Good day and welcome to the Q4 2016 Autoliv Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Anders Trapp. Please go ahead Sir.

Thank you, Daniel. Welcome everyone to our fourth quarter 2016 earnings presentation. Here in Stockholm, we have our Chairman, President and CEO, Jan Carlson; our Chief Financial Officer, Mats Backman; and myself, Anders Trapp, Vice President of Investor Relations. During today's earnings call, our CEO will provide a brief overview of our overall company's performance and outlook, as well as an update on general business conditions, while our CFO will provide further details and commentary around the financial results and outlook. Then at the end of the presentation, we will remain available to respond to your questions and as usual, the slide deck is available through a link on the homepage of our corporate website. Turning to the next page, we have the Safe Harbor statement, which is an integrated part of this presentation and includes the Q&A that follows. During the presentation, we will reference some non-U.S. GAAP measures. The reconciliations of historical non-U.S. GAAP measures to U.S. GAAP are disclosed in our quarterly press release and the 10-Q that will be filed with the SEC. Today's call will last for one hour short. I will now turn it over to our CEO, Jan Carlson.

Thank you, Anders. Looking first to the recap of our business for 2016 by turning the page, we're pleased with our strong finish to last year with another quarter of solid performance. Our full-year 2016 organic sales growth of approximately 7% of its active safety grew approximately 16% was roughly 2.5 percentage points higher than the year-over-year growth in global light vehicle production. This strong organic sales growth along with acquisitions resulted in a 10% consolidated sales growth for 2016. And that’s despite the top line headwind from currencies of around 2%. Our full year 2016 adjusted operating margin of 8.8% was in line with our expectations of more than 8.5%. We further expanded our safety electronics capabilities with ANBS joint venture, the Autoliv-Nissin Brake System joint-venture which closed at the end of the first quarter and strengthened our active safety competence by signing a definitive agreement with Volvo Car Corporation to form a software joint-venture in the areas of ADAS and autonomous driving. Our operating cash flow was approximately $870 million was our second best ever while we'll return roughly $200 million to our shareholders through record dividend. This along with other actions resulted in a leverage ratio of 0.4 times while our adjusted return on capital employed and return on equity of 21% and 15% respectively continued to run above our historical levels. I would like to sincerely thank the entire Autoliv team for delivering another year of solid financial performance. And lastly for the long term, we will continue to execute towards our end of decade targets as we expand in the growth markets and launch new technologies in both passive and active safety business, while we integrate acquisitions and adjust our global footprint within the market. Now looking on our order intake on the next page.…

Thank you, Jan. Looking on the next slide we have some key highlights from our fourth quarter. Our organic sales growth were around 1% - was 1% doing better than we expected manages to higher than expected growth in China. On a comparable basis excluding the fewer days affect, our organic sales growth was about 6%. This growth was slightly below the global LVP primarily due to lower growth in North America as a result of model mix and the lingering effects from the GM new business all from 2011 and 2012. Our strong organic growth resulted in a better than expected adjusted operating margin of 9.3% and an adjusted EPS of $1.71. Including the impact of recent acquisitions, we continue to deliver strong adjusted return capital employed of 23%, and a return on equity of 15% and returned 51 million to shareholders during the quarter through dividend. In our electronic business, we had a consolidated sales growth of around 26% mainly driven by acquisitions and passive electronics and as Jan mentioned earlier, we have had many positive development in this business areas which we positioned totally well for the future. Looking now at the volumes on the next slide. We have highlighted some of the key models that have contributed to our strong organic growth during the fourth quarter. These models contributed significantly to our overall organic sales growth during the quarter. Electronic products are on all of these models with one exception [FCS] [ph]. On an annualized basis these models represent around 10% of our total group sales. Turning the page, we have a key figure for the fourth quarter. Our record sales of 2.6 billion were driven by strong sales growth in Asia where for the first time ever we exceeded 1 billion in sales for the…

Thank you, Mats. This concludes our formal comments of today's earnings call and we would now like to open it up for questions. So I turn the call back to you. Daniel, please?

[Operator Instructions] We can now take our first question. It comes from Joe Spak of RBC Capital Markets. Please go ahead sir.

