Autoliv, Inc. · NYSE:ALV

Autoliv — Investor Day (October 2015)

36 slides from Autoliv's investor day presentation, Oct 2, 2015

  1. Slide 1: Financial Strategy for Increasing Shareholder Value

    Financial Strategy for Increasing Shareholder Value Mats Wallin CFO

  2. Slide 2: Safe Harbor Statement

    Safe Harbor Statement* This presentation contains statements that are not historical facts but rather forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include those that address activities, events or developments t

  3. Slide 3: Financial Strategy for Increasing Shareholder Value

    Financial Strategy for Increasing Shareholder Value  Long Term Targets and Guiding Financial Principles  Cash flow Generation ‒ Growth ‒ Margins ‒ EPS ‒ Free Cash Flow & RoCE  Capital Structure ‒ Debt Policy & RoE  Reconciliations 3 Copyright Autoliv Inc., All Rights Reserved

  4. Slide 4: Long Term Targets

    Long Term Targets Remains unchanged Organic* sales Operating margin* EPS* growth faster Net Debt*/EBITDA growth at least range 8-9% over than organic sales around one times in line with our the business growth (Debt Limitation market cycles Policy) …and faster than our …US GAAP excl. costs …US GAAP

  5. Slide 5: Guiding Financial Principles

    Guiding Financial Principles Remains unchanged “Cash flow “Strong Investment “Shareholder generation” Grade” credit friendly” focus rating …with a tight cost and …financial flexibility for …increasing shareholder capital control to support growth in a cyclical value through shareholder growth indust

  6. Slide 6: Financial Strategy for Increasing Shareholder Value

    Financial Strategy for Increasing Shareholder Value  Long Term Targets and Guiding Financial Principles  Cash flow Generation ‒ Growth ‒ Margins ‒ EPS ‒ Free Cash Flow & RoCE  Capital Structure ‒ Debt Policy & RoE  Reconciliations 6 Copyright Autoliv Inc., All Rights Reserved

  7. Slide 7: Growth: Leverage our strong position in a growing safety market

    Growth Leverage our strong position in a growing safety market 50 CAGR Current Safety Market 2015-2019: 6% 2014 MARKET SHARE Brake Control Systems ELE Additional Brake Control 40 ~0%** PAS Market ** Systems US $ (Billions) Active Safety*** 24% 30 Current Electronic PAS Electronics 22% Market 20 Side

  8. Slide 8: Growth Target

    Growth Target Sales of $12B* in 2019, with an ambition to potentially reach up to $15B through 2019 Autoliv Group Sales Organic: 12 ~7%*  May vary period to period due to launch CAGR from cycles and acquisition effects. 10 2015 Acquisitions: 8  Use to supplement organic growth to US $ (Billions) g

  9. Slide 9: Financial Strategy for Increasing Shareholder Value

    Financial Strategy for Increasing Shareholder Value  Long Term Targets and Guiding Financial Principles  Cash flow Generation ‒ Growth ‒ Margins ‒ EPS ‒ Free Cash Flow & RoCE  Capital Structure ‒ Debt Policy & RoE  Reconciliations 9 Copyright Autoliv Inc., All Rights Reserved

  10. Slide 10: Margins: Long-term operating margin target

    Financial Strategy for Margins Long-term operating margin* target Autoliv (ALV): 14 Operating Margin %*  Long-term operating margin target 8-9% 12 over the business cycles 10 Passive Safety (PAS): Target 8 8-9%*  At least maintain current operating margin levels 6 4 Electronics (ELE): 2  Improve

  11. Slide 11: Margins: Cost structure (% of sales)

    Financial Strategy for Margins Cost structure (% of sales) 7,4% 8,6% EBIT* Operational Excellence 11,4% 11,3% Other costs  Focus to drive cost savings through 1P1P 4,7% Fixed 3,3% Fixed and other initiatives; Costs 14,1% Costs 15,8% D&A 20.5 % 17.4 % ‒ Direct Material Savings 8,3% 9,6% Indirect lab

  12. Slide 12: Margins: Direct material savings

    Financial Strategy for Margins Direct material savings Direct material savings ≥ 3% through: Direct Material Saving (%) 6%  Global purchasing organization for 5% managing direct material savings 4%  Focus on product re-designs, modularization and reducing tail-end products 3% Target  Supply base

  13. Slide 13: Expanding our vertical integration base into China

    Financial Strategy for Margins Expanding our vertical integration base into China 600 Capital Expenditures (net) 6% Non China CapEx China CapEx 5% % of ALV sales US $ (Millions) 400 4% 3% 200 2% 1% 0 0% 2009 2010 2011 2012 2013 2014 LTM* Vertical Integration in textiles, propellant, initiators to su

