Autoliv's (ALV) CEO Jan Carlson on Q4 2015 Results - Earnings Call Transcript

| About: Autoliv Inc. (ALV)

Autoliv Incorporated (NYSE:ALV)

Q4 2015 Earnings Conference Call

January 29, 2016 09:00 AM ET

Executives

Jan Carlson - Chairman, President and CEO

Mats Wallin - CFO

Thomas Jonsson - Group VP, Corporate Communications

Analysts

Hampus Engellau - Handelsbanken

Ryan Brinkman - JPMorgan

Rod Lache - Deutsche Bank

Brian Johnson - Barclays Capital

Erik Golrang - Nordea

David Lim - Wells Fargo Securities

Joseph Spak - RBC Capital Markets

Anders Trapp - SEB

Richard Hilgert - Morningstar

Fei Teng - Credit Suisse

David Leiker - Robert W. Baird

Agnieszka Vilela - Carnegie

Sheila Weekes - Bank of America/Merrill Lynch

Chris McNally - Evercore

Matt Stover - SIG

Edoardo Spina - Exane BNP Paribas

Thomas Jonsson

Welcome everyone to our Fourth Quarter 2015 Earnings Presentation. Here in Stockholm, we have our Chairman, President and CEO, Jan Carlson, our Chief Financial Officer, Mats Wallin, and myself Thomas Jonsson, Group Vice President of Corporate Communications. During today’s earnings call, our CEO will provide a brief overview of our full year 2015 performance and our full year 2016 outlook, as well as an update on general business conditions, while our CFO will provide further commentary around the financial results and outlook. Then at the conclusion of our presentation, we will remain available to respond to your questions. And as usual the slide deck is available through a link on the homepage of our corporate Web site.

So we turn to page and here we have the Safe Harbor statements, which is an integrated part of this presentation and includes the question-and-answer session that follows. During the presentation, we will reference some non-U.S. GAAP measures and the reconciliations to U.S. GAAP are disclosed in our quarterly press release and the 10-K that will be filed with the SEC.

I will now turn the word over to our CEO, Jan Carlson.

Jan Carlson

Thank you, Thomas. Welcome everyone again to this earnings call. I will start off with a recap of 2015 and if we turn the page, we’re pleased with our strong finish to last year, exceeding our organic sales growth and margin expectations for the fourth quarter and full year 2015. Our full year’15 organic sales growth of 8% of which Active Safety grew 31% what’s more than 5 times higher than the global light vehicle production growth rate.

In line with our estimation at the beginning of 2015, we improved our adjusted operating margin 60 basis points from last year to 9.7%. That is despite the increase in RD&E with the hiring of more than 300 engineers in electronics. We further expanded our Active Safety capabilities with the Volvo IP license agreement. The MACOM Automotive business acquisition and the brake control joint venture with Nissin Kogyo which is expected to close towards the end of first quarter 2016.

Our operating cash flow of approximately 750 million was our third best ever and we returned roughly 300 million to our shareholders through record dividend and share repurchase. This with other actions resulted in a leverage ratio of 0.4 times. Our operating cash flow or recurring capital employed of 0.4% and our return on equity of 17% continue to run above our historical level. And lastly, the long-term transformation of our Company continues to evolve as we expand in the growth markets and launch new technologies in Passive and Active Safety while adjusting our global footprint with the market, all for the long-term. With all of this in mind, I would like to express my sincere thanks to the entire Autoliv team for delivering another year of quality and operational excellence, along with our solid financial performance as we execute towards our end of decade part.

Turning to 2016 on the next page, during October 2015, we outlined our end of decade targets at our Capital Markets Day. On this journey we see 2016 as the year with many challenges to balance the near-term with the long-term despite an expected strong start of 2016. Our early indication for full year 2016 is an organic sales growth of around 5% with this roughly 2 percentage points better than global light vehicle production. Even though help of the estimated inflated business we expected for 2016 will now be pushed into 2017. In addition, we now see the potential for additional delivery volumes beyond the 20 million units but most likely until 2017 and perhaps also into 2018.

Our early indication for full year 2016 is for an adjusted operating margin of more than 9%, despite increased engineering efforts in both Passive and Active Safety. We estimate our RD&E cost net to be in the high-end of the range of 6% to 6.5%. During this volatile and mix macro environment we believe it is more important than ever to maintain a strong balance sheet, not only to navigate through uncertainties but also to be able to capitalize further on strategic opportunities for growth as we have done in the past. Our indication for full year 2016 is to generate around $0.8 billion of operating cash flow excluding anti-trust matters with the leverage ratio within our long-term range of 0.5 to 1.5.

Lastly, during 2016 we will continue our company transformation towards our end of decade target. This will include further implementation of the capacity alignment program, while investing for growth. In addition to the RD&E net, we expect depreciation and amortization to increase 60 basis points and CapEx to be near the high-end of our long-term range of 4% to 5%.

Now looking on our Active Safety business on the next page, during the fourth quarter, we're pleased to have launched our advanced suite of Active Safety products we reviewed on the new Mercedes E-Class at the Detroit Auto Show. These products include software and hardware for both mono and stereo vision, 77 gigahertz Radar and the industry's first ADAS ECU which in this case is the host for the customer developed sensor fusion algorithms. We're equally proud to be a major Active and Passive supplier on the Mercedes E-Class that was first serial production vehicle to be awarded on autonomous drive test license in the state of Nevada.

This is a strong confirmation and testament that our customers believe we have an industry leading technology for real life safety. Also as some of you have experienced on a recent capital market day, we showcased our latest Active Safety technologies at the Consumer Electronics Show in Las Vegas where close to 300 customers, investors and media participated in our Real Life Safety demonstration. And lastly, we achieved another milestone for our Active Safety business in 2015 as we achieved $611 million in sale or the $100 million more than our target of $500 million that was set back in 2012.

Now looking on China on the next page, during the fourth quarter, we have seen a strong rebound in China likely due to the incentives announced during late quarter three and low interest rates. Although, inventory seems to be at an acceptable level, we believe the light vehicle production in China could remain volatile for sometime as the market normalizes to an underlying demand. Our sales in China achieved a new record in full year 2015 due to a strong fourth quarter, despite a 2% currency headwind and a market share shift within our customer mix. Looking ahead to full year '16 in China, we expect strong organic sales growth with several Chinese and multiple global OEMs. Even with all of these uncertainties, we remain confident in the long-term growth perspectives in China as we continue to increase our sales and engineering capabilities both in Passive and Active Safety.

Now looking on the macro conditions on the next page, the most recent figures from IHS for full year '16 indicate the global light vehicle production will be growing year-over-year by around 3%. During the first quarter, the light vehicle production in China is expected to continue its rebound to grow 5% year-over-year with Japan expected to remain relatively flat and rest of Asia is expected to decline by roughly 1%. In the America, the outlook remains mixed. In North America, the light vehicle production is expected to grow approximately 6% in first quarter driven by a strong U.S. dollar, while inventories remain relatively low at around 61 days.

