Autoliv Inc (ALV) 2018 Q1 法說會逐字稿

Good day, and welcome to the Autoliv, Inc.

First Quarter Financial Results 2018 Conference Call.

Today's conference is being recorded and limited to 1 hour in length.

At this time, I would like to turn the conference over to Anders Trapp.

Please go ahead.

Thank you.

Welcome, everyone, to our first quarter 2018 earnings presentation.

Here in Stockholm, we have our Chairman, President and CEO, Jan Carlson; we have our Chief Financial Officer, Mats Backman; we also have our incoming CEO and President of RemainCo Atoliv, Mikael Bratt; and our recently appointed CFO of Veoneer, Mathias Hermansson; and myself, Anders Trapp, Vice President of Investor Relations.

During today's earnings call, our CEO will comment on our first quarter results and general market conditions.

After this, we will look upon our segments and financial results of the Autoliv group for the quarter.

Then lastly, before the Q&A session, we will provide some commentary around the recent Form-10 filing by Veoneer, and the next steps related to our planned spinoff of Veoneer.

And as usual, the slides are available through a link on the homepage of our corporate website.

Turning 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-U.

S. GAAP measures where the reconciliations of these figures are disclosed in our quarterly press release, the 10-Q that will be filed with the SEC, or the Form-10 already filed with the SEC related to the spin-off of Veoneer.

Since we are providing 2017 pro forma financials for RemainCo Atoliv at a later date, we are unable to answer questions today regarding the 2 stand-alone businesses.

The carve out adjustments made to create the historical financial statements of Veoneer follows financial reporting guidelines related to carve out accounting and are not relevant for any other purpose, and should not be used for conclusions regarding Autoliv's historical financials as a stand-alone company excluding Electronics.

As you have likely already noted in the Q report with the planned spinoff of the Electronics business with trading in Veoneer expected to begin early in the third quarter of 2018, we've made some changes in our guidance of full year indications.

We will not provide quarterly guidance.

We will not provide full year indications for Autoliv, Inc.

but rather provide a full year '18 indication for our segment.

At some point after the completion of the spin-off, the companies will communicate their respective updated guidance and indication principles.

We will also hold analyst days or roadshows in late May and early June, where we will be able to answer your questions on the stand-alone company.

And as usual, this call is intended to conclude at 3 p.m.

CET.

So please limit yourselves to 2 questions per person.

I will now turn over -- turn it over to our CEO, Jan Carlson.

Thank you, Anders.

Turning the page.

Before we go into today's presentation, I would also like to welcome everyone to this earnings call.

As we are making good progress in our separation process into Veoneer and Autoliv, I have invited an extended team to support today's call as Anders just presented.

We're off to a solid start in 2018 where our sales increased year-over-year by close to 8% to $2.8 billion, a new record quarter for our company.

Our slightly positive organic sales growth was approximately 1 percentage point better than the light vehicle production and was driven by the ramp-up of our new programs in Passive Safety, mainly in North America, along with growth in Japan, Rest of Asia and South America.

Our adjusted operating margin of 8.8% was in line with our guidance despite slightly lower organic sales growth, mainly due to software -- softer light vehicle production in North America.

We are pleased with this 40 basis points margin improvement for the quarter as we ramp up capacity for our planned step-up in organic growth this year in Passive Safety along with continued RD&E investments to support future growth.

Our adjusted earnings per share of $1.66 increased slightly year-over-year even after the impact from our 50% share of Zenuity and a temporary higher tax rate.

Our operating cash flow for this seasonally low first quarter was also impacted by a temporary negative timing effect in working capital, while during the quarter, we returned $52 million to shareholders through dividends.

Our leverage ratio of 0.7x for the quarter remains at the low end of our long-term targeted range.

And lastly, we continued to experience strong order intake with both segments during the quarter and are proud to have been awarded our first ADAS system business, including the Zenuity software stack.

Looking to our underlying market conditions on the next page.

Our major light vehicle markets remained mixed and uncertain, in particular, China, where IHS has increased their latest full year forecast, and in North America, where the light vehicle production demand softened during the quarter.

During quarter 1, the inventory levels declined year-over-year in China and the U.S., due to relatively strong sales with what seems to be disciplined volume productions.

During the quarter, the light vehicle production in Europe was relatively flat year-over-year, while the vehicle registration seems to be flattening on a last 12-month basis, albeit near record levels.

For the second quarter, the overall light vehicle production is expected to be quite strong with an increase year-over-year of around 5% according to the latest IHS forecast figures.

This assumes light vehicle production will increase year-over-year in China by approximately 9%; and Rest of Asia, by approximately 5%; while Japan is expected to decline by approximately 1% for the second quarter.

