Anders Trapp - VP of IR Jan Carlson - Chairman, President and CEO Mats Backman - CFO.

Victoria Greer - Morgan Stanley Chris McNally - Evercore ISI Brett Hoselton - KeyBanc Thomas Besson - Kepler Cheuvreux Kai Mueller - Bank of America Merrill Lynch Richard Hilgert - Morningstar David Lim - Wells Fargo Edoardo Spina - Exane Vijay Rakesh - Mizuho Steven Hempel - Barclays.

Good day and welcome to the Q1 2017 Autoliv Earnings Conference Call. Today's conference is being recorded and will last max one hour. At this time, I would like to turn the conference over to Mr. Anders Trapp. Please go ahead sir..

Thank you, Daniel. Welcome everyone to our first quarter 2017 earnings presentation. Here in Stockholm, we have our Chairman, President and CEO, Jan Carlson; our Chief Financial Officer, Mats Backman; and myself, Anders Trapp, Vice President of Investor Relations.

During today's earnings call, our CEO will provide a brief overview of our overall company performance and outlook, as well as an update on general business conditions, while our CFO will provide further details and commentary around the financial results and outlook.

Then at the end of the presentation, we will remain available to respond to your questions and as usual, the slide deck is available through a link on the homepage of our corporate website. Turning to the next page, we have the Safe Harbor statement, which is an integrated part of this presentation and includes the Q&A that follows.

During the presentation, we will reference to some non-US GAAP measures. The reconciliations of historical US GAAP to non-US GAAP measures are disclosed in our quarterly press release and the 10-Q that will be filed with the SEC. Lastly, I should mention that this call is intended to concluded at 3:00 PM CET.

So please limit the questions to a maximum of two per person. I will now turn it over to our CEO, Jan Carlson..

Thank you Anders. Looking at the first quarter highlight by turning to page. Before we go into the presentation I would firstly like to sincerely thank the entire Autoliv team for delivering another quarter of solid financial performance and their relentless focus on quality first.

Our organic sales growth for the quarter of 4.4% was slightly lower than the global light-vehicle production, primarily due to an unfavorable mix in China and North America.

However, this organic growth was around 1 percentage point better than our guidance mainly due to stronger than expected demand with Japanese OEMs in China, in North America and in Japan. This is offset in an adjusted operating margin of 8.4%, 40 basis points better than expected and an adjusted earnings per share of $1.65.

During the quarter we returned $51 million to shareholders through dividends while we continue to deliver a strong adjusted return on capital employed of 20% and return on equity of around 14%. Our leverage ratio will be at the lower end of our range after making the annuity payment in the second quarter.

We will continue to monitor the situation as we recognize our long-term targets one time.

As we prepare our company for the next wave of growth, I'm pleased with our progress in delivering improved net operating leverage during the quarter through better footprint utilization while minimizing additional facilities for expansions to support this growth.

This in combination with improving RD&E leverage as new programs launch over the next several quarters create the potential to improve margins and returns in the future. And lastly, we are pleased to have announced last week this sort of another industry first, our newly formed 50/50 joint venture with Volvo Cars named Zenuity.

This joint venture has been created to provide industry leading automotive software solution as we move towards highly automated driving and eventually autonomous driving. Looking more into the details of Zenuity on the next page. During the second quarter, the JV planned to hire 100 engineers from Autoliv and hire 100 engineers from Volvo Cars.

In addition approximately 400 engineers are planned to be hired through the end of 2018. During the second quarter Autoliv made an equalization payment of $110 million in cash for our share of the 50/50 joint venture and we’ll start to report 50% of the net result of Zenuity on the equity method investment lines on the income statement.

We estimate the net loss to be approximately 15 million for quarter after tax during 2017. However, this effect is partially offset by a benefit of $5 million on the RD&E side per quarter or 15 basis point to the operating margin, which was included in our earlier margin full-year 2017 indication.

The development target for the joint venture are to introduce an upgrade to ADAS, the level one to three algorithms for production in 2019 and two years later in 2021 introduce autonomous driving level four and level five algorithms to the market.

Therefore, we expect Zenuity and Autoliv to generate revenues during 2019 and we are confident Zenuity will enable Autoliv to deliver world leading robot solutions for highly automated and autonomous driving to our customers.

The combined experience of Autoliv the worldwide leader in automotive safety systems and Volvo Cars, the premium car maker highly regarded for automotive safety will ensure solutions that meet society needs in real life road conditions. Now looking to our business outlook on the next page.

We continue to see a strong order intake above Autoliv current market share. To support this order intake we have completed the hiring of close to 1,000 engineers one quarter ahead of schedule, of which a little more than half of the engineers work in passive safety.

Within passive safety, we will start to launch new programs during the second half of 2017 related to business that was sourced in 2015. This should result in our passive safety segment outperforming the light-vehicle production during the second half of 2017.

