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5. Autoliv, Inc. Business Report FY ended Dec. 2016

Autoliv, Inc. Business Report FY ended Dec. 2016

Factors
1) Net Sales
-The Company’s net sales increased by 9.9% in the fiscal year ended December 31, 2016 to USD 10,073.6 million. Excluding negative currency effects, the Company had total organic sales growth of 7.2% over the previous year, while acquisitions contributed a gain of 4.6% over the previous year. During the year, all of the Company’s operational regions demonstrated organic sales growth.

2) Operating Income
-In the fiscal year ended December 31, 2016, the Company’s operating income was USD 847.7 million, a 16.5% increase over the previous year. The increase in operating income was primarily due to high one-time costs in the previous year related to ongoing capacity alignments and settlements of antitrust-related issues. Excluding those costs, operating margin decreased in the fiscal year ended December 31, 2016 due to higher research and development costs, investment costs and acquisition effects. These costs were partially offset by increased organic sales.

3) Airbag products
-Sales of the Company’s airbag products increased by 4.4% in the fiscal year ended December 31, 2016 to USD 5,255.8 million. Organic growth was boosted by increased sales of inflatable curtains in Japan and Europe, as well as increased sales of steering wheels in Europe.

4) Seatbelt products
-The Company’s seatbelt products had sales of USD 2,665.2 million in the fiscal year ended December 31, 2016, an increase of 2.5% over the previous year. The increase in sales was primarily due to increased demand in Europe and China, combined with the global trend of higher value-added seatbelt systems.

5) Passive safety electronics products
-In the fiscal year ended December 31, 2016, the Company’s sales of passive safety electronics products totaled USD 1,031.0 million, an increase of 11.7% over the previous year. Increased sales of airbag control modules and remote sensing units, specifically in China, were the main contributing factors towards the growth of the segment.

6) Active safety products
-Active safety products had sales of USD 738.6 million in the fiscal year ended December 31, 2016, an increase of 20.9% over the previous year. Growth in the sales of active safety products was primarily due to increase in sales of radar products in North America, and camera and radar products in Europe. These increase in sales originated in increased demand from Mercedes-Benz and BMW.

7) Brake control systems
-Sales of brake control systems in the fiscal year ended December 31, 2016 totaled USD 383.0 million. Operations of the joint venture with Nissin Kogyo, Autoliv-Nissin Brake Systems (ANBS) began operations in the second quarter of 2016, leading to the Company’s entry into the product segment.

Joint Ventures

-Volvo Cars and the Company announced that they have signed a letter of intent to establish a new joint venture to develop the next generation of autonomous driving software. The new company will locate its headquarters in Gothenburg, Sweden, and have a management team comprised of representatives from both the Company and Volvo Cars. The initial workforce of 200 employees will be taken from both companies, and will increase to more than 600 in the medium term. Operations will start in the beginning of 2017. The new company, called Zenuity, will develop advanced driver assistance systems (ADAS) and autonomous drive (AD) systems for use in Volvo cars and for sale exclusively by the Company to all car makers globally, with revenues shared by both companies. Both the Company and Volvo Cars will license and transfer the intellectual property for their respective ADAS systems to the joint venture. Zenuity represents the first 50/50 joint venture between a car manufacturer and tier one supplier in the field. It is expected that the first ADAS products will be available for sale by 2019, while AD technologies will be available by 2021. (From a press release on September 6, 2016)

-The Company announced that it finalized its joint venture with Nissin Kogyo Co., Ltd. to form Autoliv-Nissin Brake Systems (ANBS). ANBS combines the Company’s current brake control business with a “carve-out” of Nissin Kogyo's automotive braking business. ANBS has manufacturing facilities in the U.S., Japan, and China. ANBS will be part of the Company’s Electronics business segment, which consists of companies which manufacture passive safety electronics products, ADAS products and brake control systems. The enterprise value of the joint venture is around JPY 58.2 billion (USD 524.4 million). The Company purchased 51% of the joint venture for JPY 29.7 billion (USD 264 million). (From a press release on April 1, 2016)

Contracts

-Major contracts of launches in 2016

-The Company showcased its Night Vision technology as part of Cadillac's Truth + Dare driving experience. The Cadillac CT6 features the industry's most advanced Night Vision safety technology, developed exclusively by the Company. Night Vision uses an infrared camera mounted in the front grille of the vehicle that senses temperature differences, making objects on the road visible to the driver even through darkness, fog and smoke. (From a press release on July 19, 2016)

Awards

-Autoliv ASP, a Company subsidiary located in Auburn Hills, Michigan, U.S., received an Award of Excellence from Toyota Motor Corporation for its airbags. (From a press release on March 16, 2016)

-General Motors recognized the Company as a 2015 Supplier of the Year award winner. (From a press release on March 10, 2016)

Outlook

-For the fiscal year ending December 31, 2017, the Company expects that its net sales will increase approximately 2%, with an organic sales growth of 4% being partially offset by negative currency translation effects and acquisition activities causing a 2% decrease.

-No single project accounts for over 2% of the Company's gross R&D expenditures.

-76% of the Company’s research and development expenditure in the fiscal year ended December 31, 2016 was dedicated towards projects related to customer orders, while the remaining 24% was invested towards projects for new innovations, improvements to existing products, system standardization and cost reduction.

-The Company expects that its research, development and engineering expenditures for the fiscal year ending December 31, 2017 will be between 6.5% and 7.0% of its net sales.

R&D Structure

-As of December 31, 2016, the Company has approximately 7,900 employees working in research, development and application engineering.

R&D Facilities

-The Company has 22 technical centers in the following ten countries.

• China
• France
• Germany
• India
• Japan
• Poland
• Romania
• South Korea
• Sweden
• U.S.

R&D Activities

-The Company is launching a learning, intelligent vehicle system, which will be demonstrated at the 2017 CES in Las Vegas. The purpose of the system is to assist collaboration and shared control between the driver and the vehicle. The first version of LIV, the Learning Intelligent Vehicle, utilizes Artificial Intelligence (AI) technology. Future versions will incorporate on-line and off-line machine learning, utilizing a wide array of data sources and developing an individual relationship to the driver. (From a press release on December 20, 2016)

-The Company announced that it has joined the ADAS&ME international research program which focuses on the interaction between drivers and autonomous vehicles. The program involves 30 partners from 11 countries and is led by Sweden's National Road and Transport Research Institute (VTI). (From a press release on November 11, 2016)

-The Company reinforced its partnerships within traffic and vehicle safety and announced its strengthened involvement in the Swedish industry initiative Vehicle ICT Arena – now as a Core Partner. Other Core Partners in the initiative are Combitech, Ericsson, Volvo Cars and Volvo Group. Vehicle ICT Arena gathers automotive companies and industrial suppliers, as well as engineering companies, research institutes and universities to create an open platform for innovation and competence supply, mainly within automotive IT. Autoliv was previously a premium partner of Vehicle ICT Arena, but now extends its involvement as Core Partner. (From a press release on February 10, 2016)

Patents

-As of December 31, 2016, the Company holds more than 6,700 patents covering a wide range of innovations and products in automotive safety and key supporting technologies.

-In the fiscal year ending December 31, 2017, the Company expects that its capital expenditures will be between 5% and 6% of its net sales.