Autoliv (NYSE:ALV) Q2 2026 Earnings Call

0:00 Welcome everyone to our second quarter twenty twenty six earnings call. On this call, we have our President and Chief Executive Officer, Viker Brat our Chief Financial Officer, Monica Gramma and me, Anderschacht, VP Investor Relations. During today's earnings call, we will highlight several key areas, including our strong performance despite the challenging market environment. We will provide an update on our structural cost reduction initiatives in EMEA, an update on the latest market development and our full year guidance and the potential impact of ongoing geopolitical challenges. Following the presentation, we will be available to answer your questions. As usual, the slides are available on autoliv.com.

0:48 Turning to the next slide. We have the safe harbor statement, which is an integrated part of this presentation and includes the Q and A that follows. During the presentation, we will reference non use gap measures. The reconciliations of historical use gaps to non use gap measures are disclosed in our quarterly earnings release available on autoliv.com and in the 10 Q that will be filed with the SEC and also at the end of this presentation. Lastly, I should mention that this call is intended to conclude at 3PM Central European Time. So please follow the limit of two questions per person. I now hand it over to our CEO, Mikael Drag. Thank you, Anders. Looking on the next slide.

1:35 We delivered a record second quarter, both for sales and adjusted operating income, underscoring the resilience of our company and the strength of our market position. Supported by strong customer partnerships and a relentless focus on continuous improvement, We have built a solid momentum for the rest of the year. During the quarter, we also navigated geopolitical developments effectively, mitigating the impact of tariffs, supply chain disruptions and raw material cost volatility. And as you might have seen in the report and will hear from us during this call, we have several positive and negative one time items in the quarter.

2:23 This includes a supplier settlement reversion from Q3 twenty twenty five, an IEPA refund, government income in India, an impairment charge related to restructuring activities in Turkey, and a reverse expected credit loss reserve. Combined, these items have virtually no impact on the adjusted operating margin and only a slight negative impact on the top line. Our positive sales momentum in Asia continued during the quarter. In China, we once again outperformed light vehicle production, driven by strong growth with Chinese OEMs, where our sales outperformed by more than 40 percentage points.

3:16 In India, we grew sales by 36% organically, reflecting mainly the trend of increased safety content in vehicles in India. Adjusted operating income and margin improvement improved despite raw material headwinds, particularly higher helium prices. The strong performance was primarily driven by higher sales and well executed activities to improve efficiency and costs. I am pleased that our cash flow improved in line with our expectations, resulting in record operating cash flow for the second quarter and supporting our ambitious shareholder return strategy.

4:05 Despite repurchasing over 1,600,000 shares for US200 million dollars and paying a dividend of US64 million dollars our leverage ratio improved to 1.2 times. During the quarter, we announced additional structural cost initiatives, which we will elaborate on in the next slide. Based on what we know today, we reiterate our full year 2026 guidance of flat organic sales with continued significant outperformance of light vehicle production in both China and India. We continue to expect an adjusted operating margin of around 10.5% to 11%.

4:57 This is based on the assumption that global light vehicle production will decline by around 2.5%, and that the gross headwind from raw materials is around $110,000,000 I'm also proud that we signed strategic cooperation agreements with leading Chinese vehicle manufacturers, Great Wall Motor and Chopin. These agreements mark important milestones in our strategy to expand with leading Chinese vehicle manufacturers and further demonstrate the competitiveness of our safety solutions. They strengthen our position as a trusted safety partner and create a strong platform for sustainable long term growth, both in China and globally, as they expand their footprint.

5:55 Looking now on our continued cost reduction activities on the next slide. To strengthen our competitiveness and support our financial targets, we are continuing our global structural cost reduction initiatives. As a part of this effort, we have decided to gradually discontinue our manufacturing operations in Turkey, which today produce steering wheels, airbags, and seat belts. Production will be transferred to our existing facilities across EMEA region, allowing us to optimize our manufacturing footprint while maintaining our ability to serve customers efficiently.

6:42 This decision is expected to affect approximately 2,200 employees. The transition will take place over the coming years, with the complete closure anticipated during the first half of twenty twenty. From a financial perspective, we expect total restructuring charges of approximately $142,000,000 of which $90,000,000 was recognized in the second quarter of twenty twenty six. Cash out is expected to be approximately $129,000,000 with a limited impact on our 2026 cash flow. Importantly, this initiative is expected to generate annually pretax savings of approximately US40 million dollars with benefits beginning to materialize in 2027 and reaching the full run rate in 2028.

