles as well as seatbelt post zero gravity style seats for self driving vehicles.
As a result of strong order intake over the past years, we expect an increase in overall product launches in 2023.
This development contributes to building, an even stronger platform for our long term success.
Looking now on the financial overview on the next slide.
Our consolidated net sales of $2 $3 billion was 10% higher than a year earlier, despite seven percentage points currency headwinds.
Adjusted operating income excluding costs for capacity alignment.
Increased from $177 million to $233 million.
The adjusted operating margin was 10% in the quarter.
One seven percentage points higher than the same period last year.
The higher operating margin was mainly a result of higher prices.
Operational leverage on higher volumes as well as cost saving activities.
Operating cash flow was $462 million, which was $146 million higher than the same period last year mainly.
Mainly due to improved working capital and higher net income.
Looking now on sales growth in more detail on the next slide.
Despite the currency headwind the fourth quarter consolidated net sales increased by more than $200 million, two 2.3 billion U S dollars.
Organic sales grew by 18% in the fourth quarter compared to last year.
The retroactive pricing contributed with approximately $8 million and price volume mix contributed with almost $350 million in the quarter.
Looking on the regional sales split Asia accounted for 42% North America for 32% and Europe with 26%.
We outline our organic sales growth compared to LBP on the next slide.
Yes.
I am very pleased that our organic sales growth outperformed global light vehicle production growth in the fourth quarter.
This was achieved as we continued to execute on our strong order books.
According to S&P global light vehicle production increased by around 2% year over year in the quarter.
This was slightly lower than expected in the beginning of the quarter as production in North America, Japan, and China were lower than expected.
Based on our latest light vehicle production numbers, we outperformed global light vehicle production by around 15 percentage points in the quarter and by around seven percentage points for the full year.
In the quarter, we outperformed in Europe by 'twenty, three percentage points by 14 percentage points in both China, and Japan and by nine percentage points in America.
Supported by new launches and market share gains and CPD growth as well as further price increases we expect sales to outperform light vehicle production by around 12 percentage points in 2023.
On the next slide we see some key model launches from the fourth quarter.
In the quarter, we had a high number of launches, especially in China and Japan.
The models shown on this slide have an outlet content per vehicle from approximately $200 to close to $500.
These models reflect the changes seen in the automotive industry in recent years.
With several relatively new OEM represented in that four out of nine are available as pure electrical vehicles.
In terms of our delayed sales potenza entirely redesigned Honda pilot and Honda Accord launches are the most important.
The long term trend to higher content per vehicle is supported by front center airbags.
The airbags.
More advanced seatbelts and active pedestrian protection systems.
Looking to our sustainability approach on the next slide.
Guided by our vision of saving more lives. Our mission is to provide world class life saving solutions for mobility in society.
Sustainability is an integral part of our business strategy, a fundamental driver for market differentiation and stakeholder value creation.
Helping to ensure that our business will continue to thrive and contribute to sustainable development in the long term.
Our sustainability approach is based on four focus areas.
Saving more lives.
Safe and inclusive workplace.
<unk> workplace climate and responsible business.
Each consisting of broad ambitions and more specific short term target.
Our sustainability approach is anchored in well established international frameworks, such as the UN global compact.
<unk>, which we have been a signatory for several years.
We aim to be carbon neutral in our own operations by 2030, and Furthermore, aim for net zero emissions across our supply chain for 2014.
Yeah.
These commitments place outlet among the front runners in the broader group of automotive suppliers.
As a part of this commitment our reduction targets were approved by the science based targets initiative in February of 2022.
We cooperate with international organizations suppliers and customers to ensure maximum positive impact.
A few example of such partnerships includes the U N Road safety fund.
The green steel collaboration with <unk> and <unk>.
Sure.
Push the boundaries of safety to include vulnerable road users.
Now looking at the sustainability progress in 'twenty to 'twenty two on the next slide.
Yeah.
During 2022, we initiated and concluded a number of activities to ensure our commitment and contribution to the UN sustainable development goals and our own sustainability targets.
