Autoliv Inc (ALV) 2016 Q3 法說會逐字稿

Good day and welcome to the quarter three 2016 Autoliv, Inc. earnings conference call. Today's conference will last for one hour and is being recorded. At this time, I would like to turn the conference over to Mr. Jonsson. Please go ahead.

Thank you very much, Lisa and welcome, everyone, to our third-quarter 2016 earnings presentation. Here, in Stockholm, we have our Chairman, President and CEO, Jan Carlson; our Chief Financial Officer, Mats Backman; our new Head of Investor Relations, Anders Trapp; and myself, Thomas Jonsson, Group Vice President of Corporate Communications.

During today's earnings call, our CEO will provide a brief overview of our overall Company performance, as well as an update on general business conditions, while our CFO will provide further commentary around the financial results and outlook. At the end of the presentation, we will remain available to respond to questions and as usual, the slide deck is available through a link on the homepage of our corporate website.

That said, we will limit the call to one hour, including the Q&A and if we now turn the page, we have the Safe Harbor statement, which is an integrated part of this presentation and includes the Q&A that follows. During the presentation, we will reference some non-US GAAP measures. The reconciliations of historical non-US GAAP measures to US GAAP are disclosed in our quarterly press release and the 10-Q that will be filed with the SEC. With that, I will now turn the word over to our CEO, Jan Carlson.

Thank you, Thomas. By turning the page, I would, first of all, like to thank the entire Autoliv team for your continued dedication to quality and operational excellence. Our organic sales growth for the quarter was around 6%; was in line with our guidance, while our total sales increased by close to 13%, including acquisitions. Our adjusted operating margin of 8.1% was better than expected mainly due to positive net currency effect. This, along with a better-than-expected tax rate, resulted in an adjusted earnings per share of $1.63, which is close to a 7% year-over-year increase.

We also continued to deliver a strong adjusted return on capital employed of 18% and return on equity of 14% and returned $51 million to shareholders during the quarter through dividends. We are pleased to have signed a letter of intent to form a 50/50 joint venture with Volvo Cars to develop automated driving software towards autonomous driving.

And lastly, during the quarter, our net sales growth in the Electronics segment was 45% for the quarter, which included a 12% net sale increase for Active Safety. Looking further into our Active Safety business by turning the page, we are now entering into a period of lower organic sales growth in our Active Safety business, as we have been communicating for some time. During the second half of this year, our Active Safety organic sales growth is negatively impacted by the phaseout of our incumbent Brake Control business and a faster-than-expected decline in take rates on certain GPS modules.

In addition to these factors, the timing of certain radar programs phasing out with new program launches and the effect of lower order intake in the past will negatively affect our Active Safety growth in the near term. Based on the development of our Active Safety order book and the delay of certain future launches, which have been sourced over the last year, we now expect to achieve our Active Safety end-of-decade target slightly later than previously communicated.

As with any growth business, from time to time, we will see sales growth fluctuations as you saw before when we exceeded our $500 million sales target one year earlier than 2014. We are confident that we have the right product portfolio, leadership and are making the right strategic decisions for the long term.

Looking now to our Passive Safety business on the next page, our strong order intake in Passive Safety has continued now for almost two years. The ramp-up of new projects within our Passive Safety segment has continued. This is illustrated by the 60% growth in the new engineering projects initiated year-to-date through the third quarter versus the same period last year. I'm pleased that we are well on track with our hiring plan to manage this situation and have already onboarded roughly one-third of the 1,000 engineers we expect to hire by the middle of next year.

Despite this increase of engineering resources, we believe that we can contain the RD&E net within the range of 6.5% to 7% of sales in 2016 and into 2017. As we mentioned on our last earnings call, due to this continued positive development in Passive Safety, we are increasingly more confident that we will surpass our end-of-decade group sales target of $12 billion. In summary, it is our combination of Active and Passive Safety and focus on real-life safety which gives us a unique position to continue to be the market leader in automotive safety.

Looking now upon the next slide, we have our delivery figures for the third quarter. We had another strong quarter where we grew in line with our faster than -- the LVP in most product areas. China accounted for virtually 100% of the light vehicle production volume increase during the quarter.

Although we have strong overall growth in China, as we have said for some time, we are underrepresented on some vehicle segments with certain local Chinese OEMs. Advanced seatbelt, side airbags and electronic control units continue to show strong growth. In addition, volumes within Active Safety sensors and Brake Control products increased despite the earlier-than-expected factors mentioned here today earlier. Overall, this performance illustrates that our investments for growth continue to pay off.

