Autoliv Inc (ALV) 2018 Q2 法說會逐字稿

Good day, and welcome to the Autoliv Second Quarter 2018 Financial Results Conference Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Anders Trapp, Vice President, Investor Relations.

Please go ahead, sir.

Thank you, Sergei.

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

In Stockholm, we have our new President and CEO, Mikael Bratt; our Chief Financial Officer, Mats Backman; and myself, Anders Trapp, Vice President of Investor Relations.

During today's earnings call, our CEO will provide a brief overview of our second quarter result and outlook as well as provide an update on our general business and market conditions.

Following Mikael, our CFO, Mr. Mats Backman, will provide further details and commentary around the Q2 '18 financial results and outlook for full year 2018.

At the end of our presentation, we will remain available to respond your questions.

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

Turning to the next page.

We have the safe harbor statement, which is an integrated part of this presentation and includes the Q&A that follows.

The result herein present the performance of Autoliv continuing operations, meaning that the historical financial results of Veoneer are reflected as discontinued operations.

The exception to this is cash flows, which are presented on a consolidated basis for both continuing and discontinued operations.

During the presentation, we will reference some non-U.

S. GAAP measures.

The reconciliations of historical U.S. GAAP to non-U.

S. GAAP measures are disclosed in our quarterly press release and the 10-Q that will be filed with the SEC.

Lastly, I should mention that this call is intended to conclude at 3:00 p.m.

Central European time.

(Operator Instructions)

I now hand it over to our Chief Executive Officer, Mikael Bratt.

Thank you, Anders.

Looking now into the Q2 2018 highlights on the next slide.

But first, I would like to say that I'm very happy to talk with you here today.

Last time many of us met was at the Investor Day and on the following roadshows, when we talked about the road ahead for Autoliv following the spinoff.

Now we are for the first time presenting the new Autoliv marking the beginning of a new exciting journey towards our 2020 financial target.

I would also like to acknowledge and offer my sincere thank you to the entire Autoliv team for delivering a quarter of strong growth in the midst of all the extra efforts to complete the Veoneer spinoff.

With the Veoneer spinoff now successfully executed, the Autoliv team is fully focused on our automotive occupant and pedestrian safety products to manage the product launches and delivered increasing value to our stakeholders.

The product launches are on track, but with some delays in ramp-up in the first quarter of 2018 of certain motors and at somewhat elevated levels of launch-related costs.

We have experienced some headwinds from raw material pricing and currency movements in the quarter, which together with the launch-related costs, tampered the operating leverage of the strong sales growth.

The management team is fully focused on delivering on the 2020 targets.

Our 2018 full year indication for growth and margin, together with the continued strong order intake, show that we are on track towards our 2020 targets of more than $10 billion in sales and around 13% adjusted operating margin.

Favorable industry fundamentals continue to drive higher global automotive demand and production in the quarter.

Looking forward, we will continue to carefully monitor the development of issues fundamental to our business such as the potential impact of trade renegotiations and tariffs on raw materials in the automotive industry.

Looking now at the recap of our second quarter financial performance on the next slide.

Built from previous year's strong order intake, the second quarter marks the beginning of the step-up in growth that we have been discussing.

Our consolidated net sales for continuing operation increased more than 11% compared to the same quarter of 2017.

Adjusted operating income increased by more than 6% from USD 216 million to USD 230 million.

Adjusted operating margin for continuing operation, excluding costs for capacity alignment and antitrust-related matters, decreased by 50 basis points to 10.4% compared to the same quarter of 2017.

Adjusted EPS for continuing operations diluted increased by 48% to $2.22 as compared to the same quarter of 2017, mainly due to higher gross profit and lower tax, which was partly offset by increased RD&E net.

Looking to our sales growth on the next slide.

Consolidated net sales for continuing operation in the quarter increased year-over-year by 11.5% to USD 2.2 billion, with an organic growth of 7.3% and a positive currency translation effect of 4.2%.

Sales outperformed LVP according to IHS in all markets, except Europe and South Korea.

In the quarter, 60% of the organic growth came from the growth markets, China, India, ASEAN, and South America, with China leading the way by growing organically by 18%.

Compared to last year, this growth market increased their overall share of our sales by 3 percentage points to 24%.

In China, both global OEMs and particularly, local OEM contributed to the strong performance.