Hi, this is Jacob Hughes on for Joe. In your release you talked about the North America lower sales or inflator replacement and unfavorable mix, can you unpack that what was unfavorable on the model mix with cars are still strong and how [indiscernible]?

If you look to the release here it refers the organic sales growth of roughly negative 6.7%. You should adjust for the day effect here of around 5%.So we have an underperformance compared to the light vehicle production of ballpark 3%. Half of that its related - roughly it’s related to the inflator replacement and the remaining part is related to model mix as we speak about it. And one is Detroit 3 primarily Ford and also some others that is consisting of the model mix.

Okay. And then on the production in China was up about - I think you were up about 12% organically. What was the underperformance and how should we think about that for 2017?

If you look to the numbers also here, you have to adjust for the day effect and you this usual separation between the Chinese OEMs and the global OEMs and we are essentially in line adjusted for the day effect with the global OEMs of around 11% growth. When it comes to the Chinese OEMs, we have a significant outperformance adjusted here for the five days or the 5% for the three working days. We are above 30% growth compared to a light vehicle production of around 20%. We believe there we have been gaining a little bit of share with the Chinese OEMs. We still have an effect of what we have talked about the mini SUVs that we have been equally good represented on, so that remains also into 2017. It remains to be seen. We don’t guide per region when it comes to our performance here. But as we indicated here in the call, roughly for the first quarter around 3% global light vehicle production little bit less for the full year on the production side.

Okay. Thank you. And then lastly on this vision contract when -- is that a new program or new customer?

It's a for us a new program and it's also for us a new customer. We refer to here a premium European OEM. We refer to two new wins where one here is premium European OEM.

Okay. Thank you very much.

Thank you, Sir. We can now move on to our next question. It comes from Brian Johnson of Barclays. Your line is open. Please go ahead.

Good afternoon, gentlemen. Steven here for Brian Johnson. just want to drill down little bit more on that active safety win, I guess is that a level 3 or below program or is that for a level 4/5 program I guess how does that fit in with the annuity JV with Volvo? I believe you already explained night vision to Audi. So just trying to get a little more granularity in that program and whether or not it does include radar/vision fusion or just kind of the software from a vision perspective?

It is a system win that we talked about. If you refer to the premium OEM, the premium European OEM we are talking about, it's a system win including radar and vision. It starts with ADAS to start with and then remains to be seen whether this is going to be further developed into HAD level 4, level 5 but it starts with lower level ADAS products in the beginning.

And when is roughly expected to launch?

Towards the end of the decade.

Okay. And then in terms of NAFTA Board adjustment here, potentially from a either Board adjustment or traffic risk, have you guys done any sensitivity around that and what the potential net impact could be on Autoliv's effective tax rate as well as the impact to cost control?

This is Mats. I think it's -- I think too early to start talking about the financial effect in terms of the tax effect and so forth, because we don't know what this will end up. But maybe starting point is to describe, our flows because I mean that will be the most important thing. And it's not only about Mexico and it's about all imports to U.S. And if I am looking on imports and exports to U.S. we have higher imports than exports and then that is about $300 million if we're looking on the different import and export. And I think that's an important number in order to understand but we're in potential impacts. And then we have heard everything about the border adjustment tax, but on top of that, it's probably also a decrease of the corporate tax rate that would come in that tax reform that will mitigate the effects a little bit.

Okay. That's very helpful. One last quick one just, Jan, you noted that you're pleased with the growth particularly with the domestic Chinese OEMs, I guess in terms of the China market, is there any CPV differences or margin differences that we should be aware of? And I guess as you look at fiscal year 2017 organic growth, I know '16 was in line with the industry, but let's look at 2017, I assume there is no customer mix headwinds, do you expect to go in line with the market, above the market, below and if you could try and bucket that between content growth or market share gains and price downs, that would be helpful.

As I said, we are not guiding for our own growth in China as such. We are giving the corporate guidance for the quarter and the indication for the year. If you look to the content of vehicle as we have said it little bit before, there are significant difference between Chinese OEMs. If you take the content per vehicle its ballpark $210 in content for the average. If you take the Chinese, it's more in the ballpark of $140 per car, and if you go into the global it's more in the level of $260 per car. So there is a significant difference than we don't see any meaningful differences going into 2017, we would assume this would correct itself when the Chinese encap is stricter and enforced in higher level but not any meaningful difference in 2017 as we can see it today.

