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Veoneer, Inc. (NYSE:VNE)
Q2 2019 Earnings Call
Jul 26, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's second quarter 2019 earnings release conference call. [Operator Instructions] I must advise you that this conference is being recorded today, Friday the 26th of July 2019.

And now I would like to hand the conference over to one of your speakers today, Thomas Jonsson. Please go ahead.

Thomas Jonsson -- Executive Vice President of Communications and Investor Relations

Thank you very much, Priscilla, and welcome, everybody, to our second quarter 2019 earnings call presentation. Here in Stockholm, we have our Chairman, President and CEO, Jan Carlson; our Chief Financial Officer, Mats Backman; and myself, Thomas Jonsson, Communications and IR. During today's earnings call, our CEO will comment on our current business situation, the progress we're making at Veoneer and, in particular, about the market adjustment initiatives now under way, some of which we announced already in late 2018.

Then Mats Backman will walk you through our financial results, our efficiency programs and provide some commentary on the 2019 outlook. After this, we'll remain on the line for Q&A. And of course, slides are available through a link on the homepage of our corporate website. So if you turn the page, we have the safe harbor statements, which is an integrated part of this presentation and includes the Q&A that follows.

During the presentation, we will reference some non-U.S. GAAP measures and reconciliations of these figures are disclosed in our quarterly press release and the 10-Q that will be filed with the SEC. We intend to conclude the call at 3:00 p.m., so please limit yourself to 2 questions each.

With that, I will turn it over to our CEO, Jan Carlson.

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

Thank you, Thomas. I also would like to welcome everyone to this call. Turning the page, I will start out today's call by thanking the entire Veoneer team for their continued focus on quality and dedication to improve the performance of our company. Looking first to our underlying market environment, the light vehicle production situation remains very mixed and uncertain, particularly in all our major markets, where we now see the second half recovery will not be as strong as earlier expected. This impact could be 4% to 5% lower than we anticipated in April of this year.

Also, we continue to see an overall deterioration in the light vehicle production through 2022. Looking next on our market adjustment initiatives, we are pleased with our successful capital raise of $627 million in May, and the funding resolution of our Brake Systems joint venture, which saw us acquire our partner's 49% ownership stake in the joint venture in U.S. operation. In addition, we have started to see the early results of our engineering improvements, where we already see a lower run rate in our R&D gross cost. Our cash flow was better than we anticipated at the beginning of the quarter due to working capital initiatives and lower-than-expected capital expenditures.

Our order intake development developed as expected during the quarter, where our last 12 months was more than $1 billion average annual saving. As we've said before, the order intake can vary significantly quarter-to-quarter due to the timing of customer decisions around our business pursuit. And lastly, our launches in 2019 continue to evolve as planned, however in certain instances, the ramp-up of volumes is slower than expected and the underlying vehicle volumes are somewhat lower.

Turning the page. On this page, we have summarized the latest IHS light vehicle production forecast for 2019 through 2022 both globally and in all our major markets in comparison to what we saw in July 2018 at the time of spin-off of Veoneer from Autoliv. Overall, this now represents approximately 37 million fewer vehicles for the time period 2019 through 2022, which is 13 million fewer vehicles than reported just only 90 days ago.

This, of course, has had an impact on our business targets that were communicated at our Analyst Day in June of last year prior to the spin-off. In addition, over the last several quarters, the industry has come to the realization that Level 4, 5 autonomous vehicles will take longer and costs much more money than originally expected, and we see a definite shift in industry focus toward Level 2+ driver support system based on ongoing conversations with our customers.

This means that our core addressable Active Safety market will be more important and relevant for a longer period of time. This development should ultimately play into Veoneer's strength and the focus of our product portfolio. However, it's too early to know the impacts on our business targets. Flipping the page, we continue to make solid progress this year in expanding our Active Safety product portfolio across the customer base. As illustrated on the slides, we have expanded our customer progress across most product areas and continue to be optimistic about securing business with new customers across the portfolio during 2019.

Based on our current customer activities and pursuit, we remain confident that we will reach our order intake target of at least $1.2 billion average sales by the end of this year. Turning the page. On this slide, we have summarized some of the key new program launches and model facelifts, which will support the improvement of our organic sales development during the latter part of 2019 and into 2020. In certain cases, we see slower ramp-up of volumes and lower underlying vehicle volumes, as we have seen from the IHS light vehicle production development since the beginning of this year.

