Autoliv, Inc.

Good day and thank you for standing by. Welcome to the Autolive Inc. fourth quarter and full year 2024 financial results conference call and webcast. All participants will be in listen-only mode during the conference. 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 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Anders Rapp, Vice President, Investor Relations. Please go ahead.

Thank you, Raz. Welcome, everyone, to our fourth quarter and full year 24 earnings call. On this call, we have our President and Chief Executive Officer, Mikael Bratt, and our Chief Financial Officer, Fredrik Gustin, and me, Anders Rapp, VP Investor Relations. During today's earnings call, we will cover several key topics, including our sales and record earnings, strong cash flow, and balance sheet. We will outline the expected margin improvement in 2025, as well as how our strong balance sheet and asset returns will support continued high levels of shareholder returns. Following the presentation, we will be available to answer your questions. 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 non-U.S. GAAP measures. The reconciliations of historical U.S. GAAP to non-U.S. GAAP measures are disclosed in our quarterly earnings release available on autoliv.com and in the 10-K that will be filed with the SDC. 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 will now hand over to our chief executive officer, Mikael Bratt.

Thank you, Anders. Looking on the next slide. I am very happy to present the record-breaking quarter. This is a testament to our employees' hard work, dedication, and commitment. And I want to thank them for their outstanding contributions and for consistently driving our success forward. Meeting our full year guidance despite accelerated market headwinds showcases the company's adaptability and resilience, driven by our diverse product portfolio and strong customer relationships. This achievement not only highlights our current success, but also lays a solid foundation for 2025 with continued margin expansion. Despite light vehicle production mix deterioration leading to lower sales, we reached new record highs in the quarter for operating profit, operating margin, and earnings per share. For the full year, we also had a record high operating cash flow. I am also pleased that we generated an exceptional level of return on our capital employed. Our strong performance was mainly a result of strict cost control. Our structural cost reduction program enabled us to reduce our indirect workforce by 1,400 since Q1 2023. We managed to accelerate our operating efficiency improvement, partly supported by an improved customer call-off accuracy. which contributed to a reduction of direct headcount by 4,500 in one year, which is a reduction of almost 9%. The strong results were also supported by agreements we reached with all major customers on excess inflation compensation. Cash flow continued to be strong, supporting a high level of shareholder return. In the quarter, we repurchased shares for 102 million US dollars and retired 3 million shares. The board of directors has approved an extension of the shares repurchase program until the end of 2025. Under the extended repurchase program, 480 million US dollars remain. Autoliv was rated BBB+, with a stable outlook by Fitch Ratings in November. Looking now on financials in more detail on the next slide. Sales in the fourth quarter decreased by 5% year-over-year for several market-related reasons. This includes negative effects from currency translation LVP development as well as the regional and customer mix development. Despite this, the adjusted operating income for Q4 increased by 5% to 349 million US dollars from 334 million US dollars last year. The adjusted operating margin was 13.4% a record for the company. Operating cash flow was a solid 420 million US dollars. Looking now on the next slide. We continue to generate broad-based improvement. Our direct labor productivity continues to improve as we reduce our direct production personnel by 4,500 year over year. This is supported by the implementation of our strategic initiatives, including automation and digitalization. Our gross margin was 21 percent, an increase of 180 basis points year over year. The improvement was mainly the result of direct labor efficiency and headcount reduction. partly offset by lower sales and supplier settlement as communicated in the previous quarter. As a result of our structural efficiency initiatives, the positive trend for RD&E and SG&A from the beginning of the year continued. Combined with the gross margin improvement, this led to the substantial improvement in adjusted operating margin. Looking now on the market development in the fourth quarter on the next slide. According to S&P Global, total global light vehicle production for the fourth quarter increased by 40 basis points, exceeding the expectation from the beginning of the quarter by over 4 percentage points. Most of this improvement was driven by local OEMs in China, supported by the scrapping and replacement subsidy policy, as well as high growth in South America. Key markets in North America and Europe performed in line with expectations. This resulted in a more unfavorable regional light beacon production mix of around four basis points in the quarter, significantly impacting our outperformance negatively. In the quarter, we did see call off volatility improving both from the third quarter and year over year. We will talk about the market development more in detail later in the presentation. Looking now on our sales growth in more detail on the next slide. Our consolidated net sales were 2.6 billion US dollars. This was 136 million US dollars lower than a year earlier, driven by lower light vehicle production, negative currency translation effects, and lower out-of-period cost compensation. The negative currency translation effects reduced sales by almost 2% in the quarter. Out-of-period cost compensation contributed with approximately 24 million US dollars in the quarter. This was 21 million US dollars lower than in the same period last year. Out-of-period compensations are retroactive price adjustments and other compensations that mainly related to the first three quarters, but were settled in the fourth