Veoneer, Inc.

Thank you very much, Eunice, and welcome everyone to our second quarter 2021 earnings conference call and webcast presentation. Here in Stockholm, we have our Chairman, President and CEO, Jan Carlson; our new Chief Financial Officer, Ray Pekar; and myself, Thomas Jönsson, Communications and IR.

During the call today, Jan will comment on our current business highlights as well as provide an update on our launches and technology. And Ray will then walk you through financial results and provide some commentary on our 2021 outlook.

After that, we will remain on the line for a Q&A session. And as usual, slides and earnings release are available through a link on the homepage of our corporate website.

If you look to the next page, we have the Safe Harbor statement, which should today actually cover two slides, which are both an integrated part of this presentation and includes the Q&A that will follow here today. During the presentation, we will reference some non-US GAAP measures and the reconciliations of these figures are disclosed in our quarterly press release and the 10-Q that will be filed with the SEC.

We can flip to the next page, which is actually the second page of Safe Harbor where we just mentioned that we intend to conclude the call at 3:00 PM CET, so please limit yourself to a maximum of two questions and we can work in as many requests as possible. With that, I'll turn the call over to our CEO, Jan Carlson.

So, Jan, please take over.

Thank you very much, Thomas. I would also like to welcome everyone to our Q2 earnings call.

Turning the page. With the merger agreement with Magna, this -- focus on this webcast is a quarterly report.

But I would like also to comment on our merger announcement with Magna. Yesterday our Board of Directors decided to enter into a merger agreement with Magna, the large automotive supplier.

Magna is offering shareholders $31.25 per share, which represents a significant premium over our recent share price. The offer is supported by shareholders representing 40% of our shares.

Market conditions have changed significantly since the spin of Veoneer in 2018. Light vehicle production forecasts have deteriorated significantly and it's not clear when or even if production will come back to levels experienced a few years ago.

The changes OEMs are going through with disruptive technology shifts are driving higher investment needs both short-term and long-term. This development is faster than expected.

Adding the unexpected events that have hit the world during the past 18 months like chip shortages, supply constraints and COVID-19 have taught us to expect that more challenges could come in the coming years. Combined these developments lead to a higher industry-wide risk and for a smaller company like Veoneer this risk is amplified.

Despite these developments, we have managed to position Veoneer very well through an ecosystem of partners, cutting edge technology and a strong order book. In our main area, Active Safety, the market is set to go through consolidation since no Active Safety company today has more than 15% market share.

This will change as the Active Safety market continues its rapid development. So when a large, stable technology focused industry participant like Magna with the need for ADAS software and electronics capabilities, enters into discussions with us and present a compelling offer, the Board of Directors saw it as a good opportunity to deliver immediate and significant value to our shareholders as well as to find a good home for our employees.

With that, let's get back to the main topic for this call and this webcast our earnings release. Turning the page.

To sum up, I'm very pleased with Veoneer's performance during a challenging quarter. Despite uncertainty from supply disruptions, the COVID-19 pandemic and sequential lower light vehicle production, leading to lower sales, Veoneer improved its gross profit and operating loss as well as its cash flow.

These improvements were achieved through the progress over ongoing market adjustments initiatives, and we expect continuous progress throughout 2021. Organic sales growth for the second quarter was 108%, strongly outperforming global large vehicle production.

The overall outperformance of 58 basis points is to a large extent part -- partly explained by regional shifts in the vehicle production in the second quarter. Our ongoing heavy launch period also contributed to the outgrowth.

The semiconductor supply shortages continue to create industry delivery challenges and drive costs in our operations. We expect these disruptions to continue into 2022, but gradually ease from the second half of this year.

Costs directly associated with the semiconductor shortages are estimated to amount to $4 million. The market adjustment initiative program has been instrumental to improving our performance year-over-year and thereby helping to mitigate the effects created by supply disruptions and the COVID-19 pandemic.

As a result, we reduced our operating losses and ended the second quarter with a cash balance of $556 million. Our ADAS and AD software unit, Arriver, is on track with the first-in-vehicle demonstrations to customers taking place with positive feedback.

And in China the good momentum and active safety continues with new contract awards and launches during the quarter. The team recently celebrated being honored the best quality award by Great Wall Motor for the first time.