7:48 Overall, this action is an important step in improving our cost competitiveness and is supporting us in achieving our financial targets. Looking now on the next slide. Second quarter sales increased by approximately 3% year over year, driven by outperformance relative to light vehicle production along with favorable currency effects, partly offset by lower tariff related compensations. The adjusted operating income for Q2 increased by 7% to US270 million dollars The adjusted operating margin was 9.6, 30 basis points higher.

8:43 Operating cash flow was a strong US434 million dollars an increase of US157 million dollars Looking on to the next slide. We continue to deliver broad based improvements. Our positive direct labor productivity trend continues. This is supported by the implementation of our strategic initiatives, including automation and digitalization. Gross profit increased by $8,000,000 while the gross margin decreased by 30 basis points, mainly due to the reversal of a supplier settlement.

9:33 The decline in gross margin from eight 18.5% to 18.2% driven by a supplier compensation reversal and asset impairment related to the Turkey restructuring, which combined reduces gross margin by almost 80 basis points. RD and E net increased year over year primarily on negative currency translation effects, higher personnel costs and lower engineering income due to timing of specific customer development projects. SG and A decreased by US7 million dollars mainly due to reverse estimate of credit loss reserves, partly offset by negative FX translation effects.

10:30 In relation to sales, SG and A improved by 40 basis points to 4.9%. Looking now on the market development in the second quarter on the next slide. According to S and P Global's July data, global light vehicle production declined by 0.3% in the second quarter, approximately 160 basis points better than expected in April. Stronger than expected performance in North And South America, Europe, India, and South Korea helped offset softer production levels in China. The global regional LVP mix was approximately 60 basis points unfavorable in the quarter, primarily driven by stronger light vehicle production in lower content markets relative to other markets.

11:34 During the quarter, volatility improved year over year, but declined slightly sequentially, driven by weaker development in China. We will talk about the market development more in detail later in the presentation. Looking now on our sales growth in more detail on the next slide. Our consolidated quarterly net sales exceeded $2,800,000,000 the second time in our history. This was approximately US90 million dollars higher than in the prior year, primarily driven by positive currency translation effects of US62 million dollars This benefit was partly offset by approximately US5 million dollars of lower tariff related compensation, mainly due to an IEPA related refund of $9,600,000 during the quarter.

12:43 Excluding currencies, our organic sales grew $27,000,000 or by 1%, including negative tariff cost compensation. Based on the latest light vehicle production data from S and P Global, we outperformed the market by over one percentage point globally. Our outperformance was significant in Asia. In Asia, including China, we outperformed the market by six percentage points, driven by continued strong sales growth in India, where we outperformed by around 20 percentage points. Japan and South Korea also contributed to the outperformance.

13:32 In China, we delivered outperformance of more than seven percentage points, supported by strong sales growth with Chinese OEMs, whose production grew over 40 percentage points faster than light vehicle production. As a result, the Chinese OEMs accounted for 55% of our sales in China in the quarter compared to 40% last year. The negative performance in The Americas can partly be attributed to lower tariff compensation following the AEPA refund as well as an unfavorable mix driven by strong live vehicle production growth in lower content South American market.

14:21 Globally, Shari, Suzuki, Nio were the largest drivers of sales growth during the quarter. Despite the light vehicle production decline in China, China accounted for 90% of sales. Asia, excluding China, also accounted for 19%. Americas was 32%, and EMEA was 30%. Looking now on the next slide. The second quarter of twenty twenty six saw a high number of new launches, primarily in China, with both Chinese and other OEMs. These new China launches reflect strong momentum for Autoliv in this important market.

15:11 Higher CPV is driven by front center airbags on many of these new vehicles. In terms of Autoliv's sales potential, the NEO ES9 is the most significant in the quarter. For rest of 2026, we expect a high number of new product launches, mainly driven by Chinese OEMs, offsetting fewer launches in Americas and Europe. Let's continue with the next slide. I will now hand over to Monica. Thank you, Michal. I will talk about the financials more in detail on the next few slides. Turning to the next slide. This slide highlights our key figures for the second quarter of twenty twenty six compared to the same quarter of 2025.

