Welcome to the Q1 2022 Autoliv, Inc. Earnings Conference Call. Throughout the call, all participants will be in listen-only mode. And afterwards, there will be a question-and-answer session. Today, I am pleased to present President and CEO, Mikael Bratt; and Group CFO, Fredrik Westin. I’ll now hand over to VP, Investor Relations, Anders Trapp. Please begin your meeting.

Thank you, Mark. Welcome everyone to our first quarter 2022 financial results earnings presentation. On this call, we have our President and CEO, Mikael Bratt; and our Chief Financial Officer, Fredrik Westin; and I am Anders Trapp, Vice President of Investor Relations. During today's earnings call, our CEO will provide a brief overview of our first quarter results, as well as provide an update on our general business and market conditions. Following Mikael, Fredrik will provide further details and commentary around the financials. We will then remain available to respond to 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 this presentation, we will reference some non-U.S. GAAP measures. The reconciliation of historical U.S. GAAP to non-U.S. GAAP measures are disclosed in our quarterly press release available at 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 03:00 PM Central European Time. So, please follow limit of two questions per person. I now hand it over to our CEO, Mikael Bratt.

Thank you, Anders. Looking on the next slide. The ongoing war in Ukraine is an inconceivable tragedy that has resulted in a massive humanitarian crisis, and my thoughts go to all those affected. We also continue to experience tough COVID-19 developments and lockdowns in China that are affecting many people, including our employees. I would like to thank all of our employees for dealing with and managing through these tough and unprecedented times. In the quarter, we managed a very difficult market environment with significant declines in light vehicle production towards the end of the quarter, significant cost inflation and low demand visibility, as well as severe disruptions of the global supply chain. Despite adverse regional mix effects, our sales outperformed global LVP by around 3 percentage points according to IHS Markit. In the quarter, raw material cost increases impacted our operating margin negatively by more than 5 percentage points, and premium freight costs also increased substantially. The higher premium freight cost was a result of logistical bottlenecks and volatile customer call-offs. In the quarter, we achieved the targeted level of customer compensation, which still was relatively limited compared to the cost increase level. As a result, sales and profitability were lower than expected. In response to the ongoing challenging market conditions, we further strengthened our cost control measures, implemented a hiring freeze, and accelerated other cost-saving and footprint activities. Despite the challenging environment, our cash flow was positive, and our balance sheet remained strong. The leverage ratio remains within our targeted range. In the quarter, we paid $0.64 per share in dividend and initiated the stock repurchase program. Looking at the rest of the year, we expect increased sales outperformance versus light vehicle production. It is our plan and ambition that our product price increases completed with strict cost control measures will gradually offset the cost increases. Therefore, we expect sequential margin improvement in the second half of the year, supporting a trajectory towards our mid-term targets. Looking now at the direct effects of the war in Ukraine on the next slide. Our hearts are with everyone affected by the massive humanitarian crisis created by the war in Ukraine. The war has significantly affected the automotive industry, especially in Europe. We have no operations in Ukraine, but we have identified four sub-suppliers in Ukraine. We are in the process of transferring our component procurement out of Ukraine, and we have not stopped any of our customers. However, the war has affected our customers' ability to produce vehicles, leading to lost volumes and more volatile customer call-offs. As a result, we lost almost 25% of expected sales in March in Europe, significantly affecting our operational efficiency. Autoliv has one production plant in Russia with around 200 employees. In 2021, our sales in Russia reflected less than 1% of our global net sales. As this is a very volatile and challenging situation, we continue to monitor developments closely and we are reviewing our presence in Russia. Looking now at the financial overview on the next slide. Our consolidated net sales of $2.1 billion were 5% lower than in Q1 2021 due to negative currency effects and lower global light vehicle production. Adjusted operating income, excluding costs for capacity alignment, fell from $237 million to $68 million. The adjusted operating margin was 3.2% in the quarter. The lower operating margin was mainly a result of rising costs for raw materials, higher costs for freight, especially premium freight, and lower than expected light vehicle production. Operating cash flow was $70 million, which was $160 million lower than the same period last year, mainly due to the lower net income. Looking now at organic sales development on the next slide. Our sales in the quarter came in lower than expected with light vehicle production in all regions disappointing, except the rest of Asia. According to IHS Markit, global light vehicle production declined by 4% year-over-year in the quarter. This was 2 percentage points worse than expected at the beginning of the quarter. As a result of the declining light vehicle production, our first quarter sales declined organically by 1%. This was 3 percentage points better than light vehicle production according to IHS Markit. The outperformance came despite the very negative regional mix impact of more than 8 percentage points in the quarter, as a result of our production in low safety content markets growing. Supported by recent launches and more positive regional mix, as well as a positive pricing, we see sales outperforming LVP substantially more for the rest of the year. Based on the latest light vehicle production numbers from IHS Markit, we outperformed in Europe by 12 percentage points, in Japan by 7 percentage points, and in the Americas by 3 percentage points. In China, sales underperformed by 2%. The reason for the underperformance in China was mainly the mix effects from production of low-end vehicles growing by 17%. For 2022, we are confident of a solid outperformance in all major regions. On the next slide, we see some key model launches from the first quarter. In the quarter, we had a high number of launches, especially in Japan and China. The models shown on this slide have an Autoliv content per vehicle from approximately $50 to more than $400. The long-term trend to higher CPV is supported by the introduction of front center airbags, battery cutoff switches, and pedestrian protection airbags. We are also launching side airbags and curtain airbags on vehicles produced in India, exemplified here by the Suzuki Glanza, supporting the Indian government's intention to make side protection airbags mandatory later this year. I will now hand it over to our CFO, Fredrik Westin, who will talk about the financials on the next few slides.