Sure.
For example, we took steps to reach our ambition of saving 100000 lives per year by.
By expanding our activities in the vulnerable road user area.
We conducted sustainability audits and Carryout climate survey covering 98% of our direct material suppliers.
We substantially increased our use of renewable electricity.
We trained all senior management members in the main areas of <unk>.
Our climate program, including de Carbonization leavers.
Our believe is committed to provide safe working conditions for our employees.
As a result of our continuous improvement activities the incident rate reduced by over 20 percentage points in 2022.
I will now hand over to our CFO predict with Lin who will talk you through the financials on the next slide.
Thank you Michelle.
2022 was again, the turbulent year with both lower and more volatile light vehicle production than expected at the beginning of the year, mainly due to supply chain disruptions.
Our net sales were $8 8 billion with sales increasing organically by close to 14% twice the increase in the underlying light vehicle production.
The adjusted operating income decreased by 12% to $598 million.
The adjusted operating margin was six 8% compared to our latest guidance of reaching the upper range of between six and 7%.
The operating cash flow was $713 million compared to the guidance of between $700 million to $750 million.
Earnings per share was $4 85.
Dividends of $2 58 per share were paid and we repurchased and retired 144 million shares for 115 million U S dollars.
Looking now at the full year adjusted operating income bridge on the next slide.
For the full year of 2022, our adjusted operating income was $598 million. This was $85 million lower than the previous year, which was a result of higher costs for raw materials and FX combined of approximately $460 million.
Costs for Cola volatility, such as premium freight and labor and material inefficiency increased substantially as well.
This was partly offset by positive effects from actions, including price increases and cost saving activities as well as higher volumes.
SG&A in <unk> net combined was virtually unchanged despite 14% organic growth.
Looking on to quarterly performance on the next slide.
This slide highlights our key figures for the fourth quarter of 2022 compared to the fourth quarter of 2021.
Our net sales were $2 3 billion. This was 10% higher than Q4 2021.
Gross profit increased by 8% to $399 million, while the gross margin declined slightly to 17, 1%.
The gross margin decrease was primarily driven by cost inflation and the volatile light vehicle production and has largely been compensated by price increases and cost savings.
In the quarter, we made $3 million in provisions for capacity alignment activities.
The adjusted operating income increased from $177 million to two.
$233 million.
The adjusted operating margin increased from eight 3% to 10.0%.
The operating cash flow was $462 million and I will provide further comments on our cash flow later in the presentation.
Earnings per share diluted increased by 49.
Were the main drivers were <unk> 43 from higher adjusted operating income and <unk> <unk> from lower tax costs.
Our adjusted return on capital employed and return on equity both increased to 25%.
Up from 19% and 18% respectively.
We paid a dividend of $6 <unk> per share in the quarter, an increase of <unk> <unk> from last year and repurchased and retired 650000 shares for $55 million under our stock repurchase program.
Looking now on the adjusted operating income bridge on the next slide.
Yes.
In the fourth quarter of 2022, our adjusted operating income of $233 million was $56 million higher than the same quarter last year.
The impact of raw material price changes was negative $83 million in the quarter.
Foreign exchange impacted the operating profit positively by $9 million. This was mainly a result of positive revaluation effects, partly offset by negative translation effects.
SG&A in <unk> net combined was 22 million lower mainly due to timing of engineering income and positive currency translation effects.
Our operations were positively impacted by improved pricing higher volumes as well as our strategic initiatives, partly offset by the significant headwinds from call it volatility and general cost inflation.
Looking at our cash flow overview on the next slide.
Okay.
For the fourth quarter of 2022 operating cash flow increased by 146 million to 462 million, mainly due to stronger performance in working capital and higher net income.
During the quarter trade working capital decreased by $132 million as a result of improved payables and part due to our capital efficiency program, partially offset by higher inventories.
The continued inefficiencies in inventories as a result of the volatile light vehicle production and logistics challenges. Our ambition is to eliminate these inefficiencies as soon as possible, which requires the stabilization of the supply chain and call of patterns from our customers.