Growth with newly introduced models from Geely, including their luxury brand, Lynk & Co, as well as Great Wall have been significantly contributors.

Local OEMs now account for 1/4 of our sales in China compared to less than 22% a year ago.

Driven by previous quarter's product launches mainly from FCA, Honda, Nissan and Tesla, our sales in North America grew by close to 12% organically in the market with a 2% decline in LVP.

Despite negative effects on light vehicle production from transportation strikes in Brazil, our sales in South America grow organically by 34%.

In Europe, we have been affected by weaker demand for certain models that we supply in part related to the temporary production cuts connected to the new EU emission testing regulation, WLTP, implementation on the September 1, 2018.

Looking to our key growth vehicle models for 2018 on the next page.

Here you see some of the key models, which have launched in 2018.

These models accounted for a large share of our organic sales growth during first half of 2018.

Despite some of these models contributing slightly less than expected, particularly in Q1 of 2018, we continue to anticipate that they will contribute around $0.5 billion of organic sales growth during full year 2018.

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

Looking now to our product launches.

Our strong momentum continues.

We continue to see the ramp-up of product launches of business awards in 2015 and 2016 as a result -- as illustrated by the chart.

The ramp-up of growth is developing according to plan after some delays in the first quarter 2018.

The number of product launches in the second quarter of 2018 increased by 72% compared to a year earlier.

We expect this to result in a step-up in organic growth in the second half of the year compared to the first half of the year and a strong performance versus our market and LVP in subsequent quarters.

As the number of launches is stabilizing, we believe we can gradually focus more on productivity improvements through operational excellence, while our launch-related cost gradually decline.

Looking to our underlying market conditions on the next slide.

Despite continued strong global light vehicle sales, the outlook for major light vehicles markets has become increasingly more uncertain due to potential trade tariffs and regulatory changes.

Despite strong light vehicle sales in April and May in China, light vehicle inventory levels increased during quarter and is now above what has historically been considered to be healthy level.

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

In Europe, the light vehicle production increased around 4% year-over-year in the quarter as vehicle registration continue to increase near-record levels in the region.

For the third quarter overall, global light vehicle production is expected to be quite strong with an increase year-over-year of around 3% according to the latest IHS forecast figures.

Asia is expected to increase by around 2% in the third quarter.

This assumes light vehicle production will increase year-over-year in China by around 3% with Rest of Asia remaining unchanged and Japan expecting to increase by around 2%.

In North America, the light vehicle production is expected to increase year-over-year around 6%, and South America is expected to remain strong and increase around 14% for the third quarter.

However, we have seen a reduction in near-term forecast volumes, particularly in Europe, but to some extent, also, in North America.

The reduction in Europe, we believe, are mainly related to the WLTP, as light vehicle sales have been strong in the region, reaching near-record levels.

These reductions and our slightly weaker-than-anticipated sales in Q2 2018 are the main reasons why we reduce our full year 2018 organic sales indication.

Moving now to trade and regulatory update on the next slide.

Autoliv continue to monitor the trade and regulatory environment.

In general, we continue to work on mitigating these risks through geographical diverse supply chain.

Renegotiations of NAFTA may have significant impact on the North American automotive industry as a whole.

We produce a substantial amount of air bag modules and inflators in the U.S. and have a large footprint for high-level content production in Mexico.

We estimate that our net import to the U.S. from other NAFTA countries is less than 15% of our total North America sales.

Most of our production in Mexico is picked up by the OEMs for assembly into vehicles in Mexico, the U.S. and elsewhere.

Looking at import and exports between China and the U.S., we have a limited direct exposure, thanks to the investment in China for vertical integrations over the past years.

However, Chinese tariffs on import vehicles from the U.S. may affect output of certain vehicle models with high safety content.

In September 2018, EU will switch to a more rigorous emission testing procedure, WLTP, which means that old brand model engine and transmission combination and configuration must be individually tested.

OEMs have acknowledged that they will not be able to fully execute the required volume of testing by the deadline and have temporarily reduced their output of certain models in the second half of 2019.

I will now hand over to our CFO, Mats Backman, to speak about the financials.

Thank you, Mikael.

Looking now to our financials on the next page, where we have our key figures for the second quarter.

Including positive currency translation effects of around $80 million and organic sales growth of about $145 million, our consolidated net sales reached $2.2 billion for the quarter.

