Veoneer, Inc. (VNE) 2020 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2020 earnings release call. (Operator Instructions) I must advise you that this conference is being recorded. I would now like to hand to your speaker today, Thomas Jönsson. Please go ahead.

Thank you very much, Summer, and welcome, everyone, to our second quarter 2020 earnings conference call and webcast presentation. Here in Stockholm, we have our Chairman, President and CEO, Jan Carlson; Chief Financial Officer, Mats Backman; and myself, Thomas Jönsson, Communications and IR.

During today's call, Jan will comment on our current business highlights as well as provide an update on our strategic reviews, launches and technology. Mats will then walk you through our financial results, efficiency programs and provide commentary on our updated outlook for the remainder of this year. After this, we'll remain on the line for a Q&A session. And as usual, slides and earnings release are available through a link on the homepage of our corporate website. If we move to the next page, we have the safe harbor statement, which is an integrated part of the presentation and includes the Q&A that follows here today.

During the presentation, we will reference some non-U.S. GAAP measures. The reconciliations of these figures are disclosed in our quarterly press release and the 10-Q that will be filed with the SEC. This call is intended to conclude at 3 p.m. CET. So I ask everybody kindly to limit yourself to 1 or 2 questions that we can get everybody's request in.

I will now turn it over to our CEO, Jan Carlson. So Jan, please take over.

Thank you, Thomas, and welcome, everyone, to our second quarter earnings call.

Turning the page. We have the business highlights for our second quarter. For us in Veoneer, the health and safety of our associates is the first priority, and we are taking the necessary actions to protect our people and safeguard our operations as the COVID-19 pandemic continues to create challenges to our industry.

Before moving on to our business highlights for the quarter, I would like to extend my warm and sincere thanks to the entire Veoneer team for the way they have performed under these circumstances, staying focused on execution, launching new technologies and customer programs, while continuing to make progress with our market adjustment initiatives.

During the quarter, the OEMs in China and rest of Asia gradually recovered, however, still below pre-crisis volumes, while the OEMs in Europe and North America were essentially shut down for the first 2 months of the quarter, than gradually recovered in June. Although, we see some optimism in the third quarter customer call ups, we remain cautious about second half recovery which will ultimately be connected to the underlying consumer demand. The results of our market action initiative and program continued to gain traction and thereby mitigating the negative contribution effect caused by the lower light vehicle production volumes resulting from the COVID-19. During the quarter, we are pleased to have completed the integration of Zenuity, and we continue to make progress towards finalizing the VBS divestiture. Despite unfavorable timing effects in working capital and longer-than-expected finalization of the VBS divestiture, we are pleased with our strong position of $851 million at the end of the quarter. The positive impact of our MII actions on cash flow is expected to result in a significant improvement in our cash flow in 2020 as compared to the 2019. Considering the current market conditions, we continue to see some launch delays. However, our order intake remains fairly robust at more than $300 million of average annual sales during the first half of 2020 and more than $600 million over the last 12 months.

Turning the page. Here, we have summarized our key accomplishments during first half of 2020, many of which are directly part of our market adjustment initiative program, which we started during Q1 last year. Within our strategic reviews, the VNBS-Asia divestiture in combination with the Nissin Kogyo dispute resolution generated approximately $190 million of net cash proceeds. We also completed the split of our Zenuity software joint venture and successfully integrated approximately 200 software experts into our system development team, and we expect to receive some compensation during the first half of 2021. Although, the VBS divestiture has taken longer than expected to finalize, we expect to have found a good home for our associates and reliable solution for our customer.

Looking now to our efficiency improvements. We are pleased with the outcome of certain customer negotiations, where we recovered approximately $80 million above-normal engineering reimbursements as well as our continued focus to reduce gross costs in RD&E and SG&A.

With 2020 being the beginning of an unprecedented launch phase for Veoneer, we successfully completed the Polestar 2 launch, including the latest Zenuity software stack as well as the introduction of our Gen4 mono-vision camera. In addition, we are on track with our launch readiness for our upcoming heavy launch period, starting with the second half of this year. As a result of all these actions, we have been able to improve the year-to-date operating loss versus last year by $79 million, and our cash flow before financing activities by $262 million, all during unprecedented pandemic. And lastly, we have seen a very successful start-up of our facilities and remote working for most of our support staff, and thanks to the dedication and perseverance of our associates.

Looking now on the next page. As mentioned on the previous earnings calls, this slide provides an overview of our key new technology launches during 2020. Despite some lead customer timing delays, those delays are not impacting our internal technology development, timing and launch readiness. Thereby maintaining our quality, delivery and cost performance. I should acknowledge that this has been a very challenging period for our teams due to constraints that the COVID-19 pandemic has placed us upon.