During the first half of the year, we had important customer wins and launches in the Chinese markets. And finally, order intake during the last 12 months was slightly more than $530 million, which is above our own expectations and gives further confidence in securing a higher order value this year than in 2020.

Turning the page. In fact, in second quarter light vehicle production was up 50% compared to the same quarter last year when COVID-19 sent production down to a record low levels.

The regional mix worked in our favor this quarter compared to first quarter with strong year-over-year growth in North America, Europe and Japan were our content vehicle is more than 4x higher than in China, which contributed greatly to our revenues outpacing light vehicle production with broad margin. Looking ahead into next quarter, the light vehicle production is expected to increase by approximately 6% sequentially in third quarter '21.

For the full year 2021, an increase of approximately 10% from 2020 is expected reaching approximately 79 million vehicles compared to 72 million vehicles in 2020. Let's have a look into our launch situation on the next page.

Just like 2020, 2021 is a very important launch year for Veoneer. Executing well through these 2 years is key for us to achieve the midterm target of $2.5 million in sales.

And therefore I'm pleased that our launch timings are on track, although the positive volume effects are somewhat held back by the short-term fluctuations in the OEM demand. I would like to highlight our content on the Geely EMA where we have a full system and integration supplier to the vehicle.

This is a flagship program for us, illustrating the strength of our vision, radar, ECU and not least software capabilities. It further highlights the momentum we have in China right now where among other customer wins signed yet another new customer for a vision technology, bringing the number of vision customers in China to four.

According to our launch schedule, we will at the end of this year have launched eight vehicle platforms from six different OEMs with our fourth generation vision, including our in-house developed perception algorithms, further establishing us as the number one challenger in vision based system. We are making good progress as highlighted in the next page.

Arriver, whose software ran on Qualcomm's Snapdragon platform in-vehicle for the first time in quarter one is now being demonstrated to clients in-vehicle with positive feedbacks. In May, Volvo XC40 Recharge was appointed 2021 Top Safety Pick by Insurance Institute for Highway Safety in the United States, who particularly highlighted crash avoidance and mitigation vehicle-to-vehicle and vehicle-to-pedestrian capabilities.

The vehicle run the current generation of the Arriver software, another proof point that we are on track to create a global leading challenger for Active Safety systems and software. The Subaru Levorg won the prestigious best 5 star Award in Japan NCAP outperforming 10 other 5 star rated vehicles.

It's equipped with the new generation EyeSight hardware, a variant of Veoneer's 4th generation stereo vision system, re-engineered to meet Subaru's specification. I would like to turn it over to Ray for the financial highlights for the quarter.

Please, Ray.

Thank you, Jan. We turn to the next slide, our financial highlights slide.

We are pleased with our continued strong organic sales growth of approximately $200 billion during the second quarter, which represents a growth of -- over market of approximately 58 percentage points. Our net sales of $398 million were lower than our expectations from the beginning of the quarter, mainly due to the erosion of our customer call-offs during the quarter.

Our cash position of $556 million at the end of the quarter was slightly better than our expectation at the beginning of the quarter, due to our continued strong cash flow focus. And in this quickly changing environment, we continue to identify opportunities to reduce our investments for growth without compromising future launches, as illustrated by our capital expenditure reductions year-over-year in R&D cost control.

So overall a very good financial performance for the quarter as we prepare for continued organic sales growth and make strategic investments for the future. Looking further into the details for the second quarter on the next slide, our $214 million net sales increase for the quarter was due to new program launches and of course the sharp LVP recovery from the pandemic in 2020.

The organic sales increase across most product areas were the Active Safety growth, organic growth rather was $110 million or 140%, while the RCS organic growth was $68 million or 68%. Our operating loss change year-over-year was mostly driven by lower engineering recoveries, other income, which were partially offset by the higher gross profit during the quarter.

The $59 million improvement in gross profit was mostly due to the organic sales growth, a $6 million net currency benefit and the market adjustment initiatives, which were partially offset by approximately $4 million of extra costs related to supply chain disruptions. RD&E, net of $108 million increased $64 million during the quarter as compared to last year due to the $80 million above normal engineering reimbursements that we saw in 2020.

