Autoliv, Inc. (NYSE:ALV) Q1 2024 Earnings Call Transcript

Autoliv, Inc. (NYSE:ALV) Q1 2024 Earnings Call Transcript April 26, 2024

Autoliv, Inc. beats earnings expectations. Reported EPS is $1.58, expectations were $1.4. Autoliv, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to the Autoliv First Quarter 2024 Financial Results Conference Call. At this time all participants are in listen-only mode. After the speaker’s presentation there will be the question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to our first speaker today, Anders Trapp. Please go ahead.

Anders Trapp: 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, VP, Investment 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 rate 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 p.m. Central European Time, so please follow a limit of two questions per person. I will now hand over to our CEO, Mikael Bratt.

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 of 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 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 US$160 million in the quarter. Under the current stock repurchase program we have repurchased and cancelled 6.5 million shares for close to US$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 and stakeholder value creation. Guided by our vision of saving more lives we are driving a number of activities to take significant steps towards our climate commitment. For example, during the first quarter we successfully issued a second green bond using Autoliv’s sustainability financing framework aligned with the ICMA Green Bond Principles.

The bond drew significant interest from debt investors reflecting the strong support for Autoliv’s climate and sustainability agenda. Following Autoliv’s first partnership in 2021 with SSAB, a fossil-free steel, we are now introducing two additional collaborations for carbon-reduced steel with Arvedi and Thyssenkrupp. The aim is to reduce greenhouse gas emissions in our products by utilizing low-emission steel and increase use of recycled material. In addition to renewable electricity instruments, many Autoliv sites are increasing the use of on-site solar energy generation capacity. On this slide you can see one of the new solar parks in Utah, U.S. supporting our operation. We are partnering with BASF to introduce a new type of design for recycling PU foam for steering wheel rims.

This new type of foam will enable simplified and scalable recycling. Looking on our cost improvements on the next slide, we continue to generate broad-based improvements in key areas over the last 12 months. Our direct labor productivity continues to trend up, supported by the implementation of our strategic initiatives, including optimization and digitalization. Year-over-year, we have reduced our direct production personnel despite higher volumes. Our gross margin declined from the seasonality of a strong — from the seasonal strong fourth quarter, but put — improved but — by 170 basis points year-over-year. The improvement was mainly the result of the higher direct labor efficiency and reductions within the indirect workforce. Volume growth and customer compensation negotiated last year.

As a result of our structural efficiency initiatives, the positive trend for RD&E and SG&A in relation to sales has continued, declining by 60 basis points since Q1 2023. Combined with the gross margin improvement, this led to a substantial improvement in adjusted operating margin versus Q1 2023. Looking now on financials in more detail on the next slide, sales in the first quarter increased by 5% year-over-year despite lower light vehicle production, a negative regional light vehicle production mix and unfavorable currency translation effects. The sales increased and our cost reduction activities led to a substantial improvement in adjusted operating income, increasing by more than 50% to US$199 million from US$130 million last year. The adjusted operating margin was 7.6% in the quarter, an increase by 230 basis points for the same period last year.

Operating cash flow was US$122 million, which was US$168 million higher than in the same period last year as a result of improved working capital effect versus last year. Looking now on the structural cost savings activities on the next slide. To secure our medium- and long-term competitiveness, and to support our financial targets, we launched a cost reduction initiative in mid-last year with intent to — of reducing our indirect headcount by up to 2,000. We estimate that the annual cost reduction will amount to around $130 million when fully implemented, with around $50 million already in 2024 and around $100 million expected in 2025. For 2024, we expect to cash out approximately $85 million related to these initiatives. At the end of first quarter, our indirect headcount had declined by around 1,000 or by more than 5% since a year ago, with the majority of the decrease within production overhead, especially in best-cost countries.

We are already seeing a positive impact on direct labor productivity as a result of our initiative to reduce the direct workforce by the equivalent of up to 6,000. Looking now on our sales growth in more detail on the next slide. Our consolidated net sales increased by more than $2.6 billion, a new record for the first quarter. This was approximately $120 million higher than a year earlier, driven by price, volume and product mix, partly offset by lower light vehicle production, a negative geographical light vehicle production mix and currencies. Currency translation effects reduced sales by $12 million or by 0.5%. Looking on the regional sales split, Asia accounted for 37%, America for 34% and Europe for 29%. The lower than usual share of the total sales in Asia was a result of the lunar new year and low light vehicle production in Japan due to customers having certification issues with certain vehicle models.

