Autoliv Inc. (ALV) Q3 2018 Earnings Conference Call Transcript

Autoliv, Inc. (ALV -1.77%)
Q3 2018 Earnings Conference Call
October 26, 2018, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Anders Trapp -- Vice President of Investor Relations 

Welcome, everyone to our third quarter 2018 earnings presentation. Here in Stockholm, we have our President and CEO, Mikael Bratt, 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 third quarter results and outlook as well as provide an update of our general basis and market conditions. Following Mikael, our CEO Mats Backman will provide further details and commentary around the Q3 financial results and outlook for the full year 2018. At the end of our presentation, we remain available to respond to your questions and as usual, the slides are available through 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 it includes the Q&A that follows. The results herein present the performance of Autoliv giving effect to the Veoneer spinoff, historical financial results of Veoneer are reflective of these continued operations, with the exception of cashflows, which are presented on a consolidated basis of both continuing and discontinued operations.

During the presentation, we will reference some non-US GAAP measures. The reconciliations of US GAAP to non-US GAAP measures are disclosed in our quarterly press release and the 10-Q that will be filed with the SEC. Also, I should mention that this call is intended to conclude at 3:00 p.m. Central European time. So, please follow a limit of two questions per person.

I will now turn it over to our CEO, Mikael Bratt.

Mikael Bratt -- Director, President, and Chief Executive Officer

Thank you, Anders. Looking into Q3 2018 highlights on the next slide, first, I would like to say that I'm pleased our growth momentum continued despite the increasing challenging market conditions we faced in the third quarter. I also would like to acknowledge and offer my sincere thank you to the entire Autoliv team for delivering a quarter of strong growth. The team is fully focused on delivering increasing value to our stakeholders through our focus on quality and operation excellence.

Our growth momentum in the third quarter continued, driven mainly by a large number of product launches in North America. Autoliv grew organically by more than $0.60 despite production decline by about 2% according to IHS as unfavorable market fundamentals took their tool on global outlook demand and production.

We had solid operating cashflow in the quarter, supporting our indication of reaching around late last year's level for continuing operations. I'm also pleased that our order intake continued on a high level in the quarter supporting our growth opportunities for the long-term.

In the third quarter, the industry faced substantial reduction in volumes from our customers, especially in Europe impacted by the WLTP and in China due to lower demand for new vehicles. Our recent product launches our on track and we outpace global production by 8.5 percentage points in the quarter.

However, we are experiencing continued headwinds from raw material pricing and currency movements in the quarter, which together with the volatility of market events and launch-related costs hampered the operating leveraging on the strong sale growth.

The volatility of market demand in the quarter resulted in our supply chain production and logistic system having to manage significant and late changes to OEM production plans, which corresponding to uneven utilization of our assets, while at the same time managing the different challenges of our many launches and the high growth in North America.

We see similar environments for the rest of the year with continued uncertainty for production, especially in China and Europe, leading to continued challenges with uneven utilization. We are closely following the market developments and are ready to act if necessary. We have a high number of temper in place, both in Europe in China, providing flexibility to flex production volumes down or up.

We are implementing actions to reduce costs related to product launches. This includes production line redesign to improve product flows, new methods for onboarding new employees and reorganization of our supplier support to help our suppliers to meet the growing demand.

Looking now at the recap of our third quarter financial performance on the next slide. Executing on the strong order book, the quarter marks the second quarter of a step-up in growth. Our consolidated net sales increased by more than 4% compared to the same quarter of 2017 with organic sales increasing 6%.

Adjusted operating income, excluding cast for capacity alignments, antitrust related matters, and separation costs decreased by around 5% from $205 million to $194 million, impacted by uneven utilization of our assets and elevated launch-related costs, raw material pricing and currency movement, while adjusted operating margin decreased by 100 basis points to 9.5% compared to the same quarter of 2017.

EPS diluted increased by 11% to $1.34 as compared to the same quarter of 2017 as a result to lower cost for capacity alignment and antitrust-related matters.

Looking to our sales growth on the next slide -- consolidated net sales in the third quarter increased year over year by 4.1% to $2 billion, with an organic growth of 6.4%, quarterly offset by negative currency translation effects of 2.3%. Sales outperformed light vehicle production according to IHS in all regions except the rest of Asia due to weaker sales in South Korea.

In the quarter, North America contributed with $120 million to the organic growth. The sales were driven by previous quarter's product launches, mainly with FCA, Honda, and Nissan. The organic growth of 22% was more than 20 percentage points higher than the light vehicle production growth.