However during this upcoming heavy launch period, we will maintain flexibility and closely monitoring the underlying market situation while ensuring flawless execution on launches. Within electronics we will continue to see lower organic growth for some future quarters, mainly due to various product mix and the timing on new program launches.

However, the organic growth of our core vision, radar and ADAS ECU product continued to grow in the mid teens. Looking at customers programs, we have expanded our offering that we launched in 2015 on the Mercedes E-Class now to the F-Class.

Our content per vehicle on a fully equipped S-Class is more than $1,600 which includes night vision, radar, ADAS ECU and Mono/Stereo Vision with Autoliv algorithms. In addition, in February this year, Volvo Cars have boarded active safety business to Autoliv that is expected to launch during 2019.

Our products include monetization with Autoliv algorithms, radar and the ADA ECU. These orders demonstrate the confidence OEMs recognize as leaders in safety and ADAS have in our technology and showcases our products with robust bus quality with short development cycles.

In active safety, we see a positive trend where premium brand OEMs are focused on more on autonomous emergency braking sensor fusion. This along with China NCAP will positively impact the future content per vehicle in active safety.

Lastly, we anticipate expected changes in the NCAPs in China and India will positively impact the future content per vehicle in passive safety where today the estimates that passive safety market is around 20 billion in 2017 which implies 1% of market share represents around $200 million in annual sales.

Now looking to the next page, we have summarized our delivery quantities for the first quarter. Within passive safety, our seat beat volume had a favorable mix towards high value added products such as active seat belts and pre-tensioners.

Our airbag product performed slightly below the global light vehicle production due to stronger light vehicle growth coming from the growth markets where airbags are not yet truly adopted, while we perform slightly better than the tryouts where airbags have a higher penetration.

Within electronics, our active safety sensors declined due to the phase out of incumbent brake control business and certain GPS programs, while our radar, vision and [indiscernible] global light vehicle production. Also within electronics, our rates and restraint control volumes grew more in line with the global LVP.

This is a positive sign seen not all new vehicles produced have a restraint control unit. Looking now on our new model launches on the next slide. We have highlighted some of our key model launches planned during 2017.

These models are well equipped with our passive safety and electronic products and are expected to contribute to our overall organic sales growth during the full-year of 2017. Of these models only the Micra and E-Class launched during the first quarter.

This implies the remaining models are expected to drive our outperformance versus light vehicle production during the remainder of the year. And on an annual basis, we estimate that these nine models represent around 6% of our group sales. However, six of these models have more than $300 of content per vehicle.

Looking into the underlying market conditions on the next page. During the first quarter, we have seen an increased uncertainty in the macro environment due to renewed outer cycle concerns.

During the first quarter, the inventories increased in China and the US due to a softer demand than the underlying light vehicle production while they inventory situation in Europe seems to be stable based on our internal estimate.

For second quarter, the overall global light vehicle production is expected to increase by approximately 1% year-over-year according to the latest IHS figure. This assumes light vehicle production in Asia remains strong where Japan, China and India are expected to increase 10%, 3% and 8% respectively.

in North America, where the US consumer confidence remains strong, the light vehicle production is expected to decline slightly for second quarter while South America is expected to continue its recovery from the trough in quarter one last year with an increase of 5%.

In Europe, vehicle registration continued to show a steady improvement in the EU27 for the first quarter. However the light vehicle production is expected to decline 3% year-over-year in second quarter. This is driven by a decrease in Western Europe of 5% which is partly offset by an increase of 1% in the Eastern Europe.

Looking at the latest full-year 2017 global light vehicle production, IHS now estimates a 2% year-over-year increase versus 1.6% back in January. This year-over-year improvement is mainly driven by increases in Asia and Europe of 3% and 2% respectively, while North America is expected to decline approximately 2%.

The light vehicle production figures indicate a 3% increase during the first half and 1% increase during the second half of this year. As mentioned earlier, we will continue to monitor the market situation closely and are ready to take actions if and when necessary as we have done in the past.

I now turn it over to our CFO, Mats Backman for the financial and our outlook. Please go ahead..

Thank you Jan. Looking now on the next slide, where we have our key financial figures for the first quarter 2017. Our record sales of 2.6 billion for any first quarter was driven by strong sales growth in Europe, Japan and India along with the brake systems joint venture with Nissin Kogyo.

The consolidated net sales increased by more than 7% despite the negative currency translation effect around 50 million and lower inflator replacement sales of 7 million. Consequently, higher organic sales, acquisitions and improved operating leverage drove our record gross profit in the quarter.

Our adjusted EPS of $1.65 essentially in line with last year despite higher RD&E due to investing for growth in passive safety for the near-term and electronics for the long term. Looking now at the operating margin on the next slide, where we have our EBIT ranges versus guidance and prior year.