In South America, the weak economic conditions continue where the light vehicle production is now expected to decline by almost 22% in first quarter. In Europe, the overall light vehicle production is improving and is now expected to increase roughly 2% year-over-year in the first quarter, however the mix is different between Eastern Europe and Western Europe, while Eastern Europe is expected to decline by 3%, while Western Europe is expected to increase by 4%. To conclude the full year '16 light vehicle production outlook according to IHS there should be an underlying growth year-over-year of approximately 3%. This assumes a mid single-digit growth in China along with a strong North America and continued steady recovery in Europe.

Now looking on our key launches for 2016 on the next page, we're pleased to once again be very well represented on many new models being debuted at this year's North American International Auto Show. Combined these nine models represent around 600 million of annualized revenue and carry on and above content per vehicle, average content per vehicle for Autoliv. Autoliv provides electronic safety content on all of these models.

Now I would like to turn over to our CFO, Mats Wallin who will comment further on our financials and outlook, Mats?

Mats Wallin

Thank you, Jan. Look up on our financial results on the next slide. We had another quarter of exceptional sales growth and solid financial performance. Organics sales growth of 13.4% was better than guidance due to strong growth in all regions in particular China and was 9 percentage point better than the light vehicle production. This strong growth drove our better than expected adjusted operating margin of 11.1%. Our adjusted return on capital employed of 79% and return on equity of 21% and earnings per share of 12.08 shows that our strategies are creating shareholder value. We also returned 49 million to our shareholders through the dividends during the quarter. We had another strong organic sales growth in Active Safety of 29% and as Jan mentioned 2015 was the demanding lion share in Active Safety were introduced four new key products and technologies.

Turning to the next slide, we had our delivery figures for the fourth quarter. We had another strong quarter where we grew at least in line with it or faster than light vehicle production in most product areas. High value-added seat belts, side air bags and the electronic ECUs showed exceptional growth. In addition Active Safety products were boosted by the MACOM Automotive acquisition. Overall this performance illustrates our investments to grow and continues to pay off.

Looking on to our model mix on the next slide, we have highlighted some of the key models that contributed to our strong organic growth. During the fourth quarter these models contributed significantly to our overall net organic sales growth. Looking on more specifically on our financials on the next page, we have our key figures for the fourth quarter. Our record sales of 2.5 billion were driven by strong organic sales growth with volume makers in Europe and non-U.S. OEMs in North America, China, Active Safety and inflator replacement business.

The consolidated net sales increased 7% despite negative currency translation effect of around $170 million. Our gross margin improvement is mainly due to high organic sales, product mix, currency effects and commodity costs. Our adjusted earnings per share of 2.08 was 15% better than the same quarter last year. This year-over-year improvement is mainly due to the improved profitability and lower shares outstanding. Despite investments for vertical integration, inflator replacement capacity and acquisitions or adjusted return on capital employed increased slightly to 29%, while our adjusted return on equity increased to 21%. As a result of our higher earnings and share repurchase program.

Looking now at our operating margin development on the next slide, our adjusted operating margin of 11.1% was 60 basis points better than our guidance. Looking on the short to the left our margin improvement versus guidance was mainly due to the better than expected organic sales growth and lower than expected RD&E net. This strong growth is partly related to new product launches in Active Safety and Europe as well as the sharp recovery in China. This has resulted in launch costs which partially offset the benefit from the organic sales growth. Compared to prior year as illustrated by the chart on the right, our adjusted operating margin was 100 basis points better than last year. The benefit from organic sales and commodity cost were partially offset by higher investments in RD&E net and other net which primarily includes launch cost and our investments for growth including vertical integration.

Looking now to the next slide, we have our key figure for a full year 2015. Despite negative currency translation effects over $837 million of our consolidated net sales reached $9.2 billion. This was driven by strong organic sales growth mainly in North America, Europe, Active Safety and inflator replacement business. Our gross margin improvement is mainly due to higher organic sales product mix currency effects and commodity cost despite higher investment for growth. Our adjusted earnings per share of 6.65 was 12% better than last year mainly due to the improved profitability and fewer shares outstanding which were partially offset by a higher tax rate.

Despite investments of vertical integration, inflator replacement capacity and acquisitions our adjusted return on capital employed remains around 24%, while our adjusted EBITDA return on equity increased to 17% mainly due to the improved capital structure. Looking now at our segments on the next slide, we have summarized our segments reporting for full year 2015. In passive safety, organic sales growth of around 7% was primarily driven by strong growth in Europe, North America and Japan in particular, airbags, high value-added seatbelts and inflator replacement business. This growth was impacted by a negative 9% currency translation effect. The net consolidated sales effect was a total sales decrease of 179 million to 7.6 billion in Passive Safety. The reported operating margin of 8.8% of Passive Safety was driven by higher organic sales, positive product mix and favorable commodity costs.

In electronics, the strong organic sales growth of around 30% was primarily driven by new model launches, higher customer pay grades in Active Safety, while acquisitions added $30 million to the top-line. This strong growth was negatively impacted by 8% currency translation effect, which resulted in consolidated net sales for $1.6 billion for the segment. For full year ’15, currency transaction effects negatively impacted the operating margins along with higher RD&E net.

Looking out for our cash flow on the next slide, we achieve the second highest ever operating cash flow for the quarter with 321 million mainly due to best net income and timing of working capital. CapEx net of 4.9% of sales for full year ’15 is lower than expected partly due to our exceptional growth in the fourth quarter. For our capacity alignment program in full year ’15, we had a cash outlay of 63 million, which we include 83 million for further actions. Consequently, we have 88 million on the balance sheet to cover plan actions in 2016 and 2017. The savings generated in 2015 was around 20 million we have to make an additional 20 million savings for 2016 based on the cash outlay in 2015.

In 2015, our commodity cost savings were 40 million or best estimate for 2016 is to be roughly the same level of additional savings. As we mentioned that our capital market date looking beyond 2015. We expect annual restructuring to be around 30 basis points performance year on our current business. Excluding more than 80 million of antitrust related payment, we exceeded $0.8 billion operating cash flow for the full year in line with our indication at the beginning of the year. As mentioned earlier, return roughly $300 million to shareholders through our dividends and share repurchases and made acquisitions for close to 130 million. Due to the strong cash flow generation during the fourth quarter or leverage ratio is now 0.4 time, slightly below our long-term target range.

Looking now to our outlook on the next slide, we have our guidance for the first quarter, which excludes any FX related to the Nissin Kogyo Joint Venture, which expected to close towards the end of the third quarter 2016. So it’s mainly on customer call-offs, our organic sales are expected to increase year-over-year more than 10%, mainly due to the strong growth in all major regions Active Safety and the inflator replacement business. This growth is positively impacted by three more days of sales year-over-year and as a 5 percentage point positive FX included in our organic sales growth or more than 10. This calendar FX will swing back in the fourth quarter 2016.

Sequentially our consolidated sales are expected to decline by close to 8%, mainly due to seasonality and the lower inflator replacement volumes. As a result, we expect to achieve an adjusted operating margin of around 8.5% for the first quarter. Year-over-year, the benefit from high organic sales, lower commodity costs and currencies are offset by higher RD&E investments and cost related to the ramp up of capacity and new technologies for growth. Sequentially, the adjusted operating margin decline is mainly due to the lower consolidated sales and the higher RD&E net.