quarter. Looking on the regional sales split, it reflects the high growth of automotive markets in Asia and our strong market position there. China accounted for 23%. Asia, excluding China, accounted for 20%. America for 30% and Europe for 27%. We outline our organic sales growth compared to life vehicle production on the next slide. Our quarterly sales were robust, but slightly below our expectations, primarily due to a more unfavorable regional and customer mix. We continued to outperform life vehicle production significantly in Japan, rest of Asia, and in Europe, fueled by product launches and pricing. The outperformance in rest of Asia were driven by India and South Korea. We expect a continued strong outperformance in 2025 in India from a number of launches. In China, we underperformed as the light vehicle production growth mix continued to be tilted towards lower CPV models from Chinese domestic OEMs. In America, we underperformed light vehicle production by three percentage points, mainly as a result of dealer inventory reductions by major customers and strong South American growth. Among the primary growth drivers for the company this quarter, five were Chinese OEMs and two were Japanese, underscoring the significance of the Asian market and its customers. On the next slide, we have the organic sales growth for the full year 2024. For the full year, we outperformed global light vehicle production by around two percentage points. We estimate that the regional light vehicle production mix was two to three percentage points worse than expected in the beginning of the year. We outperformed in Japan by 13 percentage points, in the rest of Asia by 10 percentage points, and in Europe by 6 percentage points. Our sales to domestic Chinese OEMs grew by 24%, and they accounted for more than 37% of our China sales, up from 28% in 2023. Even so, the negative market mix still resulted in an underperformance of seven percentage points in China. We expect this to improve in 2025, as our strong order intake with Chinese OEMs should result in a record number of new launches in 2025, leading to significantly better sales performance compared to light vehicle production in China. Our global market position is strong. and we are the market leader in all regions and product categories. In 2024, our global market share was around 44%. This excludes sales of components such as inflators. This is almost five percentage points higher than in 2018. Supported by new launches, especially with Chinese OEM and CPV growth, we expect sales to outperform light vehicle production by two to three percentage points in 2025. On the next slide, we see some key model launches from Q4. We saw a record number of significant launches in 2024. For 2025, we also anticipate a high number of launches, especially with Chinese OEMs. In this In this slide, three of these models are from Chinese OEMs and three from OEMs in India. This highlights our growing position with Chinese OEMs and our success in capturing growth in the Indian market. The models shown here have an out-of-leave content per vehicle from around 100 to over 400 US dollars. In terms of out-of-leave sales potential, the Toyota 4Runner and Suzuki Desire are the most significant. This is the first time we have a model in India with the highest sales potential. The long-term trend to higher CPV is supported by front center airbags on six of these models. Now looking on the next slide. In 2024, the industry's sourcing of new business was at its lowest level since 2018. This was driven by technological and geopolitical uncertainties, causing the sourcing of several large platforms to be postponed until 2025. In addition, model lifetime is shortening as Chinese OEMs share of the order book increase. Models from Chinese OEMs typically have an average lifetime that is a couple of years shorter. In order intake market share with the rapidly growing Chinese OEMs exceeded 40 percent, a significant improvement compared to our current market share of close to 25 percent with this group. Looking on the order intake more in detail on the next slide. In 2024, order intake for new automakers mainly in the North America and China accounted for almost one third of our We won multiple awards supporting new markets and industry trends like foldable steering wheels for self-driving vehicles, including a new type of driver airbags that deploys from the dashboard or ceiling. Autoliv has successfully secured business in the commercial vehicle sector, bolstering our mobility safety solutions business. This expansion not only strengthens our market position, but also enhances our ability to deliver innovative safety solutions to a broader range of customers. We also won airbag contracts featuring low carbon cushion material, a significant step towards sustainability in automotive safety. These innovative airbags not only reduce the environmental impact, but also lower the cost of the airbag module. Thanks to the robust order intake in recent years, we anticipate that the number of product launches in 2025 to be on a similar level as in 2024. This progress supports our long-term success. Let's now look at the sustainability program during 2024 on the next slide. Sustainability is an integral part of our business strategy and an important driver for market differentiation and stakeholder value creation. Our sustainability approach is based on four focus areas with clear ambitions and targets defined for each area. During 2024, we initiated and concluded a number of activities within these areas. For example, We continued to expand our addressable users by expanding testing, including diverse body shapes, ages, and genders. Through collaborations, we addressed protection for vulnerable road users. We significantly improved our recordable incidence rate. Greenhouse gas emissions in own operations were reduced by 15% compared to 2023. And the share of renewable electricity increased to 30%, having positive environmental and financial effects. We conducted our annual supplier climate survey to assess their readiness for our net zero supply chain goals. And we also integrated climate performance into supplier selection and launched a climate accelerator program to support them. Turning the slide. I will now hand it over to Fredrik Wistin.