Looking now to our customer launches on the next slide. We have updated our top 15 new program customer launches for 2020, where you can see the updates from last quarter highlighted in red. The updates include some further launch delays as well as where we see some potential annual vehicle volume changes. Although, it is too early to estimate the net impact beyond 2020.

In aggregate, these vehicle models and platforms still represent close to $500 million of average annual sales with an average content per vehicle of approximately $270, including brake systems. Assuming the VBS, the brake system's divestiture closes, we will come back with further updates on this slide on the next earnings call. The content range of these top 15, remains unchanged in the range of approximately $30 to more than $800 per vehicle. We still expect these launches, which are more loaded to the second half of the year and should contribute to our outperformance versus global light vehicle production in 2020.

Now looking on our products on the next page. The light vehicle decline continues with an additional 3 million vehicles, however, not nearly as severe as last quarter. We now see approximately 87 million fewer vehicles today for the time period 2019 through 2022 as compared to July 2018. This is an additional 37 million fewer vehicles than we reported at the beginning of this year, and this equates to essentially a 22% reduction in the global light vehicle production development for the period 2019 through 2022. As illustrated by this chart on the right, the expectation is that our industry will not recover to 2019 vehicle volumes until sometime between 2023 and 2025. As a result of this continued market uncertainty and potential changes to our customer launch cadence, it is too early to provide any updates on our growth beyond 2020.

Fortunately for Veoneer, our future growth will be much more product and customer launch-driven and less dependent on the light vehicle production recovery. Therefore, we continue to focus on successful launches while driving effective cost control and cash flow management.

Looking on our customer progress on the next slide. We made solid progress in expanding our Active Safety product portfolio across our customer base during the first half of 2020. We are pleased to have added new business awards in vision, a 13th radar customer and the sixth customer for software features. Although, we see some continued customer delays in sourcing, we continue to not only expand our customer presence but also increase our market share with certain customers. As mentioned earlier, our order intake remains fairly robust, where we -- during the first half of this year, approximately 40% of our order intake was related to vision systems, while more than 70% was related to Active Safety.

Looking now to our market drivers on the next page, on June 26, the UN ECE World Forum for harmonization of vehicle regulations, announced the first finding international regulation on Level 3 vehicle automation. The new regulation marks an important step towards the wider deployment of automated vehicles to help realize ambition of safer, more sustainable mobility for everyone.

Starting in January 2021, the regulation provides guidelines to the ALKS feature requires driver availability recognition systems and a black box data storage system for AD. It also outlines requirements for emergency and minimal risk maneuvers and driver transition demand as well as cybersecurity and software uptake protocols. We see this as a natural evolution for the Veoneer hardware, software and system offering, where we already have the required capabilities in, in-house within our portfolio control.

Lastly, I should also mention that on May 6, the Euro NCAP announced that it intends to postpone the rollout of its road map update by 1 year from 2022 to 2023. Although, this have minor near-term effects on our market evolution and the long-term market growth trend remains intact.

Looking now on the next slide. As a result of the recent Zenuity split, we now have in-house competencies under our control, including perception and sensor fusion, localization and vehicle control. Driver policy, along with vehicle integration and system engineering as well as full data collection and verification and validation capabilities. This, in combination with our scalable architecture and global presence, enables our company to capture the evolution of NCAP and the collaborative driving market, L2+. The last piece of the puzzle is to finalize our SoC strategy, which we are working on. We believe our strategy, over the long term, will provide Veoneer with a competitive differentiating advantage, especially in these uncertain times, as OEM customers are looking to Tier 1 suppliers with complete component software and system integration capabilities.

This concludes my part of our formal prepared remarks for today, and I will now turn it over to Mats, please.

Thank you, Jan. Looking now to the next slide. Considering the steep decline in LVP, both year-over-year and sequentially, we are able to mitigate the effect on our financial results very well during the quarter. Net sales for the second quarter of $184 million were essentially in line with our internal expectations. However, we estimate the negative impact resulting from the COVID-19 pandemic was approximately $190 million on organic sales for the quarter. The underlying cost structure improvements year-over-year are primarily due to our ongoing market adjustment initiatives. The primary drivers included RD&E growth costs and above-normal engineering reimbursements, mitigating the negative sales effects, which resulted in an operating loss being better than expected.

Our strong cash position of $851 million at the end of the quarter is progressing according to plan despite unfavorable timing effects in working capital of $30 million, which are expected to reverse during the third quarter.

