Veoneer, Inc.

Thank you very much, Samar. And welcome everybody to our third quarter 2019 earnings call presentation.

Here in Stockholm, we have our Chairman, President and CEO, Jan Carlson; our Chief Financial Officer, Mats Backman; and myself, Thomas Jonsson. During today's earnings call, our CEO will comment on our current business situation, and the progress we are making at Veoneer, and in particular, about the market adjustment initiatives now underway in our company.

Then, Mats Backman will walk you through our financial results, our efficiency programs and provide some commentary around our outlook for the remainder of 2019. After this, we will have the Q&A session.

The slides that we use are available through a link on the home page of our corporate website. So, if you look now to the next page, we have the Safe Harbor statement, and it is an integrated part of this presentation including the Q&A that follows here today.

During the presentation, we will reference some non-U.S. GAAP measures where the reconciliations of these figures are disclosed in our quarterly press release, and 10-Q that will be filed with the SEC.

This call is intended to conclude at 3 pm CET at the later so please limit yourself to a maximum of two questions each. With that, I will now turn it over to our Chief Executive Officer Jan Carlson.

Jan, please.

Thank you very much, Thomas. I would also like to welcome everyone to our third quarter earnings call here today.

And starting off looking into our business highlights by turning the page, I will start with thanking the entire Veoneer team for their continued dedication and focus on quality while driving strong operational improvements. Looking first to the underlying market conditions, the light vehicle production continues to deteriorate to the point where the second half of 2019 is now expected to decline by at least 3% from the first half.

This represents a deterioration of approximately 4% or 1.7 million vehicles from July expectations and we can also continue to see a further erosion to 2022. Looking next to our market adjustment initiatives.

We are pleased that the initiatives we began to undertake in the beginning of this year are gaining traction. Our gross engineering costs continue to decline due to improving resource management and outsourcing activities, particularly with some engineering related activities and Active Safety.

We also continue to improve our overall cost structure and net working capital through various initiatives. And we are making further progress with the strategic reviews of our joint ventures.

During the quarter we are pleased to have expanded our Active Safety customer preference, especially ignition, including thermal sensing, radar and or central compute ADAS ECUs. Despite being some delays in new program sourcing with certain customers our last 12-month order intake as of third quarter remained around $1 billion future average annual intake.

Heading into the fourth quarter, we see same order intake opportunity as earlier indicated, although certain opportunities may be delayed to 2020. And lastly, we see some launch delays on certain models and the ramp up of volumes is slower than expected, while underlying vehicle volumes are somewhat lower.

As a consequence, the expected growth from our 2019 launches have not materialized as expected. Despite this challenging environment, we remain focused on our launch readiness and quality execution ahead of a very healthy launch period in 2020 and 2021.

Looking now the next slide, as alluded to earlier we are in the middle of an industry downturn where the light vehicle production outlook has been deteriorating since July of last year. Overall, this now represents approximately 46 million fewer vehicles or close to 12% for the time period 2019 through 2022 and is 9 million fewer vehicles than reported just only 90 days ago.

Although this is not clear when we see the slower the light vehicle production, the current outlook indicates that both 2019 and 2020 will remain around 86 million vehicles. These levels were last seen in 2015 and off the peak level of around 92 million vehicles in 2017.

The entire auto industry is affected by the limited light vehicle production growth through 2022. And of course continues to have an impact on our business and targets.

These near term market uncertainties forced us to adapt and prioritize our technology roadmap and customer opportunities while having tight cost control and strong cash flow management. Looking now, on to our customer development and Active Safety on the next slide, we continue to make solid progress in expanding our Active Safety product portfolio across our customer base.

We are particularly pleased with adding our seventh customer business award for vision and also receiving our first thermal sensing award for a robot taxi application in leading global OEMs. In addition, we expanded our radar Driver Monitoring system and RoadScape presence with new customer wins during 2019.

We have also expanded our technical qualification in vision radar and ADAS ECU. Consequently, we continue to be optimistic about securing business awards with new customers across the portfolio during the fourth quarter and into 2020.

Looking now on to our 2019 launches on the next slide, we have summarized the key new program launches and model facelifts which will support the improvement of our organic sales development, especially as we head into 2020. In certain cases, we see some launch delays and lower ramp up of volumes and under -- and lower underlying vehicle volume.

