Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to today’s Q4 2018 Autoliv Incorporated Earnings Conference Call. At this time all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session.

[Operator Instructions] I must advise you that this conference is being recorded today on Tuesday the 29th of January 2019. On the call with you today are the VP Investor Relations, Anders Trapp, President and CEO, Mikael Bratt and Group CFO Mats Backman. I would now like to hand the call over to our first speaker Anders Trapp. Please go ahead, sir.\.

Thank you, Alice. Welcome everyone to our fourth quarter 2018 earnings presentation. As listed here in Stockholm, we have our President and CEO, Mikael Bratt; our CFO, Mats Backman; and myself, Anders Trapp, VP, Investor Relations.

During today's earnings call, our CEO will provide a brief overview of our fourth quarter and full year [18 results, as well as provide an update on our general business, market conditions and targets.

Following Mikael, our CFO, Mats Backman will provide further details and commentary around the Q4 '18 and full year ’18 financial result and the outlook for full year ‘19.

At the end of our presentation, we will remain available to respond to your questions, and as usual, the slides are 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 it includes the Q&A that follows.

The result herein presents the performance of Autoliv giving effect to the Veoneer spin-off historical financial results of Veoneer are reflected as discontinued operations, with the exception of cash flows, which up until Q2 /18 are presented on a consolidated basis of both continuing and discontinued operations.

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

So please follow a limit of two questions per person. I will now turn it over to our CEO Mikael Bratt..

Thank you, Anders. Looking now into the Q4 ‘18 highlights on the next slide. First I would like to say that I'm pleased with our sales growth and cash flow despite the increasingly challenging market conditions we've faced in the second half of the year. I'm also pleased with the order intake while our profitability still need to improve.

I would like to acknowledge and offer my sincere thank you to the entire Autoliv team for delivering a quarter of strong growth. The team is fully focused on delivering increasing value to us - stakeholders through our focus on quality and operational excellence. 2018 was an eventful year for our company.

In July we spun off Veoneer creating a more focused and flexible Autoliv to meet the opportunities and challenges in our industry. Our new management teams is off to a good start, some of the team members are new in their executive management position, but all of them have extensive experience in the automotive industry and with Autoliv.

In the second half of the year the industry faced substantial reductions in volumes, especially in Europe impacted by WLTP and in China due to lower demand for new vehicle. Thanks to our large number of product launches.

I'm happy to be able to say that we outpaced global light vehicle production significantly, with an accelerating rate towards the end of the year. I'm also very pleased to report that our order intake continue on high level in 2018, supporting our growth opportunities for long-term. Looking now at our updated 2020 target on the next slide.

Our sales and earnings capacity is further supported by their continuing strong order intake in 2018. Our targets are reaching more than $10 billion in sales and around 30% in adjusted operating margin remains unchanged.

However, due to the slowdown in global light vehicle sales and production and increasing raw material pricing, we do not expect to reach these targets in 2020. I want to be very clear on that the targets have not changed and they are - we aim to reach them at a later stage when market fundamentals are more solid.

HIS now forecast substantially slower growth in the global light vehicle production for 2020. HIS forecast has been reduced by 5 million vehicles or more than 5% since when we set out to 2020 targets in 2017. The annual growth rates for 2018 to 2020 has thus been lowered from the 2.3% that was included in our regional 2020 targets to now only 0.6%.

Although we do not expect to reach the targets by 2020, we do expect improvements in sales and adjusting operating margin in 2020, assuming light vehicle production returns to growth. Looking now at our order intake in 2018 on the next slide.

Our order intake for the full year continued on the same high level as in 2017, supporting our growth opportunities also beyond 2020.

This is strong evidence that our company is the leading company in the passive safety of automotive industry and it shows that we have successfully managed the operations of ramping up of previous year’s high level of order intake. Our key performance indicator customer satisfaction has improved substantially and is at the high level.

The best we have had for several years. However, this does not mean that we can relax. We always strive for improving products, services, processes and costs. We estimate that we booked about 50% of available order value in 2018, making 2018 the fourth consecutive year of booking around more than 50% of the available order value.

The order intake is broad based. We have improved our market position in three dimension. Product category dimension, regional dimension and customer dimension. Looking by customer. In 2013 there were 15 OEMs that made significant passive safety sourcing.

We are pleased that we took order intake share above 80% with three different customers and it was only one customer where we were just below 40% order intake share. We can therefore conclude that our 2018 order intake was further strengthening our already broad customer base.

Looking now at the recap of the fourth quarter highlights on the next slide. Our growth momentum continued in the fourth quarter, albeit at a lower pace due to a softening of the Chinese and Western European markets. The growth was mainly driven by the large number of product launches in North America.

In the quarter Autoliv’s organic growth outpaced global light vehicle production by almost 10 percentage points, as global light vehicle production declined by more than 5% according to IHS, as unfavorable market fundamentals took their toll on global outdoor demand and production.

We had a solid operating cash flow in the quarter enabling us for the full year to almost reach last year's level of continued operations.

However, we have experienced continued headwinds from raw material pricing, which together with the volatility of market demand and launch-related costs tampered the operating leverage on the stronger sales growth.

Just as in the previous quarter, the volatility of market demand in the quarter resulted in our supply chain production and logistics system having to manage significant changes to OEM production plans with corresponding uneven utilization of our assets, while at the same time managing the different challenges of the many launches and the high growth in North America.

