Good day, and thank you for standing by. Welcome to the Autoliv First Quarter 2024 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Anders Trapp. Please go ahead.

Thank you, Nadia. Welcome, everyone, to our first quarter 2024 earnings call. On this call, we have our President and Chief Executive Officer, Mikael Bratt; and our Chief Financial Officer, Fredrik Westin; and me, Anders Trapp, Investor Relations. During today's earnings call, Mikael and Fredrik will, among other things, provide an overview of our strong sales, earnings and cash flow development in the quarter, how our strong balance sheet and asset return rates support the continued high level of shareholder returns. They will outline the expected sequential margin improvement in 2024 towards our targets. And we will also, as usual, provide an update on our general business and market conditions. We will then remain available to respond to your questions. And 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 some 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, which is available on Autoliv.com and in the 10-Q that will be filed with the SEC. Lastly, I should mention that this call is intended to conclude at 3:00 p.m. Central European time. So please follow a limit of 2 questions per person. I will now hand over to our CEO, Mikael Bratt.

Thank you, Anders. Looking on the next slide. I want to express my appreciation to the entire Autoliv team for their unwavering dedication to achieve our goals and for delivering another strong quarter in a challenging environment. In the first quarter, global light vehicle production declined year-over-year by around 1% according to S&P Global. We saw no improvement in call-off volatility compared to fourth quarter 2023. Despite somewhat weaker than expected light vehicle production, we achieved our margin indication for the first quarter, and we are on track towards our full year guidance. In the quarter, organic sales grew by 5%, outperforming light vehicle production significantly, especially in India, South Korea and Japan. The strong growth was mainly a result of product launches last year. We generated a broad-based improvement year-over-year in key areas, including gross margin, operating margin and operating cash flow. This quarter marks the seventh straight quarter with more than 30% year-over-year increase in adjusted operating profit. The debt leverage was virtually unchanged versus Q4 2023 despite share repurchases of $160 million in the quarter. Under the current stock repurchase program, we have repurchased and canceled 6.5 million shares for close to $630 million. We are making progress towards our previously announced intention of reducing our indirect workforce by up to 2,000 people. We expect savings of around $50 million in 2024 from these initiatives. We are reconfirming the full year 2024 guidance, which sets a strong base towards continued high level of shareholder returns and our adjusted operating margin target of around 12%. However, the heightened seasonality of earnings of prior years is likely to be repeated in 2024. Now looking at the sustainability highlights on the next slide. Sustainability is a fundamental part of our business strategy. It is an important driver for market differentiation…

Thank you, Mikael. This slide highlights our key figures for the first quarter of 2024 compared to the first quarter of 2023. Our net sales were $2.6 billion. This was a 5% increase. Gross profit increased by $64 million or by 17% to $443 million, while the gross margin increased by 1.7 percentage points to 16.9%. The adjusted operating income increased from $131 million to $199 million, and adjusted operating margin increased by 230 basis points to 7.6%. Non-GAAP adjustments amounted to $5 million from capacity alignment and antitrust-related matters. Adjusted earnings per share diluted increased by $0.68, where the main drivers were $0.54 from higher operating income and $0.10 from lower income taxes. Our adjusted return on capital employed and return on equity increased 20% and 21%, respectively. We paid a dividend of $0.68 per share in the quarter and repurchased and retired 1.4 million shares for around $160 million under our $1.5 billion stock repurchase program. Looking now on the adjusted operating income bridge on the next slide. In the first quarter of 2024, our adjusted operating income of $199 million was $68 million higher than the same quarter last year. Our operations were positively impacted by cost saving activities, higher volumes and commercial recoveries, partly offset by headwinds from general cost inflation. The net currency effect was 8 million negative as we continue to see negative effects mainly from the strengthening of the Mexican peso and the weakening of the Japanese yen and Korean won, but partly offset by positive impact from the Turkish lira. The impact from raw materials and out-of-period cost compensation were negligible. Costs for SG&A and RD&E net combined was $4 million lower despite labor cost inflation. In relation to sales, SG&A and RD&E net combined declined by 60 basis points. As a…