Thank you, Mikael. This slide highlights our key figures for the first quarter of 2022 compared to the first quarter of 2021. Our net sales were $2.1 billion. This was a 5% decrease compared to the same quarter last year. Gross profits declined by 37% to $288 million, while the gross margin decreased 13.6%. The gross margin decrease was primarily driven by raw materials, premium freight, and the volatile and lower than expected light vehicle production. The reported operating income decreased to $134 million from $237 million. In the quarter, capacity alignments had a $66 million positive impact on the operating profit. As a result, the adjusted operating income decreased to $68 million from $237 million. The adjusted operating margin declined to 3.2%. Operating cash was $70 million. Earnings per share diluted decreased by $0.85 where the main drivers were $1.39 from lower adjusted operating income, partly mitigated by $0.49 from capacity alignment, $0.05 from financial items, and $0.03 from lower tax. Our adjusted return on capital employed declined to 7% and the adjusted return on equity to 6%. We paid a dividend of $0.64 per share in the quarter, the same as in the previous quarter, and repurchased around 230,000 shares for $18 million under our three-year stock repurchase program. Looking onto the adjusted operating income bridge on the next slide. In the first quarter of 2022, our adjusted operating income of $68 million was $169 million lower than the same quarter last year. The impact of raw material price changes was a negative $110 million in the quarter year-on-year. Foreign exchange impacted the operating profit negatively by $5 million, mainly due to the stronger U.S. dollar. Support from governments in connection with the pandemic was $7 million higher than in the first quarter compared to last year. SG&A and RD&E net was unchanged. Our strategic initiatives continued to yield good results. However, these positive effects were more than offset by the difficult market environment. Premium freight and lower than expected sales, but also high call-off volatility and broad cost inflation, for instance, related to logistics and utilities impacted our operations negatively. Looking on the cash flow performance on the next slide. For the first quarter of 2022, operating cash flow decreased by $116 million to $70 million compared to last year, mainly due to lower net income. Compared to the prior quarter, working capital deteriorated by $18 million despite a $20 million improvement in trade working capital. This was mainly a result of a $136 million increase from inventories and $125 million from an increase of receivables, partly offset by $241 million from accounts payables. The increase in inventories was due to customers in Europe stopping production around quarter end because of supply chain distress, related to the war in Ukraine and lockdowns in China. For the first quarter, capital expenditures net decreased by 82% to $17 million, mainly as a result of the divestiture of a facility in Japan. Capital expenditures net in relation to sales was 0.8% versus 4.1% a year earlier. Excluding the divestiture in Japan, capital expenditures were $112 million. For the first quarter 2022, free cash flow was $53 million compared to $93 million a year earlier, driven by the lower operating cash flow, partly offset by lower capital expenditure net. The cash conversion for the last 12 months was 72%. In the quarter, we paid $56 million in dividends and repurchased shares for $18 million. Now looking on our leverage ratio development on the next slide. We are pleased that our focus on capital management is yielding results, and we can maintain a strong balance sheet even in these challenging times. This has enabled us to start the repurchasing of shares and to maintain our dividend. The leverage ratio at the end of March 2022 was 1.4 times, a significant improvement since the peak of 2.9 times in 2020 and unchanged versus a year ago. In the quarter our 12 month trailing adjusted EBITDA decreased by $176 million, partly offset by the net debt decrease of $19 million. Now looking at the raw material development on to the next slide. The exogenic shock from the war in Ukraine adversely impacted an already distressed global supply chain, driving prices of raw materials further upwards. Cost increases for raw materials generated a headwind of $110 million, or around five percentage points to our operating margin in the first quarter. This was higher than the full year impact in 2021 of $105 million. In the current price environment, we believe that raw material costs, before any customer compensations, could be up to six percentage points in operating margin headwind for the full year 2022, with similar year-over-year effects in all quarters. This is, of course, a situation which we must address through serious actions to ensure we are back on the trajectory towards our medium-term profitability targets as soon as possible. A key lever to achieve this is outlined on the next slide. We are engaging in customer discussions aiming at unprecedented price increases to reflect the significant cost inflation, mainly from raw materials, but also lost volumes and logistic costs. Over time, we believe and expect that customer recoveries should offset the cost inflation. We were on track to achieve the recoveries we had targeted to cope with the cost increases that we anticipated prior to the latest surge in prices and costs. However, the ongoing inflationary pressures require additional actions. Therefore, we have established a global commercial recovery task force and we have escalated the negotiation processes and are engaged in customer discussions demanding compensation for the recent additional cost inflation. The main focus is on price increases from midyear and onwards. In parallel, we're implementing greater pricing flexibility into our new contracts to account for an environment with changing cost levels. For commercial reasons, we will not discuss the level of anticipated recovery or its nature. In addition to commercial recoveries and price increases, we are undertaking other actions as discussed on the next slide. In response to the increased challenging market conditions, we continue with strict cost control measures, a hiring freeze, and accelerated cost savings and footprint activities. In addition to recently announced capacity alignments and footprint actions in Japan, Europe, and the Americas, we are reducing direct labor, closing one plant in South Korea, and we divested a property in Japan. In total, we reduced headcount by over 1,700 versus the same quarter last year, despite similar sales levels. Additionally, our measures include management of inventories and payables, negotiating with suppliers to mitigate cost inflation. Our supply chain management teams have been working hard to balance inventories to actual demand. During the quarter, production planning accuracy declined as a result of the war in Ukraine and the extensive lockdowns in China. Now switching to the market development, I hand it back to Mikael.