In North America, the light vehicle production is expected to increase year-over-year 1%; while South America is expected to remain strong, and increase 24% approximately for the quarter.

In Europe, the light vehicle production is expected to increase year-over-year by approximately 5%.

This is comprised of increases in Western Europe and Eastern Europe of around 6% and 3%, respectively.

Looking at the full year 2018 global light vehicle production, the latest projection according to IHS is for an year-over-year increase of 2.6%.

This is primarily driven by an increase in China, of approximately 0.5 million vehicles.

Moving now to our segment reporting on the next page.

For the first quarter, our Electronics sales were slightly better than expected.

The organic sales decline of 4% was approximately 2 percentage points better than our expectations at the beginning of the quarter, mainly due to take rates on certain radar programs.

Our organic growth for our core Active Safety products was close to 10%.

This is offset by the temporary effect in restraint controls and brake systems where new programs are expected to ramp up in 2019 and 2020.

The approximately 6% currency translation tailwind for the quarter evolved as expected, while the currency transaction effects were slightly positive for the segment.

We're pleased to see another quarter of strong order intake in both Active Safety and Restraint Controls.

Most notably, Geely awarded Veoneer its first conditional automation ADAS contract, which includes our core hardware product and Zenuity software.

Looking to the remainder of this year, we intend to continue the ramp-up of RD&E to further develop our product road map, while securing orders to support our future sales targets and prepare for an upcoming heavy launch period in 2019 and 2020.

With that, I would now like to turn it over to Mikael Bratt, President of Passive Safety segment.

Thank you, An.

Let's turn the page and take a look at Passive Safety starting on Page 6. For the first quarter, Passive Safety organic sales growth of 1.4% was slightly lower than expected.

However, 2 percentage point better than the global LVP.

The slower volume ramp-up on certain new programs was essentially offset by a positive mix towards active seatbelts and better-than-expected currency translation tailwind of around 8%.

The segment operating margin improved slightly versus prior year as lower RD&E net was mostly offset by an unfavorable currency transaction mix and commodity costs.

Lastly, for the quarter, we are pleased to see that our order intake remains at high levels.

Our sales outlook for the full year 2018 indicates a strong outperformance versus the LVP for the upcoming quarters and implies an organic sales growth of more than 10% for Passive Safety during the second half of this year.

With a sharp focus on flawless execution of launches, while maintaining flexibility to adapt to changes in the underlying market, we aim to deliver operating leverage on our organic sales growth to support the profitability improvements in our business.

Looking further into the Passive Safety launches on the next slide, on Page 7. We have identified some of the models in our Passive Safety segment which have ramped up or will launch during the remainder of this year.

We estimate that these models contribute around 4 percentage points towards our Passive Safety organic sales growth during Q1 2018.

This growth was slightly below our earlier indications due to slower ramp-up of volumes on certain models such as the Ram Truck, the Tesla Model 3 and Nissan Rogue platform.

We anticipate these 13 models identified will contribute around $0.5 billion of organic sales growth to the Passive Safety segment for the full year 2018.

Annually, these models represent more than 10% of the Passive Safety sales where our content per vehicle is in the range of $100 to more than $400.

And by that, I will now turn it over to our CFO, Mats Backman to speak on the financials.

Thank you, Mikael.

Looking now to our financials on the next page where we have our key figures for the first quarter, including positive currency translation effects of around $200 million.

Our consolidated net sales reached a new record for any quarter of $2.8 billion.

Our organic sales growth within Passive Safety of around $30 million, mainly from China, Japan, Rest of Asia and South America, was mostly offset by the expected organic sales decline in Electronics.

Our gross margin decline year-over-year is mainly due to higher commodity costs and net currency transaction effect, while our record gross profit for any quarter was driven by the net sales increase.

Our adjusted operating margin of 8.8% increased 40 basis points year-over-year mainly due to a net operating leverage, which was partly offset by planned higher RD&E.

Our adjusted EPS of $1.66 improved year-over-year and that is despite a $0.16 per share impact from Zenuity and $0.13 per share headwind due to the temporary higher tax rate, excluding discretes.

Our adjusted return on capital employed and return on equity were essentially unchanged year-over-year.

Looking now on the next slide.

Our adjusted operating margin of 8.8% was 40 basis points better year-over-year.

As illustrated by the chart, operating leverage from the organic sales growth in Passive Safety and improving operating efficiencies, including vertical integration, contributed to the margin improvement.

This improvement more than offset the planned higher investments in RD&E of about 30 bps, higher raw material costs of about 10 bps, and a net currency headwind of about 50 bps.