For the fourth quarter capital expenditures net increased by 8% to $165 million in relation to sales. It was seven 1% virtually the same as a year ago.
The high level is related to the ongoing footprint activities and capacity expansion for growth, especially in China.
For the fourth quarter of 2022 free cash flow was $297 million $133 million higher than a year earlier.
For the full year of 2022 operating cash flow declined somewhat from the prior year to 713 million, mainly due to inventory inefficiencies.
Cash flow.
Free cash flow amounted to 228.
$8 million down $72 million for 2021.
Capex in relation to sales was five 5% in line with our full year indication and the cash conversion was around 54%.
In 2023, we expect positive cash flow developments from higher net income and are gradually more stable light vehicle production.
Now looking on our leverage ratio development on the next slide.
The leverage ratio at the end of December 2022 was one four times.
This was an improvement from the one six times in the previous quarter as our 12 months trailing adjusted EBITDA increased by $49 million and our net debt decreased by $99 million.
Now looking at the liquidity position onto the next slide.
At the end of the quarter, we had a significant liquidity cushion of approximately $1 7 billion in cash and Unutilized committed credit facility.
To minimize refinancing risks, we have diversified our long term funding sources and we also have a maturity profile that is well spread over the coming years, none of the credit facilities are subject to financial covenants.
With that I'll hand, it back to you make it.
Thank you Fredrik, let's look at the financial and market environment, We see for 2023 over the next few slides.
North port of the hour.
Industry continues to operate at or near recessionary levels, mainly due to supply chain constraints.
Despite concerns surrounding the ongoing volatility of the supply chain and recessionary fears global production is projected to increase by three 5% to $82 million.
In 2023, according to S&P Global January 'twenty to 'twenty three.
For the fourth quarter Global light vehicle production is expected to improve by two 6% compared to last year, but declined by 6% more than 1 million units compared to the fourth quarter.
The decline versus fourth quarter is mainly an effect of supply chain issues from the recent wave of COVID-19 in China.
With the relaxing of the Covid policy in China, LBP as well as short term demand have been negatively impacted.
As a result first quarter production in China has been lowered by close to.
Half a million units.
With volume losses expected to be recovered in subsequent quarters.
In North America, and Europe , the near term production forecast continue to be limited by our to makers ability to produce knocked by demand.
Now looking on the next slide.
We expect 'twenty two 'twenty three to be a challenging year as inflation impacts our non raw material cost base, which is almost twice as large as our raw material cost base.
In 2022 domain cost challenge.
Related to raw materials affecting our costs for purchased components.
Although many commodity indices are down since their peaks in 2022, we currently assume raw material costs unchanged in 2023.
The reason being that the prices of specific raw materials.
Used in our products such as our automotive grade steel has not declined as much as the generic steel indices would indicate.
Additionally, we see higher cost for some material such as yarn and dressing.
For 2023, the main cost challenge is related to labor and energy inflation, which impacts us directly.
As well as through suppliers value added costs.
Already during 2020 to the tight labor market, mainly in North America resulted in significantly higher than normal labor inflation for.
For 2023, we've received further headwinds from wage increases, especially in Europe .
We also predict cost increases from suppliers due to labor inflation and higher energy costs.
Additionally, we expect higher cost for logistics and utilities in our operations mainly in Europe .
We have initiated new discussions with our customers aimed at offsetting these broader inflation.
We believe it will be challenging, but nevertheless, we expect the price adjustments will gradually throughout the year offset non raw material cost inflation.
Looking after 2023 business outlook on the next slide.
We expect a significant improvement in adjusted operating margin in 2023 compared to <unk> 22.
Supported mainly by 15% organic sales growth.
Cost control and product price adjustments.
We expect continued high sales outperformance versus light vehicle production in 2023 <unk>.
Supported by launches higher prices.
<unk> per vehicle increases and regional mix.
We expect the adjusted operating margin in the first quarter to be around 5% due to lower MVP and cost inflation is expected to increase faster than our cost compensations in the beginning of the year.