Thank you, Fredrik. On to the next slide. Despite still elevated interest rates, the global light vehicle production continues to show relative strength. S&P Global's updated forecast for full year 2024 indicates a modest decline of 0.4% instead of 0.8% three months ago, with additional volume increases primarily in China and North America. Drivetrain mix developments varied by region as certain markets faced somewhat slower EBIT growth rates, while other areas continued to see rather high demand for EVs. S&P Global expects second quarter global light vehicle production to increase by close to 3%, while they see second half of the year declining almost 2% compared to last year. Light vehicle production in China continues to be supported by strong EV demand and export activity. The outlook for North American light vehicle production for 2024 was revised higher to 14.6 million units on demand resilience, less impact from supply chain issues and increasing inventory levels of new vehicles. The light vehicle production forecast for Europe has increased slightly to minus 2, mainly due to stronger-than-expected actuals in the first quarter. Based on S&P Global's forecast and our own analysis, our 2024 guidance is built on a global light vehicle production decline of around 1% for the full year. Now looking on the business outlook on the next slide. We continue to see significant improvements in adjusted operating margin in 2024 compared to 2023, supported mainly by organic sales growth, a more stable light vehicle production, structural and strategic initiatives, cost control and customer compensations. We continue to face inflationary pressure, especially labor costs, and we expect compensation for what is in excess of what we can offset through normal productivity measures. The discussions with our customers are progressing according to plan. We anticipate that price adjustments and cost compensations will gradually, throughout the year, offset cost inflation. We expect the pattern to be similar to the quarterly pattern seen in 2022 and 2023. Looking at our 2024 financial guidance on the next slide. This slide shows our full year 2024 guidance, which excludes effects from capacity alignment, antitrust-related matters, and other discrete items. Our full year guidance is based on a global light vehicle production decline of around 1%. Our organic sales is expected to increase by around 5%. No net currency translation effects are expected on sales. The guidance for adjusted operating margin is around 10.5%. Operating cash flow is expected to be around $1.2 billion. Our positive cash flow trend should allow for continued high shareholder returns. We foresee a tax rate of around 28%, in line with our previous indications of 25% to 30% as the new normal tax rate. 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 Nadia.

[Operator Instructions] And now we're going to take the first question, and it comes from the line of Colin Langan from Wells Fargo.

It seems like your recovery seems to be trending well in Q1, but there have been some concerning headlines. I think at least one automaker has announced some sort of no more claims policy. Are you finding it harder to get recoveries from automakers? Is there a lot more pushback as we're starting the year?

Thank you for your question there. And I think I've mentioned it many times before here, and that is the fact that, I would say, it has never been easy to negotiate these claims. However, I think that over the last 2 years here, we have found a way of working together with our customers and how to identify a fair compensation here. And we have also mentioned it's a very detailed negotiation because it's a fact-based and evidence-based discussion here. And as we've indicated for you here on the first quarter, we are progressing according to plan. And yes, I think we have good discussions with our customers on the way forward here. But of course, it is tedious work to go through.

Got it. I think one of the other factors of getting to the 12% was the lack of call-offs on schedules. I mean, how is that trending? Is that getting closer to back to historical norms? Or is there still room there to improve?

Compared to 1 year ago, of course, we see improvements, and we saw a gradual improvement during 2023. We ended the year over around 90%-ish accuracy when it comes to the call-offs. And now in Q1, we don't see any sequential improvement. So we are still at around 90% here. However, what we see is, of course, that it's not the same customers that has the same challenge. So it varies a little bit between the customers, but in large it's very much the same as we had in Q4.

And the 90% compares to like the 98% historically?

Yes. Sorry, I mean before the pandemic and what we etch as normal is more the 98% to 100% accuracy into one.

And the next question comes from the line of Mattias Holmberg from DNB Markets.