We see a similar environment for the beginning of 2019, with continued uncertainty for light vehicle production, especially in China, Europe, leading to continued challenges with uneven utilization. We are closely following market developments and are ready to act if we judge it necessary.

We have a high number of temporary employees both in Europe and China providing flexibility to flex production volumes up or down. We have implemented actions to reduce cost relate - cost related to product launches. This includes production line redesign, employee management and supplier support management.

Looking now at the recap of the fourth quarter financial performance on the next slide. Executing on a strong order book this quarter marks the third quarter of higher organic growth. Our consolidated net sales increased by close to 2% compared to the same quarter of 2017.

With organic sales increasing by more than 4%, despite the global light vehicle production falling by 5%.

Adjusted operating income including costs for capacity alignment, antitrust related matters and separation costs decreased by around 5% from $254 million to $240 million, impacted by elevated launch related costs, uneven utilization of our assets and raw material pricing.

The adjusted operating margin decreased by 90 basis points to 10.9% compared to the same quarter of 2017. EPS diluted decreased by $3.32 compared to the same quarter of 2017, almost entirely as a result of the accrual related to the remaining part of the European Commission antitrust investigation and discrete tax items.

Looking to our sales growth on the next slide. Thanks to newly introduced models. We could more than offset the short growth in light vehicle production in the quarter.

Consolidated net sales in the fourth quarter increased year-over-year by 1.6% to $2.2 billion, with an organic growth of 4.2% partly offset by negative currency translation effects of 2.6%. Sales outperformed light vehicle production all regions except Europe.

The underperformance in Europe was mainly due to the light vehicle production in Western Europe with its high safety content per vehicle declined by more than 9%. In the quarter North America contributed with $116 million to the organic growth. The sales were driven by previous quarters product launches mainly with FCA, Honda and Nissan.

The organic growth of close to 21% was 19 percentage points higher than the light vehicle production growth. Our sales in South America declined by 9% organically, basically in line with the light vehicle production decline in the region.

In Europe we have been affected by weaker demands from a number of OEMs, partly related to continued temporary production cuts connected to the new EU emission testing regulation WLTP, and model changeovers. Sales in China declined organically by 3.7%, outperforming light vehicle production by 11 percentage points.

The lower sales was mainly a result of domestic OEMs including Great Wall volume and ruling reducing their outputs. This was partly offset by slightly higher sales to global OEMs launch due to stronger performance with Honda and VW. Looking at our key models launches in Q4, ‘18 on the next slide.

Here you see some of the key models which have been launched during the fourth quarter. Five of the models are built in North America, continuing the strong momentum we have seen over the last few quarters. All but one are SUVs or especially interested is the Tata Harrier, which is the new model specifically developed for the Indian market.

We proudly supply most of the passive safety products to the Harrier, including driver airbag with steering wheel, passenger airbag, side airbags and curtain airbags. The highest safety content on the Harrier demonstrates the growth opportunities in emerging markets when consumers request the same level of safety as in more developed market.

Looking out to our product launches. Our strong launch momentum continues. We continue to see a ramp up of product launches of business order in 2015 to 2017 as illustrated by the chart. The number of product launches in 2018 increased by 20% compared to the year earlier.

The main increase has been in the US with over 50% and in China with close to 40% more launches done in 2017. We expect a continued high pace of product launches in 2019, especially in China.

We therefore expect the strong organic growth to continue in 2019 with a similar outperformance versus light vehicle production as we have in 2018, which was close to 6%. Looking now to 2019 growth opportunities. Here you see some of the key models supporting our growth in 2019.

These models are expected to account for a large share of our organic sales growth during 2019. Seven of these models were launched recently. Two are yet to be launched, two are not new launches but they are to be built in additional production sites to meet global demand.

With Autoliv’s global production footprint we are able to support these models at their new production sites growing our sales. Annually these 11 models represents around 10% of sales and our content per vehicle is in the range of $140 to $300. Looking to our underlying market conditions on the next slide.

The light vehicle market became increasingly more challenging in the second half of 2018, due to weaker consumer confidence, trade tariffs and regulatory changes. In the fourth quarter, overall global light vehicle production declined by about 5% according to IHS.

This is 6 percentage points worse than the 1% growth forecasted at the beginning of the quarter. In China the world's largest market, vehicle sales fell in the fourth quarter by 13% according to CAAM.

The slowdown is largely driven by weakening consumer demand caused by lower consumer confidence on trade wars, weaker state of economy and lack of demand stimulus. As you might recall, we did expect a drop that was greater than the 3% decline IHS predicted.

The outcome turned out even weaker as a light vehicle production in the fourth quarter declined by 15% according to industry sources like CAAM and IHS. US light vehicle sales rebounded slightly in the fourth quarter from the slowdowns - slowdowns experienced during the summer.

The most down to market fell below year ago, strong growth from FCA, Tesla and Volkswagen brought the U.S. into the black for the quarter and the year. Inventory level remains on the healthy level and were basically flat year-over-year.

Light vehicle production in North America increased by 1.7% which is less than the reading forecasted - forecast of 2.6% growth at the beginning of the quarter. European light vehicle sales declined by 8% in the quarter, continuing the downward trend that started with the introduction of WLTP in September.