Thank you, Mikael. I will talk about the financials more in detail on the next few slides. So turning to the next slide. This slide highlights our key figures for the fourth quarter of twenty twenty four compared to the fourth quarter of twenty twenty three. The net sales exceeded two point six billion, representing nearly a five percent decrease. The gross profit increased by 20 million and the gross margin increased by 1.8 percentage points. The adjusted operating income increased from 334 million to 349 million and the adjusted operating margin increased by 120 basis points to 13.4%. The reported operating income of 353 million was 4 million higher than the adjusted operating income, thanks to a positive impact from reversal of capacity alignment accruals adjusted earnings per share diluted decreased by 70 cents where the main drivers were 90 cents from higher taxes and 10 cents from higher financial and non-operating items partly compensated by 11 cents for from higher operating income and 19 cents from lower number of shares The adjusted return on capital employed was a solid 35% and our adjusted return on equity was 41% driven by share buybacks impacting total equity. We paid a dividend of 70 cents per share in the quarter and we repurchased shares for around 102 million US dollars and retired 3 million shares. Looking now on the adjusted operating income bridge on the next slide. In the fourth quarter of 2024, our adjusted operating income increased by 16 million, despite market headwinds from lower light vehicle production. Operations contributed with 57 million, mainly from improved call-off accuracy and high operational efficiency, as well as lower recall costs. The largest offsetting factor to the increase was lower net sales. The net currency effect was one million negative, as the positive effects mainly from the Mexican peso versus U.S. dollar was offset by translation effects and negative transaction effects from the Mexican peso versus the Euro, the Japanese yen versus the Thai baht, and the U.S. dollar versus the Korean won. The impact from raw materials was around 6 million negative. Out-of-period cost compensation of 24 million was 21 million lower than last year. Costs for SG&E and RD&E net increased slightly on higher costs for SG&E personnel, despite the offset from higher engineering income. The impact of the supply settlement Mikael mentioned earlier was around 10 million in the fourth quarter. Looking now at the full year results on the next slide. 2024 was again impacted by labor and supplier cost inflation, lower and volatile electrical production and customer price negotiations. Our net sales were $10.4 billion, a 1% decline on negative currency translation effects. The adjusted operating income increased by 9.5% to over $1 billion. The adjusted operating margin was 9.7% compared to our guidance of around 9.5% to 10%. The operating cash flow was $1.1 billion in line with the guidance. Adjusted earnings per share increased to $8.32 per share, partly as a result of the share repurchases. Dividends of $2.74 per share were paid. Despite market headwinds and lower sales, adjusted operating profits, operating cash flow, as well as the earnings per share were all the highest we have ever achieved. Looking now at the cash flow in more detail on the next slide. For the fourth quarter of 2024, The operating cash flow decreased by $27 million to $420 million compared to the same period last year, mainly due to a less favorable working capital development. Capital expenditures net decreased by $18 million compared to the same period the previous year. Capital expenditures net in relation to sales was 5.0% versus 5.4% a year earlier. The free operating cash flow was positive 288 million compared to positive 297 million in the same period the prior year. For the full year, 2024, operating cash flow increased by 77 million to 1.1 billion, mainly on higher net income. The free operating cash flow was almost 0.5 billion. Capital expenditures net decreased by 6 million. Capital expenditures net in relation to sales was unchanged at 5.4%. This level is slightly above what we expect for the longer term due to investments in capacity made in Asia and in footprint optimization. The cash conversion in 2024 defined as free operating cash flow in relation to net income was around 77% in line with our target of 80%. Now looking at our trade working capital development on the next slide. Trade working capital decreased by 117 million compared to the same period last year. where the main drivers were 204 million in lower accounts receivables, 179 million in lower accounts payables, and 91 million in lower inventories. In relation to sales, trade working capital decreased from 11.2 percent to 10.7 percent. The improvement in trade working capital is a result of our multi-year working capital improvement program and an improvement in customer call-off accuracy, enabling a more efficient inventory management. Our capital efficiency program aims to improve working capital by 800 million. At the date, we have achieved around 700 million. Now looking on our shareholder returns on the next slide. Over the years, Autoliv has demonstrated its capability to generate solid cash flow across different market conditions. During 2024, we returned over $770 million to shareholders through dividends and share buybacks. setting a new record for the company. Over the last five years, we have significantly reduced our net debt while returning 1.9 billion US dollars directly to shareholders. This includes stock repurchases totaling over 1 billion US dollars. Since initiating the current stock repurchase program in 2022, we have reduced the number of outstanding shares by over 12%. When executing the program, we consider several factors, including our balance sheet, the cash flow outlook, our credit rating, and the general business conditions, as well as the debt leverage ratio. We always strive to balance what is best for our shareholders in both the short and the long term. Now looking on our debt leverage ratio development on the next slide. Autoliv has consistently prioritized maintaining a strong leverage ratio, reflecting our prudent financial management and commitment to a strong balance sheet. This approach has enabled the company to navigate economic fluctuations, invest in innovation, and continue delivering value to stakeholders. While investing in our footprint and returning over $770 million to shareholders during 2024, our leverage ratio is unchanged at 1.2 times. Compared to the third quarter, our debt leverage ratio decreased by 0.2 times, as our net debt decreased by $227 million while the 12 months trading adjusted EBITDA increased by 17 million. With that, I hand it back to you, Mikael.