SG&A and other income combined were $22 million higher than the same period last year, mainly due to the $20 million Brake Systems recovery last year of 2020 and a $3 million restructuring costs this year in 2021. Lastly, our operating cash flow of negative $69 million for the quarter was $38 million better than last year, mainly driven by a stable net working capital here in 2021 versus the negative impact last year caused by the pandemic.

Looking out to the sequential performance on the next slide. Our net sales of $398 million for the second quarter decreased $21 million or 5% sequentially from the first quarter as compared to the sequential LVP decline of 9%.

The sequential sales decline was more evident in RCS of 7% since the business is more closely linked to the underlying LVP. While the Active Safety declined 4%, reflects our strong growth over market in this product area.

Gross profit increased $6 million sequentially primarily due to the benefits from our market adjustment initiatives, including customer recoveries, which were partially offset by the lower organic sales development. RD&E, net decreased $9 million sequentially from the previous quarter primarily due to higher engineering reimbursements during the second quarter.

Lastly, our operating cash flow improved $41 million primarily due to the net working capital and operating loss improvement during the quarter. Looking now to our first top results on the next slide.

Our first half net sales increase of $270 million to $816 million was mostly driven by organic sales growth of $258 million or 49%, which represents a 20 percentage point outperformance versus the LVP. The primary organic sales growth contributors were Active Safety 58% and Restraint Controls 33%.

While net currency effects most -- mostly, or entirely offset the Brake System divestiture. The operating loss change year-over-year for the first half was driven by lower engineering recoveries and other income, which were mostly offset by the higher gross profit.

During the first half of the year, our gross profit increased to $118 million resulting in a gross margin of 14.4% as compared to 10.3% in 2020. And I should mention that the gross margin on a LTM basis is now close to 15%.

These improvements are mainly due to our strong above market organic sales growth along with currency and market adjustment initiative tailwinds which were partially offset by certain extra costs related to supply chain disruptions. We estimate underlying engineering costs improved year-over-year for the first half of the year by approximately $40 million when we take into consideration divestiture effects.

Lastly, our operating cash flow decreased $63 million during -- due to the negative swing in net working capital of $64 million during the first half of the year. Looking now to our outlook for 2021 on the next page.

Our 2021 outlook remains essentially unchanged from the beginning of the year. The current full year indication is for organic sales growth to exceed 25%, which implies an outperformance versus the underlying LVP in the mid teens as a percentage.

Our outlook now indicates the net currency translation tailwind of approximately 4% versus a 3% at the beginning of the second quarter. As a result of our market adjustment initiatives program and strong organic sales growth, we expect RD&E net to be in the range of $110 million to $120 million per quarter during 2021, and the operating loss is expected to improve in 2021 as compared to 2020 despite certain headwinds.

We expect capital expenditures to be approximately $100 million in 2021 and we estimate our cash balance to be more than $400 million at the end of 2021. And lastly for 2021, we expect our operating loss and cash flow performance to improve sequentially during 2021 as we expect our operating leverage on organic sales growth to improve during the second half of 2021.

So overall, a continued positive momentum in our results and outlook carrying over into our midterm targets, especially in this very mixed and uncertain environment. With that, I will turn it over to Yan.

Thank you, Ray. Turning the page, we come to the end of this formal presentation.

As you may have seen, we are planning to host a Capital Market Day on September 9. And due to the merger agreement with Magna we have decided to cancel this event as I'm sure you understand.

Having said that, this concludes the formal comments for today's earnings call. But before we move into Q&A, I would like to extend a sincere thank you to the entire Veoneer team for their dedication, strong execution with a sharp continued focus on quality, health and safety.

The team remained focused on launching new technologies and customer programs during what still are challenging conditions. And with that, I turn the call back to Eunice and we open up for Q&A.

Thank you.

Thank you. Good afternoon.

So although, I mean I agree with the industrial logic with ADAS market consolidation to gain scale, this seems like a reversal in strategy as we thought it made more sense for Veoneer to be standalone from a Tier 1 supplier in '22. And so, can you just talk a bit about what is driving this change in perception?

Well, for us, we are seeing a very different environment back in 2018 that we are seeing currently today. And as mentioned, we have seen a significant deterioration in light vehicle production.

We have seen the change in speed of technology and OEMs and in the market, in general. We are also seeing that things can happen in the environment that we cannot have control over.