Thank you, Fredrik. Looking now at the light vehicle production development on the next slide. While global markets are influenced by the ongoing war in Ukraine, Europe is undeniably the most severely impacted. Beyond the direct impact to Russian LVP, the war in Ukraine also significantly affects wire harness production, mainly for German automakers. Compared to three months ago, IHS Markit has reduced its global light vehicle production growth for 2022 by more than four percentage points to less than 5%, with Europe accounting for 90% of the reduction. Additionally, we see further risk to supply chains and the broader economic landscape. Given the ongoing uncertainty, we have a scenario-based approach to light vehicle production, and therefore, our updated guidance is based on a light vehicle production range. Looking at LVP forecast in more detail on the next slide. For the second quarter of 2022, global light vehicle production is expected to further decline compared to Q1 2022. In North America, sales of light vehicles are slowly improving on a quarter-to-quarter basis and should continue strengthening over the remainder of the year. However, due to low inventory levels, deliveries remain well below demand and well below deliveries a year ago. European production will remain challenged, as weaker Q1 production is expected to carry forward into Q2, as the war in Ukraine continues to stress the supply chains. Hit by strict COVID containment measures, light vehicle production and sales in China started to decline in March. Lockdowns are also interrupting auto production outside China as exports of components are affected. In the near term, the global light vehicle production outlook will be determined by the availability of components, as well as the effects of lockdowns in China. Now looking on the 2022 business outlook on the next slide. We expect higher sales outperformance versus light vehicle production for the rest of the year, supported by launches, regional mix, and higher prices. For the second quarter of 2022, we forecast the adjusted margin to be weaker than in the first quarter due to lower and more volatile light vehicle production, and we expect cost inflation to increase faster than our cost compensation. We expect second half of year improvements from alignment of direct labor with light vehicle production, footprint optimization activities, and less volatile light vehicle production in Europe and China. Most importantly, we are negotiating price increases with our customers to compensate for current cost inflation. We believe and expect that our price increases should gradually offset the cost inflation. And assuming some degree of market stabilization, we should be back on a trajectory towards our midterm target. Looking at the updated full year 2022 indications on the next slide. The updated indications are based on the assumption that global light vehicle production will grow 0% to 5% and that we achieve our targeted price increases plus some level of market stabilization. We expect sales to increase organically by around 12% to 17%. Currency translation effects are assumed to be around a negative 3%. We expect an adjusted operating margin of around 5.5% to 7%. Operating cash flow is expected to be around US$750 million to US$850 million. Our full year 2022 indications exclude costs for capacity alignment, antitrust related matters, and other discrete items. Turning to the next slide. We now see global light vehicle production growth being four to nine percentage points lower than in the previous indications from January 2022. Rising raw material costs are expected to have an additional 300 basis points negative impact. We believe our strategic initiatives and other actions should offset some of these additional headwinds. This should lead to an adjusted operating margin for the full year 2022, that is 2.5 to four percentage points lower than the previous indication. Our adjusted operating margin outlook may still be impacted by supply chain disruptions in the automotive industry and potential risk of surge in COVID cases and its effect on us and the automotive industry. Turning the page. In closing, to summarize our 2022 outlook, we expect continued strong outperformance versus light vehicle production, supported mainly by product launches, increasing content per vehicle, and price increases. Supported by a somewhat more stable market, we anticipate gradually offsetting much of the cost inflation in the coming quarters, which will take us back on a trajectory towards our midterm target. Additionally, our balance sheet and cash flow should allow for continued shareholder return. I will now hand it back to Anders.