Our strong lineup of launches is, however, mitigated by the negative impact from the Mono Vision business and ramp down at BMW and the temporary negative mix from 24 to 77 gigahertz radar technology. Combined these launches and facelifts represents between 10% to 15% of our annual sales depending, of course, on take rates and light vehicle production assumptions. The average content per vehicle of these models is roughly $110. However, the content range is between $40 and $800 per vehicle.

I will now turn it over to our CFO, Mats Backman, to walk through the financials. Mats, please go ahead.

Mats Backman -- Chief Financial Officer and Executive Vice President of Financial Affairs

Thank you, Jan. Looking now to the next slide. As Jan mentioned earlier, the macro environment and light vehicle production continues to adversely affect our operating results in near term. Our overall net consolidated sales in the second quarter of $489 million were slightly better than we expected and our operating loss of $137 million was slightly better than expected due to lower RD&E net.

As we mentioned for several quarters now, our company continues to be in the middle of a tremendous investment period to support the ramp-up of our future sales growth and record order book. As a consequence, our investments in RD&E net have increased to $159 million in the second quarter, which is an annual run rate of close to $640 million. However, our RD&E gross cost improved close to $10 million during the second quarter as compared sequentially to the first quarter this year. In addition, our investments for capacity increases, mainly in Active Safety and brake control systems resulted in capital expenditures of $50 million in the quarter, which was slightly lower than we anticipated at the beginning of the quarter.

We now expect the full year 2019 capex to be approximately 10 -- 12% in relation to sales. Looking now into some further detail for the quarter on the next slide. Our sales decline of $83 million as compared to the same quarter last year was comprised of negative currency development of $25 million and an organic sales decline of 10% or $58 million, which was mainly driven by Restraint Control Systems of $26 million and Active Safety $20 million, while Brake Systems declined $12 million. In Restraint Controls, the decline was mainly due to the phase out of certain vehicle models, mainly in North America. while the negative radar product mix and the gradual phase out of BMW Mono-Vision systems were the main drivers for the Electronics segment.

The decline in brake control systems was mainly driven by lower volumes on certain Honda models in China and Japan. The gross profit decline of $35 million year-over-year was mainly due to the volume and product mix impact caused by the organic sales decrease and negative currency effects of $11 million. As mentioned earlier, RD&E net of $159 million increased $40 million during the quarter as compared to 2018, due to the steep ramp-up of engineering hiring of approximately 1,200 associates during the last 12 months. The SG&A increase of $13 million versus prior year was mainly due to the additional costs associated with operating as stand-alone listed company.

Looking now to some of our market adjustment initiatives in more detail on the next slide. As mentioned earlier, we moved quickly with our capital raise during the second quarter. The strong interest and oversubscription of approximately 3x resulted in a 15% upsizing of both the common equity and convertible senior notes with gross proceeds of $627 million. I should also mention that we had a very strong support from our top 10 shareholders, who either maintained or increased their ownership percentage as a result of the offering. Looking now to our VNBS joint venture.

During the second quarter, we came to a resolution around a funding dispute. This resulted in Veoneer acquiring Nissin Kogyo's 49% interest in the joint venture's U.S. operation. In addition, Nissin Kogyo contributed $20 million as debt repayments for funding Veoneer had previously unilaterally provided to VNBS. Both of these transactions are important, enable us to provide financial stability for Veoneer to execute on the growth plans and continue to explore strategic options for our Brake Systems business. Looking now for outlook for 2019 on the next slide. Based on our current customer call-offs and deliveries, we see a continued soft demand situation in China, Western Europe and to a lesser extent North America.

This leads us to anticipate a slightly sequential decline in organic sales during the third quarter from the second quarter this year, while we expect to hold the operating loss in the third quarter to a similar level as in the second quarter. As Jan mentioned earlier, our organic sales improvement in the second half will not be as strong as we expected in April. However, our sales during the second half are expected to improve sequentially from the first half of 2019.

As a consequence of this development, our organic sales for the full year 2019 are now expected to decline in the high single digits as compared to 2018, rather than the mid-single digits as earlier communicated. We expect the currency translation impact to remain unchanged at approximately minus 2% as compared to full year 2018. As we communicated last quarter, we expect to see a sequential improvement in RD&E net in the second half of this year from the first half and remain committed to the cap on engineering network of $600 million for the full year. Based on these assumptions, we expect the operating margin to improve sequentially in the second half of 2019 from the first half of this year, while our cash flow is expected to remain at approximately the same level as in the first half of this year due to our exceptionally strong working capital performance in the second quarter.