We anticipate price adjustments will gradually throughout the year offset non raw material cost inflation and the pattern will be similar to the quarterly pattern seen in 2022.
With limited positive effects in the fourth quarter and gradually more as the year progressed.
This tractor it will be further supported by improvements from strict cost control footprint optimization as well as expected gradual improvement of the supply chain and light vehicle production stability.
Looking at our 'twenty to 'twenty three financial indications on the next slide.
Okay.
Our full year 2023 indications exclude co.
Costs and gains from capacity alignment antitrust related matters and other discrete items.
Our full year indication is based on in light vehicle production growth assumption of around 3% in line with S&P global outlook.
We expect sales to increase organically by around 15%.
Currency translation effects are assumed to be around negative 1%.
We expect an adjusted operating margin of around.
Eight 5% to 9%.
Operating cash flow is expected to be around $900 million.
Our positive cash flow trend should allow for increasing shareholder returns.
Turning to slide to look at progress towards our midterm targets.
In the medium term.
We're expecting to continue to grow our core business.
Our bags seatbelts and steering wheels.
Through execution on the current strong order books.
The other important growth driver is safety content per vehicle drew.
Driven by continuous updates of government regulations, and Kras test racing.
Based on our order book and expected CPB increases our growth targets for the medium term is to grow organically by around four percentage points more than light vehicle production growth per year on average.
This excludes any price compensation for raw materials and other inflationary costs.
In 2022, our outperformance was seven percentage points, including price adjustments and for 'twenty to 'twenty three we expect to outperform light vehicle production by around 12 percentage points.
This is substantially above our growth target.
Even if we disregard the effects of the price increases on the outperformance we are still on track to deliver on the growth target of four percentage points outperformance on average.
To maintain the growth momentum beyond the market share driven growth we are pursuing an ambitious innovation program.
Now looking on the multiple levers for margin improvements on the next slide.
In the past two years, our palladium has significantly reduced its cost base in a challenging market environment.
We have implemented hundreds of cost efficiency projects, especially in production and supply chain.
Our medium term adjusted operating margin target of around 12% is based on the previously communicated frameworks.
This relies on the continued implementation of our strategic initiatives, including Ultimate station digitalization of footprint optimization together with the following conditions.
A business environment with a stable global light vehicle the vehicle production of at least $85 million.
And that headwind from inflation do not have a greater net negative impact on our operating margin that <unk> had in 2021 offset through Christ compensation or declining raw material prices.
We remain confident that if these conditions are met for the full year 2020 for which we see as possible if the year political and macroeconomic situation improves.
We should reach the 12% adjusted operating margin target in 2024.
Now looking on the next slide.
I look forward to sharing more about our journey with you at our Investor Day on June 12, 2023, where the main focus will be on product.
Strategic roadmap as well as ultimate station and operational efficiency.
<unk> will be held at our technology Center in orbit <unk>, Michigan USA.
Looking forward to seeing many of you there.
Turning to the next slide.
In closing to summarize our 2023 outlook, we expect continued strong sales outperformance versus light vehicle production.
The challenging first quarter in terms of operating margin, which should gradually which should gradually improves throughout the year.
A significant full year adjusted operating margin improvement compared to 2022.
We remain mindful of the risk of deteriorating economic conditions and supply chain disruptions, but I am confident that our leading position. The work we have done to become more resilient and our experience and agility will enable us to manage further challenging.
Actions in the future challenging conditions, I will now hand back to Anders.
Thank you Mikhail.
Turning to the next slide.
This concludes our formal comments for today's earnings call, we would like to open the line for questions.
Now I'll turn it back to you Ross.
Thank you Sir.
As a reminder to ask a question you will need to press star one and one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one on one again once again is still one and one.
To register for a question.
We're now going to proceed with our first question.
Our question comes from the line of Rod Lache from Wolfe Research. Please ask your question. Your line is open.
Hi, everybody thanks for taking my questions.
Firstly.
In 2021, you announced Digitization and automation program that should save about $160 million I think over two years.
It was $60 million from footprint changes in that.