Great. Thanks for taking the questions.

Thank you. We can now move along to our next question. It comes from Emmanuel Rosner of CLSA. Your line is open. Please go ahead.

Hi, good afternoon gentlemen. First on the active safety side, you're indicating you're expecting 2017 gross slightly lower than the - addressable market. What is that gross of the market for 2017? And then on your new business win on the active safety side, can you say if it's mono or stereo vision?

For the market growth we anticipate the core product market vision and radar to be between 20% and 25% market growth. So that's to the best of our knowledge how the market is developing. If you look to this win that we are saying it maybe stereo vision, it starts off with mono vision but it may be stereo vision at the end of the day but we are not sure about that yet.

Got it. And then on your margin guidance for 2017 full-year. In your Slide 18, you specified whole months of puts and takes, the positive from organic but then obviously investment. Would you be able to put a finer point on some of these pockets - what is the impact from commodity prices, how much higher is the RD&E and then obviously what are the costs related to the capacity and ramp-up and new technology?

Maybe starting with the obvious one. We have been looking on the raw materials and that will be about that 30 bps for the full-year. We will also have an expectation effect into 2017 like – but on the full year maybe like 10 bps approx as we added ANBS in the second quarter last year so we didn't have a full-year on that one. We have RD&E where we have been clearly communicating that we will be in the upper end of that range. We are for the full-year 2016 on the level of 6.5, so just saying that this is approx 50 bps in that difference. And that explains almost the all difference between the years but then we also have a couple of items related to more of us of the investment for growth in terms of all the production over – and so forth. So that’s the main items.

Got it. And just really finally this whole bunch of backs and force in the media around the process around Takata and I certainly would not expect you to comment on speculation but can you just spell out for us what's your official stance is - in this process. Are these assets you're interested in and under what sort of conditions?

We have communicated before we could under certain conditions be interested in certain parts or participating in this restructuring. But this is the end of the day and we are on decision and more than that we have not given any color to it.

Great. Thanks a lot.

Thank you. We can now move along to our next question. It comes from Erik Golrang of Nordea. Your line is open. Please go ahead.

Thank you. I have a few questions please. The first one active safety, if I understood it correctly, you expected a positive contribution from active safety for 2017 relative to that 4% group organic growth. I assume that that will more towards the end of the year based on comparisons in the first half. Is that correct?

Yes. It’s hard to say. It depends on -- quarterly variations may come, but as it looks today, it's probably more towards more the second half than first.

Thank you. And then two more questions, yes, they are connected. You say that you had 50% order share again on the passive side for 2016, any signs of that slowing down? And then the last question is, you provide an update there on the number of projects -- engineering projects initiated 2.5 times 2014 level, I think you said, squaring that with 4% organic growth, is it a bit difficult -- is it fair to say the absolute bulk of that pickup in orders is yet to be seen in the gross numbers?

If we start with order intake, it varies by quarters, slow down, sometimes it has the seasonality effect. So it’s hard to say about if you see a slow down or not here on the order intake. That’s also a reason why we do not comment on orders more than on a yearly basis because it's hard to make conclusions from one quarter to the other. Sometimes you have big platforms up for bid and up for awards and then other quarters you have smaller platform. So, we cannot say. We can only say that we now have seen around 50% for two consecutive years. One add-on information we can have here is that, the two last year market award has been slightly higher than normal. You can say in average, you could a fifth of the market is awarded every year, five year one fifth, 20% a year. But the last two years have been a little bit above that you could say and still we have been able to capture that amount of business in percentage. Number of projects and the order and the growth, you know that from award to launch it is between 18 and 36 month. So all the orders if we are taking here will start to materialize during 2016, will start to materializing 2018 and onwards. So, nothing that we can see or extremely little portion of what we can see in order intake. For '16 we'll have any impact on 2017. Some of the order intake we saw in 2015 may start to materialize towards the end of this year. So, that’s the lead time of it and that’s why the organic growth and the numbers we're guiding for here is not really connected to the higher level of order intake that will materialize down the road.

