Veoneer, Inc. (VNE) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 earnings release conference call. (Operator Instructions) I must advise you that this conference is being recorded today, Wednesday, the 3rd of February 2021.

I would now like to hand the conference over to your speaker today, Thomas Jönsson. Please go ahead.

Thank you. Thank you very much, Janet. Welcome, everybody, to our fourth quarter 2020 earnings conference call and webcast presentation. So here in Stockholm, we have our Chairman, President and CEO, Jan Carlson; our current Chief Financial Officer, Mats Backman; and our incoming Chief Financial Officer, Ray Pekar; as well as myself, Thomas Jönsson, Communications and IR.

During the call today, Jan will comment on our current business highlights and provide an update on our strategic reviews, launches and technology. Mats will, after that, walk you through our financial results and efficiency programs while Ray will provide some commentary on the 2021 outlook and the update we have done to our 2023 midterm targets. We will then remain on the line for the Q&A session. And as always, slides and earnings release are available through a link on the homepage of our website.

If we turn the page, we have the safe harbor statement, which is an integrated part of this presentation and includes the Q&A that will follow here today. During the presentation, we will reference some non-U.S. GAAP measures, and the reconciliations of the figures are disclosed in our quarterly press release and the 10-K that will be filed with the SEC.

We intend to close the call at 3:00 p.m. (Operator Instructions)

With that, I will turn the call over to our CEO, Jan. So Jan, please take over.

Thank you very much, Thomas. And a warm welcome to all of you on this call from my side as well.

Now looking on to the business highlights of fourth quarter and turning the page. During the fourth quarter, we saw an unfortunate resurgence of the COVID-19 pandemic, and we continued to put health and safety of our associates first, reinforcing the measures that we put in place in the beginning of the pandemic. Even throughout this uncertain and volatile market, we had a strong execution in 2020 of our technology and customer launches, also despite disruptions in supply of electronic components. These disruptions may continue for some time.

Due to our strong launch period, our organic sales growth for the fourth quarter was 17% overall and 31% in Active Safety, providing a strong outperformance as compared to the underlying global light vehicle production. Our market adjustment initiative program has been instrumental to improving our operating and cash flow performance year-over-year and thereby helping to mitigate the effects created by COVID-19. As a result, we ended 2020 with a cash balance of USD 758 million.

Our order intake of approximately $530 million increased by approximately 10% in 2020 compared to 2019, and that is despite the volatile market conditions. This, in combination with the completion of our strategic initiatives, has resulted in a strong order book of approximately $14 billion at the end of 2020.

Reflecting on the strategic initiatives, the separation of Zenuity has provided Veoneer with market-leading driving policy software in addition to our internally developed perception software stack. These have become the important enablers for Veoneer and Qualcomm to come together and finalize an agreement to collaborate on the delivery of next-generation scalable ADAS, Collaborative, and autonomous driving solutions under the Arriver brand. So overall, a successful year for Veoneer despite market volatility and an ongoing pandemic.

Turning the page. On this slide, we have a few comments on the Arriver brand. Arriver is developing the next generation of its software stack to be an open, flexible and scalable solution which will allow automotive manufacturers and automotive suppliers to, based on a robust software platform, tailor and customize solutions to their specific needs on their individual product development strategies. This software stack consists of a fifth generation perception stack which is built on almost 2 decades of development of vision-based perception. The fifth generation will provide high resolution using 8-megapixel cameras, allowing for higher frame rates and providing a wider field of view of 120 degrees compared to today's solution.

The Arriver software stack will provide full NCAP rating features and on top of this, will enable innovative solutions for determining free space along with challenging restricted and roadwork scenarios. We are pleased with the customer activities with both traditional OEMs and potential Tier 1 suppliers and remain optimistic to be able to announce an Arriver software stack business award during 2021.

Now looking on our underlying market development by turning the page. The global light vehicle production rebound continued in the fourth quarter of 2020 from the trough in the second quarter, with a sequential increase of approximately 14% from third quarter, which was 5% better than expected at the beginning of the quarter. Looking ahead into 2021, the light vehicle production is expected to increase approximately 14% from 2020, coming back to around 81.5 million vehicles. However, based on our customer call-offs and short-term forecast, we believe some customer interruptions and production downtime due to the semiconductor shortage issues are not fully reflected in the latest IHS forecast during the first quarter of 2021 and also perhaps into the second quarter.