We outline our organic sales growth compared to light vehicle production on the next slide. I am very pleased that our organic sales growth outperformed global light vehicle production significantly as we continue to execute on our strong order books. According to S&P Global, first quarter light vehicle production decreased by 1% year-over-year. This was more than 1 percentage points lower than expectations at the beginning of the quarter, with most of the lower than expected production coming in Japan and with global OEMs in China. We estimate that the geographical light vehicle production mix had 140 basis points negative impact on our outperformance. In the quarter, we outperformed global light vehicle production by more than 6 percentage points with strong performance, especially in the rest of Asia and in Japan.

The strong outperformance in the rest of Asia was mainly driven by India, where sales outperformed light vehicle production by 20 basis points due to higher installation rates for side airbags. In comparison, the modest outperformance in China was mainly a result of unfavorable customer mix following strong light vehicle production growth for lower safety content vehicles. On the next slide. Although we see some changes to our customers plans for model launches, especially for EV models, we expect a record number of product launches for 2024. Despite some changes to model launch plans by some customers, the trend towards electrification continues, although at a somewhat slower pace. On this slide, seven models are being made available as electrical versions.

The models shown here have an outlet content per vehicle from around US$130 to over US$400. In terms of Autoliv sales potential, the BMW 5-Series Touring launch is the most significant, followed by the Subaru Forester. The long-term trend to higher content per vehicle is supported by front center airbags on three of these models. More advanced seatbelts and pedestrian protection airbags and hood lifters. Another interesting launch is the Tata Punch.ev that illustrates the trend towards more sophisticated safety systems and higher safety content in India. I will now hand it over to our CFO, Fredrik Westin, who will talk you through the financials on the next slide.

Fredrik Westin: 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. The adjusted operating margin increased by 230 basis points to 7.6%. Non-GAAP adjustments amounted to $5 million from capacity alignments 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 to 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 US$160 million under our US$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 continued 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. Cost 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 result of our cost saving activities, the leverage excluding currency effects was — on the higher sales was substantially above our normal 20% to 30% range. Looking now on the cash flow more in detail on the next slide. For the first quarter of 2024, operating cash flow increased by $168 million to $122 million compared to the same period last year, mainly due to improved working capital effects versus last year. Capital expenditures net decreased to $140 million from $143 million last year.

In relation to sales, it was 1 — it was 5.4% this year, down from 5.7% last year. The free cash flow improved by $171 million compared to the same period the prior year, mainly due to the improved operating cash flow. The last 12 months cash conversion defined as free cash flow in relation to net income was 108%. Now looking at our trade working capital developments on the next slide. During the first quarter, trade working capital increased by $104 million, driven by $123 million lower accounts payables, partly offset by $15 million in lower inventories and by $4 million in lower receivables. The lower inventories and receivables were mainly due to lower sales than in the fourth quarter of last year. Compared to the same period last year, trade working capital decreased from 14.1% to 12.8% in relation to sales.

Our capital efficiency program aims to improve working capital by $800 million and to-date we have achieved around $500 million. Improvements in receivables and especially in inventories are lagging due to the high call of volatility and hence planning challenges that cause inefficiencies. Over the coming years, we expect the inventories to improve significantly in tandem with the reduced call of volatility. Now looking on our leverage ratio on the next slide. Our continued focus on balance sheet efficiency is supporting our strong performance for cash flow, cash conversion and return on capital employed. I am particularly pleased with our leverage ratio, which improved compared to a year ago despite investing in our footprint and returning $700 million to shareholders.

The debt leverage ratio at the end of March 2024 was 1.3 times, up 0.1 times from last quarter. Compared to the fourth quarter 2023, our net debt increased by $184 million, while the 12-month trailing adjusted EBITDA improved by $72 million. We expect that our debt leverage and positive cash flow trend will allow for continued high shareholder returns going forward. Now looking at shareholder returns over the past five years on the next slide. Over the years, Autoliv has shown its ability to generate solid cash flow in periods with varying market environments. We have used both dividend payments and share repurchases to create shareholder value. Historically, the dividend has usually represented a yield of approximately 2% to 3% in relation to the average share price.

