Autoliv, Inc.

Okay, and thank you for standing by.

Welcome to the Uta Leaf Inc. First Uta 2026 Financial Results Conference call and webcast. 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, please press star 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 again. Please note that today's conference is being recorded. I would now like to turn the conference over to your first speaker, Anders Trapp, VP Investor Relations. Please go ahead.

Thank you, Razia. Welcome, everyone, to our first quarter 2026 earnings call. On this call, we have our president and chief executive officer, Mikael Bratt. our chief financial officer, Monica Gramma, and I am on the VP of Investor Relations. During today's earnings call, we will highlight several key areas. Our strong performance in a challenging market environment, our full year guidance and the potential impact of ongoing and new geopolitical challenges, an update on the latest market developments, and finally, an overview of our continued strong 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-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 10Q that will be filed with the SEC and at the end of this presentation. Lastly, I should mention that this call is intended to conclude at 3 p.m. Central European time, so please follow a limit of two questions per person. I now hand over to our CEO, Mikael Brats.

Thank you, Anders. Looking on the next slide. The first quarter exceeded our expectations, driven by strong sales in March. Operational performance was also ahead of plan, supported by solid productivity improvements, partly reflecting reduced call-off volatility. Our positive trend in Asia continued with strong growth in India, South Korea and China. In China, we continued to grow faster than light vehicle production, especially with the Chinese OEMs, outperforming by more than 40 percentage points. In India, we grow sales by 38% organically, reflecting mainly the trend of increased safety content in vehicles in India, but also the continued high level of light vehicle production growth. Underlying profitability improved with gross profit increasing by 10% although adjusted operating income was slightly lower due to temporary lower RD&E reimbursements and a one-time income in Q1 last year. In the quarter, we paid a dividend of 87 cents per share representing a total payout of 65 million US dollars. Buybacks were paused as the company was in a restricted period following multiple filings and the announcement of a new CFO. Our 2.5 billion US dollar share repurchase authorization through 2029 remains unchanged. With the ambition, annual share repurchase between 300 and 500 million US dollars. Hostilities in the Persian Gulf had a limited impact this quarter, and we are continuously monitoring any potential wide-reaching impact on the industry. Based on what we know today, we reiterate our full year 2026 guidance of flat organic sales with continued significant outperformance of light vehicle production in both China and India. We continue to expect an adjusted operating margin of around 10.5 to 11%. This is based on the assumption that light vehicle production will decline by around 1% and that the gross headwind from raw materials is around 90 million US dollars. I am also pleased that we introduced our first airbag for motorcycles, as well as our first complete wearable airbag solution for motorcycle riders, building on our long-term strategy of growing outside our traditional core business. Looking now on the next slide. First quarter sales increased by approximately 7% year-over-year, driven by strong outperformance relative to light vehicle production along with favorable currency effects and tariff-related compensations. The adjusted operating income for Q1 decreased by 4% to $245 million compared to a strong first quarter last year. The adjusted operating margin was 8.9%, one percentage point lower than in the same quarter last year. Operating cash flow was a negative 76 million US dollars, a decrease of 153 million US dollars compared to last year. The lower cash flow was mainly driven by a temporary negative working capital impact from strong sales towards the end of the quarter, as well as other temporary effects that are expected to reverse later in the year. And the normalization of payables from year end. Looking now on the next slide. We continue to deliver broad-based improvements with particularly strong progress in direct costs. Our positive direct labor productivity trend continues. This is supported by the implementation of our strategic initiatives, including optimization and digitalization. Gross profit increased by 48 million US dollars and the gross margin improved by almost 60 basis points year over year. RD&E net cost rose year over year primarily on negative currency translation effects and lower engineering income due to timing of specific customer development projects. SG&A costs increased by 16 million US dollars, mainly due to negative currency translation effects. Higher costs for personnel and non-recurring costs of 4 million US dollars. Looking now on the market development in the first quarter on the next slide. According to S&P Global data from April, global light vehicle production declined by 3.4% in the first quarter, slightly better than earlier expectations. The modestly stronger than expected outcome was mainly supported by Europe in March and rest of Asia. The decline in global light vehicle production was primarily driven by China, India contributed positively to global light vehicle production performance, benefiting from substantially lower taxes on new vehicle purchases. As an effect of the declining light vehicle production in China in the quarter, the global regional light vehicle production mix was approximately 1.5 percentage points favourable. During the quarter, volatility improved despite higher than expected call-offs in March. 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 almost $2.8 billion, the highest for the first quarter yet. This was around $175 million higher than last year, mainly driven by $154 million positive kerosene translation effect and $14 million from higher tariff-related compensations. Excluding currencies, our organic sales grew 21 million US dollars or by 80 basis points, including tariff cost compensation. Based on the latest light vehicle production data from S&P Global, we outperformed the market by over four percentage points globally. Our outperformance was significant in China and reservation. In the rest of Asia, we outperformed the market by 7 percentage points, driven by continued strong sales growth in India, where we outperformed by close to 30 percentage points. South Korea and the Asian sub-region also contributed to the outperformance, partly offset by Japan. In China, we outperformed overall with 15%. mainly driven by sales to Chinese OEMs that outperformed light vehicle production with over 40 percentage points. Despite light vehicle production decline in China, China increased its share of our sales to 18% versus 17% a year ago. Asia, excluding China, accounted for 20%, America for 31%, and Europe for 30%. On the next slide, we will look more on our growing business in India. Autoliv is rapidly expanding its business in India, securing its market leadership. India now represents almost 6% of Autoliv's global sales, which is almost triple what it was just three years ago. Fueled by regulatory regulatory focus and rising consumer demand for safety. Safety content in vehicles has increased by around 20% annually for the past two years. In India, Autoliv operates five manufacturing plants, a technical center and a global support engineering center with more than 6,000 associates in total. To further strengthen our footprint, Autoliv recently opened a new inflated plant to meet growing demand for airbags from both India and other Asian markets. Autoliv's largest customers in India, including Maruti Suzuki, Hyundai, Mahindra and under, reflecting the company's strong position among leading vehicle manufacturers in the country. Looking now on the next slide. The first quarter of 2026 saw a relatively high number of new launches, primarily in China with both Chinese and other OEMs. These new China launches reflect strong momentum for Autoliv in this important market. Higher content per vehicle is driven by front center airbags on many of these new vehicles. In terms of Autoliv's sales potential, the Nissan Versa is the most significant in the quarter. Here you also see the Yamaha Tri-City 300 commuter scooter. For the rest of 2026, we expect a high number of new product launches, mainly driven by Chinese OEMs, offsetting fewer launches in America and Europe. Let's continue with the next slide. Before I move on, I'd like to introduce our new CFO, Monica Gramma. Monica joined Autoliv in 2009 and has been instrumental in strengthening the EMEA division during a particular challenging period for the automotive industry. I am very pleased to welcome her to the executive management team and looking forward to her continued contributions in her new role. I will now hand it over to Monica.