Despite South America's light vehicle production growing by only 2%, our sales grew organically by 16%. As a result of strong growth in South and North America, our Region Americas accounted for 34% of total sales in the quarter, compared to 30% in the full year of 2017. In China, both global OEMs and local OEMs contributed to the strong performance. Newly introduced model from GE, including the luxury brand, Lincoln Co. were the major contributors to the growth.

In Europe, we have been affected by weaker demand from a number of OEMs, mainly related to temporary production costs compared to the new EU emission testing regulation WLTP, which was implemented on September 1st, 2018.

Looking to our key launch models Q3 18 on the next slide -- here, you see some of the key models which have launched during the third quarter. These models should be important drivers for our organic sales growth during Q4 in '18 and first half of '19. Three of the models are built in North America, continuing the strong momentum we have seen over the last quarter.

Three of the models are China-specific, which will help mitigate the effects of a softening Chinese market. Annually, these models should represent around 4% of sales and our content per week in the range of $100.00 to close to $300.00. This compares favorable to our global average supply value of $80.00 to $90.00 per car.

Looking now to our product launches, our strong launch momentum continues. We continue to see the ramp-up of product launches or business awarded in 2015 to 2016, as illustrated by the short. The ramp-up of growth is developing according to plan. The number of product launches year to date have increased by more than 30% compared to a year earlier. Year to date, the main increase has been in the US with 90% more launches than the same period last year.

We expect the continued high pace of product launches in the US in the fourth quarter as well. We therefore expect the strong organic growth to continue into the third quarter with the strong performance versus our market and light vehicle production.

Looking to our underlying market conditions on the next slide -- the outlook for major light vehicle markets has become increasingly more uncertain due to weaker consumer confidence, trade tariffs, and regulatory changes. In China, the world's largest market vehicle sales fell in the third quarter by 6% with September tallied down 11%. Most automakers posted short declines in the past month, showing the downturn in the Chinese car market has broadened. Only limited few, such as Toyota and GE have managed to maintain growth. Inventory levels in China have increased and are now above normal levels.

Light vehicle production in the third quarter declined by 4%. According to IHS, which was 7 percentage points worse than the 3% growth that was expected at the beginning of the quarter. IHS expects the softness to continue in the fourth quarter, forecasting a 3% decline in light vehicle production. As inventory levels are relatively high and the recent trend in sales have deteriorated, we believe there is a downside risk to these estimates.

US light vehicle sales rebounded slightly in September from slowdowns in July and August, as automakers pushed vehicles to dealer lots, 2018 models before their 2019s became available in October. Inventory levels remained slightly on the high side during the quarter. Light vehicle production in North America grew by 1.6% year over year in the third quarter according to IHS, which is significantly less than the original forecast of more than 6% growth at the beginning of the quarter.

IHS expects light vehicle production to grow 2.6% in the fourth quarter in North America. European light vehicle registration in the third quarter increased by 1.6% after declining by 23% in September, reversing August sales ahead of the introduction of new, more stringent, WLTP CO2 emissions testing on September 1.

From a technical testing perspective, the WLTP headwind should be temporary. There is, however, some uncertainty on how long-term demand affects as European tax rates are partly based on CO2 emissions.

Impacted by WLTP, light vehicle production in Western Europe declined by 9% in the third quarter, which was about 7 percentage points worse than forecasted at the beginning of the quarter. We continue to see WLTP effects in the fourth quarter. IHS forecasts the fourth quarter light vehicle production to be down by about 3% versus last year.

In the third quarter, overall global light vehicle production declined by about 2% according to IHS. It is 5 percentage points worse than the 3% growth forecast at the beginning of the quarter. Fourth quarter global light vehicle production is forecasted to grow by 0.7%. The forecast for the full year 2018 via IHS is now for a growth of 0.7%, which can be compared to the estimate of 2.2% three months ago.

The lower growth in global light vehicle production is why we are lowering our full-year organic growth indication from about 8% to about 6%.

I will stop here and hand over to our CFO, Mats Backman, to speak on the financials.

Mats Backman -- Chief Financial Officer

Thank you, Mikael. Looking out for financials on the next page, where we have our key figures for the third quarter -- including negative currency translation effects were around $40 million and organic sales growth of about $125 million, our consolidated net sales reached $2 billion in the quarter.

Our gross margin declined year over year. The net operating leverage on the higher sales was more than offset by higher commodity costs, net currency effects, and costs related to preparation for upcoming launches as well as ramp-up of recent launches.

Additionally, we experience unbalanced utilization of our assets mainly in Europe. Our adjusted operating margin of 9.5% declined year over year, mainly due to the lower gross margin and the higher order, partly offset by lower cost per SG&A in relation to sales.

Our reported earnings per share of $1.34 increased year over year by $0.13. Our reported return on capital employed and return on equity were 20% and 23% respectively. Our dividend of $0.62 was $0.02 higher than a year earlier.

