Autoliv, Inc.

Good day and thank you for standing by. Welcome to the AutoLive Inc third quarter 2024 financial results. At this time all participants are in listen only 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 1 1 again. Please be advised that today's conference has been recorded. I would now like to hand the conference over to your first speaker today, Anders Trap. Please go ahead.

Thank you Sonja. Welcome everyone to our third quarter 2024 earnings call. On this call we have our president and chief executive officer Mikael Bratt, our chief financial officer Fredrik Westin and me Anders Trap VP Investor Relations. During today's earnings call we will cover several key topics including our sales earnings development, the high number of new product launches, an in-depth look at the China market and how we succeed with the growth of Chinese car manufacturers, our strong balance sheet and asset return rates support continued high levels of shareholder returns. Following the presentation we will be available to answer your question and as usual the slides are available at autolive.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-use gap measures. The reconciliations of historical use gaps and non-use gap measures are disclosed in our quarterly earnings release available on autolive.com and in 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 Mikael Bratt.

Thank you Anders. Looking on the next slide. Firstly I want to express my gratitude to all of our employees for their contributions to our third quarter results and their ongoing efforts to enhance our effectiveness in the near and medium term. Despite facing significant market headwinds from weak light vehicle production we maintained solid sales and earnings in the quarter. This is a testament to the company's ability to adapt and thrive, leveraging our diverse product portfolio and strong customer relationships. Autolive managed to outpace light vehicle production by 4 percentage points. Despite lower sales and relatively significant supplier settlements the adjusted operating profit was virtually unchanged. This was driven by effective cost reductions and cost compensation. I am also pleased that the inflation compensation negotiations have developed in line with our expectations with only few negotiations still outstanding. We are making good progress towards our previously announced intention of reducing our indirect workforce by up to 2000 and related savings of 50 million US dollars in 2024. We also managed to reduce direct headcount by around 6 percent. Cash flow continued to be strong supporting a high level of return. In the quarter we repurchased and retired 1.3 million shares for 130 million. Under the current mandate we have repurchased over 10 percent of outstanding shares for 917 million US dollars. Earnings per share improved 11 percent mainly from the lower number of outstanding shares and a lower tax rate. We are reiterating the adjusted operating margin guidance of around nine and a half to ten percent. With only a few months left of the year we expect to come in at the low end of the around nine and a half to ten percent. Our operating cash flow is on track towards the full year guidance of 1.1 billion US dollars. Our balance sheet remains strong which supports our continued commitment to a high level of shareholder returns. Looking now on the market development in the third quarter on the next slide. The total global light vehicle production for the third quarter declined by nearly 5 percent which was almost in line with expectations at the beginning of the quarter according to S&P Global. However the regional mix differed significantly. We observed further reductions in North America primarily due to slow vehicle sales and inventory by key OEMs. Similar trends were noted in Europe and Asia excluding China. However these production cuts were mostly offset by increased outputs from domestic OEMs in China driven by scrapping incentives and subsidies. These shifts resulted in the more unfavorable regional light vehicle production mix significantly impacting our top line performance. We did see call off volatility improving slightly from the second quarter which is unchanged year over year. We will talk about the market development more in detail later in the presentation. Looking now on our cost improvements on the next slide. We continue to generate broad-based improvements in key areas. Our direct labor productivity continues to trend up as we have reduced our direct production personnel by 3,100 year over year. This is supported by the implementation of our strategic initiatives including optimization and digitalization. Our gross margin improved by 110 basis points from the first quarter and by 10 basis points year over year. The improvement was mainly the result of direct labor efficiency, reduction of the indirect workforce and customer compensations, partly offset by lower sales and costs for supply settlements. As a result of our structural efficiency initiatives the positive trend for RD&E and SDNA in relation to sales has continued declining by more than 130 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 third quarter decreased by 160 basis points year over year or by 42 million US dollars due to unfavorable currency translation effects, lower light vehicle production and a negative regional light vehicle production mix. The adjusted operating income for Q3 decreased by 2% to 237 million from 243 million US dollars last year. The adjusted operating margin was virtually unchanged despite lower sales. Operating cash flow was 177 million US dollars which was 25 million US dollars lower compared to third quarter last year. Looking now on our sales growth in more detail on the next slide. Our consolidated net sales was 2.6 billion US dollars. This was 42 million lower than a year earlier driven by lower light vehicle production and negative currency translation effects. Partly offset by higher outdoor period cost compensation and by a positive price and product mix. The negative currency translation effect reduced sales by almost 1% in the quarter. Outdoor period cost compensation contributed with approximately 8 million US dollars in the quarter. This was 2 million US dollars higher than in the same period last year. Outdoor period compensations are retroactive price adjustments and other compensations that mainly relate to the first half year but were negotiated in the third quarter. Looking on the regional sales split. China accounted for over 19%. Asia excluding China accounted for 20%. America for 33% and Europe for 27%. We outline our organic sales growth compared to light vehicle production on the next slide. Our quarterly sales were slightly below our expectations primarily due to more unfavorable regional mix. According to S&P Global light vehicle production declined by .8% year over year in the quarter which was 70 basis points better than anticipated at the beginning of production mix had 130 basis points negative impact on our outperforming. Despite this and that some key customers were adjusting inventories our organic sales growth outperformed global light vehicle production by 4 percentage points. We continued to outperform light vehicle production significantly in Japan, rest of Asia and in Europe fueled by