Thank you, Mikael. I will talk about the financials more in detail on the next slide. Turning to the next slide. This slide highlights our key figures for the first quarter of 2026 compared to the first quarter of 2025. Our net sales were almost 2.8 billion, representing a 7 percent increase. Gross profit increased by $48 million, and gross margin increased by almost 60 basis points compared to the prior year. The drivers behind the gross profit improvement were mainly positive ethics translation effects, improved operational efficiency with lower cost for labor, as well as positive effects from higher sales. This was partly offset by increased tariff costs. The adjusted operating income decreased from $255 million to $245 million and the adjusted operating margin decreased from 9.9% to 8.9%. The reported operating income of $237 million was $8 million lower, mainly due to capacity alignment activities. The adjusted earning per share diluted decreased by 10 cents. The main drivers were 9 cents from lower operating income four cents from financial and non-operating items, four cents from taxes, partly offset by seven cents from lower number of outstanding shares diluted. Our adjusted return on capital employed was a solid 23% and our adjusted return on equity was 24%. We paid a dividend of 87 cents per share in the quarter. Looking now on the adjusted operating income bridge on the next slide. In the first quarter of 2026, our adjusted operating income decreased by $10 million. Operations contributed $28 million positively, primarily driven by higher organic sales and the successful execution of operational improvement initiatives supported by better call-off stability. Excluding the $13 million from ethics translation effects, costs for RD&E Net and SG&A increased by $28 million, driven by lower RD&E reimbursement of $9 million due to timing and a non-recurring cost of $4 million. During the quarter, we recovered approximately 70% of our U.S. tariff costs. This recovery rate was lower than last year due to delays from the implementation of the new U.S. administration's import adjustment offset program. We expect, though, most of the outstanding tariffs to be recovered later in the year. The combination of unrecovered tariffs and the dilutive effect of the recovered portion resulted in a negative impact of around 40 basis points on our operating margin in the quarter. Looking now at cash flow on the next slide. Operating cash flow for the first quarter was negative 76 million, a decrease of 153 million U.S. dollars year over year. This change was primarily due to a negative working effect of 349 million U.S. dollars compared with a negative impact of 179 million in the prior year. The working capital effect was largely driven by higher end-of-quarter sales, which is the good reason, other temporary effects that are expected to reverse later in the year, and the normalization of payables from the year-end 2025. Capital expenditures net for the quarter decreased by 9 million. Capital expenditures net in relation to sales was 3% versus 3.6% a year earlier. The lower level of capital expenditure net is mainly related to lower footprint optimization, less capacity expansion, and timing effects. Preoperating cash flow for the quarter was negative 159 million compared to negative 16 million in the same period in the prior year due to lower operating cash flow partly offset by lower capex net. The cash conversion for the last 12 months defined as free operating cash flow in relation to net income was 83%, exceeding our target of at least 80%. Now looking on our cash flow and shareholder returns on the next slide. Our cash flow generation has proven resilient across economic cycles. As shown on this slide, we have consistently delivered positive operating and free operating cash flow through major disruptions such as the financial crisis, the COVID-19 pandemic, and periods of structural change. Cash generation has strengthened in recent years, reaching record levels. This resilience reflects disciplined working capital management, a flexible cost base and limited capital intensity of our operations, supporting higher asset return, durable long-term growth, and shareholder value creation. Over time, we have delivered strong shareholder returns. What is not reflected in the graph is the spin-off of Vyanir in 2018 to shareholders, which valued Vyanir at approximately $3 billion at the time. Our capital allocation strategy aims at annual share repurchase of 300 to 500 million through 2029, supported by an attractive and growing quarterly dividend. Since initiating the previous stock repurchase program in 2022, we have reduced the number of outstanding shares by almost 15%. When executing the program, we consider several factors, including our balance sheet, cash flow outlook, credit rating, and general business conditions, as well as the debt leverage ratio. We always try to balance what is best for our shareholders in both the short and the long term. Now, looking at the results of our efficient capital utilization on the next slide. Over the years, Autolib has demonstrated its ability to consistently deliver strong return on capital employed also in periods of challenging market environments reflecting a disciplined capital management. The high and stable return on capital employed is further supported by scale advantages and the limited exposure to capital-intensive investments such as powertrains. Returns have improved since the COVID period, driven by margin expansion and tight control of working capital and CAPEX. Now looking on our debt leverage ratio development on the next slide. Outer lift balance leverage strategy reflects our prudent financial management, enabling resilience, innovation, and the sustained stakeholder value over time. Our leverage ratio increased from 1.1 to 1.3 during the quarter. Our net debt increased by around 200 million in the quarter while the 12-month trailing-adjusted EVTA was virtually unchanged. On to the next slide. I will now hand it back to Mikael.

