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.