This is evidenced by the light vehicle production according to IHS, where the second half of 2019 is now expected to sequentially decline 3% from the first half of this year. It represents, as I said, a change of more than 4% from earlier this year.

Our strong lineup of launches is however mitigated by the negative impacts from the mono-vision business ramp up -- ramp down at BMW as well as a temporary negative mix from 24 gigahertz to 77 gigahertz radar technology. Combined, these new program launches and facelifts represent between 10% to 15% of our annual sales.

This of course depends on take rates and light vehicle production assumption. The current average content per vehicle of these models is approximately $160.

However, the content range is between $40 and up to $800 per vehicle. Now, looking on the next slide.

During the quarter, we introduced our scalable open system architecture to our product portfolio at our Ride & Drive event at [indiscernible] here in Sweden. In a growth market like Active Safety, a platform approach is necessary for a sustainable growth and hence the need for scalable architecture.

Our focus is on system telecom and software, our emphasis is to have the best system knowledge built from the right selection of hardware with agile software development. The system is based on having a central repository, which allows for the reuse and replication of base technology, feature integration, basic critical signals and mechanical adaptation and system verification.

It means that the only customization that should remain for applications which configures the vehicle interfaces and OEM specific feature sets. In parallel, we intend to stay ahead of the curve with cutting edge design.

Since one of the largest cost drivers is validation and verification, we focus on the reuse of software verification. And lastly, we intend to utilize the technology advancements in both telecom and AI to have the right positioning of cost and performance.

I will now leave it over for financial highlights to our CFO, Mats Backman. Please.

Thank you, Jan. Looking out to our financial highlights on the next slide.

As Jan alluded to earlier the macro environment and LVP situation continues to adversely affect our operating results in the near term. Our overall net consolidated sales in the third quarter of $462 million was essentially in line with our expectations.

While our operating loss and operating cash flow were both slightly better than expected. We are especially pleased with a sequential development of our financial results while in the third quarter RD&E growth and SG&A have improved sequentially from the third quarter by $25 million combined.

In addition, our net working capital improved $47 million during the past two quarter. As we had mentioned for several quarters now, our company continues to be in the middle of a tremendous investment projects to support the ramp up of future sales, sales growth and strong order book.

As a consequence, investment for capacity increases mainly in Active Safety and Brake Systems resulted in CapEx for the quarter of $59 million or 13% of sales. Despite the slightly higher run rate we expect the full year 2019 CapEx to be approximately 12% of sales, roughly in line with the first nine months of this year.

Looking now in terms of -- into some further details for the quarter on the next slide, our sales decline of $64 million as compared to the same quarter last year was compromised of negative currency developments of 2% or $10 million and organic sales decline of 10% or $54 million. The organic sales decline was mainly driven by Restraint Control Systems of $29 million and Active Safety of $15 million, while Brake Systems declined by $10 million.

Within Restraint Control, the decline was mainly due to the face out of certain vehicle models mainly in North America, while a negative radar product mix shift from the 24 to the 77 gigahertz technology were the main drivers for Active Safety. The decline in Brake Systems was mainly driven by lower volumes on certain Honda models in China.

The gross profit decline of $26 million year-over-year was mainly due to the volume and product mix impact caused by the organic sales decrease and negative currency effects of $4 million. RD&E net of $144 million increased by $35 million during the quarter as compared to 2018, due to the speed ramp up of engineering hiring during the last 12 months, while SG&A remained relatively flat year-over-year at $45 million due to lower outside services.

As a consequence of our market adjustments initiatives, the RD&E net run rate has increased [ph] to approximately $580 million and SG&A to around $180 million. Lastly, our operating cash flow for the third quarter drove better than expected cash flow before financing activities, due to continued strong working capital performance mainly in receivables and inventory.

Looking now to sequential performance on the next slide, our sales decline of $27 million as compared to the second quarter was compromised of our organic sales decrease of $26 million, mainly driven by Restraint Control Systems of $60 million and Active Safety of $5 million. The gross profit decrease of $4 million as compared to the second quarter was mainly due to the volume and product mix impact caused by the organic sales decrease.

RD&E net and SG&A decreased $15 million and $5 million respectively as compared to the second quarter, our market adjustment initiative. As a consequence, the lower operating loss and decrease in net working capital drove the operating cash flow improvement versus the second quarter.