Our cash flow before financing activities of negative $141 million includes negative $30 million related to VBS U.S. operations. 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 future sales growth, which is supported by a strong order book. In this environment, we continue to look for ways to reduce and even postpone our capital expenditures.

During the second quarter, CapEx was $24 million, $26 million lower as compared to last year. So overall, in an extremely unpredictable environment, we are very pleased with the progress we are making.

Looking further into the details for the quarter on the next slide. Our sales for the quarter declined $305 million as compared to the same quarter last year, which includes the $81 million related to VNBS-Asia divestiture. The main drivers of our 53% organic sales decline, where the RCS business will decline 50%, while Active Safety declined 56% mainly due to our high CPV on premium brands in Europe and North America, where the LVP dropped 62% and 70%, respectively. Net currency translation effect of 1% accounted for the remaining decline.

The gross profit decline of $74 million for the quarter versus prior year was mostly due to the COVID-19 impact on volume and product mix causing the organic sales decline. Net currency effect of minus $2 million and the VNBS-Asia divestiture effect of $13 million accounted for the remainder of the decline.

RD&E net of $44 million decreased by $150 million during the quarter as compared to 2019, mainly due to the improved gross cost and above-normal engineering reimbursements of about $80 million. In addition, SG&A improved $12 million year-over-year due to lower consultancy, IT and associate related costs. The VNBS-Asia divestiture benefit for RD&E and SG&A combined was $11 million for the quarter.

Lastly, our operating cash flow for the second quarter was $37 million lower than last year. Mainly due to the negative swing in net working capital, mainly related to accounts receivables and payables, which were impacted by COVID-19.

Looking now to our sequential performance on the next slide. Net sales declined $178 million as compared to the first quarter, primarily due to COVID-19 effect on lower LVP, mostly in Europe and North America. The sequential organic sales decline of $153 million includes a decline in RCS of $62 million and Active Safety decline of $84 million. In addition, the VNBS-Asia divesture impact was $24 million on net sales sequentially from the previous quarter.

The gross profit sequential decline of $50 million was mostly due to the lower LVP, along with some product and customer mix impact on organic sales. The RD&E net sequential decrease of $87 million was mainly due to the above-normal engineering reimbursements and lower associate related costs.

Our operating cash flow declined $98 million sequentially. And that was mainly due to timing effects in working capital mentioned earlier and the $67 million positive impact from VNBS-Asia divestiture in the previous quarter.

And lastly, as mentioned earlier, capital expenditure continues to run at lower levels without compromising our customer launches.

Looking now to our first half financial performance on the next slide. Net sales declined $438 million during the first half as compared to 2019, where the VNBS-Asia divestiture impact was $128 million. In addition, the organic sales decline in RCS of $154 million, or 36%, and Active Safety of $127 million, or 34%, accounted for most of the remaining sales decline. We estimate the first half COVID-19 impact on organic sales was approximately $220 million. The gross profit decline of $106 million, for the first half as compared to 2019, was mainly due to the COVID-19 impact on lower LVP and some product and customer mix effects. The net currency and VNBS-Asia divestiture impact was $21 million combined. The RD&E net improvement of $140 million was partly due to the above-normal engineered reimbursement of $80 million, lower gross cost and the VNBS-Asia divestiture impact of $15 million. Our operating cash flow improvement of $44 million for the first half compared to 2019 was mostly driven by the lower operating loss.

Capital expenditures declined $58 million for the first half, primarily due to the prudent capital management.

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

Looking now to our 2020 outlook on the next slide. We have taken significant actions to adapt through the evolving macro environment and mitigate the effects on our operating loss and cash flow. Our outlook for the second half of 2020 is primarily based on our customer call offs, which are supplemented by the latest IHS estimates.

For full year '20, we expect organic sales to outperform the global light vehicle production, primarily due to our new customer program launches, while currency net is expected to be a slight headwind of 1% on our sales development. Due to our well-established market adjustment initiative program, we hold to our original 2020 outlook for an operating loss improvement versus 2019 on a comparable basis. And we expect our cash flow before financing activities to be negative $200 million for the second half of 2020. We now target to reduce RD&E net by more than $100 million in 2020 from 2019 on a comparable basis, a new target on capital expenditures to be less than $125 million in 2020.

So overall, a positive outlook, especially in this very uncertain macro environment and unprecedented LVP environment.

I will now turn the call back over to Jan.

Thank you, Mats. By turning the page. We will conclude our formal comments for today's call, and we will now open up for Q&A. So I turn the call back to you to operate the Q&A session, Summer. Please go ahead.