Looking now on the next slide -- our adjusted operating margin of 9.5% was 100 basis points lower year over year. As illustrated by the short, the operating margin was impacted by higher raw material costs of about 20 basis points and a net currency headwind of about 20 basis points.

The negative leverage on the higher sales was a result of higher RD&E expenses, which increased compared to the same quarter in the prior year by about 40 basis points, mainly as a result of the many product launches as well as other launch-related costs and unbalanced utilization or a supply chain production and logistic system.

Looking more into this margin headwind on the next slide, in the third quarter, our industry experienced significant changes in the light vehicle production, especially in Europe, impacted by the WLTP and in China due to lower customer demand. Supply chain production and logistic systems thereby had to manage both significant delayed changes on production plans with corresponding uneven utilization.

At the same time, we are managing the exceptional growth in North America with continued elevated launch costs. To meet our expectation for quality and delivery for this wave of launches, we have added in personnel over half in RD&E as well as increased the use of premium price.

As our premium focus has to be on quality and delivery, we have allocated resources accordingly and have therefore not been able to achieve the productivity gains that we expect to do in normal conditions. As we can deduct from our full year adjusted operating margin indication, we foresee a similar environment for the rest of the year.

However, as the number of launches is stabilizing, we believe we can gradually focus more on productivity improvements to operational excellence while our launch-related costs gradually declines. We have initiated a number of actions to address our launch-related costs through management of our products, processes, and supply base. These actions include production line redesigns to improve product flow, increase product standardization for future launches that will reduce costs per testing and tooling.

Looking at the next page, our operating cashflow amount is $238 million compared to $218 million in the same quarter of 2017. Note that our cashflow statement includes discontinued operations up until the second quarter of 2018. The increase is primarily driven by the cashflow impact on higher net income and working capital changes, partly offset by lower G&A.

Capital expenditures amounted to $117 million, which is about 5.8% in relation to sales. Capital expenditures in the third quarter 2017 for continued operations were $122 million. For the full year '18, we expect capital expenditures to remain in the range of 5% to 6% of sales. Beginning 2019, we expect the capital expenditures to sales ratio to begin to normalize to what the historical range of 4% to 5%.

Looking at full year '18, excluding any discreet item, we expect our operating cashflow of continued operation to be on a similar level as in 2017.

Looking now to earnings per share on the next slide -- reported earnings per share improved by $0.13 to $1.34 from lower capacity for capacity alignment and antitrust-related matter. In third quarter '18, the adjusted earnings per share decreased by 18% to $1.35 compared to $1.64 for the same period one year ago. The main driver behind the decrease of $0.14 from higher tax rate and $0.09 from lower adjusted operating income.

Looking now for returns on the next slide, we are pleased that returns are higher in the new corporate structure. Return on capital employed and return on equity for the quarter is above what we have recorded in the full year 2015 to 2016 in all structures. During the last 12 months, we have returned $213 million to shareholders through dividends.

Turning to the balance sheet and financial policy on the next slide -- we have, as you know, a long history of prudent financial policy. After the spin, our balance sheet focus and shareholder-friendly capital allocation policy remains unchanged. The fourth quarter '18 dividend was set to $0.62, unchanged versus the third quarter, but an increase of $0.02 versus a year ago.

Autoliv's policy is to maintain a leverage ratio of around 1 times net debt to EBITDA and to be within the range of 0.5 to 1.5. As of September 30th, 2018, this ratio remained at 1.65, even though we reduced our net debt by $60 million US dollar in the quarter.

Our strong free cashflow generation should first be leveraging and should allowing continued returns to shareholders while providing flexibility. As a result, we are aiming to reach the upper end of our target range by year end and to reach our target level of one-time, sometime in 2019. This is excluding any discreet items and other non-foreseeable changes to our business.

Turning the page, we have summarized our full-year 2018 indications. Full-year '18 indications assumes mid-October rates prevail and excludes cost for capacity alignment, antitrust-related matters, and cost related to the spin of electronic segments.

Our full-year 18 indication is for an organic sales growth of about 6% and a positive currency translation effect of around 2%, resulting in a consolidated net sales growth of about 8% for 2018. The about 6% organic sales growth indication is lower than earlier indication of about 8%, reflecting the weaker than expected market developments in third and fourth quarters, especially in Europe and China.

Our indication for the adjusted operating margin is 10.5% for the full year '18, which is lower than the previous indication of more than 11%, reflecting a weaker sales indication. We expect the headwind for raw materials to continue throughout 2018 and to be close to $30 million higher year over year, due to higher costs for non-ferrous metals, steel, and [inaudible]. This is unchanged since the beginning of the quarter.

