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5. Autoliv, Inc. Business Report FY ended Dec. 2017

Autoliv, Inc. Business Report FY ended Dec. 2017

Factors
1) Net Sales
-The Company’s net sales increased by 3.1% in the fiscal year ended December 31, 2016 to USD 10,382.6 million. Excluding currency and acquisition effects, the Company had total organic sales growth of 1.5% over the previous year. The increase in organic sales was driven by growth in Europe, Japan, China and India while sales in North America declined.

2) Operating Income
-In the fiscal year ended December 31, 2016, the Company’s operating income was USD 605.3 million, a 28.6% decrease from the previous year. Increased selling, general and administrative expenses as well as research, development and engineering expenses both contributed to the decrease in income. In addition, a one-time USD 234 million goodwill impairment charge related to the Autoliv Nissin Brake Systems joint venture combined with ongoing capacity alignments, settlements of antitrust related matters and other divestitures further decreased operating income.

3) Airbag products
-Sales of airbag products increased by 1.3% in the fiscal year ended December 31, 2017 to USD 5,342.3 million. Organic growth was stronger in India, Japan, China and South America. More modest gains were seen in Europe and South Korea. These increases in sales were partially offset by declining volumes in North America, due in part from decreased inflator replacement sales.

4) Seatbelt products
-The Company’s seatbelt products had sales of USD 2,793.6 million in the fiscal year ended December 31, 2017, an increase of 4.8% over the previous year. Sales increased across all of the Company’s operating regions except in North America and South Korea, with particularly strong sales in Europe and Japan. A favorable mix towards advanced, high value-added products further increased sales.

5) Restraint control systems
-In the fiscal year ended December 31, 2017, the Company’s sales of restraint control systems such as airbag control modules and remote sensing units totaled USD 997.3 million, a decrease of 3.3% from the previous year. Growth in China and India partially offset the decrease in sales in North America, Japan and South Korea.

6) Active safety products
-The Company’s active safety products had sales of USD 776.6 million in the fiscal year ended December 31, 2017, an increase of 5.1% over the previous year. Growth in the sales of active safety products was primarily driven by double-digit organic sales growth of core products including automotive radars, cameras with driver assist systems and ADAS ECUs. These gains were partially offset by sales declines for positioning systems in North America and the ramp-down of brake control systems in China.

7) Brake control systems
-Sales of brake control systems in the fiscal year ended December 31, 2017 totaled USD 472.8 million, an increase of 23.4% over the previous year. While sales increased over the previous year, organic sales decreased due to model changes.

Acquisitions

-The Company signed an agreement to acquire certain assets of a Swedish based LiDAR specialist company. Located in Stockholm and Skelleftea, Sweden, Fotonic i Norden AB is a specialist that designs, develops, and manufactures Lidars and Time-of-Flight cameras. The acquisition represents a transfer of certain intellectual property rights, development and prototyping assets and development resources of Fotonic i Norden AB, including about 35 engineering experts in the field of LiDAR and Time-of-Flight cameras. The transaction is expected to close by the end of 2017, subject to customary closing conditions. The acquired assets and resources will become part of the Company’s Electronics segment. (From a press release on September 28, 2017)

Joint Ventures

-On April 18, Volvo Cars and the Company’s joint venture Zenuity began operations in developing advanced driver assist systems (ADAS) and autonomous driving (AD) technologies. The joint venture agreement was signed on January 3. The Company is making an SEK 1.1 billion investment into the 50/50 joint venture, consisting largely of an initial cash contribution, but also including intellectual property, acquired knowledge, and personnel. Volvo Cars is contributing intellectual property, acquired knowledge, and personnel into the joint venture as well. Zenuity is expected to have its first ADAS products available for sale by 2019 with AD technologies following shortly thereafter. Customers will be offered flexibility to choose based on a platform with modular solutions. The Company is the exclusive supplier and distribution channel for all Zenuity’s products sold to third parties, with no exclusivity toward any customer or owners. Volvo Cars will be able to source products directly from the joint venture. Headquartered in Gothenburg, Sweden and with additional operations in Munich, Germany, and Detroit, U.S., Zenuity’s initial workforce of 300 people are transferees from Volvo Cars and Autoliv as well as new hires. The workforce will increase to over 600 employees in the medium term. (From a press release on April 18, 2017)