Our gross margin declined year-over-year.

The net operating leverage on the higher sales is offset by higher commodity cost, net currency effects and cost related to ramp-up of recent launches.

Our adjusted operating margin of 10.4% declined year-over-year, mainly due to higher RD&E net and the lower gross margin, partly offset by lower cost per SG&A in relation to sales.

Our adjusted earnings per share of $2.22 improved year-over-year by $0.72.

Our adjusted return on capital employed and return on equity were 21% and 25%, respectively.

Looking now on the next slide.

Our adjusted operating margin of 10.4% was 50 basis points lower year-over-year.

As illustrated by the chart, operating leverage on the organic sales growth improved the margin by about 20 basis points.

This improvement was more than offset by higher raw material costs of about 30 basis points and a net currency headwind of about 40 basis points.

The leverage was negatively impacted by RD&E expenses net, which increased compared to the same quarter in prior year, mainly as a result of lower engineering income and a significant increase of product launches in the quarter.

We expect the headwind for raw material to continue throughout 2018 and to be close to $30 million higher year-over-year due to higher cost for nonferrous metals, steel and iron.

This is almost twice as high as expected at the beginning of the quarter.

We anticipate the currency effects on the operating margin for the full year '18 to be close to neutral.

Looking now to our cash flow on the next slide.

Our operating cash flow, including discontinued operations, amounted to $47 million compared to $179 million in the same quarter of 2017.

The decrease was primarily driven by cash flow impact on discontinued operations, including costs of about $80 million for separating our business segments and also, increased operating working capital driven mainly by increased sales growth.

Of the total $165 million in capital expenditures, $125 million is related to continued operations, which is about 5.7% in relation to sales.

For the full year 2018, we expect capital expenditures to remain in the range of 5% to 6% of sales.

For 2019, we expect the capital expenditures to sales ratio to begin to normalize towards the historical range of 4% to 5%.

Looking at continued operation for the full year '18.

Excluding any discrete items, we expect our operating cash flow to be about the same level as in 2017, which was $870 million.

Looking now to our earnings per share on the next slide.

In second quarter '18, the adjusted earnings per share increased by 48% to $2.22 compared to the $1.50 for the same period 1 year ago.

The main driver behind the increase is the lower tax rate comparing to a year ago explaining about $0.58 and the remaining $0.12 from higher operating income.

Looking now to our returns on the next slide.

We are pleased that the returns are improving in the new corporate structure.

Return on capital employed and return on equity for continuing operations for the quarter is above what we have recorded in the full year 2015 to 2017 in the old structure.

We increased the dividends returned to shareholders in the quarter to $54 million, and we distributed the Veoneer shares of our shareholders as well in the quarter.

Turning for the balance sheet and the financial policy on the next slide.

We have, as you know, a long history of a prudent financial policy.

After the spin, our balance sheet focus and shareholder friendly capital allocation policy remains unchanged.

The third quarter '18 dividend was set at an unchanged level of $0.62, which, of course, means a significant increase in dividend yield after the spin.

At the time of the spin, we provided USD 1 billion of cash liquidity for Veoneer.

Standard & Poor's has confirmed the long-term credit rating A- with a stable outlook even after the cash injection.

Autoliv policy is to maintain a leverage ratio of around 1x net debt-to-EBITDA and to be within a range of 0.5 to 1.5.

As of June 30, 2018, the company had a leverage ratio of 1.6x.

Our strong free cash flow generation allows a fast deleveraging and should allow continued returns to shareholders, while providing for flexibility.

As a result, we're aiming to reach our target level of 1x in 2019 and that is excluding any discrete item.

Turning the page, we have our maturity structure of long-term debt.

In June, Autoliv issued a 5-year bond offering of EUR 500 million in the Eurobond market.

The bonds carry a coupon of 0.7%, and Standard & Poor's has assigned a bond rating of A-.

The Eurobond market provides diversification of funding sources for Autoliv going forward.

And as can be seen from the chat, Autoliv has a very well balanced debt maturity profile going forward.

Looking now to our financial outlook on the next slide, where we have summarized our full year 2018 indications.

Full year '18 indications assumes mid-July exchange rates prevail and excludes cost per capacity alignment, antitrust-related matters and cost related to the spin of the Electronics segments.