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

Three questions for me. Firstly, first question is more related on the outperformance. Is it fair to assume that it's more geared to fourth quarter? Second question is related to Polestar 2, if you could maybe talk a little about -- a little bit about the features that you have in that platform? And also, it may be mentioned somewhat of an installation value, what type of Level 2+ plus performance of what we're looking at?

Last question is related to the comments you made on order intake in the second quarter, if you could maybe relate that to market development, i.e., is there outperformance? Or maybe if you would put a number on your market share also? Those are my 3 questions.

Maybe I can start with the first one, Hampus, this is Mats. So in terms of the outperformance and what we see in sales development, you are correct. That's more pronounced than in the fourth quarter. We see a gradual improvement sequentially then, very much in line with the launches when they are coming up. So yes, it is in the fourth quarter.

Okay. If I continue then with the Polestar 2, this is the first launch of our next-generation mono-vision camera, mono-vision 4. And we have also on this car line, the launch of our at 77-gigahertz radar technology. We have also the first launch together with the mono-vision camera on the driving policy stack from Zenuity. And that is also to them to be launched further on to more car lines on the same platform. And then we also have, as a final part on this program, an ADAS ECU also together for the computing power of the sensor information. So we have the whole new program, technology, including the software package on this vehicle. And so far, we have gotten a lot of positive momentum and positive feedback on to it.

Is it is possible to put a number on it? Sorry, okay.

The order -- the next one is the order development, as you talked about. And on the order intake, as we commented here, we had an order intake of ballpark $140 million for the quarter, ending up to a little more than $300 million for the first half of the year. And if we look to the volume, it has clearly been a lower activity on the order side, and it comes natural, of course, due to the COVID-19 pandemic. But as we commented here on the former script, if you look upon it on the first half, we are happy to say that 40% of this value or more than 40% is coming from our vision products and more than 40% of the total order intake for first half is coming out of Active Safety.

Super. And just a follow-up question on the Polestar. Is that -- is it the Level 2+ system or is it a Level 3 system? Or maybe you're not putting a number on it?

It's a Level 2, Level 2+ at the end. It's not directly a Level 3 system. So it's more a Level 2, Level 2+ system.

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

I wanted to -- as for a few clarification regarding the higher engineering recoveries. How should we think about it? Was it truly a sort of a onetime thing? Or is this something that you have efforts to get more of on an ongoing basis? And I was curious if the guidance for lower RD&E for the year of more than $100 million, does that include the $80 million actual recovery in the quarter because it saw, in the first half, your RD&E is already $140 million better year-over-year. So that would be already well above the $100 million.

Yes. I mean to start with the reimbursement when it comes to engineering income. This is -- what you see in the quarter is kind of abnormally high. So this is, to some extent, taken care of historical standard that we are getting reimbursed for, and what we are working on continuously is to get kind of more reimbursement going forward for the work we are doing then. But this is a more historically rated, meaning that it's more of a onetime effect in the quarter.

Yes, it is included in the guidance. If you are looking at the net RD&E for the full year, but we are also stating more than $100 million in terms of improvement. And what you also need to remember is that in the second half of the year, you will find the Zenuity RD&E costs on the RD&E and not as an equity method investment and below the operating loss. And that is, I would say, for the second half, some $30 million that we're adding in terms of RD&E that is annuity-related. But again, we are talking about more than $100 million in improvement.

So just a clarification on this point. Directionally, in the second half, do you expect RD&E on a comparable basis to be improved? Or to the extent that you've already achieved most of the full year goals, these would be more stable?

I mean if you're looking year-over-year, I mean, the reduction we have done in terms of gross cost, and that will kind of come through in the second half, and we will continue to reduce in terms of gross costs. But I mean when you're looking at the net RD&E, that -- you will not have the same effect in terms of engineering reimbursements in the second half as you had in the first half.

Understood. And then my second question is for, I think, earlier this week or maybe last week announced sort of like this long-term partnership with Tier 2 supplier of algorithm for Active Safety and low-level autonomy. Are you able to comment on whether Tier 1 was selected for this and whether this represents an opportunity or lost opportunity for Veoneer in -- with the Ford business?

No, we are not able to comment on that one. We read it -- about it, too, but we don't have any commentaries to that.

Okay. That -- I understand that. I guess in the past, you've attributed some of the lower order intake shortfall on -- I mean a piece of it on last business to potentially newer Tier 2 entrants. I mean can you maybe elaborate a little bit on the competitive landscape in ADAS, now is this something that you've seen more of recently?

