# Dear Shareholder

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/NYSE_ALV_2017/NYSE_ALV_2017.mmd` · pages 3-9_

---

Dear Shareholder

"We are proud of what we have achieved so far, and we are ready for the next chapter."

![](images/3_0.jpg)

For more than two decades, the Autoliv team has worked to build our position as the leader in automotive safety. Quality has been our top pri-

ority, and we have invested in our people, in R,D&E for technology leadership and, step-by-step, we have optimized our operations. Our focused approach has led to a 38% and growing market share in Passive Safety, while Electronics has grown to become a distinct business of more than \(2 billion. We are now ready to take the next step, creating two great companies out of one. We are preparing to spin-off the Electronics business as a stock-listed company under the name Veoneer during the third quarter of this year.

In 2017, our focus on execution resulted in the highest sales and gross profit for any year in the company's history. Sales grew by more than 3% approaching \(10.4 billion, and order intake was at record highs for both our business segments. It was a year of solid results, allowing for investments for the future. Full-year operating margin was virtually unchanged as we invested \)90 million more in research and development than the previous year. This positions us to deliver on record new orders and simultaneously, invest in long-term development, particularly in our Electronics business. In Passive Safety, we have noted order intake of around 50% or more over the past three years and, in active safety, we have had record order intake for two consecutive years. It is satisfying to see that our strategy to invest in R&D is paying-off and that we can count four customers for our vision solution, up from only one two years ago. We further noted record operating cash flow of $936 million.

Our ambition is to always be shareholder friendly, and during 2017 we directly returned \(366 million to our shareholders. Out of this amount, \)209 million was through regular dividends and \(157 million through share repurchases. During the year, Autoliv stock appreciated in value by 12% and closed on \)127.08 on December 29, 2017 (for the Swedish depository receipts the corresponding figures were 2% and SEK 1047.00).

## Quality

Over the past years, the number of recalls in the automotive industry have reached a record high, negatively affecting companies, and unfortunately also leading to tragic loss of lives. At Autoliv, quality has always been the number one priority and it will continue to be so in the future. In 2017, most of our quality metrics improved further: With a 38% market share in Passive Safety, Autoliv has been involved in only 2% of the recalls since 2010. We continue to work on improving all aspects of quality through our Q5 program of quality in all dimensions: Customer, product, supplier, growth and behavior.

## Capital Markets Day

In September, in connection to our Capital Markets Day in Frankfurt, Germany, we first announced the intent to create two companies of Autoliv's current business segments. The process is expected to be concluded in the third quarter of this year, with the Electronics business being spun-off under the name Veoneer.

During the Capital Markets Day, financial targets for the segments as two stand-alone companies in 2020 were communicated. Under these assumptions, we anticipate the Passive Safety business to grow by 8% annually from 2017 to 2020, leading to a business of more than $10 billion in 2020 with an

## Autoliv 2017

![](images/3_1.jpg)

Electronics
Passive Safety

![](images/3_2.jpg)

![](images/3_3.jpg)

![](images/3_4.jpg)

Autonomous driving software joint venture
Zenuity starts operations

![](images/3_5.jpg)

~50% or more passive safety industry order wins in 2015 to 2017

![](images/3_6.jpg)

![](images/3_7.jpg)

Teaming up with NVIDIA to develop platform for self-driving cars

![](images/3_8.jpg)

New concept: The Life Cell airbag provides protection regardless of seating position

<--- Page Split --->

adjusted operating margin of around 13%. For the Electronics business, we anticipate 10% annual growth, leading to a business of around \(3 billion, from which more than \)1 billion will come from active safety, and an adjusted operating margin in the range of 0-5% in the same time period.

We further indicated targets for 2022: We expect the Passive Safety business to at least hold its 2020 market share and to grow at least 1% above the growth in light vehicle production, while at least holding the expected 2020 adjusted operating margin. For Electronics, we expect 2022 sales of around $4 billion, with more than $2 billion coming from active safety, and at an improved adjusted operating margin from the 2020 level.

## Initiative to create two companies

Autoliv is present in two different market segments that are increasingly divergent. The passive safety market (seatbelts and airbags) is characterized by relatively stable growth, closely correlated to global light vehicle production. The electronics market is, by contrast, characterized particularly in active safety, by change, rapid growth, a high pace of innovation, software-based competencies, and high upfront investments connected to future growth. Our belief is that these market characteristics partially attract different investor bases, and our current plan is that during the third quarter 2018, Autoliv will become two stock-listed companies: Autoliv, which will retain the current passive safety business, and Veoneer, which will be a leader in automotive electronics, and the most dedicated active safety company in the market.

The automotive industry is becoming increasingly collaborative in nature. No individual company can develop everything needed for the next generation of more automated and intelligent vehicles by itself. Partnering is becoming increasingly important for Autoliv, and in 2017 we successfully brought cutting-edge competence in several areas to our company.

Most significant was the start of operations of Zenuity, the system software joint venture formed with Volvo Cars. At the end of 2017, Zenuity had a workforce of more than 500 highly skilled professionals, primarily in software development, and the company is well on track to deliver its first ADAS systems software solution in 2019, followed by an autonomous driving solution in 2021. We look forward to building Veoneer into a company and brand synonymous with leadership in automotive electronics, active safety, ADAS and autonomous driving, while continuing to build passive safety leadership in a renewed, focused Autoliv.

## Sustainability

During 2017, we continued to strengthen our Sustainability Program and delivered on our commitment to saving more lives. Autoliv contributes to society and sustainability through its products, which save over 30,000 lives a year, and prevent countless more injuries. Our vision supports the UN Sustainable Development Goal #3: Good health and well-being, focused on reducing global deaths and injuries from road traffic accidents by 50%. A solid sustainability governance structure has been set, assigning the ultimate responsibility for sustainability to the Board of Directors.

## Looking at 2018

Our indication for the full year 2018 is for strong organic sales growth of more than 7% for the company, which compares favorably with the expected growth of light vehicle production of 2%. The growth is a result of the strong order intake in passive safety in previous years, and we expect the Passive Safety segment to grow by more than 10% organically in the year. The Electronics segment is in a transition period, and we expect negative organic growth for the year of around 3%. For Autoliv, we further expect an adjusted operating margin of around 9% for the full year under the current operating structure.

Twenty-four years ago, Autoliv was introduced to the stock market as a spin-off from Electrolux. Now, we are ready to repeat the process and spin-off a part of Autoliv, creating Veoneer, which will be a strong leader in automotive electronics. This is a tremendous development achieved through focus on technology and long-term investments. Growth and execution is in our DNA, and with a continued clear vision and strategy, we might be able to create the next new company even faster.

We are ready for the next chapter, and I would like to take this opportunity to sincerely thank all Autoliv employees, shareholders and other stakeholders for strong support, dedication, and collaboration.

Yours sincerely,

![](images/4_0.jpg)

Jan Carlson
Chairman, President & CEO
Stockholm February 22, 2018