Our full year '18 indication is for an organic sales growth of about 8% and a positive currency translation effect of about 2% resulting consolidated net sales growth of about 10% for 2018.

The 8% organic sales growth indication is slightly lower than the earlier indication of more than 10%, as we have noted some near-term reductions in forecast volumes and especially in Europe.

The net operating leverage on this sales growth is expected to drive an improvement in operating margin, leading to an adjusted operating margin of more than 11% for the full year 2018.

The projected tax rate, excluding discrete items, is expected to be around 27% for the full year 2018.

The projected operating cash flow for continuing operations, excluding any discrete items, is expected to be on a similar level as in 2017, which was $870 million.

The projected capital expenditures for continuing operations full year 2018 is expected to be in the range of 5% to 6% of sales.

I will now hand back to Mr. Bratt

Thank you, Mats.

Turning the page, this concludes the -- our formal comments for today's earnings call, and we would like to now open up the line for questions.

And I will now hand it back to you, Sergei.

(Operator Instructions) We will now take our first question from Rich Kwas of Wells Fargo Securities.

Just wanted to follow-up on -- you addressed the tariffs in some qualitative detail, but just curious in terms of if there is any distinct financial impact in the second half of the year under 301 in terms of imported components, et cetera, that may come through indirectly?

So I think what we are saying is that we are very well positioned in general when it comes to tariffs with our localization strategy.

And in the U.S., I want to show a slide here, we actually also received a exemption from the U.S. authorities here.

So in terms of impact in the quarter, I would really say that it's more as a consequence on the raw material side that hits Autoliv, so to speak, and what we also describe here.

So I would say, from the tariffs perspective, we are in good position.

Okay.

So -- okay.

And then just a quick follow-up on that.

I know we've got a little bit of a respite from [chic] 32 auto for the time being.

But -- any just broad thoughts on the impact there that could emerge?

On our side, I would say, there is no -- I can't (inaudible) do that -- I mean, it's process really all about making sure that we are agile and can adjust according to how the landscape looks like.

I think right now, the impact of the potential exposure in that area is really on the effect of the LVP side, where it come through, I will say, so -- in the trade import duties, as such, for us.

We will now move to our next question from Hampus Engellau of Handelsbanken.

I have a question on China.

If you could maybe talk a little about your discussions -- the new China impact on domestically and state rates.

And you highlight that domestic OEMs being 1/3 of your sales now, (inaudible), I think, it's been hampering around 25.

Is this on the back of seeing a higher content value per existing customer?

Or are you also seeing new customers coming to Autoliv?

Those are my questions.

Actually, we see both.

I would say, of course, that the relevant growth is really coming from our existing customers growing with them, also growing content per vehicle there.

But we also see increased activities on the broader perspective here and new customers coming through here.

I think when you look at Chinese OEMs per se, it's definitely so the content per vehicle is going up in general, and we have a broader customer base.

Is it a broader spread?

Or could you -- you already now talked about maybe seeing an A team and B team in China, i.e., the A team more going for similar take rates that's -- the foreign OEMs and maybe looking at exporting cars.

So if you're seeing a broad increase in take rates?

Yes.

I think if you look at, let's call it, the premium Chinese brands here, they have content per vehicle that is more in the magnitude of around $200 per vehicle.

And if you then take the broader, let's call it, the [COEMs], it's $120-ish per vehicle there.

So there is a difference in content per vehicle between, if you call them the A team or B team, and I would call them more premium and the volume carmakers there.

We will now take our next question from Victoria Greer of Morgan Stanley.

Just a couple, please.

And first of all, on the full year change in the guidance, I think I saw you comment somewhere that this is really just on production changes.

Could you talk a bit more about what you're seeing there?

You mentioned WLTP a bit, but I don't think that's probably all of it.

And could you -- how much is the WLTP impact?

And how much is what you're seeing elsewhere?

And then on the margins, you've mentioned some start-up costs in Q2.

Could you tell us sort of how much that has been?

Obviously, it makes sense thinking about how much your product launches have been up year-over-year in Q2.

How much of cost have you had in Q2 that probably isn't going to repeat for H2?

Really, just trying to get to what are the drivers of a stronger margin for H2, which is implied in the full year guidance of being over 11%?

Starting with the first question here around the asset indication for the organic growth for full year.