And that is something that we are taking into account. Combining these things, we think it is better for Veoneer to come into a company that is focused on ADAS, focused, have a clear strategy and focus in electronics and focus in software technology and focus in an area where our asset will make a significant difference in the core strategy.

If you look to Autoliv and compare the difference when we started out, Autoliv is mainly a pirate technical and mechanical company focusing on occupant protection with the absorption of kinetic energy of the occupants. Whereas Magna here is articulating another strategy focusing from the beginning on the ADAS part.

So we think that the home here for Veoneer in Magna fits very well with their strategy, and it fits very well with what we present.

Thank you, Jan. And on the Arriver side, can you give some more sense here with regards to how far some of the more advanced discussions are going and the timing for agreements to be signed?

Not really more than we are having good customer discussions that are ongoing, and that we are in demonstration now in-vehicle demonstrations on the road to customers. And that we have an expectation to read some conclusion with customers and get first awards within the year.

So nothing more concrete than that.

Thank you.

Thank you.

Thank you very much. I guess, just as a first question, going through some of the deal materials and Magna talking about this being accretive to them in 2024, I know previously you had indicated getting more towards sustainable profit a year ahead of that.

So is there anything to read into that? I know the environment you keep saying that has sort of changed, but -- and maybe we'll sort of see some of your forecasts from the proxy comes out.

But if you could talk about sort of the longer term path here for Veoneer, that'd be helpful.

We have nothing to add beyond what we are writing here in the earnings release that we are reiterating, becoming cash flow positive and profitable sometime during 2023. And how they view on the accretion in 2024, etcetera, I am not in a situation to comment on.

We have no change to the outlook here for the longer term. Maybe we have not changed the outlook here essentially on the year either since our previous earnings release.

And I think that is the strength to our execution. It's the strength to our team being able to manage the situation in a good way, despite challenging times.

Okay. And then maybe just one final one.

Jan, if you could harken back on some of your Autoliv experience, right, maybe some of the opportunities, but also challenges, Magna may face in having multiple suppliers on the ADAS side and on the vision and sort of potentially the path line like it would seem like for Arriver sort of continues to make progress and seems like you're having some good progress there that there can be good interest there. But obviously they've got legacy programs and legacy suppliers as well to deal with so.

Maybe just based on -- again, based on your history is sort of from your Autoliv days, now -- what -- how the company can go about managing some of those challenges?

Yes, I will let the comment on the Magna side stand for Magna. On the Autoliv side, you remember we had a cooperation with Mobileye and then we started off our own development and that worked out well.

So I can only say that we have done experience that we acted in a very good way with the customer and with the partner that we separated from and that worked out fine for that program. And we did our own development now leading up to Veoneer and leading up to the situation we are in today.

So I had a good experience of that and how this will turn out for Magna, you have to ask the Magna people.

Yes, thank you very much. One follow-up question on I guess the outlook for Arriver.

So I think last quarter you had updated that Arriver was in discussion with multiple OEMs as well as multiple Tier 1s. Those being owned by a larger Tier 1 going forward, change the ability to sell the software to other Tier 1, I guess you had to reposition Arriver more as a Tier 2 supplier really?

Yes, we are operating under the current arrangement with Qualcomm and we have no reason to believe not Qualcomm will not support that. So we are continuing to operating this in the same way going forward.

So there is no change to our strategy here.

Okay, but in terms of partner and feedback from some of the discussions that you had been having with these multiple OEMs and Tier 1s around being acquired by Magna, does it change anything in terms of their thinking?

Well, first of all, we haven't had any discussions in these hours this morning with any of our customers that this was announced as of yesterday, and I have no -- I can't anticipate any change as such from customers. Magna is a very well-known company to all of the OEMs around the world.

So I don't think there should be any change.

Okay. And I guess second questions on the new order, new order, the new business.

And you said that played out a bit better in the second quarter than you had anticipated. Can you just give a little bit more detail I can -- I guess what part of it?

Was it sort of like contracts that you hadn't expected or just things playing out faster, just more volume? And then, obviously you reiterated the full year view for the order to be better in 2021 than 2020.

I think 2020 was actually $530 million on the last 12 months basis. So you expect the better second half this year.

Can you just tell us what is expected to drive that?

Well, in the good order intake in second quarter, it's a combination of several things. We have some parts that have been pulled forward, but -- from second half into second quarter.

