Autoliv, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also provides unaudited fourth-quarter results. Unless noted, financial amounts are U.S. dollars; annual financial results are for continuing operations unless stated otherwise.
Business context
Autoliv develops and supplies automotive passive-safety products, primarily airbags, inflators, steering wheels and seatbelts. It reported one operating segment following the June 2018 spin-off of its former Electronics business, Veoneer. FY 2019 sales were $8.55 billion; airbags and related products represented about two-thirds of sales and seatbelts about one-third. The company had approximately 59,000 employees and 65,000 total headcount including temporary personnel.
Financial performance
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Net sales | $8,548 million | $8,678 million |
| Organic sales growth | 1.2% | Not stated here on a comparable basis |
| Gross profit / margin | $1,584 million / 18.5% | $1,711 million / 19.7% |
| Operating income / margin, reported | $726 million / 8.5% | $686 million / 7.9% |
| Adjusted operating income / margin | $774 million / 9.1% | $908 million / 10.5% |
| Income from continuing operations | $463 million | $378 million |
| Diluted EPS, continuing operations | $5.29 | $4.31 |
| Adjusted diluted EPS | $5.72 | $6.83 |
| Cash provided by operating activities | $641 million | $591 million |
| Capital expenditures, net | $476 million | $486 million |
FY 2018 reported results included a $210 million European Commission antitrust accrual. FY 2019 operating income included a net $6 million antitrust-related benefit versus that prior-year charge; adjusted measures exclude specified items and are non-GAAP.
Fourth quarter: Sales were $2,191 million versus $2,193 million in Q4 2018. Gross profit was $427 million versus $425 million. Income from continuing operations was $156 million, compared with a $93 million loss in Q4 2018, when the antitrust accrual substantially affected results. Diluted continuing-operations EPS was $1.78 versus a loss of $1.06. Q4 cash flow is not separately provided in the filing text presented here.
Liquidity, debt and financial position
- At year-end, cash and cash equivalents were $445 million; total debt was $2,094 million and net debt was $1,650 million.
- Autoliv had an undrawn $1.1 billion revolving credit facility maturing in July 2023, with no financial covenants in its significant debt facilities. Cash declined from $616 million at year-end 2018.
- Leverage ratio was 1.7x, above the company’s stated 0.5x–1.5x target range and 1.0x long-term target. S&P downgraded the long-term rating to BBB+ in September 2019 and maintained a negative outlook.
- Current assets were $3.00 billion and current liabilities $2.41 billion. Operating working capital was $565 million, or 6.6% of sales.
- Dividends paid were $217 million; the declared annual dividend was $2.48 per share. No shares were repurchased in 2018 or 2019.
Material changes and management commentary
- Global light-vehicle production fell 6% in 2019, following a 1% decline in 2018. China production declined 9%, Europe and North America each fell 4%, and India fell 12%.
- Despite the production downturn and negative currency translation of 2.7%, organic sales grew 1.2%, outperforming global production by more than seven percentage points. Americas growth offset declines in Europe and Japan.
- Gross margin fell 1.2 percentage points, reflecting lower factory utilization, raw-material costs and social unrest in Matamoros, Mexico. Management also cited accumulated raw-material cost increases exceeding $80 million during 2018–2019 and annual customer price reductions estimated at 2%–4%.
- Reported operating margin improved year over year, but adjusted operating margin declined 1.4 percentage points to 9.1%; adjusted EPS declined 16.3%. The reported improvement largely reflects lower antitrust-related costs compared with 2018.
- New orders represented an estimated 50% of available order value for the fifth consecutive year. Estimated lifetime sales from 2019 awards were $11.0 billion, versus $15.1 billion in unusually strong 2018. Typical award-to-production lead time is 18–36 months.
- A structural efficiency program targeted approximately 800 indirect-workforce reductions, with estimated cost of about $52 million, implementation by mid-2020 and annualized savings of about $60 million. FY 2019 restructuring charges were $54 million; year-end restructuring reserves were $56 million.
Outlook, risks and unusual items
For 2020, management indicated net sales and organic sales growth of 3%–4%, adjusted operating margin of at least 9.5%, R,D&E below the 2019 level, tax rate around 28%, operating cash flow above 2019 and capital expenditures below 2019 as a percentage of sales. The outlook assumed global light-vehicle production would decline 2%–3%; the filing cautions that automotive-market uncertainty was high. These indications exclude specified unusual items and are non-GAAP.
- Antitrust: The EC imposed a €179 million fine (approximately $203 million), paid in June 2019. Related civil litigation and other legal contingencies remain risks.
- Product recall: Autoliv continued cooperating with Toyota on a recall involving approximately 1.4 million vehicles with a certain side-curtain airbag. The company said it believed its net loss would be less than $20 million, net of expected insurance recoveries, but actual costs could differ materially.
- Demand, pricing and concentration: Results are exposed to vehicle-production cycles, customer pricing pressure, product mix and customer concentration; the top five customers accounted for 52% of sales and the top ten 79%.
- Supply and operating risks: Just-in-time production heightens exposure to supplier shortages, logistics interruptions, labor actions, natural disasters and quality problems. The filing specifically noted potential supply-chain disruption from the then-emerging coronavirus outbreak, particularly involving China; the eventual impact was uncertain.
- Other exposures: Raw-material prices, currency movements, tax audits, pension funding, product liability, regulation and the possibility of further recalls or litigation could affect results and cash flows. The company reported pension liabilities of $240 million, up from $198 million.
The independent auditor issued an unqualified opinion on the financial statements and internal controls; management and the auditor reported effective internal control over financial reporting as of year-end.
Important facts for investors to verify
- Whether the 2020 growth and margin indications were achieved, particularly given the assumed production decline and subsequent market developments.
- Actual delivery and timing of the structural program’s savings versus its costs, workforce reductions and $56 million year-end reserve.
- Final Autoliv costs, insurance recoveries and any changes in exposure related to the Toyota recall, plus developments in antitrust-related civil claims.
- Progress in reducing leverage from 1.7x toward the target range, liquidity availability, refinancing needs and implications of the BBB+ negative outlook.
- Whether organic growth, utilization and gross margins can offset customer price reductions, material-cost pressure and regional production weakness.