Autoliv, Inc.

Thank you, Raffia. Welcome everyone to our first quarter 2023 earnings call. On this call, we have our president and CEO, Mikael Brass, and our chief financial officer, Fredrik Rustin, and key and VP, Investor Relations. During today's earnings call, Mikael and Fredrik will, among other things, provide an overview of the strong sales development in the first quarter, discuss operating leverage and outline the expected sequential margin improvement for 2023, As well as provide an update on our general business and market condition. We will then remain available to respond to your questions. And as usual, the slides are available at outtoleave.com. Turning to the next slide, we have the Safe Harbor Statement, which is an integrated part of this presentation. And of course, includes the Q&A that follows. During the presentation, we will reference some non-US GAAP measures. of the conciliations of historical US GAAP to non-US GAAP measures in our quarterly press release available on moultony.com and in the 10Q that we line 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 now hand over to our CEO, Nica Drapp.

Thank you, Anders. Looking on the next slide. I would like to start by thanking our employees for good execution, supporting our strong growth in a challenging environment. The safe performance and strong profit recovery was in line with our earlier communicated expectations. Thanks to a strong ending of the quarter, our organic sales grew by more than 20%, outperforming light vehicle production significantly. The strong growth was a result of product launches, higher prices, and higher safety content for vehicles, and also supported by a positive regional mix. Our profit development was as expected, considering that market conditions continued to be challenging, especially in Europe, with significant inflationary pressure and continued customer call-off volatility. Mainly due to strong sales growth, adverse working capital development led to a negative cash flow in the quarter. We expect a more positive cash flow trend for the rest of the year. Our leverage ratio increased to 1.6 times to 1.4 times three months ago. In the quarter, we paid 66 cents per share in dividends and repurchased and retired 450,000 shares. We issued our first green bond that allows us to reach new investors and at the same time help fund our climate targets. We have a strong commitment to climate action and this is a milestone in supporting our customers in achieving their sustainability ambition. We are expanding to Vietnam, investing in increased production capacity of airbag cushions in Asia for Asia. We saw updates to crash test standards and safety regulations in the US and in India, which will support continued increase in safety content for vehicle already this year as well as coming years. We also continue to look for ways to improve our footprint and reduce our costs structurally. The first quarter development affected and we continued to expect a gradual improving adjusted operating margin during the year. This should allow us to reach the full year indications we set at the beginning of the year. Now looking at the expected adjusted operating margin progression for 2023 on the next slide. For 2023, we expect a gradual improvement of the adjusted operating margin quarter by quarter, similar to the trajectory in 2022. We expect continued high sales growth supported by launches, higher light vehicle production, and content per vehicle increase. We anticipate price adjustments will gradually, throughout the year, offset cost inflation that affects us in the first quarter. The positive trajectory will be further supported by improvements from cost reduction, footprint optimization, as well as expected gradual improvement of the supply chain and light vehicle production stability. Effects are limited in the first half of the year and significantly larger in the second half of the year. Our undertaking makes me confident in a gradual improving performance, which should allow us to deliver a significant full year increase in cash flow and adjusted operating income. Looking now on our sales growth in more detail on the next slide. Our consolidated net sales increased by $2.5 billion, a record for the first quarter. This was close to $370 million, or 17% higher than a year earlier, despite the 77 million, or four percentage points, currency headwinds. Price-volume mix contributed with $444 million. Looking on the regional sales split, Asia accounted for 38%, America for 33% and Europe for 29%. The China share decreased from 21% a year ago to 18% now. as light vehicle production grew in all regions in the quarter, except in China, where it declined significantly. We outlined our organic sales growth compared to light vehicle production on the next slide. I am very pleased that our organic sales growth significantly outperformed global light vehicle production growth in the first quarter. This was achieved as we continued to execute on our strong order books. According to S&P Global, light vehicle production increased by around 6% year-over-year in the quarter. This was slightly higher than expectations in the beginning of the quarter. Based on the latest light vehicle production numbers, we outperformed global light vehicle production by around 15 percentage points in the quarter. In the quarter, we outperformed in Japan by 17 percentage points, in China by 16 percentage points, and in Europe by 14 percentage points. Compared to the fourth quarter last year, light bakery production in the first quarter fell by around 4%. Despite this, our sales increased by 7%, sequentially supported by new launches. market share gains, and content for vehicle growth. We expect this positive sales trend to continue, and we expect to outperform light vehicle production by around 12 percentage points for the full year 2023. Looking now on financials in more detail on the next slide. The strong sales increase led to substantial improvement in adjusted operating income including effects of capacity alignment and antitrust-related matters, which increased from 68 million to 131 million. The adjusted operating margin was 5.3% in the quarter, an increase to 5.1 percentage points from the same period last year. Operating cash flow was negative, 446 million, which was 116 million lower than the same period last year, mainly from adverse working capital as an effect of significantly higher sales level towards the end of the quarter. Fredrik will provide further comments on cash flow later in the presentation. On the next slide, we see some key model launches from the first quarter. In the quarter, we have a high number of product launches, especially in China and Europe. The models shown on this slide have an output of content per vehicle from approximately 140 to close to 550 US dollars. These models reflect the changes seen in the automotive industry in recent years, with several relative new OEMs represented and that six out of nine are available as pure EV. In terms of Autoliv sales potential the Subaru launches are the most significant. The long-term trend to higher content for vehicle is supported by front center airbags, more advanced seat belts and pedestrian protection airbags. I will now hand it over to our CFO Fredrik Vislin who will talk about the financials on the next