Thank you.

Thank you, sir. We can then move along to our next question. It comes from Ryan Brinkman of JPMorgan. Your line is open, sir. Please go ahead.

Great, thank you. Maybe first question on R&D, you've guided to R&D remaining toward the higher end of the long-term rate in the 6.5%, 7% range for '16 and '17 as you invest in your active safety technologies. Is it reasonable to assume that R&D spend can then normalize beyond that point in time, 2018 or beyond or would you maybe have to continue to spend at higher rate to keep up with competition and the fast pace technological in Active Safety?

We will come back and outline more of our future R&D spend in our Capital Market Day in September. For this year, we will be at the high end of the range. It’s all depending on other order intake and what will happen if we will continue to see this amount of high order intake. Longer-term when program starts to materialize into sales, as I just talk to about here in the previous question that when the order intake now is materializing into higher sales, the key ratios will start to normalize. But that will take some time and if we are able to have a lower spend because of lower order intake, even in shorter period of time remains to be been. I cannot answer that for the time being. The best we have now is 7% or high end of the range for 2017 and then we will back CMD.

Okay. And then you dove a bit into this $1.1 billion Autoliv-Nissin contract win for braking systems on the major platform, does it relate to at all advanced technologies like autonomous emergency breaking. And then maybe more generally do you think that your recent year can fore into breaking technology can help you to win object detection radar, vision awards or maybe vice versa the vision expertise radar expertise probably when breaking awards potentially?

This product is not directly related into any specific HAD environment or any specific around advanced technologies for a AEB or so forth, but it's a very important program for us and it shows that the trust from a customer of ours that really appreciate the technology what we can do. And I think that the most important part for us a recently formed joint venture here with the Nissin Kogyo and we can still so early be able to win significant awards of this type. It shows that our product is very compelling – competitive and technology wise very interesting for customers in general but it's not directly related to an HAD project.

Okay. And then just finally and Ernest and you limited what you can say about Takata process of course, but short of that could you remind us of those parts of the world Takata may be has a higher market share in Autoliv I don’t know I am guess may be Japan or otherwise an attractive position and may be which geographies are you both big such that your potentially combined share might be atypically high? Thank you.

Well I am to be very honest with you know I’m not that familiar with their detail market share and share per region or per customer and so I can give any precise number here right off the top. I think – if this situation would arise at the end of the day it’s depending on the customer view whether they would allow higher market share or lower market it’s not unusual that you have high market depends on if the customer wants a two or three or four supplier panel when they – in their sourcing process in their sourcing decision. If they have two or three suppliers you can go with 60/20/20 or 50/25/25 also. So it’s depending on the customer view at the end of the day which I think is very important to have in mind. I’m sorry I can’t give you specific numbers here.

No it’s helpful, thank you.

Thank you. We can now move along to our next question it’s comes from Peter Testa of One Investments.

Hi, thanks very much. I was wondering if you could just help us understand inside the active safety VM the point you're making about positioning systems versus radar and camera, if you could give us any kind of steer in terms of relative size or your comment on the slowdown and positioning systems just versus expectations?

It’s slowdown is coming faster than anticipated and we have communicated that we will have lower organic growth rate than we previously showed if you go back four quarters or so ago. But it came faster in 2016 that we – then we earlier anticipated. So that has been a change that coincided with also earlier than anticipated and I am ramp down of our incumbent break control program.

Yes.

So it had two overlapping instances taking down their overall fake number.

But within active safety how significant are the – those two areas versus the faster growing radar camera and other new products ADAS?

It’s a much smaller part of it of course as you know when we bought the M/A-COM business it’s a much smaller part and it’s ramping down but active safety business is smaller and as such this won't have a meaningful impact on it.

Thanks.

But the bulk of our business or majority of our product in active safety is – the vision and radar products, where it’s the radar products is the absolute biggest lump.

Yes, okay. And then only replacement sales with a 30 million unit pool can you give some sort of sense as to how big that was in 2016 versus your expectation for 2017?

