Q4 2023 Autoliv Inc Earnings Call

January 26, 2024

Operator: Good day and thank you for standing by.

Operator: Welcome to the Autoliv Inc, fourth quarter 2023 Financial Results Conference call. At this time, all participants are in listen only mode. After this biggest presentation, there will be the question and answer session. To ask a question during the session, you need to press star 1-1 on your telephone keypad. You will not hear an automatic message advising your hand is raised. To withdraw a question, please press star 1-1 again. Please be advised that this conference has been recorded. I would not like to hand a conference over to speak at today.

Anders Trapp: Anders Trapp, let's go ahead. Thank you Nadia.

Anders Trapp: Again, welcome everyone to our fourth quarter and full year 2023 earnings call. On this call, we have our president and CEO, Mikael Bratt and our chief financial officer, Fredrik Westin, and me, Anders Trapp VP in restaurants. During today's earnings call, Mikael and Fredrik will among other things provide an overview of the recon space and earnings, the strong cash flow, balance rate and order intake for 2023. They will also outline the expected sequential model improvement in 2024 and the journey towards our targets.

Anders Trapp: Mikael and Fredrik will also provide an update on our general business and market conditions. We will then remain available to respond to your questions and as per usual, the slides are available on Altholive.com. Turning to the next slide, we have the safe harbor statement, which is an integrated part of this presentation and includes the Q&A that follows. During the presentation, we will refer non-USGAP measures. The reconciliations of historical USGAP to non-USGAP measures are disclosed in our quarterly press release available on Altholive.com and in the 10K that will be filed with the SEC. Lastly, I should mention that this call is intended to conclude at 3 p.m. Central European time, so please follow the limit of two questions per person.

Mikael Bratt: I will now hand over to our CEO, Nikael Brat. Thank you Anders, looking on the next slide.

Mikael Bratt: I'd like to recognize the entire team for delivering another strong quarter, which reflects our strong execution culture. We ended 2023 on a strong note as we achieved or exceeded all our 2023 indications. In the quarter, our organic sales grow by 60% outperforming likely production significantly, especially in rest of Asia and Japan. The strong growth was mainly a result of product launches and customer compensation for inflationary pressure, as well as higher than expected life vehicle production.

Mikael Bratt: We generated a broad-based improvement in key areas, including growth margins and adjusted operating margins, both year-over-year and sequentially. Our cash flow was strong and the net debt leverage improved. While we increased our dividend and repurchased shares for $150 million in the quarter, or approximately $352 million US dollars for We are making progress towards our intention of reducing our indirect workforce by after 2000. We now expect savings of around 50 million in 2024 from these initiatives.

Mikael Bratt: Order intake developed well. It is especially encouraging to see the strong order intake with fast growing Chinese Williams. For 2024, we foresee sales growing in mid-single digit despite unexpected models decline in light vehicle production. 2024 should take us one important step closer to our adjusted operating modern target, driven by improved call of stability, growth, structural and strategic initiatives and customer compensations. However, the heightened seasonality of earnings of prior years is likely to be repeated in 2024.

Mikael Bratt: Now looking at the order intake more in detail on the next two slides. Our order intake for the full year continued to develop well, supporting long-term growth in a rapidly changing technology environment with many new OEMs and EV platforms. The estimated lifetime value of our 2023 order intake was the highest in the past five years. The strong order intake is an evidence that our company remains the clear leader in the passive safety of the automotive industry.

Mikael Bratt: One of our internal key performance indicators, customer satisfaction, continues to be on a high level. We continue to strive for improving products, services, processes and costs while maintaining industry-leading quality. Our strong order intake with a good mix of EV and I's platforms and the high level of customer satisfaction support, our confidence regarding growth also beyond 2024. Looking on the next slide, in 2023 order intake for new EV platform was high. Both with new EV makers and traditional OEMs.

Mikael Bratt: We estimate that around 45% of our ordering intake in 2023 was for future electric vehicles. Because consumer demand for EVs may have faded somewhat in the short term, but regulatory changes supporting EVs will increase, at least in Europe. Although our products are drivetrain agnostic, it is important to have balanced exposure, both to EVs and I's, to capture future market growth.

Mikael Bratt: With the order book that we have been, we believe that we have a good exposure to all growing segments. New automakers, mainly North American, China, accounted for around 25% of our order intake. Fast-growing Chinese OEMs accounted for around 50% of our order intake in China. And we expect this group of OEMs to count for close to 40% of our Chinese sales in 2024, up from 22% in 2022. We won multiple awards supporting new markets and industry trends like pretensioner seat belts for rear seat passengers, airbags with low carbon cushion material, as well as anti-submarining airbags for zero gravity-style seats for self-driving vehicles.

Mikael Bratt: As a result of the strong order intake in the past years, we expect an increase in overall product launches in 2024, especially in China and Europe. This development contributes to building an even stronger platform for our long-term success. Now looking at the significant sequential cost improvements during 2023 on the next slide. Here today we have generated a broad-based improvement in key areas, both year-over-year and sequentially. On this slide, we highlight the sequential improvements.

Mikael Bratt: In the fourth quarter, we continued to actively address our cost-based, while successfully negotiating with our customers to secure pricing and other compensations that reflect the higher inflation. Our direct labor productivity continues to trend up, supported by the implementation of our strategic initiatives, including automation and digitalization. Our gross margin improved by 410 basis points, compared to the first quarter and by 140 basis points from the third quarter. This is mainly the result of the higher labor efficiency and customer compensations. The positive trend for RDNI and SBA in relation to sales have continued and have now declined by 270 basis points since Q1.

Mikael Bratt: Partly as a result of normal seasonality with high engineering reimbursements in the fourth quarter. Combined with the gross margin improvement, this led to substantially improvement in the adjusted operating margin. Looking now on financials and more details on the next slide. Sales in the fourth quarter increased by 18% year-over-year.

Mikael Bratt: Mainly due to higher likelihood reduction, new product launches, higher prices and other compensations and favorable currency translation effects. The strong sales increase and cost reduction activities led to substantial improvement in the adjusted operating income. The adjusted operating income increased by more than 40% to 334 million from 233 million last year. The adjusted operating volume was 12.1% in the quarter, and increased by over two percentage points from the same period last year, and by almost seven percentage points from the first quarter.

Mikael Bratt: Operating cash flow was 447 million, which was 15 million lower than the same period last year. The main reason for the lower cash flow was the unusual strong cash flow last year, which was related to timing effects of cost-customer recoveries. Looking now on the structural cost-faving activities on the next life.

Mikael Bratt: To secure our medium and long-term competitiveness and to support our financial targets, we launched the Cost Reduction Initiative in June 2023, with the intent of reducing our indirect headcount by up to 2000, and then direct workforce headcount reduction of up to 6,000. We estimate that the annual cost reductions will amount to around 130 million when fully implemented. With around 50 million already in 2024, and around 100 million expected in 2025. Total accrual for capacity alignment in 2023 amounted to 218 million US dollars. We do not plan to announce further major reduction initiatives' details.

Mikael Bratt: At the end of 2023, around 75% of the planned indirect reductions were detailed and announced. We already see positive impact on direct-bable productivity as a result. Looking now on our sales growth in more detail on the next life. Our consolidated net sales increased to almost 2.8 billion US dollars. A new quarterly record. It was over 400 million higher than a year earlier, driven by price, volume, mix, and currencies. Out of period cost compensations contributed with 45 million US dollars. Out of period compensations or retroactive price adjustments and other compensations that mainly relates to the first three quarters, but were negotiated in the fourth quarter.

Mikael Bratt: Looking on the region's sales speed, Asia accounted for 41%, America's for 31%, and Europe for 28%. We outline our organic sales growth compared to LVP on the next life. I am very pleased that our organic sales growth significantly outperformed global life vehicle production growth in the fourth quarter, as we continue to execute on our strong order book. According to S&P Global, fourth quarter life vehicle production increased by 9% year over year.

Mikael Bratt: This was more than five percentage points higher than expectations at the beginning of the quarter. Carter, with most of the higher than expected production coming from domestic OEMs in China and in North America as the impact of a U.S, strike was smaller than expected. In the quarter, we outperform globalized weaker production by around seven percentage points, with strong performance, especially in rest of Asia and Japan. The modest underperformance in China was mainly driven by a negative customer mix following strong life-devil production growth for lower safety content vehicles. On to the next slide.

Mikael Bratt: For the full year, we outperform global life-devil production by around nine percentage points, despite a negative-readable life-devil production mix. We outperform in Japan by 15 percentage points, in rest of Asia by 14 percentage points, and in China by 8 percentage points. The performance in China was mainly driven by increasing sales to domestic Chinese OEMs. Our sales to this group outperform life-devil production by 17 percentage points and accounted for 28 percent of our sales in China up from 22 percent in 2022.

Mikael Bratt: In 2023, our global market share was around 45 percent. This is almost six percentage points higher than five years ago when the electronics business was spun out. Our global market position is strong in all proud categories, with 47 percent of airbags, 45 percent of seat belts, and 40 percent of steering wheels. Supported by new launchers, market share games, and content per vehicle, growth as well as our further price increases, we expect sales to outperform life-devil production by five to six percentage points in 2024.

Mikael Bratt: On the next slide, we see some key model launchers for the fourth quarter. During 2023, we had a record number of product launches, especially in China, Europe and Japan. With 2024, we see another step up in number of product launches, particularly in the first half of the year. The trend towards electrification is clear on the slide, with seven models being available as electric versions. The models shown here have an outdoor content per vehicle, of around 110 or higher, with the highest at over 800 US dollars. In terms of outdoor sales potential, the Seeker 007 launch is the most significant.

Fredrik Westin: I will now hand it over to our CFO, Prédic Vistin. We'll talk about you through the finances on the next slide. Thank you, Miguel.

Fredrik Westin: This slide highlights our key figures for the fourth quarter of 2023, compared to the fourth quarter of 2022. Our net sales were almost 2.8 billion. This was an increase of 18 percent year of year. Growth profit increased by 131 million or by 33 percent to 530 million, while the growth margin increased by 2.2 percentage points to 19.3 percent. The adjusted operating income increased from 233 million to 334 million, and the adjusted operating margin increased by 220 basis points to 12.1%. Long gap adjustments amounted to 97 million, almost entirely for capacity alignments.

Fredrik Westin: Adjusted earnings per share diluted increased by 191 cents, where the main drivers were 75 cents from higher adjusted operating income, 109 cents from tax and 10 cents from other items partly offset by financial items. Our adjusted return on capital employed and return on equity increased to 33% and 47% respectively. We increased the dividends to 68 cents per share in the quarter and repurchased and retired 1.5 million shares for around 150 million dollars under our existing 1.5 billion dollar soft repurchased program.

Fredrik Westin: Looking now on the adjusted operating income bridge on the next slide. In the fourth quarter of 2023, our adjusted operating income of 334 million was 101 million higher than the same quarter last year. Our operations were positively impacted by improved pricing and other customer conversations, higher volumes, lower cost for premium freight, as well as our strategic initiatives, but partly offset by headwinds from general cost inflation. The impact for raw material prices were 14 million positive. Out of period cost compensation was approximately 37 million higher than during the same period last year. The FX impact was limited.

Fredrik Westin: Cost for SGNA and RDNA net combined was 30 million higher mainly due to lower engineering income and labor cost inflation. In relation to sales was unchanged compared to last year. The margin was also affected by the cruels warranty and recalls of 17 million or 65 basis points. The accruals are related to three different cases.

Fredrik Westin: As a result, the leverage on the higher sales, excluding currency effects and warranty and recall costs was in the upper half of our typical 20 to 30% operational leverage range. Looking now on the full year financial results on the next slide. Despite higher than expected at vehicle production, 20 to 25 was again a turbulent year with labor cost inflation, supply disruptions, customer price negotiations and continued volatile might vehicle production.

Fredrik Westin: Our net sales were 10.5 billion with sales increasing organically by over 18%, twice the increase in the underlying might vehicle production and three percentage points higher than expected in the beginning of the year. The adjusted operating income increased by 54% to 920 million. The adjusted operating margin was 8.8% compared to our guidance of around 8.5 to 9%. The operating cash flow was 982 million compared to the guidance of around 900 million.

Fredrik Westin: The adjusted earnings per share increased by $3.79 per share to $8.19, where the main drivers were $2.51 from higher adjusted operating income and $1.31 from lower income taxes, partly offset by 18 cents from financial, and Michelitems. Dividends of $2.66 per share were paid and were repurchased and retired, 3.7 million shares, for around $352 million. Sales, adjusted operating income, operating cash load, as well as the adjusted earning per share, were all the highest we have ever achieved.

Fredrik Westin: Looking now at the full year, adjusted operating income bridge on the next lines. In 2023, our adjusted operating income of 920 million was 322 million higher than last year. The impact from raw material prices was limited.

Fredrik Westin: FX impacted the operating profit negatively by 54 million. This was mainly a result of negative translation effects from the Mexican peso. Costs for SGNA and RDNA net combined was 95 million higher. However, in relation to sales, it was down 60 basis points. As a result, the leverage on the higher sales, excluding currency effects, was slightly above our typical 20 to 30% operational leverage range. This is despite not getting any leverage on the inflation compensation from our customers.

Fredrik Westin: Looking now on the cash flow on the next line. For the fourth quarter of 2023, operating cash flow decreased by 15 million to 447 million compared to the same period last year, which was impacted by positive timing effects of customer conversations. Capital expenditures net decreased to 150 million from 165 million. In relation to sales, it was 5.4% this year, down from 7.1% last year.

Fredrik Westin: Free cash flow was 297 million about the same as last year. Our full year operating cash flow was 982 million, a new record for the company. Full year capital expenditures net in relation to sales was virtually unchanged at 5.4%.

Fredrik Westin: Free cash flow for the full year improved year by 186 million to 414 million. Our cash conversion, we find that free cash flow in relation to net income was 85%. Now looking on our trade working capital development on the next line. During the fourth quarter, trade working capital decreased by 71 million, driven by 120 million higher accounts payables, partly offset by 30 million higher inventories and by 19 million in higher receivables.

Fredrik Westin: The higher inventories and receivables were mainly due to the higher sales. Our capital efficiency program aims to improve working capital by 800 million and the date will have achieved 580 million. Improvements in receivables and especially in inventories are lagging due to the high call of volatility and hence planning changes resulting in inefficiencies.

Fredrik Westin: We expect this to improve significantly in tandem with the reduced call of volatility over coming years. Now looking at shareholder returns over the past 5 years on the next slide. Over the years, Autolive has shown its ability to generate solid cash flow in periods with difficult market environments such as COVID lockdowns, the war in Ukraine, industry supply chain challenges and related volatile and declining like we call it. We have used both dividend payments and share repurchases to create shareholder value.

Fredrik Westin: Historically, the dividend has usually represented a yield of approximately 2-3% in relation to the average share price. Over the last five years, we have reduced the net debt significantly while returning almost 1.4 billion dollars directly to shareholders. This includes stock repurchases of 5.1 million shares for a total of 467 million US dollars as part of the current stock repurchase program. Since we initiated the stock repurchase program, we have reduced the number of outstanding shares by almost 6%.