16:06 Our net sales were $2,800,000,000 representing a three percent increase. Gross profit increased by $8,000,000 and gross margin decreased by 30 basis points. The drivers behind the gross profit improvement were mainly positive FX effects and lower cost for materials. This was partly offset by $13,000,000 in costs for a supplier compensation reversal and $9,000,000 in asset impairments related to the restructuring facility. The adjusted operating income increased from $251,000,000 to $270,000,000 and the adjusted operating margin increased from 9.3% to 9.6%. The reported operating income of $192,000,000 was $78,000,000 lower than the adjusted operating income, mainly due to higher capacity alignment activities.

17:05 The adjusted earnings per share diluted increased by $0.23 to $2.43 The main drivers were $0.18 from higher operating income, dollars $1.00 from lower number of outstanding shares diluted, partly offset by $07 from higher taxes. Our adjusted return on capital employed and adjusted return on equity were solid 2528%, respectively. We repurchased shares of 200,000,000 and paid a dividend of $0.87 per share. Looking now on the adjusted operating income bridge on the next slide.

17:52 In the second quarter of twenty twenty six, our adjusted operating income increased by $18,000,000 Operations contributed $61,000,000 primarily driven by higher organic sales and cost reductions supported by better OLO stability. This was partly offset by $15,000,000 in costs for a supplier compensation reversal. Excluding $6,000,000 of FX translation effects and the supplier compensation reversal, RD and E net and SG and A increased by $6,000,000 partly driven by $5,000,000 lower RD and E reimbursement. During the quarter, we recovered approximately 83% of our U. S. Tariff costs, excluding IEPA related recoveries, bringing our year to date recovery rate to 78%.

18:47 The combination of unrecovered tariffs and the dilutive effect of the recovered portion was around 20 basis points negative. However, compared to last year, it was a positive impact of around 15 basis points, as the negative effect of last year was around 35 basis points. Looking now at cash flow on the next slide. Operating cash flow for the second quarter was $434,000,000 an increase of 157,000,000 This change was primarily driven by a positive working capital impact of $240,000,000 The working capital contribution reflects a normalization following the first quarter increase, which was largely driven by the high sales level in March 2026 and several adverse one time impacts.

19:43 The improvement was primarily attributable to changes in accounts payable of 120,000,000 net receivables of $35,000,000 and accrued severance and restructuring costs of $48,000,000 Free operating cash flow improved by $177,000,000 to $340,000,000 Year to date operating cash flow increased by $4,000,000 to $359,000,000 and free operating cash flow improved by $31,000,000 to $178,000,000 compared to the prior year. Capital expenditures net for the quarter decreased by $19,000,000 Capital expenditures net in relation to sales was 3.4% versus 4.2% a year earlier.

20:33 The lower level of capital expenditures net is mainly related to lower footprint optimization and less capacity expansion. The cash conversion for the last twelve months was 119%, exceeding our target of at least 80%. Now looking on our debt leverage on the next slide. Autoliv's balanced leverage strategy reflects our prudent financial management, enabling resilience, innovation, and sustained stakeholder value over time. Our leverage ratio improved from 1.3 to 1.2 times during the quarter, despite shareholder returns totaling $264,000,000 Our net debt decreased by around $75,000,000 in the quarter, while the 12 trailing adjusted EBITDA increased by $33,000,000 On to the next slide.

21:32 I will now hand it back to Mikael. Thank you, Monica. I will talk about the outlook for 2026 more in detail on the next few slides. Turning to the next slide. Overall, S and P Global expects global light vehicle production to decline by 2.3% in 2026, representing an almost two percentage point downward revision from its general forecast. The downgrade is primarily driven by lower production expectations in China and Middle East, while many other markets continue to demonstrate notable demand resilience. In Europe, light vehicle production is expected to decline by nearly 1%, reflecting on growing affordability challenges and increasing competition from Chinese imports.

22:29 For North America, S and P Global has revised its outlook upward and now expects production to decline by only 1% in 2026. The market continues to display resilience despite uncertainty related to the conflict in The Middle East and the higher fuel prices. S and P Global has lowered its outlook for China light vehicle production by four percentage points since January and now expects a 5% decline in 2026. The weaker outlook reflects the challenging demand environment, driven by reduced government incentives, ongoing macroeconomic headwinds, and increasingly cautious consumer sentiment despite continued strength in the vehicle export.