I will now turn the call back to Jan.

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

Thank you, Mats. By turning the page, again, we come to the last slide, and that concludes the formal presentation for today's call. So I turn the call back to you, Priscilla, to handle the Q&A session. Thank you.

Questions and Answers:

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

[Operator Instructions] And the first question comes from the line of Hampus Engellau from Handelsbanken. Please go ahead.

Hampus Engellau -- Handelsbanken -- Analyst

Thank you very much. I have 2 questions. Talking off on the process with qualifying on the customers, could you comment on how that process is proceeding? I -- my question is more related to our car OEMs taking in that the tech and software industries moving slightly faster than the regular business in the car industry and, i.e., is it getting shorter times to qualify or still we have a 2-year process? Second question is related to the LiDAR business. If you could talk a little bit about what you're offering in LiDAR? Are customers looking at LiDAR as a redundancy system provision or are you also offering LiDAR as a primary source for Level 2+? Those are my 2 questions.

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

So if we start with the process on customers and how they qualify software, we have seen actually the lead times going up. So we have seen that customers are paying more and more attention to the fact of functional safety and qualifying processes of the softwares. And this is why you can see that our development lead time from the order to first sales is between 3 and 4 years for many of our programs.

Other programs have been historically shorter, but we have seen that being the most applicable time frame right now. When it comes to LiDARs, all offering in LiDAR are mainly twofolds. We have, as you know, an nonexclusive agreement with Velodyne, and we have also taken business there for Robo-Cap applications. We're also working ourselves in-house with short-range LiDAR technologies that we are also pursuing to customers right now, and that is also for different type of applications. We are seeing some car manufacturers having LiDAR as a support system. We are not seeing LiDARs replacing vision systems as a prime source, but it's a confirmatory technology to the vision system for more demanding applications.

Operator

Thank you. And the next question comes from the line of Bjorn Enarson from Danske Bank. Please go ahead.

Bjorn Enarson -- Danske Bank -- Analyst

Bjorn Enarson, Danske Bank. Yes, I had a question a little bit about the mix on gross margin. And can you talk a little bit about the RCS and when we should see that growing perhaps more in line with LVP and also on the Active Safety and brake ramp-up activities, Active Safety? I would assume we have some improved activities -- ramp-up activities in Q4 and brake ramp-up for the U.S. orders more in 2020. Can you shed some light on that, please?

Mats Backman -- Chief Financial Officer and Executive Vice President of Financial Affairs

Yes. This is Mats. I can start and then maybe Jan can fill in. Look, you are right when it comes to brake control systems. I mean there's big launches and the ramp-up related to U.S. that will take place in 2020. So you're correct in that. Looking at Active Safety and RCS, I think it's likely we write in the reports down we feel what we can see in terms of Volkswagen development is very much related to the order intake before 2016. We can see phase out of certain models like we said in Active Safety on BMW for the Mono Vision and some radar business as well. When it comes to the more launch-driven costs -- launch-driven growth, we will see that coming through gradually in 2020, and it's a similar pattern for RCS as well, but we have been suffering from a lower order intake pre 2016, though.

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

And the gross margin mix, you can fill me in on that one, Mats, but gross margin mix and you can see the decline and the change of gross margin here is related to the lower volume, but also to increased COH coming from buildup of our facility and preparing for launches. So that is having the effect on the mix of the gross margin for now.

Mats Backman -- Chief Financial Officer and Executive Vice President of Financial Affairs

And maybe 2 things to add when it comes to gross margin. First of all, we have a very big effect, as I talked about in the presentation, but we also have if you are looking specifically on the brake control systems, we have a smaller impairment also in some equipment that is affecting about $2 million on gross profit, which is also affecting negatively on gross profit.

Bjorn Enarson -- Danske Bank -- Analyst

Okay. Thank you.

Operator

Thank you. And the next question comes from the line of James Picariello from KeyBanc. Please go ahead.

James Picariello -- KeyBanc -- Analyst

Just on the guidance. Obviously sales sequentially lower in the third quarter, still expecting second half improvement over the first. Yes, can we dig in on Active Safety core sales down 9% in the quarter? Can you just talk about more about what you're seeing in the market? What your expectations are for that business prospectively here in the second half and how we should be thinking about next year?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

Well, the decline that we are seeing here is coming from what we mentioned here in the slide, predominantly ramp down of BMW Mono Vision order that we took many years ago, and is still in production up until now, but it's ramping out. We also saw the shift from 24 to 77 gigahertz radars some years ago. That was taking a toll on our order intake, and that is also having an effect on the Active Safety side right now. We have to remember that we developed the sensor suite and the basis for the sensor suite is we are leaving from further developing right now with the launch of the Mercedes E-Class back in 2016.

