Autoliv (NYSE:ALV) released first-quarter financial results and hosted an earnings call on Friday. Read the complete transcript below.
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Summary
Autoliv reported a strong first quarter for 2026, with sales exceeding expectations due to strong March performance and productivity improvements.
The company's growth in Asia, particularly in China and India, was notable, with sales in India growing by 38% organically.
Despite a 4% decrease in adjusted operating income, Autoliv maintained its full-year guidance of flat organic sales and an operating margin of 10.5-11%.
Operational highlights include the introduction of the first airbag for motorcycles and a complete wearable airbag solution.
The company continues to focus on strategic cost reductions and optimization to offset raw material headwinds, estimated at $90 million.
Autoliv paid a dividend of $0.87 per share and paused buybacks but remains committed to its $2.5 billion share repurchase authorization through 2029.
Management highlighted the resilience of cash flow generation across economic cycles and maintained a positive outlook despite geopolitical uncertainties.
Full Transcript
OPERATOR
And thank you for standing by. Welcome to The Autoliv Inc. First Quarter 2026 Financial Results Conference call and webcast. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press Star one one on your telephone. You will then hear an automated message as your hand is raised to withdraw your question, please press Star one one again. Please note that today's conference is being recorded. I would now like to turn the conference over to First Speaker, VP Investor Relations. Please go ahead.
Anderstrap (VP Investor Relations)
Thank you Razia. Welcome everyone to our first quarter 2026 earnings call. On this call we have our President and Chief Executive Officer Mikael Bratt, our Chief Financial Officer Monica Gramma and I am Anderstrap, VP Investor Relations. During today's earnings call we will highlight several key points: our strong performance in a challenging market environment, our full year guidance, the potential impact of ongoing and new geopolitical challenges, an update on the latest market developments, and finally an overview of our continued strong shareholder returns. Following the presentation we will be available to answer your questions. As usual, the slides are available on autoliv.com Turning to the next slide, we have the Safe Harbor Statement which is an integrated part of this presentation and includes the Q and A that follows. During the presentation we will reference non-U.S. GAAP measures. The reconciliations of historical US GAAP to non use GAAP measures are disclosed in our quarterly earnings Release available on autoliv.com and in the 10Q that will be filed with the SEC and at the end of this presentation. Lastly, I should mention that this call is intended to conclude at 3:00pm Central European Time, so please follow a limit of two questions per person. I now hand over to our CEO Mikael Bratt.
Mikael Bratt (President and Chief Executive Officer)
Thank you Anders. Looking on the next slide, the first quarter exceeded our expectations driven by strong sales in March. Operational performance was also ahead of plan, supported by solid productivity improvements, partly reflecting reduced call off volatility. Our positive trend in Asia continued with strong growth in India, South Korea and China. In China we continued to grow faster than light vehicle production, especially with the Chinese OEMs outperforming by more than 40 percentage points. In India, we grew sales by 38% organically, reflecting mainly the trend of increased safety content in vehicles in India, but also the continued high level of light vehicle production growth. Underlying profitability improved with gross Profit increasing by 10%, although adjusted operating income was slightly lower due to temporary lower RD and E reimbursements and a one time income in Q1 last year. In the quarter we paid a dividend of US$0.87 per share representing a total payout of US$65 million. Buybacks were paused as the company was in a restricted period following multiple filings and the announcement of a new CFO. Our 2.5 billion US dollar share repurchase authorization through 2029 remains unchanged with the Ambition annual share repurchase between 300 and 500 million US dollars. Hostilities in the Persian Gulf had a limited impact this quarter and we are continuously monitoring any potential wide reaching impact on the industry. Based on what we know today, we reiterate Our full year 2026 guidance of flat organic sales. With continued significant outperformance of light vehicle production in both China and India, we continue to expect an adjusted operating margin of around 10.5 to 11%. This is based on the assumption that light vehicle production will decline by around 1% and that the gross headwind from raw materials is around US$90 million. I am also pleased that we introduced our first airbag for motorcycles as well as our first complete wearable airbag solution for motorcycle riders, building on our long term strategy of growing outside our traditional core business. Looking now on the next slide, first quarter sales increased by approximately 7% year over year driven by strong outperformance relative to light vehicle production along with favorable currency effects and tariff related compensations. The adjusted operating income for Q1 decreased