23:24 S and P Global has revised its light vehicle production outlook upward for both Japan and South Korea and now expects production to decline by only 12%, respectively. The improved outlook reflects strengthening exports to The US and Europe, supported by robust demand for fuel efficient hybrid electric vehicles. India's light vehicle production is expected to increase by 9%, driven by a reduction in purchase taxes on new vehicles, which benefits smaller and lower priced models. However, escalating geopolitical tension in the Persian Gulf continues to increase risks across the automotive value chain with potential implications for energy prices, consumer sentiment, supply chain stability, raw material availability, and overall industry volumes.

24:27 Now looking on the second half year development on the next slide. As we look ahead to the second half of the year, we remain focused on managing a dynamic external environment. We are closely monitoring the potential impact of geopolitical development in and around the Persian Gulf, which could affect supply chains, raw material costs, and overall vehicle demand. Our 2026 guidance currently assumes a gross raw material headwind of approximately 110,000,000 US dollars, and we continue to evaluate multiple scenarios as the situation evolves.

25:15 Despite these challenges, we expect margin expansion to be supported by FX, engineering income, and customer compensations. For the third quarter, we expect the adjusted operating margin to be similar to the first half year level. Importantly, customer compensation, engineering income and other mitigation initiatives are expected to be weighted towards the fourth quarter, resulting in a significant step up in profitability in the fourth quarter. Therefore, the earnings trajectory in 2026 is expected to be similar to that of 2023 and 2024, reflecting both the timing of anticipated compensations and the typical seasonal ramp up in profitability and operating leverage.

26:13 Now looking on the updated full year guidance on the next slide. This slide shows our full year guidance, which excludes effects from capacity alignment and antitrust related matters. It is based on no material changes to tariffs or trade restrictions that are in effect as of 07/09/2026, as well as no significant changes in the macroeconomic environment or changes in customer call of volatility or significant supply chain disruptions. We expect to outperform light vehicle production by around 2.5 percentage points, as our organic sales is expected to be flat, while global light vehicle production is expected to decline by 2.5%.

27:13 The net currency translation effects on sales is expected to be around 2.5% positive. The guidance for adjusted operating margin is around 10.5% to 11%. Operating cash flow is expected to be around $1,200,000,000 and we expect CapEx to be below 5% of sales. Our positive cash flow and strong balance sheet supports our continued commitment to a high level of shareholder returns. We expect a tax rate of around 30%. Looking on to 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 our operator, Sandra.

28:11 Thank you. We will now take the first question from the line of Colin Flanagan from Wells Fargo. Please go ahead. Great. Thanks for taking my questions. If I look at your comments about the cadence of margins, I think you had previously said it'd be more linear. Now it sounds I think the math is something like you need a 15% margin in Q4 to kind of get to the midpoint of your full year guidance. What changed and how maybe we should think about raw material costs? I think year to date you had $26,000,000 Is that a similar number in Q3?

29:03 And is all of that recovered in Q4? And is that why we have the is that a big driver of the Q4 spike is the recovery of all that raw material in Q4? Thank you. Good question there. I mean, as said, I mean, when we started this year, our expectation was that we could see more of a, let's say, normal traditional sequence of how the quarter played out in the year. And now we're talking about the more back end loaded. And the reason and why it's more back end loaded is because we see the inflationary pressure here in the value chain as a result of the Persian gold. So I think what have changed is really that upward pressure on on the on the on on the cost side. And for us, as you know, we don't buy raw materials directly, so it's through our supply chain. And we have a timeline there, but we also have, I should say, a diluting effect of of the hype of it as well. But we need to get that through and then enter into the negotiations with our customers here on the price adjustments.

30:20 So the way of working is very similar to what we saw, if you call it, during the inflationary years than 2324, as we reported here. So that is really the change compared to when we talked about the 2024. And let me just say that also that, I mean, I feel very comfortable in how this sector look like because, I mean, first of all, we have done it before. Secondly, we are very focused around the different activities to secure the the the outcome here, meaning that it's a combination, of course, of our internal work here to drive efficiency and and cost improvement in general. And here, we also, as we we stated in the report, have a good momentum on on in what we do there, and and that's why we feel, say, comfortable here to retain and then maintain the full year guidance.