Thank you, Mikael. This slide highlights our figures for the first quarter of 2023 compared to the first quarter of 2022. Our net sales were 2.5 billion. This was 17 percent higher in the first quarter of 2022. The gross profit increased by 32 percent to 379 million, while the gross margin increased to 15.2 percent. The gross profit increase was primarily driven by price increases, volume growth, and lower costs for premium freight. In the quarter, we made 4 million in provisions for capacity alignment activities and antitrust-related matters. The adjusted operating income increased from 68 million to 131 million. The adjusted operating margin increased from 3.2% to 5.3%. We do recognize that the operating leverage on the strong sales growth was limited in the quarter, and I will explain more when we go through the operating income bridge. The operating cash flow was negative 46 million. Earnings per share diluted, decreased by 8 cents, where the main driver was 52 cents from capacity alignments and 5 cents from taxes, partly offset by 51 cents from higher adjusted operating income. Our adjusted return on capital employed and return on equity increased to 13% and 12% respectively. We paid a dividend of 66 cents per share in the quarter and repurchased and retired around 450,000 shares for $42 million under our stock repurchase program. Looking now on the adjusted operating income bridge on the next slide. In the first quarter of 2023, our adjusted operating income of 131 million was 63 million higher than the same quarter last year. The impact of raw material price changes was negative 12 million in the quarter. Foreign exchange impacted the operating profit negatively by 25 million. This was mainly a result of transaction effects from the Mexican peso. Costs for SG&E and RD&E net combined was 26 million higher, mainly due to higher personnel costs and projects. Our operations were positively impacted by improved pricing, higher volumes, lower cost for premium freight, as well as our strategic initiatives, partly offset by the significant headwinds from general cost inflation. The impact of the strong sales growth was relatively low in the quarter, as new product have a lower operating leverage initially. As a result, the leverage on the higher sales, excluding currency effects, was in the low end of our typical 22% operational leverage range. The actions we are now taking, that Mikael talked about previously, should lead to significantly higher operating leverage, profitability, and cash flow as the year progresses, very much like last year. Looking now on the cash flow on the next slide. For the first quarter of 2023, operating cash flow decreased by $116 million to a negative $46 million due to higher working capital and lower net income. During the quarter, trade working capital increased by $226 million, essentially from higher receivables. The higher receivables were the results of high sales towards the end of the quarter. The inefficiencies in inventories did not materially improve as light vehicle production continued to be volatile. For the first quarter, capital expenditures net increased to 143 million from 17 million in the previous year's quarter. The first quarter last year was positively affected by the sales of a property in Japan for 95 million. Excluding the property sale, capex in relation to sales This quarter increased to 5.7 percent from 5.3 percent a year ago. The current high level of investment is related to the ongoing footprint activities and capacity expansion for growth, especially in China. For the first quarter of 2023, free cash flow was negative 189 million, 242 million lower than a year earlier. Although our cash flow was temporarily weaker in the first quarter, we expect a gradual positive cash flow development for the rest of the year from higher net income and a more stable sales level. Our full year indication is for an operating cash flow of 900 million, and that is unchanged. Now looking on our leverage ratio development on the next slide. The leverage ratio at the end of March 2023 was 1.6 times. This was 0.2 higher than in the previous quarter, as the net debt increased proportionally more than the 12 months trailing adjusted EBITDA increased. We do remain committed to our 2022-2024 share repurchase program. And as you know, we are considering several factors when executing the program. As we have mentioned many times, we are not only considering the debt leverage ratio when deciding on the pace of the repurchases. We're also considering our balance sheet, cash flow outlook, the debt rating, and the general business outlook. We always strive for the balance that is best for our shareholders, both long and short term. Now looking at the next slide. Sustainability is integrated into everything we do. By reducing the number of road fatalities and making transportation systems safer for everyone, our core business directly contributes to the United Nations Sustainable Development Goals, SDGs. During the first quarter, we successfully issued a first 500 million euros green bond using Autoliv's sustainable financing framework aligned with the ICMA green bond principles. The issuance drew significant interest from debt investors, leading to a successful pricing of the bond, resulting in a coupon of 4.25 percent. The proceeds of our first green bond were used exclusively for financing green projects, including clean transportation, renewable energy, energy efficiency, and decarbonization of operations and products. With the projects financed by the Green Bond, we believe we can further contribute to sustainable society. Now looking at the liquidity position on to the next slide. At the end of the quarter, we had a strong liquidity position with approximately 1.8 billion in cash and unutilized committed credit facility. With the sustainable financing framework, we have diversified our long-term funding We also have a maturity profile that is well spread out over the coming years. Note that none of our credit facilities are subject to financial covenants. With a leverage ratio of 0.6 times, a BBB S&P rating with stable outlook, a balanced maturity profile, and the strong liquidity position, we are well positioned to operate in any environment. I now hand it back to you, Mikael.