We now anticipate the current effect on the operating margin for the full-year 18 to be slightly negative instead of being neutral, as we previously indicated after the second quarter. The projected tax rate, excluding discreet items, is expected to be around 28% for the full year 18.

The projected operating cashflow for continued operations, excluding any discreet item is expected to be at a similar level as in 2017. The projected capital expenditures for continuing operations full year 18 is expected to be in the range of 5% to 6% of sales.

With this, I'll lead back for Anders.

Anders Trapp -- Vice President of Investor Relations 

Thank you, Mats. Turning the page, this concludes our formal comments for today's conference call and I would like to now open up the line for questions. I will now turn it back to you, Cecilia.

Questions and Answers:

Operator

Thank you. If you wish to ask a question at this time, press *1 on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment.

We will now take our first question from Hampus Engellaut from Handelsbanken. Please go ahead.

Hampus Engellaut -- Handelsbanken -- Analyst

Thank you very much. I have two questions. The first question in the on the launch costs, if you could talk a bit about that. Is the launch cost in Q3 higher than in Q2, if I look at the number of launches, maybe you'll see that.

The second question is on this [inaudible] problem. I guess with your visibility on your customers call-offs, I guess there would be some kind of a catch-up effect when this bottleneck has been solved. Could you maybe discuss -- I don't expect the numbers, but a little bit how you would plan that in Q1-Q2 next year, since it could probably come into a situation with some over-production on unless the consumer stops buying new cars. Those are my questions. Thanks.

Mikael Bratt -- Director, President, and Chief Executive Officer

Hi, Hampus, Mikael here. Let me start and comment on the launch costs there. I think you have not really seen the launch costs, per se, is gradually increasing here. I think this general activity is such that this is increasing. What we have said all along here is what is primarily focused for us in these launches is to protect the customer and making sure we meet the posted deadlines, which we are, so we are well on track there, with the full quality here.

So, meaning then that the cost per launch has been higher than previously forecasted, so to speak. So, what we're working on now is to trim our launch teams here to be more efficient in the way we are conducting the launches.

On the second question there around the potential catch-up effect or increased production here coming up on the other side of WLTP, as we have said for the fourth quarter here, we see the negative aspects of WLTP will have its call-offs the Q4 volumes here. We are, of course, always following closely the call-offs and the volume indication from the customers here. So, for us, it's to continue to secure high flexibility in order to meet the either increasing demand or lower demand.

Going back in time, we have managed significant increases with very short lead time in the past. So, that will not be something unusual for us. That's something we are used to handle.

Hampus Engellaut -- Handelsbanken -- Analyst

All right. Thank you.

Operator

We shall now take our next question from Rich Kwas from Wells Fargo. Your line is open. Please go ahead.

Rich Kwas -- Wells Fargo -- Analyst

Hi, good morning. Just from China, you indicated there's downside risk on the production assumption. Have you factored some contingency in the updated outlook here for the fourth quarter?

Mats Backman -- Chief Financial Officer

As always, the outlook or the full-year guidance is built on our best knowledge at the time here. What we have said here as a quarter assessment here, we believe that if you look at the IHS figures here, there could be potential downward risk here. But we will see. Once again, it's based on our best knowledge at this point in time.

Rich Kwas -- Wells Fargo -- Analyst

Okay. Just given some of the dynamics here that we're seeing in the broader environment in China and to some degree the other parts of the world, what are the latest thoughts around the 2020 outlook for margin and growth. Obviously, you have a number of launches that will continue over the next couple years, but when you think about margin trajectory, etc. Any updated thoughts?

Mikael Bratt -- Director, President, and Chief Executive Officer

No. As you see here, we have not changed our targets for 2020 either up or down here based on where we stand right now. Our focus is toward these targets as we move forward.

Rich Kwas -- Wells Fargo -- Analyst

Okay.

Mikael Bratt -- Director, President, and Chief Executive Officer

We have no thoughts around that.

Operator

We will now take our next question from Brian Johnson from Barclays Capital. Please go ahead, sir.

Steven Hempel -- Barclays -- Analyst

This is actually Steven Hempel on for Brian Johnson. Just to follow on to Richard's question in terms of the 2020 targets, which were effectively reiterated. Obviously, there was a lot of headwind post when those targets were set. So, it wouldn't be unreasonable to see further downside of those targets. It sounds like you implemented those actions or are in the process of developing a game plan for implementing actions to reduce launch costs and what not to be able to hit those targets.

Also, from a topline perspective, it looks like your new order intake rate is still holding in at a high level, which is good. Is it fair to assume that obviously some of the WLTP and potentially China production could be temporary. That's the 3Q and 4Q. Is it fair to assume that some of these actions that have been taken in the temporary nature of WLTP plus the higher inside sales growth through 2020 given higher order intake rate means basically those tends to offset and you can still hit those targets or would you say there's some potential downside in those targets now just given the current environment?