31:20 And then in in combination then with with the with price discussions where you have the lead time with our customers and also here, I would say we have well established routines also to to to manage that. So, yeah, I mean, we we have clear activities here to do, and I have confidence in our ability to work on that. And we should expect almost 100% of the raw materials recovered, just to clarify, or is there still some exposure not for the year because of timing? No. I mean, it's it's a combination of, let's call it, self help then, meaning that we we need, of course, to do our bit here with making sure that we don't let through everything in in from our suppliers here. So we're working with our suppliers to make sure that we are as efficient as possible in this environment there.

32:13 And then we have also cost out activities internally in the company. And then the third leg is then the price adjustments with our customers here. So, as you know, the price negotiations with the customers is also very detailed. It's not the general percentage adjustment. It is really down to the component level here to see how the different components have been impacted by customers. So hence the lead time also. But there are several levers to work with how to offset the inflation. Got it. And just last question. You lowered production from one to down 2.5.

33:00 What is the offset? Is that better growth over market? And where are you seeing that sort of better than expected growth that's offsetting the production weakness? Is that maybe a geographic mix help? Or No. I think, I mean, what we see is, of course, is that we have a a positive mix with how the market is developing, And we also have good growth with our Chinese customers here in India, it's also contributing here. So I think we are in the right places here to capture the growth that actually is up there. Got it. All right. Thanks for taking my questions. Thank you. Thank you. We will now take the next question from the line of Emmanuel Rosner from Wolfe.

33:47 Please go ahead. Great. Thank you so much. One follow-up on the cadence, please. Are you expecting just to be clear, are you expecting most of the mitigating impact from the recoveries and from your own self help to happen in the fourth quarter? I'm just trying to understand the delta between what you're saying for Q3 margins and then what's maybe consensus expectations were that's probably like $35,000,000 delta. Like just curious if are these unmitigated headwinds in Q3 and then you get it all back in Q4? No, I mean, the minorities in Q4, I think that's how you should read it. Mean, of course, we are managing part of it in the third quarter, but as a natural progression also, if you look at engineering income, it's mainly in the fourth quarter rather than in the third quarter. So I think that's quite So it's really engineering income, it is also the higher customer compensation that we talk about here for the inflation, and I think also if you look at the sales progression, it's also for remainder of the year, also geared towards the the the fourth quarter. So that that's that's really the reason for for that.

35:16 Understood. And then can you give us a little bit more color around the AEPA refunds dynamics? I wasn't able to follow exactly to what extent it helps your EBIT in the quarter and what you expect on a full year basis? So right now in the quarter, we got back around $12,000,000 from the government, which we largely passed on to our customers, around 9,000,000. So we retain a positive impact of 3,000,000 in the net result. And mentioned previously, our aim is to recover the tariff or the net impact of the tariff on year to date to a large extent on year to go, and to reach a similar recovery rate that we had in the prior year, which was around 5%.

36:19 Thank you very much. Thank you. Thank you. We will now take the next question from the line of Tom Narayan from RBC. Please go ahead. Yes. Hi. Thanks for taking the question. I have a follow-up to Colin's question on the growth over market. I remember at Investor Day in Sweden, we heard a lot of the story about how we're going to see good growth over market coming from increasing content per vehicle, especially from emerging markets. You are calling for 2.5% growth of a market this year. I know there are some offsets, right? Notably, Americas in this past quarter was down 5%.

37:04 So I just wanted to understand that a little bit more. I know in the report, there was a call out of South America, which had, I guess, lower content per vehicle and then on replacement vehicles. But does this mean that the growth in South America were happening in vehicles with no safety content? It's just I just want to understand why it would be down 5%. I know that's versus a very strong market level in South America, but, you know, if you have any safety content, I would think it would be up. I just want to understand that better, and then I will follow-up. Yeah. I mean, it me me start to recap here. And because, I mean, when we talk about the growth and the Capital Markets Day you mentioned here, I mean, it was really three significant buckets we talked about. One was LVP, 1% to 2%. It was then the content at one to 2%. So I mean, if you imagine a flat LVP, you had a content growth there of one to 2% on top of that. And what we're talking about now here is really that we see a market that is is down with two and a half percent LVP portion of it. And then, of course, we have mixed effects here connected, of course, to the content very much. And what we talk about here is when South America is growing and The US, if we stay in a hurricane,

38:35 so to speak, to simplify a little bit, which is the high content is flat or even will go down. Of course, you have even if you have growth in South America content, it's not enough to offset what's going down in the high content markets. So there, of course, you'll get a negative mix effect on the content side. So long story short, we definitely see that the content growth is there, and we see also how, you know, both, let's call it, the low content markets are growing the content as well as the high content over time here. And when we talk about India, India specifically is very much so that it's a content driven growth that we see. I mean, last two years, the content have grown sequentially with twenty percent two years in a row.