So that is what we said some was better-than-expected. We had new orders coming also that we haven't seen on the Radar.

So what we have a combination of both. And I think some of it that we were expecting in second half is really pointing out that second half is a very stronger, much stronger half year than first quarter came in the second quarter.

But we are still of a strong opinion, we will have to perform 2020 in order intake. So there is no change to our outlook.

We hold on to this and we are not in this volatile world able to give you a more color on the numbers or quantification of this. We're staying out of that because it's so easy for orders to be pushed over the year and then we are in a different situation.

We may not lose it, but it's coming a week or two or three later, and then it's affecting the numbers. So we're staying out of it and caught holding on to better than last year.

All right. Thank you.

Thank you very much. I have two questions.

The first question is on the back of the Qualcomm collaboration and also your current customers. How have you like mitigate the risk carries even going into this merger process and in terms of getting new business where given that Magna is running the mobilization software and it remains to decision how they will manage Arriver's [technical difficulty] identification software that is going to play out.

That's the first question. Second question is more on the timing issue here.

I mean, we've been struggling for some years there since the IPO in 2018. And you're about now like really capitalizing the order backlog with stellar growth coming years.

And so the question is more on the Board's decision on the timing on accepting the bid now and why not later. And is there a major change in terms of capital need R&D spending to test the license back to the best we have [technical difficulty] which makes you take this decision?

Those are my two questions. Thank you.

Yes, starting on the first one on the Qualcomm situation, we have a strong belief that Qualcomm has no intention to change the corporation in how it is. So we believe that that corporation will continue to operate as it has been agreed with Veoneer.

And then Qualcomm and Magna will have to get to know each other. I'm sure they know each other already in a way of being suppliers, but they will have to talk about the details going forward.

But the intention is, we believe from Qualcomm side to continue this operation as it. When it comes to the timing of this, as I tried to allude to here, we believe this is a very superior offer.

This is a valued creative offer from Magna that the Board is recommending to the shareholders. And the reason why now and not later, you don't know how the situation looks like in a year or two or three down the road.

You know that you have an offer you have to decide upon as of right now. And you can only look into your own plans and see your own risks and opportunities that you have going forward.

And we believe that we have a strong plan, we believe that we have a strong outlook, we haven't changed our guidance since a quarter or two quarters ago and we are holding on to that. So in fact, there is no change.

But in the environment around us, you can see that for the things that are going on, or if anything is changing on the more risky side, it's a more uncertain side. And that is I think something that we have to take into account.

When you get then an offer from a strong industrial player, we then tend to find a home for these assets to satisfy our employees, that creates value for shareholders and safeguard their commitments to customers, the Board has decided to accept that. You don't know if that offer is on the table in a month, in a year from now or in two years from now, you don't simply know how that is going to happen.

We are looking into the plan and making the best decision with the outlook and the information and forward looking information we have at hand. And the Board has carefully analyzed this and have come to this conclusion.

[Indiscernible]. Thank you.

Thank you.

Hi, good morning. Thank you.

First, maybe you could just give us a sense to what extent were you -- was this a competitive process? Were there others that may have cited interest in acquiring you?

Well, as I said, the Board has carefully analyzed this transaction and has carefully looked into the situation. And there has been discussions with alternative partners that has been discussions along the way.

And I don't want to go into more of this as of right now. We will all have the proxy coming out and that will describe the process.

Great. And then second, I just want to go to your order intake.

And if we look at the progression over the years, it has come down even if you adjust out the Brake Systems quarters, the order intake was higher in 2017, 2018. Obviously, the LVP environment is lower today, so that certainly plays a role.

But maybe you can give us a sense over the past couple of years to what extent has a more narrowed focus maybe limited some of your business pursuits? Or maybe to what extent has more resource constraints or more vigilant focus on resources limited some of your business pursuits?

And how wonder a larger roof does that change the business pursuit strategy?

I don't think we can see and point to resource constraints for lower order intake. I think that an environment where light vehicle production is under heavy pressure, where OEMs are focusing on alternative focus areas in electrification, where you have COVID-19 pandemic going on is affecting a company like Veoneer.