Thank you, Monika. I will talk about the outlook for 2026 more in detail on the next few slides. Turning to the next slide. Overall, S&P Global expects global light vehicle production in 2026 to decline by 2% versus 2025. A 1.5 percentage point downward revision from January. The downgrade is largely attributable to production cuts in the Middle East as well as in other regions impacted by the hostilities. European light vehicle production is expected to decline by almost 2%, driven by affordability challenges and rising imports from China. In North America, S&P forecast light vehicle production to decline by 2% in 2026, despite relatively healthy dealer inventory levels. In China, light vehicle production is expected to decline by 3% due to weaker domestic demand, despite continued export strengths. Japan and South Korea light vehicle production are expected to decline by 2% and 3% respectively, reflecting softer domestic demand and a more challenging export environment. India's light vehicle production is expected to increase by 6%, driven by a reduction in purchase taxes on new vehicles, which disproportionately benefits smaller and lower-priced models. However, heightened geopolitical uncertainty from the hostilities around the Persian Gulf adds risks to energy markets, consumer confidence and overall industry volumes. Now looking on raw materials development on the next slide. We are closely monitoring the potential industry-wide impact of geopolitical developments in and around the Persian Gulf on supply chains, raw material prices and overall demand for new vehicles. The situation may lead to more challenging raw material environment and we are evaluating multiple scenarios based on our current assessment. We primarily purchase components rather than raw materials, which inherently reduces our direct exposure to commodity price volatility. That said, geopolitical developments in the Persian Gulf can still affect certain input categories most notably textiles and plastics, but also indirectly aluminium, helium and steel. For materials such as nylon, resin and plastics, pricing generally follows oil prices over time. Historically, we see a lag of approximately three to six months between movements in spot oil prices and the impact on the purchase prices. For the full year 2026, our current assessment is for around 90 million US dollar gross impact from higher raw material pricing compared the previous assessment of around 30 million a quarter ago. From a mitigation standpoint, we continue to execute on productivity and cost reduction initiatives to offset these costs. Additionally, customer compensation mechanisms are in place and are expected to offset a meaningful portion of the cost impact, although there is typically a timing delay between cost increases and recovery. Now looking on the updated full year guidance on the next slide. This slide shows our full year guidance which excludes effects from capacity alignment and antitrust related matters. It is based on no material changes to tariffs or trade restrictions that are in effect as of April 10, 2026. As well as no significant changes in the macroeconomic environment or changes in customer call-off volatility or significant supply chain disruption. We expect to outperform light vehicle production by around 1 percentage point as our organic sales is expected to be flat while global light vehicle production is expected to decline by 1%. The net currency translation effects on sales is expected to be around 3% positive The guidance for adjusted operating margin is around 10.5 to 11%. Operating cash flow is expected to be around 1.2 billion US dollars. We expect CapEx to be below 5% of sales. Our positive cash flow and strong balance sheet supports our continued commitment to a high level of shareholder return. And we expect a tax rate of around 28%. Looking on the next slide. This concludes our formal comments for today's earnings call. And we would like to open the line for questions from analysts and investors. I now hand it back to Reza.