Restructuring

-The Company announced that its Board of Directors has concluded its strategic review and decided to prepare for a spin-off of its electronics business segment. This action would create a new, independent publicly traded company during the third quarter of 2018. The electronics segment consists of active safety products (automotive radars, cameras with driver assist systems, night vision systems and positioning systems), restraint control and sensing and brake systems. After the spin-off, the Company’s current passive safety segment would continue to operate under the Autoliv name, while the electronics business will assume a new company name to be announced at a later stage. Both companies are to be headquartered in Stockholm, Sweden. (From a press release on December 12, 2017)

Business Partnership

-The Company and Adient announced that they are collaborating to address vehicle seating challenges presented by designs for the future car and the incorporation of autonomous driving. The collaboration will initially be focused on optimal integration of the Company’s safety components into non-traditional seating arrangements of the future car and on enhancing existing seat-mounted airbag systems and new far-side systems for Euro NCAP. The companies intend to offer the solutions in the second half of 2018. Future plans include the co-development of highly integrated solutions for enhanced safety, comfort and convenience for future mobility. Both companies are also interested in investigating the potential value in expanding to non-automotive applications. (From a press release on September 12, 2017)

-The Company signed an agreement with Velodyne LiDAR, Inc., to commercialize LiDAR, a critical sensor for autonomous cars. Velodyne will support the Company in the development of an automotive-grade LiDAR. The first applications will be in the RoboTaxi segment. As per the agreement, the Company will develop and market a scalable automotive-grade LiDAR sensor using Velodyne’s core 3D software technology and proprietary LiDAR ASIC engine coupled with the Company’s component development and verification capability. (From a press release on July 3, 2017)

Recent Developments

-The Company announced that it will make a USD 15 million investment in Autotech Ventures, a digital ground transport venture capital fund focused on software and services. The investment in Autotech Ventures, a fund focused broadly on the automotive industry, compliments the Company’s own innovation strategy, particularly in the areas of active safety and autonomous driving. (From a press release on June 30, 2017)

Contracts

-Major launches in 2017

-The Company informed that it has been selected by Geely to develop 77 GHz high-resolution radar systems for autonomous driving. Earlier in 2017, Geely awarded the Company a mono-vision camera system contract. The Company’s high-resolution radars allow for increased detection points, leading to improved ability to understand free space, better object separation in multiple target environments, and more precise detection for blind spot warning and rear cross traffic alert. The Company’s radar systems also assist in detecting oncoming vehicles and autonomously managing lane changes during highway driving. (From a press release on September 14, 2017)

Awards

-The Company announced that it has received a prestigious innovation award from FCA for its work with FCA’s visionary project on future urban car safety. The Company received the award together with Zenuity, its system software joint venture. The two companies received the award for their implementation of active safety hardware and software that enabled a number of advanced active safety and ADAS features in a small form factor vehicle. (From a press release on December 14, 2017)

-The Company announced that it was honored with a 2016 General Motors Supplier of the Year award for its sensing diagnostic module. This is the sixth time that the Company has received the award. Annually, approximately 4 million GM vehicles are equipped with the awarded sensing diagnostic module. (From a press release on April 5, 2017)

Outlook

-For the fiscal year ending December 31, 2018, the Company expects that its net sales will increase approximately 11%, with an organic sales growth of 7% and positive currency translation effects of approximately 4%.

-In the fiscal year ended December 31, 2017, no single project accounted for more than 2% of the Company’s research and development expenditures.

-In the future, the Company expects that its research, development and engineering expenditures in Passive Safety relative to net sales will not grow any further. However, it expects that its research, development and engineering expenditures in Electronics relative to net sales had additional room for growth.

R&D Structure

-In 2017, the Company hired more than 1,000 engineers. By the end of 2017, the Company had approximately 9,000 engineers working in research, development and engineering.

R&D Facilities

-The Company has 25 technical centers in the following ten countries.