We expect an unfavorable currency transaction headwind to continue throughout 2018.

However, we estimate the full year '18 effect to remain unchanged from the beginning of the year at about 30 basis points.

From a net earnings perspective for the quarter, the negative currency transaction effect was essentially offset by the favorable currency translation effect.

Looking now to our production volumes on the next slide, where we've summarized our delivery quantity for the first quarter.

In Passive Safety, our seatbelt volumes continues to have a favorable mix towards advanced high value-added products such as pre-tensioners and active seatbelts.

Our airbag and steering wheel products overall performed better than the global LVP due to our strong volume growth in Asia, South America, which was partly offset by a decline in Europe.

Within Electronics, our Active Safety volumes increased by 6%, mainly due to our core products radar, camera systems and ADAS ECUs.

Our Restraint Controls and underlying brake system unit volumes declined, mainly due to the timing effects of the phaseout of certain programs where the new customer program launches ramp up in 2019.

Looking to our cash flow on the next slide.

As mentioned earlier, our operating cash flow was impacted by temporary timing effects in working capital.

Our CapEx of 4.9% of sales for the first quarter was within our long-term range of 4% to 5% of sales.

However, for full year '18, as indicated earlier, we expect CapEx to remain at slightly higher levels similar to full year 2017.

For full year '18, excluding separation effects and any discrete items, we expect the operating cash flow to be on the same level as for 2017.

The year-over-year commodity cost increase was about $4 million for the first quarter.

We now expect the full year '18 commodity cost increase to be about $16 million.

This is $12 million increase on what we indicated at the beginning of the quarter and is mainly due to steel and nonferrous metals.

Our 34% tax rate, excluding discrete items for the first quarter, was higher than our earlier indication, and that is mainly due to the timing of losses with no benefits and the timing of internal withholding taxes.

Looking now to our financial outlook on the next slide where we've summarized our full year indications for Passive Safety and Electronics segments, which assumes reported U.S. GAAP figures and assumes mid-April currency rates prevail.

Our full year '18 indication for Passive Safety is for an organic sales growth of more than 10% with a positive currency translation effect of 4%, resulting in a consolidated net sales growth of about 14%.

The net operating leverage on this strong sales growth is expected to drive an improvement in operating margin versus 2017, and shows a solid trajectory towards our 2020 targets in Passive Safety.

For the Electronics segment, sales and profitability outlook remained unchanged.

Our full year '18 indication remains unchanged from the beginning of this year, where we estimate an organic sales decline of about 3% that is offset by a positive currency translation effect of about 3%, resulting in a flat consolidated sales growth for 2018.

Based on these sales assumptions and the $70 million increase in RD&E to support future organic sales growth, we expect the underlying profitability of the Electronics segment to decline for full year '18 versus 2017.

And this is now excluding the goodwill impairment charge last year.

I will now turn it over to Mathias regarding the Form-10 and the carve-out of Veoneer.

Thank you, Mats.

And if we then turn the page to Slide 13, we have there summarized the key P&L figures for 2017, on the Form-10 filing.

And we have also, as you can see, excluded the onetime noncash goodwill impairment charge for both the carve-outs and segment figures.

When we're comparing the Electronics segment's operating margin of 2.3%, the Veoneer carve-out stand-alone operating margin of minus 2.1%, the 4 percentage points' difference is explained by 2 main reasons.

First, the R&D costs are fully attributed to Veoneer in the stand-alone case, and secondly, the corporate cost and other incremental costs are redistributed to Veoneer in the stand-alone case.

Combined, the 2017 operating income for Veoneer is then negatively impacted by around USD 100 million.

As mentioned during our last earnings call, we expect RD&E net to increase in 2018 by around $70 million or around 3 percentage points of sales.

Looking now to the capital structure of Veoneer, the capital injection of up to $1.2 billion from Autoliv ahead of the spin is to provide funding for our increased investments in RD&E as we discussed, and also in CapEx, to support our previously communicated long-term targets as well as our ongoing investments in our joint ventures and also, of course, looking at future M&A opportunities.

Looking now to an overall update of the spin-off of Veoneer, I will turn the talk back to Jan.

Thank you, Mathias.

If we turn the page again, Page 14.

As illustrated on this slide, we're taking the necessary steps and are well on our way to completing the spin-off of our Electronics business.

Our intention is to keep up the pace during the second quarter with the remaining milestones as summarized on the page, and expect the Veoneer spin-off to be completed in time for trading of Veoneer shares to begin early in the third quarter of 2018.

Before opening up for Q&A, I would like to make a few additional comments.