Going forward we have slightly modified our approach to this analysis where we now include other in the operating leverage figure which is essentially residual after accounting for currencies, raw materials, acquisition and RD&E.

Looking out to the chart on the left, our adjusted operating margin improvement versus guidance of 40 basis points was mainly due to higher than expected organic sales growth. Compared to prior year, as illustrated by the chart on the right hand side, our adjusted operating margin was about 70 basis points lower.

The net operating leverage of around 30% from the organic sales growth was more than offset by the planned higher investments in RD&E, raw materials, currencies and the impact from acquisition. Looking now to our cash flow on the next slide.

Our operating cash flow of 149 million was lower than last year, primarily due to timing issues in working capital and this is despite operating working capital being at 6.5% of sales.

CapEx net of 4.7% sales was below our range, consequently as a result of this low level in first quarter we now anticipate CapEx net to be in the range of 5% to 6% of sales in full-year ’17 rather than the high-end of the range that we mentioned earlier. We expect the full-year operating cash flow to be more than 800 million.

Full-year ’17, our capacity alignment cost is expected to be around 20 basis points with a cash outlay of around 30 million.

Commodity cost increases doing Q1 were around 7 million and are now expected to be close to 40 million for the full year rather than around 30 that we expected when we set initial full-year indication back on February the second. Looking now for segment reporting on the next slide.

We have summarized our segment reporting for the first quarter, in passive safety, the organic sales growth of close to 5% was primarily driven by strong growth in Europe, Japan and India, in particular with airbags and high-value added seatbelts.

This strong growth was negatively impacted by currency translation effect of about 2%, consequently consolidated net sales in passive safety increased with about 2.5% to more than 2 billion.

In passive safety, the 10% operating margin was the result of higher organic sales and lower capacity alignment cost which was partly offset by higher commodity and RD&E cost.

In electronics, the organic sales growth of around 3% was primarily driven by new model launches and higher customer take rates in active safety and restraint controls and sensing, while acquisitions added around 120 million.

This sales growth of about 20% resulted in a record consolidated net sales of close to 600 million for the segment, an increase of more than one 125 year on year. The 2.3% operating margin for the electronic segment was affected by higher RD&E and impact of acquisitions. Looking now to our outlook on the next slide.

We have our guidance which is primarily based on our customer call ups. Our organic sales are expected to increase year on year around 2% mainly due to a strong growth in China, Japan, India, and South America.

Sequentially, our consolidated sales are expected to decline by about 2% mainly due to a 5% decline in global LVP from the first quarter into the second quarter. As a result, we expect to achieve an adjusted operating margin of around 8.5% for the second quarter.

Year on year, the benefit from higher organic sales and currencies are roughly offset by higher commodity cost, planned higher RD&E and cost related to the ramp up of capacity of the new technologies for growth. Sequentially, the adjusted operating margin is roughly in line with the first quarter despite 2% lower consolidated sales.

Looking now upon our full-year on the next slide. Our 2017 indication remains unchanged from February 2, organic sales growth and adjusted operating margin.

Our strong organic sales growth of 4% and that's roughly two times the latest global LVP according to IHS is primarily driven from Europe, Asia and active safety which is partly offset by lower inflator replacement in North America.

Our overall outlook for inflator replacement remains unchanged for 2017 and 2018 from what we have mentioned last quarter. As a result of strong organic sales growth, we anticipate an adjusted operating margin of around 8.5%.

year-on-year the positive margin effect from organic sales and currencies are more than offset by higher commodity cost, planned higher RD&E costs and costs related to the ramp up of capacity and new technologies to grow and the impact on acquisitions. Summarizing our outlook on the next slide.

Our outlook excludes cost for capacity alignment and antitrust related matters and assumes mid-April exchange rate. Our net consolidated sales for the second quarter expected to decline by 1% due to a 3% negative currency translation headwind.

For the full year ‘17 indication, our net consolidated sales are now expected to grow by around 3% rather than the 2% expected on February 2. This is due to lower negative currency translation effect while the growth from organic sales and acquisitions remain relatively unchanged.

Based on these sales assumptions, we expect an adjusted operating margin of around 8.5% for the second quarter and around 8.5% for the full-year ’17.

Despite or better than expected performance in first quarter, our full-year operating margin remains unchanged due to the increased uncertainty in light vehicle production in North America and China as well as higher than expected commodity costs. For full-year ’17, excluding any discrete items, we now expect the tax rate of about 30%.

In summary this estimate indicate strong growth with an operating margin within our long-term target range despite higher RD&E, higher investment to support future growth and higher commodity cost and the impact from acquisitions. Turning the page, I will now turn it back to Jan before we start the Q&A..

Thank you, Mats. In concluding today's call, our industry is in the middle of a rapid development and change. Technology companies are joining this development towards the autonomous car, our passive safety market is undergoing a major structural change while the geographical differences in light vehicle production growth are substantial.