Looking now into our model mix on the next slide, we have highlighted for you some of the key models that contributed to our strong organic growth during the third quarter. These models contributed significantly to our overall organic sales growth and on an annualized basis, these nine models represent around 10% of our group sales. Once again, our electronics products are on all of these models except the Prius and the Tipo.

Turning the page, we have our update on China. During the third quarter, the light vehicle production in China increased by 24% year-over-year. This strong growth is mainly due to the low production levels in quarter three last year and the continuation of the strong market growth since fourth quarter last year. Year-to-date, we have seen the light vehicle production and light vehicle sales increase of around 11% and 13% respectively. This has resulted in an overall light vehicle inventory improvement during the quarter. We will continue to monitor the situation closely as the light vehicle production in China will likely remain volatile and difficult to forecast as it is unclear to what extent the incentives could be extended beyond 2016.

Our sales in China were a new third-quarter record due to our strong growth. Our organic sales growth year-to-date in China of around 15% is roughly 4 percentage points more than the light vehicle production. And lastly, the China NCAP update is expected by mid-year 2017 with a planned implementation commencing roughly one year later. We expect this initiative will drive an increase in safety content [since the content the vehicle] in China today is roughly half of the developed market.

Looking now onto the macro market conditions on the next page. The most recent IHS figures indicate an increase of light vehicle production of around 1% year-over-year for the fourth quarter mainly driven by several regions, including Europe, the Americas and India. In quarter four, the light vehicle production in China is expected to decline by around 2% from the exceptionally high annual run rate of almost 28 million vehicles last year.

Japan and rest of Asia show a slight year-over-year light vehicle production decline of around 1% in the fourth quarter and in Americas, both for South America and North America, the light vehicle production is expected to increase by around 1% in fourth quarter. However, the US light vehicle inventory of 65 days is one of the highest ever for a September while the US SAAR on a last 12-month basis remains flat.

In Europe, the overall light vehicle production is expected to continue its recovery. However, for quarter four, the light vehicle production is expected to only increase by around 1%. According to the latest IHS figures for full-year 2016, global light vehicle production is now expected to grow by 2.7% year-over-year, or by roughly 2.3 million vehicles. This level is 50 basis points lower than expected back in January and now includes a 7% growth rate in China and 2% in both North America and Europe as compared to 6%, 4% and 2% respectively expected at the beginning of the year.

I will now turn it over to our CFO, Mats Backman, for the financials and update to our outlook for the remainder of this year. Mats, go ahead.

Thank you, Jan. Looking now on our next slide, we have our key figures for the third quarter where our consolidated net sales increased by close to 13%. Strong organic sales growth in Europe and China along with acquisitions resulted in a record sales of $2.5 billion for the third quarter. Our record gross profit for the third quarter is mainly due to higher sales, lower commodities costs, favorable currency impact and acquisitions. Our adjusted EPS of $1.63 was 7% better than the same quarter last year. Despite the investment for vertical integration, inflated replacement capacity and acquisitions, our adjusted return on capital employed and return on equity remains at a strong level.

Looking now at our operating margin development on the next slide. Our adjusted operating margin of 8.1% was about 60 bps better than our guidance. Looking on the chart to the left, our adjusted operating margin improvement versus guidance was mainly due to favorable net currency effects. Compared to prior year, as illustrated by the chart on the right, our adjusted operating margin was about 130 basis points lower than last year. The benefit from organic sales growth, commodity costs and currencies were more than offset by higher investments in RD&E to support our future growth and other [nets], which primarily includes launch cost investment for growth, including vertical integration and the impact from acquisitions.

Looking out to the next slide, our operating cash flow of $271 million driven by improved profitability and working capital was one of our best ever for a third quarter. Excluding any discrete items, our full-year 2016 operating cash flow is now estimated to be more than $800 million. CapEx of 4.8% of sales for Q3 remains lower than expected and that is mainly due to timing of expenditures. As we mentioned last quarter, we expect full-year 2016 CapEx to be in the range of 5% to 6% of sales. This is partly due to increasing our inflator capacity to supply additional inflators during 2017 and 2018.

During the quarter, our capacity alignment activities included a cost of $3 million and a cash outlay of $12 million. For full-year 2016, we now expect our capacity alignment activity costs to be around 30 bps and a cash outlay of around $85 million with an estimated cost savings of around $30 million. Commodity cost savings during the third quarter was around $7 million and is now estimated to be about $33 million for the full-year 2016.