As correctly stated there, it is 100% contributed to the underlying LVP.

But the reason for the underlying LVP changing, I would say, is a little bit of a mixed bag here depending on which region you are talking about.

I think Europe, the WLTP is one contributor.

I think, also, the Q2 effect we saw here also we have a mix effect thing in our own portfolio, so to speak, between the different customers and how they developed in the quarter.

That, of course, carries on and impacts the full year number here.

And then we have the uncertainty in North America, and I think you have seen here also some of our customers here coming out just recently talking about the full year for them.

So when we, of course, look in our own systems here and see the call outs from them, it may soften the adjustments we are doing here.

So I think it's difficult to single out any specific major part here.

It comes from different root causes, so to speak, here.

When it comes to the margin and comparing the first half and the second half, I think, you need probably to divide it into different parts looking at above gross profit and below gross profit.

And starting below gross profit, we have a higher-than-normal RD&E in the quarter, I think, it was like 5.3%, year-to-date 5.1%, and we are expecting a lower level in the second half of the year, partly driven by the higher engineering income in the fourth quarter but also a lower relative underlying RD&E cost.

So that will be one of the drivers there.

And looking above the gross profit and on contribution level, I mean, first of all, we will have less impact from currencies in the second half comparing to the first half.

Raw materials on about the same level, I mean, looking at the total effect for the full year.

But we also have some inefficiencies in the system as well driven by the very, very high amount of launches in the second quarter.

I mean, we have more than 70% increases in launches in the second quarter year-over-year and that is also driving some efficiencies -- inefficiencies in the system as well that we are -- can see that we can improve in the second half.

Okay.

So the -- yes, I wanted to ask about the RD&E as well.

We should think about that as being a sort of unusually high level in Q2 partly because of the lower engineering contribution and comes down for the second half.

Is that right?

Yes.

There is partly the higher engineering income, but also -- the lower engineering income in the second quarter, but also related to the high number of new launches as well.

So you have 2 different components in that.

And then just a couple of housekeeping ones.

Could you talk about the -- your full year expectation for the tax rate and for the interest cost [rate]?

I mean, in terms of -- now I'm just talking continued operations.

We are expecting or we are targeting a tax rate of about 27% for the full year.

So that's the kind of the forecast for the tax rate.

And what about the other one there?

Interest cost?

I mean, some -- I mean, it will not be a significant effect in the remainder of the year then as we have the -- I mean, the Eurobond, we saw kind of kicking in now starting the third quarter, but -- I mean, you can make the math on that one, otherwise there are no changes.

We will now move to our next question from Chris McNally of Evercore.

Maybe if we just dive into that step-up in the second half.

So it sounds like, from a production guidance, roughly in line with IHS around 2%.

I guess, that would imply that something like a 12% outgrowth for 2% pricing to hit the 12% organic in second half.

And if I just use that 12% on last year's $4 billion, I get to a number that approaches $500 million in new launches just for the half.

And you mentioned $500 million for full year launches.

So could you just help bridge the math because it seems like -- I wouldn't imagine that 100% of your new launches were all in the second half?

No.

That's correct.

The $500 million is -- what we contributed is 13 identified modules.

Then of course, we have an organic growth that comes from the, let's call it, the ordinary course of business that is not directed to these 13 models.

So I think there you have difference between what you see in the numbers and what we referenced to the $500 million.

What we have said is that -- what we are saying is that this $500 million is roughly delivered -- year-to-date is roughly delivered half.

So we have another half to go here in 2018.

Okay.

And then is it fair to at least say that the large amount of launches that you're adding in Q2 that, obviously, the production and maybe the mix can move around from that 2%, but that outgrowth, that extra 10%, do you have that visibility now locked for the next 6 months?

So essentially, the only changes would be actual production, meaning that there is not any more launches.

The majority of launches are pretty much known by the summer for Q3.

I mean, we have a very good visibility of the launches we have in front of us, and that's what we're stating is going according to plan, and we are expecting that to deliver its share of the organic growth here.

So yes, if you have changes here, it's mainly related to the underlying light vehicle production in the market.

We will now take our next question from Brian Johnson of Barclays.

Our question is around, really, the interaction of pricing, contracts and the cost pressures from commodities and perhaps tariffs.

One, can you just maybe remind us the level of indexing, if any, in your contracts?

