Autoliv, Inc.

Good day and thank you for standing by. Welcome to the Outerleaf Inc. Third Quarter 2025 Financial Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please 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 give the conference over to your first speaker, Anders Trapp, Vice President of Investor Relations. Please go ahead.

Thank you, Raz. Welcome, everyone, to our third quarter 2025 earnings call. On this call, we have our President and Chief Executive Officer, Mikael Bratt, our Chief Financial Officer, Fredrik Gustin, and me, Anders Trapp, VP Investor Relations. During today's earnings call, we will highlight several key areas, including our record-breaking third quarter sales and earnings, as well as our continued strategic investments to drive long-term success with Chinese OEMs. We also provide an update on market developments and the evolving tariff landscape impacting the automotive industry. Finally, our robust balance sheet and strong asset returns reinforce our financial resilience and support sustained 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 includes the Q&A that follows. During the presentation, we will reference some non-use gap measures. The reconciliation of historical use gaps and non-use gap measures are disclosed in our quarterly earnings release. available on artolib.com and in the tent queue that will be filed with the SEC or at the end of this presentation. Lastly, I should mention that this call is intended to conclude CET, so please per person. I now hand it over to our CEO, Mikael Bratt.

Thank you, Anders. Looking on the next slide. I am pleased to share yet another record-breaking quarter, underscoring our strong market position. This success is a testament to the strength of our customer relationship and our commitment to continuous improvement as we navigate the complexities of tariffs and other challenging economic factors. We saw significant sales growth driven by higher than expected light vehicle production across multiple regions, especially in China and North America. Our high growth in India continues, accounting for one-third of our global organic growth. I am pleased to highlight that our sales growth with Chinese OEMs has returned to outperformance, driven by recent product launches and encouraging development. Looking ahead, we anticipate to significantly outperform light vehicle production in China during the fourth quarter. We improved our operating profits and operating margin compared to a year ago. This strong performance was primarily driven by well-executed activities to improve efficiency, higher sales, and the supplier compensation for an earlier recall. We successfully recovered approximately 75% of the tariff cost incurred during the third quarter and expect to recover most of the remaining portion of existing tariffs 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 20 basis points on our operating margin in the quarter. We also achieved record earnings per share for the third 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 robust. despite higher receivables driven by higher sales and tariff compensations later in the quarter. Our solid performance combined with a healthy debt level ratio supports continuous strong shareholder return. We remain committed to our ambition of achieving 300 to 500 million annual in stock repurchases as outlined during our capital markets day in June. Additionally, we have increased our quarter dividend to 85 cents per share, reflecting our confidence in our continued financial strength and long-term value creation. Expanding in China is key to strengthening Autoliv's innovation, global competitiveness and long-term growth. To support our growing partnerships with Chinese OEMs, we are investing in a second RMD center in China. In October, we announced a new important collaboration in China, as illustrated on the next slide. We have signed a strategic agreement with Qatar, the leading research institution setting standards in Chinese automotive sector. This partnership marks a new chapter in our commitment to shaping the future of automotive safety. Together with Qatar, we aim to define the next generation of safety standards and enhance the safety on the roads in China and globally. We're also broadening our reach in automotive safety electronics as shown on the next slide. We recently announced our plans to form a joint venture with HSAE, a leading Chinese automotive electronics developer, to develop and manufacture advanced safety electronics. The joint venture will concentrate on high growth areas in advanced safety electronics, including ECUs for active seatbelts, hands-on detection, systems for steering wheels and development and production of steering wheel switches. Through this new joint venture, we intend to capture more value from steering wheels and active seatbelts while minimizing capex and competence expansion, enabling faster market entry with lower technology and execution risk. Looking now on financials in more detail on the next slide. Third quarter sales increased by 6% year-over-year, driven by strong outperformance relative to light vehicle production in Asia and South America, along with favorable currency