So before 2016, there was, on the vision side, very little weaker take in terms of orders, and we are facing that effect right now. So that Mono Vision order we took before our own algorithm and our own product portfolio and that is ramping out, and it takes time until the launches come now in end of this year and in 2020. If you look into what we see and we saved some customers, I think it's clear that we see an increased focus on collaborative driving. We see increased focus on advanced driver support. That is playing well in our favor for our product portfolio in piston ADAS controllers and radars.

We are seeing Level 4 being pushed out. There are numerous of announcements during the quarter of car manufacturer pushing out Level 4 programs. So we consistently see that from our customer base. This is, as I said, in favor of our product portfolio. It's also giving an opportunity for us to have the right priority on the Zenuity people and the Zenuity resources helping us out with features for collaborative driving and driver support.

James Picariello -- KeyBanc -- Analyst

Got it. That's helpful. And when thinking about for the second half, if we exclude the more difficult light vehicle production backdrop when thinking about your prior 4Q guidance for a return to organic growth, excluding that light vehicle production backdrop, have things gotten delayed a bit? Whether it's across Brake Systems, Restrained or Active Safety, what would you attribute to your internal programs?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

The majority is coming from the light vehicle production. There are some delays here and there, but that is nothing that is at least so far we can see that having bigger impact. It's the light vehicle production as such that is affecting.

James Picariello -- KeyBanc -- Analyst

Okay. And so Restraint Controls as well because that was a business segment that you didn't expect based on your visibility and backlog that there would be improvement toward the fourth quarter? And then just in addition to that, given the situation with ZF's airbag ECU, what's your commentary on that?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

I don't think we have any commentaries on the ZF airbag ECUs. We are seeing a continued strong order intake on our RCS business -- on our airbag controller business, and we have seen that for some time, and that is continuing. But those orders that we win right now will take several years before they go into production. But also on the RCS side, it's, of course, 100% safe rates on the car lines where they are on board, so it's the light vehicle production having the effect.

Operator

Thank you. And the next question comes from the line of Erik Golrang from SEB. Please go ahead.

Erik Golrang -- SEB -- Analyst

Thank you. One question, and apologies if it had been asked, as I had a bad line. I was just thinking that there was a big announcement in the quarter of a collaboration between a number of suppliers and -- I think it was BMW and Daimler and a few other OEMs on developing autonomous technologies, and I think Aptiv had the role that you might have had. There are no orders out of that yet, of course, but to what extent do you look at sort of collaboration such as this one as actually shrinking the market that is approachable to you?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

I don't think it is shrinking the market that is approachable per se. I mean if you take the collaboration between BMW and Daimler, we are the main supplier to Daimler. We are not the main supplier to BMW. So we see this as an opportunity to also approach the common architecture that is going to happen. We see the effect out of this already. We see that the discussions between -- if you take BMW and Daimler as an example, we see those discussions having an effect also on the working levels and the architecture and the spec for future generations are under discussions between the company. So we believe all in all that this is a positive thing for the industry because it will consolidate the development effort. It will harmonize the product architecture and be positive and give possibilities to economy of scale for suppliers. So that's our opinion when it comes to the type of collaboration.

Erik Golrang -- SEB -- Analyst

Thank you. That's it for me.

Operator

Thank you. And the next question comes from the line of David Kelley from Jefferies. Please go ahead.

David Kelley -- Jefferies -- Analyst

Thank you for taking my questions, Could you provide some color on the RoadScape plan either regionally or the type of customer you're working with? And then love to get some commentary on what type of -- what level of Active Safety vehicle that it would be embedded in?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

Well, this is a part of our collaborative driving and being a part of the type of business we are approaching in Level 2+. As we announced here, we have added RoadScape business during the first half of this year. So we have now 3 customers, and we are then also on the bid list for another 4 customers on the RoadScape side. But it is predominantly the type of vehicle that we are approaching, so that is we see this as a favorable thing and we have developed this over a number of years since we acquired it several years ago.