product launches and pricing. The outperformance in rest of Asia was driven mainly by India. We expect a continued strong outperformance in India from a number of launches in the third quarter. We out underperformed light vehicle production by one percentage point in the America despite outperforming light vehicle production by more than 15 percentage points in South America and performing in line with light vehicle production in North America. The underperformance was due to strong light vehicle production growth with low content vehicles in South America and a sharp decline in light vehicle production in the high content market of North America. Our underperformance in China narrowed somewhat from the second quarter despite the stronger than expected performance of vehicles with relatively low safety content in the quarter. Domestic Chinese OEMs accounted for 39 percent of our China sales in Q3. We grow sales to this group by 18 percent versus a year ago more than twice their light vehicle production growth of 8.5 percent. On the next slide we have key model launches in the quarter. We saw a record number of significant launches this quarter. As shown on this slide four of these models are from Chinese OEMs and two from OEMs in India. This highlights our growing position with Chinese OEMs and our success in capturing growth in the world. The electrification continues particularly in China but also in Europe. As shown on this slide all but two models are being offered as electric versions. The models shown here have an out to live content per vehicle from around 100 to close to 400 US dollars. In terms of out to live sales potential the NIO and the Seeker launches are the most significant. This is the first time we have two Chinese models having the highest sales potential. The long-term trend to higher CPV is supported by front center airbags on five of these models. More advanced Seeker and NIO airbags. Now looking on the next slide. The importance of the Chinese car market is increasing. Already today one out of every cars in the world is produced in China. The rapid growth of Chinese car manufacturers is impressive. Over the past decade the Chinese manufacturers have transformed from producing low cost vehicles to becoming global players in automotive innovation production and connectivity. This shift in the China market has created significant interest and we will therefore provide some additional information regarding the China market development. Now looking at the next slide. Out to live is the leading automotive safety supplier to both global and domestic OEMs in China. China contributed 20 percent to out to live global sales in 2023. Over the past decade we have made significant investment in China and now operate 15 plans across eight locations. We are at the forefront of innovation providing comprehensive safety system development to help our customers achieve top results in real life safety as well as for safety assessment done by for instance China MCAP and UNCAP. We currently serve 68 customers and collaborate with local universities, research institutes and leading customers to drive enhancements in the automotive safety technologies. On the next field slide I will highlight some of out to live's success factors in China. Chinese automakers are rapidly expanding their market shares within China. Sales of new energy vehicles of NEVS have now surpassed those of internal combustion engine vehicles and China has become the world's largest vehicle exporter. Five years ago out to live made significant investment to break into the NEVS market which has borne fruit with notable market share gains over the past three years. While the performance of some global OEMs have negatively impacted our sales out performance we expect to start outperforming in 2025 based on the latest light vehicle production forecast from S&P driven by major new launches in the second half of 2024. Some of our major achievements are achieved over 50 percent market share with a broad range of high end NEVS manufacturers. Secured the global first autonomous L4 full passive safety system development and supply contract in July. Expanded our component business with BYD with ongoing discussions for closer collaborations. Successfully reduced costs and increased margin through modernization. Well positioned to be the overseas expansion partner for major Chinese OEMs like great wall motors, Cherry, Geely and Chang'an. Looking on the next slide. On this slide you can see some of the recent launches of premium models with full out to live passive safety systems meaning airbags seat belts and thin wheels. As we expect will support our sales growth in 2025. All of these models are NEVS and some of them are expected to be exported as well as sold domestically. Now looking at how we are expanding our business with the fast growing domestic OEMs on the next slide. Chinese car manufacturers have become increasingly important contributors to our sales. Over the past few years the rapid growth and innovation within the industry has led to substantial increase in demand for advanced safety solutions. As a result, Out to Live has strengthened its partnership with leading Chinese OEMs such as Geely, Great Wall Motor and Cherry. These partnerships have been instrumental in driving our sales growth in China. It has enabled us to capture a growing share with the local OEMs. Today Chinese OEMs represent around 40 percent of out to live sales in China and we expect the positive trend to continue based on the order intake over the past year. As you can see on the chart to the right, we are closing the gap between Chinese OEMs, shares of light vehicle production and the share of our sales. Our market share with Chinese OEMs is projected to rise from approximately 20 percent in 2022 to around 30 percent in 2024 and 32 percent by 2025 while our share with global OEMs in China is expected to remain steady at around 42 percent. Looking on the next slide. We have established ourselves as a preferred partner with automotive safety solutions in China thanks to our comprehensive approach and strong relationships with major customers. The reasons behind our success are that we have built close partnerships with leading Chinese automakers. Our speed and strong local competences makes us a trusted partner. We actively sell advanced and differentiated solutions supporting our customers in delivering safe and competitive vehicles across the market or market. We leverage our global volumes and footprints to optimize our supply base and to support our customers overseas expansion strategies. We drive collaboration to deliver comprehensive system solutions. This includes developing zero gravity seat solutions for flexible cabling configurations, working with technology partners to create personalized safety systems. We have been at the forefront of optimization for many years and we have come a long way also in China. These efforts have led to significant efficiency gains which our customers appreciate for the standardization and quality assurance they bring to automated production. Thanks to increased optimization we have maintained virtually the same headcount while our sales have grown by nearly 50 percent since 2018. This concludes the China market update. Turning to the next slide.