It's also an expectation that R&D with declined by 100 basis points.
Can you just provide a little bit more color on what you've achieved so far on on those and what you see as achievable in front of you and.
In 2023.
Thank you Rod.
When it comes to those activities that were laid out there.
In.
2021, originally actually in 2019 net.
Support our journey here.
I would say it was a number of strategic roadmaps initiatives that should should strongly support our journey here I would say that we are performing well on those and I think we have been consistent throughout the day.
The last couple.
A couple of challenging years year to hold on to.
Due to the minority of these initiatives to secure that.
The underlying.
<unk> still on track despite that we have this.
The challenging environment of course, the store being the overall.
Net result here, but.
I would say thanks to those initiatives, we are feeling comfortable on the way forward here and of course. They have also contributed for us to deliver the result that we are delivering here in this quarter as well so so.
Long story short.
I would say we are on track when it comes to strategic roadmap initiatives that you referred to.
Can you maybe.
Provide some quantification of what is still in front of you from those.
Reason I'm asking maybe just.
I'm looking at the fourth quarter.
Strong margin and I know that there is typically a seasonal lift of about 120 basis points from engineering recoveries, but it would look like you.
You would even adjusted for that you'd be in the mid to high 9% range off of that.
Presumably there is some positive from.
These restructurings in Digitization and automation.
But to your target margin for the full year 2023 is only eight 5% to nine so could you help me reconcile that maybe with a little bit a little bit of a bridge.
Yes, I think let me start and I'll hand over to Frederic here to take you through the different steps, there, but coming back to the <unk>.
Strategic initiatives here as I said they are on track, but with that said, we also see that we have still.
A lot of opportunities in that area I mean, some of them have longer lead times than we are in the progress here.
Securing many of their footprint initiatives that we have launched for example is a poll for strategic initiatives.
Specifically when it comes to optimization here is of course a gradual.
During the year as we are implementing it also when we have new.
Graham launches so so that you have.
Sequential development.
Of course take some calendar time, so good progress, but still great opportunities as we move forward here and of course, the bridge from where we are in 'twenty.
<unk>.
US to be here in relation to the midterm targets. There are a number of components Sps went through but I'll, let <unk> take you through the details there.
Yes.
For 'twenty three I mean, the main contributors will be.
In the carryover effect and then the incremental additional pricing.
Versus what you compare what the pricing point towards going into into last year.
And then of course, the organic growth that we see excluding pricing and those are the two main components.
Are the positive drivers, but then don't neglect that we're also laying out here that we do see.
Quite significant deflationary headwinds.
The largest part of that is actually on the value add components have received from our supply base and then followed by our our labor costs inflation that we expect that then to a smaller extent on logistics.
And the utilities.
If you.
Then look at going beyond that.
It is the continued volume growth that we expect and also delivering on the market share expansion.
And the launch activities that will drive up the margin further.
Further improvements from the strategic initiatives that you do see that.
Starting to bite and I have effects.
And then the.
So the variable component is of course, what is the what is the incremental inflation effect that we then need to offset either through further cost reduction activities.
Or through negotiations with our customers and those are the main building blocks both for 'twenty three but then also beyond.
Okay. Maybe just lastly can you quantify the labor energy and logistics inflation that you need to offset and are you, saying that you will offset it for the full year or by the end of the year.
We would offset it by the end of the year. Hence also the somewhat lower margin that we're indicating in the first quarter and Thats also due to the there is a calendar year effect of how some of these inflationary components come in not the least on the labor cost side.
But I can indicate is that.
And as I said, the highest headwind we're facing we're at what we're expecting.
In the value add component of our supplier.
The components that we procure.
And then followed by Labor and then the smallest component.
Being as I said logistics and utilities overall, it is less than what we had in terms of raw material headwinds in 2022.
Okay. Thank you.
Thanks.
We are now going to proceed with our next question.
The question comes from the line of Marty Hollenbeck from Dnb markets. Please ask your question.
Hello, and thank you.
