1st quarter 2020 financial results - veoneer

© 2020 Copyright Veoneer Inc. All Rights Reserved24-Apr-20 VNE Q1'20 Earnings Release Presentation1

1st Quarter 2020Financial Results

Earnings Conference Call and WebcastApril 24, 2020

© 2020 Copyright Veoneer Inc. All Rights Reserved

Safe Harbor Statement

24-Apr-20 VNE Q1'20 Earnings Release Presentation2

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this report other than statements of historicalfact, including without limitation, statements regarding management’s examination of historical operating trends and data, estimates of future sales (including estimates related to order intake), RD&Espend, operating margin, cash flow, taxes or other future operating performance or financial results, are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “may,” “likely,” “might,” “would,” “should,” “could,” or the negative of these terms and other comparableterminology, although not all forward-looking statements contain such words. We have based these forward-looking statements on our current expectations and assumptions and/or data available fromthird parties about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives andfinancial needs.

New risks and uncertainties arise from time to time, and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which anyfactor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Factors that could cause actual results to differmaterially from these forward-looking statements include, without limitation, the following: general economic conditions; the cyclical nature of automotive sales and production; changes in generalindustry and market conditions or regional growth or decline; further decreases in light vehicle production; impact of COVID-19 on our customers and their production and product launch schedules;impact of COVID-19 on the Company’s financial condition, business operations and liquidity; our ability to complete the transaction contemplated by the non-binding agreement with Volvo Cars and todivest VBS, which are subject to the negotiation and documentation of definitive agreements and closing; our ability to achieve the intended benefits from our separation from our former parent; ourability to be awarded new business or loss of business from increased competition; higher than anticipated costs and use of resources related to developing new technologies; higher raw material,energy and commodity costs; component shortages; changes in customer and consumer preferences for end products; market acceptance of our new products; dependence on and relationships withcustomers and suppliers; our ability to share RD&E costs with our customers; unfavorable fluctuations in currencies or interest rates among the various jurisdictions in which we operate; costs ordifficulties related to the integration of any new or acquired businesses and technologies; successful integration of acquisitions and operations of joint ventures; successful implementation of strategicpartnerships and collaborations; product liability, warranty and recall claims and investigations and other litigation and customer reactions thereto; higher expenses for our pension and other post-retirement benefits, including higher funding needs for our pension plans; work stoppages or other labor issues; possible adverse results of future litigation, regulatory actions or investigations orinfringement claims; our ability to protect our intellectual property rights; tax assessments by governmental authorities and changes in our tax rate; dependence on key personnel; legislative orregulatory changes impacting or limiting our business; political conditions; and other risks and uncertainties contained in the Company's quarterly reports and Annual Report on Form 10-K.

For any forward-looking statements contained in this report or any other document, we claim the protection of the safe harbor for forward-looking statements contained in the Private SecuritiesLitigation Reform Act of 1995, and we assume no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks anduncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.


Macro environment in crisis as a result of the COVID-19 pandemicBusiness Highlights – 1st Quarter 2020

Factors affecting our Market Outlook Cash Flow / Liquidity• COVID-19 pandemic is expected to create the

highest single year decline in LVP1 on record, morethan 18 million vehicle decline in 2020 vs. 2019

• OEMs in China and Rest of Asia gradually recoveringin April, however still well below pre-crisis volumes

• OEMs in Europe and North America are essentiallyshut-down through April and are planning for astaggered recovery during May

• Improved strong cash position to $970 million

• Additional MAI actions focused to significantlyimprove our cash flow vs. 2019 and liquidityposition, despite the effects caused by thepandemic crisis

• Continued focus on improving working capital andreducing capital expenditures

Market Adjustment Initiatives program New program launches / Order Intake• Heightened MAI actions are targeted to off-set the

lower contribution effects from the lower sales

• Strategic reviews for VBS3 and Zenuity are nowcompleted, aim to close Zenuity by the 3rd quarter

• Currently foresee some launch delays during anunprecedented upcoming launch period

• Order intake2 for Q1’20 was ~$175M averageannual sales for Electronics Segment

1 Light Vehicle Production, 2 Order Intake - Estimated future average annual sales, Order Book - Estimated total future sales, 3 Veoneer Brake Systems –US operations.