I will now hand over to Fredrik. Thank you, Mikael. And I will now talk about the financials more in detail on the next few slides. So if we turn the slide. This highlights our key figures for the third quarter of 2024 compared to the third quarter of 2023. Our net sales were almost 2.6 billion. This was close to a 2 percent decrease. Gross profit was virtually flat at 459 million while the gross margin increased by 10 basis points to 18.0 percent. The adjusted operating income decreased from 243 million to 237 million and the adjusted operating margin decreased by 10 basis points to 9.3 percent. Non-GAAP adjustments amounted to 11 million from capacity alignments and antitrust related matters. Adjusted earnings per share diluted increased by 18 cents where the main drivers were 12 cents from lower number of shares and 10 cents from lower income taxes partly offset by the lower operating income. Our adjusted return on capital employed was solid 24 percent. The adjusted return on equity increased to 25 percent from 21 percent driven by share buybacks impacting total equity. We paid a dividend of 68 cents per share in the quarter and repurchased and retired 1.33 million shares for around 130 million US dollars. Looking now on the adjusted operating income bridge on the next slide. In the third quarter of 2024 our adjusted operating income was virtually unchanged despite market headwinds from lower light vehicle production. Operation contributed with 12 million driven by cost saving activities and commercial recoveries. The net currency effect was 4 million negative driven mainly by the Mexican peso versus euro and the Japanese yen versus US dollars partly offset by peso versus US dollar. The impact from raw materials was around 1 million negative. Out of period cost compensation of 8 million was 2 million higher than last year. Costs for SG&A and RD&E net was virtually unchanged. A supplier settlement cost of 40 million and this cost will gradually decrease over the next few quarters. Looking now at the cash flow in more detail on the next slide. For the third quarter of 2024 operating cash flow decreased by 25 million to 177 million compared to the same period last year mainly due to an increase in working capital. The capital expenditures net decreased by 6 million compared to the same period the previous year. Capital expenditures net in relation to sales was 5.7 percent versus 5.8 percent a year earlier. The free cash flow was positive 32 million compared to positive 50 million the same period the prior year. The decrease was due to the lower operating cash flow partly offset by the lower capital expenditures net. The last 12 months cash conversion defined as free cash flow in relation to the net income was around 80 percent. Now looking at our trade working capital development on the next slide. During the third quarter the trade working capital increased by 138 million driven by 102 million in higher receivables and 61 million higher inventories partly offset by higher accounts payables. The higher inventories and receivables were partly due to higher sales towards the end of the quarter. Compared to the same period last year trade working capital in relation to sales increased from 12.5 percent to 12.8 percent. Our capital efficiency program aims to improve working capital by 800 million and to date we have achieved around 470 million. Improvements in inventories are lagging due to the high customer call-off volatility and hence planning challenges that cause inefficiencies. Over the coming years we expect the inventories to improve significantly in tandem with a reduced call-off volatility. Now looking at our debt leverage ratio development on the next slide. Outelieve has consistently focused on maintaining a balanced leverage ratio which reflects its prudent financial management and commitment to sustaining a strong balance sheet. This approach helped the company navigate economic fluctuations, invest in innovation and continue delivering value to its stakeholders. While investing in our footprint and returning over 820 million US dollars to shareholders during the last 12 months our leverage ratio is virtually unchanged at 1.4 times. Compared to the second quarter our debt leverage ratio increased by 0.2 times and our net debt increased by 214 million while the 12-month trailing adjusted EBITDA decreased by 4 million. With that I hand it back to you Mikael. Thank