Mikael Bratt -- Director, President, and Chief Executive Officer

As I said before, we have no reason to adjust those targets for 2020 either up or down based on where we standard right now. I think what we are talking about when it comes to the launch costs here is to make sure we optimize the organization and trim the organization here to manage new normal when it comes to the number of launches.

That's something that will take some time to get efficiency in our launch organization here and I think we have indicated this will take several quarters to get that on track. Then of course, when it comes to the uneven performance connected to WLTP, etc., we expect that to be of a temporary nature.

Then of course, we will see what happens with the overall demand when it comes to vehicles on our customer sides. There, we have not made any further outlook than what we have indicated in our guidance for the full year here. For that, we will have to come back to it.

Steven Hempel -- Barclays -- Analyst

Understood. So, should we be expecting an update on the 4Q release or on Detroit?

Mikael Bratt -- Director, President, and Chief Executive Officer

The 2019 guidance is expected to come together with the Q4 release.

Steven Hempel -- Barclays -- Analyst

Got it. So, no update for 2020. Just one financial-related in terms of tax for Mats -- can you help us better understand the tax rate, the reason why it moved up in the quarter and for the full year and then any potential for that to move lower into 2020?

Mats Backman -- Chief Financial Officer

Yeah. If we're looking at the underlying tax rate -- we have reported a 31.1%. We have some smaller discreet items, given the underlying tax rate for 29.5% indication for the full year of 28%.

But what you need to remember when you're looking at the full year guidance of 28% is the effect from the second quarter very low reported tax rate because we had positive discreet items that brought the tax rate in the second quarter down 8%. So, it's affected that when you're looking at the full year number. I wouldn't start now to speculate when it comes to the tax rate into 2019.

But what we have communicated previously is that we should see some positive effect from the tax reform in the US. Given the high-growth rate in the US, that should also be reflected in terms of profitability in the US. So, maybe some positive coming from US in terms of the tax reform, but other than that, it's the 28% guidance for the full year.

Steven Hempel -- Barclays -- Analyst

Understood. Thanks for taking my questions.

Operator

We will now take our next question from Eric Gaerlan from SCB. Please go ahead.

Eric Gaerlan -- Standard Chartered Bank -- Analyst

Thank you. I have two questions. I apologize if you've been on the topic. The first one is on order intake. Talk a bit more about what trends you've seen recently. I assume you're now taking quarters beyond 2020. Any updates on that side? The second question -- you touched on the topic, but to what extend does the full-year guidance reflect that certain share of the operations headwinds you've had in Q3 remains in the fourth quarter? Do you assume there is any ease in terms of the express utilization or do you more assume it will stay for the remainder of the year?

Mikael Bratt -- Director, President, and Chief Executive Officer

Let me take the first one here and let Mats answer the guidance question here. We are not putting out the number for the order intake at this point in time. We normally do that only on a yearly basis here. But what we can say is of course the order intake continues on a high level supporting then our market position for the longer-term. I think that's good news in terms of what's happening on that front.

Then when it comes to the margin guidance, Mats?

Mats Backman -- Chief Financial Officer

I think if you're looking at the margin, especially looking at the margin for the quarter and year over year, we basically have three buckets of things that are affecting the margin. First of all, the external headwind we see in terms of the currencies and raw materials, secondly, the increased launch costs that we also talked about, and thirdly, this kind of uneven utilization of our assets due to the underlying LVP.

If you're looking on the three items and going into the fourth quarter, this kind of uneven utilization of assets, that's difficult to say if we see sudden changes we saw in the third quarter, then we will have some challenges of balancing that. When it comes to the launch costs, I've been putting together a lot of actions in order to mitigate the effects of the launch costs. But what we can see is to have an effect continued into the effect in the fourth quarter as well as the launch costs.

If you're looking at the sequential margin development, we always have seasonality with the higher margin in the fourth quarter. That is what you will get if you are making the kind of equity calculation when it comes to the margin in the fourth quarter.

However, when we are saying that, this kind of environment will continue into the fourth quarter, that is kind of the year over year comparison that you saw in the third quarter and into the fourth quarter. That's kind of the guidance I can given given the full-year guidance we have on the margins.

Eric Gaerlan -- Standard Chartered Bank -- Analyst

Thank you.

Operator

We will now take our next question from Chris McNally from Evercore. Your line is open. Please go ahead.

Chris McNally -- Evercore ISI -- Analyst

Hi, guys. Thanks for taking my question. Two follow-up questions that have slightly been asked before -- first, on the 2020 plan, you're saying no change -- is there a time where you may revise and update that? Particularly, will you give any financials at these analyst events that you're having over the next couple of weeks?