Thank you, Fredrik. On to the next slide. As we enter 2025, the full year outlook for the global light vehicle production by S&P Global stands at the minus 0.5%. The light vehicle production outlook is factoring in regional specific influences particularly the recent extension of the vehicle scrappage and replacement policy in China, persistent headwinds in Europe and North America, and a slower EV adaptation growth. The latest forecast indicates an LVP decline of almost 2% for the first quarter versus last year. LVP in China is projected to increase 4% in the first quarter following a particularly strong performance in the fourth quarter of 2024. The ongoing trend of global OEMs losing market share is expected to persist, but to moderate in the following quarters. The forecast for North America first quarter LVP is minus 6%. The main reason is the continued need for more vehicle inventory correction. The light vehicle production in Europe is expected to drop 9% for the first quarter, mainly due to inventory adjustments. From the fourth quarter to the first quarter, global LVP is projected to decline by 14%, a reduction of over 3 million vehicles. This drop is significantly higher than what we have observed over the past three years. where it has averaged around 7%. Based on S&P Global's forecast and our own analysis, our 2025 guidance is built on a global likely production decline of around 0.5% and the region mix in line with S&P's forecast for the full year. Now looking on the business outlook on the next slide. We expect 2025 to be a challenging year for the automotive industry with LVP declining and geopolitical risks remaining. However, our continued efficiency focus is expected to support further improvement of our profitability. We expect to significantly improve our sales performance in China and that the continued strong cash flow and balance sheet sets a solid foundation for our continued commitment to a high level of shareholder returns and our financial targets. We expect cost pressure from inflation to moderate in 2025, but we still expect some pressure coming mainly from labor, especially in Europe and the Americas. We expect call of volatility in 2025 to on average to be slightly lower than it was in 2024, but remaining higher than the pre-pandemic level. We also anticipate the challenging first quarter in terms of operating margin, which should gradually improve throughout the year. Similar sequential development as we've seen in the past few years with a relatively weak first quarter and gradual improvement throughout the year. Turning to the next slide. In closing, to summarize our 2025 outlook, we expect continuous sales, outperformance versus life vehicle production, improved profitability compared to 2024. This improvement is primarily supported by structural cost reduction and strategic initiatives, higher sales, as well as favorable currency effects. We remain mindful of the risks deteriorating economic conditions and potential tariffs. But I am confident that our leading position, the work we have done to become more resilient and our experience and agility will enable us to manage future challenging conditions. Now looking on the 2025 guidance in detail on the next slide. This slide shows our full year 2025 guidance which excludes effects from capacity alignment, antitrust-related matters, and other discrete items. Our full year guidance is based on a global life vehicle production decline of around half a percent, a tax rate of around 28%, and that the net currency translation effect on sales will be around minus 2%. Based on this, we expect our organic sales to increase by around 2%. The guidance for adjustment, the guidance for adjusted operating margin is around 10 to 10 and a half percent. Operating cash flow is expected to be around 1.2 billion US dollar. Our positive cash flow trend and our strong balance sheet supports our continued commitment to a high level of shareholder returns. The guidance for 2025 does not include any new or increased tariffs or other trade limitation which may impact our operation. We are monitoring the situation closely and are prepared to be as agile as possible to adjust to any such development. Looking on the next slide. This concludes our formal comments for today's earnings call. And we would like to open up the line for questions from analysts and investors. I now hand it back to Operator Rath.