you Fredrik.

On to

the next slide. As we enter the last quarter of 2024 the full year 2024 outlook for the global light vehicle production has been reduced by around 20 basis points since July to minus 2.4 percent by S&P. The light vehicle production update is factoring in region-specific influences, particularly recent scrapping incentives and stimulus actions in China, persistent headwinds in Europe and continued inventory correction in North America. The updated forecast indicates a light vehicle production decline of 4 percent for the fourth quarter. Light vehicle production in China is projected to decrease by 1.6 percent in the fourth quarter following a particularly strong performance in the same period last year. The ongoing trend of global OEMs losing market share is expected to persist. The forecast for North America, American fourth quarter light vehicle production has been adjusted down by over 4 percentage points to minus 4.1 percent. The main reason for the adjustment is continued need for more vehicle inventory corrections. The light vehicle production forecast for Europe has reduced to minus 9 percent for the fourth quarter mainly due to forthcoming fleet emissions requirements and inventory adjustments. Based on S&P Global's forecast and our own analysis our 2024 guidance is built on the global light vehicle production decline of around 3 percent for the full year. Now looking on the business outlook on the next slide. We anticipate a significant increase in profitability in the fourth quarter compared to the first nine months of this year. This improvement is primarily supported by a substantially higher light vehicle production, the normal seasonality from engineering income, structural cost reduction and strategic initiatives, cost customer compensations, favorable currency effects. However, this is expected to be partly offset by supplier cost inflation. Looking at our 2024 financial guidance on the next slide. This slide shows our full year 2024 guidance which excludes effects from capacity alignment, antitrust related matters and other discrete items. Our updated full year guidance is based on a global light vehicle production decline of around 3 percent. Our organic sales is expected to increase by around 1 percent instead of previously expected around 2 percent due to the unfavorable market mix development. Net currency translation effects are expected to be around 1 percent on sales. The guidance for adjusted operating model is around 9.5 to 10 percent with only quarter remaining of the year. We expect to be in the low end of the around 9.5 to 10 percent range. Operating cash flow is expected to be around 1.1 billion. Our positive cash flow trend and our strong balance sheet support our continued commitment to a high level of shareholder returns. We foresee a tax rate of around 28 percent. Looking on the next slide. This concludes our formal comments for today's earnings call and we would like to open the questions from analysts and investors. I now hand it back to Sonja.

Thank you. As a reminder to ask questions you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 1 again. We will now take our first question. Please stand by. The first question comes from the line of Hampus and Gallo from Handelsbecken. Please go ahead your line is now open.

Thank you very much. Two questions from me. You've also had a big step up in the cost takeout program. If I compare I think in second quarter you had a health count reduction around 1100 people on this 8000 capacity line and program and about 2000 in third quarter. Could you maybe in the ballpark maybe talk a little bit about what you see for Q4 and previously also indicated that might not be all the 8000 that will be affected by this capacity line and program. I'll take this one. I'll come back with the second question.

Yeah okay. You see that we have reduced the indirect headcount here up to now a bit more than 1200. So that's an increase here versus the second quarter and then we have reduced the direct headcount by around 6%. So we are not at the 8000 combined that you've got to talk about but we are progressing in line with our expectations. So the savings that we've indicated for this year are coming through as we had expected and then also indicated. Yeah but it's not only headcount reductions that are impacting the cost development here. There are many other improvements that are coming through as well.