Looking now to our segment reporting on the next slide where we have summarized our segments' reporting for the third quarter. In Passive Safety, organic sales growth of roughly 6% was primarily driven by strong growth in China, Europe and India, in particular with airbags and high value-added seatbelts. Consequently, consolidated net sales in Passive Safety increased by $100 million to $1.9 billion. In Passive Safety, the 10% operating margin is higher than previous year mainly as a result of lower capacity alignment costs during the quarter. In Electronics, our organic sales growth of 8% was primarily driven by recent model launches in Passive Electronics and Active Safety. Including the acquisition sales benefit of about $140 million from ANBS, our strong growth resulted in consolidated net sales of about $600 million for the Electronics segment.

As we mentioned earlier, our lower growth in Active Safety is expected to continue for some time as we adapt to the timing of new programs. The operating margin of close to 1% for the Electronics segment was affected by costs related to the formation of the ANBS joint venture.

Looking now to our guidance on the next slide where we have our guidance for the fourth quarter based primarily on customer call-offs. Our organic sales are expected to be relatively flat year-on-year mainly due to the negative working days effect from the first quarter of 2016. Excluding this effect, underlying organic sales growth is around 5% due to strong growth in Europe, Japan and rest of Asia.

In addition, the ANBS acquisition is expected to add about 6% year-on-year sales growth to the quarter. Sequentially, our consolidated sales are expected to increase by about 8% mainly due to the normal seasonal effect. As a result, we expect to achieve an adjusted operating margin of more than 9% for the fourth quarter. Year-on-year, the benefit from underlying organic sales and currencies are more than offset by higher RD&E and costs related to the rampup of capacity and new technologies for growth and that is along with the impact from acquisitions. Sequentially, the adjusted operating margin increase is mainly due to the higher sales effect.

Looking now up on our full-year 2016 on the next slide. Our full-year 2016 guidance remains unchanged from July. Our organic sales growth is expected to be around 7% and that's roughly 2.5 times better than the latest LVP according to IHS. This strong growth is primarily driven by all major regions and Active Safety. Our adjusted operating margin is expected to be more than 8.5%. Year-on-year, the positive margin effect from organic sales, commodity costs and currencies are more than offset by the higher RD&E investment and costs related to the rampup of capacity and new technologies for growth and also the impact from acquisition.

On the next slide, we have summarized our outlook, which excludes costs for capacity alignment and antitrust-related matters and assumes mid-October exchange rate. Our consolidated sales growth for the fourth quarter is expected to be more than 5% mainly due to our acquisitions, which are slightly offset by negative currency effect. For the full-year 2016 guidance, our consolidated sales is expected to grow by more than 10% and that is mainly due to strong organic sales growth and acquisitions, which are slightly offset by negative currency effects.

Based on these sales assumptions, as mentioned earlier, we expect an adjusted operating margin of more than 9% for the fourth quarter and more than 8.5% for the full-year 2016. Excluding any discrete items, we now expect a tax rate of about 28% for full-year 2016 and about 29% for the fourth-quarter 2016. Assuming our present currency mix and exchange rates, we believe the positive transaction effect, excluding the revaluation effects, will be more than offset the unfavorable translation effect on EPS for full-year 2016. To summarize, these estimates indicate strong growth with an operating margin in the upper half of our long-term range.

Turning to the next page, I will turn back to Jan before the Q&A.

Thank you, Mats. We are overall pleased with our strong growth and execution year-to-date and we are excited about the opportunities in front of us providing long-term sales growth and margin improvements.

This now concludes our formal part of this -- today's call. We would now like to open it up for questions and I turn the call back to you, Lisa, please.

Thank you. (Operator Instructions). Chris McNally, Evercore.

Thanks so much for taking the question. I guess maybe we could start on the Active Safety revision to your outlook. You mentioned two things there, potentially some rampdown of business and maybe some lower order rates. The calculation we have is that maybe going forward the Active Safety would grow at around 10% CAGR for the next four years through 2020. Maybe just a little bit of color what's driving the revision.

As we wrote a little bit in the release, it's driven by a number of components actually and that is among them some later start of production than originally anticipated. We have seen a strong growth on our sensor suite and we have experienced good order intake, but some of the programs have a later start of production than originally expected.