Thank you, Mikael. Turning to the next slide, which concludes our formal comments for today's earnings call. And I would like to open the line for questions. So, now I turn it back to you, Mark.

Thank you. The first question is from Hampus Engellau of Handelsbanken. Please go ahead; your line is open.

Thank you very much. I just have one question, but it may be a dual question here. What I'm trying to understand, like it is that pricing situation that you're in. And especially when I put it into the perspective that the core OEMs have increased new car pricing by 5% to 8%, used car prices are up 25% and many of the OEMs reported record margins last year. And hasn't this in some way impacted your possibility to push forward price increases? Or could you maybe elaborate on that a bit? And also, what kind of time lag we should expect on these price increases that you have implemented so far? Thanks.

Thank you, Hampus. I feel confident discussing and negotiating these price increases with customers. It's clear that the inflationary pressures we are presenting to customers are industry-wide and not specific to Autoliv. When we enter these discussions, we have solid reasoning to support our case. As you mentioned, they have already begun this process. However, as a supplier, based on our experience, we can't predict price increases until they occur. Therefore, we can only approach customers once those increases are evident. This is what we are doing now, which explains the time lag we've discussed. Nevertheless, I am confident in our goal of obtaining compensation for the inflationary pressures present in the industry.

Okay. Thank you.

Thank you. Our next question comes from the line of Colin Langan at Wells Fargo. Please go ahead. Your line is open.