39:34 So a strong growth there. So what we try to convey there at Capital Markets Day definitely still holds there. But unfortunately, you have a mix effect here that is not moving in the full potential there. Okay, understood. And then my follow-up, I guess, what was, I guess, the rationale to move production from Turkey to EMEA? Was it cost saves coming from a plant maybe that wasn't as automated? Was labor? I guess what was driving that decision? Thanks. No, I think, I mean, we constantly review our global footprint.

40:20 And here we talk about EMEA, where we have over the last couple of years taken significant steps to you know, consolidate our activities and and optimize them as we move forward. And that's something we we have done and we continue to do going forward also to make sure that we have the most competitive setup, and we saw here now that with the opportunity to continue to consolidate the capacity into other sites in Europe, we have have a strong business case to do so, and and we have seen the numbers, and we have the numbers here. And that's, of course, a a tough decision to take and painful for our colleagues in Turkey that have done a great job over the years, but we need, of course, to make sure that we maintain our competitiveness. So we're moving some to our Tunisian operations that is it has been a growing plant over the last couple of years here, and we're also moving into to other sites in in Europe and Romania. So it's to continue to sharpen our our our position here.

41:41 Thank you. Thank you. We will now take the next question from the line of Winnie Dong from Deutsche Bank. Please go ahead. Hi, thanks so much for taking my question. I just wanted to follow-up on your production assumption for the full year a little bit more. So now you're assuming 2.5% decline. Previously you were at 1%. I think lately IHS actually improved ALV a little bit. So I just wanted to understand if there's a mixed situation that's going on and if you can help us triangulate what you're seeing, and if you're just truing up to what the market is trending towards.

42:32 Thank you. Yeah, thank you for your question. I think, I mean, SMP now is at minus 2.3. We are at 2.5, and I would say that's about the the same level. It's more than difference here. And and, I mean, the big move you could say here is that we have seen a more weakening deeper weakening in China than expected here. To some extent, also the Middle East, but Middle East is still a a very small part of the total picture here. It's, I think, less than 2% when you when you talk about Middle East Africa here. So so, I mean, it's really about the weaker weaker in in China, domestic sales and the domestic operations.

43:23 That is the change since we talked about that. Okay. Gotcha. Thanks. That's helpful. And you do have very good momentum happening in China. And I know it's kind of difficult to delineate the strength between domestic, which is seeing a lot of weakness right now, but export is actually very, very strong. But is there like a general framework on how we can think about how much the exports is actually contributing to your outgrowth in China? I think it's I mean, it's not really I mean, for us, we it's all domestic, you could say, that we're delivering in there because we don't have separate value chains or separate setups if it's an export vehicle or it's a domestic. So we don't really see that split from our perspective. So for us, it's all domestic sales to domestic plants.

44:24 But, I mean, you're absolutely correct here that the production level is holding up better than what the sales domestic sales to the end consumer would indicate. So so our China operation is definitely supported by by by the exports here. And, yeah, I I think we will see going forward here. But when we talk about the the adjustments we mentioned here to the minus 2.5, it's the net effect of that, of course. Gotcha. Thank you so much. Thank you. Thank you. We will now take the next question from the line of Hampus Engelau of Muhandelsbanken.

45:10 Please go ahead. Thank you very much. One question for me, it's relegating to the Turkey production closure, but also going back to your capacity line and programs in Europe, I'm sorry exactly updated, but that initially was about 8,000 people and this is additional 2,200 people. I'm just trying to understand where you are now in terms of the headcount and where you see demand trending. Is this a part of the automization program that you have been running since 2019 or is it also that you need less capacity or have had too much capacity? It would be interesting to hear your thoughts on these different parameters. Thank you. Thank you, Anders.

46:00 I think, as I alluded to before, I mean, it's a constant review of how to optimise your production facilities. It's not like we had an overcapacity necessary in Turkey, but we had an overcapacity in the whole system here where we saw opportunities to consolidate even further. And I mean, you're correct in the way to say that, you know, the optimization definitely contributes to our opportunity to put more into the existing plants somewhere else. And when you drive the optimization, you can also, you know, create the flexibility we have talked about before, and we can also see that with an efficient, automized and flexible setup, you need less square meter to produce the same amount.

