Autoliv Inc (ALV) 2003 Q1 法說會逐字稿

Good morning and good afternoon ladies and gentlemen and welcome to The Autoliv Conference Call. I would now like to (inaudible), Mr. Lars Westerberg. Please go ahead sir and I will be standing by questions.

Thank you very much. Good morning to all of you in the United States and good afternoon to all of Europeans. I'm sitting as usual with Magnus Lindquist, the CFO, and Lars Sundberg, the Information Officer. We're going to go through with some slides, the slide factors that is available on the Autoliv homepage. Its directly on the homepage under the conference slide or you can - - - the financial information, you'll find it under the headline calendar as well. So, I'm going to go through them in the usual manner and after that, you can take questions and answers as long as you wish to.

So, I'm starting out with the first slide then, which is about the net sales and I'm happy to report to that the same First Quarter was the highest sales figure ever recorded by Autoliv and that is primarily two reasons since the U.S. dollar that has helped the weakness in the US dollar, and also we have fairly good organic growth, higher than expected actually. The long-term trend for right now is running at 18% increase per year about (inaudible) moderate clearly here in quarter two and quarter three. In quarter two, the cost we believe the (inaudible) in the United States will go down some 10% and in quarter three, because the European call production is expanded is expected to be some 8%.

Generally speaking, stronger sales quarter than we had anticipated and if you turn to the next slide the change in organic sales as we mentioned in sales have flock 21%, that is exceeds our guidance what we set at least 15. Part of the reason is that the call production was higher than expected from 4% or so. The US dollar held by 12, the growth we had was 5, which was of course much better the 1.44 CORE production and then we had the VRE that also added another 4%. So, as you can see on the slide, at usual we continued to (inaudible) somewhat better than the trend on light vehicle production and that's why (inaudible) on 1.4.

We turn to the next page and have a look at the light vehicle production. The increase in light vehicle production in North America was 2.6% and that is the primary reason why the car production came out higher than expected. This was a better figure than we had, if you recall last time we had the conference in Iraq and we had a lot of question marks and it did no influence car sales or car production in American as much as we were afraid it would.

Europe came in pretty flat as expected. Also, you can say that the people in North America trucks faired better than cars and that (inaudible) so you can say that you win some and you lose some. For all in all, 1.5% here but if you roll in Japan through I think we're down to 1.4% actually which sometimes for some reason North American and Europe we have the worldwide.

Unit sales the next slide, (inaudible) came out the volume change of zero, you can say the major loss in numbers of (inaudible) was in Russia and Norma where ah, as you may know, we always see 51%, 52% of Norma. SO the Russians sales slipped, not so much in value but in volume (inaudible). In US we have a presently a mix on cars that is not very favorable but we do supply cars like Chrysler PT Cruiser and Chrysler (inaudible) the Ford Focus and the Nissan Sentra. And all of these so some fairly steep decline in volumes as in the first quarter and that's hurts that the numbers that (inaudible) in the United State, we did well in Europe on the other hand. And the potential is up 3% continue to grow faster than 3 cents, a (inaudible) fairly flat and in the same trend as we had the last couple of quarters where an increase in passenger bags is compensated by a decrease in driver bag, So all in all it was flat.

Inflatable curtains you can see the head side airbags were up 28% and if you would look only on inflatable curtains they were up in volumes terms 38%. I have during the day here received a number of calls that people ask me how see installation rate developing in the various countries and (inaudible) and so on and that we are not following that quarterly but clearly if car production is up from 1.4% than the volume of trucks went up 38, its continuing to increase the penetration rate.

Gross margin we can see that have a fairly flat gross margin compared to last year, we actually gain the half of a percent on material but that is offset by a similar amount on labor cost and all because of mix and the labor cost is commanding the cost of an uneven loading but also some moves of production that have to with we are shutting down a couple of plants particularly North America and one (inaudible) to Denver and a (inaudible). So that's why got the flat gross margin.

Go to the next slide and then look at the operating margin, you can say that the margin was off slightly better than the guidance and slightly better than the 2002 figure an increased from 7 - 7.2%. This doesn't sound very much of course, but given the headline growth or the top-line growth (inaudible) actually did increase in some 25% from 72 up $90m during the first quarter so to say that sales developed much better than we expected and so did the operating results.

Coming to the next slide, on the income statements we concentrate on the middle column and look at the changes between the two years. We can start by sales and we can see that both airbag and seatbelts roughly increased 21% in each but no uneven distribution, plus 21% of sales in both category. If you move down, you can see that the operating results that we mentioned came up to 25%. We had an earning before ---- that was up 29 and when we go to the earnings per share we were up 35% and that is a little bit because we had more facts on (inaudible) 1 cent and currency translation gave another cent and then we had a third cent for some other region, but basically we're up 35%.

SG&A increased 0. 1% more --- whole loss and driving cost here is IT, legal cost and insurance cost. And primarily both the IT and you can say if everywhere and so is the insurance, but the legally more or less concentrated to the United States as one would expect. The research in development --- increase here which is not so big either in percentage terms, its also 0.1% basically reflects two effect, mainly a very strong order intake during last year. Last we have most of the research in development in Europe and because of the strengthening of the Euro versus the dollar, it reflects, it translates into more dollars actually.