We believe that all these changes create tremendous growth opportunities for an operationally strong company like Autoliv. This concludes our formal comments for today's earnings call, we would now like to open it up for questions and I turn the call back to you, Daniel. Thank you..

[Operator Instructions] We can now take ourfirst question today, it comes from Victoria Greer of Morgan Stanley. Your line is open, please go ahead..

Just two questions from me please. Firstly, on the Zenuity losses that's very clear and the impact for 2017, and you've talked about revenue to come in 2019. Do you have a view on what we should be thinking about for modeling the equity contribution for 2018, 2019 and a view I guess on a breakeven point for that business.

The second thing is just on the other income expense line. I can see there's a 9.9 million positive in there for the quarter and that's typically a negative other than [indiscernible] changes coming in there. So what was the positive in there because that's really helped the EBIT number them quite a bit in the quarter? Thanks..

I can start with the second one, this is Mats Backman. That is related to the MACOM business, I mean, as we said in the press release, we have an impairment in the quarter related to the GPS modules that’s why I have been talking about the previous year as well.

So that's a negative, but on the positive side, we have actually released some of the provision that is related to an earned out for that acquisition, so that goes against the impairment we took in the quarter. So the net effect of those two items is basically close to zero then.

It’s a reduction of a provision related to a future earnout in the MACOM investment..

But there's a separate impairment elsewhere in the bench?.

It is..

And on the first one looking on Zenuity, what we are guiding here giving information that’s valid for 2017. We’re talking about 15 million on quarterly basis that is related to what we will show in the income from equity method investment in the P&L.

So all-in-all, if you're looking on the full-year 2017 that’s an effect of 45 million and that represents 50% of this annuity result so to speak. And that is the run rate we see currently. And in terms of modeling I guess it’s fast to assume a little bit of an increase on that number as we will continue.

Zenuity will continue to recruit engineers going forward..

So into 2018, the growth of 15 million could be a little bit higher?.

Yes, that’s right..

Thank you. We can now move along to our next question and it comes from Chris McNally of Evercore ISI. Your line is open sir, please go ahead..

I think you've been pretty clear on these Zenuity expenses. I just wanted to triple check the net effect, so the R&D savings of 5 million per quarter is that included in the current 8.5% guide, so essentially when we just incorporate the new information its’ that Zenuity will now be 15 million per quarter below the line in the equity line.

Is that the correct understanding?.

Yeah that's correct. If you’re looking on the full picture of Zenuity you have a net effect on quarterly basis of about 10..

The second because I mean just because that’s an after tax number and obviously your 50% share. If I just run the math roughly back up to an expense line, about 160 million per year and you're saying that will grow I mean given this is mostly engineers, I mean that's a staggering number that's sort of Intel level spend.

Can you just describe what the money is being spent on over the next two years?.

I think it's one thing in the calculation that you need to remember. Basically looking - if you're looking on US GAAP and for that IFRS as well. When you have a distance like this, you can book kind of deferred tax asset on that loss. Because it will take a couple of years before we are getting into kind of into a positive territory.

We will not be able to book any kind of tax assets on that one. Meaning that the tax consideration is not included in the 15 million expectation..

But I mean it's still something like 1,500 engineers at had roughly 70,000 per year.

I mean should we think of this as the two companies making a big push into level four and level five algorithms?.

You mentioned a number 160 million, where did you get that number from?.

I’m just taking the 15 million times four, 60 million, times two, so 120 million spend, and then I’m just dividing by you know 70,000 per engineers to come with a rough number of engineers that expense would back into..

Okay..

And so is that the fair way to think about it, is just both companies are sort of front loading the expense to make a big push into level four and level five. It just seems like a large investment. .

The number of engineers we are talking about here is, they start with hundred plus hundred coming from Autoliv and Volvo team to Zenuity essentially here in second quarter. And then up an including 2018, we aim to hire another 400. So we're looking to end up toward the next year end around a 600 people doing engineer work for us in Zenuity.

The total load here for Autoliv [indiscernible] and the remaining 50% is to Volvo is for the entire Zenuity operation and that includes everything and their effort in building up the company of course..

Thank you. We can now move along to our next question, it comes from Brett Hoselton of KeyBanc. Your line is open sir, please go ahead..

You’ve answered this question I think in a couple different of ways, I just want to make sure I'm clear on the Zenuity.

We're going to end up taking 5 million out of Autoliv’s consolidated SG&A that will be the R&D benefit and then we're going to see 10 million loss in your equity income line, is that the idea, I'm wondering if - really I'm wondering if that 10 million is, you’re going to get 50% of that or is that accounts for the 50%..

It’s 15 million on the equity method investment in the P&L, it’s 15..