Mikael Bratt -- Director, President, and Chief Executive Officer

No. As I said before, we have no reasons to revise our targets based on where we are right now. If we would have a revision of our targets up or down, we would do that according to all the principles and of course, not in separate meetings. So, it's not a question at this point in time.

Chris McNally -- Evercore ISI -- Analyst

Okay. I think just because the general question would be given the 2018 starting point is $400 million or $500 million lower and a lower margin starting point, to get to 13% is an implied 33% incremental margin, which I'm not really sure you guys have ever done before. It just seems, unless we could quantify some of the launch costs that would subside -- and I think the launch costs will continue as you have some business coming on in '19-'20, that does seem, given some of the headwinds in FX, raw materials would continue, it seems like it's a step incline and you would expect that you'd have to get half of the way there in 2019.

Mikael Bratt -- Director, President, and Chief Executive Officer

Yeah. I don't have anymore comments than what I've already made on that. Mats, see if you can add something there.

Mats Backman -- Chief Financial Officer

In terms of indications, as usual, we will issue a full year 2019 indication when we release the fourth quarter report. Then you're basically through the 2020. That's the kind of milestone for that discussion.

Chris McNally -- Evercore ISI -- Analyst

Okay. That's great. Then the second one real quick -- you mentioned the continued good order momentum. You used to put in a slide that showed 50%+ market share gains. I was curious if qualitatively if that's still the case. Is Joyson or KSS at all back in the market taking a single order, so maybe 50%+ market share may not be the case on orders, specifically going forward even though the revenue, obviously, continues to pick up in share?

Mikael Bratt -- Director, President, and Chief Executive Officer

As I mentioned before here, we'll only present the new order intake market share on an annual basis, but as I indicated here, we continued to see high order intake supporting our market positions in other years here. I think that's as much as we can say at this point.

Chris McNally -- Evercore ISI -- Analyst

Great. Thanks so much, guys.

Operator

We will now take our next question from Thomas Besson from KeplerCheuvreux. Please go ahead.

Thomas Besson -- KeplerCheuvreux -- Analyst

Thank you very much. I have two very simple questions. The first is on the BBC. You have shocked them on vehicle product trend in each region. Talking with some of your peers or some of your competitors, it looks like the first time in a decade they have not been aware of what could happen the following week. Could you say that happened to you as well and whether it's improving and whether it is really indicative of major hiccups or whether this has improved?

Second, could you give us an indication on what you're using for your purchase assumptions for 2019 global light vehicle production? Are you using the October IHS figures, the September IHS figures or are you becoming more conservative in your budget? Thank you.

Mats Backman -- Chief Financial Officer

This is Mats. On the first question when it comes to the OEMs and the behavior, that's exactly what I'm talking about when it comes to the late changes in production schedules. That is one component that has been affecting our margin negatively in the third quarter in underutilization of some assets as we have not been able to shift the planning quick enough.

If that will continue or not, it's difficult to say. It depends on the underlying LDP in the fourth quarter. But in third quarter, it was very much related to the WLTP and the effects of that for single customers. So, difficult to say if we see the same thing into the fourth quarter, but it was completely driven by the situation in Europe.

And on the second one, when it comes to the -- can you repeat that one, please?

Thomas Besson -- KeplerCheuvreux -- Analyst

Sure. The second question was what are you assuming in your budget for the change in global light vehicle production in 2019? Are you sticking with the habit of using IHS or are you taking a subjective view or are you making a choice given the trend we are seeing in global demand currency? Are you still assuming +2 next year or maybe it's going to be zero or minus 2.

Mikael Bratt -- Director, President, and Chief Executive Officer

This is Mikael here. We use always IHS as the basis for our forecasting or budgeting, as you wish. When we're looking to '18, that is what we are using also -- sorry, '19. So, the freshest version of that is always what we'll get into the numbers when we give an update to the market here.

Thomas Besson -- KeplerCheuvreux -- Analyst

Thank you very much.

Operator

We will now take our next question from Victoria Greer from Morgan Stanley. Please go ahead.

Victoria Greer -- Morgan Stanley -- Analyst

Hi there, a couple please -- definitely got the message that there's nothing you need to change here on your 2020 targets, but we're hearing from quite a few of your competitors they're seeing some changes in OEM planning around their production schedules, not just in the short-term but in the out years as well. Is that something you're seeing, maybe some things are coming forward and others are going back and that's why there's no change to your 2020 targets or are you just not seeing anything change around the production schedules at all?