Great. Thanks for taking my questions. Just looking at Slide 12, it's definitely clear that raw material costs have obviously massively increased since the beginning of 2020. But for a lot of them, they're not too far off of the end of last year. So, trying to line up the big increase in raw material headwinds versus where it ended last year, a lot of these aren't too off base. Is it that the assumptions, the initial guidance, we're assuming that some of these started to moderate? Is there just sort of a timing issue? I'm just trying to think about where we were at year-end and why the large increase today.

Yes. After the Q4 earnings, we mentioned that our expectations were influenced by the anticipated movement of raw material prices moving forward. The ongoing Ukraine conflict has significantly impacted the raw material landscape, resulting in an increase of approximately 300 to 600 basis points, with about three quarters of that attributed to steel and non-ferrous metals. The forward pricing curves have changed greatly, leading us to expect that we will renew these contracts at much higher price levels than we anticipated just three months ago. This represents the primary difference in our projections going forward.

Okay. Got it. So, it is sort of a forward-looking change. Okay. And then, as I'm looking at the full year guidance, you've indicated next quarter is going to be a bit worse than this quarter. So, we're talking 3%-ish maybe for the first half. To get to the midpoint, which is like 6.25, really requires I think almost a tripling of margins from first half to second half. You mentioned some items. I mean, what are really the major step functions to kind of get to that big sort of first half to second half weak when we think it's sort of ranking order, what will drive that?

No. I think that it's all about closing this time gap between cost increases that we are facing from our value chain with the compensation from our customers here. And as we indicated already in the Q4 earnings release, we stated there that the first half of the year will be challenging, and we talked there about a 500 basis points raw material headwind in the first half and then we should see the compensation coming through in the second half of the year. And that's still the dynamics in the guidance we're doing now. The difference compared to that, of course, is that the war in Ukraine put additional pressure on the value chains here and drove up prices not only on raw material but also on logistics costs and energy prices, etc., which meant that we now needed to up our ambitions here with the price increases with the customers. And hence, then you have the time gap again here. So, we will see then a gradual improvement on the price side closing these gaps. So, of course, there is a big difference between the first quarter and the last quarter in this forecast, which was also in the regional guidance for the year.

Got it. Alright. Thanks for taking my questions.

Thank you. And our next question comes from the line of Rod Lache at Wolfe Research. Please go ahead. Your line is open.

Hi everybody. I wanted to ask about the commodities. Last year, you mentioned a 130 basis point drag from raw materials, and now it's up to 600 this year, totaling 700 basis points cumulatively. Can you clarify whether this is a gross or net figure? Additionally, could you provide some details on the timeline and extent of the potential recovery? If you achieve the recovery you expect in the second half of this year, I assume some benefits will carry over into next year. Can you share insights on the magnitude of the tailwind you anticipate for next year from this?

The guidance on raw materials remains a gross figure, with no recovery or offset factored in. We are seeing the impact of raw material prices on our profit and loss account at the cost level. As Mikael mentioned, the margin levels we achieved in the first quarter and the projections for the second quarter, along with the expected trends into the third and fourth quarters, indicate that we anticipate a significant recovery. However, the increase in raw material prices means that the net effect of cost increases compared to recoveries is not as favorable now as it was in our initial guidance. Nevertheless, we expect to be back on track to meet our medium-term margin target of 12%, and this should be evident in our performance in the third and fourth quarters.

Okay. You mentioned premium freight and other cost inflation and that’s why you’re seeing that $61 million drag on a 1% organic decline. Are you expecting to recover that through pricing as well? And then, just lastly, you mentioned additional semiconductor risk due to the war in Ukraine. Can you just elaborate on what you're specifically looking at?

Premium freight was considerable in the quarter. As Mikael noted, the impact from raw materials was over 5%, which was largely consistent with our guidance. Additionally, we experienced about a 2% margin hit from premium freight, most of which we believe can be recovered in the remainder of the year. We also encountered inefficiencies in import direct labor, primarily due to call-off volatility and COVID-related issues in Europe and parts of Southeast Asia and China, which affected our productivity levels. Furthermore, freight and utility costs have risen significantly in the first quarter. These factors are the main contributors to the $61 million headwinds on the operations side. Could you please repeat your second question regarding Ukraine? I didn’t completely understand that one.

