Autoliv, Inc. (NYSE:ALV) Q4 2023 Earnings Call Transcript

Autoliv, Inc. (NYSE:ALV) Q4 2023 Earnings Call Transcript January 26, 2024

Autoliv, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

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. 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.

Anders Trapp: 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.

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 in the past five years. The strong order intake is an 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 on a high level. We continue to strive for improving products, services, processes and cost 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 2024.

Looking on the next slide. In 2023 order intake for new EV platform 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. 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 ICE to capture future market growth. With the order book that we have built, 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. 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. 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. 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 improvements.

In the fourth quarter, we continued to actively address our cost base, 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 RD&E and SG&A in relation to sales have continued and have now declined by 270 basis points since Q1, partly as a result of normal seasonality with high engineering reimbursements in the fourth quarter.

Combined with the gross margin improvement, this led to substantial improvement in 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 compensations, and favorable currency translation effects. The strong sales increase and cost reduction activities led to 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 2 percentage points from the same period last year and by almost 7 percentage points from the first quarter.

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 customer recovery. Looking now on 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 a cost reduction initiative in June 2023, with the intent of reducing our indirect headcount by up to 2,000 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.

Total accrual for capacity alignment in 2023 amounted to US$280 million. We do not plan to announce further major reduction initiatives details. At the end of 2023, around 75% of the planned indirect reductions were detailed and announced. We already see positive impact on direct payable productivity as a result. Looking now on our sales growth in more detail on the next slide. Our consolidated net sales increased to almost US$2.8 billion, a new quarterly record. This was over $400 million higher than a year earlier driven by price, volume, mix and currencies. Out-of-period cost compensations contributed with US$45 million. 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 on the regional sales split, Asia accounted for 41%, America’s 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 5 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 UAW 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. For the full year, we outperformed global light vehicle production by around 9 percentage points 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 percentage points. The performance in China was mainly driven by increasing sales to domestic Chinese OEMs. 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 6 percentage points higher than five years ago when the electronics business was spun up. Our global market position is strong in all categories with 45 — 47% of airbags, 45% of seatbelts and 40% of steering wheels. 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 5 percentage points to 6 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. For 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 shows — shown here have an out-of-date content per vehicle of around $110 or higher, with the highest at over US$800. In terms of out-of-date sales potential, the Zeekr 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.

Fredrik Westin: 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 last year. The margin was also affected by the accruals for warranty and recalls of $17 million or 65 basis points. The accruals are related to three different cases. 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 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, supplier disruptions, customer price negotiations and continued volatile light vehicle production.

Our net sales were $10.5 billion, with sales increasing organically by over 18%, twice the increase in the underlying light vehicle production and 3 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. Adjusted earnings per share increased by $3.79 per share to $8.19 per share, where the main drivers were $2.51 from higher adjusted operating income and $1.31 from lower income taxes, partly offset by $0.18 from financial items. 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 the adjusted earnings per share were all the highest we have ever achieved. Looking now at the full year adjusted operating income bridge on the next slide. In 2023, our adjusted operating income of $920 million was $322 million higher than last year. The impact from 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 peso. Costs for SG&A and RD&E 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. Looking now on the cash flow on the next slide. 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. 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. 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%. Free cash flow for the full year improved year-over-year by $186 million to $414 million.

Our cash conversion, defined as free cash flow in relation to net income was 85%. Now looking on our trade working capital development on the next slide. 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. 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 to-date we 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. We expect this to improve significantly in tandem with reduced call of volatility over coming years.

Now looking at shareholder returns over the past five years on the next slide. 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 production. We have used both dividend payments and share repurchases to create shareholder value. Historically, the dividend has usually represented a yield of approximately 2% to 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 directly to shareholders. This includes stock repurchases of 5.1 million shares for a total of US$467 million 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%. 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 development on the next slide. 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 EBITDA as the net debt was unchanged.

We expect that our debt leverage and positive cash flow trend will allow for continued high shareholder returns going forward. I now hand it back to you, Mikael.

Mikael Bratt: 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 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 products, 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. 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 significant improvement in adjusted operating margin in 2024 compared to 2023, supported mainly by organic sales growth, a more stable light vehicle production, structural and strategic initiative, cost control and customer compensation. We expect the adjusted operating margin in the first quarter to be around 7%, a significant decline from the fourth quarter in 2023 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.

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 improvement from strict cost control, structural savings, as well as expected gradual improvement of 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 discrete items. Our full year guidance is based on a light vehicle production decline of around 1%.

Despite lower light vehicle production, our organic sales is expected to increase by around 5%. No net currency translation effects are expected on sale. The guidance for adjusted operating margin is around 10.5%. Operating cash flow is expected to be around US$1.2 billion. 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. 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. 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 Autoliv among the front runners 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 fore — we are at the forefront of broadening test models to include more body shapes and parameters such as age and gender. We have increased the use of renewable electricity, contributing to a significant decrease in greenhouse gas emissions from our own operations. 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 targets. In the medium-term, we are expecting to continue to grow our core business, airbags, seatbelts and steering wheels, through execution on the current strong order books. The other important growth driver is safety content per vehicle, which is driven by continuous updates of government, regulation and crash test rating.

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 material and other inflationary costs. 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 on the multiple levers for modern improvements on the next slide. In the past two years, Autoliv has significantly reduced its cost base. 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 2023, a business environment with a stable global light vehicle production of at least $85 million and that headwinds from inflation is offset through price compensations. We remain confident that when these conditions are met for the full year, we are capable to reach the 12% adjusted operating margin target. We now expect that the light vehicle production conditions will be fulfilled during 2024. 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 margin targets. Now looking on delivering shareholder value through our 2024 business agenda on the next slide. To drive towards our financial targets and deliver shareholder 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 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. Combined with the execution of our 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 OEMS, 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. I will now hand it back to Anders.

Anders Trapp: 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.

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Q&A Session

Operator: 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.

Colin Langan: 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?

Mikael Bratt: 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.

Colin Langan: 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?

Fredrik Westin: 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.

Colin Langan: Got it. All right. Thanks for taking my questions.

Mikael Bratt: Thank you.

Fredrik Westin: Thanks.

Operator: 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.

Giulio Pescatore: 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.

Mikael Bratt: 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?

Fredrik Westin: 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.

Giulio Pescatore: Okay. Very clear. Thank you.

Operator: 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.

Emmanuel Rosner: 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?