And as mentioned earlier, the capital expenditure increased to $59 million in the third quarter is expected to be a peak level. Looking now for 2019 outlook on the next slide, based on our -- based on our current customer call-offs and deliveries, we see a continued challenging demand environment in China, North America and Japan.

This leads us to anticipate a further slight sequential decline in our organic sales during the fourth quarter from the third quarter this year, while we expect operating loss improved from the third quarter. As a consequence, our organic sales improvement in the second half will likely not materialize as we expected in July, due to a continued deteriorating market environment and our new program launched headwinds as mentioned earlier.

Consequently, our organic sales for the full year 2019 are now expected to decline in the low-double-digits, compared to 2018, rather than the high-single-digits as communicated in July. We expect the currency translation impact to be negative 3%, as compared to full year 2018.

This is one percentage point lower than communicated in July. As we indicated last quarter, we expect to see a continued sequential improvement in RD&E net in the second half of this year from the first half, and we remain committed to engineering net cost of less than $600 million.

Based on these assumptions, we expect operating loss to improve sequentially in the fourth quarter from the third quarter, while our cash flow before financing activities is expected to remain at approximately the same levels as the first half of this year, due to our exceptionally strong working capital performance in the third quarter. With that, I'll turn back the call to our CEO, Jan.

Thank you, Mats. While turning the page I would like to thank everybody for listening to our formal part of this presentation.

We would now like to open up for Q&A. And I turn the call back to our operator Samar.

Please go ahead.

Good morning -- good afternoon, I guess. Thanks for taking the question.

I guess just maybe a couple points in the letter. It look like you express some caution on take rates in China.

Can you just elaborate on that and what you're seeing there?

We're seeing some caution on the take rates in China. And it's related to some pressure we are seeing on the overall market in China.

The Chinese OEMs' effort to get cars sold in tough environment, they may even take the weapon of discontenting in place and we've seen some of that happening recently.

Okay. And then just second question on the order intake delays and I know that this can be lumpy.

But is it -- would you attribute more to volume and market uncertainty, or is there greater technical due diligence going on? And I guess just bigger picture, you talked about delays for a few quarters now and then the on Slide 4 you showed the meaningful volume revisions since the spin I think it is 12%.

So at what point is sort of the recent intake level would just become the new normal with the realization at the market is actually different, at least some part because of volume.

As you look today the underlying demand for business and pursuit that we're working on hasn’t changed. We are of the same amount and there is the same -- some comes in and some falls out but that’s normal pattern.

But overall it’s the same volume and the same number that we're talking to pursuing. But what is causing delays and taking more time if to be certain on the right product.

Primarily we don't think it's the year on year related, it’s the overall valuation of the technology assumption, also the overall market situation that is making it a little longer and a little bit more cautious maybe.

Okay. Thanks, I will get back in queue.

Thank you.

Thank you very much. My first question is on vision.

You're launching your fourth generation of vision, would be interesting to know now that you're starting to see more on the modular side, how the split is between more and more stereo and also even common, are we talking level two plus with mono systems still? That’s my first question.

If you talk to the Mono Vision then we're definitely coming into Mono Vision with level two plus capabilities. And as you've seen we've taken our seventh customers order, customer win here during the quarter which is including early advance software features also from Zenuity into this.

We see there is a need for stereo vision in primarily demanding application, but still Mono Vision is the prime in the general market and the prime technology in the general market. We may have seen when we come further down the road towards L4 and more and more advanced and high level systems what the choice is going to be.

We believe stereo as it looks today is the superior technology but mono is also very good.

Thanks. And on these internal measures market adoption etcetera could you maybe just spill a little light on this?

Is this related to like reducing headcount or is it more managing other type of cost. I know you mentioned for instance that you're increasing collaboration instead of doing something in house maybe talk little bit about it to spread some light out of what is playing out?

I will answer this. It's Mat.

It’s a little bit different if you're looking at the different items. But starting off with RD&E we had that headcount increase if you all comparing the second quarter and the third quarter.

So it's related to being more cautious when it comes to headcount in order to get down the run rate in terms of the core. But that is in combination with different efficiencies measured, what's going on within RD&E and further opportunities for that as well as we're taking with to make these below $600 million for the full year.

You can also see from a sequential point of view that we have decreased when it comes to SG&A. That is more that we're carrying down on external services and consultants and are doing more and more in house that we're building the organization now on a standalone basis.