Fredrik Westin: We do consider several factors when executing the program, such as our balance sheets, the cash flow outlook, our credit rating and the general business conditions and not only the debt leverage ratio. We always strive to balance what is best for our shareholders both short and long-term. Now, looking on our leverage ratio of developments on the next slide. Despite increased stock repurchases and higher dividend, the debt leverage ratio at the end of December 2023 improved to 1.2 times from 1.3 times at the end of the third quarter.

Fredrik Westin: This was a result of 108 million higher 12-months trailing adjusted EBTA as a net debt was unchanged. We expect that our debt leverage and positive cash flow trend will allow for continued high shareholder returns going forward.

Mikael Bratt: I now hand it back to you, Miguel. Thank you very much. On to the next slide. After a year, where the global outdoor industry finally reached pre-pandemic levels, 2024 is shaping up to be something of a transitional year. With many regions having already rebuilt inventories, S&P continues to see a production outlook that is more reliant on the end customer demand. Globalized vehicle production is expected to decline by close to 1% in 2024.

Mikael Bratt: This is due to affordability of new vehicles, somewhat softer interest in EVs, in some regions, and high interest rates. Most of the expects that decline is in Japan and Europe. S&P global expects first half-year globalized vehicle production to increase by 1%.

Mikael Bratt: While let's see second half declining almost 3% compared to last year. Lized vehicle production in China continues to be supported by strong EV demand and export activity. In North America, the UIW strike and the strong vehicle sales towards the end of 2023 have reduced inventories somewhat, bolstering production volumes slightly for 2024. Production in Europe is expected to decline, as inventory restocking will no longer boost output, as was the case over the last two years. We base our full-year sales indication on a globalized vehicle production decline over around 1% to sell. Now looking on the next slide.

Mikael Bratt: In 2023, the main cost challenges were around labor, cost inflation and energy. But in 2024, we expect inflation mainly to impact labor costs for us and for our suppliers. We estimate the combined labor exposure our own and our suppliers represents more than 40% of our cost base. Already during 2023, the tight labor market in some countries resulted in significantly higher than normal labor inflation. For 2024, if we see further headwinds from wage increases, especially in Europe and North America.

Mikael Bratt: Although many commodity indices are down since their peak in 2022, we currently assume raw material costs to only decline slightly in 2024. The reason being that the prices of specific raw material used in our product, such as automotive grade steel, has not declined as much as the generic steel indices indicate. Additionally, we see higher costs for some material, such as yarn and resin. The Red Sea situation has not yet had any measurable impact on our own operations.

Mikael Bratt: We have noticed that some customers have reduced their volume short term, but it is too early to estimate what potential impact it may have for 2024. Cost compensation negotiations will again be challenging, but nevertheless, we expect that price adjustments and other compensation will offset cost inflation. Looking at the 2024 business outlook on the next slide. We expect a significantly improvement in adjusted operating model in 2024 compared to 2023. Supported mainly by organic sales growth, a more stable life vehicle production, structural and strategic initiative, cost control and customer compensation.

Mikael Bratt: We expect adjusted operating model in the first quarter to be around 7.5. A significant decline from the fourth quarter in 2023, due to lower life vehicle production, lower engineering income, cost inflation and timing of cost compensation. This is in line with decisionality in the past two years.

Mikael Bratt: We anticipate price adjustments and cost compensations will gradually throughout the year offset cost inflation and the pattern is expected to be similar to the quarterly pattern seen in 2022 and 2023 with limited positive effects in the first quarter. This trajectory should be further supported by improvements from strict cost control, structural savings as well as expected gradually improvement of the supply chain and life vehicle production stability. Look at our 2024 financial guidance on the next slide.

Mikael Bratt: This slide shows our full-year 2024 guidance, which excludes costs and gains from capacity alignment, antitrust-related matters and other discrete items. Our full-year guidance is based on a lightly-kill production decline of around 1%. Despite lower lightly-kill production, our organic sales is expected to increase by around 5%. No net currency translation effects are expected on sales.

Mikael Bratt: The guidance for adjusted operating margin is around 10.5%. Operating cash flow is expected to be around 1.2 billion US dollars. Our positive cash flow trend should allow for continued high shareholder returns. We foresee a tax rate of around 28% in line with our previous indications of 25-30% as the new normal tax rate.

Mikael Bratt: 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 and society. Sustainability is an integral part of our business strategy and an important 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, climate and responsible business, each consisting of long-term ambitions and more specific short-term targets.

Mikael Bratt: Our sustainability approach is anchored in well-established international frameworks, such as the UN Global Compact and Science-based targets. We aim to be carbon neutral in our own operation by 2030 and further aim for net zero emissions across our supply chain by 2040. These ambitions place out to live among the front-fronters in the broader group of automotive suppliers.

Mikael Bratt: Now looking at the sustainability progress in 2023 on the next slide. During 2023, we initiated and concluded a number of activities that highlight our commitment and contribution to the UN Sustainable Development Goals and our own sustainability targets. For example, we are as the forefront of broadening test models into include more 40 shapes and parameters such as age and gender.

Mikael Bratt: We have increased the use of renewable electricity, contributing to a significant decrease in greenhouse gas emissions from our own operation. The incidents rates have improved and we carried out our annual climate survey as direct material suppliers to track their alignment with our climate requirements and emissions. Turning this line to look at progress towards our targets. In the medium term, we are expecting to continue to grow our core business, our bags, seat belts and steering wheels through execution on the current strong audible.

Mikael Bratt: The other important growth driver is safety content per vehicle, which is driven by continuous updates of government regulation and cross test ratings. Our growth target for the three years, 2022, 2023, and 2024, was to grow organically by around four percentage points more than likely production growth per year on average. This excludes any price compensation for raw material and other inflationary costs.

Mikael Bratt: The growth in 2022 and 2023 and the guidance for 2024 means that we expect to exceed this target. To maintain the growth momentum beyond 2024, we are pursuing an ambitious innovation program, the strong 2023 ordering takes support, continued growth momentum, now looking on the multiple levers for modern improvement on the next life. In the past two years, Autoliv has significantly reduced its cost base.

Mikael Bratt: We have implemented hundreds of cost efficiency projects, especially in production and supply chain. Our adjusted operating modern target of around 12% is based on the framework communicated at our investor day in June 2023. A business environment with a stable global life-beak production of at least 85 million, and that headwinds from inflation is offset through price compensation. We remain confident that when these conditions are met for the full year, we are capable to reach the 12% adjusted operating modern target. We now expect that the life-beak production conditions will be fulfilled during 2024.

Mikael Bratt: We expect that call of volatility through 2024 will be lower than in 2023, but remain higher than the pre-pandemic level, having a negative impact on our productivity and efficiency. We expect continued inflationary pressure in 2024 with customer compensations lagging behind the cost increases. To offset the negative effects from inflation and market conditions and to secure our long-term competitiveness, we have launched a number of cost saving activities. We believe that the net effect of our actions and headwinds should result in a substantial step in 2024 towards our adjusted operating modern targets.

Mikael Bratt: Now looking on delivering shareholder value through our 2024 business agenda on the next slide. To drive towards our financial targets and deliver a share of the value, the health and safety of our employees is our first priority, while continuing in more activities to further improve quality and efficiency. We also continue our efforts of flawless execution of new launches, improving customer satisfaction further, and thereby supporting our new and strong market position. Through our capital efficiency program, we aim to unlock capital from receivables, inventory and payables.

Mikael Bratt: Combined with execution of a strategic plan, this should lead to a strong cash flow generation, which sets Autoliv up for attractive, shareholder value creation. By executing on our strategic initiatives, footprint optimization and negotiating compensation from VMs, we believe we will mitigate headwinds from cost inflation. To progress towards our climate targets, we will focus on increased resource efficiency and reduction of carbon footprint.

Anders Trapp: I will now hand it back to Anders. Thank you, Mikael. Turning to the last page, this concludes our formal comment for today's learning school, and we would like to open the line for questions from analysts and investors. I now hand it back to you Nadia.

Operator: Thank you so much, dear participants. As you remind me, if you wish to ask a question, please press star 11 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 11 again. List and Bible will compile the key in a row, and we will take a few moments.

Colin Langan: Now we are going to take the first question and it comes to the line of Colin Lungan from Wells Fargo. Your line is open.

Colin Langan: Please ask a question. Oh, great. Thanks for taking my questions.

Mikael Bratt: Just looking at the comment on this a bit, your long-term target is 4% over market. The guidance implies about 6% and it implies 5% to 6%. Any reason why it's as strong this year, and maybe is that including some of the inflationary costs or covers that you're expecting? I know that was a bit of a health last year, and any thoughts on the China head when you called out in the quarters? That also kind of going to continue. Thank you for your questions there.

Mikael Bratt: The 4% out performance versus LBP takes us into 2024. So this is the last year of the 3-year period that we have communicated on, and as we said there, we expect to over-deliver on that target. Of course, this is thanks to the growth we have created through the early intake over the last couple of years, and of course we have seen good development on the content per vehicle also, and we expect to see that also next year.

Mikael Bratt: This excluded, as we mentioned here, also the price negotiations that is on top of that. Then beyond 2024, we have the 4 to 6 where the Where the current let's say core business should be two to four. So that is our target beyond there, beyond 2024. Regarding China, the minus two percent versus LVP we saw in the fourth quarter is due to a mixed effect. As we mentioned here, we had growth, significant growth on the low end vehicles, or let's say the vehicles with lower safety content than usual.

Mikael Bratt: But if you look at the full year, we had a very strong out performance there of eight percent for the full year. So we look very positively on China, and we feel that we are well positioned with the, let's say the new ED players and also the COMs in general there.

Mikael Bratt: So positive view on China going forward. Got it. And any color on you, you called out labor inflation again with other questions. Any way to frame how large this is in terms of dollars or the impact that's dragging your margins this year. Yeah, I mean, it's actually to be about the same level as we had last year, which where we said would be somewhere mid single digit above normal inflation, so pre 23 basically.

Mikael Bratt: And we're also giving some break down here on the slides on our on the labor cost of our percent of sales. So with that, you can calculate what the impact is and that's the major inflation where we're expecting, then on top of that, we also expect some energy increases based as a third charge on materials that we're buying, especially on textiles.

Colin Langan: So those are the main two components. Got it. All right. Thanks for taking my questions. Thank you. Thanks. Thank you.

Operator: Now we're going to take over next question. Just give us a moment.

Giulio Pescatore: And the next question comes along of who the pescatora from BNP Pariba exam. Your line is open.

Giulio Pescatore: Please have to question. Hi, thanks for taking my question. The first one on the buyback. Just wondering if you'd be comfortable getting closer to the after end of the leverage range in 2024, especially considering a further uplifting margin potentially in 2025 and the good casual generation you expect for this year. Then the second question on inflation and compensation. You mentioned that you expect full compensation for costs. Does that mean at the end of the year, so we shouldn't expect full compensation on 2024 at the whole, but by the end of the year, you think you you can have full compensation with potentially some slippage in the in the first few months. It's a fair way to describe it.

Mikael Bratt: Thank you. Thank you for your question. On the buybacks, as you know, we we only report on what we have done on a regular basis here through our web page here. We are, I mean, very committed to our program that we have and I think you can see that we have in the post quarter here a healthy level of buybacks. Of course, we we Or focusing a lot on making sure that we have the cash flow generation needed, and as you see from the report here we are committed to.

Mikael Bratt: But you share all the friendly company when it comes to both the regular dividend and also to the buyback program and we will come back on that as we progress here, but that's as much as I could say here today. Regarding the inflation, that is the lead time and as we have indicated here already, you see the cost effect from inflation hitting us earlier in the year and then we have the negotiation throughout the year and in the same fashion as we were.

Mikael Bratt: Our last year, our focus here is to get the full compensation and the height of the compensation, Rod ran to, you know, looking at the quarter by quarter here, so it's the full year compensation that is the priority and the height of it. So therefore you get this let's say new seasonality, if we call it that, where you have with you Q1 and then ready to improve throughout the year, so that's the reason behind that. I don't know if you would like that and I think that Fredrik.

Fredrik Westin: No, well, in overall, our expectations we should be compensated for the full year effect and that was also the case in 2023. Whereas 2022 with the raw material compensation, there was a component that we would not were not compensated for in 22. Hence, there was a carryover effect into 23, but we don't expect that same pattern for 24. Okay, very clear. Thank you.

M&L Rothner: Now, we're going to take over next question. And the next question comes, land of M&L Rothner from Deutsche Bankerland is open, please ask a question. Thank you very much.

Mikael Bratt: My first question, I was hoping to ask you about could you comment a little bit more about your path towards the 12th cent reiterated operating margin target. Very much appreciate the score card that you put at the end of the slide there. So if I'm understanding it correctly, it looks like production is probably in the right level, at least. Maybe cost recovery, so like, you know, offset by some of your cost reduction programs. So it is the main impediment to getting to targets the call of accuracy. And if so, I guess what is the line of sites?

Mikael Bratt: Is it fair to assume that this will normalize or are there further action that you need to get you to the target? Okay, I mean, there are a lot of components in your question. So, you know, overall, the framework is, I think, pretty clear. 85 million, we say. As it looks right now, 24 or 85 million.

Mikael Bratt: Seems to be in place as an assumption here for 2024. Then it comes to the other two that we are made whole on the inflation compensation. That will potentially have an impact also on a full year. As long as we have inflation and there's always this catch up effect. From when the cost came in until we are we are compensated for.

Mikael Bratt: Again, here our ambition is to have that also in place for 2024, but that remains to be seen also how inflation develops during, here. Then the last component is on call of stability and here we have a graph in our presentation where it's clearly not in place going into the year. I mean, we have we've seen it kind of or stabilizing at around 90 percent now during the second half of last year.

Mikael Bratt: We are not assuming it right now that this will improve significantly during 2024 and then there's also even if work to come up to the pre-pandemic levels closer to the 100 percent, there's also a time lag off when that accuracy is actually in place until we can also get the efficiency out in our network. So yeah, it's training towards the framework but for short 2024 will not be in place and it remains to be seen how much of that number two and three here will come in place during 24 and then what the impact is for 25.

Mikael Bratt: Looking at the building blocks of how to get from the 8.8 that we had now in 23 up to the 12 percent is roughly, you can dive right into three buckets. One is the structural initiatives and the head contradictions. The second one is the volatility improvement combined with the labor productivity development and then the third component is sales growth and our strategic initiatives and it's roughly, I would say, one third, more of the contributions from those three buckets. That is great, Paula.

M&L Rothner: Thank you. So let me just hone in on my second question on the sales growth speeds of it as we look, you know, past this year and towards some of your targets. I think we started in the past.

Mikael Bratt: You had reported sometimes on your annual win rate and oftentimes they were like, you know, 50 percent or better. Obviously your market share, you reported that it's you know, 45 percent. What is, can you comment on the win rate and I guess what is the confidence level in being able to capture additional market share over the next three years beyond the 2024 framework? Yeah, you know, we have since last year communicated here around the lifetime revenue on the ordering take and I think we had a very good 2023 and the highest in five years here in terms of lifetime revenue and what we're saying here is that we reached the 45 percent market share in 2023 which we have indicated in some years back that that's most what we expected us to grow into.

Mikael Bratt: And with the ordering take and the order book we have, we expect to defend this market share. We do not have, I will say, a target or an ambition to set a new level of our market share here. It is really to defend this market share position with healthy, healthy business, of course. If we can grow more in a healthy way, of course we will do it, but it's not the target in itself.