We should also keep in mind sequential decline in the first quarter is largely due to the seasonality effect of the Chinese New Year in the first quarter. It remains to be seen if these volumes could be made up during the second half of 2021 since underlying customer demand remains relatively strong.

Now looking on our order intake and order book on the next slide. Our order intake during 2020 of approximately $530 million, which equated to approximately $2.6 billion of lifetime sales, was well above our current market share in both Restraint Control Systems and Active Safety. Although this order intake in 2020 is lower than our expectation at the beginning of the year, it reflects the softer sourcing environment which evolved during 2020 due to the COVID-19 pandemic. We should mention that Active Safety order intake included more than 50% of system awards in 2020.

Looking now to the order book of $14 billion at year-end of 2020. The main reduction from the previous year's approximately $19 billion was related to the Brake Systems divestitures during 2020. The remaining difference of approximately $1 billion related to the net effect of lower underlying light vehicle production, the net sales and lifetime sales related to the order intake in 2020, along with program changes from when the business was originally sourced. Program changes generally include adjustments to volume, content per vehicle, take rates, currency as well as other program timings.

Subsequent to the release of our 2020 order book in mid-January, we have since received notice from an autonomous vehicle customer that they have chosen a different path for their LiDAR core technology. Our order book of approximately $14 billion is not impacted by this decision since our volume assumptions were already lowered in our previously announced order intake update for 2020. Looking ahead into 2021, we expect our order intake to be second half weighted and increase from the levels achieved in 2020.

Now looking to some of our new technology launches on the next page. We have captured on this slide our main technology launches during 2021. These product launches illustrate our continuous flow of product improvements and achievements across the portfolio. And despite the challenges for our cross-functional development teams and the constraints that the COVID-19 pandemic has placed upon us, our teams have done an excellent job and continue to manage the overall customer time lines.

Now looking on our customer launches on the next slide. We can see that 2021 is another important year for our company where these program launches are expected to contribute to our strong organic growth in 2021, 2022 and beyond.

As illustrated on the slide, we have our top 15 customer launches in terms of sales for 2021, where 3 of these launches are delays from 2020. In aggregate, these top 15 vehicle models and platform launches during 2021 represent more than $300 million of average annual sales, with an average content per vehicle of approximately $175. The content range on the top 15 in 2021 slightly increased from last year to a range of approximately $100 to more than $1,000 per vehicle.

I will now turn it over to Mats for his commentary on the financial results. Mats, please go ahead.

Thank you, Jan. Looking now to the next slide. We are pleased to have rebounded with a very strong organic sales growth during the fourth quarter of 17%, which represents a growth over market of 15 percentage points.

Net sales for the fourth quarter of $455 million were slightly better than our internal expectations at the beginning of the quarter. This strong sales performance as well as our ongoing market adjustment initiatives which continue to show an improvement to our underlying cost structure resulted in an operating loss of $77 million, also slightly better than our internal expectations. Our strong cash position of $758 million at the end of the fourth quarter was also better than expected due to continued strong performance with working capital and capital expenditures.

Despite the COVID-19 impact on our industry, our company continues to be in the middle of a tremendous investment period to support the ramp-up of our organic sales growth, which is expected to remain very strong over the upcoming years, which is supported by our strong order book. In this environment, we continue to look for opportunities to reduce our capital expenditures without compromising future launches. During the fourth quarter, capital expenditures was $21 million or $24 million lower as compared to last year. So overall, a very good sales development and continued progress to improve our cost structure and balance sheet as we continue preparations for an upcoming period of organic sales growth.

Looking further into the details of the fourth quarter on the next slide. Our sales for the fourth quarter remained essentially flat compared to the same quarter last year, which includes the $87 million related to the VNBS-Asia divestiture effect. The organic sales increase of $65 million or 17% was mainly driven by Active Safety, with a 31% organic sales growth, which was primarily driven by new program launches. The RCS organic sales growth of $8 million or 4% was 2x the LVP increase for the quarter. In addition, the net currency translation impact was $21 million or 5% while we had a tailwind of $9 million related to brake control ECU sales during the quarter.

The gross profit decline of $4 million for the quarter versus prior year was due to the Brake Systems divestiture effect of $13 million. This negative effect was more than offset by the leverage on our organic sales growth, where we experienced certain launch costs.