Thank you, Fredrik. Let's look at market environment and financial outlook for 2023 on the next few slides. Due to supply constraints of semiconductors, large part of the auto industry have been operating at or near recessionary levels. As the supply of semiconductors has improved somewhat, S&P Global has upgraded their near-term light vehicle production forecast. For second quarter, global light vehicle production is now expected by S&P Global to improve by 13% compared to last year. Compared to the first quarter, volumes are expected to be about unchanged. Despite concerns surrounding elevated vehicle pricing in some markets and deteriorating trend conditions, global production is projected to increase by 37%. to close to 83 million in 2023, according to S&P Global. The Chinese market remains volatile short term due to the discontinuation of last year's lower purchase tax and the introduction of new emission rules, leading to destocking of inventories at the dealerships. Light vehicle production in North America is projected by S&P to increase by more than 5% in 2023. However, due to recessionary fears and increasing inventory levels, the forecast for the second half of 2023 has been revised lower. SLP outlook for European light vehicle production has increased by 300,000 units. However, we remain cautious regarding European vehicle demand for 2023. Looking at the 2023 financial indications on next slide. Our full year 2023 indications are unchanged and exclude costs and gains from capacity alignment, antitrust-related matters, and other discrete items. Our full year indication is based on light vehicle production growth assumption of around 3%. We expect sales to increase organically by around 50%. Currency translation effects are assumed to be around negative 1%. We expect an adjusted operating margin of around 8.5% to 9%. Operating cash flow is expected to be around 900 million US dollars. Our positive cash flow trend should allow for increasing shareholder returns. Turning to the next slide. I am looking forward to seeing you at our investor day, which will be held on Monday, June 12th at our technology center in Auburn Hill, Michigan, US. The focus of the event will be on medium and long-term growth opportunities, world-leading our strategic roadmap, as well as our innovation within optimization and operation efficiency and what progress we are making. The format is a half day with presentations by members of our executive management team and exhibitions of Autoliv's latest innovation and technologies showcased by subject matter experts. I'm looking forward to seeing many of you there. Turning to the next slide. So this concludes our formal comments for today's earnings call. And we would like to open the line for questions. I will now turn it back to Rasa.

Thank you, sir. As a reminder, to ask a question, you will need to press star 1 and 1 in your telephone and wait for your name to be announced. To answer your question, you can please press star 1 and 1 again. Once again, please press star 1 and 1 if you have any questions or comments at this time. Thank you. We are now going to proceed with our first question.

The questions come from the line of Colin Langan from Wells Fargo.

Please ask your question. Your line is open.

Oh, great. Thanks for taking my questions. Just in terms of the labor cost recoveries, any framing of any impact in Q1? And then I think in the past you've kind of given an update of what sort of percent of contracts you've been able to renegotiate and any sort of color there on how that's trending in Q1 and so far in Q2.

