Autoliv, Inc.

Good day and thank you for standing by. Welcome to the Autoliv third quarter 2023 financial results conference call. At this time all participants are in a listen-all mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Anders Trapp. Please go ahead.

Thank you, Sandra. Welcome, everyone, to our third quarter 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 strong sales, earnings, and cash flow development we had in the third quarter, the structural cost reduction activities that we are doing to secure our long and medium-term competitiveness, and our updated full-year indications, as well as provide an update on our general business and market conditions. We will then remain available to respond to your questions. And as 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 some non-U.S. GAAP measures. The reconciliations of historical non-U.S. GAAP measures are disclosed in our quarterly press release that is available on appellee.com and in the 10Q that will be filed with the SEC. And lastly, I should mention that this call is intended to conclude at 3 p.m. Central European time. So please follow the limit of questions per person. I will now hand over to our CEO, Mikael Bratt.

Thank you, Anders. Looking on the next slide. Our performance continued to improve substantially in the third quarter. First, I would like to thank our employees for their great contributions to the third quarter results and the efforts to further strengthen our near and medium-term competitiveness. Our organic sales grow bubble digits, outperforming light vehicle production significantly, especially in Asia. The strong growth was mainly a result of higher than expected light vehicle production, product launches, and customer compensations, for inflationary pressure. The adjusted operating income was a new record for a third quarter since the VNIR spin-off. We generated a broad-based improvement in key areas, including gross and operating margins, both year-over-year and sequentially. Our cash flow was strong, and the debt leverage remained well within our target range. while we maintained our dividend and almost tripled the number of shares repurchased compared to the second quarter. We are making progress towards our intention of reducing our indirect workforce by up to 2000. We have now detailed a large part of our structural cost reduction actions including optimization of the company's geographic footprint and organization. The National Highway Transportation Safety Administration has issued an initial decision to recall 52 million airbag inflators by our competitor, ARC. Autoliv estimates that less than 10% of the identified inflators were included in airbag modules that Autoliv supplied to customers after Autoliv acquired certain Delphi assets in 2009. 2009. Autoliv is not aware of any performance issues regarding the ARC inflators included with its airbags. At this stage it is too early to talk about any replacement plan. We are of course prepared to support our customers with replacement products. The light vehicle production in 2023 is now expected to develop slightly better than expected and we have therefore increased our full year organic sales indications in line with this we expect fourth quarter adjusted operating margin to improve by 1.5 to 2 percentage points compared to last year in line with the previously communicated improvement patterns Additionally, we expect the ongoing reorganization of our global functions and European operations to lead to a lower tax rate for 2023 than previously anticipated. These changes are also expected to reduce our normalized tax rate from 2024 and onwards to a range of 25 to 30%. Now looking at the significant sequential cost improvements on the next slide. Year-to-date, we have generated a broad base improvement in key areas, both year-over-year and sequentially. On this slide, we highlight the sequential improvements. In the third quarter, we continued to actively address our cost base while negotiating 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 automation and digitalization. Our gross margin improved by 270 basis points compared to the first quarter and by 90 basis points from the second quarter. This is mainly a result of the higher labor efficiency and customer . The positive trend for RD&E and SG&A in relation to sales have continued, and have been outlined by 130 basis points since Q1. Combined with the gross margin improvements, these lead to a substantial improvement in adjusted operating margin. Looking now on financials in more detail on the next slide. Sales increased by 13%, mainly due to new products, higher prices, and favorable currency translation effects. The strong sales increased and cost reduction activities led to a substantial improvement in adjusted operating income, excluding effects of capacity alignment and antitrust-related matters. Adjusted operating income increased by more than 40%, to 243 million from 103 million US dollar last year. The adjusted operating margin, 9.4% in the quarter, an increase by close to two percentage points from the same period last year, and by over four percentage points from the first quarter. Operating cash flow was 202 million US dollars, which was 30 million US dollars 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 recoveries. Looking now on the limited impact of the UAW strike in North America on the next slide. The UAW strike in North America is in its fifth week. The impact of Octolive in Q3 was very limited. Our North American employees are not represented by UAW, but we are indirectly impacted by lost sales and more unpredictable and volatile LVP. In the first half of 2023, under Detroit, three North Americans accounted for around 30% of our global sales, or 36% of our sales in America. We estimate that we lost less than 2 million in sales in the third quarter. As per October 19th, the per week revenue hit from the assembly plant strike is around 6 million. We have developed a response plan to the strike and built some inventory of components and finished products to support a quick ramp up when the strike is over. At this point, it's difficult to estimate the full impact of the UAW strike on our fourth quarter sales and profitability. There are many unknown factors, including scope, length of action, as well as potential recovery of lost volumes after the strike, but also possible sales increases for brands not affected by the strike actions. Our full year 2023 indications are based on the assumption that the UAW strike is not prolonged beyond what is included in the S&P Global October outlook. Looking now on the announced structural cost reductions initiatives on the next slide. To secure our medium and long-term competitiveness and to support our financial targets, we are accelerating our global structural cost reductions as previously communicated. This includes 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 improvement in volume and cash flow. We intend to simplify and consolidate how we operate in all areas. The headcount reduction will affect people in the base, our offices, technical centers, and plants, including leadership positions at all levels. On July 13th, we announced the first step of our planned reductions of around 1,100 indirect and direct employees. On October 5th, we announced the reduction of 300 indirect employees in China, Japan, Sweden, the United States, and the closure of an office in the Netherlands. These first steps are expected to reduce cost by around 35 million in 2024, 65 million in 2025, and 85 million when fully implemented. Looking now on our sales growth in more detail on the next slide. Our consolidated net sales increased to 2.6 billion US dollar, a record for the third quarter. This was close to 300 million US dollars or 13% higher than the year earlier, driven by price, volume, and currencies. Out of the period cost compensations contributed with 6 million. Out of period compensations are retroactive price adjustments and other compensations that mainly relate to first and second quarters negotiated in the third quarter. Looking on the regional sales, Asia accounted for 40 percent, Americas for 35, and Europe for 25. 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 third quarter, as we continued to execute on our strong order book. According to S&P Global, third quarter light vehicle production increased by close to 4% year over year. This was 7 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 OEMs in Eastern Europe. In the quarter, we outperformed global light vehicle production by around 7 percentage points. We outperformed in the rest of Asia by 15 percentage points, in Japan by 14 percentage points, and in China by 6 percentage points. The performance in China was mainly driven by increasing sales to the fast-growing domestic Chinese OEMs. Our sales to this group outperformed light vehicle production with close to 30 percentage points as we continue to deliver on the strong order book in China. We expect the positive year-over-year sales growth trend to continue into the fourth quarter. On the next slide, we see some key model launches from the third quarter. In the quarter, we had a high number of product launches, especially in China and Europe. The trend towards electrification is clear, with six models being available as electric versions. Six of the models shown on this slide have an auto-live content per vehicle of around $300 or higher, with the highest at over $750. In terms of auto-live sales potential, the BMW i5 5 Series launch is the most significant. For the full year, we expect a record number of launches with high number in China, Europe, and South Korea. I will now hand it over to our CFO, Fredrik Westin, who will talk about the financials on the next few slides.