RD&E net cost of $108 million increased by $5 million during the quarter compared to 2019. The $20 million of above-normal engineering reimbursement in 2019 and the additional cost related to the Zenuity separation of $11 million were mostly offset by lower underlying RD&E net, including the benefit from the Brake Systems divestiture. Lastly, our operating cash flow of minus $77 million for the quarter was $27 million better than last year mainly due to a $35 million change in net working capital.

Looking now to our sequential performance on the next slide. Net sales of $455 million increased by $84 million sequentially compared to the third quarter, primarily due to the new program launches. The sequential organic sales increase of $81 million included $31 million in RCS and $41 million in Active Safety. The remainder of the increase was related to other brake ECU sales of $9 million. The gross profit sequential increase of $18 million was mostly due to the organic sales growth.

The RD&E net cost sequential decrease of $16 million from the previous quarter was primarily due to the seasonality impact of engineering reimbursement during the fourth quarter while capital expenditures remained relatively the same level as the previous quarter. Our operating cash flow decreased sequentially by $78 million, primarily due to the negative swing in net working capital from previous quarter.

Looking now to our full year results on the next slide. Our sales for the full year 2020 declined $529 million as compared to 2019, which includes the $292 million related to the VNBS-Asia divesture. The organic sales declined $254 million or 16%, whereof we estimate the COVID-19 impact on our organic sales decline was $250 million. In addition, the full year net currency translation impact was $17 million or 1% as compared to 2019.

The gross profit decline of $129 million for the full year versus prior year was largely due to the Brake Systems divestiture effect of $42 million along with volume product mix impact caused by the COVID-19 pandemic. The net currency impact on gross margin was $3 million during 2020.

RD&E, net of $407 million decreased by $155 million during 2020 as compared to 2019 due to lower gross costs, higher engineering reimbursements and the net combined effect of the Brake Systems divestiture and additional Zenuity costs due to the joint venture separation. In addition, SG&A improved $24 million year-over-year while other income and amortization of intangibles improved $43 million combined, related to the VNBS-Asia divestiture, a recovery from Nissin Kogyo and IP license sold to Volvo Cars.

Our operating cash flow of minus $192 million improved $133 million for the full year due to the combined operating loss and equity method improvements and positive changes in net working capital. Lastly, CapEx improved by $122 million due to lower investment in the Brake Systems segment, facility expansions and engineering-related IT.

Looking now to our MAI program on the next slide. As we have mentioned earlier, the results of our market adjustment initiatives continue to have a significant positive impact on our financial results, thereby mitigating the negative financial effects from COVID-19 pandemic for the quarter and for the full year.

Looking now to our 2021 outlook and midterm targets update. And I will now turn it over to Ray.

Thank you, Mats, and hello, everyone. Looking now to the next slide, we have our initial outlook for 2021 as well as an update to our midterm targets.

Our sales outlook for 2021 shows that our exceptional organic sales growth from the fourth quarter is expected to continue throughout 2021. Our current full year 2021 indication is for net sales to increase more than 30% as compared to the previous year, where the organic sales growth is expected to exceed 25%, along with a currency tailwind of approximately 5%. We also expect the organic sales growth for Active Safety to be approximately 45% in 2021.

As a result of our market adjustment initiatives program and strong organic sales growth, we expect RD&E net to be in the range of $110 million to $120 million per quarter during 2021, and our operating loss is expected to improve in '21 as compared to 2020. Capital expenditures are expected to be approximately $100 million in 2021, and we estimate our cash balance to exceed $400 million at year-end 2021. Lastly, for 2021, we expect our operating loss and cash flow performance to improve sequentially during the year as we expect the operating leverage on organic sales growth to improve during the second half of 2021.

Now looking beyond 2021, based on our strong order book and current planning assumptions, we expect our net sales to be approximately $2.5 billion in 2023. Also, we expect to arrive to a sustainable operating profit and positive free cash flow during 2023. So overall, a continued positive momentum in our outlook and carrying over into our midterm targets, especially in this uncertain mixed macro environment.

I will now turn it back to Jan.

Thank you, Ray. If we turn the page, we're coming to the final slide of the formal presentation and comments for today.

But before we open up for Q&A, I would like to extend a sincere thank you to the entire Veoneer team for their dedication and strong execution with continued sharp focus on quality, health and safety. Our team remained focused on launching new technologies and customer programs during extremely difficult conditions in 2020. A big thank you to everyone.