You mentioned additional semiconductor risk due to the war in Ukraine. Was this related to neon gas, or was there something else that prompted you to identify this as a larger risk associated with the conflict?

Yeah. That's correct. I mean, that's one example. But raw material is also going into the semiconductor production that is affected by the war in Ukraine there. But I think on the semiconductor side, I mean, there are also, of course, still some challenges when it comes to the total supply there and that's also what is challenging for the overall LVP outlook here, as we have outlined here, not least the China situation there where we actually see semiconductor manufacturing go down slightly in Q1. And of course, with the lockdowns and the consequences also on the freight out of China, there you can expect some disservices of that. But it's all part of the 0% to 5% growth number for LVP included there.

Okay. Alright. Thank you.

Thank you. Our next question comes from the line of Vijay Rakesh of Mizuho. Please go ahead. Your line is open.

Hi, Mikael and Fredrik. Regarding the full year guidance, can you provide some insight into the 12% to 17% year-on-year growth? Are you able to offset some of the costs, and what price increases are reflected in that full year estimate?

We don't provide specific details regarding the levels as we are currently negotiating with our customers. However, I want to emphasize that I feel confident about our ability to secure full compensation for the inflationary pressures we are experiencing. It is important to note that these cost increases are not unique to Autoliv; they are indicative of broader industry cost pressures.

Got it. Makes sense. Yeah. And I think you also mentioned some customer call-offs, about 25% of European sales affected. Now with the Shanghai shutdown almost a month into the quarter here, are you seeing that distress in the supply chain resulting in call-offs in both Europe and China? Or what's being embedded, or what are you seeing in your order activity? Thanks.

No. As I said, I think the consequences from what have happened so far in terms of lockdowns in China during the quarter here and as we speak, I would say, is included in the 0% to 5% scenario. Then, of course, as we have pointed out here, there's a lot of uncertainty around the COVID situation as well as the war in Ukraine, et cetera, on further impact. But what we can identify today, we believe that's within the 0% to 5% LVP growth there, if that answers your question.

Yeah. Thanks.

Thank you. And the next question comes from the line of Joseph Spak at RBC Capital Markets. Please go ahead. Your line is open.

Thank you everyone. I wanted to clarify a few things regarding pricing. On slide 19, it shows that for the full year, you have mostly managed to offset the entire impact of raw materials, and I understand some of that is due to your own actions. However, this suggests that there is a more significant impact compared to the raw material challenges in the second half, especially since there was no effect in the first half. So, I’d like to know if you are managing to price for inflation, while also potentially addressing past impacts. Is that correct? Additionally, can you confirm if any recoveries are reflected in sales, thereby influencing your organic growth, or if they are categorized as a counter expense?

If I start and Fredrik can provide additional details, we are looking for full compensation from our customers for the inflationary pressures I've mentioned. Additionally, there are other claims related to specific customer situations, including some premium freight costs that our customers are responsible for. We are factoring these into our claims. The impact on our full year guidance stems from the timing gap between when we incur costs and when we receive compensation from customers. This has always been part of our business model as auto suppliers, and we are working to minimize this gap. Regarding the situation, I feel confident approaching our customers for the full amount.

Yeah. And the recoveries will be in our net sales. So that's how we will report them. And as such, they are then also part of the organic growth outperformance. So, one of the reasons why we then have increased that from 11% to 12% is also from a higher than previously expected price adjustment from our customers to offset the stronger raw material headwinds that we're facing.

Okay. And then, I guess, Mikael, maybe building off sort of a comment you just made here about changing relationships. And you mentioned in your report and I think in your opening comments, I think about greater pricing flexibility going forward. Does that mean that you are trying to move more towards an indexing model versus prior similar to other suppliers? And if so, is that just for new contracts? Or is that something you think you can achieve for existing contracts as well?

No, I wouldn’t say the answer to the question is whether to index or not. I think we’re in a different environment now compared to the last 20 years. Additionally, there is an ongoing change for both our customers and us. However, I believe we are maintaining good speed and focus when it comes to implementing these adjustments. As we continue to experience pressure, this will lead to an ongoing conversation with the customer.