I Wonder if you could break down the outperformance for summit versus light vehicle production in 2023, a bit so is the delta versus the 4% outperformance targets all price increases from other any other moving parts that you can quantify and if.
If you don't want to quantify perhaps you could just rank the different drivers.
Important.
12% of the police.
Sure. So it is the largest component will be price and as I said, it's both the carryover effect from 'twenty two but.
Also the incremental pricing that we're expecting that as the largest contributor.
Then followed by.
Pretty much uneven levels CPD growth.
The underlying IDP growth.
Then you also have market share gains that we expect to be larger in 'twenty three than they were in 2022.
But to be clear not only LDP, but also then the third component is our debt.
Launched just in that that we have here.
Perfect.
Question from me on the buyback program could you just remind us on how much it's backed off the program and given that <unk> been quite conservative in utilizing the mandate. So far do you believe that you are in a.
Positioned to become a bit more aggressive with the buybacks now.
Yes.
I mean first of all we are we are committed to a program that is.
One five.
Billion dollar program.
We have two remaining years 'twenty three 'twenty four.
In that program.
We have said before I mean, we will let you know.
Regularly here when we have.
Made purchases here and of course, what we have said here is also that.
The timing and the volumes assessed values of course judge to from time to time, but.
I feel confident on our way forward here with the <unk>.
Tractor, we have laid out here.
We will.
Be able to provide good shareholder returns over time through the buyback program, that's why I love the dividend.
So I can't give you more details on the breakdown there because theft and.
And congratulation.
Okay.
Okay.
Yeah.
We are now going to proceed with our next question.
Yes.
And our question comes from the line of Vijay Rakesh from Mizuho. Please ask your question. Your line is open.
Hi, just a quick question.
Great good.
Great Guide for 2023 but.
On the 20 <unk> guide specifically on the 15% topline I know you talked about market share and pricing in units.
Way to parse what.
What would be the approximate magnitude.
In that 15% embedded in that 15%.
But as I said.
The order of magnitude is pricing Horst then.
Launched just market share number two and CPD number three in CPD, we see around 3%.
And then.
Light vehicle.
Light vehicle production of course around 3% as well so that gives you the 15.
And then.
I'll leave it to you how you distribute the rest in between pricing and.
Mark.
Okay sounds good and then on the as you look at 2023 MVP. Obviously, we had two years of benefiting from a pretty nice mix shift to premium vehicles.
Or do you see <unk> do you see any mix in EMEA the duration on that shift mix moving back to Midland.
I also saw you kind of.
Short much higher.
Design win rate into Evs, but just trying to see how that.
Changes as you look at 'twenty three.
Thank you no we don't expect any dramatic shifts in the distribution of between.
Premium and low and as I said there.
I think what we feel very positively about is how we continue to.
Be a part of the transition over to electrical vehicles. I mean, we are of course, working very closely with the pure EV makers here in <unk>.
Also.
Let's call it the traditional Oems that are getting more and more electrical EDI platforms. So.
We are well positioned.
Positioned in our.
Order book here for the transition over to Evs.
That's a very.
Positive momentum and also as you well know content and electrical vehicles.
It's positive.
Requires also in many cases more sophisticated products sophisticated products over time so.
Thanks, Good development there.
Thank you.
We're not going to proceed with our next question.
And the question is come from the line of Giulio Pescatore from Exane BNP Paribas. Please ask your question.
Hi, Thanks for taking my question I have a couple one on China.
Okay.
Just.
A number of other launches in China in the last few quarter with Chinese cut with Chinese carmaker, and Julie will Neil shopping.
Percentage of your business in China at the moment is with local players as compared to international brands.
Second question again on China.
Do you expect to continue to outgrow the market there is it content per vehicle in China approaches here.
Medical it's more market share gain.
Yes. Thank you.
Yes, I think.
Chinese Oems.
If you define them.
We are roughly 25% I would say all of our sales in China is towards them.
As you correctly state thing here I mean, we work very closely with many many of them in.
Also many of the upcoming.
Oems here also.
We are of course, providing the opportunity also for them to be robust supplier outside China that continue to grow outside but I think we have a lot of.