I will now turn it back to our operator, Janet, and open up for Q&A. Janet, please.

(Operator Instructions) And the first question comes from the line of Vijay Rakesh from Mizuho.

Good quarter here. Just a couple of questions. Just wondering on the software side, the Arriver, how you see -- how have the engagements been with OEMs? How are the conversations ongoing? How do you see the design pipeline there -- design win pipeline there?

We are having a very strong interest. Also having in mind, we signed the agreement only 1 week ago or so. We have had discussions already in the fall with the OEMs as well as with other system integrators, Tier 1s.

We are having the discussions with around 10 OEMs and a little less than a handful of Tier 1s, and they're showing very good interest in our product. They are excited to see demonstrations of our product together that we expect to be able to show them during first half of '21.

Got it. And a follow-up. I know you talked about 2021 growing 30% year-on-year. Just wondering, as you look at your design win and backlog, coming onto the pandemic, have you seen a change in how OEMs -- auto OEMs are? Are they pulling more in-house? Has there been a change in the market -- in the competitive landscape on the ADAS or radar side?

There has been a little bit of a change. One big example of that is, of course, Qualcomm coming into ADAS through the cooperation with Arriver and Veoneer. That's an example of how semiconductor tech companies are coming in here. You see also, almost on a weekly basis, how other start-up companies are coming in with sensor technologies into this space.

So we see changing dynamics, but we are looking optimistic. We have a very strong position as being a system integrator, as an integrator with many decades of experience to work with tech companies. And we have a strong portfolio in our core technology.

And if you look to our order book here, as seen on this slide here, 95% of the $14 billion corresponds to our core products. And besides that, of course, we are very interested to take onboard further integration cooperations with suppliers. Also, on our indication of more than -- higher order intake in '21 than in 2020, that is, of course, also excluding any opportunities coming from Arriver. So that is not included in that indication.

And the next question comes from the line of David Kelley from Jefferies.

This is Gavin Kennedy on for David Kelley. My first question, 45% Active Safety growth in '21, pretty robust. Just wondering if you could comment on any of the underlining -- underlying drivers there, perhaps cameras, radars, ECUs, anything driving that number?

Yes, it's primarily the products that you saw here. You can see from the slide and from the technology page that we are having here it's coming from essentially all products. But primarily, of course, the Active Safety piece is driving the strong growth in our core development.

Got it. And then I noticed in the press release, you mentioned revisiting the LiDAR strategy. And then I think just during the call, you mentioned maybe a customer going a different direction. Could you comment on your LiDAR strategy overall and how the market might be shifting there?

When you look on the LiDAR order here -- we referred to in the release, that was an order we took in 2017 and 2018 to a certain customer having a certain technology in mind. And we have been working with that since then. Along that lines, we have seen volumes decreasing over time.

Autonomous vehicles and expectations have been pushed out in time, and volumes has decreased, which is also then accounted into when we announced the order book. So the fact that we got noted here that the customer has picked another core technology is not affecting our order book that was communicated of the $14 billion, but we are seeing a big shift in LiDAR technologies overall over time.

Our strategy, as I mentioned before, is to be a strong integrator. We provide, of course, experience in cybersecurity. We provide automotive-grade experience. We can provide functional safety to start-up companies that have a tech know-how but not really or -- into the automotive environment.

And the next question comes from the line of Victoria Greer from Morgan Stanley.

Yes, 2 questions from me, please. The first one around launch costs.

If I look at the $65 million of organic revenue growth that you had in the quarter and then about $18 million underlying improvement on the EBIT line, I guess that kind of feels like you probably had operating leverage that you would be expecting. Then obviously, a lot of other moving parts on the EBIT line. Could you talk about what launch costs you had in the fourth quarter and how we should also think about that for 2021 when you have very strong top line growth expectations also?

The last one -- the second one, also then coming back to the LiDAR. Could you talk -- I noticed you didn't have your slide of order intake by OEM and by technology. What do you have remaining in the order book now for LiDAR, please?

This is Mats. I can start with the first question when it comes to leverage. And I mean, you are right, we are disappointed when it comes to the leverage in the fourth quarter given the organic growth we had.