Thank you, sir. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Thank you. We are now going to proceed with our first question. The questions come from the line of Colleen Langen from Wells Fargo. Please ask your question.

Oh, great. Thanks for taking my questions. Maybe if you could just start with maybe framing some of the puts and takes when we think about the margins year over year. I think you mentioned FX. I mean, I think in 23 that was like $60 million of a drag. Is that kind of the framework of the good news that we should be thinking about? And then does the labor inflation, is that offsetting 100% through the year with recoveries, or is that maybe a net negative? And then maybe any framing of the restructuring help we should be expecting. Okay.

Yeah, on the FX, I would refrain from a guidance when it's included in, obviously, what we have here on the operating margin side. But I don't want to give what we expect from different currency pairs here to contribute. But the pairs should continue to be a positive for us. Then on the contribution of restructuring, we expect, as we've said before, around 50 million incremental savings in 2022. And we had 50 million of savings in line with our expectations in 2024. And other than that, the headwinds are from inflation. The headwind from supplier cost inflation is higher than what we're expecting from labor cost inflation. And the labor cost inflation continues to come down. I mean, we've seen a gradual improvement. And we're talking now about fairly small percentage numbers versus or as an excess inflation versus when this all kicked in. And we are expecting to offset that by commercial recoveries from our customers. But it will be throughout the year. We also had lump sum settlements last year, although the majority was peace price agreements. But some of them now fall away in the first quarter already. And then we need to replace them gradually throughout the year. But the ambition is to have a full offset for the gradual inflation that is hitting us.

That's very helpful. Obviously, a lot of headlines these days around tariffs, particularly on goods from Mexico to the U.S. Can you help us frame, if a tariff is in place, how much of an impact that would be and how you think you might be able to offset and work with customers to offset that?

I think if or when tariffs would be implemented there, and for us it's mostly a question of Mexico-US tariffs, of course, that pass on to our customer that this is necessary there. So, I mean, that would start immediately to be a discussion with our customer because there is no reason at all why we as a supplier should absorb any cost like that. And I mean, ultimately, it will be a high cost for vehicles sold in the US. And we are preparing ourselves for that as soon as that might come. So that would start immediately, that discussion. Okay, great.

We are now going to proceed with our next question. The questions come from the line of Edison Yu from Deutsche Bank. Please ask a question. Your line is opened.

Thank you for taking our questions. First off on the outlook, I'm curious, what kind of impact are you embedding from MIX in 2025? Is that going to actually be a positive going forward relative to 2024?

We expect around a one percentage point negative mix in 2025 versus 2024. So it should be better than it was in 2024. So there we had a negative mix, as we said, around between two and three percentage points. And then in 2025, that should improve to around one percentage point. And maybe one correction, I think in the presentation before, we said four basis points negative mix in Q4. That would be four percentage points in Q4. Understood.

And then on the order intake, I know you have this slide showing obviously there's a decline. And I think you called out a couple of big programs or a couple of big platforms. Can you give us a sense of what happened there and when you expect those or what kind of impact you would expect on the growth, if any?

Yeah, I mean, we have seen, as we saw, I mean, the lowest sourcing activity from our customers basically since we spun off the electronics business. So it is a rather unusually low sourcing, or it was an unusually low sourcing activity, which continued to come down throughout the year. What we see is that, I mean, there's been a lot of discussions around that OEMs are projects due to uncertainties on the drivetrain side. But what we also see on top of that is also uncertainty to location of production. So where actually they would start or in which location would they produce a certain platform. And that had a significant impact on the overall market development in 2024 and more than we had expected going into the year. We also said here that there are a couple of platforms where we are the incumbent that have also been delayed into 2025. And the expectation here is that that sourcing should come in during the first half of this year. Got it. Thank you.