It's affecting the entire industry and it's affecting a company like Veoneer. I think we are in a very good place with a very good ecosystem and got very good product portfolio, but you can simply not neglect that we have a negative cash flow and that we have a balance sheet that is very strong, but is limited as long as we are providing negative cash flow.

And in a tough environment, I think that coming into a company of Magna's structure, the resources and the skill sets we can have can have a better position to offer its product without constraints of a financial situation that we are in. We are in a situation where we see a good way forward according to the guidance and the indications we have submitted.

But as of today, you can't deny that you have a negative cash flow, and customer sees that. And if they are then constrained and facing other difficult areas that may have a negative effect on us.

I think that our product portfolio is very much appreciated by Magna. They have seen what our capabilities are.

They have seen the skills of our people and the products that we have and the abilities that we have to execute on our programs. And that is leading them to signing this agreement with Veoneer.

And I have a very good hope. And I'm very much looking forward for this assets and this company as it is to come into that situation and get away from that type of financial constraints.

Okay, great. Thank you very much.

Good morning, guys. To ask a question around Magna perhaps in a different way.

If the acquisition closes, then obviously any of your capital needs will be fulfilled by Magna, which is a significant free cash flow generator. However, if the acquisition doesn't close for whatever reason in the future, then you're still staring down the barrel of something like $350 million in cash burn this year, and a cash balance of $400 million at the end of the year, which if we extrapolate could put you in a position where you could require additional capital at some point in the next year plus.

So how should we think about the contingency plans internally as you think about keeping the business funded and investing in technology and products, should the acquisition potentially fall apart?

First of all, we have 40% of support already from the shareholders when signing the agreement. We have a very good hope and we are convinced that we will make a successful closing and get the votes.

We are definitely looking in that direction. We also have a plan where we become cash flow positive in 2023.

We are seeing continuous improvements in our executions in performance. So for us, the speculation that you are talking about here has not been in our radar screen.

We are executing and doing what we are focused to do in running the company according to our plan, and we think that we will be able to take that question when it comes at a later stage. So we have not had that discussion internally as the backup plan you're talking about.

Okay, that's helpful. And then another question around the 2023 financial targets.

A lot of suppliers disclose their kind of net new business backlogs or roll on of new business revenue per annum, which can kind of help bridge current revenue to future revenue. As we think about the midterm target for revenue of $2.5 billion plus, can you provide some color on how much of the target is based on programs that have been signed and awarded and that you have a lot of visibility on in terms of timing or magnitude versus how much is based on various assumptions and maybe scale and negotiation?

And you’ve referenced a couple of times today that the macro environment has changed a lot in the past few years with lower volumes, not to mention the technology landscape. So just trying to figure out how much of that target is based on some big programs that have been one that are yet to be announced versus how much is based on more internal assumptions from you guys?

Yes, I think when we look at the 2023 target that we've laid out, that is primarily based on the $14 billion order book that we have at the beginning of the year. So when we look specifically at 2023, the vast majority of that business, or that target is already bought.

So when we look at what we are bidding for right now, it's primarily 2024 and beyond. Although we do -- we have won some business this year that could positively or will positively impact the 2023 number.

But the vast majority of 2023 is booked. So, of course, you have the uncertainty around take rates, you’ve the uncertainty around currency and LVP, as you mentioned, but I think we feel pretty good about the 2023 target as it stands today.

Okay, great. That's helpful comment, guys.

Thanks for taking the question.

Thank you.

Yes, good afternoon, everyone. And congratulations on a great long-term home for the Veoneer technical team.

A couple questions. I know this will come out on the proxy, but are there any breakup fees or anything else that have been negotiated as part of the deal?

Yes, as I said, we are referring, we are not commenting on the details on the deal here. We're saying out of this, we will document all the process and how it's structured and it will be described in the process.

Okay. And then secondly, and I know this will become Magna's issue, but maybe your thoughts on it.

A couple of other questioners kind of alluded to it. So Magna has been traditionally a reseller of the Intel Mobileye product line, adding some value particularly around it.

You, of course, have chosen your own vision approach and of course, with Arriver we're making substantial progress. So how do you think that plays out going forward?

Will Magna transition to the Arriver technology? Can they actually coexist and give large Tiers 1s choice to different vision based solutions?

Well, I'm sure you may have seen or heard the Magna earnings call or call here -- this conference call this morning. I think they are excited about Arriver, they are looking forward to the addition of the software resources and the competencies that Arriver represents.