When it comes to the price negotiations, I would say it's too early at this point to start to give you an indication on the bridge. I would say that it In relation to the full year expectations here on the price adjustments, we are in the early stage here, and I would say it is a limited impact, but it is an impact in line with our expectations in time. So what I would like to say here is that we're making the progress we need to do to support our confidence when it comes to the full year here. it's not meaningful to give a percentage point at this point, at this point in time, contracts connected to labor.

Got it. And during the quarter, steel prices have jumped quite a bit. Can you just remind us sort of what your risk would be? And because I know you've changed the way your contracts are structured. So are there triggers that renegotiate this, I believe, or any risk there to the outlook from that jump in steel prices?

No, you're right. We have also seen that steel prices have now turned upwards again in certain areas. So that means that whereas we were initially a quarter ago, we're expecting actually to have a positive effect on this from steel prices for the full year, we now expect that to be more or less flat with the outlooks that we have here. We have indicated that we have now a better balance of how we're set up versus our suppliers and our customers. We should be able to manage this and not have any significant impact on profitability from this development.

Okay. Any color on the percent of contracts that have clauses that trigger renegotiation? I thought in the past you said something like 90%. Maybe I'm misinterpreting that.

No, we said that we had to close more than 90 percent of the negotiations related to raw materials, and that we are now roughly half of our business on the sales side, on the customer side, now has an indexation type of setup that would adjust for raw material fluctuations, and still has a larger part than other commodities. Great.

All right, thanks for taking my question. Thank you.

We are now going to proceed with our next question. And the questions come from the line of Emmanuel Rosner from Deutsche Bank. Please ask your question.

Thank you very much. Just a fairly specific question here on a piece of your operating income bridge on slide number 10. It seems like currency was a fairly large headwind. It seems like a meaningful portion of as a percentage of last year operating income, but obviously much more impact on the revenue side was only a few percent. So can you just go over what's happening there on the FX side? Because it seems like excluding that, I think your margins would have been somewhat meaningfully better.

Yes. So we're showing here a year-over-year effect of negative 25 million, where close to 20 million of that is from transactional currency effects. And the translational and the evaluation parts are smaller, also both negative, about two million each. And so the negative impact is from the appreciation of the peso against the US dollars. That's roughly two-thirds of the negative transactional effect. But we also have negative effects on a year-over-year basis still. from the U.S. dollar Japanese yen and also U.S. dollar Korean won. They have improved sequentially, but still on the year-over-year view here, they're also a negative impact for us.

Okay. And any thoughts in your outlook? Is that a meaningful contributor in the full year?

No. We do indicate here that on the Revenue side, we still see the negative 1%, and then how all the currency pairs will play out over the winter. We, of course, do expect the currency rates to stay where they are. That's in the second half of the year. We should have a pretty favorable effect from the Asian currencies against the dollar. But then we have to see also then how the PSO develops here and others.

Okay. And I was hoping to get a little bit more color from you on the characterization of, you know, operating conditions in Europe. I think you've qualified them as, you know, still challenging. Obviously, latest IHS suggests that at least in absolute, you know, volume terms, things sort of like play that meaningfully better than maybe expected just sort of like a few months ago at the start of the quarter. So maybe quite a bit more volume than expected. Can you just maybe just describe, I understand the inflation piece, but Just curious about what you're seeing in terms of the choppiness of schedules and the sequential improvement in volume.

Yeah, as we said here, I mean, I expect 300,000 vehicles more increase here. We are maybe on the more cautious side there. And the reason for that is because we need to see some volatility here. It has improved, but it's far from over and behind us here. So that is still a factor. And of course, that in combination with the inflationary environment and the challenges also on the labor side here, it is a summit to operate here. But we are moving in the right direction. But I would say the overall environment has some way to go before we are out on the other side. Okay, thank you.

We are now going to proceed with our next question. And the questions come from the line of Rod Latch from Wolf Research.

Please ask your question.

Hello, everybody. Firstly, the quarter itself benefited from stronger than expected production and obviously stronger than expected revenue. Can you talk about whether that production part itself actually converted at its historical rate? I'm not talking about the new business side. And if it did, what were the negative variances versus what you expected at the this start of the year? Is it largely currency or are there any other developments that you would count as negatives?