Mikael Bratt: So the growth that we expect going forward, the two to four as I talked about and we have announced earlier beyond 2024 is connected to light vehicle production and content with more sophisticated product. Thank you very much. Thank you.

Operator: Now we're going to take our next question. Just give us a moment.

Michael Jacks: And the next question comes line of Michael Jacks from Bank of America Security. So line is open please after question. Hi, good afternoon.

Michael Jacks: Thanks for taking my questions. First one just on price recoveries. Some other suppliers have struggled to seek compensation for age inflation. And Autoliv is clearly been more successful.

Mikael Bratt: Is there anything structural you could point towards that gives you the confidence that you can achieve the same in 2024? And then second question is just on working capital. What is the magnitude of improvement expected in 2024 in relation to the remaining gap of £320 million to the internet and the introduction target that you have in your mind. Thank you.

Mikael Bratt: Let me start with the price recovery and Fredrik will comment on the working capital there. But on the price recovery, I can't say there's a structural to it. I think it's I mean, of course, I can only comment on what we are doing here. And we have now for the last two years have had very constructive dialogues with our customers around the over and above normal cost increases we see in the system here. And I mean, we're talking out with raw materials. I know there we have also mentioned that we have made some indicate a higher level of indexation to those contractors also. I mean, it works both ways.

Mikael Bratt: Obviously, so when we see that come down, we will also hand that back to our customers. When it comes to the other components here, it's a little bit different to its nature. But I think it's very important to get compensation for what is the inflationary components here. And we for this year definitely have the labour in focus here. And I mean, that's the nature of inflation.

Fredrik Westin: It needs to be passed on into the end consumerly here and meaning the price of the car at the end of the day. So we need to push that on because there is no possibility for us to compensate our suppliers unless we get the pass on here. It's not sustainable and that's something we just need to continue to work hard with. And we will do that. And that's our focus here going forward as well.

Fredrik Westin: Michael, on your second question, working capital. So we reported here that we have achieved around 580 million of the 800 million target that we set ourselves in the 800 million target. We had also data that around 500 million of that would come from improved payables. And that we have achieved or even over achieved already today.

Fredrik Westin: So we don't expect more to be contributed from that component. So the inventory is challenging right now due to the call of volatility as we show here that it's kind of stabilizing at still to the poor levels. And as I mentioned, we don't expect this to improve significantly during 2024. And accordingly, we do not expect that we will be able to do so much on the inventory side either in 2024. And we do not guide for working capital specifically, but you see a very strong operating cash low guidance here of 1.2 billion. But there is then more opportunity coming later from improving working capital further.

Michael Jacks: That's very clear. Thank you. Thanks. Thank you.

Operator: Now we're going to take over next question. Yes, the moment, please.

Hampus Engellau: And the question comes from Land of Hampus Engellau from Handelsbanken, Joseanne Zürpen, please ask a question. Two questions from me. Despite any linguistic questions, but I'm curious about the drop-in in active seat bedside during the quarter, minus 11%, given the big spread to the hell of a period that increased by more than 9%. We can take that later, but that is just by curiosity. I mean, sort of come back on this question, because I'm trying to understand the dynamics here.

Hampus Engellau: I can definitely see that we have sort of retroactively compensated you guys for rising costs in the quarters. But on the label side, could you maybe give us more data on how those negations are going, given that those cost savings are quite permanent and sticky. Are you guys getting compensated retroactively for these also?

Mikael Bratt: Well, how about the process work? I think on the active seat belt side is no drama in internet. Of course, you get mixed up next also in specific years, where you have maybe some outgoing core models, where you had a high level of, in this case, the active seat belts. And my expectation here is that you should see that recovery, recovering in the next year or so. So no drama to that, with more of a temporary mixed effect.

Mikael Bratt: Then on the cost compensation here, I find it very direct. I mean, the nature of, as you said, labor cost increases is sticky, and therefore it's, I mean, it will not come down. So of course, there is an absolute necessity that that inflationary component has to come through. There is no room for anything else.

Mikael Bratt: And that is what we are doing here. And we of course have very detailed supporting documents to, when we go to our customers, how that connects to their specific business and how it's correlated. So that's something we need to go through. And I mean, we went through that partly already last year, when we saw in some cases and in some regions, and that already in 2023. So we expect to do more of that. Thank you. Now we're going to take our next question.

Bjrn Anderson: Just give us a moment. And our question, Councillor Lahn of Björn Anderson, from Danskebank, please ask a question. Thank you. I have a question also on price. I mean, you have been very successful in getting compensation, but also we have seen, I mean, OVM is coming from high profitability. And as I said, you mentioned yourself, we need to see inflation coming to the price of the cars, but we've also seen price cuts on cars.

Bjrn Anderson: We've also seen OVM's reporting lower profitability. And accepting perhaps a lower profitability as they are investing in price in a way, is this a situation that impact some suppliers in general, or how has it been in the past? That's first question. Thank you. Thank you, Bjrn.

Mikael Bratt: No, I think I see what you're referring to here, but I mean, first of all, it has never been easy, these negotiations. Not even when we saw record profitability at the OVM's. I think the point from my side here is that that's nothing to do with their profitability or our profitability. This is inflation that needs to be passed on. It's not sustainable for us to pay our suppliers unless we can get the pass through. So that is just something that we are very firm on and needs to continue to be firm on. There is no other way than that.

Mikael Bratt: Then I think when you look at the price reductions and so on, towards the end consumers, I think there is almost different reasons for that you see those prices coming down, which probably is more on an individual basis between the OVM's. So I have no comments around that, but we need to focus on our business here, which we are doing. So that is just to continue to press on there. Just to follow up and perhaps in the past, we have not really seen a correlation between core prices and your price negotiations. I mean, you have your negotiations with the team at your customers and then there are other teams set in the price for or not the actual cost, or is there a correlation?

Mikael Bratt: No, I mean, not from our perspective, it's no correlation. I think that's my point here. I mean, each company can carry their business and in our case here, we need to get compensation for the inflation in our system, which includes our system. And one more thing. I mean, last year, I'd like to remember that you had an outlook that was based on an LVT a little bit below what was in the market back then, or by S&P and now you're in line with them.

Mikael Bratt: And that's when you are talking to your customers or people in the industry, as we are maybe heading into more of a slow down on more visible this year and then the last. Yeah. No, I think, I mean, at least from the dialogues we have with our customers on the way forward here. I don't see any discrepancies to what we refer to here as the minus one from us and being global in the end role here. I think there is more of this mix effect between ice and EVs, especially in Europe, where maybe the EVs is slowing down somewhat. But this more a mix effect there.

Operator: And for us, that is neutral, because we are well represented in the both categories, and we are agnostic to the driveline question here. So we don't see the effect on our end here. Sure. Very good. Thank you. Dear participants, due to time, we are not taking any further questions.

Mikael Bratt: I would like now to hand the conference over to Mikael Bratt for any closing marks. Thank you very much Nadia.

Mikael Bratt: I am confident that we will deliver a substantial increase in sales, operating cash flow and adjusted operating income in 2022. For while maintaining substantial shareholder return, maintaining substantial shareholder turn, our actions are creating both short term and long term improvements and we believe these actions enable us to take important steps towards our targets. While we remain agile and prepare for more adverse market development, should that be necessary.

Operator: Autolid 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 26, 2024. Thank you everyone for participating in today's call. We sincerely appreciate your continued interest in altitude. Until next time, stay safe. That is concludes our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.

Operator: [inaudible][inaudible] . . Thank you. [inaudible] . .

[music].

Okay.

Good day, and thank you for standing by welcome to the old Tilly's incorporated fourth quarter 'twenty to 'twenty three financial results Conference call.

All participants are in listen only mode.

The presentation that will be the question and answer session.

I'll ask a question during the session you need your breath.

Speaker Change: One bomb on the telephone keypad, you will go and automatic method, you're driving a hazardous waste.

Speaker Change: We drew a question. Please press star one again please.

Speaker Change: Please be advised that today's conference is being recorded.

Speaker Change: I would now like to hand, the conference over to your speaker today on this topic. Please go ahead.

Laura: Thank you Laura.

Laura: Again, another one to our fourth quarter and full year 2023 earnings call.

Nicole dropped: On this call, we have our president and CEO, Nicole dropped and our Chief Financial Officer, Leo the 15th of May.

Nicole dropped: On the sharp VP Investor Relations Julien.

Speaker Change: During today's earnings call me cannot say ethnic wind among other things provide an overview of the record sales and earnings.

Speaker Change: The strong cash flow balance sheet and order intake for the type of center suite.

Julien: They would also outline the expected sequential margin improvement in 2024, and the journey towards our targets.

Julien: It will also provide an update on our general business and market conditions.

Julien: We will then remain available to respond to your questions.

Julien: Our usual slides are available on <unk> com.

Julien: Turning to the next slide.

Julien: 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 non U S GAAP measures.

Altria: The reconciliations of historical U S GAAP to non us GAAP measures are disclosed in our quarterly press release available on Altria com and in the 10-K that will be filed with the SEC.

Altria: 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.

CEO: I will now hand over to our CEO.

CEO: Thank you and us.

CEO: Looking on the next slide.

CEO: Okay.

I'd like to recognize the entire team for delivering another strong quarter, which reflects our strong execution culture.

CEO: We ended 2023 on a strong note as we achieved or exceeded all our 'twenty to 'twenty three indications in.

CEO: In the quarter, our organic sales grew by 16% outperforming light vehicle production significantly, especially in rest of Asia and Japan.

This strong growth was mainly a result of product launches and customer compensations for inflationary pressure as well.

CEO: Higher than expected light vehicle production.

CEO: We generated a broad based improvement in key areas.

CEO: Including gross margin and adjusted operating margins, both year over year and sequentially.

CEO: Our cash flow was strong and the net debt leverage improved while we increased our dividend and reports, but repo changed chairs 450 million in the quarter or approximately $352 million for the year.

CEO: We are making progress towards our intention of reducing our indirect workforce by up to 2000.

CEO: We now expect savings of around $50 million in 'twenty 'twenty four from these initiatives.

CEO: Order intake developed when.

CEO: It is especially encouraging to see the strong order intake would fast growing Chinese Oems.

CEO: For 'twenty 'twenty four we foresee sales growing in mid single digits. Despite an expected modest decline in light vehicle production.

CEO: 'twenty 'twenty four should take us one important step closer to our adjusted Op margin.

CEO: Margin targets, driven by improved call up stability.

CEO: Gross structural and strategic initiatives.

CEO: And customer compensations.

CEO: However, the heightened seasonality of earnings of prior years is likely to be repeated in 2024.

CEO: Now looking at the order intake more in detail on the next two slides.

CEO: Our order intake for the full year continued.

CEO: Well supporting long term growth in a rapidly changing technology environment with many new Oems and EV platforms.

CEO: The estimated lifetime value of our 'twenty to 'twenty three order intake was the highest in the past five years.

This strong order intake is an evidence that our company remains the clear leader in the passive safety automotive industry.

CEO: One of our internal key performance indicators customer satisfaction continues to be on a high level.

CEO: We continue to strive for improving products services processes.

CEO: And costs, while maintaining industry leading quality.

Our strong order intake with a good mix of EV and ice platforms and the high level of customer satisfaction supports our confidence regarding growth also beyond 'twenty 'twenty four.

CEO: Looking on the next slide.

CEO: Yeah.

CEO: In 'twenty to 'twenty three order intake for new EV platform was high.

CEO: Both with new EV makers and traditional Oems.

We estimate that around 45% of our order intake in 2023 more sports future electric vehicles.

CEO: Cause consumer demand for Evs may have faded somewhat in the short term.

CEO: But regulatory changes supporting Evs will increase at least in Europe.

CEO: Although our products.

CEO: Drivetrain agnostic it is important to have a balanced exposure both to evs and ice to capture future market growth.

CEO: With the order book that we have been we believe that we have a good exposure to all growing segments.

New automakers, mainly North America, and China accounted for around 25% of our order intake.

CEO: Fast growing Chinese Oems accounted for around 50% of our order intake in China.

CEO: And we expect this group of Oems to account for close to 40% of our Chinese sales in 2024 up from 22% in 2022.

CEO: We won multiple awards supporting new markets and industry trends like pretension or seatbelts for rear seat passengers.

Airbags with low carbon cushion material.

CEO: As well as anti submarine knee airbags for zero gravity stylus seats for self driving vehicles.

CEO: Yeah.

As a result of the strong order intake in the past years, we expect an increase in overall product launches in 2024, especially in China and Europe.

CEO: This development contributes to building, an even stronger platform for our long term success.

CEO: Now looking at the significant sequential cost improvements during 2023 on the next slide.

CEO: Yeah.

CEO: Year to date, we have generated a broad based improvement in key areas.

CEO: Both year over year and sequentially.

CEO: On this slide we highlight the sequential improvements.

CEO: In the fourth quarter, we continued to actively address our cost base, while successfully negotiating with our customers to secure pricing and other compensations does reflect the higher inflation.

CEO: Our direct labor productivity continues to trend up supported by the implementation of our strategic initiatives, including ultimate optimization and digitalization.

CEO: Our gross margin improved by 410 basis points compared to the first quarter and by 140 basis points from the third quarter.

CEO: This is mainly the result of the higher labor efficiency and customer conversations.

CEO: The positive trend for audience and SG&A in relation to sales have continued and have now declined by 270 basis points since Q1.

CEO: [laughter], partly as a result of normal seasonality with high engineering reimbursements in the fourth quarter.

CEO: Combined with the gross margin improvement this led to substantially improvement substantial improvement in adjusted operating margin.

CEO: Looking now our financials in more details on the next slide.

Oh.

CEO: Sales in the fourth quarter increased by 18% year over year.

CEO: Mainly due to higher light vehicle production, new product launches higher prices and other compensations and favorable currency translation effects.

CEO: The strong sales increased and cost reduction activities led to substantial improvement in adjusted operating income.

CEO: Adjusted operating income increased by more than 40% to $334 million from $233 million last year.

The adjusted operating margin was 12, 1% in the quarter and increased by over two percentage points from the same period last year and by almost seven percentage points from the first quarter.

CEO: Operating cash flow was 447 million, which was 15 million lower than the same period last year.

The main reason for the lower cash flow was the unusually strong cash flow last year, which was related to timing effects of cost customer recovers.

CEO: Looking now on the structural cost savings activities on our next slide.

CEO: To secure our medium and long term concept competitiveness and to support our financial targets.

CEO: The cost reduction initiative in June 2023.

CEO: With the intent of reducing our indirect head count.

CEO: By up to 2000.

CEO: And then direct workforce head count reduction of up to 6000.

CEO: We estimate that the annual cost reductions will amount to around.

$130 million when fully implemented.

CEO: With around $50 million already in 2024 and around 100 million expected in 2025.

CEO: Total accrual for capacity alignment in 2023 amounted to $218 million U S dollars.

CEO: We do not plan to announce further major reduction initiatives.

CEO: The types.

CEO: At the Amdocs 2023 around 75% of the plant indirect reductions per detail I don't know.

CEO: <unk>.

CEO: We already see positive impact on direct labor productivity as a result.