David Kelley -- Jefferies -- Analyst

Okay. Great. And maybe as a follow-up and switching gears, obviously, the strong working capital improvement in light of a deteriorating underlying macro environment. Just love to get your thoughts on how we should think about working capital movements in the back half of the year. Obviously, again, the macro seems to be somewhat volatile, but thinking about levers to pull or the opportunity there, any color would be appreciated.

Mats Backman -- Chief Financial Officer and Executive Vice President of Financial Affairs

Yes, I mean we can use the performance in the second quarter as kind of the baseline. So we had a really good working capital performance in the quarter. So the positive contribution more than $40 million in the quarter and most of it related to accounts receivables and to some extent on the inventory. I mean naturally with a lower organic growth, you will see a positive development on accounts receivable. But this time, it's more, I would say in, due to activities internally in the company where we have been addressing overdues and the process for invoicing to some extent.

We saw the potential already when we released the first quarter report. Looking at inventories, I think our operations team has done a great job in order to avoid building inventory. We have gone through destocking, and for sure, I mean if you take destocking, that's under absorption when it comes to fixed costs, meaning that we are taking a hit in gross profit, but we are really protecting the cash flow.

So that's what we'll continue with. If you're look at that as a starting point and moving into the third quarter, I mean first of all, we need to make sure that we have processes in order to retain what we see now for them to make this sustainable in terms of changes. And I think we can do that. But I can also see some further potential that even though we had a bigger effect already in the second quarter than anticipated, but I think there are still opportunities to improve more.

David Kelley -- Jefferies -- Analyst

Great. Thank you.

Operator

Thank you. The next question comes from the line of Agnieszka Vilela from Nordea. please go ahead.

Agnieszka Vilela -- Nordea -- Analyst

Thank you. I have a couple of questions, starting with the guidance for full year capex. Did I hear you correctly that you guide for 12% of sales for the full year?

Mats Backman -- Chief Financial Officer and Executive Vice President of Financial Affairs

Yes. That's right, about 12% in relation to the full year.

Agnieszka Vilela -- Nordea -- Analyst

So some acceleration now in H2?

Mats Backman -- Chief Financial Officer and Executive Vice President of Financial Affairs

Yes. Slightly. Yes. But again, I mean we are -- I mean this is something that we're monitoring the whole time. So if we see lower LVP, lower volume, we're trying to adjust capex in line with that. So meaning that we are now kind of postponing when we see the bid opportunities, but you are right in your assumption, yes.

Agnieszka Vilela -- Nordea -- Analyst

Perfect. And then a question on order intake. You still expect that your order intake for 2019 will be at least $1.2 billion. However, the last 12 months number is now a bit lower than it was -- what it was in Q1, so you've built on quite good order intake for the second half of the year. And here, I have actually 2 questions to that. Number one is that, don't you have quite difficult comparisons in Q4 given that you received quite sizable order for the LiDAR business for Robo-taxis, which is probably not recurring? And then number two, given the fact that the car production, as you yourself said, is substantially lower than what it was before, don't you see really a risk for a cut or writedown of some of the order book that you have on the back of that?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

We will come back on the year-end and look into the order book. We do that once a year, and we look then to the circumstances in the car production. So we'll revert back to that after quarter for this year. When it comes to the order book that we -- on the order intake and the comparables to last year, you're right that quarter 4 was very heavy last year. Quarter 4 was very heavy also in 2017. So it has turned out more by a happening, but if it's too many years in a row of happening, it's becoming a trend that the order intake has been back-end loaded for us.

That is the case also this year. We are also approaching and pursuing new customers that we are not in so that we are looking into expanding our customer base. As we mentioned also here in the slides that in essentially all of our product areas, we are looking to expand that. And overall, the picture we had with the pursuits and activities that we have the best estimate that we have is that more than $1.2 billion for the year despite all the comparables that you just correctly mentioned.

Agnieszka Vilela -- Nordea -- Analyst

Perfect. And just one housekeeping question on the tax level that we can expect, both in P&L and in the cash flow for the full year?

Mats Backman -- Chief Financial Officer and Executive Vice President of Financial Affairs

We're not guiding when it comes to taxes, but given the kind of the financial kind of structure of the company, what you see in the quarter, I mean if you take out the discrete items, the tax rate -- the tax cost, I think, is around $2 million. So it should be around 0 and then you have discrete items on top of that, but that varies from quarter-to-quarter, though.

Agnieszka Vilela -- Nordea -- Analyst

Okay, perfect. Thank you.