Looking out upon our full year 2016 on the next slide, on early full year indication excludes any effects related Nissin Kogyo Joint Venture, which expected to close toward the end of the first quarter 2016. Our full year 2016 indication organic sales growth is 5%. This growth is mainly expected from Europe, China and Active Safety. This includes a slight decline in inflator replacement business since 20 million units are now expected to the supplied during 2015, ’16 and ’17. This negative impacts our organic sales growth by around 1 percentage point in full year '16.

Based on our mid-January rates we expect the negative year-over-year translation effect of around 3%. As a result of our continued execution, we estimate our adjusted operating margin to be more than 9% for full year '16. Year-over-year the positive margin aspect from organic sales commodity cost and currencies are more than offset by higher RD&E investments and costs related to the ramp-up of capacity in new technologies for growth. As mentioned earlier, we estimate RD&E net will be in the high-end of 6% to 6.5% range, as we outlined in our Capital Markets Day in October.

In Summary, this full year 2016 estimate indicate steady growth throughout the year within adjusted operating margin above our long-term target range despite investment for growth. On the next slide, we have summarized our outlook which excludes cost for restructuring and antitrust related matters and assumed mid-January exchange rate. And excludes any effect with Nissin Kogyo joint venture mentioned earlier. Our consolidated sales in Q1 are expected to be 7% mainly due to our strong organic sales growth, which includes 5 percentage points from more production days and this partially offset by negative currency translation effect. The full year '16 indication are consolidated sales is an increase of more than 2% due to a negative currency translation effect which partially offset the organic sales growth.

Based on these sales assumptions, we expect an adjusted operating margin of around 8.5% for Q1 and more than 9% for the full year 2016. For full year 2016 we now expect an underlying tax rate of 29% excluding any discreet item. Also assuming our presence currency mix and mid-January rates, we believe that the positive transaction effect excluding revaluation effects could neutralize the unfavourable translation effects on EPS for full year '16. In conclusion, we are pleased with our execution in 2015, which provides a solid based to increase our investment for growth and maintain an adjusted operating margin more than 9% in 2016.

Turning the page, I will now hand it back to Jan for some closing comments before the Q&A.

Jan Carlson

Thank you, Mats and just to conclude and summarize so basically we are very pleased with our strong organic growth and financial performance in 2015 as well as our development with technology road map. For 2016, we are executing towards our end of decade target, delivering on solid organic growth and adjusted operating margin above the high-end of our long-term targeted range and aggressively investing in technology for our long-term future. All consistent to what we outlined at the Capital Market Day in October.

With that, I'd like to conclude the formal comments for today and like to hand it back to Klee now.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We will now take our first question from Hampus Engellau from Handelsbanken. Please go ahead. Your line is open.

Hampus Engellau

I have three questions. Starting off on North America looking -- during the quarter a very strong organic growth of 17% compared to the 2% growth in down the line markets. Could you maybe talk a little bit about where you are gaining business and also how you see that developing healthier, could we expect this to continue? And second question is more on this new launches on advanced driver assistance, electronic control unit and also on stereo mono vision on the E-Class is that also including in the S90 and maybe you could talk a little bit about the interest from the industry on these new products? And last question is on LiDAR vision for you guys, on the LiDAR what's your thought on the LiDAR and are you looking at developing itself or is this a potential M&A activity going forward? Thanks.

Jan Carlson

And if we start off with the North American business and then situation in quarter four, we had -- it was a mix of LiDAR, we had strong sales to North American OEMs and we had strong sales to transplants, we had a boost of the inflator replacement business in North America that also gave us a strong growth number year-over-year. So it was the combination in the U.S. of several things that gave us this strong number in fourth quarter. And in the launch of the E-Class that is a strong interest from customers so I think the overall comments we got from the CES in Las Vegas and what we have also demonstrated this in several occasions we are very pleased with the reception and the feedback that we get from the customers and from the market interest. And this is also promising for the future.

Looking then into the S90 and the car line there, we are not represented in that sense to that level that we have on the Active Safety side that we are on the E-Class, so that is primarily not our technology. On the LiDAR thing we are monitoring this and we are also using types of LiDAR in our advanced driver highly automated driving cars that we are working within our development stage. So this is the technology we believe will come later on and we are monitoring this and how to take the next step we will see in the future. But it is an interesting part for future autonomous drive.

Hampus Engellau

On the used side, is this -- do you think this momentum will continue and is it also functional of the cost of losing share no one other biggest kinds used space?

Jan Carlson

Well, I think the longer term outcome of the CADA situation is too early to speculate in and then we have been talking about this before and we are also seeing a lot of the R&D investments coming from strong order intake in Passive Safety really. Now we are talking about sales performance here and that is not the same. If you look through the numbers from IHS here you see a continued relatively strong growth in the first quarter and close to 6%, you see for the full year in North America around 4%. So it appears that it's going to continue and make good growth numbers for the time being in North America.

Hampus Engellau

One last question and then I’ll get back in line. I think on third quarter you kindly gave us some market shares on order intake for frontal air bags and also on the Active Safety side. Are you prepared to do that also in fourth quarter?

Jan Carlson

We haven’t got a lot of question around order intake and then we believe it for various reasons it's not really always relevant to comment on order intake. When you take Active Safety it's regarding take rates and all in general also for us it has a history to see how successful you are in or how successful the car line is when it's launching. You can have a good order intake and then the car line will not be as successful as expected. So therefore we are not talking that much about order intake. We gave you some numbers on frontal airbags earlier when it comes to the order intake on a quarterly basis. And we may from time to time on a daily basis and on a Capital Markets Day give you some updates on order intake but we don’t think that is particularly relevant on a quarterly basis.

But just to illustrate a bit also regarding the higher R&D investments we are seeing here. For the full year 2015, we took around 50% of all the business on the Passive Safety side. And again here I would like to mention you shouldn’t brew a lot of conclusions on one year of strong order intake but what it really leads to is it requires engineers, it requires and kicks off a lot of projects. And that is driving also basically half of the engineering increases we are seeing here from 2015 into 2016. That was for the full Passive Safety part. On the frontal air bag side that we talked earlier about that is between 45% and 50% or over 45%. So that is also again here significantly over the market share that we have in sales on frontal air bags. But I would like to caution that one year of strong order intake to draw long-term conclusions on it, it is difficult and could be risky. But again here for us we need to keep up the project, and therefore we need to invest in the engineering.

Operator

We will now take our next question from Ryan Brinkman from JPMorgan. Please go ahead your line is open.

Ryan Brinkman

It is really on your business in China, I think IHS is looking for 6% growth there, you mentioned mid single-digit. Is that your industry assumption for China too in 2016? And then because I think there are a lot of moving pieces there right with the government attentive and the customer and sentiment mix shifts. Regardless of your industry assumption how should we think about your business specifically performing in China in 2016, what are the puts and takes we should consider relative to the industry?

Jan Carlson

We demonstrated in second quarter and third quarter a very swift action when the market declined and we had a pull back on light vehicle production. We were fast to take out capacity, we used workforce on the production side with 1,200 people. We were there to continue to support engineering and projects for future developments. In fourth quarter when light vehicle production picked up again, we re-hired close to 1,000 people in China to cope with the production, so when it comes to outlook for 2016, we will continue to monitor what's going on and what will happen. I don’t think we have really a better outlook than IHS numbers et cetera for the business as such and we all know how volatile this is and how fast it can change. To communicate from my side any other different opinion of what is already out there, I think it's not really particularly relevant here at this stage, but what I can assure you is that we will monitor and we have demonstrated we are fast and flexible and we will continue to be so.