46:59 When you harvest that, so to speak, you come to these kind of decisions every now and then, where you're actually looking at the complete site and by then consolidating it in. So it's a way of harvesting the continuous improvement or or the also the the step changes that we've seen as a result of new technologies. Alright. Thank you. Thank you, Al. Thank you. We will now take the next question from the line of Itay Michaeli from TD Cowen. Please go ahead. Great. Thank you, everybody. Just two follow ups for me. Just first, back to the margin guidance, just given the updated cadence for the year, is there any bias at this point towards the lower half or upper half of your full year margin range?

47:52 No. As you see here, we haven't expressed an upper or lower end or any more precision than what we have here, which is within the range of around 10.5 to 11. And I think I mean, if you ask me, which I think you do, why we are not more precise here, it is really that that we see with everything going on here that there is difficult to be more precise than than what we are with the interval here. And I think the interval here reflects the the the the volatility in the markets, so to say, and and uncertainty when it comes to the market in whole and also this inflation pressure here, if a long term thing or if it's more of a short term thing.

48:47 So but with what we see right now, this is the best judgment we can do now that we should be within that range. That's helpful. Thank you. And as a quick follow-up, can you maybe comment on order intake trends in the quarter, if you've seen any improvement there? And maybe how just like order intake the last couple of years just maybe impacts how we should think about your growth over market in Americas and Europe, say, over the next twelve to twenty four months? Yeah. I mean, we don't disclose any details around the current order intake. More than I can say that I feel comfortable that we have activities in that area that support, depending our market share here, which is around 45%, as we have said before.

49:39 I would say, as always, you start out the year where you have a lot of indications that it will be at a certain level, and then as the year plays out, some things are, you know, then being pushed out to the next year, meaning that the the the OEMs decide to delay the decision and so on. And in this circumstances that we have right now with a lot of, you know, questions around, you know, the sentiment in the market, the driveline issues and so on that we saw taking place maybe a year, year and a half ago and some reshuffling in the model programs took place. I would say, to some extent, that is partly going on, but it it is a reasonable activity level year when it comes to to tenders that are out there.

50:32 And so all in all, I think we are in good shape here to defend our market share, and I would say also activity level wise, it's it's a decent year from a from a OEM perspective in terms of activities. Great. That's very helpful. Thank you. Thank you. Thank you. We will now take the next question from the line of Anieszka Vilela from Nordea. Please go ahead. Thank you. And hi, Michael, Monica, Anders. I have two questions. With your growth of the Chinese OEMs, I mean, you have been very successful increasing your sales towards them, and you announced also the new cooperation with Xbank and Great Wall.

51:19 Overall, do you expect that the growing China mix in your sales will have neutral, positive, or negative impact on your group content per vehicle and on your profitability? As you know, the profitability part, I can't go into any details here. And and as Anoma say, it's more more pro platform program by a platform program than anything else. But in terms of our growth opportunities here, I definitely see this is a very important and and great opportunity to secure our future growth here. As you've seen here, I mean, we have grown from, you know, 22% of our China sales in '22 to 55% of our China sales now in Q2, at the same time as the China OEMs have taken their share of their light vehicle production from roughly 43% in 2022 to 72% now in the second quarter of this year. So the combination here of us increasing with them, as well as they increasing their share of Atlantic International contributes very positively opposed to the growth, but also to securing our position in China here as the market leader and also with the opportunities that maybe in the future here also when the Chinese OEMs are moving out their footprint

52:51 to support low more locally integrated in the different regions. But right now, you could say it's mainly an export driven activity here, which also support us, of course, here in this. And in in the quarter here, four out of the eight fastest growing customers are Chinese OEMs. So it's very helpful, absolutely, and important. And I think also Understand. Yes. Coming back to to the the agreements you referred to here, it's, of course, also very interesting opportunities for us also when it comes to driving innovation here because many of these customers are very innovative in terms of their expectations on the future interiors and, I would say, more advanced products to to solve more challenging seating positions, etcetera. So very interesting from a innovation point of view as well.