Operator

Thank you. And the next question comes from the line of Dan Levy from Credit Suisse. Please go ahead.

Dan Levy -- Credit Suisse -- Analyst

Hi. Great. Good morning and good afternoon to you. And thanks for taking questions.

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

Thank you.

Dan Levy -- Credit Suisse -- Analyst

First, I apologize if I missed it, but in the past, you had said your long-term target -- you revenue targets were under review. I assume no update on those, correct?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

Correct. We said and we communicated that together with the capital raise that we don't reiterate those targets, and we have not yet communicated any new ones.

Dan Levy -- Credit Suisse -- Analyst

Okay. So at some point though in the future, you will look to update us on the long-term targets, though, I assume, the long term...

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

Well, of course, we will paint a strategic view on our company and where we are going and give you a broader picture of the plan that we have for the company. To the extent, we will pin down specific numbers and targets. Again, we will have to review and come back to. This is an industry that is in constant change, and I think the last quarter with all the collaborations you see on the supplier side, on the OEM side, it's making it very hard to just pinpoint a number and the technology changes. But we have not decided that yet. We will come back to you, of course, and give you a strategic overview of our company at some point.

Dan Levy -- Credit Suisse -- Analyst

Great. Okay. And then a follow-up. I wanted to just ask about the composition of your order intake over the past 6 months. And, in particular, I think that some of the challenges you've had on profitability, the rising RD&E levels is maybe because you had maybe too wide a set of products, you've maybe gone beyond sort of the core strengths and maybe some of the programs that have taken on that's what it sounds like that there is maybe a lack of scalability of some of the programs that were launched.

So to what extent have the new -- have any of the new order intake that you have taken on been more focused on scalability? And to what extent are you -- is it possible that order intake beyond this year may be flattish or maybe even down a bit as you just focus more on taking what you have and scaling it up and growing it profitably rather than just the pure growth?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

No. But you are very right. I think the whole industry is somewhat focusing now with a turn toward more collaborative driving Level 2+ looking for scalable architecture of, for instance, vision systems where you go from distributed intelligence to sensor compute at some point in time and you look to the development of that over time. We are working on that. We are seeing very good progress on this matter and we are also working that ourselves, but also together with Zenuity here to align the 2 companies and the resources toward that scalability. And we are doing that because we see clearly that the ways on Level 2+ being articulated by so many customers now and Level 4 being pushed out, that this is the right thing for us to do. And still we are taking orders on the existing architecture, so this will develop over, I would say, the next 12 months or so.

Dan Levy -- Credit Suisse -- Analyst

And within the core focuses, are you more focused now on sort of whether it was just more radar or I don't know if there's a way to quantify just like how much you're sort of putting into sort of the core Active Safety programs, rather than some of the smaller things like LiDAR?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

No. While the core of the core, if you would call it that, is, of course, the vision, radars and the ADAS controllers in our Active Safety program. But we have very good additions in LiDAR. And as I mentioned also on a question here earlier, we have internally a very good and powerful development ongoing on short-range LiDAR that we are hopeful will be a good addition to this. But the core of the core for us will be the vision, the radar and the ADAS controllers for a long period of time.

Dan Levy -- Credit Suisse -- Analyst

Great. Thank you very much.

Operator

Thank you. And the next question comes from the line of Steven Fox from Cross Research. Please go ahead.

Steven Fox -- Cross Research -- Analyst

Thank you very much. Two questions for me. Just looking at your longer-term light vehicle outlook, it seems to me like, and I apologize if my math is off here, but it seems to me like becoming cash flow breakeven is going to be highly unlikely before 2022. I was wondering if you could comment on how directionally you'd expect to make progress on that? And then secondly, could you just sort of help understand how long the mix -- the radar mix remains a negative on the business, when would that sort of lighten up and become more of a positive influence? Thank you.

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

Can you repeat the first question, again?

Steven Fox -- Cross Research -- Analyst

Yes. So if I look at your cash burn rate, and I think that when you thought about going cash flows becoming positive, it seems on the fact that you're guiding down light vehicle production expectations that it may take up to 2022 before cash flows become positive. I was curious if you can comment on that. And I imagine not specifically, but directionally on how you'd expect to make progress on the cash burn rate going forward?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

Yes. No, I mean we have not been giving any targets when it comes to cash flow breakeven, but the thing is that when we made the capital raise that we spoke about here as well, the $627 million and we got a question about if the funds will be enough or not. What we have stated is that with the current plans and with the current activities that we have, I mean that's the target to have the cash on hand needed to support the growth we have. So that's really I think what you should use in your assumptions. And that capital raise is just 1 to 2 months back then, so very much on the LVP forecast that you have seen over the last 2 months.

