Autoliv, Inc.

Good day and thank you for standing by. Welcome to the Outerleaf Incorporated Second 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. To ask a question during the session, you will need to press star 11 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference has been recorded. I would now like to hand the conference over to our first speaker today, Anders Trapp. Please go ahead.

Thank you, Nadia. So welcome, everyone, to our second quarter 2023 earnings call. On this call, we have our president and CEO, Mikael Bratt, and our chief financial officer, Fredrik Gustin, and me, Anders Trapp, VP Investor Relations. During today's earnings call, Mikael and Fredrik will, among other things, provide an overview of the strong sales, earnings and cash flow development we had in the second quarter, the structural cost reduction activities that we're doing to secure our long and medium-term competitiveness, and also the expected sequential margin improvement that we see in Q3 and Q4 of this year, as well as provide an update on our general business and market conditions, as always. We will then remain available to respond to your questions. And as usual, the slides are available at 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 some 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 outerly.com and in the PENQ file with the SEC. Lastly, I should mention that this call is intended to conclude at 3 p.m. Central European Time, so please follow the limit of two questions per person. I now hand it over to our Chief Executive Officer, Mikael Bratt.

Thank you, Anders. Looking on the next slide. I would like to start by thanking our employees for their great contributions. We saw continued improvement in customer call-off volatility in the quarter, but still higher volatility than pre-pandemic levels. We believe this reflects an improving global supply chain environment for both our customers and suppliers. Our organic sales grew by close to 27%, outperforming light vehicle production significantly in all regions. The strong growth was a result of product launches, higher safety content per vehicle, and that we achieved the customer compensations we planned for in the quarter. Our profit margin development was in line with what we had expected, as customer call-off volatility improved. We lowered our cost base and that we successfully negotiated the planned customer compensations related to the inflationary pressure. We achieved a record operating cash flow for the second quarter, driven by an improved adjusted operating income and a reversal of the negative working capital effects from the first quarter. our debt leverage ratio decreased to 1.3 times from 1.6 times a quarter ago. This supports our shareholder returns ambitions. In the quarter, we paid 66 cents per share in dividends and repurchased and retired 475,000 shares. We also announced the acceleration of our structural cost reductions aiming at simplifying our logistics and geographic footprint. As part of this, we recently announced a headcount reduction of around 1,100 mainly indirect employees, with further actions to be announced as planned material life. We continue to expect a gradually improving adjusted operating margin during 2023. with significantly greater price compensation and other recoveries in the fourth quarter compared to the third quarter. We continue to be in the forefront of safety technology development, which has helped us keep momentum in our new order intake year to date. A great example of new innovations in the revolutionary new Venuli airbag that we presented at our investor day in Detroit in June. that is based on the Bernoulli principle. Now looking at the significant sequential cost improvements on the next slide. The meaningful steps we took in the second quarter supports my confidence in sequential improving adjusted operating margin towards our full year indication. This of course also supports our journey towards our medium term target. On this slide, we highlight the sequential improvements. In the quarter, we actively addressed our cost base and investment level and negotiated with our customers to secure pricing and other compensations that reflect the high inflation. Our labor efficiency continues to trend up, supported by the implementation of our strategic initiatives including optimization and digitalization. Our gross margin improved by 180 basis points compared to the first quarter as a result of the higher labor efficiency, customer compensations, higher volumes, and a more stable light vehicle production. At the same time, cost for RD&E and SG&A combined declined by 50 basis points in relation to sales. Combined with a gross margin improvement, this led to a substantial improvement in adjusted operating margin. With a more stable vehicle production, we managed to substantially reduce our trade working capital as well. As a result, our operating cash flow reached a new record level for a second quarter. Now looking at the expected adjusted operating margin progression for 2023 on the next slide. For the remainder of 2023, we expect a quarter-by-quarter improvement in adjusted operating margin. We expect continued high year-over-year sales growth supported by launches, higher light vehicle production, and content per vehicle increases. We anticipate that cost compensations from customers will continue to gradually offset cost inflation, especially in the fourth quarter. The positive trajectory will be further supported by improvements from cost reductions, as well as expected gradual improvement of supply chain and light vehicle production stability, as we have already seen in the second quarter. The actions we are undertaking makes me confident in the gradual improving performance, which should allow us to deliver a significant full-year increase in cash flow and adjusted operating income. Looking now on the announced structural cost reduction actions on the next slide. To secure our medium and long-term competitiveness and to support our financial target, We are accelerating our global structural cost reductions, including a substantial reduction of our global workforce, with a particular focus on our European operations. These initiatives will continue to optimize our geographic footprint for a more effective structure, while reducing costs and driving improvements in margin and cash flow. We intend to simplify and consolidate how we operate in all areas. The headcount reduction will affect people based in our offices, technical centers, and plants, including leadership positions at all levels. At the first step, we have accrued 109 million US dollars, primarily driven by a planned reduction of around 1,100 employees. This first step is expected to reduce cost by around 25 million in 2024, increasing to around 55 million in 2025, and to reach around 75 million US dollars when completed. Further actions will be announced as plans materialize. Looking now on our sales growth in more detail on the next slide. Our consolidated net sales increased by 2.6 billion US dollars, a record for a second quarter. This was more than half a billion US dollars or 27% higher than a year earlier, driven by price, volume and mix. Out-of-period cost compensations contributed with approximately $30 million, same as in the second quarter last year. Out-of-period compensations are retroactive price adjustments and other compensations that mainly relate to the first quarter, but were negotiated in the second quarter. Looking on the regional sales split, Asia accounted for 37%, America for 35%, and Europe for 28%. The China share increased to 19% from 17% last year when China was largely closed due to COVID lockdowns. We outline 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 second quarter. as we continue to execute on our strong order book and successfully achieved the targeted customer compensations. According to S&P Global, second quarter light vehicle production increased by close to 16% year over year. This was 250 basis points higher than the expectation at the beginning of the quarter. We outperformed global light vehicle production by around 11 percentage points in the quarter. We outperformed in China by 23 percentage points, in Japan by 22 percentage points, and in the rest of Asia by 13 percentage points. Compared to the first quarter, our sales increased by 6%, twice as much as the light vehicle production growth. We expect the positive year-over-year sales growth trend to continue, and we expect to significantly outperform light vehicle production for a reminder of the year. Looking now on financials in more detail on the next slide. The strong sales increase led to a substantial improvement in adjusted operating income, excluding effects of capacity alignment, antitrust-related matters, and a litigation settlement, adjusted operating income increased by more than 70% to $212 million from $124 million last year. The adjusted operating margin was 8% in the quarter, an increase by two percentage points from the same period last year, and by 2.7 percentage points from the first quarter. Operating cash flow was 379 million US dollars, which was more than 400 million better than the same period last year, as well as from the first quarter of 2023. Fredrik will provide further comments on our cash flow later in the presentation. On the next slide, we see some key model launches from the second quarter. In the quarter, we had a high number of product launches, especially in China. The models shown on this slide have an auto lead content per vehicle from approximately 150 to close to 400 US dollars. These models reflect the changes seen in the automotive industry in recent years. with several relatively new OEMs represented, and that five out of nine are available as pure EVs. In terms of Autoliv sales potential, the Mercedes E-Class launch is the most significant. The long-term trend to higher CPV is supported by front center airbags, rear side airbags, and pedestrian protection products. For the full year, we expect record number of launches. By region we see higher number of launches in China, South Korea and Europe. I will now hand it over to our CFO Fredrik Bestin who will talk about the financials on the next few slides.