Well, we see and we can all read about partnerships being formed. And with the new entrances and bigger companies coming into, also, the area of ADAS. We haven't seen anything on the quotes that is out in the business where we are bidding for right now that, that has had any major effect on us, will remain to be seen how that is evolving and how also we are evolving in this landscape that is changing. You see our effort on launches, you see our effort on technology here. So also with the moving landscape, we will also move with it, and then we will have to see how we then stand against the newly formed partnerships and entrants -- new companies coming into this.

Your next question comes from Victoria Greer from Morgan Stanley.

Two for me, please. I just want to come back a bit on the RD&E commentary that you've given us already. The $81 million that you had in the quarter. Should we think about that having any sort of impact on the level of reimbursements in Q4? Should we think about this as pulled forward or really just a one-off on historical stuff and the pace of the reimbursements pretty normal for H2? And can you talk a bit also about RD&E for 2021? I guess we need to think about annualizing the $30 million increase from the annuity that you'll have in H2, also then into H1 of 2021. Do you have any visibility yet on underlying what could happen to RD&E for next year?

And the second one on working capital, for H2, what are you assuming in your $200 million cash flow before financing loss for working capital? Do you recover that $30 million of timing impact? And also, the $30 million burden that you mentioned from VNBS U.S., would we see anything around that reverse once that divestment is complete?

Well, that was a lot of questions in one. I can -- maybe to start with the working capital and the effects in the second half. We have a timing effect where we'll recover about $30 million in the third quarter. But other than that, we are looking at flat working capital development in the second half. On the RD&E side and the reimbursement that we had in the second quarter, that is one-off and not related to a normal kind of fourth quarter, higher engineering income. If we are looking at the VBS effect in the second quarter, we're talking about the negative cash flow effect of about $30 million in terms of cash flow before financing coming from VBS. We will -- once we close this transaction, we will recover at least $16 million out of that $30 million. But if you are looking in the cash flow, we have a funding item in the quarter of $16 million, and that's related to that transaction, and that will be sold, so to speak, when we close the transaction. So in terms of cash flow before financing, at least $16 million will be recovered from VBS. And I think it's, actually, a little bit too early to start talking about the RD&E development in 2021. But what I can say is that we will continue to address the gross costs, and we have improvement sequentially going forward as well on the gross cost, and that will continue to focus on in 2021.

When it comes to the engineering reimbursements, I think that what you have seen now in the second quarter is more kind of an extraordinary thing that you would not expect to have in the quarter.

And your next question comes from James Picariello from KeyBanc Capital.

Just to clarify, so the -- what's the latest timing on the VNBA, the majority of VNBA sale, the U.S. braking? What's the timing on that?

Well, we haven't said any timing, we have hoped to conclude that divestiture during second quarter. It is delayed, and it will -- as far as we can see it today happen within not too long future here.

Okay. And then using this past -- this current quarter as the example, the brake systems, the reported $20 million EBIT loss, what portion of that $20 million loss would leave Veoneer?

I mean that's -- the $20 million is fully related to VBS. So that will be gone, so to speak, when the divestments are completed.

Okay. Got it. And then within the second half, the $200 million guided cash flow before financing loss, that includes the $20 million payment from Volvo that still needs to take place. Is that right?

Yes. I think you are referring to the $15 million, 1-5, that was mentioned in the original (inaudible)

Yes.

Yes. So what we have in the second half, we had the different annuity effect included in the number, though.

And as we alluded to in the prepared comments here, the payment here is likely to come in 2021.

'21. Got it. And then just going back to order trends through the -- on a trailing 12-month basis, down 40% year-over-year, thereabout. What is the expectation for the second half? How would you expect orders to kind of go from here given the current quoting activity and what you're seeing right now?

Hard to say, we are seeing -- and we are involved in several of discussions. It's a bit difficult to give any forecast or any guidance of it, we believe that it's going to be lower than what we expected in the beginning of the year, but we haven't given any number. You remember, we said about $1 billion expected for order intake for the full year of 2020 at our call in February. But we believe that is going to be lower, but how much remains to be seen here. It depends on what is also pushed over between '20 and '21, not lost, but maybe 1, actually, year later. So lower than the $1 billion we said, but not any numbers to give you, unfortunately.

Got it. And then just on RD&E and CapEx -- on a comparable basis as we exit this year, the RD&E and CapEx as a percentage of sales, are these sustainable run rates from here, again, on a comparable basis? Or as we see, at some point here, right, a very nice recovery and strong growth off of a bottom due to these levels as a percentage of sales changed dramatically or are these sustainable run rates?