A bit curious on the margin guidance here. Given that you come in stronger than expected in the first quarter and still leave the full year guidance intact, does that imply that the year will be less back-end loaded? Or is it simply that you don't think that the Q1 beat was material enough to warrant a raised guidance for the full year?

Yes. Thanks for the question. Yes, we had a bit weaker top line here in the first quarter than expected, but that was offset by the better cost control and also some of the cost reduction activities coming through faster than we had planned. But that does not really change the picture for the full year in terms of how were our expected cost savings. And so for the full year, I think we had a good start of the year, but most of our assumptions here for the full year remain intact, and that's also why we stick to the full year guidance.

Right. I have another question on the phasing of your market outperformance for the year. Given what seems to be some delays you mentioned here, electric vehicles in particular, does that change in any way when you expect to see your outperformance? Or should we assume that the 5% or 6% that your organic growth guidance implies will be quite evenly spread throughout the year?

We have not indicated really how it plays out here between the different quarters. I think when you see the change in the launch programs here or the movements between the different platforms, I would say due to the very diverse portfolio that we have here and the neutrality when it comes to our products and the driveline connection here, we expect very limited, if any, impact from this. Of course, there is some work needed to be done in to reschedule the plan. But in terms of the overall launch and outperformance, no impact from that or very limited.

A quick final one just on raw materials, a small headwind in the quarter. Do you have any visibility on where that's tracking for the second quarter?

We don't guide raw materials on a quarterly basis. But I mean, overall, we expect raw materials to have a smaller impact for the full year. We see improvements on steel and nonferrous metals, but that is offset on the textile side mainly. And also, we expect to have increases on electronic components, but more or less a fairly neutral development for the full year.

Now we'll take our next question, and it comes from the line of Dan Levy from Barclays.

Just wanted to get into the pricing cadence for the year. Maybe if you could just comment there. I think the comment you just provided implied that the 1Q margin strength was driven by better cost control. But maybe you could just provide some comments on how the pricing benefits factored into the 1Q strength. Was anything pulled forward? Or was that as planned?

Yes. I mean we had commercial recovery in the first quarter in line with our expectations. And as we have said here that we are expecting a gradual improvement on the compensation for the inflationary headwinds throughout the year. So we do expect higher commercial recoveries in the second quarter sequentially here. But then also we said that we don't expect to have an identical quarterly pattern as we had last year with a step up in every quarter, but that Q2 and Q3, the gap between those 2 quarters could be a bit narrower this year than last year. But that's, I think, as much as we can say of how we expect the cadence of the pricing to come through.

Great. And then a second question is just on some of the outgrowth dynamics. And maybe just two parts to this. One, maybe you could just provide a comment on the outgrowth in China, which is a contrast versus, I guess, some of your peers. The other one is, I know we don't spend a lot of time on India, but India sales growth at 27%, which I think now would have basically contributed to, even though it's a small base of sales, that's like a whole point of outgrowth for you? So maybe you could just talk about what's going on in India and the sustainability of those results. Is that going to be a meaningful contributor to growth in the future for you?

No, I think what you see here is a reflection of our market position in the different countries. I mean, we have a market-leading position in China, where we're working with a broad-based customer portfolio there. And obviously, we are on the main Chinese OEMs here and have been working with them for a long time. So as they grow, of course, we grow together with them as we move forward here. India is a very interesting market for us. Also there we have a local presence. And we have, in the last couple of years, also invested in our footprint there to make sure that we are ready and have the capacity here for what we have been expecting to see, which is then an increased focus on content and safety regulations in China -- sorry, in India, and we see that now is coming through. And in China -- sorry, India, we have a very strong position as well here and a market-leading position. So we look very positively on both these countries. And India, for sure, is taking significant steps to increase the required rules and regulations around the required safety components in their vehicle. And today, India has grown to become around 4% of our global turnover. So quite meaningful market here and we expect that to grow very positively viewing that opportunity.