Underlying demand was weaker than expected as seen in the disappointing registration levels noted for November and December, which we believe goes beyond the impact of WLTP. Overall production is believed to have declined by 5%.

The decline was concentrated to the important West European market that dropped by 9%, while Eastern Europe production increased slightly. In Japan, this year ended on a positive note with light vehicle sales increasing at an estimate of 5% year-over-year in the fourth quarter. I will now hand over to our CFO, Mats Backman to speak to the financials..

Thank you, Mikael. Looking now for financials on the next page. We have our key figures for the fourth quarter, including negative currency translation effects of around $57 million and organic sales growth of $91 million, our consolidated net sales reached $2.2 billion for the fourth quarter. Our gross margin declined year-over-year.

The net operating leverage on the higher sales was more than offset by higher commodity costs and costs related to preparation for upcoming launches, as well as a ramp up of recent launches. Additionally, we experienced unbalanced utilization of our assets in China and Europe.

Our adjusted operating margin of 10.9% declined year-over-year, mainly due to the lower gross margin and the higher RD&E, partly offset by lower cost per SG&A in relation to sales. Our reported earnings per share decreased by $3.32, mainly as a result of the accrual related to the EC antitrust investigation and discrete tax items.

Our adjusted return on capital employed and return on equity were 26% and 24% respectively. Our dividend of $0.62 was $0.02 higher than a year earlier. Looking now on the next slide. Our adjusted operating margin of 10.9% was about 90 basis points lower year-over-year for the fourth quarter.

As illustrated by the chart, the operating margin was impacted by higher raw material costs of about 80 basis points, partly offset by net currency tailwind of about 70 basis points.

The negative leverage on the higher sales was a result of higher RD&E expenses, other launch related costs and unbalanced utilization of our supply chain production and logistics systems.

The higher RD&E which increased compared to the same quarter in prior year by about 40 basis points was driven by the high number of product launches especially in North America. In the quarter launches in North America alone rose by more than 70%.

Looking more into full year ‘18 performance on the next slide, where we have our key figures for the full year ’18. For the full year 2018 Autoliv sales grew organically by 4.8% comparing to full year 2017, almost 6 percentage points lower than the LVP growth according to IHS.

The largest contributors to organic growth by North America, China and India partly offset by Europe and South Korea. The gross profit increased by $32 million compared to prior year.

The gross margin decreased by 0.9 percentage points compared to 2017, mainly due to adverse impact from launch related cost, raw material cost and currency changes which more than offset the operating leverage on the increased sales.

The adjusted operating margin, excluding cost for capacity alignment, antitrust related matters and the separation of our business segment was 10.5% of sales compared to 11.1% of sales for the full year 2017. The decrease was mainly due to the lower gross margin and higher RD&E costs.

Earnings per share from continuing operations assuming dilution decreased by 35% to $4.31 compared to a $6.68 [ph] for the same period one year ago. This was mainly due to the accrual related to remaining portion of EC investigation, combined with higher underlying tax rates.

Our adjusted return on capital employed and return on equity were 22% and 20% respectively. Our dividend of $2.46 was $0.08 or 3% higher than a year earlier. Looking now on the next slide. Our adjusted operating margin of 10.5% for the full year 2018, which was 60 basis points lower than full year ’17.

The adjusted operating margin was impacted by higher raw material costs of about 40 basis points and the net currency headwind of about 10 basis points.

The negative leverage on the highest sales was a result of higher RD&E expenses, which increased year-over-year by about 30 basis points, mainly as a result of the many product launches, as well as other launch-related costs, and unbalanced utilization of our supply chain, production and logistics system in the second half of the year.

This was partly mitigated by a lower as SG&A. Looking on our cash flow on the next slide. Operating cash flow was strong in the quarter taking us to more than $800 million in full year 2018 for continued operations, which is close to our earlier indication.

Note that our cash flow statement includes discontinued operations up until the second quarter 2018. This makes year-over-year comparison difficult. Capital expenditures amounted to $133 million in the fourth quarter. In the fourth quarter 2017 capital expenditures for continued operations were $128 million.

Full year 2018 capital expenditures will continue operations amounted to $486 million or about 5.6% of sales. For the full year ’19, we expect capital expenditures to decline in relation to sales as the ratio begins to normalize towards the historical range of between 4% and 5%. Looking now for earnings per share on the next slide.

Reported earnings per share declined by $332 to minus $1.06, mainly due to the accrual related to the remaining portion of the EC investigation discrete tax items and lower operating income. In fourth quarter ’18 the adjusted earnings per share decreased by 38% to $1.42 compared to $2.29 for the same period one year ago.

The main driver behind the decrease are $0.44 from discrete tax items, $0.24 from higher tax rates and $0.12 from lower adjusted operating income. Looking now to our balance sheet on the next slide. We have as you know a long history of prudent financial policy.

Our balance sheet focus and shareholder friendly capital allocation policy remains unchanged. Autoliv’s policies to maintain a leverage ratio of around 1 times net debt to EBITDA within a range of 0.5 to 1.5. As of December 31, 2018 the ratio was back within the range, as we reduced our net debt by $106 million in the quarter.

Our strong free cash flow generation should allow deleveraging and should allow continued returns to shareholders while providing flexibility. We are aiming to be well within the target range by the end of year 2019. Despite the expected lines for the remaining portion of EC investigation that could be issued during the first half of 2019.