Two, assuming there is not indexing, what have the discussions been with the OEMs on pass-throughs?

And three, is that factoring into the annual price down discussions that you're having with the OEMs because as I've talked [here with] Jan Carlson about, it just doesn't seem fair that Autoliv consistently delivers the highest quality in the airbag business, but consistently gets pushed for prize downs by OEMs.

I mean, that -- just to come -- start with your question around index here and related to raw material, et cetera, there is no, in general, any automatization, I would say, in that pass -- that there is a pass-through for us on that type of cost.

I would say that in the cases where we have good reasons to go to the customer in specific cases, it becomes a commercial negotiation.

And of course, depending where we are in the negotiations, in general, it comes into the annual price-down discussions there.

So it's a pure commercial negotiations there.

So -- and I would say, in general, of course, there is no changes in the dynamics.

In our market here, I think, there is a lot of focus -- continued focus for sure on the price competitiveness from our customers here towards us, and there is no change to that compared to has been in the past.

Any sense of -- are you having those commercial negotiations?

Or do you plan to have them towards the end of the year to true-up the recoveries, if any?

As I said, if we have specific circumstances, suppose that's something we bring out for the customer, but on a general note, it's nothing I can say that we are expecting to see any contribution from.

We will now take our next question from Erik Karlsson of Industrial Equity Partners.

My first question on organic growth.

In the first quarter, you -- organic growth was a bit below expectations, and you called out certain models slipping a little bit there in terms of launch schedule.

I was wondering if these models have now caught up and we are back on track there.

Yes.

Those models are catching up to a large extent.

So -- but of course, there are some spillover that goes into the second quarter here, but to a large extent, they are tracking towards our expectations here.

Good.

And just as a follow-up on that.

What is the uncertainty around the $500 million contribution because that you have kept intact both at the full year and in the first 2 quarters here?

So how much wiggle room is that in the $500 million for the full year at this stage?

That's our -- what we have stated here before and what's remaining for the full year is that this is the best estimate we have at hand, and we have no reason to state anything differently here, so we don't interrupt.

Okay.

Very good.

And just on the margin improvement that you expect during the second half of the year.

For the full year, you guide for 20 basis point or greater improvement and the first half was minus 30 basis points.

So maths tells us second half would be up at least 70 basis points year-on-year roughly.

Can you just help us understand if that's -- that is equally weighted between Q3 or -- and Q4?

No.

I mean, we have a seasonality in Autoliv looking on the financial performance between the quarters.

And so we are -- normally the best quarter for Autoliv is the fourth quarter where we're getting a lot of engineering income and some other kind of positive items coming in.

So if you are looking at the kind of the sequential development, we have the normal seasonality with the strongest quarter being in the fourth quarter, so that's from a kind of sequential development and with seasonality.

But then, again, looking at, we are -- I mean, we are not that happy with the leverage in the second quarter, and we talked about the number of launches and so forth, so we can see an underlying improvement in the second half.

And as I answered Victoria as well when it comes to the leverage in the second quarter, it's also driven by the RD&E development, where we are expecting to have a lower RD&E in relation to sales than in the third and more importantly, in the fourth quarter.

So it's many different kind of factors contributing to the leverage in the second half.

I understand that.

But just to understand, so we should think about it as Q3 improving on a year-on-year basis, but the biggest improvement on a year-over-year basis is really Q4 weighted, is that fair -- a fair assumption?

Yes.

I mean, having the strongest quarter in the fourth quarter and also looking, in particular, when you are in a situation with high growth as well, it's -- we have the natural kind of sequential seasonal difference between the third quarter and fourth quarter, and it actually might be almost a little bit bigger this year due to the development of the growth and the ramp-up.

Good.

And one more question, if I may.

You have upgraded raw material headwind here throughout the first half.

So I'm just wondering, do you have now all the raw materials basically sourced for the second half of year?

Or is there still some uncertainty around the $30 million?

Yes, I mean, there are still some uncertainties around the $30 million depending on what will happen out there, but that -- the absolute best kind of estimate we have today is the $30 million or 30 bps on the full year.

We will now take our next question from Vijay Rakesh of Mizuho.

Just a question here on your content.

I know you've called out in China almost $200 for the premium end and $100 at the volume level.

With the new NCAP regulations, where do you see content going on the passenger safety side in China?