Steven Fox -- Cross Research -- Analyst

That's helpful. And then in terms of just the negative mix on radar?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

This is a mix negative situation that will continue into 2020 when we are ramping up the major launches that we have been communicating and we have been talking about. So that will gradually be corrected during 2020.

Steven Fox -- Cross Research -- Analyst

Great. Thank you very much.

Operator

Thank you. And the next question comes from the line of Garrett Klumpar from RBC Capital Markets. Please go ahead.

Garrett Klumpar -- RBC Capital Markets -- Analyst

Thanks for taking the question. It's Garrett on for Joe Spak. I guess now that the VNBS situation is resolved and you're going to have more options, how do you see that business fitting into your portfolio and kind of juxtaposing that with Veoneer's key competencies?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

We are conducting a strategic review of this business, and we'll look into the opportunities for us to grow this business and to manage this business, but we are also looking for other options, which could, of course, also include a divestment of the business. But that is a strategic review we are right now conducting.

Garrett Klumpar -- RBC Capital Markets -- Analyst

Got it. Okay. That's helpful. And then maybe bigger picture. I mean you've highlighted kind of over the past year you've seen, obviously, the pretty steep decline in expected volumes for kind of 2020 and beyond and that might be a good starting point to maybe think about how your midterm targets could change and obviously, you're not going to give an update there. But I mean in light of the steep volume declines, how should we kind of think about the convexity of Veoneer's outgrowth to help maybe mitigate some of the declines that are expected?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

Well, we are introducing the initiatives we have communicated here and Mats has been describing in the presentation. We will continue to do so. We will be agile when -- or if we would see further declines of LVP and safe measures we talked as an example here was on capex -- capital expenditures that we, in that case, would also look through. We will look through all and every item if the market would further decline to try to mitigate any type of situation that is there.

Garrett Klumpar -- RBC Capital Markets -- Analyst

Okay. That's helpful. But I mean, I guess, just more on kind of the top line and Veoneer's outgrowth prospects, I mean how should we think about that given the lower expected volumes?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

As we indicated also in the release, we will return in -- to organic growth in 2020, and the main reason what we have here is a very launch-heavy period in front of us. We have major programs that is starting to launch toward year-end or beginning of 2020 and that will continue throughout the entire 2020. We talked about the brake business. We have major system launches. We have major vision launches and radar launches also throughout the time of 2020. So that will come -- those programs in event of a further decline of LVP will, of course, also be affected because -- if that goes across the board, but for Veoneer specifically, those programs will have effect on the top line.

Garrett Klumpar -- RBC Capital Markets -- Analyst

Got it. All right. Thanks very much.

Operator

And the next question comes from the line of Emmanuel Rosner from Deutsche Bank. Please go ahead. [Operator Instructions] The next question comes from the line of Dan Galves from Wolfe Research. Please go ahead.

Dan Galves -- Wolfe Research -- Analyst

Thanks very much and good morning. I was hoping you could help us to kind of dimension the fourth quarter exit rate in terms of profitability. It looks like revenues should be up pretty significantly versus Q3. Is there any way to think about kind of an incremental margin that you expect to get on that extra revenue? And on the R&D, also looks like a pretty meaningful improvement in Q4. Will that Q4 level be sustainable? Or is that affected by seasonality of engineering recoveries at all?

Mats Backman -- Chief Financial Officer and Executive Vice President of Financial Affairs

Well, I mean, what we have been indicating when it comes to the $600 million in terms of the net RD&E is that we see it as a sustainable improvement. But naturally if you're looking at the fourth quarter from a seasonality point of view, the fourth quarter net RD&E is always lower due to high engineering income. But the $600 million that we have indicated, that's something that we're looking at sustainable growth. So that's the case with us.

When it comes to incremental margin, I think it's difficult to talk about the incremental margin. I feel we see the real growth start coming through them. So as Jan said, when it comes to the organic growth in 2020, that's very much launch-driven organic growth that we see. And naturally when you have a launch-driven organic growth, you will see that one coming through gradually in terms of the growth, but also gradually when it comes to incremental margin because, I mean, it takes some time in order to fine tune everything and getting through the kind of launch period.