As we indicate, it's not at the level that we would want it to be, the leverage ratio. Predominantly, it's still the call of volatility and the impact that that has on our ability to operate efficiently in our plants where we have issues to pull through at the the historical leverage rates that you would expect. But then on top of that, as you already mentioned, there's a significant contribution here from new launches, market share gains, and of course that does not have the same margin impact or leverage rate as just the floating with LVP. And that also then is a contributing factor to the somewhat lower leverage here in the quarter.

Okay. But relative to your expectations, you're suggesting that it was a bit more volatile, it sounds like.

No, I wouldn't say it was more volatile than we had expected. I mean, we had indicated around 5%. That's where we come in. I think the top 10 is also very much or very close to our expectations. So at least for us, there are no big surprises in the quarter.

Okay. Okay. Can you just give us a little bit more insight into the drivers of this margin improvement from the low fives to the low double digits, which would be implied by your full year guidance? It would seem that you would get there by late this year. How much of that is the internal savings that you anticipate? How much do you need to recover of costs that you've been absorbing?

The factors are that we still expect a top-line growth, also from sequential here in the quarter, so that will be a contributing factor. Then, of course, the price adjustments that we're also looking at to be able to negotiate and then come through with here starting in the second quarter. And then the third one is the stabilization component, which I already mentioned. It's difficult to now give a a split of those three, but also the main factors here that we expect to contribute to the margin improvement sequentially.

Have you defined the automations and digitization savings for this year and what your objectives are? It sounded like those are bigger than what you had originally planned two or three years ago.

We haven't given a specific number for that and not on a yearly basis here. But of course, that is a part of our overall journey towards the mid-term targets. But I think for this year, it is really all about the work that we're doing now to negotiate price adjustments for the inflationary components and then continue with our state cost control and improvement work here to support the leverage that we have discussed here before. And I mean, as we have guided for this year, we are then indicating a percentage point improvement, basically around 2% improvement year over year, and we're starting now the Q1 with a two percentage points improvement, Q1 versus Q1. So that set us off to a good start for the full year in line with our plans and expectations. And as we have also said here, we expect a sequential improvement quarter by quarter similar to the way we saw it in 2022. And that, of course, comes to that 2023 is very much the same as 2022 in terms of inflationary pressure hitting us first, then we're going through the price negotiations with our customer, and they are trickling in gradually here throughout the year, in combination with what is Also, a normal seasonality is that we have the productivity coming through throughout the year while price down success is happening in the beginning of the year. So, instead of price downs here, we're talking about the inflationary pressure. So, but the seasonality is the same.

Great. Thank you.

We are now going to proceed with our next question.

And the questions come from the line of Philip Cunning from Goldman Sachs. Please ask your question. Your line is opened.

Yeah. Hey, guys, and thanks for taking my questions. My first question is just on the SG&A, which stepped up quite meaningfully in absolute terms compared to sort of the previous quarters. I know that you're top line and there's inflation in the system, but were there maybe some some agreements that you had, including one-time payments that sort of weighed on the SG&A in the first quarter, or do you expect that to sort of remain in about 5% of sales in the coming quarters? And then my second question is just on Mikael, on the point that you just touched on earlier. You mentioned sort of, you know, 2% ahead of last year is what you need to get to the guidance that you set up for the year. If we sort of now think about the second quarter, you know, you mentioned better leverage, obviously higher volumes and better recoveries. Is it fair to say that maybe in the second quarter we could see maybe an even better step up compared to the first quarter, given that you should have quite a few tailwinds? Any color there, pretty much appreciate it. Thank you.

Thank you for your questions. Maybe I start there on Q2 and Fredrik take the SD&A question there. I mean, as you know, we're not guiding by quarters here, but I think what we are saying here is that you should expect a similar pattern as last year. And with the 2 percentage points improvement and around 2 percentage points improvement in the first quarter, which also should translate throughout the year. to get to around 8.5 to 9. And we just said here that in terms of let's call it step-up improvement here, it's more geared towards the second half. Also, I would say in line with how last year developed. So I think that there's as much commentary I can give regarding the sequential development on the quarters to come here in 2023.

And on the SG&A question, you see from our headcount development that our indirect headcount is up around 4.5%. And that's also the case on the SG&A side. And that is to support a business here that has grown by 21% year over year. That's one factor. Then, of course, we have the inflation component also moving into SG&A costs. It's both on the labor side, but also on the indirect spend, and then we had in this quarter maybe a somewhat higher project-related cost. But for the future, our ambition is to also get the right leverage also on our support cost structure, meaning that we aim to keep the SG&A as lean as possible, and then with the top-line growth, see a more favorable ratio going forward.