This excludes any other discrete items and other non foreseeable changes to our business. Turning the page. The outlook for major light vehicle markets has become increasingly more uncertain due to weaker consumer confidence, trade tariffs and regulatory changes.

According to HIS, the US market has seen flat or slightly down, while Europe and China are expected to stabilize from the recent volatility. IHS forecast year-over-year growth in China for the full year ‘19 despite a weak first half. The WLTP impact in Europe appears on track to fully fade over the coming months.

However, we can see an increasing risk for uncertainty among end consumers on what drivetrain technology to choose. Corporate and fleet sales seems to be less effective. And another factor to watch is the Brexit outcome.

In China, IHS expect the softness to continue in the first quarter forecasting about 9% decline in light vehicle production year-over-year. As inventory levels are relatively high and the recent trend in sales have been deteriorated, we believe there is a downside risk to this estimate.

Our base scenario for global light vehicle production in 2019 is below the IHS estimate to 1.1% growth. We expect to outgrow light vehicle production at a similar level as we did in 2018, which was almost 6% points. Turning the page, we have summarized our full year 2019 indications.

We said we are coming back to how we are planning to guide at our fourth quarter earnings call. So we will guide on a full year basis and on the factors that you can see on this slide. Full year indications assumes mid January exchange rates prevail and excludes cost for capacity alignment and antitrust related matters.

Our full year ‘19 indication is from organic sales growth of around 5% and the negative currency translation effect of around 1%, resulting in a consolidated net sales growth of 4% for 2019. Our indication for the adjusted operating margin is around 10.5% for the full year 2019.

We expect that 2019 raw material cost increase to be at least as much as it was in 2018. We anticipate the currency effect on the operating margin for the full year ‘19 to be neutral. The projected tax rate, excluding discrete items is expected to be around 28% for full year 2019.

The projected operating cash flow, excluding any discrete items is expected to increase. We aim to improve the 2018 cash conversion or close to 90% for continued operations to be around 100% in 2019. The projected capital expenditures in relation to sales full year 2019 is expected to decline compared to the 5.6% for continued operations in 2018.

The projected RD&E in relation to sales for full year 2019 is expected to decline compared to the 4.8% for continue operations in 2018 and we expect the leverage ratio to be well within our range of 0.5 to 1.5 by year and 2019, excluding any unforeseen discrete items. I will now hand back to Mikael for some concluding words..

Thank you, Mats. Turning the page. Our 2019 focus is directed to improve launch effectiveness and productivity. We always strive to improve production and services, processes and costs. These continuous improvements have been key for Autoliv in improving profitability and winning new contracts.

In 2019 we will increasingly focusing on our productivity in all areas such as production logistics, testing and engineering. We have implemented actions to improve effectiveness of product launches, which of course at the core - of the course of ‘19 we expect to improve our product launch cost effectiveness.

In addition, as the number of launches are stabilizing at the new high level, we believe we can gradually increase focus on productivity improvements through operation excellence, while our launch related course to gradually climb. As light vehicle markets are expected to remain volatile, we will monitor and manage accordingly.

We will also continue our efforts of flawless execution of new launches, improving customer satisfaction further and thereby supporting our new and stronger market position. Unfortunately, there would be millions of traffic accidents in 2019, some fatal, some where people would get injured.

Therefore we will relentless continue to innovate and to deliver best quality products that will save more lives. I will now hand back to Anders..

Thank you, Mikael. Turning the page. This concludes our formal comments for today's earnings call and we would like to open up the line for questions. I will now hand it back to Alice.

Operator?.

Yes, it's my mike on. Thank you. Thank you, ladies and gentlemen we will now begin the question-and-answer session. [Operator Instructions] Thank you. Your first question comes from the line of Emmanuel Rosner from Deutsche Bank. Please go ahead and ask your question..

Hi, everybody..

Hi..

Hi..

So first question is around your guidance for the margin in 2019. Can you maybe break out the puts and takes in terms of how you get to a flat margin this year, perhaps, you know what is the expected commodities impact, what is the magnitude of continued operational headwinds on the year-over-year basis.

And then also perhaps any color you can give on the cadence within 2019?.

This is Mats. So maybe starting with kind of external factors and looking into currency and raw materials. So when it comes to currencies, we are saying that we expect a neutral effect.

However looking at the raw materials, we are expecting a negative development in line with what we saw in 2018, meaning that we had about 40 basis points negative in 2018 and that's at the level that we expect at least for 2019. So that's clearly a negative.

And then looking on other items affecting the margin, first of all, when it comes to launch cost, I mean, as we've communicated after the third quarter, we talked about several quarters of launch cost going forward. So that's something we see now in the beginning of the year as well.

And also to remember that, I mean, given the kind of assumption we have of the underlying LVP and the market development mainly in China, we see that the first half of 2019 to be challenging in order to kind of meet lower volumes and mitigate the effects from lower volumes, so that I would say kind of conclude the underlying assumptions we have for 10.5..

That's very helpful. And I guess my second question is around your longer term target of 13% margin. Can you maybe sort of give us a rough bridge of what would get you there.

So the incremental margins that you're assuming on a go forward basis, and then how much of the recent headwinds seen in 2018 and ‘19 on the operational front, how much of that would reverse and become a tailwind?.