As it is with the business in startup phases, but in general also some business has not actually come our way, in fact and there is also another component here and that is the phasing of transitions from older contracting to newer contracts where there is a transition shift that is affecting the sales growth here for us that is also contributing to these factors. Then I think these overall combined leads to a delay of our longer-term target of more than $1 billion, as we said in the Capital Markets Day.

Okay, great. And if we can just drill down into the different parts of Active Safety. Are you able to give a little bit more color what percentage of your Active Safety is some of the faster-growing bits such as autonomous emergency braking as opposed to you mentioned GPS, which is ramping down?

Well, what we said here is that the ramping down is some of our GPS modules here and we are experiencing lower take rates and that is coming basically now earlier than expected and that's affecting the lower take rate, or lower organic growth in the third quarter. We are also seeing the Brake Control products phasing out of the ones that we internally developed before we joined the joint venture with Nissin Kogyo. So that is something that is also affecting us. Overall, we are seeing a good customer interest on our new sensor suite and seeing a good attention to the core product.

If you look to the order win rate that we have seen, you can say that in general we have experienced, we believe, from the market that we can see, around a 20% win rate, or roughly around a 20% win rate overall over the last 12 months.

Okay. Great. And then if I could just ask one more because I'm sure this will be asked a couple times on the call, the R&D outlook, the 6.5% to 7%, how should we think about that maybe for 2017 and 2018? Do you need to pick up the R&D to make investments in some of these fast-growing areas like Active Safety?

We have said that the current level of 6.5% to 7% would continue into 2017. We haven't gone beyond that for now. We will come back to that later stage. But we should look on that level into 2017.

Okay. Thank you.

Thank you. Just a reminder that we intend to keep these calls for one hour now and just to give as many people as possible a chance to ask a question, just a reminder to limit it to one question. Thank you very much.

Brian Johnson, Barclays.

Good morning. This is actually Steven Hempel on for Brian Johnson. Just wanted to drill down a little bit further on the recent announcement with Volvo in terms of autonomous driving. How do you guys frame the addressable market for that joint venture? I'm not sure if that's a 2020 or 2025 timeframe. How should we be thinking about that market? And then also I would assume this is more so for Level 2/3, ADAS revenues will still be flowing through to Autoliv and it's more so Level 4, Level 5 going to the new autonomous joint venture with Volvo, or how should we think about the split of call it engineering resources and technologies between Autoliv internal versus the new JV?

If you look to the market types, we believe this is a fast-growing market; the more the industry is moving towards autonomous drive. So I don't have any specific numbers or market size to give you as of today, but we believe it's a fast-growing market, as more and more car manufacturers are looking to introduce autonomous drive of some level into their vehicles.

To your second question around how the revenue flow is going to be, the company we are forming, the 50/50 joint venture, has two customers. It has Volvo as one customer and Autoliv as the other customer. So whether it is the first release that we expect to come in terms of ADAS-related product in 2019, it will all flow through Autoliv. So the joint venture will develop based on the combined resources and competence, and Autoliv will sell the result out of the joint venture to all customers but Volvo. And then, in 2021, we expect to have the higher level, Level 4 and upwards Level 5 type of software ready towards autonomous drive. So that is the second target that we announced also here earlier this fall.

Okay. And then just to follow up on the Active Safety organic sales growth target now pushed out a year. I guess this goes back to the strategy change back in 2014 and I believe roughly you are talking about call it an 18 to 24-month timeframe between contract win and launch. So it sounds like that's obviously basically 2, 2.5 years later and we are starting to see the impacts of that now. Should we expect that to further decelerate over the next two, three, four quarters and then start to pick up, or is it really going to flatten out here at this type of a level and then begin to accelerate into 2017 or 2018 and beyond?

We haven't given any color to that one. We have said we would enter into a lower-growth period for quite some time. We were a little bit surprised by the level of order intake now being in the high-single digit rate for the third quarter at this moment due to the faster than expected ramp down of take rate. Sorry -- did I say order intake? Growth. So I think that's one thing for the quarter on the Active Safety sales growth.

When it comes to the future into 2017 and 2018 and so forth, we haven't given any broader color to it, but it will go into a lower level of growth now for some time and we have, as we have said here, indicated a delay of the longer-term target with up to one year.

Okay. Just one quick one, in terms of the internally-developed Monovision AEB product, I believe that was expected to roll out in 2017, is that still on target?

That is still on target.

Good. Okay. Thanks for taking our question.

David Lim, Wells Fargo.