by 4% to US$245 million compared to a strong first quarter last year. The adjusted operating margin was 8.9%, 1 percentage points lower than in the same quarter last year. Operating cash flow was a negative US$76 million, a decrease of US$153 million compared to last year. The lower cash flow was mainly driven by a temporary negative working capital impact from strong sales towards the end of the quarter as well as other temporary effects that are expected to reverse later in the year and the normalization of payables from year end. Looking now on the next slide, we continue to deliver broad based improvements with particularly strong progress in direct costs. Our positive direct labor productivity trend continues. This is supported by the implementation of our strategic initiatives including optimization and digitalization. Gross Profit increased by US$48 million and the gross margin improved by almost 60 basis points year over year. RD&E net cost rose year over year primarily on negative currency translation effects and lower engineering income due to timing of specific currency. Customer development project SGA costs increased by 16 million US dollars mainly due to negative currency translation effects. Higher costs for personnel and non recurring costs of US$4 million. Looking now on the market development in the first quarter on the next. According to S and P Global data from April, global light vehicle Production declined by 3.4% in the first quarter, slightly better than earlier expectations. The modestly stronger than expected outcome was mainly supported by Europe in March and rest of Asia. The decline in global light vehicle production was primarily driven by China. India contributed positively to global light vehicle production performance, benefiting from substantially lower taxes on new vehicle purchases. As an effect of the declining light vehicle production in China in the quarter, the global regional light vehicle production mix was approximately 1.5 percentage points favorable during the quarter. Volatility improved despite higher than expected call offs in March. We will talk about the market development more in detail later in the presentation. Looking now on our sales growth in more detail on the next slide, Our consolidated net sales were almost US$2.8 billion, the highest for a first quarter yet. This was around US$175 million, higher than last year, mainly driven by US$154 million, positive kerosene translation effect and US$14 million from higher tariff related compensation. Excluding currencies, our organic sales grew US$21 million or by 80 basis points including tariff cost compensation. Based on the latest light vehicle production data from S and P Global, we outperformed the market by over 4 percentage points. Globally. Our outperformance was significant in China and Restoration. In rest of Asia we outperformed the market by 7 percentage points, driven by continued strong sales growth in India where we outperformed by close to 30 percentage points. South Korea and the Asian sub region also contributed to the outperformance, partly offset by Japan. In China we outperformed overall with 15 percentage points, mainly driven by sales to Chinese OEMs that outperformed light vehicle production with over 40 percentage points. Despite light vehicle production decline in China, China increased its share of our sales to 18% versus 17% a year ago. Asia excluding China accounted for 20%, Americas for 31% and Europe for 30%. On the next slide, we will look more on our growing business in India. Autoliv is rapidly expanding its business in India, securing its market leadership. India now represents almost 6% of Autoliv's global sales, which is almost triple what it was in just three years ago. Fuelled by regulatory focus and rising consumer demand for safety. Safety content in vehicles has increased by around 20% annually for the past two years in India. Autoliv operates five manufacturing plants, a technical centre and a global support engineering center with more than six associates in total. To further strengthen our footprint, Autoliv recently opened a new inflated plant to meet growing demand for airbags from both India and other Asian markets. Autoliv's largest customers in India, including Maruti, Suzuki, Hyundai, Mahindra and Under, reflecting the company's strong position among leading vehicle manufacturers in the country. Looking now on the next slide, the first quarter of 2026 saw a relatively high number of new launches, primarily in China with both Chinese and other OEMs. These new China launches reflect strong momentum for autoliv in this important market. Higher content per vehicle is driven by front center airbags on many of these new vehicles. In terms of Autoliv's sales potential, the Nissan Voracia is the most significant in the quarter. Here you also see the Yamaha Tri City 300 commuter scooter. For rest of 2026, we expect a high number of new product launches mainly driven by Chinese OEMs, offsetting fewer launches in America and Europe. Let's continue with the next slide. Before I'm moving on, I'd like to introduce our new CFO Monika Grammer. Monika joined AutoLeave in 2009 and has been instrumental in strengthening the EMEA division during a particular challenging period for the automotive industry. I am very pleased to welcome her to the executive management team and looking forward to her continued contributions in her new role. I will now hand it over to Monika.