First and foremost, I would like to extend my sincere thank you to the Autoliv team for their great support and dedication over the years and their great relentless focus on quality and execution to help make Autoliv a great company.

As some of you may have considered, this could likely be the last earnings calls for Autoliv, Inc.

as we now know the company, and I'm very proud to be part of Autoliv family and part of the journey since 1999, and look forward to starting the next chapter.

A future where 1 great company becomes 2 great companies, both with very bright futures.

Perhaps not so much different from when back in 1994, Electrolux spun off Atoliv as a publicly listed company, which was an important enabler for where we are today.

By turning the page, again, this concludes our prepared comments for today.

And I will now turn it back to our moderator, Paul, and open up for Q&A.

Go ahead, Paul.

(Operator Instructions) Our first question comes from Hampus Engellau from Handelsbanken.

2 questions.

Very interesting to hear that your order flow continued to trend very strongly.

Could you perhaps maybe talk a little bit about market share in Passive Safety?

I know you touched on that before.

And also -- maybe, also talk about that in Active Safety.

Second question is on Geely and the ADAS contract.

If you, perhaps, also could, maybe, add some more flavor here?

Are we talking AEB systems or we talking Level 3 systems?

Those are my 2 questions.

Hello?

Oh, sorry.

So if we start with the first one here, the order intake and market shares.

We've seen 3 years of strong order intake of 50% or more.

And we have seen a continued strong order intake also here in first quarter without quantifying it.

We have mentioned that we would be on a market share of around 45% or more for Passive Safety in 2020 and beyond.

Beyond that, we have not made any further calculations on market share development and not also provided any other number than the market share number we have in our annual report.

When it comes to market shares for Active Safety, we are seeing a declining market share here within the very short term because of the relatively low order intake in 2015 that we have communicated.

But we are seeing market share there again to pick up, not any different than what we also communicated at the Capital Market Day.

When it comes to the Geely program, it is a program that consists of our products together with Zenuity program products.

It is including mono, stereo vision cameras, it is including radar components, it is including system support from Veoneer, and it's also including decision-making software for -- from Zenuity.

And their aim here to start with is a lower level of automation, so not talking about Level 4, Level 5, but a lower level of automation in addition to what Veoneer is supporting.

We're very proud of getting this first order.

And as we also have communicated, we're also looking to maybe book another new customer here during the year.

Our next question comes from Victoria Greer from Morgan Stanley.

2, please.

I understand that the restrictions that you have around quarterly guidance with the spin-off.

But I'm just wondering really if you can help us for phasing for organic growth through the year, particularly in the Passive business, or maybe put in another way, the $500 million contribution from new models for the full year, how much of that have you had in Q1, and how much of that is still to come?

Secondly, on Veoneer, what are the drivers behind the different decisions on R&D cost allocation?

What was wrapped into Passive before and has come out?

And on Veoneer, is there anything materially different from the group trends on working capital to think about for that business?

If we start with, maybe you can add more color, Mats.

But if we start with -- I can start with order intake, the order here, not order intake, but the order of $500 million as you can see from the results from quarter 1, and what we communicated that 4% has contributed to the organic growth in Passive Safety in quarter 1. And we are talking about a 7% or more contribution for the year coming from the [wave].

You can see that the lion part (sic) [lion's share] of this or a major part of this is coming in the remaining 3 quarters.

So that's that.

And allocation, Mats?

Can you repeat the second question when it comes to Veoneer and the allocations there?

Yes, so I'm -- what has changed about the RD&E cost allocation?

What elements of RD&E, specifically, were not allocated before and what's the reason for the change?

Yes.

You are basically talking about the Form-10 filings and the numbers we have out there.

I mean, basically what I think we need to understand looking on the RD&E and the allocated RD&E.

The starting point is that this is a net between the paid royalties for each segment and the group allocated are the R&D.

And if you're looking at Veoneer to start with, this is the kind of -- business is not that mature.

Meaning that we don't -- haven't built that much IP in Veoneer, meaning that we are paying less royalty to the group for utilizing IP, but we are contributing quite a lot when it comes to new R&D where we are building IP.

For Passive Safety, you can see the opposite really, we're being much more mature where we are now kind of harvesting from IP that has been previously built by group-funded R&D.

And now we're kind of standing less in relation to royalties on the [pall] side.

And that gives a negative net when we are reallocating that goes to Veoneer and a positive net that goes into Passive Safety.

That's clear.

And then on working capital for Veoneer stand-alone.

Should we think about anything different in terms of trends for cash versus the group?

I think it's too early to start getting into that kind of deep analysis when it comes to the working capital for Veoneer.

