Autoliv, Inc.

Good day and thank you for standing by. Welcome to the Autoliv 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 is being recorded. I would now like to hand the conference over to your first speaker today, Anders Trapp. 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, and our chief financial officer, Fredrik Westin, and me, Anders Trapp, VP Investor Relations. During today's earnings call, we will cover several key topics, including our sales, earnings, and cash flow developments, 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 rate support continued high levels of shareholder returns. Following the presentation, we will be available to answer 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 of course 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 available on Autoliv.com and in the TEMQ 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 the 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 competitiveness 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. Autoliv managed to outpace light vehicle production by four percentage points. Despite lower sales and relatively significant relatively significant supplier settlement, 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 2,000 and related savings of 50 million US dollars in 2024. We also managed to reduce direct headcount by around 6%. Cash flow continued to be strong, supporting a high level of shareholder return. In the quarter, we repurchased and retired 1.3 million shares, 430 million. Under the current mandate, we have repurchased over 10% of outstanding shares for $917 million. Earnings per share improved 11%, mainly from the lower number of outstanding shares and a lower tax rate. We are reiterating the adjusted operating margin guidance of around 9.5% to 10%. With only a few months left of the year, we expect to come in at the low end of the around 9.5 to 10%. 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%, 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 adjustments 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. This shift resulted in a 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 cost for supplier settlement. As a result of our structural efficiency initiatives, the positive trend for RD&E and SD&A 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, which was $25 million 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 saved by almost 1% in the quarter. Out-of-period cost compensation contributed with approximately $8 million in the quarter. This was $2 million higher than in the same period last year. Out-of-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 splits, 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 4.8% year-over-year in the quarter, which was 70 basis points better than anticipated at the beginning of the quarter. We estimate that the geographical light vehicle production mix had 130 basis points negative impact on our outperformance. Despite this, and that some key customers were adjusting inventories, our organic sales growth outperformed global light vehicle production by four 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 underperformed light vehicle production by one percentage point in the Americas, 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 a 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% of our China sales in Q3. We grow sales to this group by 18% versus a year ago, more than twice their last weekly production growth of 8.5%. On the next slide, we have the 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 This highlights our growing position with Chinese OEMs and our success in capturing growth in the Indian market. The trend towards 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 output content per vehicle from around 100 to close to 400 US dollars. In terms of auto lead 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 CPV and NIO airbags. Now looking on the next slide. The importance of the Chinese car market is increasing. Already today, one out of every three 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. 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. Autoliv is the leading automotive safety supplier to both global and domestic OEMs in China. China contributed 20% to Autoliv's global sales in 2023. Over the past decade, we have made significant investment in China and now operate 15 plants 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 assessments done by, for instance, China MCAP and Euromcap. We currently serve 68 customers and collaborate with local universities, research institutes, and leading customers to drive enhancements in the automotive safety technology. On the next few slides, I will highlight some of Autoliv'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, Autoliv made significant investments 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 outperformance, 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% 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, Chery, 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-of-leash passive safety systems, meaning airbags, seatbelts, and steering wheels that 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 out-of-the-sales sales. Over the past few years, the rapid growth and innovation within the Chinese automotive market have led to a substantial increase in demand for advanced safety solutions. As a result, Autoliv has strengthened its partnership with leading Chinese OEMs such as Geely, Great Wall Motor and Sherry. These partnerships have been instrumental in driving our sales growth in China. This has enabled us to capture a growing share with the local OEMs. Today, Chinese OEMs represent around 40% of out-of-lifts 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 beaker production, and the share of our sales. Our market share with Chinese OEMs is projected to rise from approximately 20% in 2022 to around 30% in 2024 and 32% by 2025, while our share with global OEMs in China is expected to remain steady at around 42%. Looking on the next slide. We have established ourselves as the 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. Speed and strong local competencies makes us a trusted partner. We actively sell advanced and differentiated solutions, supporting our customers in delivering safe and competitive vehicles across all markets. We leverage our global volumes and footprint 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 cabin 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 customer appreciates 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% since 2018. This concludes the China market update. Turning to the next slide. I will now hand over to Fredrik.