Monika Grammer
Thank you Michael. I will talk about the financials more in detail on the next slide. Turning to the next slide, this slide highlights our key figures for the first quarter of 2026 compared to the first quarter of 2025. Our net sales were almost 2.8 billion, representing a 7% increase. Gross profit increased by 40 million 48 million US dollar and gross margin increased by almost 60 basis points compared to the prior year. The drivers behind the gross profit improvement were mainly positive. FX translation effects improved operational efficiency with lower cost for labor and as well as positive effects from higher sales. This was partly offset by increased tariff cost. The adjusted operating income decreased from 255 million US dollar to 245 million and the adjusted operating margin decreased from 9.9% to 8.9%. The reported operating income of 237 million US dollar was 8 million lower mainly due to capacity alignment activities. The adjusted earning per share diluted decreased by 10 cents. The main drivers 9 cents from lower operating income, 4 cents from financial and non operating items, 4 cents from taxes, partly offset by 7 cents from lower number of outstanding shares diluted. Our adjusted Return on capital employed was a solid 23% and our adjusted return on equity was 24%. We paid a dividend of $0.87 per share in the quarter. Looking now on the adjusted operating income bridge on the next slide, in the first quarter of 2026 our adjusted operating income decreased by 10 million US dollar. Operations contributed 28 million positively, primarily driven by higher organic sales and the successful execution of operational improvement initiatives supported by better call off stability. Excluding the 13 million from ethics translation effects, cost for RB and E net and SGA increased by 28 million driven by lower R&D reimbursement of 9 million. Due to timing and the non recurring cost of 4 million during the quarter we recovered approximately 70% of our US tariff costs. This recovery rate was lower than last year due to delays from the implementation of the new U.S. administration's import adjustment Offset Program. We expect though most of the outstanding tariffs to be recovered later in the year. The combination of unrecovered tariffs and the dilutive effect of the recovered portion resulted in a negative impact of around 40 basis points on our operating margin in the quarter. Looking now at cash flow on the next slide, Operating cash flow for the first quarter was negative 76 million, a decrease of US$153 million year over year. This change was primarily due to a negative working effect of 349 million US dollar compared with a negative impact of 179 million in the prior year. The working capital effect was was largely driven by higher end of quarter sales which is the good reason other temporary effects that are expected to reverse later in the year and the normalization of payables from the year end 2025. Capital expenditures net for the quarter decreased by 9 million. Capital expenditures net in relation to sales was 3% versus 3.6 a year earlier. The lower level of capital expenditure net is mainly related to lower footprint optimization, less capacity expansion and timing effects. Reoperating cash flow for the quarter was negative 159 million compared to negative 16 million in the same period in the prior year due to lower operating cash flow partly offset by lower CapEx. The cash conversion for the last 12 months, defined as free operating cash flow in relation to net income was 83%, exceeding our target of at least 80%. Now looking on our cash flow and shareholder returns on the next slide, our cash flow generation has proven resilient across economic cycles as shown on this slide, we have consistently delivered positive operating and free operating cash flow through major disruptions such as the financial crisis, the COVID 19 pandemic and periods of structural change. Cash generation has strengthened in recent years, reaching record levels. This resilience reflects disciplined working capital management, a flexible cost base and limited capital intensity of our operations, supporting higher asset returns, durable long term growth and shareholder value creation. Over time we have delivered strong shareholder returns. What is not reflected in the graph is the spin off of Vioner in 2018 to shareholders which valued Vioneer at approximately 3 billion at the time. Our capital allocation strategy aims at annual share repurchase of 300 to 500 million through 2029, supported by an attractive and growing quarterly dividend. Since initiating the previous stock repurchase program in 2022, we have reduced the number of outstanding shares by almost 15%. When executing the program, we consider several factors including our balance sheet, cash flow outlook, credit rating and general business conditions as well as the debt leverage ratio. We always try to balance what is best for our shareholders in both the short and the long term. Now looking at the results of our efficient capital utilization on the next slide over the years autolit has demonstrated its ability to consistently deliver strong strong return on capital employed also in periods of challenging market environments, reflecting a disciplined capital management. The high and stable return on capital employed is further supported by scale advantages and the limited exposure to capital intensive investments such as powertrains. Returns have improved since the COVID period driven by margin expansion and tight control of working capital and capex. Now looking on our debt leverage ratio development on the next slide. Autolift balance leverage strategy reflects our prudent financial management, enabling resilience, innovation and the sustained stakeholder value over time. Our leverage ratio increased from 1.1 to 1.3 during the quarter. Our net debt increased by around 200 million in the quarter while the 12 month trailing adjusted EBITDA was virtually unchanged. On to the next slide. I will now hand it back to Mikael.