Yes.

I mean, I can't give you a number here.

But I mean, as we have alluded to before, I mean, we see the content per vehicle increasing, I mean, both in the premium segment as well as in the volume car segment here where you see more and more components coming in.

So I think we are on track when it comes to that.

Got it.

And yes, with all the issues at Takata, are you seeing a better order uptake in passenger safety in China versus other regions?

Or it's pretty much similar as you look globally?

No.

I think -- I mean, the way we have performed in the past, we don't see any changes.

But we said, we have continued strong order intake in the quarter here without quantifying that, and I would say that accounts for all of our different regions.

So yes -- I mean, the business climate and our progress in that is where we have been in the past here, so no material changes there to report on.

We will now take our next question from David Leiker of Baird.

Can you hear me all right?

Yes.

Yes.

Very good.

Okay, great.

A few things I want to kind of walk through on the service Slide 7, where you listed a number of product launches.

If you extended that out to 2019, just directionally, what would that look like?

Yes.

I mean, we normally don't guide on product launches here.

But I would say, I mean, '18 is the peak year, so to speak, if you have those 3 years in the right in here.

And in '19, we'd be slightly lower.

But compared to where we have been, it will be -- still be on a relatively high level of launches here.

But slightly lower than (inaudible)...

Okay, great.

Okay.

And then as we look at Europe at the WLTP, what's your sense of when we'll get back to sort of certain normalized production where that's not impacting the build rates?

It's difficult to speculate.

I mean, it's more a question for the OEMs to answer on that.

But I think, what we have indicated in our numbers is as much as we see here.

But -- yes, I don't think I can give you any guidance there.

It depends also on the different OEMs here, I assume.

So it's more a question for them to answer.

Is there something you think can drag over into Q4 and Q1 of next year?

As I said, I mean, we can't speculate here.

I think, we have in our numbers what we have visible here.

The impact for us is -- I mean, together with other contributing factors as we have talked about here the 2%.

But in Q3, Q4, actually, yes, but we have no major indications, do not know.

Okay.

And then the last one is, if we look at the EBIT margin, you're just under 11% last year, you're guiding above 11% this year.

And then at the Analyst Day, you're talking about a 13% number for 2020.

If we look at that slope, is that kind of evenly spread across that time period?

Or is it more back-end weighted?

I mean, it's difficult.

We haven't really kind of guided about the kind of the sequential over the years when it comes to the EBIT margin development.

But I mean, it's -- as we assume -- I mean, when we have this high number of launches that we have right now, it kind of takes some time to fine tune everything in production in order to get the full effect in terms of leverage from the additional volumes.

So we see a gradual improvement from higher volumes.

But start kind of all that stating something going into '19 and '20, I think that is difficult.

But if you are looking from a sequential point of view quarter-by-quarter, is definitely so that we have bigger opportunities when it comes to leverage when we have fine-tuned production, and we have the volumes in production there.

We will now take our next question from Joe Spak of RBC Capital Markets.

Just to follow on the prior sort of WLTP discussion.

Obviously, there is some qualification and sort of capacity issues.

But -- one of the other things that some of the automakers indicated was because of that, they're delaying some new programs.

And I'm wondering if that impacts some of your order intake that you should have expected to come on as well?

Or is this really just sort of -- is it both volume and launches?

Or is it really just more volume?

It's more volume from our side here when we look into the rest of the year here.

So no pushes for rather any product launches as such, so that is following the plan.

So for us in the second half of the year, it is pure volume related.

And I can't say that we have seen anything related to WLTP commented when it comes to the ordering -- I mean, the new program, I mean, that's much further out in time as well.

So I would be surprised if that came into that.

Okay.

And then just maybe any sort of high-level comments on sort of the competitive environment with [invoice] and sort of maybe sort of coming together a little bit, like what are you seeing in terms of the bidding and quoting process from a competitive nature?

No, I think, the dynamics in the market is as it has been.

We see no changes to that.

And -- I mean, we look at, of course, at all our competitors with great respect, and leaning forward and fighting every day here for our business here, but no changes just in the dynamics.

We will now take our next question from Agnieszka Vilela of Nordea.

Could you just dive in on what happened in Europe during the quarter?

You didn't have [anything drive], in spite of the fact that at least the official production numbers were positive.