Okay.

That's great.

And then, on the quarterly phasing.

Should we just think of that as -- as you said, it's clearly an incremental contribution from Q1?

Should we think of that in terms of project starts quite smooth from Q2 onwards or more back-end loaded?

I think you can see it more as a kind of a gradual buildup throughout the year when it comes to volumes.

Okay, so probably stronger in H2 than in Q2?

Yes.

Our next question comes from Emmanuel Rosner from Guggenheim.

My first question is regarding the capital structure for Veoneer.

I was a little bit surprised by sort of the size of the capital injection initially, $1.2 billion.

My understanding up until now was maybe Veoneer sort of like burns $100 million or $150 million of cash a year.

And so that within -- I guess, the next few years would not have required that much cash injection.

So can you, maybe, comment a little bit around what the thinking is?

And then, maybe, any thinking [so on] like the expected cash burn?

If we start with the capital injection, what we have done here is that we have looked through the needs for Veoneer, what we think is there as an opportunity to invest for the future.

And we have looked into the current business plan as we've communicated to execute on our targets towards 2020 and 2022.

We have also used -- looked into opportunities for other potential M&A activities going forward.

The important part is, for us, to have a strong balance sheet as Veoneer is facing a great opportunity, and a great future here, with a growing market, and to be able to act if and when there is an opportunity, both when it comes and first and foremost when it comes to investing in our new -- in our own technology, but then maybe also looking on it from an M&A perspective.

And maybe, some comments.

Maybe some comments on the Atoliv RemainCo side as well when it comes to capital structure and the cash injection.

I think we are very proud in looking on a strong balance sheet that we have that we are able to retain the A- credit rating, while we're making this $1.2 billion cash injection into Veoneer.

And I guess, you -- maybe you saw the press release on Standard & Poor's as well, affirming the A- and -- but changing the outlook however to a negative outlook, but still retaining the strong investment grade.

And I think that's also important in this equation.

Understood.

And I guess my follow-up is on the Electronics margin in the quarter.

You flagged a onetime benefit, I think a release of liability that helped it.

I apologize if I missed it, but can you give us the size of that onetime benefit in the quarter?

Yes.

We have a onetime -- or an adjustment in the quarter of approximately $14 million, so equal to 50 basis points for the group there.

But I would like to give you -- but if you're from that kind of point of view looking on the leverage or the development of the margin year-over-year, I also want to point out that we have a negative currency effect year-over-year of about 50 bps as well there.

Our next question comes from Kai Mueller from Bank of America Merrill Lynch.

I have 2 questions, if I may.

The first one is, in your statements you showed on Veoneer, your current sort of carve-out structure amounts to 2% negative EBIT margin.

But then I think I understand that's not on a fully-loaded independent structure basis.

Can you give us some color sort of to what sort of level in additional cost and independent structure would mean to the carve-outs that you have shown us in the 10-K?

And the second point would be on the R&D costs within Veoneer.

I understand now obviously from questions earlier that you've reallocated some costs between -- within the group.

Can you give us a little bit of a clarification or maybe, can you tell us whether you will disclose that, the split on R&D costs between the subdivisions within Veoneer, understanding, obviously, having the Electronics business as well as Active Safety and braking business in there?

Kai, it's Mathias here.

I think on your first question there on fully-loaded, as you expressed it, I think what we've done now is this accounting exercise on the carve-out, and we will come back to you in a later stage what our fully loaded would look like.

But as you pointed out, there will be some additional exercises being done here in order to arrive to that.

Okay, and you don't have an indication to what we'd get to?

Your comments (inaudible)...

Not at this stage, but we will come back to you next quarter.

And then the second -- this is Mats -- the second question, when it comes to the R&D and the allocation on how transparent we'll be with that on the Veoneer.

That boils down to the segment reporting, I would say.

And I would imagine that you will not be able to see the RD&E on such a granular level for the different kind of product areas.

Okay.

Understand.

But at the CMD I understand we'll probably get some more color on the subsegment growth outlooks?

Yes.

Our next question comes from David Leiker from Baird.

I was looking at Slide 7 in the slide deck, where you list key Passive Safety models, is there a way to highlight something similar to that of what's driving organic growth on the Electronics side?

I guess it is, and I guess, we might come back to that at the Capital Markets Day at a later stage.

But there are definitely some key models there also.

As you know, it is varying a bit here because we've had some weaker order intake for a while.

But when it's ramping up, you could probably draw the same type of picture.

Okay.

Nothing to highlight at the moment on the Electronics side though?

Not that I can give you as of today.

We will be back to that...

And then -- okay.