However, we had some items that are more kind of a decrease in the fourth quarter when it comes to premium freight that was partly driven by the issue with the component -- or shortage of components, meaning to be able to deliver, we have utilized premium freight to a larger extent than normal. And secondly also, not that kind of uncommon in the beginning of a program is that we had some yield issues as well when it comes to production.

So all in all, if you are looking at the fourth quarter, I would estimate around $6 million in terms of cost that's not kind of repeating. And that would give you kind of a leverage if you're looking at the gross profit level of around 20%, which I think is good kind of starting point when we are moving into 2021 and where we will see improvement with the ramp-up of volume going forward.

Okay. And so that $6 million for the fourth quarter, probably some of that comes down around, yes, not having these high freight costs. But still a little bit, I guess, on the yield side, as you have project ramp-ups, there's still a bit of a headwind there for '21.

Yes. To some extent yes, but not to the same degree as we saw in the fourth quarter.

And to your second question regarding the LiDAR order book, the activities that we have been working on has been on this autonomous drive, and we have commented on that one. So the activities we have been working on have been related to these orders on the current project that is now mentioned in the release. Besides that, we have ongoing discussions with other -- or start-up companies, tech companies in the LiDAR that are looking promising but they are not in the order book.

(Operator Instructions) And the next question comes from the line of Erik Golrang from SEB.

I have 3 questions. The first one on the CapEx guidance for '21, around $100 million, which is down by more than $100 million from the peak in '19. What's the delta there? I mean what did you do back then that you won't invest in, in 2021? And what kind of sales level does $100 million in annual CapEx report a bit longer term?

And then the second question is on -- just a reflection on why you see the need for a completely separate brand on -- with Arriver. And the third question is on the order book. And correct me if I'm wrong, but I'm guessing that Volvo, Geely, Daimler are pretty big pieces of that order book, and they've all at least talked about going in other directions with other suppliers over the last 12 months. Is that a big concern for you as we try to look at growth beyond '23?

This is Ray. I'll take the first question around the capital expenditures.

I think when you look at the $100 million outlook for 2021, we're starting to gravitate towards the midterm target that we -- or longer-term target that we've been always talking about of capital expenditures in, call it, the mid-single digits, maybe 5%, 6% of sales. So we're not quite there yet in 2021, but we're certainly headed in that direction. And we think that this is the right level to support the -- at least the medium-term sales target that we have out there now for 2023 of around $2.5 billion.

So I think we believe this is the right level. Now could that change in the future based on the order intake? Yes, it could. But I think for the time being, we think this is about the right level for now.

The next question was around Arriver.

Yes. I can take Arriver. Arriver is a separate organization inside Veoneer, and it's important that it's separated from Veoneer's other type of business in the software development.

They will -- Arriver will cooperate and work very integrated with Qualcomm. And the product coming out of the stack -- the perception and policy stack in combination with the Snapdragon Ride platform will be sold to other Tier 1s. And therefore, to be able to sell to Tier 1s, it's also very important to point out that this is not Veoneer in all the details. This is a separate organization to be able to sell to other Tier 1s, and that's why we are marketing this as Arriver, separated from the Veoneer brand.

On the order book, you are very right in that Daimler and Volvo and others are very big customer of ours, and they will be for a long period of time, important to point out. This is a strong order book. And now we can all know and read about Daimler's engagement with NVIDIA, et cetera, in the beginning here. But we have ongoing development projects with Daimler, with Volvo that is about to launch, still not in production. So we are, of course, treating them as very important customers for the future. And who knows how this is going to develop over the next time frame.

In addition to that, we have also other very important customers and very important leads that we are working with across the globe, not only here in Europe but also in North America and in China, Japan and rest of Asia. So we are treating them, of course, as important customers and also will work with them in the future, we hope.

Okay. And a follow-up on the last one. So if you look on your tendering right now, is there a bit of a different mix then in terms of what OEMs your -- you potentially could land new business? Or is that similar to the last couple of years?

I don't think it's a bit of a different mix. That is not the case. It may be somewhat of a different customer mix, a little bit. That is changing due to the reasons we have talked about and for obvious reasons.

So we are working on a somewhat different area there. If you look on the product side, it's not of any big difference yet. We expect that also to change and to increase with the Qualcomm and the Arriver collaboration here, to also include bigger pieces of software parts and the software stack.

And the next question comes from the line of Agnieszka Vilela from Nordea.