Ryan Brinkman

And then last question. I see your guidance is excluding the Nissin JV, can you give us an insight how the guidance would change upon inclusion of Nissin whether due to consolidating the results considering some sort of purchase price amortization or any other factor? Thanks.

Jan Carlson

Yes, right, so we -- the -- in our guidance I mean we are assuming a close at the end of Q1. And when we released our performing or press release last year, we were talking about 2016 sales of around 600 million. So basically, if we close now end of March, three quarters of that amount would then come into the consolidation. We also expect that the margin from the business itself is within our corporate long-term margin range of 8 to 9, but then you also have to expect that there will be cost in addition to that related to the purchase accounting, related to the integration and all the time Autoliv cost going into this joint venture. But you should also remember that this is a joint venture, so that means that only EPS line we will get 51%.

Operator

We will now take our next question from Rod Lache from Deutsche Bank. Please go ahead, your line is open.

Rod Lache

Just to follow-up on that last question on the Nissin accounting, what would be the expected margin net of your purchase accounting amortization?

Jan Carlson

We will have to come back about that when we are ready with the close.

Rod Lache

And on the Takata push out, did you have 8 million units in 2015? Are you guiding to 6 million? And why is it getting pushed out?

Jan Carlson

We have up to 20, so if you could say up to 20 million units that is intact. Roughly around a third coming in -- came in 2015 as we said and two-thirds coming in 2016. Of those that two-thirds, half of it is pushed into 2017. The reason for that is when you come into the recall further into the recall the demand for different variants changes and cars are being brought into dealers for change in different pattern than originally expected. This has generated new demand for different variants of inflators that is causing us to reengineer our lines and set up different toolings, so we're essentially going through the same process as we did when we ramped up from the beginning and that means that it pushed out into 2017.

Rod Lache

And just two other things, one is this acceleration in RD&E. Is that for specific things that have been awarded, so should we expect some benefit to the organic growth acceleration maybe in 2017? And then lastly, it was very helpful to get all of the positives and negatives from R&D maybe up 85 million D&A 55 and raw material positive of 40 million and 20 million of savings, but it looks like to make the margin at the low-end of the sort of close to 9%, you'd need to either have a lower than historical incremental margin or some other costs. Could you give us some color on whether there's something else that we're missing there?

Jan Carlson

If I start off with R&D split and Mats will continue and this is not related to technology and development in Active Safety and also related to programs in that area, but as I said, roughly half of this increase is also related to the Passive Safety business. And it's related to order intake and needs we see on growing this business. And as I alluded to 50% order intake for entire Passive Safety is causing us to spend money in engineering for future growth. And as I said also there is somewhat caution there to draw too much of conclusion on it, but it is a significant step-up from what we have in our market share today.

Mats Wallin

Okay, and coming back to your second question here then if you now make the journey here for the full year ’16 versus ’15 and with all organic sales growth of 5% then you would expect to see an impact from the all the need increase, the effect of that increase to be around 90 basis points. The effects of the higher depreciation and amortization combined to be an effect of 60 basis points. And the positive impact of raw materials to be an impact of 40 basis points. And the remainder on this journey is basically other cost related to support our growth. Would that be -- is that helpful?

Rod Lache

Okay, thank you. Yes it's helpful I think which we may not need to just give a little bit more detail we will give a follow-up. Thank you.

Operator

We will now take our next question from Brian Johnson from Barclays. Please go ahead. Your line is open.

Brian Johnson

When we look ahead to next year's organic sales increase I certainly understand that production delta between 1Q and 2Q and full year. But can you give us a sense and maybe if it's changed at all since capital markets of the internals on the organic sales by the key path to safety electronics segment and the also kind of following up on the last question. Should we be thinking differently about incremental margins in each of those segments?

Jan Carlson

If you look to the outer year's organic sales or sales growth we referred to the CAGR of 7% over the period leading to the target of 12 billion for the outer years. We have not given them yet to or so far any more details on ’17 and ’18 et cetera so you should look to the targets we presented in the Capital Market Day.

Mats Wallin

I have one comment if you compare the segments and also coming back to what we have seen in 2015 and then in the electronic segments we see of course more ordinary cost if you go back to 2015 and we are also seeing that we are negatively impacted by the transaction currency effects because we are buying components and use dollar translating in other currencies that's the difference the main difference as we have seen if you go back to 2015.

Brian Johnson

But can you comment on the different growth rates within the two segments for the full year of ’16?

Mats Wallin

Growth rates on segs?

Brian Johnson

Yes.

Mats Wallin

No we don’t give any specific segment guidance besides what we do here so we haven’t any more details on that to color.

Brian Johnson

Okay. And then how should we be thinking about incremental margins between the two different groups perhaps safety versus electronics?

Mats Wallin

Not more than the comments I have given about 2015.

Operator

We will now take our next question from Erik Golrang from Nordea. Please go ahead. Your line is open.

Erik Golrang

I have two questions. First one is a follow-up on the increasing in R&D here. I was wondering if there has been any specific recent development since the CMD that has triggered that and that's the first one? And then the second question is on the new proposal in the U.S. and an overall of the -- just rating system there any particular items rather you would like to highlight from that? Thank you.

Mats Wallin

No there are a lot of a things going on in the area of business development and order intake and technology development that is generating the need for further R&D as I said I can't keep coming back to this with some caution, but still strong order intake requires immediate attention that will kick off and lead to hopefully further business growth, so that is one thing that is happening and it is a blend of what's happening in the Passive Safety market with our competitors but also of course our position of being a string player and then you have the technology need which is in line with what we have outlined in the Capital Market Day we are investing for growth and we intend to grow to our target of $12 billion and we intend to improve our margins further on towards the end of decade in electronic, so nothing particularly new that is happening there.

Jan Carlson

Okay so on the rating in the U.S. so I think we have two parallel developments, one is this voluntary agreement between Nissin and the 10 OEMs that seems to be moving towards more and more formalization if you want but then also Nissan’s own driven initiative now is to have a preventive crash technology from 2018 or model year ’19 but re-implementation ’18 and we can see that start to raise more interest particularly for AEB in the U.S. and I think we can say that both those initiatives that have come. The Nissan one on 8 of December to be formalized I believe I assume that in February and I think both of those will drive probably largely through AEB also the growth of Active Safety in the U.S. which what your reply has been the strongest driver so far. I think that’s what we see right now.

Operator

We will now take our next question from David Lim from Wells Fargo Securities. Please go ahead. Your line is open.

David Lim

The question that I have is on your vision algorithm systems obviously you’re supply E Class. Is there another SOP that you’re going to launch on probably in the next 12 to 18 months with possibly another or a different OEM?