effects and tariff-related compensation. This growth was partly offset by an unfavorable regional and customer mix. The adjusted operating income for Q3 increased by 14% to $271 million from $237 million last year. The adjusted operating margin was 10%, 70 basis points better than in the same quarter last year. Operating cash flow was a solid $258 million, an increase of $81 million, or 46% compared to last year. Looking now on the next slide. We continue to deliver broad-based improvement with particularly strong progress in direct and SG&A expenses. Our positive direct labor productivity trend continues as we reduced our direct production personnel by 1,900 year-over-year. This is supported by the implementation of our strategic initiatives, including automation and digitalization. Our gross margin was 19.3%, an increase of 130 basis points year-over-year. The improvement was mainly the result of direct labor efficiency, headcount reductions, and compensation from a supplier. RD&E net cost rose both sequentially and year-over-year, primarily due to lower engineering income, due to timing of specific customer development projects. Thanks to our cost saving initiatives, SG&A expenses decreased from the first half year level, combined with the increased gross margin. This led to 70 basis points improvement in adjusted operating margin. Looking now on the market development in the third quarter on the next slide. According to S&P Global data from October, global light vehicle production for the third quarter increased 4.6%, exceeding the expectations from the beginning of the quarter by 4 percentage points. Supported by the scrapping and replacement subsidy policy, we continue to see strong growth for domestic OEMs in China. Light vehicle demand and production in North America have proven significantly more resilient than previously anticipated. In contrast, light vehicle production in other high content per vehicle markets, namely Western Europe and Japan, declined by approximately two to three percent respectively. The global regional light beacon production mix was approximately one percentage point unfavorable during the quarter, despite the important North American market showing a positive trend. In the quarter, we did see call-off volatility continue to improve year over year and sequentially from the first half year. The industry may experience increased volatility in the fourth quarter. Steaming from a recent fire incident at an aluminum production plant in North America. And production adjustments by key European customers in response to shifting demand. We will talk about the market development more in detail later in the presentation. Looking now on sales growth in more detail on the next slide. Our consolidated net sales were over $2.7 billion, the highest for the third quarter so far. This was around $150 million higher than last year, driven by price, volume, positive currency translation effects, and $14 million from tariff-related compensation. Excluding currencies, our organic growth organic sales growth by 4%, including tariff costs and compensation. China accounted for 90% of our group sales. Asia, including China, accounted for 20%. America for 33%, and Europe for around 28%. We outline our organic sales growth compared to light vehicle production on the next slide. Our quarterly sales were robust and exceeded our expectations. Driven by strong performance across most regions, particularly in America, reservation and China. Based on light vehicle production data from October, we underperformed light vehicle production by 0.7 percentage points globally as a result of a negative regional mix of 1.3 percentage points. We underperformed slightly in Europe, primarily due to an unfavorable model and customer mix. In the rest of Asia, we outperformed the market with 8 percentage points, driven primarily by strong sales growth in India and, to a lesser extent, in South Korea. While organic light vehicle production mix ship continued, to impact our overall performance in China, our sales to domestic OEMs grow by almost 23%, eight percentage points more than their light vehicle production growth. Our sales development with the global customers in China was five percentage points lower than their light vehicle production development as our sales declined to some key customers such as Volkswagen, Toyota, and Mercedes. On the next slide, we show some key model launches. The third quarter of 2015 saw a high number of new launches, primarily including China. Although some of these new launches in China remain undisclosed here due to new confidentiality, The new launch is reflecting a strong momentum for Autoliv in this important market. The models displayed here feature Autoliv content per vehicle from 150 US dollars to close to 400 US dollars. We're also pleased to have launched airbags and seatbelts on another small Japanese car. This is a mini Autoliv have historically had limited exposure to this segment in Japan. In terms of autolyse sales potential, the Onvo L90 is the most significant. Higher content per vehicle is driven by front center airbags on five of these vehicles. Now looking at the next slide. I will now hand it over to Fredrik Christin.