Thanks.

We are now going to proceed with our next question. The questions come from the line of Chris McNally from Evoco. Please ask your question.

Thanks so much, Tim. I actually just wanted to follow up on Edison's question and think about mix in a different way. I don't think you obviously don't guide by region, but when I think about plus 2% organic at the midpoint, I was wondering if you could just take a shot at sort of ranking from strongest organic to weakest sort of across your four regions, non-Asia, China, North America, and Europe, just sort of where we may see the highest to lowest.

No, I think as we have indicated here, I mean, we see the strongest, you know, growth opportunities and growth in Asia. I mean, you have, of course, China, where we are also taking market share with the Chinese OEMs here that continue to strengthen our already leading market position there. And of course, in the rest of Asia, also, you have a strong contribution from India, where we not only see the LDP growing, but also the content is growing there. And then, of course, we have, I would say, Europe in a challenging situation and also, I would say, North America here when we look at LDP growth in general there. So, yeah, I think it's a little bit the same picture as we have seen this year here. So the trend continues more.

It's super encouraging, and I know it's hard with qualitative, but it's nice to hear China towards the top, because it sort of implies the growth of the market there is turning back positive, and you mentioned that. Second question, you know, on some of the weaknesses in North America and Europe, is that where the OEM mix also is the, you know, sort of when you mentioned the minus one, where we should think about the impact the most, you know, the independent forecasters, You know, two of the Detroit three down sort of, you know, low to mid single digits. The German three in Europe, it's going to be, you know, probably a tougher year given any of the regulations. Again, is there less secular growth in North America and Europe or is it really more a mixed issue for 2025 in those two regions?

I think, I mean, it's very much related to, I would say, the overall economic situation in those regions. So, I mean, it's the LDP production per se that is the biggest challenge there. So, no, nothing specific there on an OEM level, I would say. It's more related to what was mentioned here before around uncertainty on drive lines from the end consumer, the overall affordability from the end consumer and so forth. So holding it down. And of course, when it comes to export out of these regions, also the competitiveness, you could say.

We are now going to proceed with our next question. The questions come from the line of Vijay Rakesh from Mizuho. Please ask your question.

Yeah, hi. Just a quick question. When you look at the 2% organic growth, I was wondering what you are embedding in terms of any potential tariffs. It looks like coming down the pike here in Canada, tariffs on the Mexico side, or how that impacts to the 2025 LVP, or even the EV-mandated piece. How do you What are we embedding in that assumption? Thanks.

Yeah, no, I would say, I mean, there is no tariff assumptions included in the guidance for 2025 here. Basically, for a reason, it's very difficult to have a view on it. It's many different scenarios you can think about, you know, the level of tariffs, the length of the tariffs, as an example. So that is not included in the outlook here. It's something we are following very closely. And as we said here, in terms of our own impact potentially there, we will start negotiating with the customer immediately about passing that on. And then the impact it may have on the demand from the end consumer, we have no detail around at this point in time.

Got it. And then in China, definitely encouraging to see that you're focusing on that. When you look at the CPV in 2024, approximately where did it average out? And just wondering how much of a step up you would see on the average CPV, let's say on 2025. Thanks.

Actually, the CPV in China went down year over year, 2023 to 2024. And that was mostly due to the market mix that we saw, whereas we said before these scrappage premiums have favored more the lower-end vehicles. So with that, we actually saw that the overall content of the vehicle in the China market went down year over year, but we expect this to reverse in 2025.

And the trend in the market is, of course, to gradually increase the content in the vehicles in all different segments here. So I would say this is more a temporary nature as a result of the shift in the OEM mix, so to speak.

Sorry, thank you.

We're now going to proceed with our next question. The questions come from the line of Hampus Angelo from Handelsbanken. Please ask a question.

Thank you very much. Two questions for me. I'm going to come back on the LVP. It's just that when you look at your outlook, is it based on what your talks with the OEMs or S&P? Because I think S&P has included 10% tax on the US. And at the same time, we have a lot of ongoing in Europe with maybe a massive program on incentives for battery electrics and also changing the regulation on not putting penalties directly on the OEMs that would fail on the 93.6 MG and maybe having that measured over three years in average. It's just been interesting to hear your moving parts on being on par with S&P on 0.5 LVP. That's my first question. Second question is more on You could talk a little bit about content vehicle in India. I know you have a market share there and what's happening with this commitment by the OEMs. Thank you.