Jan Carlson

We do not comment, we stay out of commentaries on further launches until they come up. But as we have been saying, we have seen a lot of customer interest on this technology. Is that the thing with this technology is that we have developed it with the aim for the launch of the E Class. So it has been not until recently or so not too long distance in the past that we have been able to demonstrate this technology. But when it’s now there and you maybe have seen it in CES or in the Capital Market Day. You can see the difference between our technology and competing technology and the performance of it. So there is a lot of interesting looking ahead.

David Lim

And then on the margin guidance, what are like some of the swing factors that could inch the 9% or about 9% or greater than 9% I should say, more at the 10% level or what you’ve actually achieved in 2015? Thank you.

Jan Carlson

Well, if you would look to the margin and you look to of course there are several factors that could affect it in the higher light vehicle production and higher utilizations et cetera. You can speculate in a lot of things, you can speculate in further concessions and raw materials or of course if you would like to cutting-back on costs, so R&D so et cetera. So in such, they would be thing to effected, this is the best estimate that we have for the time being now with all the uncertainness that we have in there. And this is secure in what we believe is the right thing for the long-term and executing towards the long-term and end of decade target.

Operator

We will now take our next question from Joseph Spak from RBC Capital Markets. Please go ahead. Your line is open.

Joseph Spak

Mats maybe, I appreciate all the color for the margin puts and takes over year-over-year. But I just want to confirm that again without Nissin Kogyo. And then I know you’re not going to give us color on the margin profile there. But maybe some help as to whether the R&D profile looks similar like in your D&A assumption, which you mentioned the higher D&A is the amortization from that deal already included in that. I guess I’m just confused as to what you’re including on that deal and what you’re not?

Mats Wallin

Okay. I mean first of all, I mean we are still sort of heading for closure. So I mean as I said earlier, I mean the operation itself we believe is running between the 8 to 9 our long-term target range. And but then you will have to expect the integration cost in connection to this in addition. And you will also have -- and what that was talking about amortization, the FX out to the purchase accounting needs to be added to this. And then there will also be somewhat delayed cost.

Joseph Spak

Right. So…

Mats Wallin

Yes.

Joseph Spak

Okay so if we think about the R&D profile that JV. Is it similar to the 6 to 6.5, you’re talking about as well for base Autoliv?

Mats Wallin

I don’t think, we have any comments to give you until on this one until, we close it. We will comeback with more color on this, if it’s now is expected closing at the end of March and then we’ll come back to you, with more details around it in the April earnings call.

Joseph Spak

Okay. And then on the higher D&A is there included some higher amortization from those back there already or there is additional increase once you did close?

Mats Wallin

The D&A I was talking about it is the items coming out to the purchase account.

Joseph Spak

Okay. I guess the second question is just as it relates to Takata and we saw some reports that they may look to form a JV with Shell. I guess have you had conversations direct with Takata to potentially be just a supplier an ongoing supplier of inflators to them and maybe they just become more of an assembler?

Mats Wallin

I don’t want to comment on any of these situations, I should not speculate in any of these situations. As you know, we are really keen on helping out the industry as such we’re keen in helping out our customers and we would welcome sort of different ways of doing this. So that the customers can get reliable supply on the inflator side and they have put in high quality airbags in the cars. That remains to be seen how this is going and I would not -- stay out of comments on this one here on this call.

Joseph Spak

Okay. Thanks a lot.

Mats Wallin

Joseph can I come back to your D&A question?

Joseph Spak

Sure.

Mats Wallin

I guess, you're talking about the 60 basis points increase, which I mentioned or…?

Joseph Spak

Yes.

Mats Wallin

So that is a blamed of higher depreciation related to capital to support our growth which we have been talking about but it also includes amortization from the purchase accountings we have done now for MACOM but also the worldwide PDA last year.

Joseph Spak

But not any amortization from the Nissan deal?

Mats Wallin

No mister.

Operator

We'll now take our next question from Anders Trapp from SEB. Please go ahead. Your line is open.

Anders Trapp

I have some heated question actually on the RD&E the nice and big secret that you're sort of are guiding for, I think yes this actually might have been answered but over that increase how much is R and D and E, I actually thought of good to go for that because that would give you a indication on what type of cost we are talking about of cost increase?

Mats Wallin

And smaller portion is R, a bigger portion is D and the biggest portion is E.

Anders Trapp

So it is really related to growth that you will -- basically orders that you have gained the E part I guess is still relatively high for the year exactly?

Mats Wallin

Yes, you can say that, it's difficult in all of this is -- a lot of D is with also customer related, new developed technology together with customers to really split place the D portion into pure conceptual development or what is D, or technology development for a specific car line where you can reuse that technology for other customers that is a hard trick. But as I have alluded to here a half or ballpark a half of this is related to passive safety and a lot of that increase is related to engineering and projects.

Anders Trapp

Yes, okay just on that issue about ordering, I think I didn’t really fully hear you what you said, did you say that you had a 60% market share on orders in 2015 on passive safety as a whole of what is frontal airbag I didn't really hear you?

Mats Wallin

No, we have seen a strong order intake of positive safety as a whole and 50% or over 50% of all orders for passive safety coming our way for the year but as I said and we've also alluded to before to draw conclusions out of one year of order intake and maybe a little bit risky but when you get the orders because it's a lot of products coming our way, it requires us to invest in engineering and we started, we will kick-off again right business but to increase long-term market share you will have and we've said that for Conclare but you will have several consecutive years of the same level of order intake to move the average global market share on sale.

Anders Trapp

So we can conclude, it's a good start then?

Mats Wallin

So far it's a good start, yes.

Anders Trapp

Two more impressive answer, but the inflator replacement sales, could you say anything if that has been accretive or not to the margin in the fourth quarter very close?

Mats Wallin

We have not commented on that but it's not dilutive on the margin, yes.

Anders Trapp

And you said also about there was a calendar affect of plus 5% on the organic growth in Q1 and you said it will be negative in Q4, is that of the same magnitude then?

Mats Wallin

Yes, so there is no impact for the full year.

Operator

We'll now take our next question from Richard Hilgert from Morningstar. Please go ahead. Your line is open.

Richard Hilgert

I wanted to ask about the ADAS ECU and I'm curious to know, is there any particular functionality that Autoliv programs into the ECU that manufactures and particular would be looking for because you got several competitors that are going to be doing the same thing, are you looking at the algorithms that manufacturers wants to include or is there something about this ADAS ECU that makes it unique to Autoliv?

Mats Wallin

If it's a flexible architecture that combines the input from algorithms that we have developed in vision systems and in our radar product et cetera and that combines together with customer provided software technologies and sends that further on into the electronic architecture in the car and we believe this is the world's first type of ADAS controller in this way where we have been developing this in tight relation with our customer and in addition to this we have been developing our own algorithms for the vision systems the Stereo-vision and the mono-vision camera that we're now launching. So, it is a control unit, it is a brain unit for the ADAS system combining the different inputs including customer provided software and from that point of view also this unit that we have developed is hosting software that we don’t fully have control over or we don’t fully know really about it is in all the detail is doing and that’s the way we believe it's important to do also for the future to promote an open architecture where we can host other companies to algorithms or software and we believe that is how technology should and could develop in the future.

Richard Hilgert

So then your ADAS doesn’t necessarily have to go along with your vision or sensors or brake or steering, it could go with other competitors’ systems, if the OEM wanted your particular ADAS ECU?