CEO: Looking now on our sales growth in more detail on our next slide.

CEO: Our consolidated net sales increased to almost $2 8 billion U S dollars.

Okay.

CEO: A new quarterly record.

CEO: It was over 400 million higher than a year earlier, driven by price volume mix and currencies.

CEO: Out of period cost compensation contributed with $45 million.

CEO: Our top period compensations are retroactive price adjustments and other compensations that mainly relates to the first three quarters, but were negotiated in the fourth quarter.

CEO: Looking on the regional sales split Asia accounted for 41% Americas, 31% in Europe with 28%.

CEO: We outlined our organic sales growth compared to MVP on the next slide.

CEO: Yeah.

CEO: I am very pleased that our organic sales growth significantly outperformed global light vehicle production growth in the fourth quarter as we continued to execute on our strong order book.

CEO: According to S&P global fourth quarter light vehicle production increased by 9% year over year.

CEO: This was more than five percentage points higher than expectations at the beginning of the quarter.

CEO: With most of the higher than expected production coming from domestic Oems in China and in North America as the impact of the UAW strike or smaller unexpected.

CEO: In the quarter, we outperformed global light vehicle production by around seven percentage points with strong performance, especially in rest of Asia and Japan.

The modest under performance in China was mainly driven by a negative customer mix following strong light vehicle production growth for lower safety content vehicles.

CEO: Onto the next slide.

CEO: Okay.

CEO: For the full year, we outperformed global light vehicle production by around nine percentage points.

CEO: Despite a negative reading on light vehicle production mix.

CEO: We outperformed in Japan by 15 percentage points in rest of Asia by 14 percentage points.

CEO: And in China by eight percentage points.

CEO: The performance in China was mainly driven by increasing sales to domestic Chinese Oems.

CEO: Our sales to this group outperformed light vehicle production by 17 percentage points and accounted for 28% our sales in China up from 22 to 17 2022.

CEO: In 2023, our global market share was around 45%. This is almost six percentage points higher than five years ago. When the electronics business was spun out.

Okay.

CEO: Our global market position is strong in all product categories with 45, 47% of airbags, 45% of seatbelts.

CEO: And 40% of steering wheels.

CEO: Supported by new launches and market share gains and content per vehicle growth as well as our further price increases we expect sales to outperform light vehicle production by five to six percentage points in 2024.

CEO: On the next slide we see some key model launches for the fourth quarter.

CEO: Okay.

CEO: During 2023, we had a record number of product launches, especially in China, Europe and Japan.

CEO: For 2020 before we see another step up in number of product launches, particularly in the first half of the year.

CEO: The trend towards electrification is clear on this slide with seven models being available as electric versions.

CEO: The model shows shown here have an hour to the content per vehicle of around 110 or higher with.

CEO: With the highest at over 800 U S dollars.

CEO: In terms of out of the sales potential the seeker Seara Seara seven launch is the most significant.

Steven: I will now hand, it over to our CFO predictable Steven will talk you through the financials on the next slide.

Steven: Thank you Micha.

Steven: This slide highlights our key figures for the fourth quarter of 2023 compared to the fourth quarter of 2022.

Steven: Our net sales were almost $2 8 billion. This was an increase of 18% year over year.

Steven: Gross profit increased by $131 million or by 33% to $530 million.

Micha: Gross margin increased by two two percentage points to 19, 3%.

Operator: Good day, and thank you for standing by. Welcome to the Autoliv Incorporated fourth quarter 2023 financial results conference call. At this time, all participants are in listen-only mode.

Micha: The adjusted operating income increased from 233 million to 330 $334 million and adjusted operating margin increased by 220 basis points to 12, 1%.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 1 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw a question, please press star 1 again. Please be advised that this conference is being recorded. I would now like to hand the microphone over to our speaker today, Anders Trapp. Please go ahead.

non-GAAP adjustments amounted to $97 million almost entirely for capacity alignments.

Micha: Adjusted earnings per share diluted increased by 191 cents.

Micha: Were the main drivers were at 75 from higher adjusted operating income 190, <unk> from tax and 10 funds from other items, partly offset by financial items.

Anders Trapp: Thank you, Nadia. Again, I welcome everyone to our fourth quarter and full year 2023 earnings call. On this call, we have our President and CEO, Mikael Bratt, and our Chief Financial Officer, Fredrik Hustin, and me, Anders Trapp, VP, Investor Relations. During today's earnings call, Mikael and Fredrik will, among other things, provide an overview of the record sales and earnings, the strong cash flow, the balance sheet, and order intake for 2023. They will also outline the expected sequential margin improvement in 2024 and the journey towards our targets. Mikael and Fredrik will also 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 altolive.com. Turning to the next slide, we have the safe harbor statement, which is an integrated part of this presentation and includes the Q&A that follows. During the presentation, we will reference non-use gas measures.

Micha: Our adjusted return on capital employed and return on equity increased to 33% and 47% respectively.

We increased the dividend to <unk> 68 per share in the quarter and repurchased and retired one 5 million shares for around $150 million under.

Micha: Under our existing $1 5 billion stock repurchase program.

Micha: Looking now on the adjusted operating income bridge on the next slide.

Micha: In the fourth quarter of 2023, our adjusted operating income of $300 million to $334 million was $101 million higher than the same quarter last year.

Micha: Our operations were positively impacted by improved pricing and other customer compensation higher volumes lower cost for premium freight as well as our strategic initiatives are partly offset by headwinds from general cost inflation.

Micha: The impact from raw material prices were $14 million positive.

Anders Trapp: The reconciliations of historical use gap to non-use gap measures are disclosed in our quarterly press release available on autoleave.com and in the 10k that will be filed with the SEC. Lastly, I should mention that this call is intended to conclude at 3 p.m. Central European Time, so please follow a limit of two questions per person. I will now hand over to our CEO, Mikael Bratt. Thank you, Anders

Micha: Out of period cost copper compensation was approximately $37 million higher than during the same period last year.

The FX impact was limited.

Speaker Change: Cost for SG&A and rdna net combined.

30 million higher mainly due to lower engineering income and.

Speaker Change: Labor cost inflation.

In relation to sales was unchanged compared to last year.

Mikael Bratt: Looking at the next slide, I'd like to recognize the entire team for delivering another strong quarter, which reflects our strong execution culture. We ended 2023 on a strong note as we achieved or exceeded all our 2023 indications. In the quarter, our organic sales grew by 16%, outperforming light vehicle production significantly, especially in the rest of Asia and Japan. The strong growth was mainly a result of product launches and customer compensation for inflationary pressure, as well as higher than expected light vehicle production. We generated a broad-based improvement in key areas, including gross margin and adjusted operating margins, both year-over-year and sequentially. Our cash flow was strong, and the net debt leverage improved, while we increased our dividend and repurchased shares for $150 million in the quarter, or approximately $352 million for the year. We are making progress towards our intention of reducing our indirect workforce by up to 2000.

Speaker Change: The margin was also affected by the accruals for warranty and recall of $17 million or 65 basis points. The accruals are related to three different cases.

Speaker Change: As a result, the leverage on the higher sales, excluding currency effects and warranty and recall costs within.

Speaker Change: It was in the upper half of our typical 20% to 30% operational leverage range.

Speaker Change: Looking now at our full year financial results on the next slide.

Speaker Change: Despite higher than expected light vehicle production.

Speaker Change: 2023 was again, a turbulent year with labor cost inflation supplier disruptions customer price negotiations and continued volatile light vehicle production.

Speaker Change: Our net sales were $10 5 billion with sales increasing organically by over 18% twice the increase in the underlying light vehicle production and three percentage points higher than expected in the beginning of year.

Speaker Change: The adjusted operating income increased by 54% to $920 million.

Speaker Change: The adjusted operating margin was eight 8% compared to our guidance of around eight 5% to 9%.

Speaker Change: The operating cash flow was $982 million compared to the guidance of around $900 million adjusted.

Speaker Change: Adjusted earnings per share increased by $3 seven $9 per share to $8 19 were the main drivers were $2 51 from higher adjusted operating income and $1 31 from lower income taxes, partially offset by 18 from financial items.

Mikael Bratt: We now expect savings of around 50 million in 2024 from these initiatives. Order intake has developed well. It is especially encouraging to see the strong order intake from fast-growing Chinese OEMs. For 2024, we foresee sales growing in the mid single digits despite an unexpected modest decline in light vehicle production. 2024 should take us one important step closer to our Adjusted Operating Margin Target, driven by improved call-off stability, growth, Structural and Strategic Initiatives, and Customer Compensation. However, the heightened seasonality of earnings of prior years is likely to be repeated in 2024.

Speaker Change: Dividends of $2 66 per share were paid and we repurchased and retired three 7 million shares for around $352 million.

Speaker Change: Sales adjusted operating income operating cash flow as well as the adjusted earnings per share were all the highest we have ever achieved.

Speaker Change: Looking now at the full year adjusted operating income bridge on the next slide.

Speaker Change: And in 2023, our adjusted operating income of $920 million was $322 million higher than last year.

Speaker Change: The impact from raw material prices was limited.

Speaker Change: FX impacted the operating profit negatively by 54 million. This was mainly a result of negative translation effects from the Mexican peso.

Speaker Change: Costs for SG&A and Adine net combined was 95 million higher however in relation to sales was down 60 basis points.

Speaker Change: As a result, the leverage on the higher sales excluding currency effects were slightly above our typical 20% to 30% operational leverage range. This is despite not getting any leverage on the inflation compensation from our customers.

Speaker Change: Looking at our cash flow on the next slide.

Speaker Change: For the fourth quarter of 2023 operating cash flow decreased by $15 million to $447 million compared to the same period last year, which was impacted by positive timing effects of customer compensations.

Mikael Bratt: The strong order intake is evidence that our company remains the clear leader in the passive safety automotive industry. One of our internal key performance indicators, customer satisfaction, continues to be at a high level. We continue to strive for improving products, services, processes, and costs while maintaining industry-leading quality. Our strong order intake with a good mix of EV and ICE platforms and a high level of customer satisfaction supports our confidence regarding growth also beyond 2024. Looking at the next slide.

Speaker Change: Capital expenditures net decreased to $150 million from $165 million in relation to sales. It was five 4% this year down from seven 1% last year.

Speaker Change: Free cash flow was $297 million about the same as last year.

Speaker Change: Our full year operating cash flow was $982 million, a new record for the company.

Speaker Change: Full year capital expenditures net in relation to sales was virtually unchanged at five 4%.

Speaker Change: Free cash flow for the full year improved year over year by 186 million to $414 million.

Speaker Change: Our cash conversion defined as free cash flow in relation to net income was 85%.

Speaker Change: Now looking on our trade working capital development on the next slide.

Mikael Bratt: In 2023, order intake for new EV platforms was high, both with new EV makers and traditional OEMs. We estimate that around 45% of our order intake in 2023 was for future electric vehicles because consumer demand for EVs may have faded somewhat in the short term, but regulatory changes supporting EVs will increase, at least in Europe.

Speaker Change: During the fourth quarter trade working capital decreased by $71 million, driven by $120 million higher accounts payables, partly offset by $30 million higher inventories and by $19 million and high receivables the higher inventories and receivables were mainly due mainly due to.

Speaker Change: The higher sales.

Speaker Change: Our capital efficiency program aims to improve working capital by $800 million and to date, we have achieved $580 million.

Speaker Change: <unk> and receivables and especially in inventories are lagging due to the high call it volatility enhanced planning changes, resulting in inefficiencies.

Mikael Bratt: Although our products are drivetrain agnostic, it is important to have balanced exposure both to EVs and ICE to capture future market growth. With the order book that we have built, we believe that we have good exposure to all growing segments. New automakers, mainly from North America and China, accounted for around 25% of our orders. Fast-growing Chinese OEMs accounted for around 50% of our order intake in China. And we expect this group of OEMs to account for close to 40% of our Chinese sales in 2024, up from 22% in 2022. We won multiple awards supporting new markets and industry trends like pretensioner seatbelts for rear seat passengers, airbags with low carbon cushion material as well as anti-submarining airbags for zero gravity style seats for self-driving vehicles.

Speaker Change: We expect this to improve significantly in tandem with the reduced call of volatility over coming years.

Speaker Change: Now looking at shareholder returns over the past five years on the next slide.

Speaker Change: Yeah.

Speaker Change: Over the years <unk> has shown its ability to generate solid cash flow and periods with difficult market environments, such as corporate lockdowns worn Ukraine indices to industry supply chain challenges and related volatile and declining light vehicle production.

Speaker Change: We have used both dividend payments and share repurchases to create shareholder value.

Speaker Change: Shortly the dividend has usually represented a yield of approximately 2% to 3% in relation to the average share price.

Speaker Change: Over the last five years, we have reduced the net debt significantly.

Speaker Change: While returning almost $1 4 billion directly to shareholders. This includes stock repurchases of $5 1 million shares for a total of $467 million as part of the current stock repurchase program.

Speaker Change: Since we initiated the stock repurchase program, we have reduced the number of outstanding shares by almost 6%.

Mikael Bratt: As a result of the strong orders I take in the past years, we expect an increase in overall product launches in 2024, especially in China and Europe. This development contributes to building an even stronger platform for our long-term success. Now looking at the significant sequential cost improvements during 2023 on the next slide. Year to date, we have generated a broad-based improvement in key areas, both year-over-year and sequentially. On this slide, we highlight the sequential improvement. In the fourth quarter, we continued to actively address our cost base while successfully negotiating with our customers to secure pricing and other compensation that reflect the higher inflation. Our direct labor productivity continues to trend up, supported by the implementation of our strategic initiatives, including automation and digitalization. Our gross margin improved by 410 basis points compared to the first quarter and by 140 basis points from the third quarter. This is mainly the result of higher labor efficiency and customer compensation. The positive trend for rDNA and sDNA in relation to sales has continued and has now declined by 270 basis points since Q1.

Speaker Change: We do consider several factors when executing the program such as our balance sheet and cash flow outlook, our credit rating at the general business conditions and not only the debt leverage ratio, we always strive to balance what is best for our shareholders, both short and long term.

Speaker Change: Now looking on our leverage ratio development on the next slide.

Despite increased stock repurchases and higher dividends the debt leverage ratio at the end of December 2023 improved to one two times from one three times at the end of the third quarter.

Speaker Change: This was a result of $108 million higher 12 months trailing adjusted EBITDA.

Speaker Change: Net debt was unchanged.

Speaker Change: We expect that our debt leverage and positive cash flow trend will allow for continued high shareholder returns going forward.

Speaker Change: I now hand, it back to you are making.

Speaker Change: Thank you Fredrik on to the next slide.

Mikael Bratt: After a year, where the global outdoor industry finally reached pre pandemic.

Mikael Bratt: Levels.

Mikael Bratt: 2024 is shaping up to be something of a transitional year.

Mikael Bratt: We had many regions having already rebuilt inventories S&P continues to see a production outlook that is more reliant on the end customer demand.

Mikael Bratt: Global light vehicle production is projected to decline by close to 1% in 2024.

This is due to affordability of new vehicles somewhat softer interest in evs in some regions.