I mean in relation to sales, we are in kind of an investment period right now when we're ramping up for launches. And that goes both for the CapEx as well as the RD&E. Even though looking at the first quarter and second quarter due to the kind of general business environment, we have been cutting down on CapEx. But what you have seen on a quarterly basis in Q3, Q4 last year, Q1 this year and so forth. That -- I mean, when we see the launches coming through, when we see the organic growth from launches coming, then we need to reduce the CapEx as well as the RD&E in relation to sales in order to get leverage.

And your next question comes from in Dan Levy from Crédit Suisse.

I just wanted to start by going back on the question on the RD&E and the reimbursement. Maybe you could give us a sense perhaps of the order intake that you've had in recent years. What percent of that order intake was booked with RD&E that would maybe, you realize after the fact was, higher than anticipated. Meaning, how wide is the opportunity for you to pursue additional reimbursements? And maybe what's the timing of how long it takes to maybe achieve those reimbursements?

I think it's very difficult to give you any timing of retroactively reimbursement of RD&E. Most of this, what has come in here in the second quarter is for work that has already been done, and that we have seen and reached agreement with customers to get additional funding for it. And to give any number of any idea to had such indication going forward, I think it's almost impossible. What I think is important for you to look upon in our in our MII program here is that we are only looking for cost reductions. We are also looking for income improvements, and we are looking for business development of our contracts, and we are renegotiating and negotiating activities where you can probably see that specifications have changed over time and that you can recoup some of the work or the extra work that has been done in projects. Because as the nature of this business is so fast and so much evolving during long programs, things happen with technology along the way. And that is giving us opportunities for renegotiating for maybe getting more income than what was in the original contract. But to give you an indication, I don't think it's even possible.

Right. I would just think that you booked a lot of orders in past years. I guess there's no sense of what percent of that retroactively, you'd say that was booked with RD&E that maybe there's some opportunity to -- no sense on a directional amount how much that is?

But if you look upon all our programs, if you look on the slides that we had here in the presentation, you can see that the technology development is going hand-in-hand with the launch platforms. So we are developing technologies along the way as we are launching the car lines. And it's going across the board of our product portfolio, whether it is restraint controllers or cameras, radars, et cetera. And it's very hard to see how -- when you have a program, how that is developing over, let's say, 3 years development time. A lot of things are happening in the industry along a 3-year-long program, meaning that you are asked to do different specification requirements at the end to the car line that is launching than you were asked at the time of the award. And that vendor's different engineering work and probably gives room for maybe a different discussion around engineering income as well. But to give you a room for -- or an indication, I think it's difficult. But most of the programs that you see here are of this nature and so far.

Okay. And then just a follow-up on the Active Safety landscape. And I wanted to follow-up somewhat similar to Emmanuel's prior question. But related to this, what we saw earlier this week with Ford. In the past, we've seen a very standard relationship and the OEMs in the Tier 1. And to the extent that Tier 2 is included where the Tier 2 supplies to the Tier 1, the Tier 1 does all the integration work and gives a complete solution to the OEM, and then it's effectively plug and play. Do you find that, that relationship still holds? Or have there been efforts by the OEMs to handle maybe more of the integration work or more effort by Tier 2s to handle sensor fusion?

I think there are differences between different OEMS, different OEMs have different ambitions and different skills and experience on our type of products so far. I think that might be situations where more OEMs do more work inside. And you can see partnerships being formed and companies having ambitions to do so as being OEM. So you can't exclude that to happen. But I think what is important is that the Tier 1 integrated, the one that have automotive experience integrating safety-related components, whether it's coming from big companies or smaller companies, it's essential because it has to work. And there are so many examples out there right now where the software have been an issue for many launches with many car companies and has been causing delays, et cetera. So I think there is -- for Veoneer's sake, the position we have, being an integrator, being a technology provider is a very good position for us right now. As we alluded to in our prepared remarks here, we have now a complete portfolio of software driving policy, perception stack. We have a radar program. We have an integration capability. We need also now to find the right partnerships for our SEC for the scalable architecture going forward. And that is a work that is ongoing. And with that, I think we are in a very good place for the next generations to come.

And your next question comes from Joseph Spak from RBC Capital Markets.

Sorry to go back to RD&E here, but it's still a little unclear. I mean I realize the reimbursement was extraordinary in the quarter. But was this something you were planning originally to receive throughout the year, and it's the timing that was unusual? Or is the amount overall unusual for the year?

I mean we had -- looking at the guidance we have on the net RD&E, we could foresee the reimbursement coming through. But then I mean it is more kind of a discrete item that we get this kind of amount in a single quarter. So planned or not.