Mats Wallin

If that would be the case, that could exactly be the situation and I think that is how it's probable to turn out and this maybe different opinions in the industry about this one. But we are of the opinion that an open architecture that allows the OEMs to get access to the latest technologies from different companies and different technologies. But being incorporated on one platform and therefore taking a more standardized connection into the rest of the car is the way to go. And by doing so, to your point this unit will host also competing technologies to our own camera system or could host competing technologies to our radar and to our camera system.

Richard Hilgert

Just wanted to confirm one housekeeping item, looking at the geographical revenue quarter-over-quarter, very big increases on an as recorded basis for Japan and the Americas. I am assuming that’s the MACOM?

Mats Wallin

I think then what you see there in the year-over-year and for the fourth quarter it's very much related to that we have inflator replacement business in those two areas.

Richard Hilgert

I am sorry what replacement?

Mats Wallin

Inflator replacement business.

Richard Hilgert

Okay.

Mats Wallin

It is in replacement for the current gliders.

Operator

We will now take our next question from Fei Teng from Credit Suisse. Please go ahead your line is open.

Fei Teng

First one just going back to the deferred replacement inflators. Can you just confirm if as I understand this is actually driven by a bottleneck on Autoliv side rather than delays or uncertainties from the OEMs themselves?

Mats Wallin

This is driven by exchange from our customer. We had planned and set up resources for producing one type of inflator. The customer has seen a need for or customers have seen need for changing type of inflators and when doing so you need to revalidate and reconfigure the lines and that takes time.

Fei Teng

But there is actually no change in the underlying demand for replacement inflators?

Mats Wallin

No, it's no change to the underlying demand in terms of volume. But due to the reconfiguration of the line, it takes time to do so and thereby it is pushed out in timing. I don’t think there is any wish for delay of our customers and that there is no wish to have a different schedule if you ask in order to confirm the right quality and the validation it takes this time as it did when we started this up. In addition we are seeing that potential for further volumes instead coming this way. So, it's rather the contrary not a decrease, it's a potentially increase.

Fei Teng

And my second question is on the market share gains that you’ve seen in frontal air bags in 2015, can you give an indication of how much that impacted organic growth in 2015? And does your guidance for 2016 include any assumptions on more market share gains in air bags?

Mats Wallin

Good question I think this takes the opportunity to explain that this is not changing market share or market share gains, and that’s why the order intake is a bit difficult to talk about, because this is order intake and the project we take now will go into production maybe in two-three years from now and then at that stage will change the market share situation. And that’s why I am saying you need to have several consecutive years to move the market share one year is only a portion of it to really affect the market share. But what it will require is that if somebody said he’s a good start, it will kick off a lot of new projects but that won’t if we are taking 50% of orders one year that will not move the market share, it will require several consecutive years to do so. And that will all remains to be seen.

Fei Teng

And my final question just on the buybacks. Do you monitor the share price for the execution of buybacks? And do you have a level in mind where you think the stock is undervalued?

Mats Wallin

We believe that we are shareholder friendly and we are opportunistic on buybacks. And further on that, we are not commenting on buybacks and we are not guiding on any share repurchases. We have a leverage ratio range between 0.5 and 1.5 and we are at the low-end of the range. And for the time being in this macro environment and with the uncertainties that is out there and also the opportunities that will follow probably a stressed market and in addition the anti trough that is also out there still, we believe that being in the range and even if we are in the low end of the range is for the time being a good place to be.

Operator

We will now take our next question from David Leiker from Baird. Please go ahead, your line is open.

David Leiker

I wanted to dig through. I know we've talked a lot about the D&A and RD&E lines and the higher spend there. Can you talk a bit about --? I guess theoretically you are doing that to support higher revenues. Is that something that we should see an acceleration in your revenue growth as we look out 18, 24 months and then see that also with the recovery in margin at that time point?

Mats Wallin

You refer to what we've said here about order intake or so, we don’t have any other numbers for the time being in end of decade and $12 billion target and the $3 billion target that we have in electronics. We stay out of that and I repeat again, it will take several years of order intake. It's a good start, but we stay out of that for now.

David Leiker

No, I guess what I'm trying to get to is some people are questioning whether this D&A and RD&E is a step function change to a new level, or is this a step-up in costs ahead of an influx of new contracts that you are going to be launching, that it is a temporary issue? Can you help with that?

Mats Wallin

It's a blend of things. It's a technology step up as we said and it's a blend of -- the little portion is the research part, bigger portion is D part in the application engineering the E part, so it's a support of growth and it's a support of technology development necessary to be able to be a leading player towards autonomous drive we believe. And this sometimes goes hand in hand you develop for certain car lines and you develop technology like for instance what we have done here in the case of Daimler where a lot of this technology is developed for the E-Class.

David Leiker

So I'm going to take one more shot at it. Would we expect these percentages as R&D and -- or D&A and RD&E as a percent of sales to come back down to more normal levels in the future?

Mats Wallin

We indicated at the Capital Market Day that for some period of time, you would see between 6% and 6.5% and then we also said that we would expect it to come down more towards the older level around 6 or below 6 and there has been no change to that.

David Leiker

Okay, great. Thanks. The other question I had is on the Mercedes E-Class and the launch that you had there. Can you talk about the technology that you have on there? How deep you are into the integration of the different sensors into the self-driving features that are on that vehicle? And then lastly, just any thoughts you have on why you won that contract versus the previous supplier?

Mats Wallin

Well, we believe I started delayed run, we believe we had a better and more competitive offer and I think ultimately Daimler wants what they can find is the best performing technology and the best performing concept. We were able to offer them a combined package of ADAS controller Radar on the Radar technologies together with vision systems and that I believe was the reason. And we stayed competitive on that one too. I think that was the reason why they did it. The whole integration and going into all the technical details of how this is the really works and what we really do, I maybe should differ more to our technicality, but we can have an offline discussion of explaining all the details around it.

As I said, the ADAS controller is hosting software from third-party, it is capable of hosting other technologies that not being provided from us and we have developed the algorithm test you know and that had into this controller and then it's processed and given out put to the car. So we are relatively deep into the integration of it, but as I also said there are softwares on this controller running that we don’t really know the whole thing what it's about and that's what we need to do. If we will provide a platform where competitors are running their program on, this is the way it has to be to some extent, so I don’t think that is anything that is a strange or unknown in other parts in other areas.

Operator

We will now take our next question from Agnieszka Vilela from Carnegie. Please go ahead, your line is open.

Agnieszka Vilela

I have a couple of questions. Starting with your organic growth guidance, 5% for 2016, if we compare it to the light vehicle production of 3%, can you say where do you see the outperformance coming, because if I calculate the inflators business being the same as in 2015, then we do not have this contribution here. On the other hand, what do you think about your active safety drove? Because today it's around 8% of the group, so if it grows only with, say, 20%, 25%, it should add almost 2 percentage points to your underlying growth?

Mats Wallin

It's a blend of order intake in the past and it's a land of penetration of our products and also take rates in Active Safety that is continuing to give us a higher done light vehicle production and outperform a high growth in light vehicle production. So it is a combination of several factors if you combine to the light vehicle production the 3% to the 5% is also including some of that parts are the replacement that's even though it was cutting half actually I've said before so that is a contributing factor to the outperformance versus light vehicle production. There are several factors giving us this out performance.