So, just to follow-up, what do you mean by greater pricing flexibility then when you mentioned that?

No, it means that we need to make sure that we have a faster response time from our customers here to get compensated for the price increases we see in our system. And then, you can achieve that with different means. But it's more, I would say, a part of the dialogue with the customers and how you set it up with respect to customers. And, of course, as we mentioned, indexation is one tool in that toolbox, but it's something we need to develop individually with our respective customers.

Thank you very much. I also got a couple of items. The first one is just a clarification. In that 600 basis points of headwind you're guiding, is there the freight cost or the logistics headwind included? Or would that come on top? And how much is that in the full year?

The 600 basis points is pure raw material. We haven't specified the freight cost or any other inflationary cost pressures specifically there. It's a part of the overall guidance effect there. But once again, all that type of cost is what we intend to get compensated for.

I see. But it's fair to assume that this kind of logistics headwind remains at least for the second quarter, if not also for the second half.

Yes. Yeah.

Okay. Great. And then, the second thing I wanted to clarify is the share buyback. On your website, you only reported numbers until the end of March. And does that imply you stop the share buyback at the end of March, or are you still buying right now?

As you know, we published when transactions are being done. And we don't comment on what we intend to do and when we intend to do it and so on. But I mean, we have initiated the buyback program, and we are committed to the $1.5 billion by 2024 there in the buyback program.

So that means there was no buying early April?

We will continue to inform you when we have done something in the program there.

Thank you. When I look at the raw material impact on your EBIT, it was the aggregate or is expected to be the aggregate at $600 million in the past two years, 2021 and now including guidance for 2022. And you say that you have the ambition to recover that and also recover the freight costs and other costs that you're incurring right now. What gives you confidence that you can reach this kind of recovery and also when we should expect that? So, will it spill over to 2023 as well? Thanks.

Thank you. My confidence in achieving this comes from the external price pressures affecting the industry, which are not specific to Autoliv. I believe our supply chain team has successfully managed to limit cost increases throughout most of 2021 and at lower levels. We've done a commendable job in this area. We're not asking for more than what has resulted so far. We have strong reasons and supporting facts for our position. Additionally, the inflationary pressures we are experiencing will inevitably be passed on. As we mentioned previously, we anticipate a gradual recovery in the upcoming quarters, with a strong emphasis on 2022.

Great. Thank you. And then, the last question for me is that, if we look at your leverage, it is now approaching 1.5 times, which is the high-end of your target. Is it fair to assume that you could pause the share repurchases right now?

I think as we have said before here, I mean, when to move forward on share repurchase is a number of factors that need to be built into that decision. And leverage, of course, is one, but it's also our cash flow generating capabilities going forward here and where we are in general in the cycle here. So, there are a number of factors here. So, it's not an absolute black-and-white definition on the buyback if it's 1.5 or 1.6 or 1.4. It's a combination of all three. And I think we have used the phrase before as we have a pragmatic view on that, and that's still true going forward.

Thank you for your question. I'm curious about the operating leverage. Looking at the second half of the year, your guidance suggests a margin of around 9% to 10%. You mentioned earlier that you plan to balance the 3% increase in raw material costs through pricing and other cost measures. With the expected positive growth in LVP during the second half, do you anticipate returning to the usual operating leverage level? Or do you believe that due to higher freight costs and related operational impacts, any margin gains will primarily stem from pricing adjustments? Your insights on this would be appreciated. Thank you.

No. We believe that the underlying, say, operational leverage should be within the range that we're normally talking about 20% to 30% and probably at the higher end of that range when you exclude the inflationary pressure. So, if you take those costs out, but also the recovery. So, the underlying operational performance should be at the upper end of that 20% to 30% range is our expectation.

