Autoliv, Inc.

Welcome everyone to our second quarter 2025 earnings call. On this call, we have our president and chief executive officer, Mika Bratt, our chief financial officer, Fredrik Westin, and me, Anders Schaap, VP Investor Relations. During today's earnings call, we will cover several key topics, including our record sales and earnings for the second quarter, an update on the market development and tariffs that are affecting the automotive industry, as well as how our strong balance sheet and asset returns provide financial resilience and the support for a continued high level of shareholder returns. Following the presentation, we will be available to answer your questions. As usual, the slides are available on autolib.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-US GAAP measures. The reconciliations of historical US GAAP to non-US GAAP 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 it over to our CEO, Mikael Bratt.

Thank you, Anders. Looking on the next slide. I am proud to present a record second quarter, highlighting our company's resilience and strong market position. Fueled by strong customer relationships and our culture of continuous improvement. This achievement lays a solid foundation for the rest of the year. However, we remain cautious about the rest of the year as we navigate the complexities of tariffs and other challenging economic factors. It is encouraging that we, based on light vehicle production data from July, outperformed global light vehicle production despite continued significant headwinds from mixed shifts. In China, we saw a clear improvement with the gap between our sales growth and light vehicle production growth narrowing compared to the previous quarters. This positive development was driven by recent product launches with Chinese OEMs. Notably, our sales in June outpaced the growth of the Chinese light vehicle production. We expect this positive trend to continue through the remainder of the year. We significantly improved our operating profit and operating margin compared to a year ago. This strong performance was primarily driven by well-executed activities to improve efficiency and cost. We successfully recovered approximately 80% of the tariff costs incurred during the second quarter and expect to recover most of the remaining portion later this year. The combination of not yet recovered tariffs and the dilutive effect of the recovered portion resulted in a negative impact of approximately 35 basis points. on our operating margin in the quarter. We also achieved record earnings per share for the second quarter. Over the past five years, we have more than tripled our earnings per share, mainly driven by strong net profit growth, but also supported by a reduced share count. Our cash flow remained strong despite higher receivables driven by robust sales and tariff compensations late in the quarter. Our solid performance, combined with a healthy debt leverage ratio, supports continuous strong shareholder return. We remain committed to our ambition of achieving 300 to 500 million US dollars annually in stock repurchases, as outlined during our Capital Markets Day in June. Additionally, we are increasing our third quarter dividend to 85 cents per share, reflecting our confidence in our continued financial strength and long-term value creation. Looking now on the next slide. Second quarter sales increased by 4% year over year, driven by strong outperformance relative to light vehicle production. in several regions, along with favorable currency effects and tariff-related compensations. This growth was partly offset by an unfavorable regional and customer mix. The adjusted operating income for Q2 increased by 14% to $251 million from $221 million last The adjusted operating margin was 9.3%, 80 basis points better than in the same quarter last year. Operating cash flow was a solid $277 million, despite temporary working capital buildup from higher sales and tariff compensations. Looking now on to the next slide. We continue to generate broad-based improvements. Our positive direct labor productivity trend continues as we reduce our direct production personnel by 3,200 year over year. This is supported by the implementation of our strategic initiatives, including automation and digitalization. Our gross margin was 18.5%, an increase of 30 basis points year over year. The improvement was mainly the result of direct labor efficiency and headcount reductions. As a result of our structural efficiency initiatives, the positive trend for RD&E continued. Combined with the increased gross margin, this led to 80 basis points improvement in adjusted operating margin. Looking now on the market development in the second quarter on the next slide. According to S&P Global data from July, global light vehicle production for the second quarter increased 270 basis points, exceeding the expectations from the beginning of the quarter by 200 basis points. Supported by the scrapping and replacement subsidy policy, we continue to see strong growth for domestic OEMs in China. while light vehicle production in higher CPV markets in North America and Western Europe declined by around 3% each. This resulted in an unfavorable regional light vehicle production mix of around 2.5 percentage points in the quarter, a significant negative impact on our overall outperformance. In the quarter, we did see call-off volatility continuing to improve year over year and sequentially from the first quarter. 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 over 2.7 billion US dollars, the highest for the second quarter so far. This was almost 110 million higher than last year, driven by price, volume, positive currency translation effects, and 27 million from tariff-related compensation. Excluding currencies, our organic sales grew by more than 3%, including tariff cost compensation. China accounted for 18% of our group sales. Asia, excluding China, accounted for 19%. America scored 33%, and Europe was slightly more than 30%. We outlined our organic sales growth compared to light vehicle production on the next slide. Our quarterly sales were robust and slightly exceeded our expectations, driven by strong performance across most regions, particularly in Europe and India. Based on light vehicle production data from July, we outperformed light vehicle production in all regions except Japan and China, fueled by product launches and tariff compensation. In Japan, we were negatively affected by an unfavorable light vehicle production mix, resulting from last year's production stop at Daihatsu due to homologation issues. Nevertheless, we outperformed the market by over 2 percentage points in the first half of the year. In China, our sales to domestic OEMs grew more than 16%, aligned with their LVP growth. Our growth for the global customers in China was two percentage points higher than their light vehicle production. While the ongoing light vehicle production mix shifts continue to impact our overall performance in China, we saw a clear improvement with the gap between our sales and light vehicle production narrowing compared to the past three quarters. On the next slide, we show some key model launches. As shown on this slide, the second quarter of 2025 saw a high number of new launches, primarily in Asia, including China. While some of these new launches in China remain undisclosed here, due to confidentiality, they reflect a strong momentum for Autoliv in this important market. The models displayed here feature Autoliv content per vehicle from close to to over 500 US dollars. We're also pleased to have launched seat belts on two key small Japanese vehicles known as K-cars. This is a meaningful step forward as Autoliv has historically had limited exposure to this segment in Japan. In terms of Autoliv's sales potential, the DPAL-S09 from Shanghai and the Honda new midsize electrical crossover, J-P7, are the most significant. Higher CPV is driven by front center airbags on six of these vehicles, as well as knee airbags. Now looking on the next slide. I will now hand over to Fredrik.