I have 2 questions. The first one regarding your 2023 outlook. Can you just help us to understand the bridge that you expect for becoming cash positive on the cash flow and also having positive EBIT during that year? What kind of gross margins do you expect? What kind of absolute SG&A and R&D levels do you anticipate when you talk about it?

Yes. I think that everybody would like to know all those numbers, I think, at this time. But I think a lot of these figures that you talked about, Agnieszka, is really -- we'll come back to that at our CMD during the third quarter. I think that's probably the best opportunity for us to talk more about the 2023 granularity.

Okay. That's fair. Just a quick follow-up on that. When you talk about becoming cash positive during 2023, do you mean the full year 2023 or just the run rate?

I mean if -- we are looking at the cash flow and starting from what we have accomplished during 2020 and looking into '21, just to give you the trajectory on that one. If you are looking at the different component going into 2021, we are here giving an outlook when it comes to an improvement of the EBIT in '21. We are slightly higher on capital expenditures but not significantly higher.

So I think looking in particular on 2021, what is important to remember is that we have a great net working capital for the time being. We are minus $97 million end of 2020. And the development of working capital during 2020 has even been over and above our own expectations. So in 2021, we are also assuming that we will see a little bit of a normalization when it comes to working capital, which is the kind of the missing piece if you are looking at the different components; meaning that if you're then getting into 2022, the underlying cash flow, looking at the EBIT level, the CapEx level and the working capital, is more kind of normalized getting into 2022. So that is just to give some granularity when it comes to the cash flow development.

When it comes to sustainable, the wording for 2023, I mean, if we are to be precise, we already had a positive cash flow quarter in the third quarter but definitely not sustainable. And what you will see is also some seasonality in the figures; meaning that, normally, the fourth quarter is the best quarter due to engineering reimbursements. But what we are saying about 2023 is that we're aiming for reaching a positive cash flow that is sustainable going forward, and it's during the year.

Yes. Great. And then the second question is on the semicon shortages. Just if you could share some color on that. What's the situation right now that you see?

And also you referred to the fact that IHS might be too positive on Q1, Q2 production rates. What are you budgeting for?

We -- if we start with the last one. We don't have a number to give you, and we probably should stay out of specific numbers on IHS. But we have seen, during fourth quarter, a very tough situation on components, not only on microcontrollers and advanced ICs, et cetera, from chip manufacturers, but we have also seen shortages of passive components here and there. Our team has been extremely good in mitigating the impact out of this, and this is also seen in the outcome. We are coming out higher on the top line than we expected in the beginning of the quarter despite these shortages.

These shortages will continue into '21. That's a clear fact. And I think following the news here in -- this morning in Sweden at least from OEMs coming out, this is mentioned in several locations, that we see issues coming out of the supply chain.

We believe that we have so far been better than average, better than many or most to mitigate the impact. We hope to be able to mitigate these impacts also going forward.

What we have done in some occasions is that we have been flexible in redesigning in other available components into our designs, got them qualified and validated so that we can ship products with a slight different version of the component into the product and thereby mitigating the impact. And we will continue to seek those activities, but it will probably continue. That is what we are saying.

And the next question comes from Emmanuel Rosner from Deutsche Bank.

It's Edison on for Emmanuel. First question, just wanted to go back to the LiDAR. I realize that this is not a big deal necessary on the order book, but curious as to -- if you could provide more color around the OEM's decision.

Was it related to technology? Was it choosing different supplier than Velodyne? Any sort of color on the underlying drivers for why they've switched the program?

And then just a second question...

No, I...

Go ahead.

Go ahead.

Okay. Second question on the system orders. You provided the 55% number as a percentage of Active Safety. Can you maybe provide some context how that number has trended over time over the last few years?

Yes. Okay. I can start with the first one here on the technology side.

I think this is an application that is very demanding and has been very demanding and has been very showing -- including very specific items and specific requirements that has been very demanding over time. I think the project has been ongoing, as we said, since we got the business in 2017 and '18. And at the end of the day, with all the evolutions that is coming out and all the options, taking into account also a bigger picture on this project, I think the customer here have come to a conclusion to pick another technology.

I think the technology as such -- I'm not the guy to comment on our partner's technology and so forth. We are still having this cooperation, and we will still seek other opportunities out of that, together with probably other opportunities as well. But for this application, the customer picked another one due to the more specific requirements that was very demanding.