Thank you very much.

We are now going to proceed with our next question. And the questions come from the line of Hampus. Angelo from Handelsbanken, please ask your question.

Thank you very much. It would be interesting if you guys could maybe give us a flavor on how the production of your customers has been during the quarter. I mean, your call-ups during the quarter. Have they been lumpy or more stable? And how should we think about that going forward? And then on your outlook, Michael, the 50% organic growth outlook, is that based on a more conservative number for Europe than the plus 7% that ITS currently has? That's my question. Thank you.

Thank you, Ambrose. I would say that the volatility has improved, but it's not normalized yet. So there is still some way to go. It varies quite a lot between the different customers here, which will also have been the pattern the last couple of quarters here that it's not one size fits all here in terms of volatility. And it's very much connected to the same actors supply and also what type of meaning supplier in their turn and also what kind of versions of semiconductors they're using. And as we have seen here, you later and more new technology you have in your semiconductors, you have some better position compared to if you have, let's call it the older and more traditional OEM conductors. And there is a lot of activities going on with the ones that are still on the old technology platforms you put down semiconductors to. to redesign and resource there. So the expectation is that it should move in the right direction. And that's also in that space where the semiconductor manufacturers are putting in new capacity. So more work to be done there, but moving in the right direction. I think the expectation is that we should see less of volatility as we move forward. we know there's a lot of other moving parts going on at the same time that can have some disturbances and we have seen that also connected to logistic issues for example where the predictability on shipping sort of shipping length and freight schedules are not as reliable as it was before the pandemic here so there are also other things going on on top of the semiconductor issue So I guess that's the response on the first question there. Regarding the outlook and Europe's weight, and I guess the short answer is yes to your question. Of course, the cautiousness around Europe that I expressed before is a part of our life vehicle and growth of around 3% that is the basis for our organic sales is there. So yes, to your second question there.

Super. And maybe on that, is it from what you see in your customer base or is it just the general thinking surrounding the European economy and all of that that makes you more cautious?

I think it's a combination of the two, but of course it's very much connected to the customer interaction, I would say.

Thanks.

We are now going to proceed with our next question. And the questions come from the land of Vijay Rakesh from Missouri. Please ask your question.

Yeah, hi. Just a quick question. When you look at the global LVP 3.7% this year, what slowdown are you assuming for the U.S., like second half and first half? Any thoughts on Europe if the US slows down? I'm just wondering what the assumptions are.

No, I think our distribution of our number is not very much different from what you see from S&P Global. I would say if you see the different weights from the regions there, it ties into our view as well, with maybe the exception that we are a little bit lower on Europe, as you said, but that's has affected around 3% instead of 3.5%. So it's already in there. So in terms of regional mix, it doesn't differ too much.

Yeah. And then on China, obviously it looks like they are assuming a pretty strong growth. Are you assuming any subsidies from China, either on the EV side that drives that LVP in China through the back half as well?

No, it's nothing we see or hear and have on the radar screen here. I think overall we see a high level of activity in the Chinese market here. And as you know, the Shanghai Auto Show is currently ongoing here this week. So very dynamic market and we are, I would say, positive for the Chinese

Last question. I know you'd mentioned 90% of the products have been negotiated with the cost inflation side. Broadly, is there a way to look at what the pricing tailwind would be from the cost pricing negotiations as you run through 2023? Because some of these pricing have continued to go up, but just wondering broadly, what's the ballpark pricing tailwind?

Well, it's more than 90 percent. We haven't said the exact number, but it's more than 90 percent. I think the indication we can give is that in the 15 percent organic growth, we still assume around 3 percent global LVP. We've said around 3 percent in vehicle, and then the remaining to come from pricing and from market share gain. And that pricing would be the larger of the two components. And I think that's as much as we can say on the pricing contribution.

Great. Thank you very much. Thanks.

We are now going to proceed with our next question. And the questions come from the line of Eric Orang from SEB. Please ask your question.

Thank you. I'll talk with two questions. The first one is a follow-up on the pricing comment. If it's around 5% for the year, how much was pricing up in the first quarter here, since you say that there's more to come? And then the second question on the expectations of LVP stability and visibility improving, I guess that's completely out of your hands, right? So if that doesn't happen, how much lower would the full-year margin be?