Yeah fair enough and I mean it's quite also a big step up on the Chinese domestic OEMs. I guess I mean how do you see that going forward? What speed do you think you will be able to get more in balance given the significant pickup in market shares from the domestic OEMs as many of these new battery electric vehicles also have required high confront at least many of them on the bigger players.

Yeah I think we are as we have indicated here and you saw on the slides also making quite good progress in terms of increasing our share of the Chinese OEMs and we expect this to contribute to our performance in 2025 here. We don't have an indication or guidance per se on market share here but all in all we feel comfortable that we are gaining good traction with the Chinese OEMs here as they also grow together with us. All right

thank you very much. Thank you.

Thank you. We will now take our next question. Please stand by and the next question comes from the line of Colin Langan from Wells Fargo. Please go ahead. Your end is now open.

Oh great thanks for taking my questions. Just to start I mean you mentioned that you called out the 14 million of a supplier settlement in a quarter. I'm not sure if I misheard that this I thought you made a comment that this would gradually decrease. I always kind of think of settlements as being more one time in nature. So is this should we think of it one time or is there actually costs that are keep trailing and this is sort of maybe an issue we should be thinking about with maybe the the stress and the sub suppliers that you work with.

Yeah so this is the impact from the settlement in the third quarter that's 14 million and we expect this to come down to close to zero I would say around the third quarter next year in a fairly linear manner. So we will also have an impact from this in the fourth quarter and also in the first half of next year.

Is this all related to the same supplier or is this just sort of your expectations given the stress in the supply base.

This was related to one supplier but I cannot go into more details on this particular legal case or legal settlement.

Okay got it and then it's pretty big step up I mean if look at even at the low end of guidance you're going from like the nine three in this quarter to twelve and a half to thirteen and a half in Q4. I appreciate the slide 23. I mean any framing of the big drivers here I mean is it like usually like 200 basis points is sort of the seasonal engineering recovery that helps and how should we think about the other big puts and takes particularly the headwind that you called out from supplier costs a material factor we should be thinking of.

Yeah sure I mean the two I would say normal factors are that we continue to expect higher volumes in the fourth quarter than in the third quarter or also all other previous quarters here in the year and then as you said the normal seasonality of higher engine and income. I don't expect that to be the step up here in the fourth quarter to be higher than the normal but that is also then that we have the completion of customer compensation negotiations coming through so that will also add and then continued savings from the structural cost initiatives and the strategic initiatives and we also expect a favorable currency transaction effect in the fourth quarter coming through and then as I already alluded to we expect headwinds from the supplier cost settlements and also from supplier cost inflation in general but to a lower magnitude than we had in the third quarter.

Got it okay and so those items are sort of in size order too the way you mentioned them is that the way to think about it in terms of the impact?

I didn't list to that but no yeah no no I wouldn't say I would have to think of that list then again too no don't take it that way.

Okay thanks for taking my questions.

Thank you we will now go to next question please stand by and the next question comes from George Galle from Goldman Sec. Please go ahead your line is not open.

Yeah good afternoon and thank you for taking my questions. The first question I had just relates to slide four where you show the customer call-off accuracy. I realize that we're tracking substantially below what you classify as normal historically but do you think this rate that we've seen through 2023 and 2024 maybe represents the new normal and if indeed it does does that create any risk to the potential target for a 12 margin next year or are the factors you can take to kind of mitigate the new normal being lower than was historically the case? The second question I had was just again coming back to the Chinese OEMs and thank you for all the detailed presentation there but obviously one of the very large Chinese OEMs is the purchaser of components from you but not yet complete systems. Based on your historical relationships with customers who have started off as component buyers is there a point in time or a catalyst where they tend to switch from just buying components to buying full systems or is the note that obvious trend there? Thank you.