  14. Slide 14: Margins: Direct labor improvements

    Financial Strategy for Margins Direct labor improvements 10% LMPU* Improvements Direct labor savings ≥ 5% through: 8% 6,1% 6,0% 6,1% 5,9% 6,2%  Productivity improvements 6% Target  Reduce complexity 4%  Use of standards 2%  Automation 0% 2010 2011 2012 2013 2014 50 000 Direct Labor Headcount 40

  15. Slide 15: Aligning our global footprint to our markets

    Financial Strategy for Margins Aligning our global footprint to our markets 60 Light Vehicle Production YTD US $ (Millions) FY14 FY15E 50 Q2’15 Cost (gross) $45 $42 > $90 LVP* (millions) 40 Growth Markets* 30 Cash outlay $44 $33 ~ $60 WEU 20 Savings $6 $5 < $20 10 Carry forward $80 $82 Balance Sheet

  16. Slide 16: RD&E investment for growth

    Financial Strategy for Margins RD&E investment for growth 7,0% 600 Drivers for RD&E, net: RD&E, net 6,5% RD&E, net % of Sales 500  Investments to support group sales target 6,0% 400  Near and mid-term mix effect from ELE growth US $ (Millions) 5,5% 300  Acquisition effects 5,0% 200  Near-term 6

  17. Slide 17: Financial Strategy for Increasing Shareholder Value

    Financial Strategy for Increasing Shareholder Value  Long Term Targets and Guiding Financial Principles  Cash flow Generation ‒ Growth ‒ Margins ‒ EPS ‒ Free Cash Flow & RoCE  Capital Structure ‒ Debt Policy & RoE  Reconciliations 17 Copyright Autoliv Inc., All Rights Reserved

  18. Slide 18: EPS target to increase faster than sales growth

    Financial Strategy for EPS EPS* target is to increase faster than the sales growth rate through 2019 7,00 EPS Increase faster 6,00 than Sales EPS 5-year Trailing growth rate EPS Growth Target through: 5,00 from 2015  ~7%* Sales CAGR through 2019 4,00  At least maintaining current margins 3,00 in P

  19. Slide 19: Currency exposure

    Financial Strategy for EPS Currency exposure* 2015E Translation 2015E Transaction whereof ~ 75% non-U.S. Sales ~ $2.1 B Sell USD buy MXN USD 16% 25% 16% Sell EUR buy SEK Other 52% 10% Non USD 6% Buy USD sell KRW 75% Buy EUR sell CNY Natural hedging strategy, total transaction exposure corresponding

  20. Slide 20: Interest, net, liquidity and debt maturities

    Financial Strategy for EPS Interest, net, liquidity and debt maturities 80 Interest Expense, Net 3,0 Liquidity and Debt Maturities ~ $2.65 B 70 2,5 60 Unused long-term facilities ~$1.33 B 2,0 50 US $ (millions) US $ (millio ns ) 40 1,5 30 1,0 20 Cash ~$1.32 B 0,5 10 0 0,0 2015 2016 2017 2018 2019 20

  21. Slide 21: Factors affecting the underlying Tax Rate

    Financial Strategy for EPS Factors affecting the underlying Tax Rate Factors include: 40%  Change in country mix 35%  New or increased start up losses  Write off of Deferred Tax Assets 30%  Antitrust settlements/penalties  New tax legislation 25%  Use of Capital 20%  Reduction of start up los

  22. Slide 22: Financial Strategy for Increasing Shareholder Value

    Financial Strategy for Increasing Shareholder Value  Long Term Targets and Guiding Financial Principles  Cash flow Generation ‒ Growth ‒ Margins ‒ EPS ‒ Free Cash Flow & RoCE  Capital Structure ‒ Debt Policy & RoE  Reconciliations 22 Copyright Autoliv Inc., All Rights Reserved

  23. Slide 23: Operating working capital

    Financial Strategy for Cash Flow Operating working capital* Working Capital* as a % of Sales Working Capital Management: 14% Long-term target < 10% of sales 12%  Supplier Terms to match our customers 10% Target  Campus Facility Concept 8%  Global Products and Process 6%  Local Sourcing 4% 2% 0%

  24. Slide 24: Capital expenditures, depreciation and amortization

    Financial Strategy for Cash Flow Capital expenditures, depreciation and amortization 1 000 9% 900 Capex D&A Capital Management: Capex % of sales D&A % of sales 8% 800 7% LT trend of increasing capital efficiency 700 6%  Source CapEx from low cost countries 600 US $ (Mil l ions ) 5%  Campus Facilit