And the next question comes from line of Björn Enarson from Danske Bank. Björn Enarson: On India, again. I mean you have had higher market shares in your backlog for quite some time. And where are you now in terms of market shares in India? And do you still expect that according to your backlog to continue to grow in the next few years?

We are really in a market-leading position there, and we have 60% of the Indian market, and that's, of course, something that we intend to defend and grow. And as I mentioned before here, we have made investments in China in the last couple of years, where we have renewed our footprint, and we have also added capacity and got integrated more into the Indian market. So we have now an inflator plant in India, which we didn't have before, for example, in order to also respond to the increased demands coming in India here. So yes, I feel we are well positioned here to continue to grow with the Indian market. Björn Enarson: Capacities there, clearly. And then second thing on EV. I mean, what's your take on why EV in certain markets is growing less or less popular? I mean, I guess, and you repeat that you are quite agnostic to the driveline, but still, what's your take on that?

I think it's a huge range of reasons in certain markets. I mean, it's very individual for the market, I should say, rather. I mean, in some markets, there has been incentives which has disappeared. It has also been more costly to invest in an EV than a regular vehicle. And of course, now if the overall economic pressure on household is higher, maybe you are not prepared to make investments, et cetera. And then also, I think there is some challenges in certain markets when it comes to charging capacity and availability, et cetera. So of course, there is a lot of things that influence the respective markets. But I would say that the trend for increasing EVs is here to stay. So it's more, I have got to say, a bump on the road.

And the next question comes from the line of Michael Jacks from Bank of America.

My first question is going back on China. With the exception of Chery, your business there was more influenced by the activities of foreign OEMs in Q1. Could you just remind us where does your exposure to domestic OEMs now stand in China? And how is that expected to evolve going forward based on what you currently see in your order book?

Yes. I think when you look at our presence with the Chinese OEM, I feel very comfortable in the close collaboration we have here and we expect the share of the Chinese OEM to continue to grow of our sales in China. In Q1, we are at 30%, and we expect the full year to increase to 40% pacing. So yes, continued increased sales from Chinese OEM as they continue to take market share and grow as well here. So well-positioned with our customers there.

Yes, that's quite a big step change. And then my last question, just going back to the lack of improvements in call-off accuracy in Q1. Is that being driven now by volatility on EV platforms? Or are there still some other supply chain tensions around which you might be able to elaborate on?

No, I think it's very much a mix of supply chain issues mainly. And I think you can find the whole range here from still challenging logistics in the world's logistics flows here and ship accuracy and so on. And in some areas, you have some labor challenge with high turnover and lack of workforce. So it varies broadly between the different customers, I would say, and their respective supply chains.

And the next question comes from the line of Hampus Engellau from Handelsbanken.

Two questions from me. First question is on the 6 percentage point outgrowth on the Q1 numbers. If you could maybe add some little bit flavor of how much is like market share content growth? And if there's also an element of price there? And second question is on orders. I know what really the orders were. But just to get a sense on your fair share of activity in Q1, even if you don't want to comment on market shares, et cetera.

No, I think, on the outperformance side, I mean it's, of course, content growth that we have talked about when it comes to content per vehicle here, which is in the range of 1 to 2 percentage points. And then pricing is a part of it, but then, of course, the important contributor here is the market share growth as we launched the new platforms here. So I would say, mainly CPV and market share growth here as we look at the quarter here, but also for the full year. Pricing, as we said, it comes sequentially, contributing throughout the year here, but we also got some in the quarter. But we don't break down the exact details on it, but you have the components there. When it comes to the new order intake, I would say Q1 has been relatively low quarter in terms of award activities from our customers, and that was also according to plan. So nothing strange there. But I feel that we continue to gain orders to defend the market share that we are in here and supporting our way forward here in a good way. So backfilling the order book in a good way here.

And the next question comes from the line of Jairam Nathan from Daiwa Capital Markets America.

So I just wanted to kind of dig a little further on the last question. If I look at your EBIT walk, $74 million, and compared to -- it almost seems like the incremental margins is above 50%. Now does that imply that the recoveries was probably a bigger portion, or your cost-saving activities are kind of kicking in? So like how should we think of incremental margins going forward? Yes, and I have one more question.