Thank you. I'm first on the LVP outlook and what we're based upon. As always, we in the short, you know, next coming weeks, months, we we adjusted with our own insights there. But when I looked at the total year here on the 0.5 negative that we are mentioning here, I would say it's mainly based on the S&P global tier. So we have not as I mentioned before here, made our own judgment here on potential impacts on Tyrus and so on. So in the extent that it's included in the S&P is there, but we have not massaged it on our side here. So as I said, we don't have a better crystal ball here than anybody else. And I think when it comes to India there, I mean, we see that continue to improve overall. In 2024, it was around $120. And for next year, we expect it to raise to close to $140 and onwards here, so even $160 in size here. So what we have alluded to before here about the growth opportunities in India, We see both the LVP and TPV contributing to this, and with our 60 percent market share in India, we are well positioned to capture this. And it's 4 percent of – India stands for 4 percent of our sales, which is basically equal to the South Korean market there.

Thank you very much.

Thank you.

We're now going to proceed with our next question. And the questions come from the line of questions. Hello, Michael, your line is opened.

Great, hey, hi, Michael, Frederick, thanks for taking my questions as well. My first question would be great if you could share a more specific reading on the exit rate for call of accuracy in Q4. It looks like it picks up quite nicely. and how that compares to the level that is built into the 25 guidance. Um, and then my second question just goes back to the point on favorable Forex transactional effects. I know Fred, you don't want to give a very specific guide on that, but does that, does that imply that you see a net tailwind at an EBIT level or is, um, you're just referring to some kind of an offset against the top line Forex headwinds that you're expecting?

So the exit rate in terms of call-off stability, as you see in the graph there, we were at around 94% in the fourth quarter. And we saw a good development in Europe, America, and also in the rest of Asia, whereas China continues to be at that lower reliability level. And as we indicated here, we believe that 2025 on average should be at a better level than 2024 on average. so that it continues to be somewhere between 90% and 95% range, which we believe I think is encouraging. And Michael, can you ask your second question again?

Yeah, sure. Thanks for that. Just back to the point on transactional effects for Forex. Does that statement or that guide imply that you see a net tailwind at an EBIT level from transactional effects, or is it meant to be just an offset against the top line Forex headwind that you've seen?

I mean, as I said, I don't want to guide on the transactional effect for the full year. But what we saw in the fourth quarter was a very positive development, obviously, on the US dollar to Mexican peso development with our cost base in peso that had around 12 million positive transactional effect for us. But then that was offset by, I already mentioned, the currency pairings with the Japanese yen against the Thai baht. They used dollar against the Korean won, and then they were importing euro-denominated products into Mexico. And they all roughly had about a $4 million negative effect. So that almost completely offset the positive effect we saw from the PSO. Okay. So depending on how this currency moves, you have the assumptions on our guidance slide here, what we're basing the forecast on, and then we'll have to see where the ethics rates end up.

Okay, thank you Fred. If I could just sneak in one final one. Just in terms of your expectations around the phasing of improved outperformance in China. I think previously you were a little more confident that you could start to see some outperformance already at the beginning of 2025. Is that still the case or is it more an H2 situation?

No, I think what we've said here is that it will gradually improve here and we It's always difficult to be exact on the timing here due to, as you said, I mean, here we're seeing a real push due to the incentives that are in place. But we feel confident about the shift in trend here as a result of the increased share of the orders that we are taking. So we are on the right track and have to come back on the exact details as they come through.

Super. Thank you very much.

We are now going to proceed with our next question. The questions come from the line of George Kelly from Goldman Sachs. Please ask your question.

Yeah, good afternoon, and thank you for taking my questions. I had two questions, if I may. The first one just related to order intake and slides 11 and 12. It's very helpful on slide 12 to see the share of order take, which is accruing to new OEMs. But if I apply that to the dollar order amount on slide 11, it would seem to imply that the absolute order intake from new OEMs was down year over year. Is that correct? And if yes, could you perhaps explain why that is? Is it because of the new OEMs also reconsidering product offerings? Or is it related to the point you make around some of the Chinese OEMs having shorter lifetimes for their programs? The second question I had was with respect to shareholder returns. I appreciate the current buyback mandate and what is outstanding, but given the implied EBIT forecast for this year and also the guide on cash flow, is it reasonable to expect a step up in shareholder returns once more in 2025? If we look at the last three years, I think on average the step up has been around $200 million per annum. Is there any reason not to assume that a similar step up might be possible this year? And if it is, can you give us any insight into the split? It looks like the dividend has remained flat around the 220 mark. Should we expect any step up to be more focused on buybacks and dividends? Thank you.