Mikael Bratt: Partly as a result of normal seasonality with high engineering reimbursements in the fourth quarter. Combined with the gross margin improvement, this led to a substantial improvement in the adjusted operating margin. Looking now at financials in more detail on the next slide, sales in the fourth quarter increased by 18% year-over-year, mainly due to higher light vehicle production, new product launches, higher prices and other compensation, and favorable currency translation. The strong sales increase and cost reduction activities led to a substantial improvement in adjusted operating income. Adjusted operating income increased by more than 40% to $334 million from $233 million last year. The adjusted operating margin was 12.1% in the quarter, an increase by over two percentage points from the same period last year and by almost seven percentage points from the first quarter. Operating cash flow was $447 million, which was $15 million lower than the same period last year.

Mikael Bratt: And high interest rates most of the expected decline is in Japan and Europe.

Mikael Bratt: S&P Global expect first half year global light vehicle production to increase by 1%, while let's say second half declining almost 3% compared to last year.

Light vehicle production in China continues to be supported by a strong EBIT demand and export activity.

Mikael Bratt: In North America, the UAW strike and a strong vehicle sales towards the end of 2023 have reduced inventories somewhat.

Mikael Bratt: Bolstering production volumes slightly for 2024.

Mikael Bratt: Production in Europe is expected to decline as inventory restocking will.

Mikael Bratt: No longer boost output.

Mikael Bratt: Was the case over the last two years.

Mikael Bratt: We based our full year sales indication on our global light vehicle production decline of around 1%.

Now looking on the next slide.

Mikael Bratt: In 2023, the main cost challenges.

Mikael Bratt: We're around labor cost inflation in energy.

Mikael Bratt: For 2024, we expect inflation, mainly to impact labor cost for us and for our suppliers.

Mikael Bratt: The main reason for the lower cash flow was the unusually strong cash flow last year, which was related to timing effects of customer recovery. Looking now at the structural cost savings activities on the next slide. To secure our medium and long-term competitiveness and to support our financial targets, we launched the Cost Reduction Initiative in June 2023, with the intent of reducing our indirect headcount by up to 2000 and a direct workforce headcount reduction of up to 6,000. We estimate that the annual cost reductions will amount to around 130 million when fully implemented, with around 50 million already in 2024 and around 100 million expected in 2025. The total accrual for capacity alignment in 2023 amounted to $218 million. We do not plan to announce further details of the major reduction initiative.

Mikael Bratt: We estimate the combined labor exposure, our own and our suppliers represents more than 40% of our cost base.

Already during 2023, the tight labor market in some countries resulted in significantly higher than normal labor inflation.

Mikael Bratt: 2024, we foresee further headwinds from wage increases, especially in Europe, and North America.

Mikael Bratt: Although many.

Mikael Bratt: Commodity indices are down since their peak in 2022, we currently assume raw material costs to only declined slightly in 2024.

Mikael Bratt: Reason being that the prices of specific raw material used in our products.

Mikael Bratt: Such as automotive grade steel has not declined as much as the generic steel indices indicate.

Mikael Bratt: Additionally, we see higher cost for some material such as Jan and dressing.

Mikael Bratt: The Red Sea situation has not yet had any measurable impact on our own operations.

Mikael Bratt: At the end of 2023, around 75% of the planned indirect reductions were detailed and announced, and we already see a positive impact on direct payable productivity as a result. Looking now at our sales growth in more detail on the next slide, our consolidated net sales increased to almost 2.8 billion U.S. dollars. Although a new quarterly record, it was over 400 million higher than a year earlier, driven by price, volume, mix, and currency. Outdoor period cost compensation was contributed with 45 million US dollars.

We have noticed that some customers have reduced their volume short term.

Mikael Bratt: But it is too early to estimate what potential impact it may have for 2024.

Mikael Bratt: Cost compensation negotiations will again be challenging.

Mikael Bratt: Nevertheless, we expect that price adjustments and other compensation will offset cost inflation.

Mikael Bratt: Looking at the 2024 business outlook on the next slide.

Mikael Bratt: We expect a significantly improvement in adjusted operating margin in 2024 compared to 2023.

Mikael Bratt: Out-of-period compensations are retroactive price adjustments and other compensations that mainly relate to the first three quarters but were negotiated in the fourth quarter. Looking at the regional sales split, Asia accounted for 41%, America for 31%, and Europe for 28%. We outline our organic sales growth compared to LVP on the next slide. I am very pleased that our organic sales growth significantly outperformed global light vehicle production growth in the fourth quarter as we continue to execute on our strong order book. According to S&P Global, fourth quarter light vehicle production increased by 9% year-over-year. This was more than five percentage points higher than expectations at the beginning of the quarter, with most of the higher-than-expected production coming from domestic OEMs in China and in North America as the impact of the UNW strike was smaller than expected. In the quarter, we outperformed Global Light Vehicle production by around 7 percentage points, with strong performance, especially in the rest of Asia and Japan. The modest underperformance in China was mainly driven by a negative customer mix, following strong light vehicle production growth for lower safety content vehicles. On to the next slide.

Supported mainly by organic sales growth.

Mikael Bratt: More stable light vehicle production.

Mikael Bratt: Structural and strategic initiative.

Mikael Bratt: Cost control and customer compensations.

Mikael Bratt: We expect the adjusted operating margin in the first quarter to be around 7%.

Mikael Bratt: Significant decline from the fourth quarter in 2023.

Mikael Bratt: Due to lower light vehicle production lower engineering income cost inflation and timing of cost compensation. This is in line with the seasonality in the past two years.

Mikael Bratt: This directory should be further supported by improvements from strict cost control structural savings as well as expected gradual improvement of the supply chain and light vehicle production stability.

Mikael Bratt: Looking at our 2024 financial guidance on the next slide.

Mikael Bratt: This slide shows our full year, 2024 guidance, which excludes costs and gain strong capacity alignment antitrust related matters and other discrete items.

Mikael Bratt: For the full year, we outperformed global light vehicle production by around 9% despite a negative regional light vehicle production. We outperformed in Japan by 15 percentage points, in the rest of Asia by 14 percentage points, and in China by 8%. The performance in China was mainly driven by increasing sales to domestic Chinese OEMs.

Mikael Bratt: Our full year guidance is based on a light vehicle production decline of around 1%.

Mikael Bratt: Despite lower light vehicle production, our organic sales is expected to increase by around 5%.

Mikael Bratt: No net currency translation effects are expected on sales.

Mikael Bratt: Guidance for adjusted operating margin is around 10, 5%.

Mikael Bratt: Our sales to this group outperformed light vehicle production by 17 percentage points and accounted for 28% of our sales in China, up from 22% in 2022. In 2023, our global market share was around 45%. This is almost six percentage points higher than five years ago when the electronics business was spun out. Our global market position is strong in all categories, with 47% of airbags, 45% of seatbelts, and 40% of steering.

Mikael Bratt: Operating cash flow is expected to be around $1 2 billion U S dollars.

Mikael Bratt: Our positive cash flow trend should allow for continued high shareholder returns.

Mikael Bratt: We foresee a tax rate of around 28% in line with our previous indications of 25% to 30% as the new normal tax rates.

Mikael Bratt: Looking to our sustainability approach on the next slide.

Mikael Bratt: Okay.

Mikael Bratt: Guided by our vision of saving more lives. Our mission is to provide world class life saving solutions for mobility in society.

Mikael Bratt: Supported by new launches, market share gains and content per vehicle growth, as well as our further price increases, we expect sales to outperform light vehicle production by five to six percentage points in 2024. On the next slide we see some key model launches for the fourth quarter. During 2023, we had a record number of product launches, especially in China, Europe and Japan. With 2024, we see another step up in number of product launches, particularly in the first half of the year. The trend towards electrification is clear on this slide, with seven models being available as electric versions. The models shown here have an out-to-date content per vehicle of around 110 or higher. We're the highest at over 800 US dollars.

Mikael Bratt: Supported by new launches, market share gains, and content per vehicle growth, as well as further price increases, we expect sales to outperform light vehicle production by five to six percentage points in 2024. On the next slide, we see some key model launches for the fourth quarter. During 2023, we had a record number of product launches, especially in China, Europe, and Japan. With 2024, we see another step up in the number of product launches, particularly in the first half of the year. The trend towards electrification is clear on this slide, with seven models being available as electric versions. The models shown here have an average content per vehicle of around 110 or higher. We're the highest at over 800 US dollars.

Mikael Bratt: Sustainability is an integral part of our business strategy and an important driver for market differentiation.

Mikael Bratt: And stakeholder value creation, helping to ensure that our business will continue to thrive and contribute to sustainable development in the long term.

Mikael Bratt: Our sustainability approach is based on four focus areas.

Mikael Bratt: Saving more lives.

Mikael Bratt: Safe and inclusive workplace.

Mikael Bratt: Climate and responsible business, each consisting of long term ambitions and more specific short term targets.

Mikael Bratt: Our sustainability approach is anchored anchored in well established international frameworks, such as the UN Global compact and science based targets.

Mikael Bratt: We aim to be carbon neutral in our own operations by 2013, and further aim for net zero emissions across our supply chain by 2040.

Mikael Bratt: In terms of out-of-depth sales potential, the Seeker 007 launch is the most significant. I will now hand it over to our CFO, Fredrik Westin, who will talk you through the financials on the next slide. Thank you, Mikael.

Mikael Bratt: These ambitions plays out to leave among the front runners in the broader group of automotive suppliers.

Mikael Bratt: Now looking at the sustainability progress in 2023 on the next slide.

Mikael Bratt: Yeah.

Mikael Bratt: This slide highlights our key figures for the fourth quarter of 2023 compared to the fourth quarter of 2022. Our net sales were almost 2.8 billion, which was an increase of 18 percent here. Gross profit increased by $131 million, or by 33%, to $530 million, while the gross margin increased by 2.2 percentage points to 19.3%. The Adjusted Operating Income increased from $233 million to $334 million, and the Adjusted Operating Margin increased by 220 basis points to 12.1%. Non-GAP adjustments amounted to $97 million, almost entirely for capacity alignment.

Mikael Bratt: During 2023, we initiated and concluded a number of activities that highlight our commitment and contribution to the UN sustainable development goals and our own sustainability targets.

Mikael Bratt: For example.

Mikael Bratt: We are therefore.

Mikael Bratt: We are at the forefront of broadening test models in to include more body shapes and parameters such as age and gender.

Mikael Bratt: We have increased the use of renewable electricity contributing to a significant decrease in greenhouse gas emissions from our own operations.

Mikael Bratt: The incidence rates have improved.

Mikael Bratt: And we carried out our annual climate survey at direct materials suppliers to track their alignment with our clients' requirements and ambitions.

Mikael Bratt: Turning to slide to look at progress towards our targets.

Mikael Bratt: In the medium term, we are expecting to continue to grow our core business.

Airbags, seatbelts and staying with us.

Mikael Bratt: Through execution on the current strong order books.

Mikael Bratt: Adjusted earnings per share, diluted, increased by $0.191, where the main drivers were $0.75 from higher adjusted operating income, $0.109 from tax, and $0.10 from other items partly offset by financial... Our adjusted return on capital employed and return on equity increased to 33% and 47%, respectively. We increased the dividends to 68 cents per share in the quarter and repurchased and retired 1.5 million shares for around $150 million under our existing $1.5 billion stock repurchase program. Looking now at the adjusted operating income bridge on the next. In the fourth quarter of 2023, our adjusted operating income of $334 million was $101 million higher than the same quarter last year. Our operations were positively impacted by improved pricing and other customer compensation, higher volumes, lower cost for premium freight, as well as our strategic initiatives are partly offset by headwinds from general cost inflation. The impact from raw material prices was 14 million possible. Out-of-period cost compensation was approximately 37 million higher than during the same period last year, but the impact was limited. Cost for SG&A and RD&E net combined was 30 million higher, mainly due to lower engineering income and labor cost inflation.

The other important growth driver is safety content per vehicle, which is driven by continuous updates of government regulation and cross test ratings.

Our growth targets for the three years 2000, 22023, and 2024 was to grow organically by around four percentage points more than light vehicle production growth per year on average.

Mikael Bratt: This excludes any price compensation for raw material and other inflationary costs the growth in 2022, and 2023 and the guidance for 2020 before means that we expect to exceed these targets.

Mikael Bratt: To maintain the growth momentum beyond 2024, we are pursuing an ambitious innovation program.

Mikael Bratt: The strong 2023 order intake supports continued growth momentum.

Mikael Bratt: Now looking on the multiple levers for margin improvement on the next slide.

Mikael Bratt: In the past two years, our two lead has significantly reduced its cost base.

Mikael Bratt: We have implemented hundreds of cost efficiency projects, especially in production and supply chain.

Mikael Bratt: Our adjusted operating margin target of around 12% is based on the framework, commonly mutated at our Investor Day in June 2023.

Mikael Bratt: Business environment with stable global light vehicle production of at least $85 million.

Mikael Bratt: And that headwinds from inflation is offset through price compensations.

Mikael Bratt: We remain confident.

Mikael Bratt: That's when these conditions are met for the full year, we are capable to reach the 12% adjusted operating margin target.

Mikael Bratt: We now expect that the light vehicle production conditions will be.

Mikael Bratt: Fulfill during 2024, we expect a call of volatility through tend to track before it will be lower than in 2023, but remain higher than the pre pandemic level.

Mikael Bratt: In relation to sales, it was unchanged compared to last year. The margin was also affected by accruals, warranty, and recalls of $17,065,000. The accruals are related to three different cases.

Mikael Bratt: Having a negative impact on our productivity and efficiency.

Mikael Bratt: We expect continued inflationary pressure in 2024 with customer compensations lagging behind the cost increases.

Mikael Bratt: To offset the negative effects from inflation and market conditions and to secure our long term competitiveness, we have launched a number of cost saving activities.

Mikael Bratt: As a result, the leverage on the higher sales, excluding currency effects and warranty and recall costs, was in the upper half of our typical 20 to 30% operational level. Let's look now at the full year financial results on the next slide. Despite higher-than-expected light vehicle production, 2023 was again a turbulent year with labor cost inflation, supply disruptions, customer price negotiations, and continued volatile market economies. Our net sales were 10.5 billion, with sales increasing organically by over 18%, twice the increase in the underlying light vehicle production and three percentage points higher than expected at the beginning of the year. The adjusted operating income increased by 54% to $920 million. The adjusted operating margin was 8.8% compared to our guidance of around 8.5% to 9.5%. The operating cash flow was $982 million compared to the guidance of around $900 million.

Mikael Bratt: We believe that the net effect of our actions and headwinds.

Mikael Bratt: Should result in a substantial step in 'twenty to 'twenty four towards our adjusted operating margin targets.

Mikael Bratt: Now looking on delivering shareholder value through our 2024 business agenda on the next slide.

Mikael Bratt: To drive towards our financial targets and deliver shareholder value the health and safety of our employees is our first priority.

Mikael Bratt: While continuing more activities to further improve quality and efficiency.

Mikael Bratt: We also continue our efforts of flawless execution of new launches improving customer satisfaction, further and thereby supporting our new and strong market position.

Mikael Bratt: Through our capital efficiency program, we aim to unlock capital from receivables inventory and payables combined with execution of our strategic plan. This should lead to strong cash flow generation, which sets out to live up for attractive shareholder value creation.

Mikael Bratt: By executing on our strategic initiatives footprint optimization and negotiating compensation from Oems, We believe we will mitigate headwinds from cost inflation.