I apologize, it’s 15. Is that your 50% or is that 100%, and it sounds like it’s your 50% of that..

It’s our 50%..

Okay that makes sense and switching gears, kind of from a 30,000 foot perspective of active safety, you mentioned that you’ve got some new orders, preorders orders from three OEMs and you’ve got eight orders from five OEMs.

Can you just remind us, obviously Mercedes-Benz, Volvo are two, can you just remind us who've you announced thus far as your OEMs. Can you kind of give us some idea of what - on what basis are you winning these rewards.

And then finally as you kind of look out over the next year, what would you consider to be a reasonable number of awards over the next year. I mean, I know you can't guarantee awards, but what would be I think will be reasonable, better, worse than expected..

This debate is for the Board, when there is of course a number of things, it’s a high performing product portfolio where we have in vision systems, stereo vision which is probably a worse leading technology as of today.

That we can offer in combination with a radar portfolio that is also an upgraded version from the E-Class now going, the launch on the S-Class together with ADAS controller. So that together with also the future opportunity of Zenuity to be able to offer world’s leading decision making software for automated or economy driving is of course one area.

The competitiveness, we should not forget about, if you track the competitiveness of our products and this is an automotive industry. So there are several reasons why we are winning business. And as you know, we are in production to several OEMs.

We are in production to major OEMs in Europe, in Japan, in North America in current production and we are continuing to take business from these guys and also, we’re taking business from Chinese OEMs..

We can now move along to our next question. It comes from Thomas Besson of Kepler Cheuvreux. Your line is open sir. Please go ahead..

Thank you very much. I have two questions please. Firstly, I'd like to come back to Victoria’s question on the other income.

Is it fair to believe that the other non-operating items of minus 9.5 is the offset you were mentioning? So from the vacuum business for the 9.9 million positive? Or it’s somewhere else?.

We are talking about amortization, I mean while we’re taking the impairment. So that’s certainly a negative. And then you have the positive on other non-operating..

Okay.

But is it correct to view this writedown on the line, other non-operating items, which is minus 9.5 million, which is unusually high versus the plus 9.9, which is also unusually high and then usually positive or not?.

I will say no..

Okay. Thank you.

The second question, I’d like to come back to the organic growth and the order intakes in active safety, you’re mentioning a number of new contracts, but no absolute amounts of order intake, can you help us understand what’s going to be the evolution of organic growth in active safety in the coming quarters, because it was running very high, it’s slowed.

It’s reaccelerating now. So should we think that we’re going to get better in the coming quarters, much better ahead or anything you can say to help us here? Thank you..

On the total active safety growth number, you should see a continued low level due to the same reason we have been talking. We have the phase out of our internally developed brake control and we have the ramp down of the GPS module.

This will offset the higher growth of the core product as we mentioned here, we are in the mid-teen for the radar division product, but we will see for some more quarters to come, the ramp down effect of these two other products that is on its way out. So that’s what will happen.

Into ’18, that comparable from that point will be better, but into ‘18 and we will speak more about it in the Capital Markets Day and we might continue to see lower growth levels in active safety core product and what you were used to some years ago.

We had numbers, 30% or above and that will take some time before we’ve returned that, because the order intake that we took last year of around 25% of the available market will only start to kick in in 2019. So that’s basically the situation, but as I said, we will elaborate more on it the Capital Markets Day..

Thank you, sir. We can now move along to our next question. It comes from Kai Mueller of Bank of America Merrill Lynch. Your line is open. Please go ahead..

Hi. Thank you very much for taking my question. Just coming back actually on that active safety growth aspect, it's still very low and you have those targets out there.

You just mentioned on the ramp up getting towards your 1 billion target, but how do you actually judge success in this business, is it organic growth, is it how much margin you can make on those products and can you just clarify, you mentioned the number of $1600 fully spec for the S-Class, is that sort of really the maximum content you can currently deliver into vehicle, should people take it up or what -- do we need to see a sort of really upper limit and possibly an average overall? And on the second point is, you mentioned in Q3 that you missed out on some deals in this active safety part.

Has that turned around recently? Do you see that protection better? And coming to that Zenuity and active safety basically, given we've seen the recent takeover of Mobileye by Intel and Chris made the point, how much money are you actually spending and you’re competing against those players.

How do you see that playing out in the long term, especially in light of the cash injections you’ve made now of $100 million, would we have to see possibly more of those coming in the outer years as Zenuity still runs at a loss..

It was several questions, let’s see if I captured them all and we can take them one by one. If we start with the content of the 1600, maximum, we have seen cars with even higher content, maybe even up to a maximum $2000, but ballpark between $1500 or $2000 per vehicle is a maximum with the product portfolio that we represent today.

But you should have in mind that that is not the average content. The average content for that class is maybe around $600 because of the take rate. And that is making it also somewhat difficult for us to estimate growth as take rates may vary over time or different takes rates may apply to different models.