Good morning, everyone. Forgive me if I'm being upfront with you. On this lower order intake earlier due to change in division strategy, can you dimensionalize for us how your order wins have been on your vision algorithm? Are you getting what you consider your share, or is that falling behind your expectation?

I think we are seeing a good order intake, as we have commented, on our vision algorithm, on our new sensor suite, since we were able to communicate and talk openly about it after the E-Class launch. We have been able to demonstrate part of it already before the launch, but on a different level, of course, as it wasn't out and into production. So I think we are relatively happy with what we are seeing in terms of the order win take rate. And as I said over the last 12 months here, we have expected to see 20% coming our way.

Of course, as it is with everything in a business, you don't win everything, of course, with it, but the customer interest for our technology based on our algorithm is very high and it's very appreciated. And therefore, the change of the strategy is now affecting us and you see that in these growth numbers that we have been talking about coming down from the beyond 30% level. And that is due to that we changed our strategy to go away from partnership for several reasons and then starting to develop our own algorithm and our own technology. And during that timeframe, we have a limited opportunity to win business, actually. And that's what we have been communicating for quite some time and you are seeing the effects of it right now.

Got you. And then I guess on a follow-up note, you mentioned some of the SOPs have been pushed out. Is there any particular reason? Is it technical? Is it more market-driven? That would be very helpful if you could add some color there. Thank you.

Absolutely. It's no technical reasons. It's no reasons coming from Autoliv, or capabilities or performance reasons. This is how it is with car programs. Some car programs are changing and quite often they are delayed if they are changing. They are not that often being brought up to launch earlier, but that can happen too in some cases. But in this case it has been decided by customers to go out on the market later.

Got you. Thank you so much.

Erik Karlsson, Bodenholm Capital.

Thanks for taking my question. You say the reason for lower margins at the group is primarily due to investments in growth. Very understandable given your strong order intake over the last couple of years, but given your use of wording there, you do add the word primarily, which may suggest there are other reasons as well for the lower margins. Could you help us understand what those are, or whether the reason for the lower margin is largely the investments in growth, or if there's other things we should be mindful of as well? Thank you.

Thank you. If you are looking at the bridge I provided, I think it's on slide page 11, there you have the RD&E on a separate note and then you have a rather big other being included in that one and what's included in that is -- about one-third of that one is related to acquisition effects and higher depreciation and amortization and about two-thirds is related to investment for growth and that's mainly including structural production costs to ramp up and meet higher volumes going forward.

And if you are looking into the guidance and are looking into the fourth quarter, if you compare the guidance with outcome fourth quarter last year, you have a difference of about 200 bps. And if you are splitting that 200, I would say approximately 150 is related to acquisition effects together with RD&E. So that year-on-year is a little bit smaller impact from the other structural production-related costs.

Thank you very much.

Joseph Spak, RBC Capital Markets.

Thanks and good afternoon over there, everyone. First question, I just wanted to touch on the replacement inflators. I guess the first thing would be, A, Toyota's announcement the other day to recall an additional 5.8. Do you think that was already considered in your prior estimate of the market opportunity? I noticed you said in Japan that there was some -- it seemed like a negative impact, or lower sales from replacement inflators and I just wanted to clarify. Is that on a year-over-year basis indicating you are already running into some tougher comparables, or was that versus your initial expectations in Japan?

The last part. It's a year-over-year effect. That's clear. On the first part, this 5.8 is always difficult to really pinpoint each announced recall, but normally you would say that the carmakers secure some level of supply before they go out. So normally that's how it looks and has been looking here, that carmakers are having a plan for supply. And it's difficult for us to say that this is totally included, or it's coming to us, or it's that we don't really know all of this at the moment. And it has not affected our level. It's still up to 30 million units to be supplied up and including 2018. So that's where we are and it's the estimate that we have.

Okay. Thanks. That's helpful. The second question is just -- so the lowest quarterly organic growth guidance of the year. I know you explained that away by the days issue. I guess I wanted to see if you also thought there was a -- you incorporated some of the production commentary from Ford, who I know is an important customer for you, but I guess the real underlying question is, despite it being the lowest organic growth guide of the year, you are actually starting with your highest quarterly operating margin guidance and there's usually a connection between the two. So could you just remind us of what's driving some of the performance in the fourth quarter?

Sequentially, even though we are guiding for flat organic growth of plus 5% considering the calendar year effect, we have a sequential effect from higher volumes going into the fourth quarter, so I think the main explanation is really leverage on additional volumes if you are looking on it sequentially.