Secondly, thinking about the dividend, could you give us some steer on the policy and how you will think about that in terms of free cashflow, keeping that flat year over year, playing the dividend at last year's levels or the current consensus levels is very comfortable in cash terms, but in terms of payout ratio, maybe that comes down a little bit with the small EPS downgrade that we do from the guidance change. How will you think about dividend policy for this year?

Mikael Bratt -- Director, President, and Chief Executive Officer

Hi, Victoria, Mikael here. When it comes to our visibility where it comes to production delays, etc., I will say we do not see any delays of launches and models coming from our OEMs here. So, we do not see what you refer to there. I would say the question in the [inaudible] is the light vehicle production per se, which we don't have that visibility on at this point in time. I think that's the normal way of looking at the years here. So, nothing to report, it looks like usual.

On the dividend side, as we have said before here, our prime focus right now is to get back into the range. I think Mats explained that earlier here on our vision to get the one-time net debt to EBITDA also. So, we don't have a dividend policy per se. Here, we have the intention to continue to be shareholder friendly in terms of giving dividends and returns through buybacks, etc. here. I would say we also have a pragmatic view on this. It's not that we need to go down to the bottom of the range in order to trigger some activities here. We need to be comfortablely within the range before we do something.

Victoria Greer -- Morgan Stanley -- Analyst

Okay. Thank you.

Operator

We will now take our next question from Viktor Lindberg from Carnegie. Please go ahead.

Viktor Lindberg -- Carnegie Investment Bank -- Analyst

Thank you. I had a question on the order intake, but I think it was answered. Maybe I can follow up on if you have seen any changes to the pricing environment? Looking where you are right now with very strong market position globally, are you more picky when it comes to orders and pricing or is it market share that is most important driver for you? Then secondly, thinking about product launches into 2019, an you remind us as to what product launches you have, if I don't recall, I think you have said it will decline, at least, year over year, but can you quantify this? Thank you?

Mikael Bratt -- Director, President, and Chief Executive Officer

On the pricing environment here, I would say it is no change to the dynamics here. It continues to be a competitive industry and we always need to lean forward here to make sure we are in the forefront here when it comes to competitiveness in all aspects of pricing delivery and position, reliability, and quality. So, there's nothing changing there. I wouldn't say that it's either/or, as you indicated here.

It's, of course, to make sound business all together here and balance all the aspects in our dialogues to be supportive to our customers and have customer focus in everything we do here. I would say it's very much business as usual when it comes to the market dynamics here.

On the product launches side, I would say it's declining, but the step up is the decreasing. It will be still a big year in 2019 in terms of launches, but the step up relative to previous year will be lower than what we'll see in '19.

Viktor Lindberg -- Carnegie Investment Bank -- Analyst

All right. Thanks.

Operator

We will now take our next question from Julian Radlinger from UBS. Please go ahead.

Julian Radlinger -- UBS -- Analyst

Thanks for taking my questions. Two questions from my side -- the first one is on those key models you mentioned at the beginning of this year that you said at the time of the full-year '17 results would deliver $500 million of incremental revenue, you updated us at the time of the H1 results they delivered about half of that at that time. Can you give us an update on how much revenue those models delivered in Q3?

Mikael Bratt -- Director, President, and Chief Executive Officer

I don't have the number for Q3 specifically, but as I mentioned before here, we mentioned that will come in around $0.4 billion instead of $0.5 billion for the full year here, but very much connected to the light vehicles development that we are seeing during the second half of the year.

Julian Radlinger -- UBS -- Analyst

Perfect. Thanks. My second question, another one that's been asked in some form or another, but on raw materials, some of your key raw materials have really been shooting up in the last 6 to 9 months and I was just wondering if you could give us a little update on raw materials in 2019, even if that means explaining to us how long it takes typically from a raw material price change to translate into a cost change on your P&Ls. Maybe even qualitatively, what are we looking at here for next year? Do you see a raw material headwind going into 2019?

Mikael Bratt -- Director, President, and Chief Executive Officer

I think it's too early to say. What we have seen is recently, both prices going in the other direction with all the volatility we have had in the market. What can you expect is about 6 months kind of time lag when it comes to prices and effects on Autoliv. On top of that, it's also very much a question about negotiation with suppliers on the customer side as well while we are trying to mitigate effects. It's very difficult to start to talk about the 2019 effects. We need to come back when we give the full year guidance for 2019 with the fourth quarter earnings release.

Julian Radlinger -- UBS -- Analyst

Okay. Perfect. That's also appreciated, gentlemen, thank you.

Operator

We will now take our next question from David Leiker from Baird. Please go ahead.

Joe Burbank -- Robert W. Baird -- Analyst

Hello, this is Joe Burbank for David. My first question is how has growth for the Americas performed relative to your expectation at the beginning of the year?

