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. After the speaker’s presentation there will be the question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to our speaker today, Anders Trapp. Please go ahead.

Thank you, Nadia. 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, 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, balance and order intake for the 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 per usual the slides are available on autoliv.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-U.S. GAAP measures. The reconciliations of historical U.S. GAAP to non-U.S. GAAP measures are disclosed in our quarterly press release available on autoliv.com and in the 10-K 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. Looking on 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 rest of Asia and Japan. The strong growth was mainly a result of product launches and customer compensations 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 depth leverage improved, while we increased our dividend and repurchased shares for 150 million in the quarter or approximately US$352 million for the year. We are making progress towards our intention of reducing our indirect workforce by up to 2,000. We now expect savings of around $50 million in 2024 from these initiatives. Order intake developed well. It is especially encouraging to see the strong order intake with fast growing Chinese OEMs. For 2024 we foresee sales growing in mid-single-digit despite an expected modest decline in light vehicle production. 2024 should take us one important step closer to our adjusted operating margin targets, driven by improved call-off 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. 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…

Thank you, Mikael. 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% year-over-year. 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-GAAP adjustments amounted to $97 million, almost entirely for capacity alignments. Adjusted earnings per share diluted, increased by $1.91, while the main drivers were $0.75 from higher adjusted operating income, $1.09 from tax and $0.10 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 $0.68 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 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 compensations, higher volumes, lower costs for premium freight, as well as our strategic initiatives, but partly offset by headwinds from general cost inflation. The impact from 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. Cost for SG&A and RD&E net combined was $30 million higher, mainly due to lower engineering income and labor cost inflation. In relation to sales, it was unchanged compared to…

Thank you, Fredrik. 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 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 and high interest rates. Most of the expected decline is in Japan and Europe. S&P Global expects first half year global light vehicle production to increase by 1%, while the second half declining almost 3% compared to last year. Light vehicle production in China continues to be supported by strong EV demand and export activity. In North America, the UAW 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 global light vehicle production decline of around 1%. Now looking on 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. 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…

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.

Thank you so much. [Operator Instructions] And now we’re going to take our first question and it comes from 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 comment on this a bit. Your long-term target is 4% over market. The guidance implies about 6%, I think, it’s 5% to 6%. 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 last year and any thoughts on the China headwind you called out in the quarters, is that also kind of going to continue?

Thank you for your questions there. The 4% outperformance versus LVP 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, it is thanks to the growth we have created through the order intake over the last couple of years, and of course, we have seen a good development on the content per week and also -- and we expect to see that also next year. 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 core -- 4% to 6% organic growth targets where the current, let’s say, core business should be 2% to 4%. So that is our target going there beyond 2024. Regarding China, the minus 2% versus LVP we saw in the fourth quarter is due to mixed effects. 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 there of 8% for the full year. So we look very positively on China and we feel that we are well-positioned with, let’s say, the new EV players and also the OEMs in general there. So positive view on China going forward.

Got it. And any color on, 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, we expect it 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-2023, basically and we’re also giving some breakdown here on the slides 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 we’re expecting. Then on top of that, we also expect some energy increases based as a surcharge on materials that we’re buying especially on textiles. So those are the main two components.

Got it. All right. Thanks for taking my questions.

Thank you.

Thanks.

Thank you. Now we’re going to take our next question. Just give us a moment. And the next question comes from Giulio Pescatore from BNP Paribas Exane. Your line is open. Please ask your question.

Hi. Thanks for taking my question. The first one on the buyback. 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 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 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? 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 through our webpage 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, and the -- of course, we are 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 be a shareholder 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 inflationary, there is a lead time, and as we have indicated here already, you see, let’s say, 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 stating last year, our focus here is to get the full compensation and the height of the compensation rather than to 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 obviously Q1 and then gradually improve throughout the year. So that’s the reason behind that. I don’t know, Anders, if you would like to add anything there, Fredrik, or?

No. Well, in overall, our expectations, we should be compensated also 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 were not compensated for in 2022. Hence there was a carryover effect into 2023, but we don’t expect that same pattern for 2024.

Okay. Very clear. Thank you.

Thank you. Now we’re going to take our next question. And the next question comes from Emmanuel Rosner from Deutsche Bank. Your line is open. Please ask your question.

Thank you very much. My first question I was hoping to ask you about, could you comment 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 in the right level at least. Maybe cost recovery sort of like offset by some of your cost reduction programs. So is the main impediment to getting to your targets the co-op accuracy, and if so, I guess, what is the line of sight? Is it fair to assume that this will normalize or are there further actions that you need to get you to the target?