How that will play out inside Magna you have to ask the Magna team. I'd say all those speculations of that we got the question earlier in this call how we had in Autoliv several years ago when before we started or development and I got a question here around how we -- what experience we had there.

And I can only reiterate that again we had -- it worked out fine for us in that sense in Autoliv. But how it will work out for Magna, you have to ask Magna about it.

Okay, thank you.

Yes. Hi.

And first of all, congratulations on the good Q2 numbers today. I have a question on the offer, of course.

The Board obviously sees this as a good offer and can you help us to understand if you believe that you'll get a fair valuation of the Arriver offering in the software? Or is it more that as you are addressing a little bit that you're accepting a lower offer as the risk has -- being a standalone company has increased so much that you think this is the best outcome for the shareholders?

Thank you.

No, I -- this is not an offer on one or the other parts or so we are getting an offer for entire company in totality. And we have reflected the value of Veoneer with of course the different parts and with, of course, the different developments and what we can do as an alternative to accepting this offer for the different parts and how the different parts can grow.

But one or the other part of that I'm staying out of commenting on this one, the Board has looked on the totality for shareholders and the value for shareholders here on Veoneer side. And the conclusion is based on that.

And then you can always dive into it, but I'm staying out of that commentary here.

Thank you. And on Arriver, I would assume at least also for the Board is an important part of the calculation.

And as Qualcomm is part of that again as well, I would assume that they have been addressed by Magna before as such -- is that -- are they part of the discussion?

But, of course, Bjorn, if you look into the different bits and pieces and you know Veoneer quite well. I mean, Arriver is a very, very interesting challenger in this market, one of the few that can really take up the fight with the leading suppliers in this area.

So that of course, it's an interesting part. You can take on the other end of it, the Restraint Control a very mature business representing ballpark 25% worldwide market share to a leader in that space.

You can take our Radar activities, which represents the bulk of our sales in Active Safety, which is also a leading player. So each and every one of our bigger product areas here represents a significant position and a significant value for it.

And I think that is what the Board sees. You can't say that one we are trading one against the other.

We are looking on the totality on the offer itself.

Thank you. Thank you very much.

Thank you.

Hi. Good afternoon and good morning, everyone.

Just starting with maybe the competitive landscape in ADAS. I would assume the combined Magna and Veoneer that put you in the top four, maybe five players as it relates to market share and scale.

Can you just talk about the market share opportunity you see for the combined company, and particularly as we think about your historical I believe 9% to 10% share in Active Safety?

No, I should stay out of talking about the combination here. And I refer that to the Magna and to the buyer to view the combination of the two and how they want to position it.

It represents pro forma 2020 a ballpark $1.2 billion in Active Safety. And the growth rate there I think was portrayed in the conference call here and how the market growth is growing and in their slides that.

So I have to defer that question to Magna. I think we can speak for Veoneer and the basis for Veoneer and how we have viewed this and we have viewed ourselves as being in a very good position with a very good asset with growth opportunities.

We have indicated $2.5 billion by 2023 in sales. And I think that is giving Magna the addition that they are looking for in boosting their growth.

But how much and what they are going to do, you should probably ask Magna.

Okay, got it. Thank you.

I had to ask. Maybe more shorter term question on supply disruption and shortages.

You referenced that continuing into the second half of the year. I was just hoping you could provide some color on how you're thinking about this sequential impact versus the second quarter.

And even maybe the visibility to some pace of supply normalization just what you're seeing out there in the channel?

Yes, I think when we look at the sequential into the second half from the first half of the year, we certainly expect the cost impact to subside or to improve. However, there's still supply chain constraints out there and I think there's no hiding behind that.

And we expect this could continue into 2022 as well. I think there's more and more customers and more and more suppliers starting to acknowledge that this is going to go into next year as well.

So I think at the end of the day, all we can do is continue to be transparent with our customers, work closely with our customers and try to make sure that we can avoid being the constraint, like at the end of the day. But we do expect to see some improvement into the second half, but still be some cost impact in the P&L.

I still wanted to point out actually the performance of our chip shortages having a negative effect of $4 million for the second quarter. For a company like ours here, I think it's a very good achievement by our team to be able to -- it's $4 million.