Then maybe just to -- even though for the quarter we made a guide on our own [quotas], but if you look at the IHS number, the fourth quarter growth is I think only 0.7% in the latest report, so, of course, versus that production number, it's also worth noting, I think.

Okay. Thank you, guys.

Jairam Nathan, Daiwa Securities.

Thanks for taking my question. So based on your comment about Active Safety slowing down and Passive Safety actually -- and at the same time, your $12 billion target by 2020 going up, so it looks like the mix is shifting from Active to Passive and I just wanted to understand how would that impact margins over that timeframe?

Well, we haven't discussed margins. We set out some margin targets at the Capitals Market Day and we will discuss the long-term margin development at our next Capital Market Day. And as you know, we have a tradition to have a Capital Market Day every second year. And so we will have to come back to that one. The margin development is overall very much in our case related to the growth rate and how fast we are growing and how fast we take onboard new business and how much we spend in R&D for both Active and Passive Safety and technology development, but also in other type of investments and infrastructure for growth. So it's very much related to how long the strong order intake we have seen in Passive Safety now for quite some time will last.

But wouldn't the shift actually help margins given that Active Safety margins are much lower right now?

Well, the thing is that we are also onboarding quite a bit of engineering capacity and other related resources to grow also our Passive Safety business. We talked about more than 50% order intake for last year 2015. We have all along this year commented around a very strong growth rate continuing into 2016. So as you can see from the segment differences on the margins, of course, there is a difference in Passive and Active Safety, but we aren't discussing that margin outlook here and as of now, but we will probably come back and talk about the development in our upcoming Capital Market Day.

Okay. Next question was regarding Takata. My question is not about who is going to buy them and stuff, but my question is longer term what do you see the replacement -- you are adding capacity; I'm sure others are adding capacity -- but how do see that replacement inflator capacity impacting pricing over the long term?

For the time being, we have not seen any difference in pricing pressure, etc., and that remains to be seen. We have been talking about pricing in general in this industry between 2% and 4% for many, many years and we are still seeing the same range for the pricing integration. When it comes to the order intake we have seen generally, of course, the capacity we have invested in for inflator replacement as such, this could also now be utilized for the more normal order intake that we are seeing in the Passive Safety area. So it remains to be seen also what will be the effect out of Takata and how the business Takata have had over some time will be distributed and what will happen to Takata. But so far, we are not worried about the utilization and the capacity of it.

Okay. Thank you. That's all I had.

David Leiker, Baird.

Good afternoon. Two things here in general I just wanted to touch on quickly. If we look at the GPS modules and the brake controller, it sounds like both of those are somewhat unexpected events in terms of those rolling off. I guess my question is why.

Well, it wasn't unexpected that it would roll down. We talked about that, you remember, when we acquired the MACOM business, that the GPS modules will phase out. What we are seeing is a somewhat steeper take rate decline than what we had expected originally on the GPS modules.

On the Brake Control side, this is related to the Brake Control we developed inside Autoliv that led into the contact with Nissin Kogyo because we did not have hydraulic control units, so we needed to add some competence there and that technology now is phasing out, also there somewhat earlier than what we originally expected. So we have seen this coming and that has been a part of also our plan, but it's coming a little bit steeper than expected.

Okay. The second one here is if you look at the -- you said your win rate right now is 20%. Can you give us some characterizations of the type of product that you're winning on; high-level thoughts in terms of where you are winning?

High-level thoughts are very much related to the technology we have developed over the last three years or so basically leading up to the launch that we had on E-Class and also the next generation based on this and the further development with that technology as a basis. So it's very much related to that. In all cases, we have not had all technologies in all orders, so that has been a blend of some parts of it and some parts of the components not being included. So essentially it's very much related to the core products that we have there.

And those are launches in the 2019 time period, or sooner than that?

2019 timeframe and then ramping up during the second half of 2019 and maybe also into 2020. And these programs that we alluded to here in the beginning in the presentation, when the target was set, etc., some of these orders we have taken now and accounted for, also so maybe then plan to have an earlier launch.

Okay. Thank you very much.

Victoria Greer, Morgan Stanley

Just one, please, for me on the balance sheet. It's obviously been pretty strong in the quarter and then it looks to me anyway as if you will be below your net debt-to-EBITDA guidance range by the end of the year. Is there anything you can share about your thoughts on that? Should we be thinking about potential for further share buyback?