Mikael Bratt (President and Chief Executive Officer)
Thank you Monika. I will talk about the outlook for 2026 more in detail on the next few slides. Turning to the next slide, Overall S and P Global expects global light vehicle production in 2026 to decline by 2% versus 2025, a 1.5 percentage point downward revision from January. The downgrade is largely attributable to production cuts in the Middle east as well as in other regions impacted by the hostilities. European light vehicle production is expected to decline by almost 2%, driven by affordability challenges and rising imports from China. In North America, S and P forecast light vehicle production to decline by 2% in 2026 despite relatively healthy dealer inventory levels in China. Light vehicle production is expected to decline by 3% due to weaker domestic demand despite continued export strength. Japan and South Korea light vehicle production are expected to decline by 2 and 3% respectively, reflecting softer domestic demand and a more challenging export environment. India's light vehicle production is expected to increase by 6% driven by a reduction in purchase taxes on new vehicles, which disproportionately benefits smaller and lower priced models. However, heightened geopolitical uncertainty from the hostilities around the Persian Gulf adds risks to energy markets, consumer confidence and overall industry volumes. Now looking on raw materials development on the next slide, we are closely monitoring the potential industry wide impact of geopolitical developments in and around the Persian Gulf on supply chains, raw material prices and overall demand for new vehicles. The situation may lead to more challenging raw material environments and we are evaluating multiple scenarios. Based on our current assessment. We primarily purchase components rather than raw materials, which inherently reduces our direct exposure to commodity price volatility. That said, geopolitical developments in the Persian Gulf can still affect certain input categories, most notably textiles and plastics, but also indirectly aluminium, helium and steel. For materials such as nylon, resin and plastics, pricing generally follows oil prices over time. Historically, we see a lag of approximately three to six months between movements in spot oil prices and the impact on the purchase prices for the full year 2026. Our current assessment is for around 90 million US dollar gross impact from higher raw material pricing compared the previous assessment of around 30 million a quarter ago. From a mitigation standpoint, we continue to execute on productivity and cost reduction initiatives to offset these costs. Additionally, customer compensation mechanisms are in place and are expected to offset a meaningful portion of the cost impact, although there is typically a timing delay between cost increases and recovery. Now looking on the updated full year guidance on the next slide this slide shows our full year guidance which excludes effects from capacity alignment and antitrust related matters. It is based on no material changes to tariffs or trade restrictions that are in Effect as of April 10, 2026 as well as no significant changes in the macroeconomic environment or changes in customer call off volatility or significant supply chain disruption. We expect to outperform light vehicle production by around 1 percentage points as our organic sales is expected to be flat while global light vehicle production is expected to decline by 1%. The net currency translation effects on sales is expected to be around 3% positive. The guidance for adjusted operating margin is around 10.5 to 11%. Operating cash flow is expected to be around US$1.2 billion. We expect capex to be below 5% of sales our positive cash flow and strong balance sheet support, our continued commitment to to a high level of shareholder returns and we expect a tax rate of around 28%. Looking on the next slide. This concludes our formal comments for today's earnings call and we would like to open the line for questions from analysts and investors. I now hand it back to Reza.
Reza
Thank you sir. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Once again, please press star 11 to ask a question and to withdraw your question, please press star 11 again. We are now going to proceed with our first question and the questions come from the line of Tom Narayan from rbc. Please ask a question.
Tom Narayan
Hi, yes. TOM Narayan, rbc. Thanks for taking the questions and welcome. Monica. The first question I have is on the China strength and I know you called out higher penetration of domestic OEMs. I would think you also benefited from the relative outperformance of non domestics which I think come at higher margins than domestics for you guys. Yeah, just curious if that's true and then if you if your overall China penetration increase year over year boosted your margins and how sustainable that is as the year progresses. And then I have a follow up.
Mikael Bratt (President and Chief Executive Officer)
As you know we don't disclose a breakdown of our earnings profile per customer or regions or countries or anything like that. And I mean we have a total portfolio of large number of programs and that's the combined result of that that we are presenting here. But it's not a secret that we have focused on our Chinese OEMs as they are growing in their share of the total markets. Our focus here is to have a market share of around 45% of the global light vehicle production and that's what we are happy to report that we continue to build on that strategy here and it served us well in the quarter here. And of course we are working hard to improve our earnings profile across the board here in the under.
Tom Narayan
Okay. And for my follow up it sounds like the tariff policy is as of April 10th in your guidance. I know April 6th there was the rule change on the metals side as it relates to that Section 232 rule change. I was just wondering is the current USMCA exemption that you enjoy, is that still the case? And then this only applies I think on the metal side where I guess the OEMS have that MSRP offset. Is that your understanding that it doesn't
Mikael Bratt (President and Chief Executive Officer)
meaningfully impact, I think in general when it Comes to the tariffs, I think it's a lot of moving pieces there. But I think for us as automotive here, it's to large degree unchanged. So I mean for us it's mainly the USMCA structure that is, is relevant and there we have no changes at this point. So that is what we're looking at. The rule changes that you saw lately here, it's a minor part of our total exposure and not meaningful in this context. But of course we follow that as well here. But for us it's all about the usmca. I would say that's the key thing here.
Tom Narayan
And no changes to hide. Understood. Thank you. I'll turn it over.