2019 to 2022 LVP1 Outlookreduced ~84 million vehicles since spin-off, from ~50 million last quarter

22 22 2116 18 19 21

27 26 23

2022 23

27

16 1615

1114

1515

13 1313

11

1212

13

9 98

6

89

10

3 33

2

33

4 3 3

2

2

22

2

92 9186

68

7883

91

0

10

20

30

40

50

60

70

80

90

100

2017 2018 2019 2020 2021 2022 2025

Units in millions

(3)%

0%

(1)%

(3)%

0%

1%

(2)%

(1)%

CAGR 2019-2022

96.7 98.3100.5 102.5

86.0

67.5

77.682.9

65

70

75

80

85

90

95

100

2019 2020 2021 2022

Global Light Vehicle Production

Middle East/Africa

South America

South Asia

Japan/S. Korea

North America

Greater China

Europe

Global

(11)%(23)%

(20)%

1Light Vehicle Production according to IHS April 16, 2020

July 2018 April 2020Units in millions

Light Vehicle Production

(31)%

//


Market Adjustment Initiatives Program Launched during Q1’19

5 24-Apr-20 VNE Q1'20 Earnings Release Presentation

Investment Priorities

✓ Review and evaluate the Development Priorities and Funding of JVs

✓ Finalize strategic review of VBS

Product Portfolio Optimization

✓ Focus on core product offering

✓Continued leadership in Active Safety hardware and software

✓Modular and Scalable product architecture

Efficiency Improvements

✓ Customer and product focus

✓Margin improvement

✓Balance sheet and cash-flow efficiency

Financial Stability✓Maintain sufficient liquidity to fund operations and support RD&E investments for customer

programs and further develop our product portfolio


Strategic Review Update

Brake Systems− VNBS-Asia Joint Venture

• Completed the divestiture to Nissin Kogyo and Honda on 02-Feb-2020 for net proceeds of $167 million

• Gain on divestiture of $77 million

− VBS-US operations• Initiated process to find a suitable owner for the remaining brake

control business, triggered “assets held for sale” accounting treatment during Q1’20

• In this uncertain, macro economic environment the Company has taken the prudent approach and made an impairment of the assets held for sale for $144 million

• Announced a non-binding agreement on April 23rd to divest the VBS-US operations to a well established automotive supplier for a purchase price of $1

• Expect to reduce future cash outflows by approximately $80 million during 2020-21

Zenuity− Owners intent to split resources

• Veoneer can more effectively pursue its Advanced ADAS and Collaborative Driving strategy, and supports the Company’s estimation that > 90% of our available market will be ADAS during this decade

• More than 200 professionals from Zenuity plan to join the Veoneer System and Software development team

• No restrictions to deliver software to OEMs globally with a royalty free license for full rights to all IP

• One-time cash-contribution of ~$15 million and expect annual cash savings in the range of $30 to $40 million

• Veoneer can continue with Automated driving in time for future broad market commercialization

• Zenuity successfully fulfilled its mission of developing a leading software platform for ADAS and AD


The Company concludes its strategic review process, to focus on core safety electronics


Leading Global Software Platform and Features


Created in less than three years

Cloud

Base Tech Software l HW Design l System Design l Technical Safety Concepts

Vehicle Control

Lateral Control

Longitudinal Control

Stability Control

Real-time HD Maps Connected Safety Functions

System

Zenuity’s scope Delivering to global customers

• Full software platform

• Sensor fusion

• AEB

• Vision Only AEB

• Lane Departure Warning

• Lane Keep Assist

• eLKA Road Edge

• Intersection

• Traffic lights

• Blind Spot Information

• Emergency Maneuver Assist

• Front Cross Traffic Alert

• Adaptive Cruise Control

• Traffic Assist

• Road Sign Information

• Driver Alert Control

• Traffic jam assist

Decision &

Control

Collision avoidance

Path planning &

decision making

Driver support

Parking Assistance

Sensor Fusion

Object fusion &

tracking

Localization &

maps

Free-space

detection

Ego Vehicle State

Sensing

Sensor specific

filtering

Image Processing

Object

Classification

Point Clouds


Full hardware, software and system capability going forwardVeoneer Active Safety System Evolution

• Based on current ADAS SW stack, evolving and growing over time

• Evolving Content & possible configurations

• High end offering collaborative driving features, incl. L2+

• System driven component roadmaps


Japan based OEM (partial pull ahead from Q1’21)•AVV ~540K [~200K]•24GHz

US based OEM•AVV ~135K•RCS, BCS

US based OEM•AVV ~280K•NiVi4, RCS

Japan based OEM (delay to Q1’21)•AVV ~50K•77Ghz, RCS

Japan based OEM (partial delay to Q1’21)•AVV ~265K [~580K]•RCS

Polestar 2•AVV ~60K [~50K]•MV4, 77Ghz, ADAS ecu, Z1S

Mercedes Benz – GLA / GLB•AVV ~190K•MV4, SV4, 77Ghz, ADAS ecu

2020 is an important Customer launch yearTop 15 in 2020 ~$500M average annual sales, average CPV ~$270


AVV - Average Vehicle Volume, CPV - Content per Vehicle VolumeProducts – MV4 (Gen4 Mono Vision), SV4 (Gen4 Stereo Vision), 77Ghz & 24Ghz Radar, NiVi4 (Gen4 Thermal Sensing Night Vision), ADAS ecu (Advanced Driver Assist System electronic control unit),ADAS SW (ADAS Software), DMS (Driver Monitoring System), Z1S (Zenuity Software), HDLM (High Definition Mapping), RCS (Restraint Control System), BCS (Brake Control System).