Looking on the year-end ratio as such, you are right. We are on 0.5 and that is in the lower end of the range between 0.5 and 1.5 with a target of 1.0 that we have communicated. So we are on the bottom of our communicated range. But we believe this gives the financial flexibility to grow the Company and to be prepared for costs. Also -- [I also say] with the ongoing antitrust matter because you need to remember that one being out there as well. And we also believe this is prudent given the current macroeconomic uncertainty. So we feel pretty comfortable with the balance sheet and where we are in terms of the gearing ratio. And we are normally not giving any comments when it comes to buybacks.

Great. Thank you.

Hampus Engellau, Handelsbanken.

Thanks very much. I have three questions. Starting off with Active Safety and your vision systems, the 20% marketshare, is that on stereo and monovision and could you maybe talk on who you are seeing competition on stereo vision? Second question is on the delay you are seeing in production start and also ordering. And my question is more is the stepback among the OEMs on the back of the test [accident], them wanting to test these systems more, or could you maybe discuss that a little bit? Last question is on your Passive Safety. If you could remind us, you said order intake has been on a high level for almost two years now. When do we see this starting to come through in your invoicing? So those are my three questions. Thanks.

Okay. If we start with the stereo vision and competition, it is no new competition. It is the expected ones that you are seeing. Some of our competitors do stereo vision, as you know. Some of them limit themselves to monovision or tri-focal cameras, etc., and it's the usual competition that we are meeting out there. When you look to the general order intake level of around 20%, it's also valid for the vision part of our components. If you dive into that as a part of the order intake, it's also the same number.

If you look to the delay and the validation of it, there is, of course, an increased discussion in the industry about how to validate the product, but it's equally much also a discussion around the robustness of technology and how it's suited for real-life safety and the need to have a product that is complying with not only the test specification, but with all the conditions that a vehicle might experience out there. And this could also lead to longer leadtimes on orders and we have seen that in some case also that orders that we thought would come and be awarded have been pushed out and so there has been this case. And that's ongoing, but it's individual from OEM to OEM.

Passive Safety and order intake, this is happening. The normal leadtime is maybe between 18 and 36 months depending on if it's a complete new platform or if it's a crash program where we are replacing another competitor, or whether it is just a facelift of some kind. So it varies. But you could say between 18 and 36 months depending on the type of program from order to start of invoicing.

Can I ask one additional question on that? With business wins on airbags, has there been existing platforms -- you have won already existing platforms like in the middle of that car's lifecycle, or is it just coming contracts?

It is a blend of it all. It is also facelift and it is other type of replacement as well that we have won. So it's both new programs as it is normally and then also other type of wins here.

And is the difference in profitability -- i.e., are you getting compensated for not having as a long lifetime on these midcycle wins?

You factor in, of course, toolings and depreciation on toolings, etc., over the lifetime of the actual program. So from that point of view, you have a much shorter depreciation time, which also affects prices overall. So, of course, it's connected to the reality of that specific program.

Okay. Thank you.

Just a reminder, we have slightly less than 10 minutes left and I think we will be able to fit the questions in if we limit to one question and keep it brief. Thank you.

Erik Golrang, Nordea.

Thank you. One question. I have a question on the chart you show on number of engineering projects. I think it's slide 5 in the presentation material, 60% up year-to-date. How should we read that? I guess engineering projects is triggered by an order, but what's the transition from an order to sales and how do we square the base there? What kind of --?

I think that's the answer I gave to Hampus in the previous question. It is between 18 and 36 months. A project is a project, no matter what type of car platform it is and you can clearly see the effect in reality of number of started projects based on the order intake. Each project is a project. It is an airbag product, a seatbelt product; it is what it is. We haven't distinguished that in this space, but generally 18 to 36 months.

Thank you.

Bjorn Enarson, Danske Bank.

Thank you. One question on your JV with Volvo Cars and if you can give some color on what kind of content that you are addressing with this JV, or when you can be ready to update us on the potential financial impact from that JV? Thank you.

We will come back to that. The Company has not yet started. We have signed a letter of intent to form this joint venture, so we are just now about to form this and we expect it to go live early 2017. The type of -- it's a software-related company related to the higher-level vehicle feature software where Autoliv will continue to write software and develop hardware on the component side. So components related to the system of the car like radars, cameras, ADAS controllers, etc. will continue to be developed by Autoliv whereas the vehicle-level feature software will be within the scope of joint venture.

Thanks.