Mikael Bratt (President and Chief Executive Officer)
Thank you.
Reza
We are now going to proceed with our next question. And the questions come from the line of Colleen Langan from Wells Fargo. Please ask a question.
Colleen Langan (Equity Analyst at Wells Fargo)
Oh great. Thanks for taking my questions. One, just trying to clarify, maybe I misunderstood. So S and P is down 2, but your guide is down 1. Any is based on down production. 01. Is that just a mix issue or is that just why not in line with S and P? And then just a lot of people are worried about. If you read even the S and P comments, if the strait doesn't open, there's more downside. Can you just remind us on the decrementals if production actually continues to trend downward?
Mikael Bratt (President and Chief Executive Officer)
I think as you saw, when we gave our full year guidance in connection with the Q4 earnings release, we had minus 1 and S&P had minus 1.0.5. So at that point we were, you know, it was more cautious. I think what we have seen now and the change that came yesterday is within the, let's say the margin of error here in, in this very, I would say volatile environment here. And of course we are fully aware of what's going on in, in the, in the, in the Straits, in, around the Persian Gulf as we mentioned in the presentation here. But at this point we have no indications, no signals, nothing that indicates something else than what we, we have in, in our outlook here. And I think it can definitely, you know, also change to the better here. I think there's a lot of different scenarios you can play up here and I think we, we feel comfortable with our outlook here.
Colleen Langan (Equity Analyst at Wells Fargo)
Sorry. And if, if it gets worse, what are the decrementals that we should.
Mikael Bratt (President and Chief Executive Officer)
Yeah, of course, I mean as I said, we follow this and, and are ready to take any measurements that is necess. If we will see a dramatic change to this outlook, we are of course ready to make necessary adjustments and I think we have proven that in the past that we have a high degree of flexibility in our system and a strong team here to execute on those changes. So I think it's all about staying close to the development as we always do here.
Colleen Langan (Equity Analyst at Wells Fargo)
Okay, and then just to follow up on, can you get any color on the drivers of the increase in raw material cost and also any risk of shortfalls? Particularly I heard some concerns around nylon, that some of the butadiene plants are apparently on short supply and that's an input into nylon. Is there any concern that we actually can't get supply of some of the raw materials like nylon? And are there alternatives to swapping if there are shortages?
Mikael Bratt (President and Chief Executive Officer)
No, I think, I mean to your first question there was the main drivers here. It's really the oil price that is the main driver for us at this point in time as it goes into many different types of products. And that's what we're following, that is what causing the higher estimate that we have here now 90 million instead of the 30 we had in the beginning of the year. But with that said, we are definitely here focusing on making sure that that becomes lower than what we have said here to manage the situation here. So we'll see. And we have offset activities which I explained before when it comes to the availability, we don't really see at this point any main concerns around that. I think we, we of course have our supply chain team on high alert here and they're working actively to secure supply. So I would say so far so good. But of course we realize here that if you will have real shortages of oil etc here we have of course different activities around that. So I feel that we have that under control. Just back to your question there on the sensitivity here. If we have, you know, a drop in demand outside our own expectations here at this point in time. I just wanted to remind you here about our normal, you know, decrementals we normally reference to which is between 20 and 30% leverage if we have a drop in dramatic drop in sales sale going forward. So I just wanted to mention that related to that question.
Colleen Langan (Equity Analyst at Wells Fargo)
Got it. Very helpful. All right, thanks for taking my questions.
Mikael Bratt (President and Chief Executive Officer)
Thank you.
Reza
We are now going to proceed with our next question. And the questions come from the line of Matthias Holmberg from DNB Carnegie. Please ask a question.
Matthias Holmberg (Equity Analyst at DNB Carnegie)
Thank you. I'm interested in the outperformance given that you have a 4% here in Q1 and still guide for just 1% for the full year. Am I off by thinking that you are aiming is perhaps not the right term but you see no outperformance for the balance of the year or what are the moving parts and what would sort of result in this lost momentum? Is it the pull forward from the strength you saw in March that is going to reverse or. I'm just trying to understand the dynamics here, please.
Mikael Bratt (President and Chief Executive Officer)
No, I think, I mean it's of course when we give the full year guidance here you take into consideration also the mix development throughout the year. And I mean some quarters it's in a little bit in your favor and some it's in the reverse. And what we indicated here in the first quarter we had a positive mix effect of roughly one and a half percentage point here. And yeah, we still believe that with the development for the year here that we have for different regions, that's to the best of our knowledge that we should end up where we have indicated here.