And then the second item here is the funding at Veoneer, the $1.2 billion.

I guess, a couple of questions.

I think I know what's the answer is going to be.

How would you reallocate that across what goes to capital expenditures, what's M&A and what's used to fund the R&D development, the cash burn here?

What is important is that we continue our own investment in technology and build up our technology here.

That is the most important part.

As Mats explained here, we have a bigger room probably from Autoliv side than we first anticipated, remaining a strong investment grade here to build up a strong balance sheet in Veoneer.

And we have taken opportunities with that.

But I think the first part is to continue to execute in our investment programs in engineering and technology that we have.

Then other opportunities may arise for business combinations or M&A activities.

When do you think operationally Veoneer reaches a positive cash flow?

We haven't indicated that specifically, we've said that positive EBIT in 2020, and then because of depreciations et cetera and CapEx, it may take a slight longer time before you reach positive cash flow.

Our next question comes from Chris McNally from Evercore ISI.

Just to go back on the Passive margin guidance that you gave.

So it sounds like you guys are reiterating the margin guidance other than the incremental $12 million of raw materials or the roughly 10 basis points, if you wouldn't mind just confirming that?

Yes, I mean, overall, if you're looking on that kind of external factors, it's only the kind of the raw material that is different, $12 million more than previously anticipated, at 16.

So you're right.

Yes.

Perfect.

And then the second question, on the ramp in new programs, and the R&D associated with it.

Is it fair to say that the R&D should probably as a percentage of sales peak in Q1?

I think when we look year-over-year, it's up 20 basis points, but that would make sense if what you're saying is a sort of growing cadence of new products that launch throughout the year.

So just anything that you can give on the R&D.

Yes, I mean, looking on the RD&E in relative terms, we actually talked about the peak already in 2017.

But then you can see more of a kind of a plateau than before we see the big benefit from the organic growth.

In absolute number, however, we might still see some increases from time-to-time depending on the launches and the phasing of the different launches, but in terms of the relative number, we have said that we have peaked and it's more of a kind of a plateauing until we see the real benefit from the organic growth then that will take down the relative number.

Our next question comes from Joseph Spak from RBC Capital Markets.

I guess, I just want to first make sure I understand the bridge on Page 13.

So -- and sort of the buckets it's coming from.

So you -- let's say R&D costs are fully attributed from Veoneer and that's $70 million.

So part of that is coming from -- there should be a corresponding offset to the Passive Safety business and part of that R&D was also in Corporate.

Is that correct?

Yes.

That is correct.

But as we have stated in several different locations in this document, it's impossible to make the kind of the reverse engineering coming from Veoneer and kind of figuring out how the RemainCo should look because we have kind of allocations and other adjustments that is not kind of adding together to 100, so to speak, to 100% though.

So I would kind of stay away from drawing too much kind of conclusions and on the [ope of the] RemainCo side [in detail] looking on the Veoneer numbers in terms of the carve-outs.

Okay, so then same on like this 30 from corporate in costs and other that, like I think in 2017, you had a total corporate of about 48.

So this is not just simply 30 of that 48?

No, it's not.

And that is important to recognize then, because you cannot get the kind of total together with that.

And you can't help us with like the corresponding offsets to RemainCo?

No.

We will get back with carve-out financials and the performance for RemainCo, but we haven't presented at -- that yet.

Okay.

And I guess maybe this is what this relates to, but can you just explain what you mean by the statement and the release about a change in guidance and indication principles.

I mean, is that related to sort of more color about some of the separation and allocation costs?

No, it simply that we're not guiding now as usual for the second quarter to start with for the group as such.

So what we are referring to when we're talking about change is in principles, it's more the kind of the guidance we're giving in this report comparing to a kind of a normal report.

So it's not getting into the kind of bits and pieces in the guidance as such.

Okay.

And then, just may be on the capital structure.

Well, 2 things.

One, is it -- can you give us sort of a level of minimum cash that you're comfortable with for Veoneer to run and invest in the business?

And then also in the Form-10, you mentioned that the $1.2 billion is also to support planned acquisitions.

Is that something that's actually earmarked or is that sort of more a broader comment that you intend to do M&A for Veoneer?

I think if you can take the second question first.

I think we are not going to talk in specific really about anything on the horizon, but I think it's important to know that there is a level of firepower there if we find something.

Sorry, the first question was?

Sorry, just like the minimum cash you're comfortable with to run and invest in the business?

I think it's little bit of a hypothetical question because I think what we're trying to do right now is to actually capitalize the new company in a way where we can take all the opportunities we can see in the future and exercise our plans that we already have.

So...