If you take the 1600 just to shed some light on what is passive and what is active, you can say ballpark around 400 of the 1600 is passive state and 1200 is active state in the maximum version of this. So there you have some indications of how the content is on that car, but as I said, it’s all very much depending on the take rate.

On the quarter, you said we missed out on some orders and some of the orders we expected in the beginning of last year didn’t come our way. Despite all of that, we took what we think is around 25% of all the orders in the active safety market.

Overall, we believe we took around 30% of all the orders available for 2016 in the entire electronics segment and we have been taking -- continue to take orders here as I mentioned, some of the car companies we are supplying to today and we are continuing to take orders in the first quarter here, if we had three new projects kind of on board here for us and we are optimistic because the product portfolio we have here is very competitive, it’s very appealing to OEMs.

But also as mentioned, it will take until 2019 or so you will see this coming through in sales. Zenuity, the play out on Zenuity, it will take some time before Zenuity will generate its revenue. As mentioned here earlier, you will probably not see revenue generation or some kind of Zenuity until 2019 and so forth.

And in the meantime, you will have to see contributions coming from the owners into Zenuity and how much and to what extent, we will have to come back to it, no numbers that I have today that I can give you, but the revenues will start to come during 2017 is our estimate today. 2019 sorry, 2019 is Zenuity..

Thank you very much. That’s great. Sorry, maybe the Mobileye..

Oh, I said I didn’t capture all the questions, what was the question on Mobileye..

Just given, you’ve gotten out Intel and Mobileye joining up, how does that change the view on your Zenuity path going forward..

Generally, I don’t think it changes. It’s really at a point out to that we are in the game. We have already formed this jointly owned company if there is an opportunity to develop decision making software and this is something that is unique. This is not as far as we understand within the scope of Intel and Mobileye as of today.

So we’re having something here that is giving us an unique pick and that we have very much excited about actually and if you look to the Intel Mobileye consequence for our short-term business, I don’t think that has any impact either.

We are in a good place with our product portfolio, with our technology, good customer interest as we mentioned here on the call and in the presentation. So shorter term, I don’t think that having an effect..

Thank you, sir. We can move along to our next question. It comes from Richard Hilgert of Morningstar. Your line is open. Please go ahead..

Good morning. Thanks for taking my question. Sorry for beating a dead horse here, but just to further understand a little bit more about Zenuity.

Having partnered with an automotive manufacturer and then opening up the joint venture to have sales to other auto manufacturers, has there been any concerns raised by any prospective customers about those relationships and if so, how do you address them?.

We have not seen any concerns.

We were a bit cautious around it, before we formed a joint venture, before we signed the agreement and we looked into this, but we have not seen any concern from other OEMs and some OEMs that are out there will do a lot of this what Zenuity can represent that maybe in auto themselves, but most of them will see Zenuity as a very interesting opportunity to use the outcome and to use the combination of Autoliv technology together with a decision making software.

So it’s rather the contrary I would say positively received from essentially all OEMs or neutral or positive from all OEMs..

Okay. And you talk about decision making software.

Is the idea of having the ability -- it sounds like artificial intelligence to me, but I’m curious to know, is there investment in computing power that the joint venture is going to need to have in order to be able to process the decision making capabilities and is there a communication between these vehicles and some kind of server technology that this joint venture will have in a centralized location somewhere, is that how it's going to work or is this all going to be just on board technology for vehicle?.

Well, as we said, the engineers were hiring up to 600 engineers towards the end of the year. They will need infrastructure to do the job in terms of simulation and in terms of software coding and et cetera. So that will be a hardware necessary for Zenuity to carry on and to do their job. That’s obviously the case.

Bu if you look to the platform, the hardware in the vehicle, that is not the Zenuity question. That is a question for Autoliv or any other hardware supplier that Zenuity would choose to use. As mentioned by Zenuity is that Autoliv can sell Zenuity software to any OEMs besides Volvo.

Volvo has the direct link to Zenuity and all other OEMs go via Autoliv, but Zenuity can also pick and choose the most competitive hardware supplier for as a platform for its software, which means that Autoliv that is going to develop the hardware architecture for running the Zenuity software or any other hardware suppliers that Zenuity choose to use.

And this gives actually Zenuity the opportunity to work with the best supplier based on hardware, it gives also the opportunity for Autoliv to use software from Zenuity even ahead of Volvo using it.

So if they come up with something, that is world’s first leading software and we have -- Autoliv has a customer that is ahead of Volvo, that is possible to do, even Volvo is an owner of Zenuity. And this gives credibility to this company that is really going to be the world’s leading supplier in this space..

Thank you, sir. We can now move along to our next question. It comes from David Lim of Wells Fargo. Your line is open, sir. Please go ahead..

Great. Good afternoon everyone.