Mikael Bratt -- Director, President, and Chief Executive Officer

I think when it comes to our own organic growth when it comes to launches, we are cracking according to the expectations here. We are following the plan that we have seen. I would say the fluctuation or changes compared to the beginning of the year is related to the underlying light vehicle production here that you have seen also coming through from IHS. We have no other changes than that. We are on track with our own deliveries to the market there.

Joe Burbank -- Robert W. Baird -- Analyst

So, on slide 11, the supply chain logistical challenges and the first sub-bullets note exceptional growth in the Americas. Were some of these costs anticipated because of the high-level of launch activity and they're worse than expected or they're tracking in line with your expectation?

Mikael Bratt -- Director, President, and Chief Executive Officer

When it comes to North America, the elevated launch costs are connected to what I mentioned before of making a more efficient launch organic to be more effective in itself. As we have had 90% step-up from previous year in our launch activities, of course that is a challenge for an organization and it has come to a higher cost than what anticipated. So, that is really what we refer to that. That's what we're working on now to improve.

Joe Burbank -- Robert W. Baird -- Analyst

And then my last question -- it would be your expectation, obviously, your back log suggests organic growth can remain strong high-single-digit growth in 2019 and 2020. Is it your expectation that some of the launch costs and other challenges you've experienced with high levels of volume this year there will be improvement form the 2018 experience in future years?

Mikael Bratt -- Director, President, and Chief Executive Officer

Yeah. We are working to make more efficiency in our launch activities here. As I indicated here, it will have a gradual improvement here, but it will take several quarters until we are in the level where we should be or want to be.

Joe Burbank -- Robert W. Baird -- Analyst

Great. Thank you.

Anders Trapp -- Vice President of Investor Relations 

We can take one more question on the call.

Operator

Perfect. Our next question comes from Aniska [inaudible] from [inaudible]. Please go ahead.

Aniska -- Unknown -- Analyst

Thank you. Could you just quantify the contribution from the market share gains to your sales in the quarter? Was it predominately related to North America? Should we expect more contribution coming, not other regions as well like Japan or Europe in the coming quarters? Thanks.

Mikael Bratt -- Director, President, and Chief Executive Officer

Looking at the growth in the quarter, it's all relative to market share gains. If you are just looking on the North American numbers, it's corresponding to the full growth number, actually. All growth you see in the contribution from launches is the full organic growth in the quarter.

Aniska -- Unknown -- Analyst

And given the very high growth in North America, is it correct to say these market share gains are appearing mainly in North America today?

Mikael Bratt -- Director, President, and Chief Executive Officer

This is what we have stated before as well when it comes to the market share gains and the higher order intake over the last of the year. It's mainly related to North America first, secondly China, and also to some extent to Japan. You have those three regions we can see the more pronounced market share gains.

Aniska -- Unknown -- Analyst

Perfect. Thank you. The last question from me on WLTP -- what's your feeling about when this production disturbance ease in Europe.

Mikael Bratt -- Director, President, and Chief Executive Officer

I think it's a question for OEMs here. We don't have any second guessing here. We believe and we see that it's affecting also Q4. So, beyond that, I think we have to come back to it in that case.

Aniska -- Unknown -- Analyst

Perfect. Thank you.

Operator

That will conclude today's Q&A session. I will now hand the call back for today's closing remarks.

Mikael Bratt -- Director, President, and Chief Executive Officer

Thank you, Cecilia. Before we end today's call, I would like to say we continue to execute on our growing business volumes and new opportunities with a never-ending focus on quality and operation excellence. Also, I should mention that our fourth quarter earnings call is scheduled for Thursday, January 29th, 2019. Thank you, everyone. For participating on today's call. We sincerely appreciate your continued interest in Autoliv and hope you have a safe and relaxing upcoming holiday season. Goodbye for this time.

Duration: 66 minutes

Call participants:

Anders Trapp -- Vice President of Investor Relations 

Mikael Bratt -- Director, President, and Chief Executive Officer

Mats Backman -- Chief Financial Officer

Hampus Engellaut -- Handelsbanken -- Analyst

Rich Kwas -- Wells Fargo -- Analyst

Steven Hempel -- Barclays -- Analyst

Eric Gaerlan -- Standard Chartered Bank -- Analyst

Chris McNally -- Evercore ISI -- Analyst

Thomas Besson -- KeplerCheuvreux -- Analyst

Victoria Greer -- Morgan Stanley -- Analyst

Viktor Lindberg -- Carnegie Investment Bank -- Analyst

Julian Radlinger -- UBS -- Analyst

Joe Burbank -- Robert W. Baird -- Analyst

Aniska -- Unknown -- Analyst

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