What we have said here is that the targets has absolute values here is kept. So what we are doing is that we are saying it will not be achieved in 2020, but beyond 2020 here. So the main factors here, I would say is the light vehicle production which have changed significantly since we set our targets in 2017.

And so that of course, is a key factor of all into this. And also the raw material situation here that does put additional strain on our ability to reach the target here. So that's the main factors to get to where we have had as a target..

But you've had quite a few operational headwinds that you call that in ‘18 and ’19, like is there.

What kind of - did you assume this sort of gets reverse and what kind of tailwind would that provide?.

That is what we have done, that is the launch cost - related costs that we have had on Starting during last year. But we said that were in connection with the third quarter here that will take several quarters until we are through that. So it of course, impact the ’19 here.

But we are gradually improving here and we expect that to be behind us at some later date..

Thank you..

Thank you. Your next question comes from the line and Rich Kwas from Wells Fargo. Please go ahead and ask a question..

Hi, good morning. On the assumptions underpinning the outlook, so it sounds like relative to what you printed in the deck with regards to IHS assumptions you're more conservative. Is there any more detail around what you're assuming for China. You know, IHS has it up for the year, I think most suppliers are assuming a down year.

So is that a fair assumption for you and how much should we think about being on China production light vehicle production being down within your outlook, your revenue outlook?.

I think, I mean, China is the main factor in the equation here when we are saying that we are more negative for ‘19 here and it's mainly also in the beginning of the year first half. I think IHS has roughly 9% negative in the fourth quarter. We see significantly more challenging situation in China for the first quarter here.

And so I would say then the second half of the year I think is more difficult for us to have our - you know a very different opinion here because the first half of the year then we can see and understand better where we are in relation to our customers call logs and in the dialogue we there..

Okay. And then the fact - I was going to say the second quarter you hinted at some risk there as well.

So I know you only look out in terms of the current quarter, but should we think of taking whatever IHS has for second quarter and discount that as well and then assume that's factored into your - within your full year outlook for a second quarter?.

Yes. Yes..

Okay. And then just if I could follow up real quick macro wise Europe, how conservative are you in Europe. There are still some pressures there. How do you see that playing out over the course of the year? That's been a weak point for you here recently.

Just curious on what you're assuming underpinning the market?.

I think its difficult to give you some grading on - of our view on Europe, more than to say that we see Europe as a market which we believe will be weak here moving forward and as we've indicated in our presentation here is that of course, you have the WLTP effects you know, during the autumn here and we said in connection with Q4 that that would effect to some extent the fourth quarter as well which it did.

But I think around the whole WLTP issue which is the emission regulations here, we have a - I would say a whole wait and see from the consumers here because there –this overall question around diesel versus alternative drivelines and availability they're delaying some decisions from the consumers.

Then I would say in Europe also we have the Brexit situation that are – also impact consumer confidence in some countries..

All right. Okay. Thank you very much..

Thank you..

Thank you. Your next question comes from the line of Chris McNally from Evercore ISI. Please go ahead and ask your question..

Hi, good afternoon. Just trying to get a sense I think like most to you know, just how conservative you're being with you know what this sort of 2020 target pushback really rather than pulling the target altogether.

So what I think you're saying is that you haven't - you just changed the timing of the targets and not the absolute values but that would imply that basically the next $1 billion of revenue you'd have to achieve $360 million of EBIT to hit that $1.3 billion number and you know 36% incremental margins doesn't seem like anything the companies done in the past.

So maybe you can you can help us on what are we missing. It's clearly volume related, that's an issue.

But you know, why would so much fall through to the bottom line unquote the next billion of volume?.

No, I wouldn't do a calculation for you here. But what we have said here is that we remain the target - remain the targets but they are pushed out in time as a consequence of what we just alluded to here in terms of headwinds, primarily then light vehicle production.

So that of course, we see the growth coming from the underlying performance of the company..

Okay. And is there a - is there a time that we may get a little bit more detail you know, you've done CMDs in the past. Is that something that - that we may hear from you know, at some point this year maybe, obviously if the targets are being moved from 2020 may we get new targets for 2021 or 2022.

Is that something you're hoping to communicate with more detail over the course of the year?.

We have said that we will have a Capital Markets during the second half of 2019 and that still stands. So we will come back on details around that. And of course in such a meeting you will formulate more, we will formulate more direction when it comes to the years beyond 2020. But then what shape and form we will have to come back to..

Okay. Thanks. I can follow up more offline. Thank you..

Thank you..

Thank you. Your next question comes from the line of Ashik Kurian from Jefferies. Please go ahead and ask your question..

Hi. Thanks for taking my questions. I just I've - been probably a similar question, question on margins, but would the - would the margin shortfall that you had since the time that you've given the targets I mean, do you attribute all of that to the external factors.

Because even when I tried to add up the raw material headwind since 2017 and if I assume another 30, 40 bps for 2019 I think that together comes up to 100 bps, launch cost again should be in that level as well.

So maybe you can try o rephrase the question as to you know, is the 13% dependent on the raw material prices reversing by 100 bps and LVP reaching the levels that you previously had for 2020?.

I think it's a combination of both external and internal factors. I mean, to the extent that we have - I mean given their launch costs we have had them what we have been communicating in the third quarter and fourth quarter. That makes it kind of a new base line down as we are starting on - on a lower level than.