And I don't know the true or the real underlying reason for it. I should stay out of those comments. But that is the fact that led to the decision. I don't know, Ray, if you have done any...

Yes. Regarding the system orders, I think if we go back and look at the order intake that we talked about over the last 3 years, 2018, '19 and '20, we estimate that perhaps around 2/3 of the orders during that 3-year period of time is of the system nature. So that's kind of what we're tracking in our books right now related to that.

And keep in mind, during that period of time, both in restraint controls and Active Safety, our wins have been above our current market share levels. So we feel pretty good about the mix of the order book and the order intake, that it's the right products around our core portfolio.

And the next question comes from the line of Hampus Engellau from Handelsbanken.

A question for me on Active Safety. If it's possible for you maybe to comment on market shares and order intake and also maybe what you had in terms of market shares and sales in Q4.

Second question, it seems maybe a bit too early, but I would be interested to hear what's your view on the go-to-market strategy with -- with this mission -- object verification software; i.e., with Arriver being a separate part of the Veoneer business, if an OEM would buy a solution system of Veoneer, would that be on the Arriver or Snapdragon platform you would use? Or do we use the similar software on another platform from another supplier?

Or -- and how will Veoneer's software on ADAS compare to the Arriver software? How should we think about that?

So on the market share, Hampus, I'm not exactly sure what the question was. But I think if we look at our -- what we've historically talked about in 2019, our market shares in restraint controls were in the low 20s as a percentage. And our Active Safety market share was maybe close to 10% -- 9%, 10%, something like that.

So we haven't given our final market share figures for 2020 yet. That will be coming out shortly in the upcoming weeks. But definitely, based on what we've seen in the order intake here in 2020, we're above those levels. So I think despite the order intake maybe being a little softer than we expected at the beginning of the year, we all know that, that was driven by the COVID situation. And we saw a significantly lower level of available orders during the year than what we expected at the beginning of the year.

And the second question is the go-to-market strategy for Veoneer. We will go to market with the combination of the Snapdragon Ride platform together with Arriver software as an integrator. So we will, of course, use that as an opportunity for Veoneer to continue to pursue integration projects like we have done in the past.

Then, generation 4 now is based on a Xilinx technology, as you know, and that is what we will continue to use for that generation. But for the next generation, generation 5 here, [GVT 5] and all what we talked about in the presentation, we'll, of course, go for the Qualcomm technology and the Snapdragon Ride platform.

We are prioritizing as an integrator also the cooperation between Arriver and Qualcomm, of course. So we will definitely promote that solution being an integrator. Qualcomm will go to other Tier 1s and offer this solution.

So at the end of the day, it's a customer decision. Will the customer decide to go with Arriver/Qualcomm with Veoneer as an integrator or another integrator? That is a customer decision. And if the customer has other demands on Veoneer as an integrator using a different technology as a part of our integration job together with our radars and other components, well, then it's to be discussed how we are going to deal with that. But you know how we think here. It's the customer that is deciding at the end of the day.

And the next question comes from the line of Olof Cederholm of ABG Sundal Collier.

It's Olof from ABG. Just a quick follow-up on the gross margin trajectory from here. Mats, you mentioned a 20% drop-through, that you would be happy with that. But it makes it a little difficult for us going into 2021, given that Q2, you were barely breakeven.

So how should we think about it? Is there a way for you to indicate a gross margin level that you're happy with considering an overall sales level of $1.8 billion or so, which your guidance alluded to? Or is there any way you can help us with the absolute gross margin level for 2021?

No, I wouldn't kind of state any absolute levels when it comes to the gross profit going into '21. But I think using the fourth quarter as a little bit of a starting point, I mean, what you need to remember is that, I mean, we are ramping up now. We have had many launches going on now, third quarter, into fourth quarter and into first quarter. And in the ramp-up phase, you don't get the kind of optimal leverage on gross profit. I mean it takes some time before getting there.

And now initially, we have had some other issues when I talked about the premium freight, but also on the yield side. So that's why I'm talking about the $6 million to be something to be adjusted for in order to get the more kind of normalized level from where we are right now.

But from where we are right now, we will see improvements when it comes to gross profit when we are ramping up volumes, even though we will probably have some volatility in between quarters. But I think that's the starting point and improving leverage into the first quarter and then from that, gradually improving through 2021.