Tax for the first quarter, we have a tax rate of 33%, which is of somewhat below last year and is in line in what we have for the full year last quarter, 30 cents, 33% and by the way that is actually the last cent that I didn't recall in Earnings per share. At the end of the quarter here, we had a 96 sorry 94.47 million shares outstanding on an average we have 96.1 million shares during quarter 1. So that's 94.7 at the start of the second quarter.

Return to the next slide and have a look at the key figures for 2002, we're basically moving all of them in a positive direction. The earnings per share that we mentioned that are up 35%, the return on equity as well is capital (inaudible) is moving up in double digits actually coming up to 10 and 12.4, respectively. Working capital is flat as a percent of sales and as we have discussed before we have a target to keep it below 10% of sale and we are at 9% as you can see.

In net debt, we did increase $60m but there is no particular reason to worry here, we have spend $14m on buying the last part of Livbag the leading European producer of not only --- but also microgas generators and squid. We spent another $34m on repurchasing stocks and we also pay to the shareholders dividend of $13m so these three activities alone consume $61m.

We turn to the next slide and have a look at the profitability and these compared to if you take more than one (technical difficulty) return on equity for instance, its gone from 7% back in 2001 to 8.3% last year and now we're at 10% so a fairly nice increase year-by-year, the same is valued for return on capital employed while they go from 10 to roughly 12.4. (Inaudible) of course that both the equity and the capital ---- relatively flat during the first quarter whereas both net income as well as operating results came up very nicely and that's why we get the better results.

Turning to the next slide to cash flow, we had the sixth consecutive quarters here with a very good cash flow. And the net cash flow as you can see we have, begot $34m, but then again we borrowed $14m to spend on buying shares and more comparable figure would be around $50m. The gross cash flow was similar this first quarter as it was last year. We had 113 versus 180 in gross cash flow. So - - cash flow came out as good as we have hoped for.

We turn the page again and look at the free cash flow. We have the 2002 which we compared with the last 12 months and without repeating all the ratings which comes out relatively well. You can see that the CapEx is somewhat higher, but it is still below depreciation. And as you can see the cash generated by operation both last year and then the last two quarter exceeds half a billion actually.

Turn the page again, we will come to the working capital. The working capital is still around 9% as we said. It is actually for compare quarter one last year with quarter one this year. We are $15m lower in working capital in spite of $215m higher save value. So, relative term significantly better than that period.

Turn to the next slide, the capital expenditures and depreciation as we mention is up a little bit, but is still below the depreciation. So, the guidance that we have given before where we believe that the full year will be somewhere in the region of $230 to 260m (inaudible) value. And the first quarter as you can see we were very close to depreciation $61-62m.

The line you see capital expenditures for quarter one and as can see it has a lot to do airbags most of it. Airbag capacity United States, we spend $12m inflate capacity Europe, that is in Livbag, the company call the acquired the last portion of. We spend $10m, trade capacity United States another $6m, electronics capacity* both in North America and Europe we spend $6m. And textile, primarily bags, $4m and these larger investments account for 38 out of the $60m.

The recent event on the next line is, what we did we acquired last portions of now Livbag in France. It is a fully owned subsidiary (inaudible). So, we see this great plan, which is (inaudible) this great plant, which is (inaudible). There are two plants can say we own 100% of. And Livbag as about, by the way, 20% of the worldwide inflator market and microgas generators which goes into our pretensioners for seat belt. We have half of the world market with some significant exports too. We did find a new revolving credit facility on what we believe very favorable terms, a facility for $850m. Two of our plants in (inaudible) price which is this we call the Nobel Prize for manufacturing. And the module plan in (inaudible) and one of the inflator plan also in (inaudible).

We have during the first quarter; repurchase 1.7 million shares for $34m as we said. And all and all we have to day repurchased 7.8 million shares and we have 94.7 million to go. And we have also during April now acquired the last portion of NSK Asian seatbelt operation, and also in Japan and Thailand. And that has been done now earlier in April, so that is also fully on subsidiary. As you may recall in year 2000, we bought the North American Operations in Mexico and the United States.

Also not on this slide here, Breed (ph.) has been bought by a company Carlisle (ph.) and not the big Carlisle but a Texas based arm of Carlisle that was distressed company and they paid a little more than $300m to Breed. So now both Breed and TIW are owned by a financial companies you could say.

Turning to the next line, the U.S. light vehicle inventory, as we have seen in the beginning of the year-end, the inventory levels has been higher. Not only than the (technical difficulties) trend really but fairly significantly higher than the last couple of years, that's also the case of the March where we look at 70 days of sale. The 10-year trend it maybe lack 68 days. But as you can see the last couple of years we have around more around 60. So, we have about 10 days of supply more into the United States that would be normal. And I think it is in that light we should see the production cuts back at (inaudible) planning for Q2. (Inaudible) Big 3 alone will probably cut back on 14% of their production compared to the previous year. And the transplants will do better than that, all in all as we said 10.