We have the raw material, I mean as my – the indication I gave them the 40 bps. 2018 will be at least on that level for 2019 as well.

But I think most and foremost is that's the underlying LVP because if you recall when we gave the targets and when we talked about the development between 2017 and 2020, if you took that kind of average or the CAGR when it comes to the growth number from ‘17 to 2020 I believe 80%, were off the underlying LVP assumption was if I recall it 2.3%, meaning that the 2.3% was really important in order to get the volume and get the leverage.

What we see now in 2019 if we take it kind of a snapshot of ‘19 and on our way to 2020 then we are indicating if you take the organic sales growth that we give now 5% and we are talking about 6% at the same points outperformance that would indicate the global LVP or minus 1% rather than the plus 2.3%.

And I think that's key as an assumption when we are when we are pushing the - pushing the numbers beyond 2020..

Okay. I mean, toward the end of last year you sounded confident of reducing if not significantly reducing the launch cost in 2019 given that the step up of launches would be comparatively less than ‘19.

Is that still the target?.

Yes, I mean we talked about several quarters when we issued the third quarter report and we have no changes for that..

I guess, for 2019 then I mean, if you grow organically by 5% R&D is down year-over-year, launch cost is not up. So I mean – and I think the volatility in LVP cannot be higher than what is it.

If it's at the same level as what you’ve seen in ’18, there's no other negative surprise that we are missing in terms of the margin correct?.

No, but I think you also need to consider that a mix when it comes to the growth and our growth in particular down looking on. I mean, if you're just looking at the fourth quarter I mean, close to 20% organic growth in America in the same time as we have a negative development in Europe and China.

Coming back a little bit, so what we talked about when it comes to uneven utilization of the assets that we are running full speed in one region in the same time as we're mitigating negative volume effects in terms of under absorption in other regions.

So that makes it a little bit more difficult to get that kind of leverage comparing to if you have an even growth globally that you were looking at. So and at this particularly valid for the first half of 2019 when we see this kind of turbulence or volatile development in China..

Thank you.

Last question, I mean, do you have a chance of passing through some of the raw material headwind, I mean given that you have close to 50% market share in your industry, I mean if there's any supplier that's able to pass through or at least trade too it should be or so, a bit surprised by you flagging much higher raw material headwinds?.

There is no automatic path through - to our customers when it comes to raw materials. It's of course a part of normal discussions, commercial discussions that we have with our customers annually or I would say several times a year here looking at the different items affecting us affecting them et cetera, et cetera.

So that's a commercial negotiation and then it ends up in..

Thank you..

Thank you..

Thank you. Your next question comes from the line of Joseph Spak from RBC Capital Markets. Please go ahead and ask your question..

Thank you good afternoon everyone over there. I guess the - I just want to go back to some of some of the assumptions right. So you're talking about you know 5% organic growth, you show the 1% IHS but it sounds like you're actually much below that.

I mean are you actually guiding it like a bit - on that 5% percent, do you expect industry sales to be down next year? I guess what I'm trying to understand is you know in ‘18 which was a challenging year you still had I guess good outgrowth versus a down market.

And I'm trying to understand if that ratio stays the same or sort of you know moderates in ’19?.

No it stays the same, it looks exactly like I said, I mean we are guiding for 5% organic growth in 2019, but in the same time we're saying that we're looking at an outperform in line with what we saw in 2018, meaning that 6 percentage point and that would indicate – to just that kind of summarize the numbers, that would indicate that we are looking up – that all assumption for the global LVP 2019 is through all their minus 1%..

Okay. That's helpful. So then so bringing that down to the margin, right, you talked about a 40 basis point headwind from raw materials. You talked about, well, I mean there's going to be obviously some sort of you know, volume hit as well from the industry, although offset by the backlog and I guess conversion that's going to be key.

But is that really - I mean if you're keeping margins flat and it seems like there's some of these headwinds you talked about.

Is that really what just - what's the offset to the margin is some of the improved conversion on the new business?.

I mean, again I would say it's a combination, we're talking about the kind of launch costs that kind of continues into 2019 with the statement after the third quarter of several quarters. So that's one component that you need to consider.

But secondly also being very important and especially now in the first half of 2019 and, that said, there is a kind of under absorption driven by the volume drop we see in certain markets taking China for instance.

So coming back a little bit to this kind of uneven utilization or production assets also need to be considered in this and especially looking at the first quarter.

Even though that if we're looking at the fourth quarter and outcome, actually for the fourth quarter I think our Chinese team have done a great job in mitigating the negative volume effect but that’s - its limit to what you can do when you see a sudden drop in volumes like we have seen..

Right.

But I guess if that’s – that was my point, you're talking about absorption you know still some launch costs, still some raw material costs, but you are - so it sounds like I'm hearing more headwinds, but you're still seeing the margins flat at least for the year, so I understand there could be some cadence through the year, but what are the sort of positive offsets to get you back to sort of a flattish margin?.

Yeah, I mean first of all, I mean, the launch cost cannot go on forever. We thought it communicated - communicate that in the third quarter and into the fourth quarter and that's something that we have multiple activities and actions in the company in order to address launch costs.

So that's one line component that should improve now over time and that's important to remember as well..

Okay. And then I think I thought I heard the comment on CapEx that over time you'll get back to the 4% to 5% which I think is what you said historically, is that in conjunction with sort of hitting this you know $10 billion number is that sort of the timeframe we think that that should normalize.