Thank you. Thank you for your questions. Let's start with a call-off accuracy here. If this is the new normal I don't think it's the new normal and I have alluded to that in the past because there is no reason for anyone to have this kind of volatility either be it suppliers or OEMs or anyone in the value chain here. You want to have predictability and around that you can build your efficiency and you know have a robust delivery. So as you can see from the chart also here it's also a little bit up and down and the first two months in the quarter we saw an improvement and altogether we have seen an improvement compared to the second quarter even though it's flat versus Q3 last year here but what that is also describing is everybody's ambition here to get back to where it was before and I think when you dive into the detail which we of course want to disclose here but if we look at different customers we have we have for sure customers that are back to where we were in the past in terms of less volatility or no volatility while others are struggling so and it also moves a little bit between the months who's having the higher volatility than the others. So long story short it's really the current you know market conditions and challenges you see in the industry that creates the volatility and my expectation is to get back to normal and we have also been quite clear here when it comes to our around 12 percent target here that normalization of the core loss is one of these building blocks so our assumption builds on the fact that we should get back to where we have been. If we then move on to the Chinese OEMs and the component transition into more of a system supply I would say yes that is what we have seen historically when we have had customers that started out more with you know their in-house supplier set up buying components as you move of course move out especially if you have a globalization of your footprint that's almost a necessity to transition into more of a system supply from tier ones than doing it all in-house for many different reasons so that's the tendency we see and in the meantime of course we have a lot of contributions here from our components sales and especially around inflators where we are the market leader and have a great I would say product development and production of those components we can support our customers with so that's the I would say the summary of that.

Great thank you. Thank you.

Thank you. We will now take our next question and the next question comes from the line of Matthias Holmberg from DNB markets please go ahead your line is now open.

Thank you I would be interested to hear if you could elaborate a bit on the margin looking at sort of the low end of your margin guidance for this year at 9.5 and how to get to the target of 12 percent I would assume the big boxes are sort of volume call-offs, price versus cost and your cost out actions but if you could help quantify or at least sort of range in order of size or magnitude what the biggest moving parts are to get into to that 12 percent ambition thank you.

Yeah so I would reference back to what we said with the where we ended up last year where we said that around one percentage point then of the close of the gap up to the 12 percent would be from our structural cost initiatives so meaning the indirect costs or headcount reduction and then around one percent from normalization of call-offs and direct labor efficiency and they go to some extent hand in hand and then the third component from our strategic initiatives automation digitalization but also then market growth and this is where we see that in the third quarter sorry this year we have had as you know revised on an organic growth number so that it moves that target up a bit then versus where we expected to come in at the beginning of the year but then we have we are as you said 50 million we expected to get in terms of savings for the structural cost efficiency so that then narrows that one percentage points and then we're also making progress here on the direct labor so that those are the two components that we are then yeah biting off here in the current year and then the delta then is what will remain to the 12 percent.

That's clear thank you.

Thank you we will now take our next question please stand by and the next question comes from the line of Michael Jax from Bank of America please go ahead your line is now open.

Hi good afternoon thank you for taking my questions too. My first one is just on guidance compared with the June-July forecast the latest S&P estimates seem to reflect a larger deterioration in custom and regional mix than the one point reduction that you've made to your organic growth guide. Are there any specific regions or areas where your your own call of information is looking a little bit more favorable? I'll stop there and ask my next question after that.

Yeah I mean it's I mean the LVP is actually up versus I mean comparably a little bit but it's the negative mixing that offsets that and we would quantify the 130 basis points in the quarter that has been fairly consistent throughout the year and that's also then the reduction in the the guidance here from two to one percent organic growth but more or less flat LVP and then a the one percentage point is still around one percentage point on the negative mixture that we talked about.

Okay understood and then if I can just ask two very short questions. Firstly how much of compensation received this year should we consider sustainable into 2025 and finally are your call of showing any evidence yet of a ramp in BEV reduction in Europe towards the end of Q4 or is that still kind of flatlining?

I'm not sure I understood the first part of your question.

In terms of the compensation that that you've received this year for for inflation how much of that represents a pricing level adjustment and can be carried over into next year versus one-time payments?

Okay well there are still also this year there will be one-time settlements with the customers that will need to be renegotiated also next year but it is increased it will be an increased number of or share of piece price adjustments versus what we had last year but how that exactly ends up remains to be seen as we said we we have still a few customers outstanding here for the full year but there will sure be a need to also renegotiate lump sum settlements next year. And then on the the outlook here for Europe yeah I would say it is it is pretty much in line so far with what also the S&P numbers would be indicating that we see a decline here of what is it around five percent or nine nine percent in the fourth quarter in Europe.

Okay thank you and then maybe just on the pricing question just to clarify so would you say that is it more than 50 percent that is carried over into next year or less than that?

It was around that number but as I said we can come back on that after the fourth quarter of where we end up for the full year. Okay

thank

you very

much.