Yes. No, I think the high operating leverage was a combination of a couple of factors. And of course, the organic growth is one factor, but then it is mainly the contribution here with the cost reductions we've done on both the indirect labor side, but also the very good cost control we saw in the first quarter and also the very good advancement we have on the direct labor productivity. Those are mainly the factors why we get to such a high operational leverage and much less driven by pricing. But then also we had slightly lower premium freight costs in this quarter related to the better call-off stability from our customers when you compare it year-over-year. So it's really the underlying operational performance that is driving the leverage.

Okay. And when you look at the regions, the regional mix and regional performance, have you considered exports, because you talked about South Korea being strong, and we are seeing a lot of exports out of South Korea, especially into the U.S. I'm guessing those are higher-contented vehicles. So have you done some analysis on how much is exports helping you in terms of content?

I mean, we have a structure and, I would say, an approach where we sell to our customers in the regions where we produce. Then, of course, our customers can then return, export their vehicles to different parts of the world. But it doesn't really change our supply chain to our customers here. So we look at where is the vehicle produced, and that's the basis. And I don't see that we are going to change that. I think this regional approach and decentralized operational responsibility is serving us well. And yes, it's something we're going to continue to build on.

And the next question comes from the line of Agnieszka Vilela from Nordea.

Perfect. I have two questions. So my first question is, again, on the out-of-period compensations. These were quite significant in both Q2 2022 and '23, I think you reached some $30 million each of these quarters. So the question really is, will the Q2 this year be as important quarter for you to close negotiations and receiving payments? Also do you hope to recover similar level of compensations?

I mean, typically, when we have these negotiations, our ambition is to get compensation for, say, the full year. So we would expect that there should be some retroactivity back to January 1 with the negotiations we closed here in the second quarter. But how much exactly that will be remains to be seen. Our focus is to get the right height on the compensation, and that is more important to us. So yes, we'll come back here in the second quarter of how much retroactivity in that pricing that we negotiated in the second quarter would then be shown.

All right. And just a follow-up on that. Are you already closing the negotiations? Or are they still proceeding into Q2?

I mean, as I already indicated before, we have closed negotiations and part of negotiations already here in the first quarter. But also the majority is still outstanding, and then those are the ones we're targeting here to close in the second and third quarter of the year. But it is an ongoing process and it's not always likely closed all at once. You also can take it in steps and we have already secured some of the pricing effect during the first quarter.

Perfect. And then my second question is on the R&D expenses. R&D to sales were at about 4% this quarter. And that's obviously a good improvement from -- if we look at the recent years being it's at 5% to 6%. So could you please remind us what's driving the R&D cost efficiency? And also, I think you're right in the report that specifically in Q1, you had some maybe extra engineering income. So if you could give us a bit more color on that.

Yes. I mean, we've already -- I mean, even in the 12% margin target, and then the way to get there back in 2019, we said that we were striving for a better RD&E efficiency. And then that's, I think, what you're seeing coming through here now. In relation also to the 2,000 headcount reduction target on the indirect side, there's also part of that allocated to RD&E and also some of those savings we do see come through already now as well. Then the engineering income part, it's always a bit -- it can fall in 1 quarter or the next quarter. So that can all impact a little bit between Q1 and Q3. And then you know that we seasonally have a stronger recovery quarter in the fourth quarter. But I wouldn't say that there was anything special here on the recovery side in the first quarter. It's more again that the cost control and also headcount reductions we see come through also impacting RD&E costs positively.

And the next question comes from the line of Ross MacDonald from Morgan Stanley.

Just to come back to India once more and linked to that point around India supporting top line growth. Could you maybe frame how much growth you expect in India from a content per vehicle perspective in dollar terms? You mentioned regulatory improvements, but it would be helpful to understand where we're starting from and how you expect that to progress over the next few years?