Matthias Holmberg (Equity Analyst at DNB Carnegie)
And a quick follow up on the raw materials with the 90 million gross headwind, is it roughly evenly phased, you think over the next three quarters or is there any quarter in particular that will be more severely impacted? And also have you made any assumptions on what the net impact will be after mitigations sort of embedded in your margin guidance?
Mikael Bratt (President and Chief Executive Officer)
No, I think it's. I mean the net effect is included in our guidance here. So what we're saying here is that the gross exposure we have here should be mitigated either by price increases and internal, let's say self help through other activities here. But minorities price increases here and it fits within the guidance and when it comes to the sequential development here, I don't know Monica, if there is anything you would like to add there. But still we're not guiding per quarter as you know.
Matthias Holmberg (Equity Analyst at DNB Carnegie)
Maybe then just a clarification. Do you assume full recovery of those 90 gross?
Mikael Bratt (President and Chief Executive Officer)
As I said, we will have a minority through the price mechanisms that we have and the rest should be upset by internal activities to a large extent as possible. So once again the net effect is included in our full year guidance. So I have no more granular numbers to give you around that than that.
Matthias Holmberg (Equity Analyst at DNB Carnegie)
That's great.
Mikael Bratt (President and Chief Executive Officer)
Thank you.
Reza
Thank you.
Hampers And Jello
We are now going to proceed with our next question. The questions come from the line of hampers and jello from Handers Banken, please ask a question. Thank you very much. Two questions from me. First one is on customer call ups. If I heard your IIT said that customer call ups were more stable during the quarter, I'm just thinking is this some one off here or should we expect this trend to continue moving into second Quarter. I'll take the question one by one, sir. Okay, thank you, Abbas.
Mikael Bratt (President and Chief Executive Officer)
No, I think, I mean, as we said here, the call off stability was around 95%, which is what it was during last year at the good times. We had some deterioration towards the end of Q4 where we saw some customers pulling the brakes on to reduce inventory at the year end. And then it normalized again in the beginning of the quarter here. And of course with the increase sales in March here, that also helps to stabilize the situation when you have a little bit of a, let's say, upward trend there. And we still believe that it should continue to improve under normal circumstances. I think it all depends now on what happens with the supply chains. If we have a positive scenario, meaning that we come to some kind of resolutions here around the Middle east situation and the value chains are connected to that or not because it's the disturbances in the value chain here that creates a lot of the volatility, I would say at this point in time. But long term it's definitely expectations that it should continue to improve. And with the two weeks into the first quarter, I would say it's still holds and we have a stable situation here. And yeah, we will of course follow it close here. So far so good.
Hampers And Jello
Fair enough. And maybe if I'm looking, when you came out of Q4, one of the main takes was that or much lower new product model launches, especially on the EU side, I guess partly also in Europe, but and it seems like China has had more new model launches than you may be expected. And given the short lead times we have between a new model and launching a new model in China, can you maybe add some flavor on that one or are you surprised about that? And we also hear Volkswagen is clearly stepping up on the Bev side, talking about one new model each second week for the remainder of this year for next year. So if you could maybe share some light on that.
Mikael Bratt (President and Chief Executive Officer)
Yeah, no, I think, I mean, I wouldn't say that we have any surprises when it comes to new launches because I mean, they are something that you need to be, of course, well prepared and tuned and everything else ready for. So I think we have a very good visibility of that. In general then we know during last year that we had not connected to China, but connected to the global situation here. A lot of, you know, reshuffling in terms of launches of new platforms, especially around EVs in the US and Europe here that changed, but that doesn't really impact the short term, I would say here and not in China. So I think. No, long story short, no, no. No real surprises around that.
Hampers And Jello
I was more maybe referring to the timing in the launch that maybe it was put earlier. I'm sure. You know what, you're. Not.
Mikael Bratt (President and Chief Executive Officer)
Not really. No. No, no. So it's ok.
Reza
We are now going to proceed with our next question. And the questions come from the line of Emmanuel Roessner from Wolff Research. Please ask your question.
Emmanuel Roessner (Equity Analyst at Wolff Research)
Great. Thank you so much. My first question is around the OPS performance versus the industry which was solid in the first quarter. But I wanted to follow up a little bit about what you're assuming for the rest of the year because it would be basically some, some sort of deceleration versus this Q1 performance. And you flagged the mix was 1.5 point positive in Q1. What are you expecting for mix on the full year over the rest of the year and what would be the drivers of sort of like limited or minimal growth of the market compared to what we've seen in Q1?