Yes, we would anticipate the 2017 volume to be a little bit in lower now than in 2016. So we have seen a decline and we have seen a push out into 2018 of the inflator replacement which is affecting actually the organic growth rate also here negatively on 2017.

Okay.

We also communicated we should also potentially see this to be further pushed out into 2019 and the reason for that is that cars are not coming in as fast as originally expected. Our customer OEMs doesn’t get their cars to be able to replace them later and the fee they have anticipated.

And can you give any senses or quantify what the impact that's having on the organic growth out of '17 or had in say Q4 for example, just so we can understand how to look at the underlying business in passive safety?

For the fourth quarter it had a total effect of about 1% unit looking on the organic growth for the fourth quarter.

Okay.

And I think that's a good indication.

And last thing is just if you look at the business opportunities coming out of to cater struggles, can you give a sense as to whether you're seeing some visibility either on the platform side or whether you're experiencing some cross flow out of the supply of panels which is benefiting you now and then looking into '17, '18 just to give some sort of sense to how that opportunity is heading your way?

Well, it's hard to judge from the future, but of course higher than normal order intake is coming from the special situation where Takata is in the heavy distress. So, that is of course a big reason for it. How this will play out at the end of the day is impossible for us to say it today. The only thing we can do here is to continue to deliver to our customers, take the high order intake rate that we've gotten and deliver on that in flawless launches. That's the best insurance we can have for seeing continued order rewards on high levels.

And within the supplier panels the mix which you're winning in the supplier panels to the extent which you are taking market share there now and going forward as something which you've experienced largely during this troubled period and now you are at a level or do you think the supplier panel mix is something that will benefit you still in '17 further?

Yes, I don’t think there is any change to what we have seen in 2016. I don’t think any differences in the supplier panel or so forth for what we have seen last year. I can't imagine that.

Fine, okay. Thank you very much.

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

Hi, thank you very much for taking my questions. I've got a few maybe. To kick out with the first one, you're active safety business target towards the end of the decade, I mean which now seen some of the older businesses are ramping down more now than were originally anticipated. And how do you see that developing, do you see then double-digit pickup in '17, '18,. '19 because of the further you push it out the less time you really have to get to that target?

Well, if you look to our growth targets that we have said, we would expect to our vision and radar business to continue to grow slightly below the market that we have said. So, that would be and we have reported here now growth adjusted for the days of around 15% for our core business. So, that the target we have set out to all the $1 billion and then one year later than originally expected is still there. And that is including the ramp down that we are seeing the new business awards and the start production of the order book that we are seeing, and also of course potential for future business that we are including in this.

Okay. And then second point on the inflator replacement business, just to clarify that the question has been raised in Q4, but throughout the last year is how much did the replacement inflator business at your organic growth number, is that the 1% that you quoted for Q4 or I'd love to see that. I mean what is the 7% ex replacement reflector business?

The 1% that I referred to is that was negative effect on the fourth quarter organic sales, so that was 1% unit.

Okay. And what was the tailwind of the replacement business in 2016?

Well, I don't have the number here, but we can come back to you with that on. If I recall here I think it is less than 50 basis points, less than 0.5% for the full year.

Okay. Great. Then also just on…

30 basis points, 30 basis points is the number.

Okay, excellent. Thank you. And then on another point is you always talk about these - your margin ex capacity alignment costs. Can you clarify exactly what you take into account for that I mean I would assume it's only for restructurings not for additions but can you just clarify if there is anything in the planning for the next years that we have to be taking into account?

You are right, it is for restructuring, it is for plant downsizing, it's for plant closures, it's for restructuring all global footprint. We had a cost on 2016 of approximately $25 million or 25 basis points. We have communicated that from last year and onwards the restructuring should be on 30 basis point or lower which is also was last year, but we are - the adjusted operating margin here is excluding restructuring and excluding legal costs and legal costs are then related to antitrust. You know we have an outstanding antitrust discussion here with - in the European Union and some others. So that's our adjusted operating margin, but capacity alignment was 25 basis points for the year.