And the next question comes from the line of Victoria Greer from Morgan Stanley.

Just a couple of more technical follow-ups just on the guidance. The operating loss to be better than the 2020 level, is that on an underlying basis, so excluding the sort of $30-odd million loss you still had in for the brakes business in 2020? Or is it a headline number?

And also, on the cash burn, so you're kind of guiding to about $350 million of cash burn but with much lower CapEx. Yes, I guess that feels probably pretty comfortable. Would you really think of that $400 million net cash at the end of the year as a floor? Or is there something else in terms of cash that we need to think about there?

I think that -- the second question when it comes to the cash balance end of 2021, I think, again, it's important to remember that -- the statement I made when it comes to working capital. We have had a great performance when it comes to working capital in 2020, but with the growth, we will probably have some negative effects coming through in '21 when it comes to working capital. But I mean that's more of kind of a one-off when we are adjusting the working capital.

In terms of underlying development, we see a positive development in '21 and further positive into '22 then once we have adjusted on the working capital side. So I think that gives a little bit more granularity when it comes to the cash.

Ray, maybe on the...

Yes. Back to the operating loss question. I think it's more of a headline number, Victoria. I think when you look at it, comparing -- or doing the bridge in 2021 versus 2020, we have to keep in mind we have about -- I'll call it, around $120 million of headwind related to above normal engineering reimbursements in 2020 of around $80 million. And then we have another $40 million or so related to the other income.

And then we should also remember that we have additional cost in the operating loss related to Zenuity for the full year. We only carry approximately half a year of that cost in the P&L during 2020 above the operating income line. So when you bundle those things together, it's probably closer to $140 million of headwind, maybe even $150 million. So to improve year-over-year considering that headwind, I think we're pretty pleased with that.

And the next question comes from Steven Hempel from Barclays.

In terms of ending cash balance, you're expecting it to exceed $400 million at the end 2021. I take it that doesn't include any capital raise. I just wanted to confirm that. And then also as we think about kind of your minimum optimal cash balance, we how should be thinking about that kind of long term?

And then as we think about raising capital here or cash balances, should we use this opportunity in terms of the stabilization in end markets to potentially raise capital in case or before the environment deteriorates? Or are you confident that you won't need to raise capital between now and 2023, even if the market deteriorates?

First of all, the more than $400 million does not include any kind of additional funding. I mean it's

based on the cash we have on hand. And if you're then looking at the kind of the cash flow we are indicating for '21 and a further improvement in terms of underlying cash flow into '22, we have said it the whole time, what we are aiming for is to have the sufficient funding on hand when it comes to the business plan and the targets we have stated.

Okay. And then looking at 2021 growth, there's some diversions between Active Safety growth and restraint control. So just wondering what kind of overall incremental margin expectation is for '21 and then if there's any difference between Active Safety and restraint control growth moving forward.

Yes. I think when you look at the margins between the different product lines, we really don't get into that differential between the different products. I think what we have to remember is that RCS or restraint control business is a much more mature market, and it generally grows more in line with the underlying light vehicle production. So with us outgrowing that implies that we're taking market share, as our order intake and our backlog has suggested for some years now.

So -- and then, of course, the exceptional Active Safety growth is even well above the addressable market. So I think that implies that we should be improving our market share slightly there as well.

This was the last question. Please continue.

All right. I would like to thank everyone for your participation in today's call and your thoughtful and insightful questions. I hope we were able to answer them to your satisfaction.

But before we conclude today's call, I would like to extend a sincere thank you to you, Mats, for your significant contributions to Veoneer over the last couple of years. It has been a delight to be working with you first in Autoliv for 3 years and now 2 years in Veoneer. And I wish you, of course, all the best in your new role as a new CFO somewhere but also generally in the future, Mats. And a very big thank you for your contributions and for a lot of fun days together. So all the best to you.

Now looking ahead, beyond that, our next quarterly earnings call is tentatively planned for Thursday, April 22 this year. And we look forward to speaking with many of you during the first quarter before then and, of course, in virtual investor events.

We also, as mentioned in the release, intend to hold a Capital Markets Day during third quarter. We will come out with more information about that later on this year. But until we speak again, take care, everybody, and put health and safety as the first priority. Thank you very much, and goodbye for now.

Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please stand by.