Let me start with the second question and Fredrik can take the first one there. I mean, in our guidance, of course, we are aware of the market situation here and we are working hard to manage it. So, of course, volatility is here, even though we think it's going to improve. Of course, we need to improve our way to work in such an environment. And I think last year you saw that we had significant premium freight. We don't have that this year and of course a part of that is that we have then improved and I would say added on support in our plants to create more stability in our own production to to offset that constraint from our customers here. So we find a way to operate in such an environment. And as we move forward, we continue to improve that work. It's not as Fredrik alluded to before, optimal at this point in time. But the combination of improving and stabilizing what we see from our customers and our own ability should support what we are talking about here in terms of full year guidance. I don't see any reason why we shouldn't be able to contain that volatility that we're talking about here within our framework here. So I feel comfortable with the current situation here.

And then on the pricing side, I think we need to refer back to what we said after the fourth quarter earnings release here. And the way that these negotiations go is that we need to have the cost increases in our cost structure first before we can then get the compensation from the customer. And that has now happened here in the first quarter. As we've indicated, the two largest components of inflation that we are facing is So the impact of the non-draw material related inflation in our supply base and then the labor cost inflation in our own operations. And those have materialized in the first quarter already with not so much compensation that came in from the customer side. So pricing has remained relatively flat sequentially.

So the vast majority of that 5 percent is not yet in the books? Correct. And then a final question on these, the drag from new volumes or new contracts ramping and there being weaker leverage on that initially. I mean, that's something we've seen that a couple of times historically and how, I guess you always need new volumes and new contracts to grow over time. So why is that? Is there anything you could put a number or frame

much the sort of share of new contracts or new volumes is this quarter compared to an average or something like that to put it in perspective um well i mean yeah i don't think i need to explain the why they have an initially lower profitability but um in the contribution from these launches have been significantly larger in this first quarter than what you would typically see an ldp is up six percent or volumes are up significantly more than that um and that's It was a larger part of the volume growth that came from these launches than in a more normalized quarter.

Okay. But that means that the higher our performance, the lower the leverage. Is that always how one should think about it?

Initially, yes.

Thank you.

We are now going to proceed with our next question. And the questions come from the line of Michael Jacks from Bank of America. Please ask your question.

Hi. Good afternoon. Thanks for taking my questions. Maybe the first one, following on from Frederick's comments on the factors that you consider when deciding on the pace of share buybacks, would it be fair then to assume that there should be somewhat of a linear relationship between your margin and cash evolution through the year and the execution on the program?

I don't want to talk about how it develops by quarter, but I think you can look at our normal seasonality and the margin progression that we're also indicating here for the year. And I think that those two together gives you maybe also an indication of how the cash flow generation will look per quarter Then, of course, we will be, as I said, it's not only profitability, but then also the leverage ratio, which is clearly connected to that, but also the cash flow and the visibility we have in the near term on the market development and on business development. So, yes, somewhat is maybe my answer to your question.

Right, understood. And then I guess we're all now very well used to watching out for downside risks to lightweight production, but the aggregate unit sales ambitions of the OEMs for this year clearly require perhaps an even higher LVP growth than what S&P is expecting. Just curious if this delta is perhaps visible in the production schedules that your customers have provided to you for the coming quarters.

If I look at what we say for the first quarter that the production volatility is still around us, it's in the vast majority of the cases that deviation is on the downside. Meaning that the EDI call-offs we get are then revised downwards for the vast majority of our customers. Maybe that's an indication of where that delta density is going forward.

So they start the quarter then really high and then cut back as the quarter progresses. Is that the trend?

Yes, and very few deviate on the upside.

Yeah, thank you.

But at the same time, it's not the new phenomena.

No, no.

So it's normally how it looks.

Thank you.

We are now going to proceed with our next question.

And the questions come from Daniela Matthias Homburg from DNB. Please answer your question.

All right, thank you. A bit of a philosophical one, perhaps. And if we look at your customers, the OEMs, we see some of them basically cutting prices as if it was going out of fashion. So it would be interesting to hear if you can share your view on how lower final selling prices for light vehicles works its way through the value chain and perhaps more importantly, explain the logic on how you are meant to raise prices when your customers are generally cutting prices at this point. Thanks.