And I think it's also a combination of several discussions with not only one customer. So we are -- as we said in our MII program here, are working hard on also recouping and talking to customers about reimbursement on the engineering being carried out. So now it happened to come here several of these discussions coming in second quarter. And therefore, also the amount, the size of this, I don't think we should have an expectation to see in the quarters to come. Even though we will continue to work hard in the same way to increase our reimbursement for the activities that we do.

Okay. So just -- so in your internal forecast, did the total amount of reimbursements for the annual number change post this quarter?

Say that again. Did?

So internally, I'm sure you are budgeting for some level of reimbursements. Did that annual number change post what you received this quarter?

Yes. I mean this -- again, I mean, this is a discrete item that we see in the quarter. This is not the kind of a pull forward of other reimbursements. If you're looking at the normal years of [it]. But that we were had ongoing negotiations when it comes to reimbursement that we knew and included in our plans. But it's not affecting the more normal underlying reimbursement that we see normally coming through in the fourth quarter, for an instance.

Okay. So can you -- I mean, there's a lot of puts and takes here then with the reimbursements and taking into annuity, some of the other divestitures. Like on a like-for-like basis, what's your sense of how gross RD&E is trending?

I mean it's trending down. So we can see savings coming through in the gross RD&E quarter-by-quarter sequentially.

Okay. The second question is, I think you mentioned in the prepared slides, or there was a comment about footprint optimization. I guess you inherited, right, your footprint and capacity from the Autoliv days. How do you think about that now given the volume outlook is likely lower than prior, it seems like there might be an opportunity to reevaluate, especially with everything going on in some of these regions. But on the other hand, it sounds like you still need to be able to plan for future growth. So how do you sort of balance that decision? And how do you think about your current capacity alignment?

I think we had talked about in the last quarter and in fourth quarter earnings release also looking for partnerships for work that is more suitable to be outsourced, and we are continuing to look for that opportunity. And what is important for us is that we continue to defend and develop our core competence when it comes to software development and hardware for our core products, in vision and radars and ADAS ecus and airbag controllers. But there are more work that could probably be used within partnerships. And that is one phase we have already looked at and also carried it out. So I think there, we are looking for footprint optimization by using partners than preferably in best cost countries -- in the lower cost countries, where they can -- we can benefit from scale that we cannot do -- more standardized work that we cannot do in a higher scale. But on the other hand, as you say, I mean, this is something we need to safeguard. Our people, our engineers and our core competencies in the software development, et cetera, are the spine of Veoneer. So we have to safeguard that and also make sure that, that is further developed for future products and future versions of our product portfolio.

So just to be clear, for certain elements of your business, you think you can move that to sort of a more contract manufacturing type operation?

Well, if you're talking about manufacturing. Manufacturing for us is also a very important piece to safeguard the quality of our products. And I was talking on engineering type of activities.

Okay, on engineering. Okay. But in terms of manufacturing capacity?

Say again?

In terms of manufacturing footprint, is there opportunity there or you think you need to (inaudible) to facilitate (inaudible)

We are, of course, reviewing everything, but nothing that I would be prepared to discuss here in this earnings call, but the manufacturing piece and the manufacturing knowledge and the launch knowledge of advanced products are a key ingredient also in the Veoneer offering and making probably customers looking favorably to Veoneer because we have long-lasting experience of producing safety products.

Officer Maybe I should clarify on the RD&E adjust to, as there are also many moving parts. If you're looking at the guidance and what we have seen in terms of actuals and what we're expecting in the second half then. So what we have guided is more than $100 million in terms of improvement year-over-year. We had $80 million in the higher-than-normal kind of reimbursement for engineering now in the second quarter, so that is affecting the engineering income. But if you're making a year-over-year comparison, please remember that we had in the fourth quarter 2019, $25 million in a similar discrete item for engineering reimbursement for that. So the net is not $80 million, it's $80 million minus $25 million, if you're looking at the kind of discrete items. And on top of that, you need to -- in your comparison year-over-year, you need to add $30 million in terms of gross cost increases coming from Zenuity. So that clearly indicates that the -- more than $100 million improvement is quite a lot of gross RD&E improvements and not only related to engineering income.

And your next question comes from David Kelley from Jefferies.

I guess looking at Slide 6 to start. You referenced a couple of additional launch delays, looks like pushed out a quarter, and then even there's a partial pull forward in here. My question is, how do you see the potential risk of further launch push-outs in the second half? And is there better launch visibility given the industry rebound over the last couple of months?