Because until then you're going to need the CapEx to support launches?.

No I think it's very kind of clearly connected to the order intake and volumes. Of course, I mean it's capacity related investments that we're making and we have been preparing for this kind of higher volume for a couple of years right now.

So what we've said really is that we think that we have peaked in relation to sales and what we see right now and now we will gradually start to reduce in relation to sales going forward. So it could be a big support we get is really from organic growth and higher sales number..

Thank you very much..

Thank you. Your next question comes from the line of James Picariello from KeyBanc Capital. Please go ahead and ask your question..

Hey. Good afternoon, guys. Just a question for Mats.

You know, the more obvious question, are you willing to talk about your decision to move to your sidekick Veoneer or is that something that you don't want to address?.

No, I think I'm leaving that for the Veoneer, it's not - maybe for me to comment on anything on this call when it comes to that..

Okay. Understood. All right. So orders you know, just fractionally down year-over-year, historically you guys talk about a two to three year lead time before production begins.

Is that something that you're still seeing at this point or given all the headwinds from a global light vehicle production backdrop standpoint are things getting pushed a bit?.

No I think we definitely see the same type of time rates and when it comes to new orders. I mean 18 to 36 months as you referred to here, I mean with the weakening light vehicle production I would say is nothing that the impact the launch plans here.

So in terms of launching new vehicles for us than supporting these new launches is you know, no changes and that's why I think we are talking about these outperformance here where we - you know, it changes that..

Okay. And if we continue to see some commodity deflation or at least some stabilization, given the three to six month lead time of the way there and you’re realizing in your P&L.

Is there any upside to this, you know another year of 40 basis point headwind from a commodity standpoint if we continue to see some deflation?.

I think - I mean, lower raw material prices is what is helpful over time, but there's is a lead time in all that. So I don't think you can make such a rough calculation on that. Its many moving parts into that..

Okay. And just last one for CapEx, you know, you say it's going to be down as a percentage of sales year-over-year. Previously you said that know we should expect to see some normalization within a 4% to 5% of sales range.

Is the high end that 5% is that something that you're targeting in terms of your capital deployment for ’19?.

No I mean, the only thing about guiding is lower capital expenditures relation to sales and then when we are talking about the 4% to 5% that's a more kind of a normalized historical level that we should aim for.

But we are not - we're not that granular when it comes to the 2019 other than saying that we will decrease the CapEx benefits in relation to sales throughout the year..

Thanks very much, guys..

Thank you. We will now take our next question. On next question comes from the line of Brian Johnson from Barclays Capital. Please go ahead and ask your question..

Yes..

Hello, there?.

Brian, your line disconnected. [Operator Instructions] Thank you. Your line is now reopened..

Hello, can you hear me?.

Yeah..

Could you give us a sense of the operating margin, ideally by region but just sell some of the pressures play out by region. Is it fair to assume that China and Europe were really the source of lack of incremental profits and the US was more or less okay, or is the launch activity in the U.S.

playing that down as well?.

Well, I mean, we are not the kind of that detailed giving at a margin of profitability by region. But if you are looking at the fourth quarter in particular when we are talking about the increased launch cost that's related to the region where we have had most launches.

I mean for US for instance looking at the fourth quarter I believe we had more than 70% increase in number of launches in the fourth quarter year over year. So in terms of profitability in North America that's definitely affected by launch costs because that's the region where we have the launch cost and we'll have most of that - of the launches.

But other than that, I wouldn't get into a kind of a more granular guidance when it comes to the profitability of the region..

Okay.

And just next question, when you think of - since a lot of the issues here seem to be launch related, as we get into ‘20 and even 2021, you expect you have visibility, given your strong win rate is this about [indiscernible] launch cadence likely to continue into those years?.

I mean, as you said there is a strong order intake supports our growth beyond 2020 definitely with what we see now for 2018..

If I am looking at launches by region so to speak, I mean the first wave that we have seen has been very much related to North America. But as you probably recall we have been talking about market share gains mainly in three regions that’s North America, China and Japan.

And looking into 2019 we will see an increased number of launches in China as well..

Okay. And so I guess final question, you know given that is there anything you're doing just as a broad operational focus to make launches smoother. Because it seems like for the next two or three years there's going to be a fact of life good news for the top line.

But as we've seen 4Q ‘18 and ‘19 guide, doesn't really help with the margin?.

Definitely as we said the launch cost IS - that higher launch cost where we see during 2018 is being addressed in various ways.

And when we say that it will take a couple of quarters into - to solve that or several quarters to solve that, it's through actually making sure that we have an efficient launch organization for the new higher level of launches that we have seen now as a consequence of the new order intake.

So that's through continuous improvement efforts and effective - effectiveness in the launch teams that will take care of that..

Okay. Thank you..

Thank you, speakers. There are three remaining questions in the queue if you wish to take them..

Yes. I think we can take them..

Thank you very much. The next question comes from the line of Vijay Rakesh from Missouri. Please go ahead and ask a question..

Hey, thanks. Mikael and Mats, just when you look at the US was a bright spot for you grew pretty nicely 2018.

What are you expecting in 2019 given some of the challenges in the USA that inventories and rates going up?.