Thank you, sir. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star one, one again. Once again, please press star one, one to ask a question. And to withdraw your question, please press star one, one again. We are now going to proceed with our first question. And the questions come from the line of Tom Narayan from RBC. Please ask your question.

Hi, yes, Tom Noren, RBC. Thanks for taking the questions and welcome, Monica. The first question I have is on the China strength. And I know you called out higher penetration of domestic OEMs. I would think you also benefited from the relative outperformance of non-domestics, which I think come at higher margins than domestics for you guys. Yeah, just curious if that's true. And then if your overall China penetration increase your, boosted your margins and how sustainable that is as the year progresses. And then I have a follow-up.

As you know, we don't disclose a breakdown of our earnings profile per customer or regions or countries or anything like that. I mean, we have a total portfolio of a large number of programs. and that's the combined result of that that we are presenting here. But it's not a secret that we have focused on our Chinese OEMs as they are growing in their share of the total markets. Our focus here is to have a market share of around 45% of the global light vehicle production and that's what we are happy to report that we continue to build on that strategy here and it served well in the quarter here and of course we are working hard to improve our earnings profile across the board here in general.

Okay and for my follow-up I just it sounds like the tariff A POLICY IS AS OF APRIL 10TH IN YOUR GUIDANCE I KNOW APRIL 6TH THERE WAS THE RULE CHANGE UM ON THE METAL SIDE UM AS IT RELATES TO THAT SECTION 232 RULE CHANGE IS JUST WONDERING UM IS THIS IS THE THE CURRENT USMCA EXEMPTION THAT YOU ENJOY IS THAT IS THAT STILL THE CASE UM AND THEN THIS ONLY APPLIES I THINK ON THE METAL SIDE WHERE I GUESS THE OEMS HAVE THAT MSRP offset, is that your understanding does it meaningfully impact?