Thank you, Mikael. I will talk about the financials more in detail now on the next few slides. If we turn to the next slide. This slide highlights our key figures for the second quarter of 2025 compared to the second quarter of 2024. Our net sales were approximately 2.7 billion, representing a 4% year-over-year increase. Gross profit increased by 27 million, and the gross margin increased by 30 basis points. The adjusted operating income increased from 221 million to 251 million, and the adjusted operating margin increased by 80 basis points to 9.3%. The adjusted earnings per share diluted increased by 33 cents, where the main drivers were 27 cents from higher operating income and 10 cents from lower number of shares. Our adjusted return on capital employed was a solid 24%, and our adjusted return on equity was 28 percent. We paid a dividend of 70 cents per share in the quarter, and we purchased shares for 51 million US dollars and retired 0.5 million shares. Looking now on the adjusted operating income bridge on the next slide. In the second quarter of 2025, our adjusted operating income increased by 30 million. Operations contributed with 35 million, mainly from higher organic sales and by execution of operational improvement plans supported by better call-off volatility. The net currency effect was 12 million positive, mainly from revaluation effects. The impact from raw materials was around 4 million negative. Out of period, cost compensation was 6 million lower than last year. The combination of unrecovered tariffs and the dilutive effect of the recovered portion resulted in a negative impact of approximately 35 basis points on our operating margin in the quarter. Looking now at the cash flow on the next slide. Operating cash flow for the second quarter of 2025 totaled $277 million, a decrease of $63 million compared to the same period last year. despite a 29 million increase in net income. The decline was primarily driven by higher receivables, reflecting strong sales and tariff compensations toward the end of the quarter. Capital expenditures net decreased by 32 million. Capital expenditures net in relation to sales was 4.2 percent versus 5.6 percent a year earlier. The lower level of capital expenditures net is mainly related to lower footprint capex in Europe and Americas and less capacity expansion in Asia. The free operating cash flow was 163 million compared to 194 million in the same period the prior year as the lower operating cash flow was partly offset by lower capex. The cash conversion in the last 12 months defined as free operating cash flow in relation to our net income was around 65 percent, somewhat below our target of 80 percent. Now looking at our trade working capital development on the next slide. Our trade working capital increased by 185 million compared to the prior year where the drivers were 251 million in higher accounts receivables and 21 million in higher inventories. partly mitigated by 87 million in higher accounts payables. In relation to sales, the trade working capital increased from 11.2% to 12.5%. We view the increase in trade working capital as temporary as our multi-year improvement program continues to deliver results. Additionally, enhanced customer call of accuracy can enable a more efficient inventory management. Now looking on our debt leverage ratio development on the next slide. Autoliv has consistently prioritized maintaining a balanced 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 to deliver value to stakeholders over time. In the quarter, We refinanced a $3 billion SEK loan from Swedish Export Credit Corporation with a new one-year $2 billion SEK loan. Our leverage ratio remains strong at 1.3 times, well below our target limit of 1.5 times, and has remained stable compared to both the end of the first quarter and the same period last year. This comes despite returning 550 million US dollars to shareholders over the past 12 months. Our net debt decreased by 31 million, while the 12 months trailing adjusted EBITDA increased by 34 million in the quarter. Now looking at the tariff situation on the next slide. We are closely monitoring the evolving tariff situation. Thanks to our well-diversified customer portfolio and strong manufacturing footprint across the USMCA region, we are well positioned to navigate these challenges. Customers and duties have long been a part of doing business, even before the current wave of tariffs. Last year, we paid approximately 100 million US dollars in such costs on a global level, and they are reflected in the sales price. Currently, we estimate that our total gross exposure to tariffs could roughly double to around 200 million. However, we are actively engaging with our customers to mitigate the impact through measures such as adjusting shipping points, enhancing USMCA compliance, and exploring compensation mechanisms. In the second quarter, due to timing, customer compensation booked during the quarter covered approximately 80% of the tariffs paid. Most of the remaining charges are expected to be recovered later in the year. Despite the uncertainty, we continue to believe that the net effect on our adjusted operating income for 2025 will be around 20 basis points on our operating margin due to the dilution effect. We remain vigilant, particularly in assessing how these developments may influence end customer demand in the U.S. With that, I hand it back to you, Mikael.