Okay. I mean, there are a lot of components in your question. So, overall, the framework is I think pretty clear. $85 million we say -- as it looks right now, 2024, $85 million 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 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 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 the year. 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 seen it kind of temp or 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’s also a time lag of when that accuracy is actually in place until we can also get the efficiency out in our network. So it’s -- 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 that number two and three here will come in place during 2024 and then what the impact is for 2025. Looking at the building blocks of how to get from the 8.8% that we had now in 2023 up to the 12%, it’s roughly, you can divide it into three buckets. One is the structural initiatives and the headcount reductions. 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 margin contribution from those three buckets.

That is great color. Thank you. So let me just hone in for my second question on the sales growth piece of it. As we look past this year and towards 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 50% or better. Obviously, your market share, you reported that it’s 45%. What is your -- 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 few years beyond the 2024 framework?

Yeah. As you know, we have since last year communicated here around the lifetime revenue on the order intake 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 the 45% market share in 2023, which we have indicated since some years back that that was what we expected us 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 of 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 is not the target in itself. So the growth that we expect going forward, the 2% to 4%, 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.

Thank you. Now we’re going to take over the next question. Just give us a moment. And the next question comes to line of Michael Jacks from Bank of America Securities. Your line is open. Please ask your question.

Hi. Good afternoon. 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 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 $120 million to the $8 billion reduction target that you have in mind? Thank you.

Thank you. 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 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. 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 labor in focus here. And I mean that’s the nature of inflation, it needs to be passed on into the end consumer 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.

And then, Michael, on your second question, working capital. Yeah, 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. 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 flow guidance here of $1.2 billion. But there is then more opportunity coming later from improving working capital further.

That’s very clear. Thank you.

Thanks.

Thank you. Now we’re going to take our next question. Just a moment, please. And the question comes from Hampus Engellau from Handelsbanken. Your line is open. Please ask your question.

Yeah. Two questions for me. Despite and it’s the good questions, but I’m curious about the drop in Active 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, we can take that later. But that -- it’s just by curiosity. I mean, I’m sorry to come back on this cost 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 detail on how those negations are going, given that those cost savings are quite permanent and sticky and are you guys getting compensated retroactively for these also and well how does the process work? Thanks.

I think on the Active Seatbelts side it’s no drama in into that, of course, you get mixed effects also in specific years where you have maybe some outgoing car models where you have a high level of in this case than Active Seatbelt and my expectation here is that you should see that recovery recovering in the next year here or so. So no drama to that, it’s more of a, yeah, temporary mix effect. And then on the cost compensation here if I understand you right. I mean the nature of OEMs, as you said labor cost increases is sticky and therefore it’s, I mean, it will not come down, I think we can call it. So of course there is an absolute necessity that that inflationary component has to come through. There is no room for anything else 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’s connected 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. So we expect to do more of that.

Thank you.

Thank you. Now we’re going to take our next question. Just give us a moment. And our question comes to land of Bjorn Enarson from Danske Bank. Your line is open. Please ask your 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, OEMs 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 we also seen OEMs reporting lower profitability and accepting perhaps a lower profitability as they are investing in price in a way. Is this a situation that impacts some suppliers in general or how has it been in the past? That’s my first question.

Thank you. Thank you, Bjorn. No. I think, I see what you’re referring to here. But I mean, it -- first of all, it has never been easy these negotiations, not even when we saw record profitability at the OEMs. And I think the point from my side here is that that’s nothing to do with their profitability or our possibility. 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 uh than that. Then I think when you look at the price reductions and so on at the towards the end consumers. I think there is of course different reasons for that you see those prices coming down, which probably is more on an individual basis between the OEMs, so I have no comments around that, but we need to focus on our business here, which we are doing, so just to continue to press on there.

And just to follow up and perhaps in the past we have not really seen a correlation between car 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 for on the actual cars or is there a correlation?

No. I mean, not from our perspective it’s no correlation and I think that’s my point here that they need, I mean, each company take care of their business and in our case here we need to get compensation for the inflation in our system, which includes ours.

Got it. And one more thing, I mean, last year I would 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 in line with that. And last year we also saw this catch up driven sales and now it’s more, as you highlight, more in line with the market. Is there a nervousness on 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 or more, more visible this year than last year?

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 S&P Global in general here. I think there is more of this mix effect between ICE and EVs and -- especially in Europe where maybe the EVs is slowing down somewhat, but it’s more 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.

Sure. Very good. Thank you.

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 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 towards our targets, while we remain agile and prepare for more adverse market development, should that be necessary. 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 Autoliv. 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.