I think in general, when it comes to the tariffs, I think it's a lot of moving pieces there. But I think for us, as automotive here, it's to a large degree unchanged. I mean, for us, it's mainly the USMCA structure that is relevant and there we have no changes at this point. So that is what we We're looking at the rule changes that you saw lately here. It's a minor part of our total exposure and not meaningful in this context. But of course, we follow that as well here. But for us, it's all about the USMCA, I would say. That's the key thing here. And no changes there. Understood. Thank you. I'll turn it over. Thank you.

We are now going to proceed with our next question. And the questions come from the line of Colleen Langan from Wells Fargo. Please ask a question.

Oh, great. Thanks for taking my questions. One, just trying to clarify, maybe I misunderstood. So, S&P is down two, but your guide is down one. Any, it's based on down production at one. Is that just a mix issue or is that just, why? not in line with S&P. And then just a lot of people are worried about if you read even the S&P comments, if the straight doesn't open, there's more downside. Can you just remind us on the decrementals of production actually continues to trend downward?

Yeah, I think as you saw when we gave our full year guidance in connection with the Q4 earnings release, we had minus one and S&P had minus 0.5. So at that point, we were know it is more cautious. I think what we have seen now and the change that came yesterday is within the let's say the margin of error here in this very I would say volatile environment here and of course we are fully aware of what's going on in the straits around the Persian Gulf as we mentioned in the presentation here. But at this point we have no indications, no signals, nothing that indicates something else than what we have in our outlook here. And I think it can definitely also change to the better here. I think there's a lot of different scenarios you can play up here and I think we feel comfortable with our outlook here.

Sorry? If it gets worse, what are the decrementals that we should expect?

Of course, I mean, as I said, we follow this and are ready to take any measurements that is necessary. So, I mean, if we will see a dramatic change to this outlook, we are of course ready to make necessary adjustments. And I think we have proven that in the past that we have a high degree of flexibility in our system and a strong team here to execute on those changes. So I think it's all about staying close to the development as we always do here.

Okay. And then just to follow up on, can you get any color on the drivers of the increase in raw material cost and also any risk of shortfalls, particularly I heard some concerns around nylon that some of the butadiene plants are apparently on short supply and that's an input into nylon. Is there any concern that we actually can't get supply of some of the raw materials like nylon and are there alternatives to swapping if there are shortages?

No, I think, I mean, to your first question there, what's the main drivers here? It's really the oil price that is the main driver for us at this point in time, as it goes into many different types of products. And that's what we're following. And that is what's causing the higher prices. estimate that we have here now of 90 million instead of the 30 we had in the beginning of the year. But with that said we are definitely here focusing on making sure that that becomes lower than what we have said here to manage the situation here. So we'll see and we have offset activities which I explained before. When it comes to the availability we don't really see at this point any main concerns around that I think we of course have our supply chain team on high alert here and they're working actively to secure supply so I would say so far so good but of course we realize here that if you will have real shortages of oil etc here we have of course, different activities around that. So I feel that we have that under control. Just back to your question there on the sensitivity here, if we have a drop in demand outside our own expectations here at this point in time, I just wanted to remind you here about our normal decrementals we normally reference to, which is between 20 and 30% leverage if we have a dramatic drop in sales going forward. So I just wanted to mention that related to that question.

Got it.

Very helpful.

All right. Thanks for taking my questions.

Thank you.

We are now going to proceed with our next question. And the questions come from the line of Mattias Holmberg from DNB Carnegie. Please ask a question.

Thank you. I'm interested in the outperformance given that you have a 4% here in Q1 and still guide for just 1% for the full year. Am I off by thinking that you are aiming is perhaps not the right word, but you see no outperformance for the balance of the year? or what are the moving parts and what would sort of result in this lost momentum? Is it the pull forward from the strength you saw in March that is going to reverse or I'm just trying to understand the dynamics here please.

No I think I mean it's of course when we give the full year guidance here you take into consideration also the mix development throughout the year and I mean, some quarters it's a little bit in your favor and some it's in the reverse. And what we indicated here in the first quarter, we had a positive mix effect of roughly one and a half percentage point here. And yeah, we still believe that with the development for the year here that we have, for different regions. That's to the best of our knowledge that we should end up where we have indicated here.