Jan and Mats, just wanted to dive into this a little bit more on the three OEM wins in the quarter, any of those three additional vision algorithm wins?.

Yes..

Oh, they are. So can you give us an update on how many vision algo wins you have thus far? I mean I think you've mentioned obviously Mercedes, Volvo and then there was one other that was undisclosed.

Is the number like four or five now?.

We don't have quantified it. We said last year we took around 20% of all additional wins that we saw in the market. And we continue to take vision wins also this year along the three that we are talking about. We haven't mentioned what is bought here, but these orders include night vision, is includes vision, it includes auto radar..

Relative to last quarter, there is an incremental vision algo win, but you're not quantifying the number though?.

Right..

Okay. Excellent. The other question I have is regarding -- the second question is regarding China.

It looks like you guys performed a little bit, well, you guys performed less than LVP growth in the quarter and I think some of that had to do with your brake control, but if you strip out brake control, what would have been the growth rate?.

Well, I don't have the number. We're looking at each other here to answer your question. It would probably have been still below the light vehicle production. If you look to the outperformance, if you’re after the outperformance, but I don’t have that exact number to give you..

Thank you. We can now move along to our next question. It comes from Edoardo Spina of Exane. Your line is open. Please go ahead..

Hello. Thank you for taking my two question. The first one is on the use of cash, because you generate what would cash even after the recurrent level of investment and dividend, so I was interested to understand your plans, considering the starting point of that, I think you would agree it is not high either.

The second question is on China, if I can ask a bit more about what you mean by negative mix and if you can tell us how you expect these to develop portfolio, also in the longer run, considering the changes in the competitive environment that I think are now expected from that. Thank you..

Starting with the balance sheet and the cash situation, I mean looking on the closing of the first quarter, we have leverage ratio of 0.4, we are actually below our communicated range of between 0.5 to 1.5 with a target of 1. But what we also need to realize is that I mean with the cash contribution with Zenuity, we will be on approx. 0.5.

So we will be on the lower end of the range and we are recognizing that we are in the lower end of the range and we have the target of 1. So we are monitoring this going forward as well. I guess that's what I can say..

If we continue with China, you saw us underperforming in both domestic OEMs and in global OEMs and we are looking here and for the rest of the quarter to have a good launch outcome for second quarter and also for the second half.

So we continue to believe that we will changed this situation as we had an outperformance for full year 2016 in China and we are believing that we will at least do the same here for 2017..

Thank you. We can now move along to our next question. It comes from Vijay Rakesh of Mizuho. Your line is open sir. Please go ahead..

Yeah. Hi, Jon and Mats. Good quarter and guide here despite some of the slowdown. I was wondering on the vision system wins that you had, obviously you have good visibility there, how does that pipeline look, if you look at 2017, 2018, if you could give us some more color.

Obviously, you announced three OEMs here?.

We don’t give any guidance on order intake, et cetera more than we still had continued well in the first quarter here. We have a competitive product portfolio. We have a lot of customer interest for it.

So we will come back and report order intake as we do it here in the quarter and more qualitatively also for next quarter, but then elaborate it on the capital markets event, we gave you there by yearend..

Got it. And as I look at this active safety segment that you have, how should we look at the growth there, obviously some of these wins should help back survey that, any thoughts on how you see that growth in 2017, 18 for that active safety segment and obviously it improves a lot more than distribution and also the margins in that segment. Thanks..

The growth rate in active safety, as we commented a little earlier here, it will be hampered by the phase out of the GPS modules and all the internally developed brake control and that will continue in ’17 here, so that after the negative after and the core product here has been showing a mid-teen growth rate in first quarter and we will come back and see the growth rates on that later on.

But in to 18, the comparables on the GPS modules on the internally developed brake control will be ventured, but again here, as I commented, the orders that we have taken in 16, et cetera will only start to generate revenue in 2019..

Thank you. We can now move along to our next question. It comes from [indiscernible].

Thank you very much. Most of the questions have been addressed, but I do have just two. The first one is, Jan, I was wondering if you could just kind of give some color about the comment that you make about order wins in 2016, 25% to 30% number.

And I'm wondering if that’s sort of equally distributed across all products, or somewhat equally distributed across most products or were there different levels of win rates by product type, meaningful difference?.

It was mainly related, if you take our night vision, vision and radar, it's mainly related to the core products of vision and radar that is coming off it, so it was a little bit acute on that front, but as you know, night vision part is smaller and has to be transferred in development in radar. So it’s not great..

Okay.

And so then that sort of the slope on that ramp curve and the pipeline will develop, because ’16 would have a bidding view of ’19, so sort of from ’19 on out?.

Yes. You can say that. Yeah. You can say that. It’s for passive state the order intake we give general guideline of maybe 24 months lead time from orders to start a production and that when you start production, it will take some time, but it’s off to its peak.