(Operator Instructions) Our next question comes from Erik Golrang from SEB.

2 questions from me.

The first one is on guidance for the underlying possibility in the Electronics segment year-on-year.

Is that still to be seen in relation to the reported operating income from last year or in relative the carve-out stand-alone basis?

And then the second question is, just so I understand you correctly, the $14 million there in positive earnout, is that included in the adjusted EBIT, so adjusted for that it would be a bit weaker?

No, I mean, the $14 million, that's a positive included in the adjusted operating margin or operating profit.

It is included.

What you see, the 8.8% in terms of adjusted operating margin, that's including the positive from the earnout.

And on the first question -- the -- what does the -- the decline year-on-year in underlying profitability for Electronics, is that relative to the reported or the carve-out stand-alone operating income?

We are relating this indication, which is not even a guidance formally, it's an indication related to the segment number and not anything related to the carve-out numbers.

Our next question comes from Vijay Rakesh from Mizuno (sic) [Mizuho].

Just on the Veoneer spin-off.

I was wondering if you can give just approximately ballpark what percent of revenues of Veoneer will be from Active Restraints and Active Safety, driver monitoring, 3D mapping, and Zenuity, respectively?

The Zenuity part -- we'll start with Zenuity part.

That's going to start or come out with their product in 2019.

So Zenuity revenue stream will be relatively low in the immediate future or very low in the immediate future.

And when it comes to the other parts, I can refer to Mathias here.

If you look, you can find a lot of details in the Form-10 as well, but if you look at, for 2017, around 1/3 is from Active Safety, around 20% from brake systems, and the rest then from restraint control systems.

Great.

And on the Active Safety side, you guys have talked about getting to that business into $4 billion over the next 3, 4 years.

Is that still the case?

And do you see operating margins there?

Obviously, here your investment more, but do you see the operating margins there get to kind of the 10% to 15% where the industry is?

We haven't specified more than what we explained in our target at our Capital Market Day, and we hold onto those targets, $4 billion by 2022, and improved operating margin compared to 2020.

And beyond that, we have not set any specific target.

Our next question comes from David Lim from Wells Fargo.

I apologize, but can you go over that earnout one more time?

I think the release of the earnout, did you say it was $14 million and did that flow through to the adjusted operating income line?

Yes, it's the $14 million, 1 4, and it's included in the adjusted operating margin as well.

But as I said, when you're making a kind of a year-over-year comparison and looking on leverage, and so forth, I want to remind you about the negative currency effect that it's actually equal in terms of 50 bps as you can see from the earnout as well though.

Got you.

And then, when we talk about the M&A opportunities for Veoneer, I know that it's really early on, but what are the areas of technology that Veoneer would be interested in building out that particular technology?

And then are there any additional color on how you guys see Active Safety for 2018 from a revenue or organic growth standpoint?

We start with the last one.

We haven't given any detailed numbers on growth or indications for Active Safety growth for the year more than we are reiterating the targets for 2020 as our first stepping stone here.

When it comes to the technology and appetite for investment, it is the products that we are presenting.

Of course, you've seen us in the radar vision and ADAS controller areas.

More of that or assets that could even boost our business there would be, of course, of interest.

LiDAR corporation, we have a good cooperation with Velodyne, signed with them.

LiDAR is an important area, we think, going forward.

So they are in the areas of technology defined in the pyramid.

There is nothing new to that.

Our next question comes from Rod Lache from Deutsche Bank.

I was hoping just to get a little bit more insight into some details on Zenuity.

Specifically, how does Zenuity get paid for its software from Veoneer, maybe in this example with Geely, how does it actually negotiate pricing?

The pricing will be a pricing agreement between Veoneer and Zenuity.

And it's not totally completed yet in how that pricing model will look like and we will have to look further into this.

We have 2 customers to Zenuity.

We have Volvo on one hand buying products, and we have Veoneer, and then Veoneer selling to all other customers.

But we will find a pricing agreement between Zenuity and Veoneer that is on appropriate level.

Yes.

I'm just -- obviously, the board members, I presume at Zenuity would be Volvo and Veoneer, so would represent their interests.

And I'm just curious if there's -- do you see value actually being created within the Zenuity business with potentially significant profitability down the road?

Or is that more of a cost center?

Of course, we see a value being created in Zenuity.

And it's -- first and foremost through its product, its competence, in its assets, in the people, and all the resources there are built up, in itself represent, we believe, a good value for Zenuity.

And also, on the other hand, the business model, as it looks and stands here today as I said, the business model today is that Zenuity only has 2 customers.

It has Volvo taking a part, and Veoneer taking a part.