Mikael Bratt (President and Chief Executive Officer)
Thank you. No, as I said before here, I mean the mix in each quarter has of course a meaningful impact on it. And this first quarter we had 1.5 percentage points coming from positive mix. When we look at the full year here and basically we have guided them for a 1% outperformance considering flat organic and negative 1% light vehicle production. It's based on a neutral mix compared to 2025. So we have no tailwind or headwind coming from mix in that assumption. And that's of course the best estimate we have. Now then you don't know the mix for 100% until you have gone through here. But we still believe that that's the most likely scenario with what we see here on light vehicle production per region, etc. Looking ahead,
Emmanuel Roessner (Equity Analyst at Wolff Research)
okay, and then with a lot of moving pieces around, romats and tariffs, et cetera, I was hoping you could just refresh for us the main drivers of margin expansion for this year. So if we're thinking about 2025 as a starting point and then your retreated margin guidance for 2026, what are some of the big buckets of margin improvement now? Basically mark to market with this similar sort of like limited organic growth.
Monika Grammer
So I will start with the negatives that you could already observe in our messages. We have a negative impact from raw material and from inflationary impact on SGNA and R&D that we more than plan to offset with operations and raw material mitigations. Now we are tapping in again in structural cost savings and our known resilience in challenging times. We are going to tap in as well into customer compensations to partly offset or to meaningfully offset the raw material headwinds that we mentioned. And in addition to that, we benefit of positive FX impact across the board that was already visible to some extent in our Q1 results.
Mikael Bratt (President and Chief Executive Officer)
Okay, so, but you're obviously planning for a decent amount of margin expansion. So you mentioned headwinds that would be largely offset and then a bit of fx. What are some of the main positives? The main positive is really around the structural cost savings that is coming through and it is in the operational productivity efforts here where we talk about optimization, digitalization, etc. To drive efficiency through the value chain so that it continues to be very much the same drivers, you could say, for our modern expansion as we go ahead. And as Monica mentioned here, we have short term here expectations on some headwinds around raw materials which we are planning to offset on also through price compensation and additional cost reductions there and then
Emmanuel Roessner (Equity Analyst at Wolff Research)
also some positives on the fx. Understood, thank you.
Reza
We are now going to proceed with our next question. And the questions come from Valena Jose Asumendi, from JP Morgan. Please ask a question.
Valena Jose Asumendi (Equity Analyst at JP Morgan)
Thank you. Hi Mikael, welcome. Monica, couple of questions please. Mikael, can you comment on Chinese OEMs both in China and Europe and how you could be benefiting in the coming quarters from the product launches? And can you help us a bit more on which customers should we be keeping an eye on in terms of the acceleration in China Q2 to Q4 or on a one year view? And also when it comes to Europe, can you share a bit more how you can benefit also from the what we see, right, Chinese OEMs taking double digit market share in the European market. How is that also going to benefit the utilization of your plants? Question two please, for Monica. If you can comment a bit on working capital and working capital assumptions for the remaining of the year.
Mikael Bratt (President and Chief Executive Officer)
Thank you. Very good, thank you. Maybe I start on the sales side and then Monika takes the working capital there. So as you know, we work broadly with the Chinese OEMs and I would say we are on all the different platforms OEMs that you see exporting out of China in different shapes and forms. There is two exceptions which have their own captive solution and that's SAIC and BYD. But BYD still very important customer for us which we are working with. So when you look at the development of Chinese OEMs, I would say we are present in a broad base there. And I think the outperformance numbers in the quarter here speaks for itself where we had, you know, 40 percentage points outperformance with the Chinese OEMs. I think that's really, really strong and a good number there. And when we see them coming to Europe they are normally, I would say, very high level of CPV in those vehicles. And yeah, it mirrors the position we have in China there. I would say we have seen not so much local production yet of the Chinese OEMs. But what I can say, and I think we said also in the connection with the Q4 that we won the first tender that was issued in Europe by Chinese OEMs OEM. So I would say that we are very happy about that and proud that we were able to meet the OEM's expectations here in Europe. So I think we are in a good position to utilize our European footprint here as well for, for our Chinese customers before we move into working capital. Just a quick one. The last time you met Fabian and Singh, we discussed the new R and D center in Wuhan. Is that R and D center, Are you getting incremental order backlog from that new R and D center or is that yet to come in your business? No, I think it helps us to strengthen our presence in China and our closeness to our customers. I mean over the years for a long period our strategy has been to have our D and E centers near our customers and work closely with them early on in the different projects. And this is a step in order to continue to strengthen our presence in China with our customers here by offering better footprint for our for our customers here through the second tech center. So I think it's a part of the overall strategy and focus we have
Monika Grammer
and continuing then with the working capital. We mentioned that cash flow in Q1 was negatively impacted by 349 million increase in operating working capital mainly due to temporary impacts, the increase in the receivable, other one timers that have as well temporary effects and then the payables that are more normalized compared to the year end. Our full year cash flow expectations are unchanged with the operating cash flow expected at around 1.2 billion and capex below 5%. That implies our expectations that we are normalizing the working capital assumptions and we are continuing to execute on our working capital improvement program. There are still some actions outstanding that will deliver results through the year.