Agnieszka Vilela

And how should we think about the active safety growth for you in the future? Do you think that it could accelerate from the current level or can you keep the same growth base as in 2015?

Mats Wallin

While we aren’t guiding on the Active Safety if you know them we have outlined some numbers in the Capital Market Day and you are familiar I don’t need to repeat those we aren’t giving any specific guidance into Active Safety we have seen throughout 2016 that expects the take rate have been higher than with what we originally saw in early 2015 so throughout the year take rate has been higher and we came out about 30% for the full year. We will see how this develop as we don’t give any guidance but we believe we have a good position here in the articulation overall.

Agnieszka Vilela

Then when we look a bit more forward into 2017, should we expect then that the delayed inflator business, as well as potentially even upside to it, will boost the sales in 2017 then?

Mats Wallin

Could you repeat that question?

Agnieszka Vilela

Because now you're saying that the inflator business in 2016 will be delayed and just one-third will come then in 2017, and on top of that you say also that you see some upside to that. So my point is that we, as analysts, we should put some higher draw for 2017. Is that correct?

Mats Wallin

Well we will come back to the 2017 when we come into the end of this year and when we will come back a year from now we will give our opinion for 2017 so that's a long time until then and there are lot of thing can happen so basically 2017 for the time being we would reiterate the targets that we have for end of decade and we reiterate the 3 billion target on electronics for the end of decade you remember we had more than a billion on the Active Safety side more than a billion on the Active electronic side and less than a billion on the break control side and we reiterate those and this is why we invest more in technology to meet those targets and I think in the mean time we will come back on the quarter to basis with the normal procedure that we have and the for 2017 in January next year.

Agnieszka Vilela

And then on the R&D expenses of your guidance of 6.5%, my question here is, firstly, for how long should we assume that these R&D expenses would be that high? Also, the other question is that actually at the Q4 report last year we guided for an R&D of between 6% to 6.5% for 2015 and you ended up at 5.7%. So do you feel that there is still some uncertainty regarding that guidance?

Mats Wallin

Well we it is right here this is the best estimate that we have for today it is in the higher end of the range so we believe this is necessary it's a little bit of different situation this year we were able to we recruit our people that we also talked about in the beginning of last year up to 300 in the Nissin electronic center we were there including the MACOM acquisition and when you look to the range we are selling the capital market therefore some years we would be probably in this range and then also come back as I said in the few question before here we aim to come back to around 6 or below as we have been traditional to what's the end of the decade it hasn’t been any specific mentioning about 2017 or 2018 or any targeted year for it depends on the order intake on the technology development.

Agnieszka Vilela

And then my last question is on the car production forecasts from IHS. When you look at it and then when you talk to the OEMs, is there any region where you see more upside or downside to the IHS forecasts for 2016?

Mats Wallin

No, I don’t think we have more visibility to these things you have, we fix there with the call-off for the next couple of months and we have visibility for what it is in production schedules. We all know that there is a crisis kicking in, also those can change very rapidly. So for the longer term and down certainty we don’t know more but you can read in the macro situation and it looks like for the time being that it is a continued rebound investment in Europe, we see some growth numbers there. It continues that, it looks like, it continues to be a more normalized situation in China and also North America continues to move on, but everything can happen and we need to be flexible and we need to be prepared if things happen. That is most important for us that we have the flexibility and readiness.

Operator

[Operator Instructions] We will now take our next question from Sheila Weekes from Bank of America/Merrill Lynch. Please go ahead. Your line is open.

Sheila Weekes

On your organic sales growth guidance of 5%, could you please clarify what the underlying organic sales is excluding the replacement inflators? I might've misheard but did you say that the replacement inflators are a drag or are those a contributor to the 2016 organic sales growth figure?

Mats Wallin

For the ’16 sales growth figure 5% here that we talk about it is zero growth as we see the delay of the business due to the change of variance from customers we have talked about earlier in the call. So the push out of the business corresponds, could correspond to approximately another percentage of growth instead if this change would not have happened, we would have arrived around 6 maybe instead of around 5, so there are no replacement business in the 5%.

Sheila Weekes

Okay, okay, very clear. Why is that organic sales growth figure only less than 2% above where IHS is seeing global production? Are you more cautious on some of your end-markets and what your customer demand has been telling you? I'm just a bit surprised that the outperformance is as small as that?

Mats Wallin

No, I don’t know coming back from my side here. I mean the 2% different still with is that your question.

Sheila Weekes

Yes.

Mats Wallin

Right. I don’t think there is any particular reason for this in, if it’s a small, it’s a 2% outperformance of the business and we said, it should have been maybe 3% outperformance of the business. We believe it’s still a very good growth given the situation that we are, it’s a blend of Active Safety business and it’s a blend of the growth in the Active Safety side. So I am not really disappointed with this one maybe that we should have been expecting the full replacement business coming earlier, but important from that this is how it is. We will also see throughout the year, how it is develop and whether we will see some upside for their own, depending on light vehicle production.

Sheila Weekes

With respect to the potential market share gains and the order intake that you have been receiving, could you just clarify in terms of what the time lag is from when you typically receive an order, for instance the activity you were having in 2015, and when that enters into production? And then also how long that typical contract would span?

Mats Wallin

Well, that varies from depends on the project maybe 18 months to 30 months or so depends on the type of product and the type of technology and what it is and also from that is based on customer-to-customer, so it varies if it’s a smaller change or totally a new car. So it has a variety between that range you could say as an indication to it and I guess that’s a lead time. Lifetime of the car it depends maybe normally care line has basically in the middle or it’s in the three years from the launch then you have basically and then you may have another two or three years on the lifetime of the car. So maybe five year as an indication where you may have some update in the middle.

Sheila Weekes

But it's difficult to replace that airbag system except when you are on that existing model, is that correct?

Mats Wallin

Well, you will need to, if you wanted to replay. So you will need to go through and new development with the new supplier and with new validation et cetera. And if you do that it depends on the instruction how big change if you’re mid-life to the car and how much changes that will need to be. So you could say that also varied from OEM to OEM and care line to care line. But if you’re in from the beginning you have a good chance or a better chance to continue to do business with your customer on this platform of course.

Sheila Weekes

And lastly, just in terms of your capacity utilization in China, you mentioned in one of the slides that you are at about 85% capacity utilization in China. Is that above or below your other regions globally? In the past I know you've discussed that this is often a good indication in terms of relative margins amongst the regions. Is that still the case?

Mats Wallin

This is around the average what we have in the group in the different regions. So, it's for the time being, it doesn't give that much within the different region from this segment.

Sheila Weekes

Okay. Just finally on China, you had some easier comps in terms of the fourth quarter and I know there's been some issues with some of the models and product cycles. Is -- how are things evolving there? Because I see your organic sales growth still came in below light vehicle production in China, albeit still very positive. How are you seeing your customer mix in China at the moment?