And a quick follow-up on the raw materials. With the 90 million gross headwind, is it roughly evenly phased, do you think, over the next three quarters? Or is there any quarter in particular that will be more severely impacted? And also, have you made any assumptions on what the net impact will be after mitigations sort of embedded in your margin guidance?

No, I think it's, I mean, the net effect is included in our guidance here. So what we're saying here is that the gross exposure we have here should be mitigated either by price increases and internal, let's say, self-help through other activities here. But the majority is price increases here. And it fits within the guidance there. And when it comes to the sequential development here, I don't know, Monika, if there is anything you would like to add there. But still, we're not guiding per quarter, as you know.

Maybe then just a clarification. Do you assume full recovery of those 90 gross?

As I said, we will have a majority through the price mechanisms that we have and the rest we should be upset by internal activities to a large extent as possible. So once again, the net effect is included in our full year guidance. So I have no more granular numbers to give you around that than that. That's clear. Thank you. Thank you.

We are now going to proceed with our next question. The questions come from the line of Hampus and Gelo from Handelsbanken. Please ask a question.

Thank you very much. Two questions from me. First one is on customer call-offs. If I heard you right, you said that customer call-offs were more stable during the quarter. I'm just thinking, is this some one-off here, or should we expect this trend to continue moving into second quarter? I'll take the question one by one.

Thank you, Abbas. No, I think, I mean, as we said here, the call of stability was around 95%, which is what it was during last year at the good times. We had some deterioration towards the end of Q4, where we saw some customers pulling the brakes on to reduce inventory at the year end. And then it normalized again in the beginning of the quarter here. And of course, with the increased sales in March here, that also helps to stabilize the situation when you have a little bit of an upward trend there. And we still believe that it should continue to improve under normal circumstances. I think it all depends now on what happens with the supply chains. If we have a positive scenario, meaning that we come to some kind of resolutions here around the Middle East situation and the value chains are connected to that or not. Because it's the disturbances in the value chain here that creates a lot of the volatility, I would say, at this point in time. Long term, it's definitely expectations that it should continue to improve. And with the two weeks into the first quarter, I would say it still holds and we have a stable situation here. And yeah, we will of course follow it closely. So far so good.

Fair enough. If I'm looking, when you came out of Q4, one of the main takes was that there were much lower new model launches, especially on the EU side, I guess, partly also in Europe. And it seems like China has had more new model launches than you maybe expected. And given the short lead times we have between a new model and launching a new model in China, Can you maybe add some flavor on that one? Or are you surprised about that? And we also hear Volkswagen is clearly stepping up on the bad side, talking about one new model each second week for the remainder of this year for next year. So if you could maybe share some light on that.

Yeah, I think, I mean, I wouldn't say that we have any surprises when it comes to new launches, because, I mean, they are something that you need to be, of course, well prepared and tuned and everything else ready for. So I think we have a very good visibility of that in general. Then we know during last year that we had not connected to China, but connected to the global situation here, a lot of reshuffling in terms of launches of new platforms, especially around EVs in the US and Europe here that changed. But that doesn't really impact the short term, I would say here, and not in China. So I think no, long story short, no real surprises around that.

I was wanting to refer to the timing in the launch, that maybe it was put earlier on. I'm sure you know what you're talking about.

Not really. Okay. Thank you.

We are now going to proceed with our next question. And the questions come from the line of Emmanuel Rosner from Woolf Research. Please ask a question.