53:52 Perfect. Thank you for the color. And and the second question coming back to growth. Looking at your performance in h one, you outperformed the market by two percentage point. But just looking at what you guide for the full year, it looks like this outperformance has accelerated to three percentage points. Can you just give us any kind of reasons why and drivers behind this acceleration in outperformance and growth? Yes. I think FX is one part of it as well. And I think we have also talked to hear about before a slightly positive effect coming from the mix here. Because before we talked about more of a flat, a neutral regional mix for '26, and now we're looking at, you know, let's say, basis points contribution coming from that as well. And then, of course, also you have some some compensation activities here with our customers contributing slightly as well.

55:00 Thank you. Thank you. Thank you. We will now take our final question from the line of Dan Levy from Barclays. Please go ahead. Hi. Good afternoon to you. Thank you for taking the question. Wanted to go back to the question or the point of recovery payments. Can you maybe just put this in context of how the recovery payments that you're getting or that you're planning to get on raw materials, how that's at all related to the other recovery payments you'd have on other inflationary measures, whether the two are linked? And with automakers, you've had a very good track record in the past of getting recoveries, but with automakers, especially in North America, tighter on pricing, is that at all playing any role in the types of conversations you're having, the magnitude of recoveries?

56:00 Yeah. I I wouldn't say that there is any difference in the dialogues today compared to what it was, you know, in '25, '24, '23. It is never easy. It has never been. But once again, I think here, when it comes to, you know, the different buckets you're referring to here, I mean tariffs is fairly straightforward, I would say, because that's something you have to pay when you cross the border and it's very easily connected to to the value flows you have towards the customer. But now with the two three two, I mean, we because we are mainly talking about the tariffs between Mexico and The US here. With the two three two, it will, you know, be almost automized to a large extent when that is fully in effect.

56:46 Engineering income is also something we talk about here as a part of the second half. That that's also something that is, you know, part of ordinary course of business that that we have been for years, so there's nothing strange there. And when it comes to the inflation compensation here, we we see then the combination here of, of course, that we need to do our part here together with our suppliers and our internal efficiency and then come come to the customer. So it's it's a mix of of the three here. And once again, it's a very detailed description down to the the component level, and also here we are all hands on deck and and establish routines there. So so I would almost call it business as usual, but but maybe that's to describe a little bit too too too simple. But we have a good way to to deal with that part as well. And we are progressing as we speak here, and no change either improved or deteriorated in terms of ability to do it.

57:55 Thank you. And as a follow-up, I wanted to ask about the strategic cooperation framework you signed with Great Wall and Xiaopong. Could you just help us understand if you're aiming to set up additional agreements with other automakers? And to what extent does this position you well as you start to look at potential sourcing opportunities for these automakers in Europe? Does that position you for the front as they start to, you know, give out awards? No. Of course, it's something that we constantly work with together with our customers, and we have had this type of agreements in the past also with others, which we also have communicated not that long ago.

58:46 So they are important, and I would say, connected very much also to, first of all, the innovation opportunities here, because it really means that we get very close to our customers here by working well in advance with new joint challenges here. So as I said before, here, this needs different seating positions that is not traditional, but may come when you see autonomous vehicle increase eventually over time. But already today, comfort is a key factor for many OEMs, meaning that you should be able to sit more relaxed, lean back more than what the current setups allow you to do.

59:35 So we call it the zero gravity seat. I think we have spoken about that here also in a few time. It's an opportunity to that. But before the route you go, you you could say, with ambitions that some of the OEMs have here in terms of creating new interesting vehicles here, you have to have more challenging solutions at the end of the day, which drives also content, I would say, and it puts us up to be in the forefront on developing this new type of technologies that is needed in the future. So very, very interesting and great opportunity to support our customers in a good way. Great. Thank you.

1:00:20 Thank you. Thank you. All the time we have for questions today. I would now like to turn the conference back to Mikael Brad for closing remarks. Thank you, Sandra. Let's look on the next slide here. Before we conclude today's call, I would like to highlight our new innovation center in Vorvora, Sweden, which was inaugurated in June and represents an important investment in our future growth and technology By bringing research, testing, prototyping and pilot production together in one location, the centre will help accelerate innovation and shorten development cycles. The centre also expands collaboration with industry, academia and society, creating a strong platform for future innovation.

1:01:10 We believe these investments will support long term growth, enhance our competitive position and help us save even more lives in the years ahead. Finally, the third quarter call is scheduled for Friday, 10/23/2026. Thank you for your attention, and until next time, stay safe.