So that is something that is discussed in the board, and will be also further discussed in the board.

Okay.

But there is no independent sort of governance of Zenuity.

It's possible that a lot of the value would ultimately -- I guess, it doesn't really matter at the end from the owners' perspective, but a lot of value would accrue to Veoneer, I guess, it's unclear.

As I said, this is a discussion that we're going through.

And of course, you can look upon it from different level whether you want to -- if you want to have more profit ending up in Veoneer, or more profit ending up in Zenuity.

But on the other hand, Volvo has also a part of Zenuity or a taker of part of Zenuity products.

It has to be a balance between how the pricing model looks between both owners and that is something that we need to discuss.

Right.

And just lastly, could you just give us some thoughts on how you see the market evolving in terms of ADAS as it stands today?

What is the size of the bidding opportunities that you're looking at?

Or any way to bracket that for us?

We will probably talk more about that in detail in the Capital Market Day, but we are seeing a continued increased interest as we alluded to in our Capital Market Day.

We're seeing an increased interest in our products, and we are seeing more customers being technically qualified.

We're ending up on bid list with more customers, and we are seeing also orders coming our way as we talked about here on the Geely order.

By the way, just a correction here when it comes to the level, I think I said Level 2, it is, in fact a Level 3 program on the Geely order.

But -- so there is an increased interest generally speaking, and then, we could elaborate maybe little bit more on that on the Capital Market Day.

Just to remind you now, we have only 3 or 4 minutes left of the call.

Our next question comes from Ashik Kurian from Jefferies.

I've just got 2 follow-ups.

First one is just coming back to the order intake on Active Safety.

The last couple of orders have been with Geely and Volvo, while they're great they're still what I would call your captive customers.

And I think the key is to have the order intake from non-captive.

You mentioned that you're looking to add another order or another customer by the year end.

Can you confirm by default whether that would be a non-captive customer for Active Safety?

We don't speak at -- generally speaking, but we can confirm that's a non-captive customer, the one that we talked about year-end 2017.

That's a non-captive customer.

Beyond that, we can't comment on it.

So -- but it's a non-captive customer.

And then the last question is, in the details you published for Veoneer yesterday, I was a bit surprised to see the negative underlying margins for the brake control systems.

I remember when the business was acquired, I think we all probably had a slightly different profitability profile in mind.

Maybe, you can talk about what -- whether there is something temporary going on right now or whether this business has been loss-making since the time that you acquired it?

I can start and say there are a few things, and then Mats can add a little bit more color to it.

You have, first of all, a declining sales line here that we have seen that was not in our original plans.

And that declining sales line is coming from a project that has been moved out from the AMBS from Honda business.

So that is some Honda business that has disappeared coming -- going away from AMBS, and from the joint venture.

That is contributing, of course, also then, so the declining sales line contributing to the declining profit.

Then, also you have also other factors related to the purchase accounting and to the integration that is affecting it, Mats, maybe you want to elaborate a little bit more on that or...

No, no, you're right.

I mean if you're looking on the underlying profitability for AMBS, and this is where we've been clear on that one as well last year for 2017.

The reported is negative and that's not a surprise, but if you adjust for the PPA as well as the integration costs, we are possibly for AMBS working on the 2017 numbers.

I think we can take the last question now.

Our last question comes from Thomas Besson from Kepler Cheuvreux.

I will be very brief for the last question.

Can you give us an idea of what you expect for your customers' orders for Q2 versus what you gave us as a 5% growth indication for IHS?

We've heard some of your competitors being a bit skeptical about this growth rate in Q2.

Do you share that view or do you think the 5% is credible?

What -- is your question, if we think that our [quarter loss] is matching the IHS growth numbers?

Is that your question?

Absolutely.

I don't think we have any bigger deviation as of right now, not what we're here ready to comment on.

This concludes today's question-and-answer session.

I would like to turn the conference back to our speakers for any additional or closing remarks.

Before handing back to Jan, I just want to notice a small mistake in the invitation date for Stockholm.

It says May 30 in the presentation here.

It should say May 31.

Otherwise, it's correct.

I'll now hand you back to Jan.

Well, I don't have so much more to say.

We just mentioned that we intend in Autoliv to publish our earnings report for second quarter on Friday, July 27.

And you should also follow our corporate website for more information regarding the upcoming investor events and analyst days here with the roadshows for both companies.

And then, finally, I sincerely appreciate your continued interest in both our companies, I hope, in the future.

And that you -- I look forward to see you in future earnings calls.

So thank you very much, and goodbye for now.

This concludes today's call.

Thank you for your participation.

You may now disconnect.