Mikael Bratt: To progress towards our climate targets, we will focus on increased resource efficiency and reduction of carbon footprint.

Mikael Bratt: Adjusted earnings per share increased by $3.79 per share to $8.19, where the main drivers were $2.51 from higher adjusted operating income and $1.31 from lower income taxes, partly offset by 18 cents from financial. Dividends of $2.66 per share were paid, and we repurchased and retired 3.7 million shares for around $352 million. Sales, Adjusted Operating Income, Operating Cash Flow, as well as Adjusted Earning per Share were all the highest we have ever achieved. Looking now at the full year adjusted operating income bridge on the next page, in 2023, our adjusted operating income of $920 million was $322 million higher than last year. The impact of raw material prices was limited. FX impacted the operating profit negatively by $54 million. This was mainly a result of negative translation effects from the Mexican PSP.

Mikael Bratt: I will now hand, it back to Anders.

Anders Jensen: Thank you Michelle.

Anders Jensen: Turning to the last page. This concludes our formal comments for today's earnings call and we would like to open the line for questions from analysts and investors.

Anders Jensen: I'll now hand, it back to you <unk>.

Anders Jensen: So much better.

Anders Jensen: As a reminder, if you wish to ask a question. Please press star one on the telephone keypad and wait finance will be announced to withdraw. Your question. Please press star one again, please from Bob will narrow.

Anders Jensen: Narrow studies will take a few moments.

And now we're going to take the first question and it comes from the line of Colin Langan from Wells Fargo. Your line is.

Anders Jensen: Open please ask your question.

Anders Jensen: Oh, great. Thanks for taking my questions.

Anders Jensen: Just looking at the <unk>.

Anders Jensen: Can you comment on this is about your long term targets of 4% over market. The guidance implies about six I think you said in slides five to six.

Anders Jensen: The reason why it's as strong this year and maybe is that including some of the inflationary cost recoveries that you're expecting I know that was a bit of a help last year.

Anders Jensen: And any thoughts on the China headwind you called out in a quarter is that also kind of going to continue.

Anders Jensen: Thank you for your question Sir.

The 4% outperformance versus LBP.

Anders Jensen: It takes us into 2024. So this is the last year of the three year period that we have communicated on and as we said that we.

Anders Jensen: <unk> two to over deliver on that target.

Mikael Bratt: The cost for SG&A and RD&E net combined was $95 million higher. However, in relation to sales, it was down 60%. As a result, the leverage on the higher sales, excluding currency effects, was slightly above our typical 20 to 30 percent operational leverage range. This is despite not getting any leverage on inflation compensation from our customers. Looking now at the cash flow on the next. For the fourth quarter of 2023, operating cash flow decreased by $15 million to $447 million, compared to the same period last year, which was impacted by positive timing effects of customers. Capital expenditures net decreased to $150 million from $165 million. In relation to sales, it was 5.4% this year, down from 7.1% last year. Pre-cash flow was $297 million, about the same as last year. Our full year operating cash flow was 982 million, a new record for the company. However, full year capital expenditures net in relation to sales were virtually unchanged at 5.4%.

Anders Jensen: Of course, it is thanks to two.

Anders Jensen: To the growth we have create.

Anders Jensen: Created through the orientation over the last couple of years and of course, we have.

<unk> seen good development on.

Anders Jensen: The content per vehicle also and we expect to see that also also next year.

Anders Jensen: This excluded.

Anders Jensen: As we mentioned and also the price negotiations that is on top of that <unk>.

Speaker Change: Then beyond 2024, we have the four to six where the core 4% to 6% organic growth targets.

Speaker Change: Where are the current let's say core business should be two to four.

Anders Jensen: So that is our target beyond there.

Beyond 2024 regarding China.

Anders Jensen: The.

Anders Jensen: The the minus 2% versus LBP, we saw in the fourth quarter is due to mix effects.

Anders Jensen: As we mentioned here we had.

Anders Jensen: Sure.

Anders Jensen: Growth significant growth on the low end vehicles, or let's say that the vehicles with lower.

Anders Jensen: Safety content neutral, but if you look at the full year.

Anders Jensen: We had a very strong outperformance there of 8% for the for the full year. So we look very positively on China, and we feel that we are well positioned with.

Anders Jensen: And.

Anders Jensen: Let's say the new EDI players and also the.

Anders Jensen: In general there so positive view on China going forward.

Anders Jensen: Got it and then.

Anders Jensen: Any color on you called out labor inflation again with all the cost of any way to frame. How large this does in terms of dollars or the impact thats dragging your margin for sure.

Anders Jensen: Yes.

Anders Jensen: Expect us to be about the same level as we had last year.

Anders Jensen: Which where we said would be somewhere in mid single digits above normal fleet inflation as a priest 23 basically.

Anders Jensen: And we're also giving some breakdown here on the slides on our on the labor cost.

Anders Jensen: As a percent of sales.

Anders Jensen: So with that you can.

Anders Jensen: Calculate what the impact is and that's the major inflation.

Mikael Bratt: Free cash flow for the full year improved year-over-year by $186 million to $414 million. Our cash conversion, defined as fee cash flow in relation to net income, was 85%. Now looking at our trade working capital development on the next page, During the fourth quarter, trade working capital decreased by 71 million, driven by 120 million higher accounts payable, partly offset by 30 million higher inventories, and by 19 million in high receivables. The higher inventories and receivables were mainly due to higher sales.

Anders Jensen: Expecting that on top of that we also expect some energy.

Speaker Change: Increases based as a surcharge on materials that we're buying especially on textiles.

Speaker Change: So those are the main two components.

Speaker Change: Got it alright, thanks for taking my questions. Thank.

Speaker Change: Thank you Alex Thank you.

Speaker Change: Sure.

Speaker Change: Scott will go and take our next question.

Pablo: Thank you Pablo.

Scott Smith: And our next question comes from the line of Scott <unk> from BNP Paribas. Your line is open. Please ask your question.

Scott Smith: Hi, Thanks for taking my question. The first one on the buyback just wondering if you would be comfortable getting closer to the upper end of the leverage range in 'twenty 'twenty, four, especially considering a further uplift in margin potentially in 2025 and the good cash flow generation you expect for this year.

Mikael Bratt: Our capital efficiency program aims to improve working capital by 800 million, and to date, we have achieved 500 million. However, improvements in receivables and especially in inventories are lagging due to the high call of volatility and hence planning changes resulting in inefficiencies. We expect this to improve significantly in tandem with the reduced call of volatility over the coming year. Now looking at shareholder returns over the past five years. Over the years, Autoliv has shown its ability to generate solid cash flow in periods with difficult market environments, such as COVID lockdowns, the war in Ukraine, industry supply chain challenges, and related volatile and declining light vehicle. We have used both dividend payments and share repurchases to create shareholder value. Historically, the dividend has usually represented a yield of approximately 2-3% in relation to the average share price.

Scott Smith: Question on inflation in compensation, you mentioned that you expect from compensation for costs.

Scott Smith: Does that mean at the end of the year. So we shouldnt expect full compensation on slide 24, as a whole but by the end of the year. You think you can have from competition with potentially some slippage in the in the first few months.

Scott Smith: Is that a fair way to describe it thank you.

Scott Smith: Thank you for your question.

Scott Smith: On the buybacks.

Scott Smith: As you know we only report on what we have done.

Scott Smith: On on a regular basis through our web page here.

Scott Smith: We are.

Scott Smith: Very committed to our program that we have.

You can see that we have in the fourth quarter here.

Scott Smith: The healthy level of buybacks.

Scott Smith: Of course, we.

Scott Smith: We're focusing a lot on making sure that we have the cash flow generation needed and as you see from the report here we are committed to the.

Shareholder friendly company when it comes to <unk>.

Scott Smith: Oster.

Scott Smith: The regular dividend and also to the buyback program and.

Scott Smith: We will come back on that SP progress here, but.

Scott Smith: That's as much as I could say here today.

Scott Smith: Today.

The inflationary there is a lead time in and as we have indicated it already.

Mikael Bratt: Over the last five years, we have reduced the net debt significantly while returning almost $1.4 billion directly to shareholders. This includes stock repurchases of 5.1 million shares for a total of 467 million U.S. dollars as part of the current stock repurchase program. Since we initiated the stock repurchase program, we have reduced the number of outstanding shares by almost. We do consider several factors when executing the program, such as our balance sheet, the cash flow outlook, our credit rating, and the general business conditions, and not only debt leverage. We always strive to balance what is best for our shareholders, both short and long term. Now, we look at our leverage ratio development on the next. Despite increased stock repurchases and higher dividends, the debt leverage ratio at the end of December 2023 improved to 1.2 times from 1.3 times at the end of the third quarter. This was a result of 108 million higher 12 month trailing adjusted EBTA as net debt was unchecked. We expect that our debt leverage and positive cash flow trend will allow for continued high shareholder returns going forward. And I'll hand it back to you, Mikael.

Scott Smith: Youll see let's say the cost effect from inflation anything else.

Scott Smith: Earlier in the year and then we have the negotiations throughout the year and in this in the same fashion as we were stating last year. Our focus here is to get the fully full compensation.

Scott Smith: The height of the compensation raw DRAM too.

Scott Smith: Yeah.

Scott Smith: Looking at the quarter by quarter here. So it's the full year compensation that is the priority and the highest of it.

Scott Smith: So therefore, you get this let's say new seasonality, if we call it that where you have Q1, and then gradually improve throughout the year. So.

Scott Smith: The reason behind Us I don't know.

Scott Smith: You will have that I don't think industrial report.

Scott Smith: No.

Scott Smith: And overall, our expectation is we should be compensated also for the full year effect.

Scott Smith: That was also the case in 2023, whereas.

Whereas 2022 with the raw material compensation there was a component that we are not we're not compensated for 'twenty two hence there was a carryover effect into 'twenty three but we don't expect that same pattern.

Scott Smith: 24.

Scott Smith: Okay very clear thank you.

Scott Smith: Thank you.

Scott Smith: That will go and take our next question.

Scott Smith: And the next question comes from one of <unk> Rosner from Deutsche Bank. Your line is open. Please ask your question.

Scott Smith: Alright, Thank you very much.

Scott Smith: First question I was hoping to ask you about.

Scott Smith: Could you comment.

Anders Jensen: A little bit more about your path towards the 12% reiterated our operating margin target.

Mikael Bratt: Thank you, Fredrik. On to the next slide, which shows the year when the global outdoor industry finally reached pre-pandemic levels. 2024 is shaping up to be something of a transitional year. With many regions having already rebuilt inventories, S&P continues to see a production outlook that is more reliant on end customer demand. Global light vehicle production is projected to decline by close to 1% in 2024.

I appreciate the scorecard that you put at the end of the slide deck.

Anders Jensen: Understanding you correctly it looks like production is probably in the right level at least.

Anders Jensen: Maybe cost recovery.

Anders Jensen: Offset by some of your cost reduction program. So.

Scott Smith: <unk> is the main impediment to getting to your targets.

Scott Smith: The cough accuracy and if so I guess what is the line of sites.

The cough accuracy and if so I guess what is the line of sites.

Scott Smith: Is it fair to assume that this will normalize or are there further actions that you need to get you to your targets.

Okay. I mean, there are a lot of components to in your question. So.

Scott Smith: So overall the framework is I think pretty clear $85 million we saved.

Mikael Bratt: This is due to the affordability of new vehicles, somewhat softer interest in EVs in some regions, and high interest rates. Most of the expected decline is in Japan and Europe. S&P Global expects first half-year global light speaker production to increase by 1%, while its second half declines almost 3% compared to last year.

Scott Smith: As it looks right now 24 $85 million.

Scott Smith: It seems to be in place as an assumption here for 2024, then when it comes to the other two that we are made whole on the inflation in compensation.

Scott Smith: That will.

Scott Smith: Potentially have an impact also on a on a full year.

Scott Smith: As long as we have inflation and there is always this catch up effect.

Scott Smith: From brand the cost come in until we are we are compensated for it.

Mikael Bratt: Light vehicle production in China continues to be supported by strong EV demand and export activity. In North America, the UIW strike and the strong vehicle sales towards the end of 2023 have reduced inventories somewhat, bolstering production volumes slightly for 2024. Production in Europe is expected to decline as inventory restocking will no longer boost output, as was the case over the last two years.

Scott Smith: Again here our ambition is to have that also in place for 2024.

Scott Smith: It remains to be seen also how inflation develops during the year and advanced component is on call of stability.

Here, we have a <unk>.

Scott Smith: In our presentation, where it's clearly not in place going into the year.

Scott Smith: We've seen it kind of stabilizing at around 90% now during the second half of last year, we are not assuming it right now that this will improve significantly during 2024 and then there's also even if it were to come up to pre pandemic levels closer to the 100%. There is also a time lag of that.

Scott Smith: Say that accuracy is actually in place until we can also get the efficiency in our network.

Mikael Bratt: We base our full-year sales indication on a global light vehicle production decline of around 1%. Now looking at the next slide. In 2023, the main cost challenges were around labor, cost inflation, and energy. For 2024, we expect inflation mainly to impact labor costs for us and for our suppliers. We estimate the combined labor exposure, our own and our suppliers, represents more than 40% of our cost base.

Scott Smith: So.

Scott Smith: Yes, its trending towards the framework, but for sure 2024 will not be in place and it remains to be seen how much of that number two and three year will come in place during 2004, and then what the impact is for 25.

Anders Jensen: Looking at the building blocks of how to get from the $8 eight that we have now in 'twenty three up to the 12%.

Anders Jensen: Roughly you can dive right into three buckets, one is the structural initiatives in the head count reductions. The second one is the volatility improvement combined with labor productivity development and.

Mikael Bratt: Already during 2023, the tight labor market in some countries resulted in significantly higher than normal labor inflation. For 2024, we foresee further headwinds from wage increases, especially in Europe and North America. Although many commodity indices are down since their peak in 2022, we currently assume raw material costs to only decline slightly in 2024. The reason being that the prices of specific raw materials used in our products, such as automotive grade steel, have not declined as much as the generic steel indices indicate. Additionally, we see higher costs for some materials, such as yarn and resin. However, the Red Sea situation has not yet had any measurable impact on our own operations.

Anders Jensen: And then the third component is sales.

Scott Smith: Sales growth and our strategic initiatives.

Scott Smith: And it's roughly I would say one third.

Scott Smith: Margin contribution from those three buckets.

Scott Smith: That is great color. Thank you. So let me just hone in for my second question on the sales proceeds of it as we look past this year and towards.

Scott Smith: Some of your targets I think we've talked in the past.

Scott Smith: You had reported sometimes on your annual win rates and oftentimes they were at like 50% or better obviously your market share you reported that 45% what is can.

Scott Smith: Can you comment on the win rates and I guess, what is the confidence level in being able to capture additional market share over the next few years beyond 2024 framework.

Scott Smith: Yes.

Scott Smith: We haven't seen last year communicated here around the lifetime revenue on the order intake in I think.

Mikael Bratt: We have noticed that some customers have reduced their volumes temporarily, but it is too early to estimate what potential impact it may have for 2024. Cost compensation negotiations will again be challenging, but nevertheless, we expect that price adjustments and other compensation will offset costs in place. Looking at the 2024 business outlook on the next slide. We expect a significantly improvement in adjusted operating margin in 2024 compared to 2023, supported mainly by organic sales growth for more stable light vehicle production. Structural and Strategic Initiatives, cost control, and customer compensation. We expect the Adjusted Operating Margin in the first quarter to be around 7%.