Thank you. One recap and then one on incremental decremental margins. So, focusing on that slide 19, just to recap on the extra 300 basis points of raw materials from all the questions so far. So, is it fair to characterize that it's not really about spot prices having increased. But essentially, when you made the guidance in the beginning of the year, you were expecting, let's call it, lower steel and magnesium costs for the second half into 2023, that now because prices are elevated, it’s an incremental pressure to your guidance. And you're obviously going to price for that, but there's a delay. Just wanted to make sure I understood that dynamic.

Yes, that's a correct assessment. We have mentioned multiple times that we don't purchase on the spot markets, but the changes in spot prices have influenced the prices at which we can secure our longer-term agreements. This is the effect we've discussed. As a result, we have adjusted our commercial recovery goals. However, as Mikael explained, there will be an ongoing time lag effect if these material costs develop as we anticipate.

Thank you for your honest and open assessment of the current inflation situation. I would like to gain some clarity on your expectations. At the beginning of the year, you aimed for productive negotiations with customers to return to your margin targets of 10% to 11%. Since then, OEM margins have continued to grow, but suppliers are feeling the pressure from fixed price contracts. Are the OEMs expecting you to absorb some of the pain and accept lower margins in this challenging environment, or do they believe it’s feasible for you to get back to your original margin targets?

No. I can't comment on what the OEMs are planning or thinking. But I mean, in terms of pain sharing, I think it's quite visible the effects we have had here as a result of the increased prices here. And we are absolutely determined here that this needs to be passed on and that's what we're working accordingly as we have expressed here. And once again, it's not out of the specific cost that is created here and that needs to be passed on, it is inflationary pressure and that needs to go on. So that's what we're working with. And as I said, I feel comfortable in these dialogues based on that assumption.

And just to follow-up kind of thinking of this managerial kind of put it to an OEM. Clearly, I would imagine your competitors are going after the OEMs for discussions. Every other component supplier is likely to hear this earnings season is accelerating the discussion. So, just logistically, how does that get done? Is it a program-by-program negotiation? Do you have to work your way up to the CEO and get final sign-off on pricing? And just, how does the timing and how is just the sheer overload I imagine on procurement organizations that are also trying to desperately find supplies to keep their factories open. How does that affect the timing of recovery?

No. I mean those factors you mentioned, there is nothing I see, or we see. I mean, we have our relationships well established within the OEMs and we access them when we need to access them. And I would say, it's more a negotiation question about time rather than anything else. And, of course, the daily business are running in parallel there. So, it's nothing impacting there. So, no, it's a pure commercial negotiation that is taking place. And it's, of course, challenging times for everyone in the industry here, but nothing dramatic here about that in relation to anything that needs to be done.

Alright. I think that was the last question. We are out of time. Mark?

We did have one further question if you have time for it, but we have reached the top of the hour. So, completely up to you.

Sorry, there was one more question. I thought it was all out. Yes. We take one more.

Okay. And that's from the line of Itay Michaeli of Citi. Please go ahead. Your line is open.

Great. Thanks, and thanks for squeezing me in. I'll just have two quick ones, just going back on the pricing negotiations. What you're expecting in the second half of the year for recoveries? Roughly how much of it's already been secured versus still to be negotiated? And then, secondly, on the new contracts you're signing for forward programs, can you confirm you're actually getting higher pricing on your content per vehicle on those programs to kind of compensate for the higher inflationary environment.

No, we can't provide specific details on that right now. All of this is incorporated into our full year guidance, and I have to keep it that way as we are still in discussions. Additionally, the new quotes being discussed and awarded are at a more favorable level compared to the current portfolio. This is being addressed accordingly, so the bill of materials is aligned. Thank you very much. I know I speak for everyone at Autoliv in expressing our concerns for all those affected by the war in Ukraine. In this very volatile and challenging situation, we continue to monitor the development closely. Before we end today's call, I would like to say that we intend to do what is needed to get back on track to our medium-term targets. And I'm confident that Autoliv will come out of this challenging time as a stronger company. Meanwhile, Autoliv continues to focus on our vision of saving more lives, which is our most important contribution to a sustainable society. Our second quarter earnings call is scheduled for Friday, July 22, 2022. Thank you everyone for participating in today's call. We sincerely appreciate your continued interest in Autoliv. Until next time, stay safe.