Okay, thank you. And then sort of the last one from my side. On Page 13 of the presentation you sort of outline your adjusted margin bridge and I know you sort of briefly mentioned it, but could you just clarify again what is in that other box which is quite significant which was of the step down year-over-year is that purely the day effect. And also in terms of the day effect how come your day effect is so much, much bigger than let’s say other competitors where we haven’t really seen that in the Q4 versus Q1 last year?

I mean the day effect that's the effect on the organic growth, so I mean that is included in the organic growth number in bridge analyzes. So that's where you can find it because I mean if we wouldn't have had that effect we would have a higher kind of organic growth number and leverage on the organic sales. When it comes to the reassemble being different? This is related to our internal operational calendars, it's not related to kind of holidays and normal calendar affect. So that's how we are kind of closing the books in the company and we have always done that. So it’s an internal Autoliv calendars rather than the external one. Moving over to the other items, I mean first of all you need to remember the acquisition effects from ANBS when you're looking on the fourth quarter and that is about 70 bps year-on-year. So that’s one important part and on top of that one we have been talking about the investment for growth that's included in the production overhead and other kind of structure of course then to meet the higher volumes that we come down?

Okay, I see. Thank you very much on that. And maybe just sorry a very last point on the Takata, I know it's been mentioned before but just to clarify again do you reckon it's really up to the OEMs to decide who will go for it because they can ultimately decide whether no, they want certain market shares and if so could they enclose much stricter terms on someone like you in terms of price down for pricing?

Well I think it’s premature to discuss the pricing or price down so whatever and demand on that one. I believe at end of the day they are the customers of this and they are having a very big impact on the final decision.

Okay. Thank you very much, that's very clear.

May I just remind everybody that are limiting this call to one hour which leaves I think two minutes for may be one final question.

Thank you, sir. We can then move along to our next question. It comes from Hampus Engellau of Handelsbanken. Your line is open please go ahead.

Thank you very much can I just make one question. And it relates to the number of employees if I really just correct you about 6,000 more employees by the end of 2016 compared to 2015 and I would be interested to may be here around how much of this is more on the efforts put into the company and how much is planning for high volumes going forward? Thanks.

We have record, we have - if you recall we mentioned that we should hire 500 more people in second half and 500 in the first half of 2017 and we are on target on that recruitment. So it's a blend of a direct and indirect people but R&D is a significant increase during the year.

All right. Thank you.

We can now take our next question. It comes from Thomas Besson of Kepler Cheuvreux. Your line is open sir, please go ahead.

Thank you very much. It’s Thomas Besson, Kepler Cheuvreux. I will be very quick, can you please explain why the minority interest line was increasing in negative in the second half and what we should anticipate for 2017 and 2018, my understanding -- I may be completely wrong on that whether that would be somehow being back part of the earnings of your breaking joint venture to be honest, so can you please clarify on that please?

Yes. I mean the major eyed I am looking on that always is lot you are saying. I mean, that’s related to ANBS joint venture.

Yes, I understand it, is it going to stay positive driver to your group earnings in 2017, 2018 or are they going to be earning a positive figure and that’s why you going to pay a negative minority interest?

Diving in to look at the current ANBS the performance but also the PPA and the integration effect and what we have is that about $7 million per quarter related to integration and PPA that is – that is negatively affecting their invest – earnings. But if I looking -- if we are taking away the PPA and integration related costs. We have the positive margin on ANBS and that is slightly lower than the corporate average and I think that gives the guidance about minority role going forward.

Okay. And how long do we have this PPA please an integration cause is just 12 months or is it last for multiple years?

It will last for multiple years.

Great. Thank you very much.

Okay. So, that's the conclusion of the Q&A and I hand it back to you Jan.

Thank you. Anders before we end today’s call I would like to mention that our 2017 quarter one earnings call is schedule for Friday, April 28. And we plan also to host our Capital Market Day this year in Germany and on September 14 and 15 around the Frankfurt Auto Show and we hope that as many of you as possible will be able to join. Please follow on our corporate website the details and updates with regard to the Capital Market Day. Finally, I would like to thank everyone for participating in today's call. We sincerely appreciate your interests and questions around Autoliv and comments and I wish you all a good day and goodbye for now. Thank you.

That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.