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

-The Company announced that it, Ericsson, Volvo Cars, the Volvo Group and Zenuity had opened MobilityXlab at the Lindholmen Science Park. MobilityXlab, which includes an innovation lab and exhibition space, shares the same building as Zenuity, the Company’s joint venture with Volvo which develops software for self-driving vehicles. The investment enables the shared development of new technology and collaboration with smaller start-ups. Through MobilityXlab, the companies aim to stimulate development across the Swedish automotive market with the objective of increasing competitiveness for future transportation systems. (From a press release on October 3, 2017)

R&D Activities

-The Company signed a research agreement with the Massachusetts Institute of Technology AgeLab. The two-year long research collaboration aims to develop a semi-autonomous vehicle prototype that demonstrates the future of human-centered artificial intelligence in the automotive space. The core of the research effort is the development and real world evaluation of deep learning algorithms that enable effective communication and transfer of control between human and machine. This includes sensing inputs such as a driver’s gaze, emotion, cognitive load, drowsiness, hand position, posture, and fusing that information with the perception of the driving environment to create safe, reliable vehicles. Results from the research collaboration will likely be used in the development of software from Zenuity, the software joint venture between the Company and Volvo Cars. (From a press release on October 11, 2017)

Technological Alliance

-The Company, Volvo and Zenuity, a 50:50 automotive software development JV between the Company and Volvo, will work together with NVIDIA to develop next-generation self-driving car technologies, with a target to bring level 4 autonomous driving to the market by 2021. As part of the agreement, the Company, Volvo, and Zenuity will use NVIDIA’s AI car computing platform as the foundation for their own advanced software development. The four companies will work together to develop systems that can utilize deep learning to recognize objects in their environment, anticipate potential threats and navigate safely. These systems can compare real-time situational awareness to a known high-definition map, enabling them to plan a safe route and drive precisely along it. The systems will also perform other critical functions such as stitching camera inputs to create a complete view of the environment surrounding the car. (From a press release on June 27, 2017)

Product Development

Learning Intelligent Vehicle (LIV) 2.0 at CES 2018
-The Company announced that it will reveal its Learning Intelligent Vehicle (LIV) 2.0 at CES 2018 in Las Vegas. LIV 2.0 is capable of sensing driver and passenger instructions and moods through an array of sensors that track sound and hand movements, and then communicate with fellow human occupants. LIV's core features deep learning algorithms that enable effective communication, and can combine information inputs such as driver gaze, emotion, cognitive load, drowsiness, hand position, posture with data on the external environment to yield safer driving experiences. (From a press release, on December 19, 2017)

6th-generation RoadScape GNSS Module
-The Company announced the release of its 6th-generation location and positioning module at the 2017 CES. The Company features the full suite of Global Navigation Satellite Systems (GNSS) to the market with a new RoadScape GNSS Module to support systems in North America, Europe, Russia, China, and Japan. The GNSS Module will begin production in 2017. Having enhanced GNSS positioning coupled with road environment contextual map data (e.g. road signs, curves, hills, tunnels, etc) greatly improves the performance of the line-of-sight sensors used in ADAS. The Company’s RoadScape Horizon modules and evaluation kits serve to provide a compact and powerful industry-compliant solution delivering superior GNSS positioning and relevant road attributes from a specially designed efficient digital ADAS map. ADAS Horizon software will be available in 2017 and ASIL-B Horizon modules will be ready for production in 2019. (From a press release on January 4, 2017)

Patents

-As of December 31, 2017, the Company holds approximately 6,900 patents encompassing a wide range of innovations and products in automotive safety and key supporting technologies.

-In the fiscal year ended December 31, 2017, the Company continued investments in production capacity to support growth and vertical integration, with major investments made in Europe, North America and China.

Investments outside Sweden

-The Company announced that it will invest USD 22.6 million at a new facility in Southfield, Michigan. The Company will lease a newly constructed 180,000-square-foot facility in Southfield to consolidate its Michigan operations, which currently exist across four facilities. The Michigan Strategic Fund approved a USD 2.6 million Michigan Business Program performance-based grant to attract the Company’s investment into the state. (Michigan Economic Development Corporation on June 27, 2017)