Scott Smith: We had a very good 2023 and the highest.

Scott Smith: In five years here in terms of lifetime revenue and <unk>.

Scott Smith: What we're saying here is that we.

Scott Smith: <unk> reached the 45% market share in 2023, which we have indicated seen some years back that most of what we expected us to grow into.

Scott Smith: And with the order intake and order book, we have we expect to defend this market share we do not have.

Anders Jensen: I would say a target or an ambition to to set a new level of our market share here is really to defend these market share position.

Mikael Bratt: With healthy as the business of course.

If we can grow more.

Mikael Bratt: And in a healthy way and of course, we will do it but it's not a target in itself. So the growth that we expect going forward.

Mikael Bratt: The two to four as I talked about.

Mikael Bratt: A significant decline from the fourth quarter of 2023 due to lower light vehicle production, lower engineering income, cost inflation, and timing of cost compensation. This is in line with decisionality over the past two years. We anticipate price adjustments and cost compensation will gradually, throughout the year, offset cost inflation, and the pattern is expected to be similar to the quarterly pattern seen in 2022 and 2023, with limited positive effects in the first quarter. This trajectory should be further supported by improvements from strict cost control, structural savings, as well as expected gradual improvement in the supply chain and light vehicle production stability. Looking at our 2024 financial guidance on the next slide. This slide shows our full-year 2024 guidance, which excludes costs and gains from capacity alignment, antitrust-related matters, and other discreet items. Our full-year guidance is based on a light vehicle production decline of around 1%.

Mikael Bratt: And we have announced earlier beyond 2024 is connected to light vehicle production and content with.

Mikael Bratt: With more sophisticated products.

Mikael Bratt: Thank you very much.

Mikael Bratt: Thank you.

Mikael Bratt: Now I'll go and take our next question.

And our next.

And the next question comes from the line of Michael Jack from Banc of America Securities. Your line is open. Please ask your question.

Michael Jack: Hi, good afternoon, thanks for taking my questions.

Michael Jack: First one just on price recoveries some other suppliers have struggled.

Michael Jack: Orientation for wage inflation.

Michael Jack: <unk> clearly been more successful is there anything structural that you could point towards that Keith.

Keith: Confidence that you can achieve the same in 2024.

And then the second question is just on working capital what is the magnitude of improvement expected in 2024 in relation to the remaining gaslog.

TD speaking 10 billion target.

Keith: Thank you.

Thank you, let me start with the price recovering Frederic will comment on the working capital there, but on the <unk>.

Price recovery.

Keith: I can say it is a structural to it I think it's a I mean.

Of course, I can only comment on what we are doing here and we.

Keith: Now for the last two years have had very constructive dialogues with our customers around the over and above normal.

Mikael Bratt: Despite lower light vehicle production, our organic sales are expected to increase by around 5%. No net currency translation effects are expected on sales. The guidance for adjusted operating margin is around 10 and a half percent. Operating cash flow is expected to be around 1.2 billion US dollars. Our positive cash flow trend should allow for continued high shareholder returns. We foresee a tax rate of around 28%, in line with our previous indications of 25 to 30% as the new normal tax rate.

Keith: Cost increases we see in the system here in <unk>.

Anders Jensen: Starting off with raw materials that we have also mentioned that we have made some indication.

High level of.

Anders Jensen: Yeah.

Anders Jensen: Indexation to those contract. It also so I mean it works both ways, obviously, so when we see that come down we will also.

Anders Jensen: And that back to our customers.

When it comes to the other components here and it's a little bit different with nature, but.

Anders Jensen: I think it's very important to two two.

Anders Jensen: Get compensation for what is the inflationary components here and we for this year definitely have the labor in focus here.

Anders Jensen: I mean, that's that's the nature of inflation it needs to be passed on into two to the end consumer.

Anders Jensen: Here in meaning the the.

Anders Jensen: Price of the car at the end of the day, so we need to push that down because there is no possibility for us to compensate our suppliers unless we get the pass on here.

Anders Jensen: Not sustainable.

Mikael Bratt: Our sustainability approach is based on four focus areas: saving more lives, a safe and inclusive workplace, climate, and responsibility, each consisting of long-term ambitions and more specific short-term targets. Our sustainability approach is anchored in well-established international frameworks, such as the UN Global Compact and science-based targets.

Anders Jensen: That's something we also need to continue to work hard with and we will do that.

Anders Jensen: That's our focus here going forward as well.

And then Michael on your second question working capital.

Yes. So we reported here that we have achieved around $580 million of the $800 million target that we set ourselves.

Michael Jack: In the 800 million target.

Michael Jack: We have also detailed at about 500 million of that would come from improved payables and that we have.

Mikael Bratt: We aim to be carbon neutral in our own operation by 2030 and further aim for net zero emissions across our supply chain by 2040. These ambitions place Autoliv among the frontrunners in the broader group of automotive suppliers. Now looking at the sustainability progress in 2023 on the next slide. During 2023, we initiated and concluded a number of activities that highlight our commitment and contribution to the UN Sustainable Development Goals and our own sustainability targets. For example, we are the fourth. We are at the forefront of broadening test models to include more body shapes and parameters such as age and gender. Furthermore, we have increased the use of renewable electricity, contributing to a significant decrease in greenhouse gas emissions from our own operations.

Michael Jack: Chiba, even over achieved already to date.

Michael Jack: We don't expect more to be contributed from that component.

So the inventory is challenging right now due to the call of volatility.

Michael Jack: As we show here that it's kind of stabilizing at still.

Michael Jack: <unk>.

Michael Jack: Support levels.

Anders Jensen: And as I mentioned, we don't expect this to improve significantly during 2024 and accordingly, we do not expect that we will be able to do so much on the inventory side either in 2024.

Michael Jack: And we do not guide for working capital, specifically, but you see a very strong operating cash flow guidance here of $1 2 billion.

But there is then more opportunity coming later from improving working capital further.

Michael Jack: That's very clear thank you.

Michael Jack: Thanks.

Michael Jack: Thank you.

Michael Jack: Yes.

Michael Jack: Now we will take our next question.

Michael Jack: Please.

Michael Jack: Question comes from the line of hospice and the Lau from Handelsbanken. Your line is open please ask a question.

Mikael Bratt: The incidence rates have improved, and we carried out our annual climate survey at direct material suppliers to track their alignment with our climate requirements and ambitions. Turning the slide to look at progress towards our target. In the medium term, we are expecting to continue to grow our core business, airbags, seatbelts, and steering wheel, through execution on the current Strong Audible. The other important growth driver is safety content per vehicle, which is driven by continuous updates of government regulations and crash test rates. Our growth target for the three years, 2022, 2023, and 2024, was 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.

Chris: Yeah, Chris.

Chris: Question for me.

Chris: Despite.

You asked the question.

Chris: And we're just curious about.

Chris: The drop in inactive sites during the quarter minus 11%.

Chris: Given the big spread to the electricity that increased by more than 9%.

Chris: I actually don't have we can take that later, but it's just my curiosity.

Chris: Sorry to come back on this stipulation because I'm trying to understand the dynamics there.

Chris: I can definitely say that.

Chris: We haven't sought our.

Chris: Retroactively compensate you guys for rising costs in the quarters, but on the labor side.

Chris: Could you maybe.

For more.

Scott Smith: Tell on how that litigation Argo and given that those cost savings are quite apartment.

Chris: Steve.

Chris: Are you guys getting compensated.

Chris: Retroactively for boots also.

Chris: How does the process work.

Chris: I think on the active seatbelt side. There is no drama name into that of course, you get mixed effects also in specific years.

Chris: Where do you have maybe some outgoing car models.

Mikael Bratt: The growth in 2022 and 2023 and the guidance for 2024 means that we expect to exceed these targets. To maintain the growth momentum beyond 2024, we are pursuing an ambitious innovation program. The strong 2023 order intake supports continued growth momentum. Now looking at the multiple levers for modern improvement on the next slide. In the past two years, Autoliv has significantly reduced its cost base.

Chris: High level of <unk> in.

Chris: In this case then active seatbelts.

Chris: And my expectation is that you should see that recovery.

Recovering in the next year or so so no drama to adaptive Moreover, temporary mix effect.

Chris: Yes.

Chris: Then on the cost comp.

Chris: Compensation here, if I understand it you're right I mean, the nature of them.

Chris: As I said.

Labor cost increases <unk> and therefore, it's a.

Chris: I mean, it will not come down I.

Chris: I think we can.

Chris: Yes.

Speaker Change: So of course, there is an absolute necessity that that inflationary component.

Mikael Bratt: We have implemented hundreds of cost efficiency projects, especially in production and supply chain. Our adjusted operating margin target of around 12% is based on the framework communicated at our investor day in June 2020. A business environment with a stable global light vehicle production of at least 85 million and that headwinds from inflation are offset through price compensation. We remain confident that when these conditions are met for the full year, we are capable of reaching the 12% adjusted operating margin target. We now expect that the light vehicle production conditions will be fulfilled during 2024.

Speaker Change: To come through there is no room for anything else.

Speaker Change: That is what we.

Speaker Change: Are doing here and we of course have very detailed supporting.

Speaker Change: Documents too.

Speaker Change: When we go to our customers how that connects to their specific business and how it's correlated so so.

Speaker Change: It's something we need to go through and I mean, we went through that partly already last year. When we saw in some cases in some regions that we impact the already in 2023 so.

We expect to do more of that.

Speaker Change: Thank you.

Scott Smith: Thank you Scott.

Scott Smith: Now ill go and take our next question.

Scott Smith: With Nellix.

Mikael Bratt: We expect that the level of volatility through 2024 will be lower than in 2023 but remain higher than the pre-pandemic level, having a negative impact on our productivity and efficiency. We expect continued inflationary pressure in 2024 with customer compensation lagging behind the cost increase. To offset the negative effects from inflation and market conditions and to secure our long-term competitiveness, we have launched a number of cost-saving activities.

Scott Smith: And our question comes from the line of Bjorn <unk> from Danske Bank. Your line is open. Please ask your question.

Scott Smith: Thank you I have a question also on price.

Scott Smith: I mean, you have been very successful in getting compensation, but also we have seen I mean Oems coming from.

Scott Smith: High profitability.

And as you mentioned yourself.

Scott Smith: We need to see in place in coming to the price of the cars.

Scott Smith: We have also seen price cuts on cost have you also seen Oems reporting lower profitability.

Accepting perhaps a lower profitability as they are.

Mikael Bratt: We believe that the net effect of our actions and headwinds should result in a substantial step in 2024 towards our adjusted operating margin target. Now looking at delivering shareholder value through our 2024 business agenda on the next slide. To drive towards our financial targets and deliver a share of the value, the health and safety of our employees is our first priority, while continuing more activities to further improve quality and efficiency. We also continue our efforts to flawlessly execute new launches, improving customer satisfaction further, and thereby supporting our new and strong market position. Through our capital efficiency program, we aim to unlock capital from receivables, inventory, and payables.

Scott Smith: Our investing in price in a way is this the situation.

Scott Smith: Impact sub suppliers in general.

Scott Smith: How has it been in the past.

Scott Smith: First question.

Scott Smith: Thank you. Thank you.

Scott Smith: No I think.

Scott Smith: I see what you're.

Scott Smith: I'm, referring to here, but I mean first of all it has never been easy these negotiations not even when we saw record profitability.

At the Oems.

Scott Smith: And I think the point from my side here is that has nothing to do with their profitability or our profitability. This is inflation that needs to be passed on it is not sustainable for us to pay our.

Scott Smith: Our suppliers are less speaking you have to pass through.

So that is something that we.

Scott Smith: We are very.

Scott Smith: <unk>.

Speaker Change: Needs to two.

Speaker Change: Continue to be firm on there is no other way then.

Speaker Change: <unk> done that.

Speaker Change: Then I think when you look at the price reductions and so on.

Scott Smith: Towards the end consumers I think there is of course.

Different reasons for that do you see those prices coming down, which probably is more on an individual basis between the Oems. So I have no comments around that.

Anders Trapp: Combined with the execution of a strategic plan, this should lead to strong cash flow generation, which sets Autoliv up for attractive shareholder value creation. By executing on our strategic initiatives, footprint optimization, and negotiating compensation from OEMs, we believe we will mitigate headwinds from cost inflation. To progress towards our climate targets, we will focus on increased resource efficiency and reducing our carbon footprint. I will now hand this back to Anders. Thank you, Mikael. Turning to the last page, this concludes our formal comments for today's earnings call, and we would like to open the line for questions from analysts and investors. I now hand it back to you, Nadia.

But we need to focus on our business here, which we are doing so.

Scott Smith: He has to continue to press on there.

Scott Smith: And then just a follow up and perhaps in deposits.

Scott Smith: Not really seen a correlation between.

Core prices and your price negotiations.

I mean, you have your negotiations.

Scott Smith: The team at your customers.

Scott Smith: The teams settling in the price therefore actual cars or is there a correlation.

Scott Smith: No I mean.

Scott Smith: Not from our perspective is no correlation and so I think that's my point here.

Scott Smith: Bennett.

Bennett: I mean, each company. Thank you Eldar business and in our case here, we need to get compensation for the inflation in our system, which include <unk>.

Operator: Thank you so much, dear participants. As a reminder, if you wish to ask a question, please press star 11 on your telephone keypad and wait for a name to be announced. To withdraw your question, please press star 1 1 again.

Bennett: And.

Bennett: One more thing I mean last year.

Bennett: I'd like to remember that you had an outlook that was based on him and LBP a little bit below what was seen in the market back down or buy.

Operator: Please stand by while we compile the Q&A raw studies. It'll take a few moments. And now we're going to take our first question, and it comes from the line of Colin Langan from Wells Fargo. Your line is open, please ask your question. Oh great, thanks for taking my questions. Just looking at the, you can comment on this a bit, your long-term target is 4% over market, the guidance implies about six, I think you said on slides five to six. Any reason why it's so strong this year, and maybe is that including some of the inflationary cost recoveries that you're expecting? I know that was a bit of a help, and any thoughts on the China head when you called out in the quarters? I'll thank you for your questions there.

Bennett: S&P and now we are in line with last year. We also saw this catch up driven sales and now it's more assets.

Bennett: More in line with the market is there or nervousness on where the market will end up when you are talking to your customers or people in the industry as we are maybe.

Bennett: Heading into a more of it.

Bennett: Low down on them.

Bennett: More visible this year.

Bennett: Last year.

Bennett: I think I mean at least from the.

Dialogues, we have with our customers underway for about a year I don't see in his capacity as to what we referred to here is the minus one from S&P global and in general here.

Bennett: There is.

Bennett: Moreover, this mix effect between ice and Evs.

Speaker Change: And especially in Europe, where maybe the evs is slowing down somewhat.

Speaker Change: But it's more of a mix effect around for us.

Speaker Change: It's neutral because as you know we are well represented in both categories. We are agnostic to the through driveline question here. So.