And then on top of that what I would like to highlight as well in terms of prioritizing cash flow, that’s the ongoing working capital initiatives that we have. We have improved quite a bit, both from accounts receivable and inventory.

But this is an ongoing daily continuous improvement now going forward.

Thank you.

Yeah, a couple of issues both relating to margin. So the first is, as you look at that RD&E and track the $600 million for next year.

Any sense of where it could go next year, given the progress you've made in the scalable architecture and IP sharing across products and clients?

Now, I think when it comes to numbers and giving guidance. I mean this is something that we will give you one release in the fourth quarter when we're looking at the 2020 outlook.

As it is right now, we are very committed to this $600 million that we have been talking about, and that's what we're working over. But then we can see further opportunities, but it's too early to start quantifying anything.

This $600 million is what we communicate right now.

Okay, and maybe not quantifying for 2020. But if you just think about where operating margin could be, you guided to just below breakeven back in 2017.

Obviously, both volumes and other things have changed since then. Any sense of what the past, in terms of when breakeven could be hit and then what that might imply for 2020?

No, I will not give any kind of indications of the breakeven in terms of the land. But if you look at it from kind of a structural point of view, I mean, what we need in in order to improve, and especially on the growth process that's volumes.

And we are, as you know, dependent on the LVP and what we are seeing now in 2019 is rather negative on the LVP side. But looking into 2020 with all the launches we have coming up, what we can foresee is a growth that will be more driven by new business and launches rather than the underlying LVP.

But saying that that knowing how complicated it can be with launches, you never know if you'll have kind of launch costs and other issues when you see the launches coming through. So it is very difficult from a timing point of view to give any indication.

But for sure if volume in order to improve the gross profit and the volumes will come with the growth and launches. So that's some gross profit level.

And when it comes to SG&A and RD&E, we need to continue to get efficiencies on that side that will bring leverage as well. But to give it a kind of a firm year or day that we cannot do today.

But that's the directional, at least.

Okay, thank you.

Thank you. Good afternoon.

So we touched upon China. But from a regional perspective here, where is ADAS adoption growing the fastest would you say with the cycle continuing turning south?

I mean, are there any changes in terms of interest from customers and we mentioned the accounting here related to Active Safety?

No, I think we have a global in interest on the level two plus. And then move from level four, focus to more level two plus focus, if not more outspoken for any of the other region.

That is across the globe, you see higher interest for this coming from OEM and actually across the board. So scalable architecture focusing on L2 plus is the biggest interest what we see around the globe.

Understood, thank you.

Hey, guys. Just wondering I mean, would you be willing to quantify the GM strike impact, what's factored in within your full year guidance?

Yeah, maybe $1 million or $2 million on the top-line.

For the full year?

For the fourth quarter.

Got it. Okay.

And then just, within the quarters is solid cost controls. Can you help us understand what attributes to maybe lower launch volumes as opposed to sustainable or structural costs out improvement?

I mean, when volumes and new launches do eventually return, I'm just trying to get a sense for the cost structure in that environment. If launches, were -- have it another way, if launches were stronger this quarter, would there have been any material changes to your reported SG&A or our RD&E?

No, I would say what we see now is structural, because as you remember, in terms of launches, the big preparations for launches, that's for kind of before the actual launches. So that's kind of work continue, so you don't see any kind of overhead costs from a launch perspective, in the quarter.

So it's structural savings that you see.

Got it. And then just on Brake Systems.

Can you remind us -- you obviously have a sizable North America order that starts to ship next year. Can you just provide an update on maybe just the timing of when that significant order does start to hit?

Mid to second half of the year.

Okay. Thank you.

Appreciate it.

Thank you.

Yes, hello there. Regarding prospects and going forward, we had quite a high number here in Q3 for sales.

What can we expect now for the Q4 and going into 2020? Will it remain at those quite high levels or even go up further?

Now for the full year 2019 we're estimating that approximately 12% meaning that we can foresee that the third quarter is probably the peak when it comes to capital expenditure.

Okay. Thank you very much.

Great, thank you. Good afternoon.

First question going back to the China take rates issue, are you able to quantify what that impact was? And just to clarify was it in the third quarter, fourth quarter or both?

We have seen it in the third quarter. I don't think we have any good way of quantifying it.

And it hasn't been materially in the way, but we have seen signs of it happening out there. So I don't think we should draw too much of conclusions out of it.