It's a lot of money, but still it could be much worse. And I think we have been managing this quite well.

Okay, great. That's helpful.

Thank you, both.

Thank you.

Hi. This is Shreyas Patil on for Rod.

Two questions from me. Number one, Veoneer, as you mentioned, Veoneer is well regarded as a leader in radar systems, and you've been particularly expanding in 77 gigahertz systems.

Magna has also been working in -- on imaging radars, and it's not something I've heard from Veoneer in terms of kind of future development work. I'm not sure if that's something you're working on.

And how do you see something like imaging radar potentially impacting the traditional radar business that you currently have?

Well, we are looking also on the imaging radars and I think that is an interesting product that we are looking into and having activities upon. And again here, I think that would be a Magna discussion, how they are going to use their own activities and how they are going to use what we are having ongoing in Veoneer.

I think listening to Magna and listening to the discussions, they find our product portfolio very complimentary to each other. So I think that their thoughts may be that what we have here fits into what they are lacking, etcetera.

So, again, here, I've said it many times on this call, but it's of course the natural thing you should talk to Magna about how they view, what they are now buying compared to what they have. We are not indeed aware of their activities as you can understand, it's hard for me to comment on.

Okay. And then just on the business, can you remind us what the size of the market adjustment initiatives program?

What that -- how big is that expected to be this year? And what kind of savings do you see from that?

And then, what were the size of engineering reimbursements in Q2?

Yes, typically we don't give specific engineering reimbursements during the quarter. I think we called out last year, the $80 million as above normal engineering, because it had such a -- such -- had such an impact, and a lot of it was related to prior period work.

I think when we look at -- again, when we look at the market adjustment initiatives, we don't give all the details on what that is generating. But I must say that I mentioned in the script here that we estimate that the engineering impact on the cost side has been about $40 million for the first half of the year.

And that's a combination of an improvement in the gross cost and it's net of all the divestiture impacts. So you've got additional costs related to Zenuity, but we don't have the equity method cost anymore in the P&L.

And then you also have the benefit from not having the Brake Systems R&D, and then underlying core gross engineering cost has come down. So I think the big one, or the big contributor there has been on the engineering.

And then of course, as I mentioned earlier, we did receive some -- have some customer recoveries in the gross profit area during the quarter, but I think we should not talk about that here.

Okay, thanks.

Thanks for taking my question. So just looking at the incremental gross margins, I mean, a little bit higher than I think you would have expected.

I think, initially, it was expectations of 20% to 25%. How should we think about that in the back half?

Do you think you can sort of maintain this elevated incremental gross margin cadence? And then I've got another follow-up after that as well.

Yes, I think, when you look at the leverage on the gross profit, underlying maybe around 20% in the quarter. And I think that's pretty much in line with what we had indicated earlier in the year that as the gross margin leverage improves throughout the year, we talked about the 20% level, maybe even slightly above the 20% level.

So I think we’re -- we believe that we're on track to meet those deliverables.

Okay, got it. And then just in terms of the acquisition, you guys have some overlap in the portfolio and maybe some manufacturing overlap?

Is there any sort of expectation of rationalization of your sort of your facility footprint or your product portfolio footprint or product portfolio?

No, well, I cannot comment on that. I’m not in a position to comment on it.

Magna had in their press release that they're looking for $100 million in synergies in 2024. And besides that, I have no comments to it.

Okay, great. And just one quick one.

Just because recently you announced sort of this partnership, bringing [indiscernible], LiDAR, automotive grade to market and Magna has got a relationship with Innoviz, is there any kind of roadmap to what their game plan is with LiDAR given your sort of experience with LIDAR historically?

We think that is a very good achievement with Boras, so we think that is a very good partnership and how they are going to do this going forward and what's going to be their strategy between Innoviz and [indiscernible], I leave it to Magna.

Understood. Thank you.

Thank you very much.

All right. Very good.

Thank you very much. I would very much like to thank everyone for your participation in this earnings call.

Thanks for your very good and insightful questions. Now looking ahead, our next quarterly earnings release is tentatively planned for October 20, 2021.

And we look forward to speaking you in various meetings and calls, et cetera, in the meantime. And I wish you all a very good summer and please take care and drive safe out there and looking forward to talk to you later.

Thank you.