Very interesting development.
Agreements and programs with the Chinese Oems for further growing that part of the portfolio.
I look very positively on our collaboration with our Chinese <unk>.
Customers for the future here, both inside China, but also outside China.
And maybe to build on that for 2023, where we actually see the largest outperformance in terms of markets is in China and Asia.
Okay.
Thank you very clear.
We are now going to proceed with our next question.
Okay.
And the question comes from the line of Hump with Sandler from Duncan. Please ask your question.
Thank you two questions from me.
Sure sure.
Disclosed strategy.
Naval negotiated so sorry.
And would it be interesting to hear what type of wage increases we're looking at.
So that's the first question second question is.
On this.
Yes.
Price increases that youre being compensated for contracts that have already been delivered if you have any catch the number what type of contribution you have that.
For fourth quarter, if there were any of.
Those are my two questions. Thanks.
Hi, Amber.
Sorry about that.
Can you repeat your first question you were breaking up a little bit.
Okay. No I was asking if you had the number on how how much wage increases you've had.
For the year in the organization and average it looks like five or 10%.
Labor increases.
In 2022 or 2023.
<unk> to 'twenty three of course.
Okay.
It's.
It's a single digit percent number above what we would normally have.
[laughter].
Mid single mid single digit percent number increase versus what we would normally have above normal.
Wage inflation.
I don't know.
And then did you have like any.
Cost compensation.
We'll deliver the delivered contract during the quarter.
No, we don't disclose that level of detail sorry emphasize okay. Okay fair enough.
Okay.
Now going to proceed with our next question.
And our question comes from the line of Colin Langan from Wells Fargo. Please ask your question.
Oh, great. Thanks for taking my questions.
Just following up on the earlier question looking at the second half rate.
The margin that Youre guiding to for 2003 is actually.
Almost in line with the second half rate yet sales if you annualize the second half are up a lot. So why the low conversion.
On those higher sales.
What are the offsets there.
I don't think were guiding for the second half and what we're indicating as a margin for the first quarter.
Not giving any guidance on top line or anything on the on a quarterly level.
So I'm not sure I understood I guess I was saying.
Yes, sorry.
Average your margin in the second half of 'twenty chair it was around eight 8% in your guidance at the midpoint for the shares or an eight 8% and yet sales are supposed to be up next year. So.
What are the offsets relative to where we stood in the second half I think a lot of investors are kind of using that as a jumping off point.
Okay, well then yes, the major issue hard are the headwinds that we're seeing on.
Yes inflation in general.
Not material.
Cost development that we expect to be more or less flat year over year.
But then as we indicated here several times its inflation, we're expecting on the value add from our suppliers so and.
And that is mainly energy and labor, but then also the labor cost inflation that I described before and logistics costs and to a very limited extent utilities in our own operations.
Those headwinds are significant but as I indicate that they are not as high as a headwind as we had some raw materials last year, but that is the main challenge that we're facing in this year.
Got it very helpful.
I think it relates to my second question so the <unk>.
Net impact and guidance of the expected increase in inflationary costs and what you're expecting in terms of price recovery is still a net negative for the year, you're not expecting to get the full recovery within the full year, maybe back in the queue for you get full recovery.
What's baked in there.
Yes for the full year would be a net negative and then but with a different phasing that we have not.
Not fully recovered it in the first quarter and then you would see a gradual improvement like in 2022 throughout the year and then we would be at.
Compensated levels.
Coming out of the year.
Great. That's very helpful. Thank you very much.
We're now going to proceed with our next question.
Okay.
And the question comes from the line of Andrea <unk> from Nordea. Please ask your question.
Perfect. Thank you.
If we can get back to our performance next revisit what's your expected for 'twenty to 'twenty two.
First guidance, you expect with about 11, 12%, even outperformance against car production and the outcome and Danfoss seven percentage point outperformance so and.
You also mentioned in the beginning that you will have product launches.
So all of that and we obviously saw quite good price momentum in.