But it has happened and we haven't seen that if you go back a year ago, this was not visible, but now it has been seen out there.

Great. And then just to clarify, are you seeing or what are you seeing in terms of take rates specifically Active Safety in some of your other regions?

Typically it's stable or positive with regard to our equipments driven to a lot extent by the [indiscernible] requirements and legislations. So take rate has been if you look to the market decline in light vehicle production and the addressable market has up until now you can say been recently compensating the decline, the take rates have been recently compensating the decline.

So, it has been going up for being steady or positive.

That’s helpful. And then just lastly on the thermal award, I was hoping you could just comment on a, how many sensors per vehicle; I don’t know if you can comment on the content per vehicle and then whether you're seeing other similar opportunities within the RoboTaxis space for these sensors?

Well this is our first award for a thermal sensing in a Robocap application. It's one sensor per vehicle if I'm correctly informed.

And more than that, I would stay out of details on to wait until our customers giving more information about it.

Great, that's very helpful. Thank you.

Hi, good afternoon. Thank you for taking the questions.

Just wanted to start by asking, into 2020 I know you're not giving guidance, but there are a number of one-off items that you've called out that are impacting revenue in terms of program roll off BMW, mono program and the radar shift here. Could you just give us a rough sense because we've now seen a number of quarters, but just into 2020 ballpark, how much is left of these programs roll off that could impact growth?

How they will have to roll off?

If you look to the BMW, the tail is continuing into 2020, but it's a minor portion of that BMW Mono Vision program that is left there, but it's having an impact, that's not a big one, but it will continue into third [ph] half. If you look to the shift 24 to 77 day fixed out of that we continue you could say into mid-2020, ballpark.

Okay. So ex these items though, and setting aside, whatever the underlying light vehicle markets will be that would say there's no other sort of, and then there's currency, but there's no other unexpected headwinds that you should be thinking about or any other headwinds we should be thinking about in the model on the top line, correct?

We have also on the RCS side a continued change of model mix which is affecting us. So you have to look back to the order intake for up to 2016, you can say over lower -- the lower order intake that is now facing out and the new programs are facing in.

And the shifts of that is unfortunately happening in both of our main areas in Active Safety on the shift of radar 24 to 77 which is the technology shift, the ramp up of vision that we first launched in 2016 is -- follow on orders from that one is starting to launch right now as we speak [indiscernible]. And then you have the shift also of RCS program.

And that's why we are talking a lot about launches here in 2020, 2021, and we have also some launches here in on the RCS side in 2019 that is ramping into 2020. So we are in a main service very heavy development phase with new technologies, new product portfolios and launches on both sides.

Okay, great. And then just two very, very small follow ups on the order intake.

One, if you could just give us a ballpark sense of the regional composition of your order intake is obviously, the light vehicle markets have varied quite drastically each in the regions? And then second, are all programs from your order intake still intact?

I mean we understand that there are obviously delays and lower launch volumes, but has anything been -- any programs have been outright cancelled?

No, there are very few that have been outright cancelled or we have been talking a lot about our main new launches and big programs and order intake, some of them here and there, but not any major ones have been outright cancelled that we have been awarded, no. We have seen tendencies of delays on bigger programs.

Our major programs are launch plans here. So that we should not exclude.

If you look to the major order volumes in parts of the world in new geographies you can say Asia, North America plus follow on orders in Europe. We are big with a bigger volumes already today in Europe, but when you look on the order intake and their customer fees, it's more focused towards North America and Asia.

Okay, understood. Thank you.

Good afternoon. A couple of follow ups from my end.

Then I guess starting with the earlier thermal question. I think, there was a recent study pointing to some Active Safety mono issues at night.

I guess what are you seeing as customer receptions that are all and you reference autonomous application? Do you think there's an opportunity in an advanced ADAS as well going forward?

We think that there is a lot of interest from AD, because what you're intensifying here and then some of the issues in darker conditions or at night here. If making a problem for the AD development.

And there is increased interest from this and that's why we see this now first order. But in general, you can say that maybe one has gotten the eyes of the opportunity of thermal sensing here beating a technology that is very complimentary to work out there as the main sensor environment today.

Okay, but do you see I mean is there -- could this lead into level 2 ADAS as well, where we have some thermal camera in-house with whether it's mono or more advanced, vision camera as well, are we solely talking simply autonomous to RoboTaxi?