During the last 12 months, we have returned around US$700 million to shareholders through both dividends and share buybacks, a new record for the company. Over the last five years, we have reduced the net debt significantly, while returning US$1.5 billion directly to shareholders. This includes stock repurchases and cancellation of 6.5 million shares for a total of close to US$630 million as part of the current stock repurchase program. Since we initiated the current stock repurchase program in 2022, we have reduced the number of outstanding shares by more than 7%. We consider several factors when executing the program, such as our balance sheet, the cash flow outlook, our credit rating, and the general business conditions and not only the debt leverage ratio.

We always strive to balance what is best for our shareholders, both short- and long-term. Now looking on our efficient balance sheet that supports our shareholder returns on the next slide. A strong balance sheet and good return on capital employed is fundamental for long-term shareholder value creation. Despite an operating margin impacted by the challenging market environment for the past five years, our return on capital employed have remained strong, averaging around 17%. Our capital turnover rate, meaning our sales in relation to average capital employed, has improved substantially over the past three years and is now significantly above our five-year average. With that, I hand it back to you, Mikael.

Mikael Bratt: 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. Dry trend mix developments vary by region, as certain markets face somewhat slower EV growth rates, while other areas continue 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 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 US$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.

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Q&A Session

Operator: Thank you so much. [Operator Instructions] And now we’re going to take our first question and it comes from Colin Langan from Wells Fargo. Your line is open. Please ask your question.

Colin Langan: Sure. Thanks for taking my question. 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?

Mikael Bratt: 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 two 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 negotiations 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 yeah, I think, we have good discussions with our customers on the way forward here. But of course, it is tedious work to go through.

Colin Langan: 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 back to historical norms or is there still room there to improve?

Mikael Bratt: Compared to one year ago, of course, we see improvements and we saw 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 challenges. So it varies a little bit between the customers, but in large, it’s very much the same as we had in Q4.

Colin Langan: And the 90% compares to the 98% historically?

Mikael Bratt: Yeah. Sorry. The — I mean, before the pandemic, what we judge as normal is more the 98% to 100% accuracy interval.

Colin Langan: Got it. All right. Thanks for taking my question.

Mikael Bratt: Thank you.

Operator: Thank you. Now we’re going to take our next question. Just give us a moment. And the next question comes from Mattias Holmberg from DNB Markets. Your line is open. Please ask your question.

Mattias Holmberg: Thank you, and good afternoon, good morning. I’m 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 raised guidance for the full year? Thank you.

Fredrik Westin: Yeah. Thanks for the question. Yeah. We had a bit weaker topline 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 the 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.

Mattias Holmberg: Right. Thank you. 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?

Mikael Bratt: 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 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 the rescheduling plan, but in terms of overall launch and outperformance, no impact on that or very limited.

Mattias Holmberg: Thank you. 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?

Fredrik Westin: We don’t guide raw materials on a quarterly basis, but overall, we expect raw materials to have a smaller impact for the full year. We see improvements on steel and non-ferrous metals, but that is offset on the take-back side mainly. And also, we expect to have increases on electronic components, but more or less a fairly neutral development for the full year.

Mattias Holmberg: Thank you and have a nice weekend.

Mikael Bratt: Thank you.

Fredrik Westin: Thank you.

Operator: Thank you. Now we’re going to take our next question. It comes from Dan Levy from Barclays. Your line is open. Please ask your question.

Dan Levy: Hi. Good morning. Thank you for taking the question. I just wanted to get into the pricing cadence for the year. Maybe you could just comment. I think the comment that 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?

Mikael Bratt: I mean, we had commercial recoveries also 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. And — 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 two 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.

Dan Levy: Great. Thank you. And then a second question is just on some of the outgrowth dynamics and maybe just two parts of 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 of 27%, which I think now, that basically contributed to, even though it’s a small base of sales, that’s 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?

Mikael Bratt: Very good. Thank 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 an increased focus on content and safety regulations in China and we, I am sorry, in India and we see that now it’s coming through.