Yes. I mean today, we are around $100 in India. So I mean, they are significantly below, you could say, the mature markets average here. But we expect it to quite rapidly grow to $150 to $170 per vehicle here in the next coming year or so. There's a quite rapid increase here. And as I said, it's driven also very much around the legislations, and you may recall that last year here, there was intention to put in legislations on certain number of airbags in a vehicle, which later was retracted. But I would say, the majority of the OEMs decided still to carry on with that ambition. So if you see this increase coming through, then, of course, that's an important contributor to the $150, $170.

Excellent. Yes. So some of that very strong growth, I guess, we expect it to continue with the market share and the EV expansion? That's great. And second question is on North America and mix trends in North America. There's obviously a big debate around stretched affordability for consumers and whether that will weigh on mix in the future. Just be curious if you're seeing any signs of mix shifting lower in North America in order bank perhaps from large SUVs into smaller SUVs or crossovers, any trends like that?

I mean, we see what you're referring to here as well. But in our own numbers and in our dialogues with customers, we don't really see that, and we don't expect that to have any real impact on our sales here also. Once again, the diversity here in terms of our portfolio will support us in any transitions like that. So not really a concern from our side here.

And the next question comes from the line of Jason Getz from Mizuho Securities.

When you look at inflationary pressures for this year, how should we think about that moving through the year? I assume the increases are still rising kind of year-on-year, but wondering more near term, how that's trending? Is that starting to stabilize? Are we still seeing increases on a sequential basis?

There will be still some sequential increases, and that's mainly on our material costs, some of the components that we purchase, and then mainly on the labor content of those purchase components. On the labor cost side, the vast majority is behind us. I mean, that all happened in the first quarter of the year. There might be a few further labor cost increases that we can expect in higher inflation countries, but that should not have a significant impact. So labor cost, to a large extent, is behind us with what's happened in the first quarter, but we still expect some on purchase material from our suppliers.

Got you. And then when you look at the broader LVP for the year, how much do you think of that is vehicle inventory build versus true sell-through demand? Do you think we're seeing like kind of a larger inventory build this year than we have in the past few years? How should we think about that moving forward?

We don't expect that. I think right now, we are at a point where it's quite calibrated between supply and demand here. I think the restocking, to a large extent, has already happened. I mean, in China, we are at normal levels of inventory, likewise in Europe. In the U.S., we see, with historical measurements, lower level of inventory, but I would say it's in line with what the OEMs have indicated where they would like to be. So no indications or plans on bringing that industry inventory up. So short answer I would say is that no inventory buildup, it's all about the demand from end consumer here.

And the next question comes from the line of Mattias Holmberg from DNB Markets.

Yes, just if you could, it would be very helpful to share any insights on how much cost savings you managed to realize in the quarter in the context of those $50 million you're targeting for the year?

I think we said that we are maybe a bit ahead on the $50 million. We haven't broken it down by quarter. By design, the larger part would actually come in the second half of the year, because so far we've taken out more headcount in the best-cost countries than we have in high-cost countries. So [indiscernible] of Germany, for instance, is coming towards the second half of the year and even more so next year. So it's more second half than first half, and we are a little bit ahead of time in the first quarter.

Dear speakers, there are no further questions. I would now like to hand the conference over to Mikael Bratt for any closing remarks.

Thank you, Nadia. The world is changing at an accelerating pace, and Autoliv has launched a number of strategic initiatives to meet the needs of our customers, to enhance shareholder value, and deliver safety solutions for society. I am confident that we will deliver a substantial increase in sales, operating cash flow, and adjusted operating income in 2024, supported by footprint optimization, structural cost reductions, cost compensations, and a committed focus on innovation, quality and sustainability, and our most important direct contribution to a sustainable society, saving more lives. Our second quarter earnings call is scheduled for Friday, July 19, 2024. Thank you, everyone, for participating in today's call. We sincerely appreciate your continued interest in Autoliv. Until next time, drive safely.

That does conclude our conference for today. Thank you for your participation. You may now all disconnect.