Yeah, this is a philosophical question here, but first of all, I think what we're talking about here with our customer is not anything else than the inflationary components of doing business in this industry here. So we're coming with a request here to offset external factors. I think in the same fashion that we are being hit with the inflationary costs, then going to the customer, we have the sequential here where we have the negative impact first and then we get compensation when we that cause evidence there in our negotiation. I think if you look at our , I think many of them rather have actually increased prices on the core side than where what you're referring to there. But I think in a broader extent, I think there is no doubt about that the industry as such are aware of what needs to be done here to compensate the value chain to make sure that we have a sustainable value chain in the industry. So in my discussions with our customers, that's not the factor that we are considering here. We are looking at the facts around inflationary components hitting the value chain here, and that's what we are negotiating around.

Thank you.

We're now going to take our next question. And the questions come from the line of Dan Levy from Barclays. Please answer your question.

Hi. Good afternoon to you. Thank you. First, I think this was slightly alluded to, but maybe you could just talk about on the cash flow specifically the working capital dynamic, which was quite negative and just the swing of receivables. That was a $200 million decline. Could you just explain that movement to what we should expect going forward on the working capital front.

Yes, I mean it was a bit of an unusual first quarter in the sense that it was a very high month of a month ago, started from January then into March. And that created a fairly large receivable balance at the end of the quarter. Whereas the other two working capital components, inventory and tables, were It follows a normal pattern, but the very significant sales increase towards the end of the quarter drove up the receivables. But this should normalize. We do not expect the same type of growth profile for the next quarter as we have now within the first quarter. Then that working capital buildup should revert somewhat.

Okay, great. Okay. Thank you. So the working capital should reverse. Great. And then just want to go to the question on inflation and specifically your release talked about inflation pressures in Europe, which didn't flag Europe specifically in the past. Maybe you could just walk through the inflation dynamics by region and specific to labor how labor is evolving, and what has been the tone and tenor of conversations with automakers to compensate on labor?

Yeah, I think if I start with the negotiators, I think it's just what we've said before here, that when, I mean, it's, I would say, It's never easy to discuss and negotiate the price increases with our customers. We were successful in those discussions during 2022 related to raw material and we are making progress also here in the non-raw material area. Of course, it becomes a little bit more complicated in this space because in difference to the raw material side, you don't have the same type of reference points as you have on the raw material side, meaning that each plant and each site and each country are unique. You need to go through much more of an even more detailed discussion But that aside, it's very much the same as on the raw material side. So we are making progress in that area.

Yeah, I mean, on how the inflation is hitting up, generally it's no different from all the data you can get publicly. Yeah, there's not much to say other than that. I mean, on the labor cost side, there have been some countries where minimum wages have increased significantly or been raised significantly. Mexico, that has a larger impact. But then also Turkey, where we have a large operation, is pretty significantly impacted by inflation, of course. But in general, you can look at where these indices are and they're publicly available. And we typically follow them also for the countries that we operate in.

Okay. And then Europe specifically, is there some unique dynamic in Europe?

I think in Europe, of course, the war in Ukraine has impacted to some extent here, of course, the energy markets. and also on freight as a consequence of that. So, yeah, I mean, each region has their own reasons, so to speak, and we hope to open up challenges in Europe here.

Yeah, but on that, of course, energy has been a much larger topic in Europe and also driving up the price for purchase components from our supply base. So that has been significantly more of a challenge in Europe than it has been in other regions. Got it. Thank you.

Thank you.

Due to time constraint, we will now end the question and answer session here and hand back the conference to the president and CEO, Mr. Mikael Bradt, for closing remarks. Please go ahead.

Thank you, Rajia. Before we end today's call, I would like to say that we are continuing to execute activity and cost reduction activities relying on our strong company culture. Our actions are creating both short-term and long-term improvement, and additionally, we are evaluating ways to improve our footprint and to reduce our cost structures. We believe these actions will enable us to build an even stronger position, how to then continue to focus on our vision of saving more lives, which is our most important direct contribution to sustainable society. Our second quarter earnings call is scheduled for Friday, July 21, 2023. Thank you, everyone, for participating in today's call. We sincerely appreciate your continued interest in AltaLeaks. Until next time, stay safe.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you. Hello.

Yeah, hi.

Hello. How was everything for you?

It was very good. Yeah, it was fine. It was well. We can tell here.

Yes. I mean, every now and again, the connection was dropping a little bit, but it didn't really affect the audio portion of your call. So, yes.

And the webcast, did that work this time? No.

Yes, I did.

Okay.

Very good. Thank you. Thank you. Bye-bye. Have a great weekend.