Great. Thank you so much. My first question is around the odds performance versus the industry, which was solid in the first quarter. But I wanted to follow up a little bit about what you're assuming for the rest of the year, because it would be basically some sort of deceleration versus this Q1 performance. And you flagged the mix was one and a half point positive in Q1. What are you expecting for

mix on the full year over the rest of the year and what would be the drivers of sort of like limited or minimal growth of the market compared to what we've seen in q1 yeah thank you no as i said before here i mean the mix in this each quarter has of course an meaningful impact on it and and this first quarter we had 1.5 percentage points coming from positive mix When we look at the full year here and basically we have guided them for a 1% outperformance considering flat organic and negative 1% light vehicle production. It's based on a neutral mix compared to 2025. So we have no tailwind or headwind coming from mix in that assumption. And that's, of course, the best estimate we have now. Then you don't know the mix for 100% until you have gone through here. But we still believe that that's the most likely scenario with what we see here and light vehicle production for regions, et cetera, looking ahead. Okay.

um and then um you know with a lot of you know moving pieces um you know around the romance and tariffs and etc i was hoping you could just uh refresh for us the uh main drivers of uh margin expansion for this year so if we're if we're thinking about you know 2025 as a starting point and then your reiterated margin guidance for 2026 what are some of the big buckets of, you know, margin improvement now, you know, basically marked to market, you know, with the similar sort of like limited organic growth.

So I will start with the negatives that you could already observe in our messages. We have a negative impact from raw materials and from inflationary impact on SG&A and RD&E. That we more than plan to offset with operations and raw material mitigations. Now we are tapping in again in structural cost savings and our known resilience in challenging times. We are going to tap in as well into customer compensations to partly offset or to meaningfully offset the raw material headwinds that we mentioned. And in addition to that, we benefit of positive FX impact across the board that was already visible to some extent in our Q1 results.

Okay. So, but you're obviously planning for a decent amount of margin expansion. So, you mentioned headwinds that would be, you know, largely offset and then a bit of FX. Like, what are some of the, you know, main positives?

The main positive is really around the structural cost savings that is coming through and it is in the operational productivity effort here where we talk about optimization, digitalization, etc. to drive efficiency through the value chain. It continues to be very much the same driver, as you could say, for our modern expansion as we go ahead. And as Monica mentioned here, we have short-term expectations on some headwinds around raw materials, which we are planning to offset also through price compensation and additional cost reductions, and then also some positives from the FX.

Understood. Thank you.

We are now going to proceed with our next question. And the questions come from the line of Jose Asumendi from JP Morgan. Please ask your question.

Thank you. Hi, Michael. Welcome, Monica. A couple of questions, please. Michael, can you comment on Chinese OEMs, both in China and Europe, and how you're going to be benefiting in the coming quarters from the product launches? And can you help us a bit more on which customers should we be keeping an eye on? in terms of the acceleration in China, you know, Q2 to Q4 or, you know, on a one-year view. And also when it comes to Europe, can you share a bit more how you can benefit also from the, what we're seeing, right? Chinese OEMs taking double-digit markets here in the European market. How is that also going to benefit the utilization of your plants? Question two, please, for Monica, if you can comment a bit on working capital and working capital assumptions for the remaining of the year.

Thank you. Very good. Thank you. Maybe I start on the sales side and then Monica takes the working capital there. So, as you know, we work broadly with the Chinese OEMs and I would say we are on all the different platforms OEMs that you see exporting out of China in different shapes and forms. There is two exceptions which have their own captive solution and that's Zyke and BYD, but the BYD is still a very important customer for us, which we are working with. When you look at the development of Chinese OEMs, I would say we are present in a broad base there. I think the outperformance numbers in the quarter here speaks for itself, where we had 40 percentage points outperformance with the Chinese OEMs. I think that's That's a really strong and good number there. When we see them coming to Europe, they are normally, I would say, very high level of CPV in those vehicles. It mirrors the position we have in China there, I would say. We have seen not so much local production yet of the Chinese OEMs, but what I can say, and I think we said also in the connection with Q4, that we won the first tender that was issued in Europe by Chinese OEMs. So I would say that we are very happy about that and proud that we were able to meet the COEM's expectations here in Europe. So I think we are in a good position to utilize our European footprint here as well for our Chinese customers.

Before we move into working capital, just a quick one. The last time we met Fabian and Sling, we discussed the new R&D center in Wuhan. Is that R&D center, you know, are you getting incremental order backlog from that new R&D center or is that yet to come in your businesses?

I think it helps us to strengthen our presence in China and our closeness to our customers. I mean, over the years, for a long period, our strategy has been to have our D&E centers near our customers and work closely with them early on in the different projects. And this is a step in order to continue to strengthen our presence in China with our customers here by offering a better footprint for our customers here through the second tech center. So I think it's a part of the overall strategy and focus we have.