Thank you we will now go to our next question please stand by and the next question comes from the line of Agnieszka Wilejla from Nordea please go ahead your line is now open. Perfect thank

you I have two questions starting with the supplier settlement if we can go back to it again can you just clarify and tell us was it related to compensating them for cost inflation in their operations or is it anything else?

No as I said I cannot comment on that legal case it's yeah we cannot say more than what we're saying it was related to a settlement with a supplier but the nature of it I'm not allowed to say more than

that. Okay okay thank you and then the second question on Europe I mean you reached a very solid outperformance during the quarter can you tell us what was the reason behind it and also should we kind of try to extrapolate outperformance into the coming quarters as well and then maybe on Europe as well what are you hearing from your customers right now given quite negative commentary overall with some European OEMs?

Yeah so the outperformance in Europe is as you would expect two components that we've had indicated also in some of the previous calls some significant launches that we've had in the prior quarters that are now contributing to the top line so that's one driver and then it is also of course the cost compensations that are coming through that are also driving up the top line. When

it comes to the outlook here and what we hear from the customers I would say it's of course a challenging market environment out there right now and we have no indications that it will suddenly turn into a more stable and positive outlook here and on the other hand we don't hear anything that would have a downside reach compared to what we have alluded to here when it comes to the rest of the year here.

Perfect thank you. Thank you we will now go to our next question please stand by and the next question comes from the line of Jairam Nathan from Daiwa please go ahead your name is not listed.

Hi thanks for taking my question so just it looks like based on the China commentary there is a path to increasing share and with Chinese local OEMs and reducing that mix impact the other component seems to be content and of course that's not under your control but is there any how should we think about content within the local OEMs increasing over time in any historical perspective and just one more question.

No I think yes I mean the trend is clearly that we see an increase in content in China I mean if you compare the Chinese OEMs with the global OEMs I would say when it comes to the premium level I mean there is equal in terms of content the difference really if you look in the Chinese market is that the global OEMs have maybe more higher average when you look at the all the different models they have while the Chinese OEM has a wider range between the premium and the low end content vehicles if we call it that and so but I think I mean clearly over time here there is a growth on all those models as well so we are looking very positively on China when it comes to safety content going forward.

Okay and just as a follow-up you had you talked about a six million higher engineering income in the third quarter you know is that should we consider that as like kind of a pull forward from fourth quarter typically or is that unrelated to like would the fourth quarter still be a 200 basis point benefit.

I think I mean the fourth quarter we have decisionality higher and I think you need to focus really what we're saying about the full year guidance here and then of course you can make your own calculations on what it means between the quarters here but nothing specifically to report on the engineering income tendency and

cyclicality

which is the same

every

year.

Yeah and you can always factor it a bit between the quarters so nothing extraordinary out of the ordinary in the third quarter that would also have implications for the fourth quarter. Got it thank you.

Thank you we will now take our next question. Please stand by. And the next question comes from Eric from SCB please go ahead.

Thank you I have two questions and thank you for the extra color on China and the first one on China and sort of looking at vehicles I mean such as the Neon there and some of the others what's really different I mean what changes did you do to get better traction and orders with these and what do you think is key to really improve with with someone like BYD and then the second question on capex into next year this year five and a half percent of sales I think you've always said that your normalized lever is lower than that so fair to assume it drops a bit further in to next year or just an update on where you are in your investment cycle. Thank you.

Thank you let me start with the China there I think I mean it's no no different there compared to anywhere else in the world in terms of what you can offer to gain traction with different OEMs here I mean it's all about our innovation capabilities here to provide the right products to our customers and do that in a robust way with superior quality and I think with the Chinese OEM of course if we back up a few years the Chinese OEM space was much smaller than it is today but we were very early on to invest in new OEMs racing in China and of course we have gradually grown as they have been growing here but we also at the same time have had new OEMs growing as well as you saw on the slide I mean we're working with 68 or 60 plus let's say OEMs in China here so there are are quite a few and they are have over the years also been increasing so we are established in relationship with them in early stage and gradually add on there so I think we have just a very good team in China and we are really here making sure that we show our capabilities here in being a close partner with them to develop new models and so far we have been successful in that and we put a lot of focus on it going forward as well so add to our portfolio customers

there yeah and then on your topics question we are in the first nine months here we have five and a half percent which is also what we're guiding for the full year we have said that we have a plan here to come down to a ratio more on five percent over time next year will still be somewhat above that five percent target number as we still have some significant factories here that are coming in line with investments also next year but it should start to trend down from the around five and a half percent here