Thank you. Let me start with the order intake there. I mean, the factors here, when you look at the value of order intake here, it's the factors we mentioned here that we see mainly in the, let's call it the Western world here, pushing out in time the launches of new vehicles and thereby also the RFQs. And when it comes to the Chinese OEMs, it is, as we said, also there, the shortening lifetime. And those two main factors that is adding up to the difference there. I feel that we have an order intake here in order to support our ambition here of safeguarding the market share that we have, which is around 45% as we move forward and very encouraging in all this is that we also see the strong growth we have in the Chinese OEMs here that we have also described in detail here. So this is more reflecting the dynamics in the industry right now than anything else. When it comes to the return to the shareholders here, as you know, we can't communicate anything around what we might do or not do in this regard more than what we have said in the past and that is that we have a very strong ambition here to be a shareholder-friendly company by returning liquidity to our shareholders. I think the last couple of years here shows that we are serious about that and what we also have indicated about the ability to generate liquidity going forward is also I would say something that supports that statement going forward. We have the mandate we have today and how and when we are using that we have to report afterwards and as you know we post on our home page there on a weekly basis on a frequency of a weekly basis there. And on the direct dividend, we have the ambition to have a stable and increasing dividend in that. So, yeah, I think that there's as much we can say around that. Thank you.

We are now going to proceed with one last question. And the questions come from the line of Agnieszka Vilela from Nodia. Please ask your question.

Perfect. I have two questions. Starting with your market share, it was 44% in 2024, marginally lower than in 2023. Can you just say what was the reason for that? And also, do you expect a further decline in the market share in 2025?

No, thank you. As I said, I feel comfortable with the order book we have to support our market share around 45. The difference you see between 23 and 24 is very marginal. And the main reason for that is actually that we have the strong growth of BYD in China, where we and no one else is selling to them as they have their in-house um in-house uh manufacturer of safety products but we are selling uh for example inflator to them and that's not included in our market share and that i would say it's a meaningful volume to them so if you would count that it looks different but so in my book here we are standing stable around the 45. understood uh fair point

And then also you mentioned that Q1 will be a challenging quarter in terms of the operating margin. And when I look at your previous performance, usually the margin decreased by some 4 to 5 percentage point sequentially in Q1. So should we expect a similar decrease now or maybe even more pressure due to somewhat weaker Q1Q car production?

I don't want to guide you specifically on the first quarter, but if you look at what have been the drivers for the margin decline in the past couple of years, where it's been around 5 percentage points from Q4 to Q1, it's been the lower LVP. As we mentioned during the presentation, that was, over the last three years, a decline of 7% sequentially, quarter over quarter. Right now, we're seeing a decline of 14%, so twice that number. And that, of course, would also have a higher impact on our operating leverage and also the operating income. Then it's the very traditional or typical seasonality that we have on the end-year income side. That's not going to be any different this year than it has been in previous years. And then also what we've seen in the last year is the combination of the fall away of lump sum recoveries that we then need to reinstate throughout the year. and inflation coming in. And that combined effect is lower this year than it has been in previous years. But if you take all of the three combined, maybe that's not so dissimilar to what we've seen previously because of the larger LVP decline.

Thank you so much.

Thank you.

The Q&A session is now closed. I will now hand back to Jimmy Kyle-Brad for closing remarks.

Thank you, Raz. I am pleased to invite you to our Capital Markets Day on June 3, 2025. And I am looking forward to sharing with you how we see our way forward. More details to be announced shortly. Before we conclude today's call, I want to emphasize our commitment to achieving our target of around 12% adjusted operating margin. Our focus remains on structural cost reduction in innovation, quality and sustainability. Despite significant market challenges such as fluctuating demand and lower LVD in important markets, we continue our strong performance. The positive trend in our cash flow and balance sheet reinforce our dedication to delivering strong shareholder return. Our first quarter call is scheduled for Wednesday, April 16, 2025. Thank you all for joining today's call. We truly value your continued interest in Autoliv. Until next time, drive safely.

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.