And you mentioned that you had some negative mix impact there.

Can you just elaborate on this one?

And also tell us if that will prevail in the coming quarters.

I think, in Europe, it's, as we stated earlier, a mixed question for us.

I mean, we don't have the wave as we have referred to in the step-up of launches in Europe as we have them mainly in North America and China.

So we were not offsetting the mix effect with the increased product launches as they were not appearing in Europe there.

So it's really related to the respective customer we have that this order volume effect there.

So it was not seeing a clear picture in Europe here.

So that's why we referred to the mix.

And when you look at these, then say, important customers for you in Europe and their outlook for production in H2, what do you see there?

Should we expect still kind of negative performance versus the car production in Europe and your business?

No.

I think when it comes to the remaining of the year here, I think, we continue to see some challenges in Europe here when it comes to what the figures we see and what you may see from IHS, where they have slightly high numbers as a consequence probably because what we see with the -- connected to the new emission standards here.

Okay, perfect.

Yes, and I think, I have one question to Mats on the financials, a bit of nitty-gritty.

If I look at your P&L and the line above the operating income, you have the line called other income expenses net of positive $9.6 million.

And when I look at my model, usually, this kind of line correlates quite well with the one-offs that you take in the quarter, it is not much higher than that, but in this quarter, it was actually $10 million higher.

So the question is, do you have any kind of undisclosed positive nonrecurring items that you encountered during the quarter?

No.

I mean, looking at, I think, it was $9.6 million or something like that, looking at the second quarter.

And if you compare year-over-year, I think we had a little more than $8 million last year.

So just looking on the year-over-year development of this item, it contains a lot of smaller items that are kind of summarizing up to the $9 million.

So we don't have anything unusual in that one.

A good example of an item that is positive, that's standing up in this one is, for instance, government income that we might receive from China, for instance, that are coming kind of regularly, that's a part of this one as an example.

But it's nothing out of the normal when it comes to the other income this quarter.

Viktor Lindeberg of Carnegie Investment Bank.

Just to understand when you now reiterate the margin outlook for 2018 and also 2020 and thinking about that the headwinds that you experience on FX and also raw material summing up to some, I think, it was 70 bps.

So what is counteracting or mitigating this given that you're more or less now reiterate the margins for both 2018 and also looking all the way to 2020?

We, actually, didn't have any margin guidance looking at to 2018 to start with.

I think the only thing we have stated was for the segment to be better year-over-year.

So we did not really give any guidance when it comes to 2018.

So this is the first guidance as a stand-alone company for '18.

And as I said as looking at the currencies, for an instance, we see a very kind of limited, it's close to neutral effect for the full year.

You are right about the raw materials.

But to kind of consider that in a target that is in 2020, I think, is extremely difficult given the volatility we have seen both on raw materials and on current system.

So the only thing we can do is to reiterate the target of the 13% looking at 2020, and now we have the new guidance for 2018 of more than 11%, and that's a new guidance and that's including the raw material effect we see and the neutral currency.

Okay.

Just to understand, should we see -- maybe that you had a decent cushion in the numbers you provided both on the 13% 2020, but also that margins were to expand year-over-year in 2018, so that's one of the...

No.

I wouldn't.

You always have positives and negatives along the road.

So I mean, what we are communicating is our best estimate basically.

Okay.

And then just a follow-up question on the order intake.

Can you update us on -- if you have any data on the market shares year-to-date on your global order intake?

You've been tending at 50% or 50% plus.

Is this something that you continue to see throughout 2018 so far?

No.

We are not giving any market share number on the order intake.

And what we stated here earlier in the call is that we -- and we also have it in report that we see continued strong new order intake.

So that's what we keep it to.

Thank you.

That's all the time we had for today's questions.

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

Very good.

Thank you very much.

But before we end today's call, I just would like to say that we continue to execute our growing business volumes and now new opportunities in more focused Autoliv, with a neverending focus on quality, innovation and operational excellence.

I also should mention that our third quarter earnings call is scheduled for Friday, October 26, 2018.

And by that, thank you, everyone, for participating on today's call.

We sincerely appreciate your continued interest in Autoliv, and hope you have a great summer.

Goodbye and thank you.

Thank you.

That will conclude today's call.

Thank you for your participation.

Ladies and gentlemen, you may now disconnect.