thank you

thanks

thank you we will now take our next question please stand by and the next question comes from the line of Elias Cohen from Nuremberg Berman please go open all

right thanks so much for taking the question and congrats on the progress you made in your strategic initiatives and the results are yielding in a tough environment I have two questions the first is does any you know any comments around profitability in China would be very helpful to us investors I believe margins are accretive there but any comments on the trajectory of margins or maybe the difference between being a supplier of components versus being a supplier of false systems and then I'll go on to the next one thanks

yeah hello thank you for your questions there I mean as you know we don't disclose the profitability in any dimension here for us it's really about the portfolio programs that we are working with and of course you have some that's better and some that is less profitable and what you see here is the average of our different programs around the world here so we don't go into any great detail on that unfortunately okay

okay fine and then just to sort of related to the I think it was George from Goldman who asked the question but you know you made the comment that the market share losses of the OEM western OEMs will persist obviously there's a structural change happening in the global auto industry the Chinese OEMs behave differently they operate differently they have different priorities and I guess it's a little counterintuitive to me that if the industry is structurally changing why the call call off call off will normalize back to a level where it was before so I guess maybe a different way of asking it is how does call off work in China and is that a is that a sort of dilutive impact and then secondly also how do the Chinese OEMs impact your network and capital of the business thanks

yeah when it comes to call off I mean the call off is very much a sign of disturbances in the value chain be it going back here everything from the component shortage to logistical challenges around the world to you know this now maybe a bit cooling off on the TVs and so forth on certainty around the drive lines etc so and some specific customers have their own challenges that calls for you know some rapid changes here within the normally frozen period and so I'm convinced that the way back is really to improve the for everybody's interest is to get back to to less volatility in this area and I mean the China transition you could say or the growing number of Chinese OEM is not creating a call of volatility if you go to China and look at how they work I mean their predictability and stability is the same as we have seen elsewhere in the world over time so there is not the I would say characteristics coming from from from let's say the newer OEMs here that calls for high volatility so I just confirm what I said before

yeah and on the work and on the working capital because you kind of see much longer account receivables and so forth in in China with businesses across different industries

that's correct I mean they tend to have longer payment terms than other suppliers but we've been very clear also with our supply base that to to enter into this setup and also participate in this growth that we also need the support from our supply base so and then that's China that's a very common way of working so the net does not necessarily have to be significantly different than for our yeah the other part of our business

okay

thanks so much

thank

you

thank you we will now take our next question please stand by and the next question comes from the line of Trevor Young from Barclays please go ahead your not open

hi thanks for taking the question um just starting out here I you know appreciate the regional drivers behind the full points of growth of our market uh but I was curious if you could help bucket perhaps the the drivers between pricing and launches and then customer mix specifically the last piece there was you know customer mix we generally expected a drag from that and I was curious you know how how you managed to offset that including in the Americas

yeah I mean so our performance is four percentage points and and uh I mean it's not we're getting to smaller numbers right overall sure so pricing will is a component of that but as historically here we will not disclose our pricing ambitions and also not the realization of pricing but it is of course a larger part of that outgrowth

yeah well that makes sense thank you then just as a follow-up definitely understand the logic as to why you'd be a strong partner for Chinese OEM seeking to expand internationally I was just curious if you if there was any notable distinctions to call out what you see as your opportunity between exports from China and then volumes produced from international facilities of Chinese OEMs that they're starting to open up do you see any difference between the two in terms of in terms of share in terms of content

not really I think it's uh you know as I said the vehicle is a premium vehicle everywhere and uh that content is more basic vehicle maybe as such so no there is no no real differences there as I said before and then I mean of course you look at the exports that tended to be more premium so far from from China uh EVs but it depends on where where in the world it goes to as well so there is no general statement on that I think there's the same ambitions as any other OEM

that's

helpful thank you

thank you as there are no further questions I would now like to hand back to Mikael Brett for any closing remarks

thank you Sonja before we conclude today's call I want to emphasize that we remain fully committed to achieving our target of around 12 percent adjusted operating margin our focus continues to be on structural cost reduction cost compensation innovation quality and sustainability the possible trends in our cash flow and balance sheet reinforce our dedication to delivering strong shareholder returns our fourth quarter and full year earnings call is scheduled for Friday January 31st 2025 thank you all for joining today's call we truly value your interest in our belief until next time drive safely

this concludes today's conference call thank you for participating you may now disconnect