Autoliv, Inc.

Good day and thank you for standing by. Welcome to the Autoliv first quarter 2024 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 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 is being recorded. I would now like to hand the conference over to our first speaker today, Anders Trapp. Please go ahead.

Thank you, Nadia. Welcome, everyone, to our first quarter 2024 earnings call. On this call, we have our president and chief executive officer, 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 our strong sales, earnings and cash flow development in the quarter. How our strong balance sheet and asset return rate support the continued high level of shareholder returns. They will outline the expected sequential margin improvement in 2024 towards our targets. And we will also, as usual, 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 outerleaf.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-use gap measures. The reconciliations of historical use gap to non-use gap measures are disclosed in our quarterly earnings release which is available on outlive.com and in the 10Q that will be filed 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 will now hand over to our CEO, Mikael Bratt.

Thank you, Anders. Looking on the next slide. I want to express my appreciation to the entire Autoliv team for their unwavering dedication to achieve our goals and for delivering another strong quarter in a challenging environment. In the first quarter, global light vehicle production declined year over year by around 1%, according to S&P Global. We saw no improvement in call-off volatility compared to fourth quarter 2023. Despite somewhat weaker than expected light vehicle production, we achieved our margin indication for the first quarter, and we are on track towards our full year guidance. In the quarter, organic sales grew by 5%, outperforming light vehicle production significantly, especially in India, South Korea, and Japan. The strong growth was mainly a result of product launches last year. We generated a broad-based improvement year-over-year in key areas, including gross margin, operating margin, and operating cash flow. This quarter marks the seventh straight quarter with more than 30% year-over-year increase in adjusted operating profit. The debt leverage was virtually unchanged versus Q4 2023. despite share repurchases of 160 million US dollars in the quarter. Under the current stock repurchase program, we have repurchased and canceled 6.5 million shares for close to 630 million US dollars. We are making progress towards our previously announced intention of reducing our indirect workforce by up to 2,000 people. We expect savings of around 50 million in 2024 from these initiatives. We are reconfirming the full year 2024 guidance, which sets a strong base towards continued high level of shareholder returns and our adjusted operating margin target of around 12%. However, the heightened seasonality of earnings of prior years is likely to be repeated in 2024. Now looking at the sustainability highlights on the next slide. Sustainability is a fundamental part of our business strategy. It is an important driver for market differentiation and stakeholder value creation. Guided by our vision of saving more lives, we are driving a number of activities to take significant steps towards our climate commitment. For example, during the first quarter we successfully issued a second green bond using Autoliv's sustainability financing framework aligned with the ICMA green bond principles. The bond drew significant interest from debt investors reflecting the strong support for Autoliv's climate and sustainability agenda. Following Autoliv's first partnership in 2021 with SSAB, a fossil-free steel, we are now introducing two additional collaborations for carbon-reduced steel with Arverdi and Thyssen Group. The aim is to reduce greenhouse gas emissions in our products by utilizing low-emission steel and increase use of recycled material. In addition to renewable electricity instruments, many autolive sites are increasing the use of on-site solar energy generation capacity. On this slide, you can see one of the new solar parks in Utah, U.S. supporting our operations. We are partnering with BASF to introduce a new type of design for recycling PU foam for steering wheel rims. This new type of foam will enable simplified and scalable recycling. Looking on our cost improvements on the next slide. We continue to generate broad-based improvements in key areas over the last 12 months. Our direct labor productivity continues to trend up, supported by the implementation of our strategic initiatives, including optimization and digitalization. Year over year, we have reduced our direct production personnel despite higher volumes. Our gross margin declined from the seasonality of a strong, from the seasonal strong fourth quarter, but improved by 170 basis points year over year. The improvement was mainly the result of the higher direct labor efficiency and reductions within the indirect workforce. Volume growth and customer compensation negotiated last year. As a result of our structural efficiency initiatives, the positive trend for RD&E and SG&A in relation to sales has continued, declining by 60 basis points since Q1 2023. Combined with the gross margin improvement, this led to a substantial improvement in adjusted operating margin versus Q1 2023. Looking now on financials in more detail on the next slide. Sales in the first quarter increased by 5% year-over-year despite lower light vehicle production, a negative regional light vehicle production mix, and unfavorable currency translation effects. The sales increased, and our cost reduction activities led to a substantial improvement in adjusted operating income. increasing by more than 50% to 199 million US dollars from 130 million last year. The adjusted operating margin was 7.6% in the quarter, an increase by 230 basis points for the same period last year. Operating cash flow was 122 million US dollars, which was 168 million higher than in the same period last year as a result of improved working capital effect versus last year. Looking now on the structural cost savings activities on the next slide. To secure our medium and long-term competitiveness and to support our financial targets, we launched a cost reduction initiative in mid last year with intent of reducing our indirect headcount by up to 2,000. We estimate that the annual cost reduction will amount to around 130 million when fully implemented, with around 50 million already in 2024 and around 100 million expected in 2025. For 2024, we expect to cash out approximately 85 million related to these initiatives. At the end of first quarter, our indirect headcount had declined by around 1,000 or by more than 5% since a year ago, with the majority of the decrease within production overhead, especially in best-cost countries. We are already seeing a positive impact on direct labor productivity as a result of our initiative to reduce the direct workforce by the equivalent of up to 6,000. Looking now on our sales growth in more detail on the next slide. Our consolidated net sales increased by more than 2.6 billion, a new record for the first quarter. This was approximately 120 million higher than a year earlier, driven by price, volume and product mix, partly offset by lower light vehicle production, a negative geographical light vehicle production mix and currencies. Currency translation effects reduced sales by 12 million or by 0.5%. Asia accounted for 37%, Americas for 34% and Europe for 29%. The lower than usual share of the total sales in Asia was a result of the Lunar New Year and low light vehicle production in Japan due to customers having certification issues with certain vehicle models. We outline our organic sales growth compared to light vehicle production on the next slide. I am very pleased that our organic sales growth outperformed global light vehicle production significantly as we continue to execute on our strong order books. According to S&P Global, first quarter light vehicle production decreased by 1% year over year. This was more than one percentage point lower than expectations at the beginning of the quarter, with most of the lower than expected production coming in Japan and with global OEMs in China. We estimate that the geographical light vehicle production mix had 140 basis points negative impact on our outperformance. In the quarter, we outperformed global light vehicle production by more than six percentage points with strong performance, especially in the rest of Asia and in Japan. The strong outperformance in the rest of Asia was mainly driven by India, where sales outperformed light vehicle production by 20 basis points due to higher installation rates for side airbags. In comparison, The modest outperformance in China was mainly a result of unfavorable customer mix following strong light vehicle production growth for lower safety content vehicles. On the next slide. Although we see some changes to our customers' plans for model launches, especially for EV models, we expect a record number of product launches for 2024. Despite some changes to model launch plans by some customers, the trend towards electrification continues, although at a somewhat slower pace. On this slide, seven models are being made available as electrical versions. The models shown here have an autoliv content per vehicle from around 130 to over 400 US dollars. In terms of Autoliv sales potential, the BMW 5 Series Touring launch is the most significant, followed by the Subaru Forester. The long-term trend to higher content per vehicle is supported by front center airbags on three of these models. More advanced seat belts and pedestrian protection airbags and hood lifters. Another interesting launch is the Tata Punch EV, that illustrate the trend towards more sophisticated safety systems and higher safety content in India. I will now hand it over to our CFO, Fredrik Westin, who will talk you through the financials on the next slide.