And continuing then with the working capital. We mentioned that cash flow in Q1 was negatively impacted by 349 million increase in operating working capital, mainly due to temporary impact. The increase in the receivable, other one-timers that have as well temporary effects, and then the payables that are more normalized compared to the year end. Our full-year cash flow expectations are unchanged, with the operating cash flow expected at around 1.2 billion and CAPEX below 5%. that implies our expectations that we are normalizing the working capital assumptions. And we are continuing to execute on our working capital improvement program. There are still some actions outstanding that will deliver results through the year.

Thanks.

We are now going to proceed with our next question. And the questions come from the land of Jay Ramnathan from Davaa Capital Markets. Please ask a question.

Hi, thanks for taking my question here. So just going back to your long-term revenue CAGR of 4% to 6%, the 1% to 2% that was coming from new markets, I know you talked about it being not in the short term. But with the motorcycle product introduction, if you could just talk about What does that do? Does that change the expectation here?

No, it doesn't really change the expectation. I would say this is a part of the expectation, so to speak, that we have stated here that the 4% to 6% under, let's say, 1% to 2% LVP, 1% to 2% content, and 1% to 2% coming from mobility safety solutions should come through towards the end of this period here, which we mean 2030, before it becomes meaningful. And of course, there is a gradual buildup, and we have also talked about that before, that MSS is contributing gradually here, but it's going to get further out there. And this is the first step in the Bag on bike product offering and then also the wearables. So this is more, I would say, a data point that what we have talked about to build the last one to two percent of the four to six really is on its way. That's the way you should read it. And it doesn't really change the expectations beyond that.

Thank you. And my follow-up is for Monica. Just as you kind of take a fresh look at shareholder returns, your initial thoughts on share buyback of $300 million to $500 million given net debt to EBITDA target being below the 1.5 times.

I think maybe on the buyback, as we stated here, I mean, we are committed to our program. We are also indicating here that it should be between three to five hundred year by year. And that's like a guidance. Then, of course, we take into consideration the balance sheet. We take into consideration, OK, are we heading into more 2021? positive territory when it comes to overall business cycle or not etc. We have plenty of room in our program that was launched last year here and we are on our way here. We take all those pieces into consideration. We remain committed.

Thank you.

We are now going to take one last question. And our last questions come from the line of Bjorn Inarsson from Danske Bank. Please ask your question.

Thank you. Try to be quick. But you base your guidance on unchanged regional mix. I guess it sounds fair. I would most likely have done it myself. But I mean, your regional mix. Last year, I mean, Q1, Q2, you talked about the significant negative regular mix. And in Q3, Q4, I believe it was 1 to 200 basis point negative as well. Is that a fair assumption on the comps kind of that we are talking about when you say that your mix is going to be unchanged for the year?

As you rightly said, we had some headwind last year. We are not expecting that to be reversed this year here and of course it's much connected to the overall business sentiment that are around the world here. So we're not considering any changes to that. So that's the right consumption assumption.

Secondly, you talked a lot about the guidance versus S&P and VB, but most of the revisions were linked to Middle East and connected countries. What is your exposure to that region if you compare it to other regions?

I would say it's very limited. I mean, first of all, the region altogether is a minor part of the, if you look at the light vehicle production, obviously. And I would say the indirect also is, let's say, manageable at this point in time. So not that big. Thank you. Thank you very much.

This concludes the question and answer session. I will now hand back to Mr. Michael Bradford for closing remarks.

Thank you, Raza. Before we conclude today's call, I would like to reiterate my confidence in our strong market position and our growth momentum in Asia, particularly in China and India, which position us well for continued success. At the same time, we remind mindful of the heightened macroeconomic and geopolitical uncertainties. Despite these uncertainties, our proven ability to strengthen profitability, even in a low growth environment, provides a solid foundation for delivering attractive shareholder returns and a clear path towards achieving our 12% adjusted operating margin in targets. Our second quarter call is scheduled for Friday, July 17, 2026. Thank you for your attention. Until next time, stay safe.

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