Agnieszka Vilela, Carnegie.

I have a question on the Active Safety outlook. Do you still expect that the underlying market of Active Safety is growing by some 20% and then it basically would imply that you are losing marketshare. My question also is on then the R&D spend for that segment specifically. Do you think that you should then lower your spend and also do you believe that some of the development costs for the ADAS will end up in the JV and not in Autoliv? Thank you.

If you take the marketshare for some time right now with the lower organic growth that we are seeing here, you can say that we are not losing marketshare, but we are losing speed to the market because we have this situation with a strategy change and the ramp transition of contractors and contracts, etc. We are confident that over time we have the right strategic position, not at least through the initiatives with the joint venture in the Brake Control system, together with Volvo Cars and together with the initiatives that we have ongoing that we will be back and keep up with the market development. But for a short period of time or a shorter period of time here, we will enter into lower organic growth rate.

On the R&D side, on the spending on the R&D side, we believe that it is related differently to then the Passive Safety, a quicker technology development and it has a different type of demands of technology development in product areas in Active Safety than it has in the Passive Safety area. But you are seeing also here very much related levels to the level of order intake and that will be also the case for the future.

But then just to clarify, don't you think that some of your R&D needs will migrate so to say to the JV when it comes to ADAS?

Some of it may migrate to the joint ventures when you look to some of the features being developed inside the joint venture that is now taken out from the Autoliv side. So some of it may come into there and that is also one of the reasons to share the cost and to share the burden of this software between ourselves and with Volvo. But when you look to the development of technologies overall, not the least also from the component level side, there will be a continued development. We are talking today about radar and vision and ADAS controllers as core products, but down the road you will see also other products like LiDAR and connectivities, etc. So there will be a continued demand, but we will monitor this and also discuss this later on on our strategy for component development and technology development.

And you also postponed the EBIT margin target for Electronics then, is that right?

We haven't discussed the EBIT margin target as of today. Today, we have now communicated the growth rate situation and we have said we are delaying our longer end-of-decade target with up to one year now and we will come back and discuss that when we have another Capital Market Day.

Okay. Thank you.

Kai Mueller, BofA.

Kai Mueller here from Bank of America Merrill Lynch. Thank you very much for taking my question. Just a quick one. You've really benefited this year so far from raw materials and currency that somewhat offset your R&D expenditure. If we look into next year, I guess that fades away, but the R&D will stay. Is that a fair assumption to be making?

We are not guiding into the next year, but if you are just looking on -- we have the full-year 2016 guidance of $33 million and that's actually lower than the guidance we had when we went into this year. So it all depends on the development on raw material costs. And when it comes to the currencies, it's very difficult to make any kind of guesses on that, but what we see on raw materials and what we have seen throughout the year is that the positive effect will be lower.

Maybe just to follow up on that one, is it a fair assumption that throughout the year we've seen a reversal of that that could actually turn into a headwind into next year?

It's too early to say, but if you are just looking on the fourth quarter, if I take it quarter-by-quarter then, the $33 million for the full-year guidance, that indicates basically flat, slightly positive raw material effect in the fourth quarter to be compared to the $7 million we had in the third quarter. So that shows a little bit the sequential development we see.

Okay. Thank you very much.

Thank you. There are no further questions.

Okay, I then would, first of all, like to have some concluding comments, then I would like to take this opportunity to thank you, Thomas, for doing a great job heading up the Investor Relations team here at Autoliv for the last three years. And Thomas Jonsson here will continue as Group Vice President of Corporate Communication inside Autoliv and focus on that one.

At the same time, I would also like to thank Anders Trapp here for all the difficult and interesting questions following us as an analyst for many, many years. And now I would like to welcome you on this side instead of the table for -- to Autoliv.

Regarding upcoming investor relation activities in 2017, I would also like to mention, as we have been alluding to a little bit here on the call, that we will be hosting investor meetings throughout the year starting with the analyst meeting in CES in January 4th and 6th. We also intend to host a Capital Market Day during the second half of 2017 and that will, as it looks today, most likely be around the Frankfurt Auto Show. And of course, lastly, our next earnings call for the fourth quarter and year-end 2016 will be held on Thursday, February 2, 2017. And please follow our corporate website for more information and details on this one.

Now remains only to say thank you to everyone here for participating on today's call and we sincerely appreciate your continued interest in Autoliv and we hope that you all will have a safe and relaxing upcoming holiday season; and goodbye for now. Thank you.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.