EU Premium Brand (delay to Q3’20)•AVV ~85K•SV4, 77Ghz, ADASSW

EU Premium Brand•AVV ~380K [~250K]•MV4/SV4, 77Ghz, ADAS ecu

Local Chinese OEM•AVV ~40K•MV4, 77Ghz

Q1’20 Q2’20 Q3’20 Q4’20

US based OEM (delay of 6 weeks)•AVV ~640K•RCS, DMS , BCS

VCC XC40 •AVV ~170K•MV4, 77Ghz, ADAS ecu, Z1S

Japan based OEM•AVV ~100K [~115K]•24GHz

Japan based OEM•AVV ~60K•SVS, 77Ghz

US based OEM•AVV ~40K [~35K]•NiVi4, RCS, HDLM


Map Host & Precise Positioning Module•Mapping hosting• Precise GEO Positioning

with Correction Services•Lead launch: US based Premium brands

Radar 77Ghz Gen1.3•Cost and performance

optimized •Lead launch: Japan based Premium brand

Safe Stop Module (SSM) ECU•Standalone Ecu including

Zenuity software•Lead launch: Robo-taxi

Mono-Vision Gen4•2nd Gen. Object Det.,

Lane Det., Road Boundary, Free Space•Traffic Light Det., Support Object

Enhanced Map•EU NCAP 2020•Lead launch: Polestar 2

Z1 Software (Zenuity)•EU NCAP 2020 •Traffic Jam Assist•Lead launch: Polestar 2

L2/L2+ Smart ECU Gen2•Highly scalable SoC solution to

support object fusion up to L2+ Feature content•Confirmed 3 OEMs •Lead launch: Volvo

Regenerative Braking•Integrated 1 box brake

by wire solution•Lead launch: US based OEM

Stereo Vision•Custom Solution •Lead launch: Asian based OEM

Driver Monitoring System•Drowsiness, Distraction,

Attention Zones, Identification, Precise Eye Gaze•Lead launch: US based OEM

SW Features (Zenuity)(standalone)•Lane Keeping•Lead launch: EU based Premium Brand

Important Technology Launches in 2020


Thermal Sensing Gen4 (NiVi)•12µm FIR sensor,

VGA resol. (640x512) , 32° Hor. Fov (24°, 50° or 70°), ~25% size red.•Lead launch: US based Premium brands

Stereo Vision Gen4•2nd Gen. 3D Object Det.,

Parking Assist, Small Object Det.•EU NCAP 2020 •Lead launch: EU based Premium Brand

Q1’20 Q2’20 Q3’20 Q4’20

Products – MV4 (Gen4 Mono Vision), SV4 (Gen4 Stereo Vision), 77Ghz & 24Ghz Radar, NiVi4 (Gen4 Thermal Sensing Night Vision), ADAS ecu (Advanced Driver Assist System electronic control unit),ADAS SW (ADAS Software), DMS (Driver Monitoring System), Z1S (Zenuity Software).

our deliveries of new technologies to multiple new vehicle platforms are progressing well


Financial Highlights – 1st Quarter 2020


Near-term macro environment continues to impact operating results

Operating Results• Organic Sales1 decline ~15%, slightly lower

than expected due to the mid-March drop,however 9 pp better than the LVP2

• Operating loss of $122M, better thanexpected due to lower than expected RD&E,net

• Underlying cost structure improvementscontinue to gain traction as a result of themarket adjustment initiatives

Cash Flow / Liquidity• Improved already strong cash position to

$970 million from $8593 million in Q4’19

• Operating cash flow $(9)M, better thanexpected due to a net working capital1

improvement of $89 million

• Cash flow before financing activities1 of $124 million, mainly driven by the VNBS divestiture proceeds

Investments for Growth • CapEx investments of $27M or 7.5% of sales

to support important 2020-21 launches

• The majority of the investments are related to increasing manufacturing capacity and RD&E

• Monitoring closely and exploring initiatives to minimize cash requirements in the near-term

1 Non-U.S. GAAP measure, 2 Light Vehicle Production, 3 the 2019 year-end cash position of $859 million excludes $35 million of cash in assets held for sale.


Financial Summary and change vs. prior yearVeoneer Group – 1st Quarter 2020

1 Non U.S. GAAP measure,2 Restraint Control Systems (RCS), Active Safety (AS), Light Vehicle Production (LVP), Veoneer Nissin Brake Systems (VNBS).