Dan Galves -- Wolfe Research -- Analyst

Okay. And then just one other one. Prior to the capital raise, did you see any less willingness on the part of customers to source you based on relatively weak balance sheet? And if so, has that now changed meaningfully?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

No. We didn't see any hesitation from customers who were going through discussions or supporting our business. And you can see that throughout a very good order intake number we have reported. So that has not affected.

Dan Galves -- Wolfe Research -- Analyst

Okay, great. Thanks a lot.

Operator

Thank you so much. And the next question comes from the line of Peter Testa from One Investments. please go ahead.

Peter Testa -- One Investments -- Analyst

Thank you very much for taking the question. Just going back to the point you've made about the alliance with Daimler, BMW, Ford, Volkswagen, which is involving key customers for Veoneer. As they look at the architecture and spec, can you give us some sort of sense as to how they see this impacting the scheduling plans they have in those areas and to what degree is architecture and spec questions touch the existing order backlog of Veoneer?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

I don't think it affects. This is a successor to the different car lines they have, and when that is coming, they will work together to deploy that architecture to car lines on both sides. So we don't see any delay necessarily from that angle on the car lines. But of course, when you combine 2 organizations, that is, of course, taking an effect on efficiency, people have to get to know each other, et cetera. You should think about this directionally as an effect maybe in 2023 and beyond on vehicles coming thereafter. That's where you will see this coming into effect. Ahead of that, it's not -- it's just the same business as we have today.

Peter Testa -- One Investments -- Analyst

Okay. And the other question. Just as you go into the point where your products are ramping up, you're also -- the OEMs are also discussing quite a lot vehicle content and cost content and various different challenges. And I was wondering if you had a good sense at this point what the variant depth is for the ramp-ups and the extent of which these would be standard versus options just to kind of understand as you plan and they try to manage content how those 2 things intersect, please?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

I think those items are much depending also on the Euro NCAP environment and the rating tests and the requirements to get 5 star, where you see a clear focus on advanced driver support. That has historically and will still be one of the big content drivers. You have also a legislation environment in the U.S. and voluntary AUD initiatives, as we all know. And similar initiatives and similar actions will drive -- we are convinced drive the content on the ADAS side.

Peter Testa -- One Investments -- Analyst

Right. And so you feel, therefore, there isn't any challenge on discussing content for car, cost content and variant analysis?

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

I think so far we have not seen that. I mean we have to be realistic. This industry is standing in front of a huge challenge where the electrification, the autonomous drive, the mobility service, a decline in production volumes, et cetera, could just guarantee that this spot will be viewed for something that is not the case. But historically, NCAP has been driving this and safety has always been a very big and intense focus, like now environmental issues are a big focus. But safety will be a prioritized activity. We are convinced of that.

Peter Testa -- One Investments -- Analyst

Very good. Thank you.

Operator

[Operator Instructions] So there are no questions at the moment. So please go ahead.

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

Okay. Thank you, Priscilla. I would then like to thank everyone for your participation today in this call and all the interesting and challenging questions that we have gotten. We look forward to seeing you all in conferences and roadshows during the third quarter here coming up. And our next earnings call for the third quarter is tentatively planned for Friday, October 25, 2019. So 25th of October is our tentative time.

I would also like to mention that we intend to hold a technology demonstration and update at the AstaZero Test Track outside Gothenburg in Sweden here in the second half of September. So stay tuned all of you for more information regarding that, and I would like to advertise that to you and hope many of you can participate. Until then, hoping you all have a safe and relaxing summer holiday. Thank you, and goodbye for now.

Operator

[Operator Closing Remarks].

Duration: 54 minutes

Call participants:

Thomas Jonsson -- Executive Vice President of Communications and Investor Relations

Jan Carlson -- Chairman, President, CEO and acting Head of Business Unit Europe

Mats Backman -- Chief Financial Officer and Executive Vice President of Financial Affairs

Hampus Engellau -- Handelsbanken -- Analyst

Bjorn Enarson -- Danske Bank -- Analyst

James Picariello -- KeyBanc -- Analyst

Erik Golrang -- SEB -- Analyst

David Kelley -- Jefferies -- Analyst

Agnieszka Vilela -- Nordea -- Analyst

Dan Levy -- Credit Suisse -- Analyst

Steven Fox -- Cross Research -- Analyst

Garrett Klumpar -- RBC Capital Markets -- Analyst

Dan Galves -- Wolfe Research -- Analyst

Peter Testa -- One Investments -- Analyst

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