I don't know, I should speculate on that we have announce there for some years with our thermal sensing cameras and technologies. It might be the case, it might be so that when technology is available and price coming down that this could be even more interesting technology.

So it's too early to speculate. We are very proud and looking forward very much to this first application and their interest from the high end and that may spread it down at some point in time.

Okay, great. Thanks.

And maybe switching gears a quick question, I’m looking at slide four, I think 86 million LVP you referenced in 2019 and 2020. I guess can you talk about I mean, I know we're not guiding to next year, but just visibility and the production into next year.

We're just trying to gauge confidence given some of the sustained China weakness and the regulatory changes coming down the pipe in Europe.

I think it's very hard to speculate beyond quarter four. We alluded to in our earnings release here that we are somewhat more negative than IHS on the production numbers for the fourth quarter.

We also write here in our outlook that we have seen signs of planned shut downs already for quarter four as our release looks like today. But this is subject to change very, very quickly, and can go in either direction.

And to speculate beyond the fourth quarter, I think it would be not the right thing to do at this stage.

Okay, great. Thank you.

I appreciate it.

Thank you.

Hi, Jan and Mats. Just as you look at 2020, and the year after, this year was pretty brutal from an LVP decline standpoint.

But if next year LVP stabilizes to flatter down one, and let's say we see a rebound into 2021, and you have your order backlog starting to convert; if you look what would be growth that we should kind of expect over the next two, three years?

I would I mean, we're getting back for the guidance when it comes to 2020. But as we have said and we’re continuing to say is that what we are expecting is more launch driven growth going forward that will gradually come in 2020.

So I guess that's what you need to kind of model it. But I will not give kind of specific numbers, but launch driven growth that will gradually come into 2020.

Got it. And just to clarify, you were trying to see some of the conversion from the backlog growth that you saw three years, four years back on that conversion cycle, also.

Right? And as you look at next year, any thoughts on leverage on the OpEx side?

That’s it. Thanks.

What do you mean leverage on the OpEx side? You mean from the volume coming through or?

Yeah.

That's a tricky part when you're getting in. I mean what you need to remember that we have several major launches coming through next year that will gradually support the growth.

And you can -- I mean, the risk is always that you have some fine tuning issues in the beginning when you're in mid of launches and so forth. And so when you see the growth start coming, I would -- I mean in a normal situation, the leverage will gradually improve over time then with the launches, not from day number one, if you're looking at the gross profit level.

If you're looking at the leverage below gross profits and more into RD&E and SG&A, that is what we can control and that's what we have started to do to take down the cost structure in order to make sure that we’re getting the leverage we need when we are getting into to getting the top line and the volumes are up.

Got it, great. Thank you.

Thank you. So my first question is on your comment on the order intake opportunities, I assume that you refer to the whole of the market, when you say that some of these opportunities could be delayed to 2020.

And then also if these orders do not realize in Q4, how sure can you be that they will come in, say Q1 or Q2.

Many of these orders or big programs for big customers and very major car lines. And we have very hard to see that this should be cancelled or boarded in a way.

But you can never guarantee anything and how it goes. And as we have not been involved in the businesses to grow the competition, et cetera, we don't think this will disappear.

We think this might be or could be or potentially be delayed. It's hard to know, we don't.

We reserve our rights a little bit here, saying that the same underlying demand is there but given the volatility in the market, it could be delayed into 2020. So, so we haven't seen anything falling off of the volume.

It's normal, some things fall off and some things come in addition, that always happens. But if it's something that is meaningful, we haven't seen changed recently.

Okay. And then my next question is on your working capital management, we have seen quite good performance over the past year, I would say.

You have reduced your inventories and your receivables. And now my question is that when you prepare for the product launches in 2020, should we assume that you will start to build up working capital again and will that happen already in Q4?

Thank you.

Yeah, I mean, eventually when we are gearing up for big launches, it will be a certain build up when it comes to inventory in order to be prepared for launches. And then you will see the growth start taking off with increasing accounts receivables as well.

But so you have that kind of actual development that you will see with higher volumes. I cannot foresee any material change in the fourth quarter when it comes to those items, given the kind of the indication that I've been giving when it comes to the top-line and organic growth in the fourth quarter.

And I mean, that's also -- I mean, you're right. And when it comes to accounts receivable, some of the improvements is also due to lower organic growth of the releasing accounts receivable.