Reza
We are now going to proceed with our next question and the questions come from the land of Jayaram Nathan from Davaar Capital Markets. Please ask your question.
Jayaram Nathan (Equity Analyst at Davaar Capital Markets)
Hi, thanks for taking my question here. So just going Back to your long term revenue CAGR of 4 to 6%. The the 1 to 2% that was coming from new markets. I know you talked about it being not in the short term but with the motorcycle introduction, product introduction. If you could just talk about what does that do to. Does that change the expectation here?
Mikael Bratt (President and Chief Executive Officer)
No, it doesn't really change the expectation. I would say this is part of the expectations of to speak that we have stated here that the 4 to 6% under as a 1 to 2 LVP1.2 content and the 1 to 2 coming from mobility safety solutions should come through towards the end of this period here which we mean 2030 before it becomes meaningful. And of course there is a gradual buildup and we have also talked about that before that MSS is contributing gradually here but it's when you get further out there and this is the first step in the bag on bike product offering and then also the wearables. So this is more I would say a data point that what we have talked about to build the last 1 to 2% of the 46 really is on its way. That's the way you should read it. And it doesn't really change the expectations beyond that.
Monika Grammer
Thank you. And my follow up is for Monica just as you can kind of take a fresh look at shareholder returns. Your initial thoughts on share buyback 3 to 500 million given net debt to EBITDA target being below the 1.59%. I think maybe on the buyback as we stated here. I mean we are committed to our program. We are also indicating here it should be between 3 to 500 year by year and that's like a guidance then of course we take into consideration the balance sheet. We take into consideration, okay, are we heading into more positive territory when it comes to overall business cycle or not etc. So I mean we have plenty of room in our program that was launched last year here and yeah, we are on our way here. So we take all those pieces into consideration.
Mikael Bratt (President and Chief Executive Officer)
We remain committed.
Jayaram Nathan (Equity Analyst at Davaar Capital Markets)
Thank you.
Reza
That's all I had.
Pion Innerson (Equity Analyst at Danske Bank)
We are now going to take one last question and our last questions come from the line of Pion Innerson from Danske Bank. Please ask your question. Thank you. Try to be quick. But you base your guidance on unchanged regional mix. I guess it sounds fair. I would most likely have done it myself. But I mean your regional mix last year, I mean Q1, Q2 you talked about a significant negative regional mix and in Q3, Q4 I believe it was 1 to 200 basis point negative as well. Is that a fair assumption on the comps kind of that we are talking about when you said that your mix is going to be unchanged for the year?
Mikael Bratt (President and Chief Executive Officer)
Yeah, yeah. No, I think, I mean as you rightly said here, I mean we had some headwind last year. We are not expecting that to be reversed this year here. And of course it's much connected to the overall business sentiment that are around the world here. So we're not considering any changes to that. So that's right assumption.
Pion Innerson (Equity Analyst at Danske Bank)
And then secondly on, I mean you talked a lot about the guidance versus S&P MVP, but most of the revisions were linked to Middle east and connected countries. What is your exposure to that region? I mean if you compare it to
Mikael Bratt (President and Chief Executive Officer)
other regions, I would say it's very limited. I mean first of all, the region altogether is minor part of the, if you look at the light vehicle production obviously and I would say the indirect also is, let's say manageable at this point here. So not that big.
Pion Innerson (Equity Analyst at Danske Bank)
Thank you. Thank you very much.
Reza
So this concludes the question and answer session. I will now hand back to Mr. Mikael Brad for closing remarks.
Mikael Bratt (President and Chief Executive Officer)
Thank you, Raza. Before we conclude today's call, I would like to reiterate my confidence in our strong market position and our growth momentum in Asia, particularly in China and India, which position us well for continued success. At the same time, we remain mindful of the heightened macroeconomic and geopolitical uncertainties. Despite these uncertainties, our proven ability to strengthen profitability even in a low growth environment provides a solid foundation for delivering attractive shareholder returns and a clear path towards achieving our 12% adjusted operating margin in target. Our second quarter call is scheduled for Friday, July 17, 2026. Thank you for your attention. Until next time, stay safe.
OPERATOR
This concludes today's conference call. Thank you all for participating. You may now disconnect your lines.
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