But active safety is a slightly longer development time, so 60, 90 that is some years out and I think that is essentially right..

Okay. And then just in terms of aggregate number of contracts that are being approached, I would assume that there's a structurally larger number in 2017 than we saw in 2016 and 2018, similar progression right..

Yeah. And it comes as always with a wave of sourcing. So it is a little bit too early to have any difference of opinion here, whether that is compared in the first quarter now larger number. It comes a little bit also in wave, how the OEMs are sourcing and the contracts that are up for bidding comes a little bit because of the cycle..

Okay.

And then I guess the last question then was on just the protection of the IP and Zenuity, where are you going to, is that going to be headquartered in Sweden, and what's the arrangement in terms of IP between the two partners?.

Well, the headquarter of this is going to be in Gothenburg. As you know, we have a research utility not far away from there, it’s Autoliv and we have also active safety plans right outside of Gothenburg. So we are there and Volvo is there and therefore, we also choose to set up the headquarter in Gothenburg..

Okay.

And then just the arrangement in terms of the IP between the partners?.

Well, we contribute with the IP and Volvo contributes with IP and right to the IP into Zenuity, the right to use the IP for further development. So that has been a contribution of knowledge and IP from Volvo regarding their part and when it comes to our part, more on the component side, it has been transferred into Zenuity..

Thank you, sir. We have one very last question left today. It comes from Brian Johnson of Barclays. Please go ahead, sir. Your line is open..

Yes. Hi. Good afternoon, team. This is Steven Hempel on for Brian Johnson. Thanks for taking the question. Just had to drill down a little bit on Zenuity.

I know it's still early days here in 2019, 2020 is long ways off here, but any initial expectations for sales in 2019, 2020 and then also related to that, how should we be thinking about the potential cannibalization of the software sales that Autoliv’s core active safety business may have generated in that timeframe, because I assume back at the Capital Markets Day back in October 15 that you were assuming some additional software sales related to vision algorithms and cameras in that time frame, so just an update there would be helpful..

If we start with the last one, this is only an addition. This Zenuity company is filling some of the boxes that wasn’t filled if you remember our pyramid of the technologies and functionalities that we showed in the Capital Markets Day that we didn't have access to, we are now having access to. So Zenuity is only an addition.

And when we held that software together with our algos and our sensors, vision and radars, it’s no cannibalization you can say. This is pure an addition to it. When it comes to the sales number for Zenuity in 2019, it’s too early. I don’t have any figures to tell you on that one for the time being.

But we said that it’s not until 19 you will see revenues coming in at Zenuity and that’s the information we have today..

Got you. And then just in terms of Zenuity standard theme here, from a real time mapping and light perspective, I think that’s obviously something that's known to be kind of the standards you’re moving forward for level 4, level 5.

I guess what is kind of all leads strategy around mapping and whether or not you're looking to partner with someone or kind of do that in house..

Well, there are several options for us.

You will remember that one of the hazards we had in the MACOM acquisition was our electronic horizon technology and we are evaluating it using that and building that into the software development together with Zenuity and also inside Autoliv and how we will partner out and how Zenuity and Autoliv will partner up with map providers and how we can also use our vision system for real time map updates, we are right now looking into.

The same type of concept that a competitor of ours have launched here some time ago and of course the use of the technologies that we are sitting to the system. So this is a very interesting and very dynamic market that will have offered a lot of opportunities for many suppliers..

Got it.

And then just one quick last one, I know you’re working with Mobileye for 2020 year on cap and with Zenuity now in the picture, I guess moving forward, do you see any potential for kind of the tier 1s and tier 2s from a crowd source real time mapping perspective to be sharing data that’s generating from vehicle to vehicle outside of just kind of normal course relationships just for the better of the industry or pushing this technology to market quicker or do you now see that as a potential item?.

I think there are, I mean the only thing we can say with everything that is happening here from the latest bigger acquisition or for takeovers that was happening here some weeks and months ago, and everything else at Zenuity as another earlier example of combinations and sharing and timing new clusters I think is actually happening as we speak.

And I am also of the opinion of that we will see more constellations being formed later on down the road, there will be more opportunities for other type of combinations and clusters that will be formed later on and also with that share of data and share of resources..

We have no further questions. So at this point, I will hand the call back to Jan Carlson for any concluding remarks. Thank you..

Thank you. Well, before we end today's call, I would like to mention that our second quarter earnings call is scheduled for Friday July 21 this year and in addition, during the upcoming quarters, we'll be participating in several conferences and road shows.

And of course, I would also like to mention our Capital Markets Day, which is planned for September around Frankfurt Auto Show. Please follow our corporate website for more information and details for participation. And then finally, I would like to thank everyone for participating in today's call.

We sincerely appreciate your continued interest in Autoliv. Good bye for now..

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