But that's only a smaller part of the total improvement.

Thank you.

Yeah, good afternoon. Just two quick questions on my end, on the delays in orders, just a follow up on that, is there any notable differences in terms of regions?

Are you seeing more delays in China for example, than Europe?

We're talking about discrete orders. And they can be in North America, they can be -- they can also be in Europe and in Asia.

So it's across the board. We are talking about, maybe some handful orders like that.

So it's not like a monumental big amount of smaller business. We are talking about significant businesses here that may be pushed over the New Year.

But we'll see.

Got it. That’s helps helpful.

And then the second question I had or the last one was just around the pricing environment. Are you seeing you mentioned that part of the delay is just technology evaluation and the macro?

But are you seeing anything major changes to pricing for any of the major programs that you have?

We haven't seen anything on major price, pressure or increase APRs. I think the one that we are seeing as a consequence of the market situation is in China.

Of course, where the pressure is high. And of course that also transfers to light base.

Otherwise, it has not any bigger change on the pricing pressure side.

Excellent. Thank you.

Appreciate it.

Thank you. And good afternoon team.

Wanted to just ask a couple questions on the scalable or the open system architecture that you described? Could you maybe just describe what you actually did to make that change?

I guess you called it out as sort of an issue that needed to be addressed earlier in the year. And specifically that the change, is it to existing orders or essentially to the new orders that you go out for debate for?

Now this is related to new bids and pursuits that we are doing. And the reason why we're seeing this is that application engineering in our state is taking a non-proportional big amount of engineering work that is affecting our resource and that is affecting ultimately the cost situation.

And it's not efficient. It's also not efficient when it comes to validation when you have to do a lot of the work all the time.

And it's not efficient when it comes to reuse of data and reuse of experiences from one order to the other. And it's not efficient when it works with the scalable going from a lower level to a higher level.

But this is a different way of thinking because it involves an ecosystem consisting of silicon suppliers of software houses in-house resources, and it's a lot about capturing the system aspect of this and being in charge of that system going forward. We believe that we have a good architecture here.

We believe that our collaboration where we do the perception software, and where Zenuity do that decision making software, a very good combination, and making this system architecture very powerful.

So I guess Jan, my follow up question would be if this sort of makes sense from a cost structure and I completely understand from the ability to take one system to go to another to increase the overall margin. But it sounds like this won't be a large portion of sort of the 2022 ADAS book that you've booked orders for already.

Does that mean that you're sort of finding out the margin profile of the orders that you booked over the last couple of years, are inherently going to be lower than what you’ve previously thought, hence the change and it becomes more profitable business, as the open architecture starts to roll through on current orders or 2025 revenue?

I think it's a cost issue when it comes to reuse of resources and reinventing the wheel every time, efficient use of resources and by using collaborations with outsourcing firms for more standardized job, having a reuse of parts of the software that we can take from one project to the other is taking down costs already now on the development side. And you can see some signs so it's already where we are outsourcing the annotation here in partnership, and thereby being able to increase the efficiency of our own resources.

And you should look upon it on that to start with. Then you should look upon it from a reliability aspect and the quality aspect where you have an architecture to be able to reuse data and experience from level 2 plus into level 3, and then also into level 4.

But as I said it requires a tight collaboration with silicon houses so that you have also an architecture on the silicon on the SOC. And being a partition it in a way that you can take bits and pieces from one level into the other.

I think here we have done a great job and our engineering team has done an awesome job in defining this, presenting it to customers. And customers are I would say almost thrilled about the opportunity to see new ways of doing this, dealing with new partners, dealing with new parts of the system that maybe not have been into it earlier.

So I think that this bear on the shorter term side, more costs effect on the development side and then longer term on the product side. But that is not to your point in 2022 that is maybe 2023 and beyond.

Okay. Thank you very much.

Yes. Hi, good afternoon.

Thank you for taking my questions. The first one is on the growth next year.

So I understand growth should gradually come back. But assuming flat market for next year, which level of marketer performance do you expect just an order of magnitude?

No, I would -- we wouldn't give any numbers when it comes to the performance and in relation to LVP. I mean, what we are saying is that are expecting growth next year.

And we're expecting that growth to be driven by the new business by the new launches and not by underlying LVP. So a launch market share gain driven growth and not LVP related.

That's what we’re saying.

Okay, thank you. And maybe the second one, so on longer term basis.