  25. Slide 25: Increasing capital employed turnover

    Financial Strategy for RoCE Increasing capital employed turnover* Capital Employed Turns Capital Management: 2,8 2,6  Supplier terms to match our customers 2,4  Source CapEx from low cost countries  Campus Facility Concept Turns 2,2 2,0  Global Products and Processes 1,8 1,6  Local Sourcing 1,4

  26. Slide 26: Return on Capital Employed

    Return on Capital Employed* Among industry leading returns, well above our pre-tax WACC** % RoCE 30 4 000 3 500 25 Operating Working US $ (Millions) 3 000 Capital * 20 2 500 Property, Plant & 15 2 000 Equipment, net 1 500 10 Goodwill & other 1 000 intangible assets 5 500 0 0 '97 '98 '99 '00 '01 '02

  27. Slide 27: Free cash flow vs. net income and use of free cash flow

    Financial Strategy for Free Cash Flow* Free cash flow vs. net income and use of free cash flow Free Cash Flow Use of Free Cash flow 700 1997 - 2014 600 Acquisitions Net Income 15% 500 Free Cash flow Cash 9% 44% 400 $M 300 32% Repurchases 200 Dividends 100 0 ~ 90% of Free Cash flow has been returned

  28. Slide 28: Financial Strategy for Increasing Shareholder Value

    Financial Strategy for Increasing Shareholder Value  Long Term Targets and Guiding Financial Principles  Cash flow Generation ‒ Growth ‒ Margins ‒ EPS ‒ Free Cash Flow & RoCE  Capital Structure ‒ Debt Policy & RoE  Reconciliations 28 Copyright Autoliv Inc., All Rights Reserved

  29. Slide 29: Debt limitation policy

    Capital Structure Debt limitation policy 2,5 Policy Leverage Ratio * Long-term Range 2,0  Maintain a “strong investment grade” credit rating Max 1,5  Long-term target of around 1.0x within Times Target the range of 0.5x to 1.5x 1,0  Provides financial flexibility for acquisitions, Min shareholder

  30. Slide 30: Share count vs. earnings per share and RoE

    Capital Structure Share count vs. earnings per share and RoE* % 125 10 25 Shares EPS* ROE* 100 8 20 Share Count (millions) US $ EPS 75 6 15 50 4 10 25 2 5 0 0 0 '97 '99 '01 '03 '05 '07 '09 '11 '13 LTM '97 '99 '01 '03 '05 '07 '09 '11 '13 LTM Jun15 Jun15 EPS* growth faster than sales growth target thr

  31. Slide 31: M&A transaction effects

    Capital Structure M&A transaction effects M&A Effects Automotive Solutions License Joint  Sales Acquisition Agreement Venture Sales FY2015 N/A FY2016  Margins ~$90M ~$600M  Synergies Operating Margin* Accretive N/A in-line with LT range of 8-9%  Goodwill Operating Income 100% N/A 100%  Intangib

  32. Slide 32: A Sound Investment

    A Sound Investment  Strong long-term top-line growth  Among industry leading margins and return on capital  Strong balance sheet and free cash flow generation over the cycles  Shareholder returns over time 32 Copyright Autoliv Inc., All Rights Reserved

  33. Slide 33: Thank you!

    Thank you! Every year, Autoliv’s products save over 30,000 lives and prevent ten times as many severe injuries 33 Copyright Autoliv Inc., All Rights Reserved

  34. Slide 34: Reconciliations

    Reconciliations Operating Margin 2011 2012 2013 2014 LTM June 2015 Reported U.S. GAAP 10.8% 8.5% 8.6% 7.8% 7.5% Adjustments for antitrust matters 0.2% 0.3% 0.1% 0.8% 0.9% Non-U.S. GAAP 11.0% 8.8% 8.7% 8.6% 8.4% EPS, diluted 2011 2012 2013 2014 LTM June 2015 Reported U.S. GAAP $6.65 $5.08 $5.07 $5.06

  35. Slide 35: Free Cash flow Reconciliation

    Free Cash flow Reconciliation $USD 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Net cash provided by 343 314 436 266 266 509 529 680 479 560 781 614 493 924 758 689 838 713 operating activities capex, net -183 -285 -261 -235 -248 -228 -246 -313 -309 -292

  36. Slide 36: Items Affecting the Tax Rate

    Items Affecting the Tax Rate 2011 2012 2013 2014 Reported Pre-Tax Income 828.3 668.6 734.0 667.0 U.S. Federal Income Tax Rate 35.0% 35.0% 35.0% 35.0% R&D and Other tax credits -3.0% -3.2% -3.8% -4.1% Foreign rate variance ex. holidays -6.3% -5.8% -8.2% -8.5% Withholding Taxes 1.9% 1.6% 1.5% 0.6% Cos

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