It's very hard to say. It's, I think, very much depending on the general climate in the customer demand and the industry overall and the COVID-19 and how the different countries are coping with the COVID-19, and what's going to happen and the OEM's ability to restart production, et cetera. And I cannot speculate into it. We have not seen as we see here any delay that are beyond the quarter. It has been pushed over the year end, but the most of it has been a quarter, either within the year or over into Q1. So it's very hard to say. And the closer you get to the launch, the more difficult it is to -- can always, of course, stop it if you have some issues. But otherwise, the OEMs are very much inclined to go ahead and do the launch in a somewhat normal environment. So I don't have any better picture than what we have here. This is the latest update on to it, and we are monitoring this. But yet no other indications than what we present here or any more color I can give to you.

Okay. Got it. I appreciate the color. And then maybe taking a step back, there's a growing discussion and debate around the demand for LiDAR in the ADAS sensor suite. I'm curious to get your thoughts on that. And given your relationship with Velodyne, how would that position Veoneer from a competitive standpoint if we start folding in LiDAR into some of these ADAS lens?

Well, we do have our cooperation with Velodyne, and we do have projects running with Velodyne. We also do have our internal competence in our internal technology in short-range LiDAR. Also there, we have projects ongoing with customers. And so I think that LiDAR is a promising technology for the higher level of autonomy. And that is where it really is necessary and really paying off, seeing it more into the lower level of L2+. It's, I think, at the end of the day, a cost issue. It's a integration and the cost matter, whether you need it for that performance or not. But we see it still being a -- predominantly a higher level of autonomy product.

Okay. Got it. And maybe 1 quick clarification on your point. Are you seeing any increased or uptick in customer appetite for LiDAR and, let's call it, Level 2+ at all? Or is that still strictly tied to the rest of the sensor suite and LiDARs, in your mind, still autonomous Level 4, Level 5 applicability on that?

I would not say it is increasing. It's not decreasing either. It's following more the line of thought that I said here that it's more for the higher level of autonomy. Customers are working with higher level of autonomy. You can see partnerships being formed for those ambitions. But it's all dependent also on the COVID-19, and how this will have an overall effect on the industry as a whole and on the efforts being invested into those programs. So hard to say. I don't see it going in really from a quarterly standpoint here in either direction, either in a more negative or in a more positive way.

Okay. So we're almost up to the hour here, but we will take one more question. Thank you.

And your next question comes from Itay Michaeli from Citi Group.

Just going back to the order intake to just -- to clarify, I was hoping you could just quantify where your win rates have been in Q2 and throughout the year relative to last year? And then maybe if you can size how much you're quoting today relative to 3 months ago and maybe 6 to 9 months ago as well?

If you are talk about the quoting period or the quoting activities, it has been significantly down in the -- for us. We have seen a significant decline. I haven't a good number, whether it's down 30% or 40% or something, but it has been down. I don't have a good number to give you, but it has been down during the quarter. And I think that it's because of the focus on finishing off the launches and focusing on the -- those activities. We haven't seen any cancellations on the quote side from that sense, not any major ones, at least. So we expect the quoting activities to pick up again. But again, here, this is very hard to predict. It's almost impossible for us to predict in what pace that's going to happen.

Great. And then just lastly, on Slide 8, it looks like you've had some progress with software feature since the beginning of the year, both on the bid list and the technical qualifications and the awarded business. I was hoping you could just maybe dig into what specific software features these are and maybe what some of the more advanced features that you're seeing some progress with?

These are features related to our C1 technology that we have been working with Zenuity and that we have now integrated into our own activities in our own system group. So it's related to those features where we have been able to sell also features as a stand-alone basis before, and we are now seeing an increased customer interest for the software as a feature as such, but also as a part of its bigger system.

Okay. I guess that concludes our today's formal part and Q&A session. And I would like to thank everyone for your participation today and thoughtful and insightful questions. But before we wrap up today, I would like to take a moment to mention and acknowledge Dave Leiker, who has -- who was unfortunately not with us on our call today, the first time in more than 60 quarters going back to the Autoliv days. As some of you know, David unexpectedly passed away a few weeks ago, our sincere condolences and deepest sympathies goes to Dave's family as his knowledge, expertise, integrity and passion will be truly missed.

Now looking ahead, our next quarterly earnings call is sensitively planned for Friday, October 23, 2020. And we look forward to speaking to many of you during the third quarter various investor calls and events. Until then, I wish you goodbye and have a good summer. Thank you very much.

Thank you. That does conclude our conference. Thank you all for joining. You may now disconnect.