Mats Wallin

I think we've talked about during the year unfavourable customer mix arriving from the focus on compact SUV where we have not been well represented there over the year and this has been because of focus on global OEM and focused on starting new Chinese OEM then you have the more of sudden change in the market than achieved where we were under represented and this has been -- it's growing different because of our increasing market shares with Chinese OEM going forward. We have had several launches, we had third of the 20 launches here during second half of the year and what's coming from Chinese OEM and that is giving us the different picture going forward and we've also looked into this when we started coming earlier in the year but the reason for this -- more sudden growth of compact SUV.

Sheila Weekes

Do you see performance do you see performance outperforming the overall market in China going into the first quarter?

Mats Wallin

We commented here on the slide that we will see continued strong growth in China and we will see continued strong growth, we will see later on the year to the outperformance or not. So we don't comment on the outperformance at such -- it's a volatile situation in China but we continue to see strong growth opportunities in China.

Operator

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

Chris McNally

If I could just follow up on some of the last few questions on R&D, I know there's been a lot asked, but I think you gave enough detail that the 6% to 6.5% level you will remain at this level for a couple of years. I guess my question is thinking out over the next couple of years as the new business comes in. Is there sort of a level of organic growth you would need to see just to have margin expansion from other operating costs going up from the already strong sort of 10.6 levels? Can you grow margins essentially if organic growth decelerated to a 2%, 3%, 4% level?

Mats Wallin

We keep coming back to what we have said already, what we said in the Capital Market Day and that is to grow our margin in the electronics to at least maintain our margins in passive safety to grow our business towards the end of decade target of a CAGR of 7% and that is organic 6 plus another 1%, so it's only 7% and besides that we don't give more indications to going forward for the outer years, so the best you should factoring there is what we said in the Capital Market Day for the future, for the outer year beyond 2016.

Chris McNally

Okay. I guess the thought that a lot of people are trying to figure out is, if you at least cycle through the R&D expenses in for example 2017, if they will stay at the 6% to 6.5%, there shouldn't be as much -- there will be some D&A pressure, but obviously one of the largest pressures would be gone. And so I think what people are trying to figure out is if you can grow margins in 2017 if you add a similar type revenue growth.

Mats Wallin

I understand that and then I said, we also said, it depends again here on the number of products that is coming our way and how the situation with Takata will evolve and how successful we will now be with our new entrances with and with the technologies and active safety and how that is affecting at end of the range whether it's going to be in the lower end of the range and high end of the range, I don't think to be honestly that we have ourselves full with stability at this point in time siting here and again with 2016 -- we're going to end up in the high end of the range or the low end of the range. I think it's slightly that we will end up somewhere within the range for 2017 but further than that it isn't really possible to comment on that right now.

Operator

We will now take our next question from Matt Stover from SIG. Please go ahead your line is open.

Matt Stover

I fear I'm going to beat a dead horse, so apologize to the horse here, two things. One, Jan, could you just comment on the changes in gross R&D versus net R&D in 2015 versus 2014, and then maybe comment on that delta in 2016 versus 2015? Then the second question would be, when we think about the amortization of the goodwill for Nissin Kogyo, should we think of a duration period of 15 to 20 years? And then I do have a final question on Takata?

Jan Carlson

I am not sure I will have a good answer for you to communicate on the gross and the net -- gross R&D between ’15 and ’16, I am looking on Mats here…

Mats Wallin

With ’15 and ’16 or ’15 and ’14?

Matt Stover

That’s right I am just thinking about the recovery value and thinking about the growth in the R&D because the time frames some of the stuff you’re spending money on right now because you got a ramp up to develop a program for the CADA replacement and then some of the stuff has much longer duration to it?

Jan Carlson

Right so I get that but I am looking on Mats here to see whether we can give you some more details here or by the way we should take that offline more on the [Multiple Speakers].

Mats Wallin

We will take that offline Matt.

Matt Stover

Okay, we will do that, okay.

Jan Carlson

Maybe we can do that so we give you the right numbers on the details there.

Matt Stover

The 15 to 20 year amortization period for Nissin Kogyo, is that fair?

Jan Carlson

Not long, but we will have to come back about that.

Matt Stover

Okay, and then the last question was on Takata. In the release you make an allusion to there could be other business in 2017. Is that other front airbag business or is that the potential for side bags?

Jan Carlson

I don’t have a comment to that one. We are in discussions with OEMs and customers out there and I am not in a position as of today to comment more on giving you more details around that.

Operator

[Operator Instructions] We will now take our next question from Edoardo Spina from Exane. Please go ahead your line is open.

Edoardo Spina

I'll start with the first one. On your outlook, you mentioned customer call offs and I don't know if you already addressed this, but for me it was basically the first time that I hear of these call offs, if for that you mean cancellation of orders. So I wanted to ask a bit more details about these; which region it comes from, because, yes, from your competitors I didn't hear so far? Thank you.

Jan Carlson

No customer call off is production built schedules, the customer is standing to our factories releases for the next weeks or months for how many units they want to have delivered to their respective plants. And they call off in the EBI system, they call of parts the electronically and we use those built schedules to build a view of the sales and the number of units going to shipped for the eminent quarter. Those built schedules and releases are normally between 3 and 6 weeks out because that’s how far customer releases give us indications on how many parts. Beyond that, we use this more the forecasting institute like IHS and others to look on the production volumes.

Edoardo Spina

And there has not been a deceleration in this order in this three to six week dark period you cannot comment on whether there's any disappointment in recent months, recent weeks?

Jan Carlson

No disappointment or not this is the best information we have at hand. We take the best and most accurate information that we can see when we do the guidance and the built schedules and the releases they changes -- fluctuates overtime with customer demand and sentiments in the market. So that changes over time and at one point we lock that and take that as input for our forecast.

Edoardo Spina

Thank you I had misunderstood the terminology…

Jan Carlson

No problem at all…

Edoardo Spina

The other question would be on the restructuring costs or capacity alignment. Do you provide an indication for 2016? And can I ask what -- where this money would go considering your markets are growing since last two years? So I wanted to ask the realignment, what does it affect exactly?

Jan Carlson

We are returning to more normalized level of restructuring the Company after having some big capacity alignments predominantly related to Europe and the alignment of our production facilities here. We are now looking to on an annual basis of 30 basis points in relation to sales, so 0.3% in relation to sales in restructuring and that we communicated in the Capital Markets Day and that is what we’re holding on to for the year of 2016. Where it's going and how this is developing and concerning where different plans or downsizings or not, we are not in a position to comment on.

Operator

[Operator Instructions] We will now take our next question from David Lim from Wells Fargo. Please go ahead, your line is open.

David Lim

Just one quick follow-up, Jan, maybe I misheard you. Did you say that the 5% organic does or does not include your deliveries for the Takata airbag replacement in 2016?

Jan Carlson

The 5% is an organic increase from '15 and that is not an increase of the replacement business in '16 compared to '15.

Operator

There are no further questions at this time. I would like to turn the call back to your host for any additional or closing remarks.

Jan Carlson

Before we close this call, I would again like to extend my sincere thank you to the Autoliv team for relentless focus on quality and operational excellence. And I would also like to thank everyone for participating in today's call. We sincerely appreciate your continued interest in the Autoliv and we look forward to our Quarter One Earnings Call on Friday, April 29, 2016. Until then, I wish you all well and good bye for now. Thank you.

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