I think when it comes to the total market in the US we see more a sideways movement there. When it comes to the underlying demand and I think the inventory levels in the industry is at okay-ish level here. So when it comes to that, I think we're looking quite positive on North America we would foresee today.

Then of course our launch activities continue in North America. We are not giving a breakdown or indication for the overall organic growth, but of course, North America continued to be a key region in terms of that and that's my third year that the wave started in North America, but then China and Japan is other regions where we're looking at also.

So, okay on my count..

But I know you mentioned you haven't seen any push outs with the slowdown in LVP in China and Europe, but especially with some of the OEMs tweaking their mix away from sedans, are you seeing any changes in the order book on the on your passive side? Thanks..

No I think we continue to see the same as we have alluded to before here and we always need to lean forward and making sure that we’ve - we have a good competitiveness from our side here..

All right. Last question on the launch costs, what are you assuming for 2019, like, obviously you have a lot of launches going on in the first half, but for the full year what was the impact from launch costs? Thanks..

We are not giving economy kind of an exact number when it comes to kind of launch costs and have communicated kind of elevated launch costs for into 2019.

And I just kind of repeat and what Mikael said, we talked about the launch cost to be elevated for several quarters and that's what we're looking in to looking now that the first half of 2019, but we cannot be more specific than that..

Got it. Thanks..

Thank you. Your next question comes from the line of Julian Radlinger from UBS. Please go ahead and ask a question..

Yes, thanks a lot. So just two left from my side. I'll start with the easy one. In the Q3 presentation you provided a slide that showed the number of launches in 2017, 2018 and in that presentation you had 2018 740 launches and now and then in the latest presentation that that number has gone down to 710.

Given that you provided the Q3 presentation pretty far at the end of the year what has changed in the last two months or so that brought that number down?.

Some launches have been pushed into 2019..

Okay. Simple question simple answer. The other question I had is maybe just getting back to the 2020 targets one more time or one last time and then - and putting a little bit differently than many of the questions that were asked today on that.

Can you just explain why you felt confident enough to guide for 2020 targets over a year ago and all the way up to Q3 ‘18.

But now that we're actually closer to that date you don't want to provide guidance anymore or put differently - what changed in your visibility most recently that makes you reluctant to provide a guidance when you gave one before that?.

I think its important to point out here that the 2012 was not guidance. It was a target for 2020 set at the Capital Market and communicate that Capital Market Day in 2017. So that was a three year targets for the company. So very different from the guidance targets..

Okay. But….

So what we have done now is that we have said that I mean, more than $10 billion in turnover remains and around 13% EBIT remains, adjusted EBIT remains, but it's pushed out in time..

Okay. Fair enough. Thank you, gentlemen..

Thank you. Your final question comes from the line of Deeya D'souza from Morgan Stanley. Please go ahead and ask your question..

Good afternoon, everyone. Yeah I'll keep it very quick. I have two questions. One is on the underperformance and you guys were I think underperformed by 1.5%, just wondering where that, like if you could just be a bit more granular on where that comes from because we knew the production was going to fall.

I just wanted - and I think you mentioned higher safety content. I just wanted a bit more clarification on that. And my second question was around your cost reductions in China despite lowered production there, I think you said something earlier that the China team were at the limits in cost reductions there.

I just wanted a bit more clarification on other regions and how much room for cost reductions you have?.

I think that the first question here in Europe, it's related to mix and has alluded to before.

I mean, we are in course with high content of passive safety products and when you see that type of volume going down and you see the ones with lower content going up which was the main difference between Western, Eastern Europe, we have a mix effect that results in the number you saw here and very similar to what we saw here in the previous quarter as well in Q3.

So when it comes down to cost flexibility, I would say that I mean we are always focusing on making sure that we have high flexibility in our total value chain.

And I think what we refer to here in China is really that they have demonstrated good work in that area and we are having the - you know, we need to make sure and we have made sure that we are working with that in all our region or force a support of our daily business here to secure that..

We have - I mean, looking at China we have the flexibility and the team has done a great job as well. But I think it's one thing that we need to remember looking at the development of sales in China. What we are showing for the quarter now for the fourth quarter is I believe minus 3.7% for something like that, my total minus 4.

But if you are looking into that in more detail, we have a significantly worse development with the local OEMs in China.

And we actually have some growth with global OEMs, meaning that we are getting kind of an uneven utilization and looking at production lines when we have such a difference in growth between the different brands and between the local OEMs and global OEMs, which makes it a little bit tougher to mitigate the volume effects when it comes to a fixed cost absorption as well..

So do you think that it just makes it difficult to kind of predict what would be - what kind of impact will be based on the difference between the local and global OEMs in China?.

No, no, not true to predict the impact at such, but to mitigate the effects from lower volumes..

Okay. Okay, yes. Thanks.

Is that - so it's based on mix then?.

Yes..

Thanks. Okay, fine. Thank you..

Thank you..

Thank you. That was the final question for your call. Speakers please continue..

Thank you, Alice. Before we end today's call, I would like to say that we will continue to execute on our growing business volumes and new opportunities with a never ending focus on quality and operational excellence. Also I should mention that our first quarter earnings call is scheduled for Friday April 26 in 2019.

Thank you to everyone to participate on today's call. We sincerely appreciate your continued interest in Autoliv and hope to have you on the next call. Goodbye for this time..

Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for participating. You may all now disconnect..