Dollars in Millions (except where specified)

Q1’20 Q1’19 Chg. vs. Prior Year

Comments

Net Sales $362 $494 $(132) • Organic sales1 $(76)M including RCS2 $(48)M and AS2 $(24)M primarily due to LVP and radar product mix shift, VNBS divestiture $(46)M, currency $(10)M

Gross Profit%

$5314.5%

$8517.2%

$(32)(2.7) pp

• Lower LVP volume and product mix impact causing lower organic sales, net currency effects negligible, VNBS impact $(6) million

RD&E, net%

$(131)(36.1)%

$(156)(31.5)%

$25(4.6) pp

• ~380 associate decrease (excluding VNBS effect) driving lower RD&E costs, VNBS2 benefit $8 million

Operating Loss%

$(122)(33.8)%

$(128)(25.9)%

$6(7.9) pp

• Lower LVP volume and product mix impact, offset by lower RD&E, net and lower SG&A $8 million, lower amortization and other income $5 million. Includes currency benefit of $4 million and VNBS benefit of $8 million

Operating Cash flow $(9) $(90) $81 • Mainly driven by net working capital1 improvement $89M

CapEx%

$277.5%

$5911.9%

$(32)(4.4)pp

• Lower CapEx investment in the Brake Systems segment, facility expansions and engineering related IT


Financial Summary and sequential change vs. prior quarter in 2019Veoneer Group – 1st Quarter 2020

Dollars in Millions (except where specified)

Q1’20 Q4’19 Chg. vs. Prior Quarter

Comments

Net Sales $362 $456 $(94) • Organic sales1 $(19)M including RCS2 $(35)M, AS2 $17M, as well as VNBS-Asia divestiture $(58)M, and currency translation impact $(16)M

Gross Profit%

$5314.5%

$7616.7%

$(23)(2.2)pp

• Product and customer mix impact

RD&E, net%

$(131)(36.1)%

$(103)(22.5)%

$(28)(13.6)pp

• Reduced ~100 Associates (excludes VNBS2), improved resource management and outsourcing, more than offset by lower engineering reimbursements

Operating Loss%

$(122)(33.8)%

$(72)(15.8)%

$(50)(18.0)pp

• Volume and product mix impact and higher RD&E, net

Operating Cash flow $(9) $(104) $95 • Mainly attributable to the networking capital improvement1

CapEx%

$277.5%

$459.8%

$(18)(2.3)pp

• Lower CapEx in the Brake Systems segment, facility expansions and engineering related IT

1 Non U.S. GAAP measure,2 Restraint Control Systems (RCS), Active Safety (AS), Veoneer Nissin Brake Systems (VNBS).


Market Adjustment Initiatives - Efficiency Improvements

14 24-Apr-20 VNE Q1'20 Earnings Release Presentation

Customer and Product focus

✓ Focus on winning profitableorders within core productportfolio

✓Strategic investments in new technologies

✓Ongoing discussions with customers and suppliers on the terms and scope of contracts

Margin improvement

✓ 2020 RD&E, net improve ~$100million• Focus on project management &

RD&E efficiency, sub-contractand professional services, costsharing RD&E with customers

✓Discretionary cost control✓P&L accountability• Business unit and Product line

✓ Footprint optimization• Review for possible consolidation

Balance Sheet and Cash Flow efficiency

✓Capital Expenditures• Review and evaluate leasing and

sub-contracting alternatives and manufacturing localization strategy

✓Operating Working Capital:• Optimization initiatives continue

to further improve underlying working capital and mitigate effects of expected organic sales growth


2020 Outlook Update

• FY’20 Outlook2 Indication

- Organic sales1 development is expected to outperform the global LVP, assuming no additional launch delays, and currency translation effect (2)%

- RD&E, net is expected to improve approximately $100 million from FY’19, on a comparable basis,

- Capital expenditures are expected to be less than $150 million

- Operating loss is expected to improve from FY’19, on a comparable basis

- Cash flow before financing activities1 is expected to significantly improve from FY’19, on a comparable basis

Improves cash flow before financing activities1 and maintains operating loss outlook from previous indication


1 Non U.S. GAAP measure Organic Sales, and Cash flow before financing activities, 2 Full Year 2020 Outlook is based on the change from 2019 (on a comparable basis excluding the VNBS-Asia JV and including VBS US operations), 3 Light Vehicle Production (LVP).

• Withdrawing FY’20 organic sales1 indication

− Due to underlying market uncertainty related to the COVID-19 pandemic

− at this time we foresee some minor new program customer launch delays during FY’20

− Our contingency planning is based on more conservative assumptions, than the latest LVP3

forecast by IHS,

− Additional Market Adjustment Initiatives are estimated to offset the COVID-19 effect from lower sales on operating results and cash flow


Creating Trust in MobilityFlawless DeliveryCustomer-Centric CollaborationHuman-Centric Innovation

Thank You!

1st quarter 2020 financial results - veoneer

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