And in China we have, 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 turnover — global turnover. So, quite meaningful market here and we expect that to grow and very positively viewing that opportunity.

Dan Levy: Great. Thank you.

Operator: Thank you. Now we’re going to take our next question. And the next question comes from Bjorn Enarson from Danske Bank. Your line is open. Please ask your question.

Bjorn Enarson: Thank you. On India again, can you, I mean, you have had higher market shares in your backlog for quite some time. And where are you now in market shares in India and do you still expect that, according to your backlog, to continue to grow in the next few years?

Mikael Bratt: We are really in the 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 an investment in China last couple of years where we have renewed our footprint and we have also added capacity and 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, yeah, I feel we are well positioned here to continue to grow with Indian market.

Bjorn Enarson: Capacity is there clearly.

Mikael Bratt: Yeah.

Bjorn Enarson: And then a 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’re quite agnostic to the driveline, but still, what’s your take on that?

Mikael Bratt: 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 have disappeared. It has also been more costly to invest in an EV than a regular vehicle, and of course, now it’s the overall economic pressure on household is higher, maybe you are not prepared to make that investment, et cetera. And also, I think there is some challenges in certain markets when it comes to charging capacity and availability, etc. 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 would rather see a bump on the road.

Bjorn Enarson: Okay. Thank you.

Operator: Thank you.

Mikael Bratt: Thank you.

Operator: Now, we’re going to take our next question. And the next question comes from Michael Jacks from Bank of America. Your line is open. Please ask your question.

Michael Jacks: Hi. Thank you. Good afternoon, Mikael, Fredrik. Thank you for the presentation. My first question, just 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?

Mikael Bratt: Yeah. 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% pace.

Michael Jacks: Okay.

Mikael Bratt: So, yeah, continued increase sales from Chinese OEM as they continue to take market share and grow as well here. So, well-positioned with our customers there.

Michael Jacks: Yeah. That’s quite a big step change. Thank you. And then my last question, just going back to the lack of improvements in call of accuracy in Q1, is that being driven now by volatility on EV platforms or are they still some other supply chain tensions around which you might be able to elaborate on?

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

Michael Jacks: That’s helpful color. Thank you.

Mikael Bratt: Thank you.

Fredrik Westin: Thank you.

Operator: Thank you. Now we’re going to take our next question. And the next question comes from Hampus Engellau from Handelsbanken. Your line is open. Please ask your question.

Hampus Engellau: Thank you very much. Two questions for me. The first question is on the 6 percentage point outgrowth on the Q1 numbers, if you could maybe add some little bit of flavor on how much is market share, content growth and if there’s also an element of price there? And the second question is on orders. I know we’re not going to reveal orders, but just to get a sense on your fair share of activity in Q1, even if you don’t want to comment on market share, et cetera? Thanks.

Mikael Bratt: Yeah. Thank you. No. I think, I mean, on the outperformance side, I mean, it’s the, of course, content growth that we have talked about when it comes to content per vehicle here, which is in the range of 1 percentage point 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 launch 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, that feeling that we’re booking a good way here.

Hampus Engellau: Thank you.

Operator: Thank you.

Mikael Bratt: Thank you.

Operator: Now we’re going to take our next question. And the next question comes to the line of Jairam Nathan from Daiwa Capital Markets America. Your line is open. Please ask your question.

Jairam Nathan: Hi. Thanks for the opportunity. 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 close — is above 50%. Now, does that imply that — does that mean imply that the recoveries was probably a bigger portion or your cost saving activities are kind of kicking in? So, just — so, like, how should we think of incremental margins going forward? Yeah, and I had one more question.

Fredrik Westin: Yeah. No. I think the high operating leverage was a combination of a couple of factors. I mean, of course, the organic growth is one factor, but then it is mainly the contribution here with the cost reduction we’ve done on both 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 for activity. 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 of stability from our customers when you compare it year-over-year. So, it is really the underlying operational performance that is driving the leverage.

Jairam Nathan: Okay. Thanks. And just on, when I — when you look at the region, 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 concentrated vehicles. So, have you done some analysis on how much is exports helping you in terms of content?