Mikael Bratt: The 4% outperformance versus LBP takes us into 2024, so this is the last year of the three-year period that we have communicated on, and as we said there, we expect to over-deliver on that target. And of course, this is thanks to the growth we have created through ore intake over the last couple of years, and of course, we have seen a good development on the content per vehicle also, and we expect to see that also next year. This excluded, as we mentioned here also, the price negotiations that are on top of that. Then beyond 2024, we have the 4-6, where the core 46% organic growth target is where the current, let's say core business, should be two to four. So that is our target beyond there, beyond 2024. Regarding China, the minus 2% versus LVP we saw in the fourth quarter is due to a mix effect.

Speaker Change: We don't see the effect on our end here.

Speaker Change: Sure.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Yeah participants due to comp and not take any further questions.

Speaker Change: I would like now to hand the conference over.

Speaker Change: Mikael Bratt for any closing remarks.

Mikael Bratt: Thank you very much.

Mikael Bratt: I am confident that we will deliver a substantial increase in sales operating cash flow and adjusted operating income in 2024, while maintaining substantial shareholder return maintaining substantial shareholder returns.

Mikael Bratt: Our actions are creating both short term and long term improvements and we believe these actions enable us to take important steps towards our targets.

John: While we remain a John and prepare for more adverse market development should that be necessary.

<unk> continues to focus on our vision of saving more lives, which is our most important direct contribution to a sustainable society.

John: Our first quarter earnings call is scheduled for Friday April 26 2024.

Mikael Bratt: As we mentioned here, we had growth, significant growth on the low-end vehicles, or let's say the vehicles with lower safety content than usual. But if you look at the full year, we had a very strong outperformance of 8% for the full year. So we look very positively on China, and we feel that we are well positioned with the, let's say, the new EV players and also the COEMs in general there. So a positive view of China going forward. I shot it.

John: Thank you everyone for participating in today's call. We sincerely appreciate your continued interest in <unk> until next time stay safe.

Okay.

Speaker Change: That does conclude our conference for today. Thank you for participating Tony you May now disconnect have a nice day.

Speaker Change: Okay.

Speaker Change: [music].

Mikael Bratt: And any color on it, you called out labor inflation again, with other costs. Any way to frame how large this is in terms of dollars? Hi. Yeah, I mean, we expect Russia to be about the same level as we had last year, which would be somewhere mid-single digit above normal inflation, so pre-23, basically, and we're also giving some breakdown here on the slides on our labor cost and our percent of sales, so that you can calculate what the impact is.

Speaker Change: Yeah.

Speaker Change: Okay.

[music].

Mikael Bratt: And that's the major inflation where, on top of that, we also expect some energy increases based as a surcharge on materials that we're buying, especially for textiles. So those are the main two components. All right, thanks for taking my question. Thank you. Now we're going to take our next question. Just give us a moment.

Speaker Change: Okay.

Operator: And the next question comes from Julio Pescatore from BNP Paribas Exxon. Your line is open, please ask your question. Hi, thanks for taking my question. The first one on the buyback.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Operator: Just wondering if you'll be comfortable getting closer to the upper end of the leverage range in 2024, especially considering a further uplifting margin potentially in 2025 and the good cash flow generation you expect for this year. Then there is the second question on inflation and compensation. You mentioned that you expect full compensation for costs. Does that mean at the end of the year, so we shouldn't expect full compensation for 2024 as a whole, but by the end of the year, you think you can have full compensation with potentially some slippage in the first few months? Is that a fair way to describe it?

Mikael Bratt: Thank you. Thank you for your questions there. On the buybacks, as you know, we only report on what we have done on a regular basis here on our web page here. We are, I mean, very committed to our program that we have, and I think you can see that we have, in the fourth quarter here, a healthy level of buybacks. Of course, we, we, we, um..., are focusing a lot on making sure that we have the cash regeneration needed. And as you see from the report here, we are committed to being a shareholder-friendly company when it comes to the regular dividend and also the buyback program. And we will come back on that as we progress here. That's as much as I can say here today.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

[music].

Mikael Bratt: Regarding inflation, there is a lead time, and as we have indicated here already, you see, let's say, the cost effect of inflation hitting us earlier in the year, and then we have the negotiations throughout the year. And in the same fashion as we were stating last year, our focus here is to get full compensation and the height of the compensation rather than, you know, looking at the quarter by quarter here, so it's the full year compensation that is the priority and the height of it, so therefore, you get this, let's say, new seasonality, if we call it that, where you have a wiki Q1 and then gradually improve throughout the year, so Overall, our expectation is that we should also be compensated for the full year effect, and that was also the case in 2023, whereas in 2022, with the raw material compensation, there was a component that we were not compensated for in 2022; hence there was a carryover effect into 2023, but we don't expect that same pattern for 2024.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Okay.

Yes.

Speaker Change: [music].

Mikael Bratt: Okay, I'll be clearer, thank you. Thank you. Now we're going to take our next question. And the next question comes from Lan, from Emmanuel Rosner from Deutsche Bank. Your line is open, please ask a question. Thank you very much.

Operator: My first question I was hoping to ask you about comments, a little bit more about your path towards the 12% reiterated operating margin target. I very much appreciate the scorecard that you put at the end of the slide deck. So, if I'm understanding it correctly, it looks like production is probably at the right level, at least, maybe cost recovery, sort of like, you know, offset by some of your cost reduction programs. So is the main impediment to getting to your targets the call-off accuracy? And if so, I guess, what is the line of sight?

Operator: Is it fair to assume that this will normalize? Or are there further actions that you need to get to the target? Okay, I mean, there are a lot of components in your question. So, you know, overall, the framework is pretty clear. 85 million. We say, and as it looks right now, $25 million seems to be in place as an assumption here for 2024.

Mikael Bratt: Then when it comes to the other two, that we are made whole on inflation compensation, that will... or potentially have an impact on a full year as long as we have inflation and there's always this catch-up effect, from when the costs come in until we are compensated for again here. Our ambition is to have that also in place for 2024, but that remains to be seen also how inflation develops during that period. And the last component is on the call And here we have a graph in our presentation where it's clearly not in place going into the year. I mean, we've seen it kind of stabilize at around 90 percent now during the second half of last year.

Okay.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].

Mikael Bratt: We are not assuming right now that this will improve significantly during 2024. And then there's also even if it were to come up to pre-pandemic levels closer to 100 percent, there's also a time lag between when that accuracy is actually in place until we can also get the efficiency out in our network. Um, so yeah, it's trending towards the framework, but for sure, 2024 will not be in place, and it remains to be seen how much of the number two and three here will come in place Looking at the building blocks of how to get from the 8.8 that we have now in 2023 up to the 12%, you can roughly divide it into three buckets. One is the structural initiatives and the head count reductions. The second one is the volatility improvement combined with labor productivity development. And then the third component is sales growth and our strategic initiatives. And it's roughly, I would say, one third the margin contribution from those three. That is great, Paulo.

Mikael Bratt: Thank you. So, let me just hone in on my second question on the self-growth piece of it, as we look past this year and towards, you know, some of your targets. I think we started in the past; you had reported sometimes on your annual win rate, and oftentimes, they were at like, you know, 50% or better. Obviously, your market share, you reported that, you know, 45%. Can you comment on the win rate?

Mikael Bratt: And I guess, what is the confidence level in being able to capture additional market share over the next few years beyond the 2024 framework? Yeah, as you know, we have communicated here around the lifetime revenue on the order intake here for the last year, and I think we had a very good 2023 and the highest in five years here in terms of lifetime revenue. And what we are saying here is that we reached a 45 percent market share in 2023, which we have indicated since some years back that that was what we expected to grow into. And with the order intake and order book we have, we expect to defend this market share. We do not have, I would say, a target or an ambition to set a new level for our market share here. It is really to defend this market share position with healthy business, of course. If we can grow more in a healthy way, of course, we will do it, but it's not the goal in itself.

Mikael Bratt: So the growth that we expect going forward, the two to four, as I talked about and we have announced earlier, beyond 2024 is connected to light vehicle production and content with more sophisticated products. Thank you very much. Thank you. Now we're going to take our next question. Give us a moment, and the next question comes from the line of Michael Jacks from Bank of America Securities. Your line is open. Please ask your question. Hi, good afternoon.

Operator: Thanks for taking my questions. First one, just on price recoveries, some other suppliers have struggled to secure compensation for wage inflation, and Autoliv has clearly been more successful. Is there anything structural you could point to that gives you the confidence that you can achieve the same in 2024? And then the second question is just on working capital. What is the magnitude of improvement expected in 2024 in relation to? The remaining gap of $320 million to the $800 million production target.

Operator: Thank you. Let me start with price recovery, and Fredrik will comment on the working capital there. But on price recovery, I can't say there's anything structural about it.

Mikael Bratt: I think it's, I mean, of course, I can only comment on what we are doing here. And we have now, for the last two years, had very constructive dialogues with our customers around the over and above normal cost increases we see in the system here. And I mean, we're starting out with raw materials, and there we have also mentioned that we have made some indication, a higher level of, indexation to those contracts here also. So I mean, it works both ways, obviously.

Mikael Bratt: So when we see that come down, we will also hand that back to our customers. When it comes to the other components here, this is a bit different in its nature, but I think it's very important to get compensation for what are the inflationary components here. And we definitely have the labor in focus this year. And I mean, that's the nature of inflation; it needs to be passed on to the end consumer, meaning the price of the car at the end of the day. So we need to push it on because there is no possibility for us to compensate our suppliers unless we get the pass on here. It's not sustainable, and that's something we just need to continue to work hard with, and we will do that. Our focus here going forward as well.

Mikael Bratt: Michael, on your second question, working capital. So we reported here that we have achieved around 580 million of the 800 million target that we set ourselves. In the 800 million target, we had also detailed that around 500 million of that would come from improved payables, and that we have achieved or even overachieved already to date. So we don't expect more to be contributed from that component.

Mikael Bratt: So inventory is challenging right now due to the call of volatility, as we show here that it's kind of stabilizing at still two poor levels, and as I mentioned, we don't expect this to improve significantly during 2024, and accordingly, we do not also expect that we will be able to do so much on the inventory side either in 2024. And we do not guide for working capital specifically, but you see a very strong operating cash flow guidance here of That's very clear. Thank you. Thank you. Now we're going to take our next question. Please leave a comment below. And the question comes from Hampus Engellau from Handelsbanken. Your line is open; please ask your question. Yeah, two questions for me. Despite the nitty-gritty questions, I'm curious about the drop in inactive seatbelt sales during the quarter, minus 11%, given the big spread to the LVP that increased by more than 9%. If you don't have it, we can take that later, but it's just out of curiosity.

Operator: I'm sorry to come back on this cost of inflation because I'm trying to understand the dynamics here. I can definitely see that the OEMs are retroactively compensating you guys for rising costs in the quarters, but on the labor side, could you maybe... Give us some more data on how those negotiations are going, given that those cost savings are quite permanent and sticky, and are you guys getting compensated retroactively for those also, and how does the process work? I think on the active seatbelt side, there is no drama involved in that. Of course, you also get mixed effects in specific years where you have maybe some outgoing car models where you have a high level of, in this case, active seatbelts.

Mikael Bratt: And my expectation here is that you should see that recovering in the next year or so. So there's no drama about that. It's more of a temporary mixed effect, and, Then on the cost compensation here, if I understand you right, the nature of, I mean, as you said, labor cost increases is sticky, and therefore it's, I mean, it will not come down. I think we can all agree. So, of course, there is an absolute necessity that that inflationary component has to come through. There is no room for anything else.

Mikael Bratt: And that is what we are doing here, and we of course have very detailed supporting documents to show, when we go to our customers, how that connects to their specific business and how it's correlated. So that's something we need to go through. And I mean, we went through that partly already last year when we saw, in some cases and in some regions, that impact already in 2023.

Mikael Bratt: So we expect to do more of that. Thank you. Now we're going to take our next question. Please give us a moment.

Operator: And our question comes from Bjorn Andersson from Danske Bank. Your line is open, please ask a question. Thank you. I also have a question on price.

Operator: I mean, you have been very successful in getting compensation, but also, we have seen, I mean, OEMs coming from high profitability. And as I said, and you mentioned yourself, we need to see inflation coming to the price of the cars. But we've also seen price cuts on cars.

Mikael Bratt: We've also seen OEMs reporting lower profitability and accepting perhaps lower profitability as they are investing in price in a way. Is this a situation that impacts sub suppliers in general, or how has it been in the past? Thank you. Thank you, Björn. No, I think I see what you're referring to here.

Mikael Bratt: But I mean, first of all, it has never been easy, these negotiations, not even when we saw record profitability at the OEMs. I think the point from my side here is that that has nothing to do with their profitability or our profitability. This is inflation that needs to be passed on. It's not sustainable for us to pay our suppliers unless we can get the pass through. So that is just something that we are very firm on and needs to continue to be firm on. There is no other way than that.

Mikael Bratt: Then I think when you look at the price reductions and so on, towards the end consumers, I think there are, of course, different reasons for that you see those prices coming down, which probably are more on an individual basis between the OEMs. So I have no comments on that. But we need to focus on our business here, which we are doing. So just continue to press on there. And just a follow-up, and perhaps in the pauses we have... Not really seeing a correlation between Corp prices and your price negotiations. I mean, you have your negotiations with the team at your customers, and then there are other teams setting the price on the actual cars. Or is there no correlation? No, I mean, not from our perspective. There's no correlation. And I think that's my point here.

Mikael Bratt: I mean, each company takes care of its business. And in our case here, we need to get compensation for the inflation in our system, which includes our system. And one more thing, I mean, last year, I like to remember that you had an outlook that was based on an LVP a little bit below what was in the market back then or by S&P, and now you're in line with that. And last year, we also saw this catch-up driven sales, and now it's more, as you highlighted, more in line with the market. Is there a nervousness about where the market will end up when you are talking to your customers or people in the industry, as we are maybe heading into more of a slowdown, more visible this year than last year?

Mikael Bratt: I think, I mean, at least from the dialogues we have with our customers on the way forward here, I don't see any discrepancies to what we refer to here as the minus one from S&P Global in general. I think there is more of this mixed effect between ICE and EVs, and especially in Europe, where maybe the EVs are slowing down somewhat, but it's more of a mixed effect there, and for us, that is neutral because, as you know, we are well represented in both categories and we are agnostic to the driveline question here, so we don't see the effect on our end here.

Mikael Bratt: Very good. Thank you. Thank you. Dear participants, due to time, we are not taking any further questions. I would like now to hand the conference over to Mikael Bratt for any closing remarks. Thank you very much, Nadia. I am confident that we will deliver a substantial increase in sales, operating cash flow, and adjusted operating income in 2024 while maintaining a substantial shareholder return. Our actions are creating both short-term and long-term improvements, and we believe these actions enable us to take important steps toward our targets. While we remain agile and prepare for more adverse market developments, should that be necessary?

Mikael Bratt: Autoliv 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 26, 2024. Thank you, everyone, for participating in today's call. We sincerely appreciate your continued interest in AltaVis. Until next time, stay safe. That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day. I'm a man of my word I'm a man of my word I'm a man of my word I'm a man of my word I'm a man of my word I'm a man of my word I'm a man of my word I'm a man of my word I'm a man of my word I Thank you for listening. Stay safe.

Q4 2023 Autoliv Inc Earnings Call

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