We've seen some suppliers being more cautious than IHS, expecting no recovery in global production before 2025. So I just wanted you to have your view on that i.e.

which scenario you adopted internally, whether it's based on IHS or something else. And if you assume it is the case, what does it mean for the timing of operating in free cash flow breakeven, also in light of the different market initiatives that you took.

Refer the second half of the question to Mat. But the first part, we don't see any other signs beyond the fourth quarter than what IHS has.

According to IHS, you're back to 2018 level only in 2022. So we're seeing a bit of a bathtub curve here now going forward.

And we don't know really beyond 2019 fourth quarter, how it's going to look like. It's too early, at least for us to have any other opinion than IHS.

Okay, thank you very much.

Hi. Thank you very much.

So two questions, please. I was wondering if you could just help us a bit on the shift after bids in launches.

If you could just maybe give a sense of the breadth of that activity, that you've seen one or two major items of the small items? And maybe also the driver whether it's just, marketing desire to control content cost versus other items in the system, maybe not be fully ready for launch, whether it's from yourselves or other members of the coalition trying to drive some of these systems in the cars?

I think one reason there and you should probably ask Jan about this. But I think the complexity of new car models is playing an impact here.

And every car model that is coming out is getting more and more technology into itself. And these launches are more and more complex looking ahead.

That may be an important factor. And you're bringing in in a relatively short period of time a lot of new technology.

We're not talking about the only ADAS system here. We are talking about infotainment.

We're talking about power train. We're talking about a lot of things that are coming into the car.

And having the overall system responsibility here is an increasing challenging task for the OEM. And that could have an impact here to monitor all their suppliers and getting it all on board and all rights at the end.

And is that a number of programs or just one or so you see this?

No, but if you look to, I mean you don't need to look on the highest level of premium cars. You can look on any type of car is bringing a lot more technology into the vehicles.

And, in many instances, it's also world's first technology in one way or the other that is increasing the complexity. So I think that is a part of the situation.

I would also speculate in that the OEMs are then also putting different priorities on power train development electrification overall, which also may have an impact on the product as such, a core platform being launched to get prioritizing R&D resources in an OEM to get to the general development of power trains to be on top of their development. I think it's a dilemma for car makers as of today.

Right. And then you mentioned in your statement that there was some element of uncertainty around the degree to which your customers would be making product standard options and the rate of take up of options.

Can you give some sort of sense as to what visibility you have at this point is the degree to which the product launches are going into optional packages versus standard packages?

I think it's very neutral as it is today. It has been in the past up until they recently it has been as I said in the previous question here, this has been positive and has been compensating for declining light vehicle production.

But as we feel it kind of neutral today. And we feel that is driven again here a lot by the regulatory environment, [indiscernible] and also the legislation and the EU initiative in 2022.

That will drive content coming in our ways. So I think that is the underlying driving factors.

I alluded to this earlier and [indiscernible] requirements has been a key driver in many years for taxi equipment.

Right. And then last thing is just on you mentioned in the press release in early October that the relationship with Zenuity changed.

So that the changes that make the agreement regarding non-compete, can you just give a sense please as to how that changes what Veoneer can do versus what Volvo GD can do regarding in this area?

Well this is just a clarification on an opening for Veoneer to accent for Volvo to add. It gives a freedom for us to do things that we were restricted for in the past and also somewhat for Volvo to do things that they were restricted for.

It doesn't change the commercial agreement between Veoneer and Zenuity and the agreement between Volvo and Veoneer and Zenuity. Veoneer is the sales channel of the Zenuity's products.

But it gives a little bit better clarification and open that's on what we can do and what they can do.

Is Volvo less bound to Zenuity in terms of its solutions? Run rate they a little bit different partners and does that change anything from their perspective on what they can deal with their vehicles.

No.

No. Fine.

No, we don't think so. No.

Perfect. Okay.

That's great. Thank you very much.

Okay. If this was the final question, I would like to thank everyone for your participation and the interesting questions and the overall interest in Veoneer.

We look forward to seeing you into conferences and road shows during this quarter, fourth quarter. And of course also looking forward to see you at CES in January, where we will be on display again as last year.

And we of course also look forward to talking to you at our next earnings call for the fourth quarter tentatively planned for February the 5th in 2020. Until then, I hope you will have a safe and relaxing holiday season in the meantime and take care out there everyone.

And thank you and goodbye.