<unk> to 'twenty to 'twenty two so can you just explain what went wrong when it comes to actual outperformance in 2022.
Yes, the main difference when we compared to the beginning of last year was the regional mix. So Europe is expected to be up I think it was 17 and 18% on a year over year basis, and it actually ended up being down one or 2%.
And that it has been one of our highest content per vehicle markets. That's created a very large negative regional mix, which is the main explanation of that difference.
Perfect. Thank you and then.
Second question <unk> on your expected price trajectory for 2023, you mentioned somewhat lower price.
Price compensations in Q1, if I understood that correctly. So if you could just tell us what you really expect.
Also with the spot prices coming down for Earl Matteo Jess if you could tell us if your customers will not expect price decreases in me to want to turn to three.
I mean, we don't put out a specific price.
Target area.
In all of it but what we're saying here is that we are working with our customers to get food.
Compensation in one way or another.
And of course, we are in parallel to that also working with our own cost space, especially now when we're talking about there.
Other inflationary costs outside of raw material.
Bucket so to speak.
So that is one critical talked about year to gradually.
Compensation here folks move for throughout the year.
And of course.
As raw materials potentially here is gradually coming down and as you have seen on the index side here it is coming down but in our case here we have many.
The product that is not really correlate thing.
We are doing in this is so we don't see the same reduction but.
Conceptual note of course, but when we see raw materials starting to come back eventually.
And there is some economic smear and discussion with our customers to give back.
On that but at the same time, we are.
We're going to get compensation from our supplier base.
It's throughout the whole value chain of course that that needs to be regulated as the way it was under way up it will.
We'll be on the way down eventually there.
Okay perfect. Thank you.
Okay.
Okay.
We are now going to proceed with our next question.
And the question comes from the line of <unk> Mackay Lee from Citi. Please ask your question.
Great. Thanks, everybody.
Just wanted to as you pursue the commercial.
Recoveries for the labor and other inflation, hoping you give us a bit of insights as to how the initial conversations are going is it pretty consistent across all regions and various automakers.
And then just kind of how to think about when you think youll be kind of largely complete we have real good line of sight into the targets that you provided today on those negotiations.
I think first of all.
We have now.
Being in the spending embedded part of the last 12 to 15 months here in discussions with our customer around the increased cost base.
Being out with the raw material last week, we have said here.
This is a new territory for our customers, it's a new territory for supply.
Supply base. So of course it has been a lot of discussion is very detailed discussion and.
We have made.
Good progress here as we can report here.
And of course, very now moving into a territory, where we're at.
It's outside of the raw material at.
At least has been to some extent in.
And the scope of historically because this is more challenging but I think we all recognizing here as an industry that we need to find a way to work in a potentially higher inflationary environment that calls for more regular discussion around private price adjustments.
So.
That is ongoing.
It is constructive dialogues with our customers here, but the nature of course have a timeline because we are not discussing price adjustment anything else than what has been already impacted us.
No.
The discussion is.
Around.
Already agreed agreements that needs to be updated.
Therefore, it's.
On the product then plant level going through the cost impacts from from these different.
Drive cost drivers as we have mentioned here so.
Far from one <unk>.
<unk> fits all into discussions here it is on the.
The product.
<unk> level.
So it's a lot of work and therefore, some time delays in it.
That's very helpful color. Thank you.
We have no further questions at this time I would now like to hand, the conference back to Mr. <unk> for closing remarks. Please go ahead.
Thank you very much Ralph before we end today's call I would like to say that we are continuing to build resilience and strength in the turbulent times relying on our strong company culture.
Actions are creating both short term and long term initiatives improvements and we believe these actions will enable us to build an even stronger position despite the challenging macro environment.
We remain a John and prepared for a more adverse market development should thus be necessary.
<unk> continues to focus on our vision of saving more lives, which is our most important direct contribution to a sustainable society.
Our first quarter earnings call is scheduled for Friday April 21 2023.
And thank you everyone for participating in today's call. We sincerely appreciate your continued interest in ultimate until next time stay safe.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect your lines.
Great.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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