So, as we turn to the next one in North America light vehicle production, again, we can see that quarter one with a flat 2.6 in volume turn was better than we thought. We thought that we would see a slight decrease rather than a 2.6% increase. Quarter two as you can see will be a bad quarter with a 10% decrease - - it's a roughly as bad as we had in the 1998 and then it comes back a little bit in quarter three and basically back to normal level you can say and then quarter four we will have similar level as we had in 2001 and 2002. Back to normal quarter four would be the best estimate in the United States.

For Europe, we had a slightly different picture. The quarter one was flat, you can say quarter two is expected to be flat as well. And then in quarter three we are expecting to see a fairly big decline in Europe and that's mainly as result of a log of model change over that will happen in various parts of European car production. And is estimated to shrink the output some 8%. And this might kick back in quarter four but also Europe will be back on track in volume terms you can say. But there are two different reasons in the United States; we believe it's an inventory correction. In Europe it is more of the technical thing, but there is a lot of change over in many models. (Inaudible).

Turing the page again to the summary of the outlook for quarter two. We believe that we have a chance to increase the size up to 10% that is primarily driven by - - its only driven by exchange rate, and we have hope to be able to increase the EBIT margin from the first quarter when we had 7.2 to up to a similar level at quarter two last year which was 8%. And with that ladies and gentlemen, we are prepared to take the question. So Anne if you could be so kind to open for question please.

Ladies and gentlemen, we will now hold for question. If you have a question please press the number one on your telephone key pad. And it's the hash or pound sign to cancel. And once again press one for question and hash or pound to cancel. The first question comes from (inaudible) (technical difficulties)

- - Hi its Phillip (inaudible) I had a few questions for you. I will start with the gross margin - - I was surprised that you did nothing to improve gross margin in the quarter, we have (inaudible) - - environment you had in terms of cost production. Could you explain to us why it did not move. For Q2 and Q3 where you felt relatively confident like most of us we here right now. Could you tell us you can prepare your company to such massive production cuts to be able to approximately maintain margins - that's for Q2 and Q3. And my third question would be it seems that a lot of car makers in Europe have long closures or some long eastern holiday, so you really think that the flat European production for Q2 is as good estimate?

Okay, thank you. Well if we take the first question first at the gross margin. And as we said actually did gain 0.5% basically most of that came with material cost, but as you know, when you move production from one place to the other and that's happening not only to concerns I mention because they are shutting down but as you know, we are moving also to low cost countries all the time. And that means that we have an over mining. And particularly for the Denver and Indianapolis operation, we did have an over mining and that's something you have to live with when you shut down plants. Basically that's why we got it back in a negative trend. And on top of that, we had fairly -- even production level, some (inaudible) model did real well (inaudible) and some model ran a lot lower and the (inaudible) generally speaking new cars tend to sell real well. But no as long as it use to and older cars get old fast. So that probably, you can say that they were two things going in opposite ways.

Quarter two, why are we relatively confident about quarter two. Well we believe that we always about the United States and we do internally too the two actually, but that's all because we have (inaudible) statistics. You know, 10% down in North America and that is not more than 3% globally for Autoliv and then to if you add to that one that Europe is supposed to be relatively flat and Japan not too high and France, on top of that China, Korea continues to do real well. It is realistic to believe that they will go up in term and hopefully will increase the margin as we said.

Quarter three, we do not have any guidance on. On the Easter, you are right, that has helped the first quarter this year. That is quite correct and nevertheless, we believe that also CFM and DRI have taken these things into account as far as we can understand. And so do our own figure, so we think it is a realistic in summary.

Thank you very much.

Your next question comes from (inaudible) please go ahead and announce your company name.

(inaudible) I have a couple of question if I may, I should run on the issue of the mortgage guidance of Q2. (Inaudible) the big drop in the U.S let us remember back in the end of 2000 when they have a very big drop in the U.S markets I think you have (inaudible) it may look maybe (inaudible) I think it is quite significant among (inaudible) and also on the (inaudible) if you look at what you're talking about 10% in currency (inaudible) and then -3 from comp production but consider your two other elements physically have been supporting you over the year.

(inaudible) think they are (inaudible) we do have a gain on the material cost and then of course we also had (inaudible). That will go on in process that by the end of July there will be more or less shop found which means that the over (inaudible) gradually sifting out and top of that we had a couple of unkind results (inaudible) we have been supported too much a mean we and a huge sale in the (inaudible) but the slow storm and the roof collapse and approximately 500 buildings collapse in (inaudible) we had to be running air frightening (inaudible) operation that did cost some money (inaudible) earnings had also happen during quarter one. So that's then we're betting on continuing improvement on the sales lower ---(inaudible). Having said that you're right (inaudible) and then if you talked about the second mathematics figure that's correct. A mean it is so as to say maybe we want a (inaudible) I don't know but basically this is what comes out when talked to our company too. The 10% is really the (inaudible) effect and the others will be roughly fewer and lets see if I can (inaudible).

Alright guess I'm going to question also (inaudible) and then first of all you did not say anything about the ordering (inaudible). And also it's a bit concerning that you were getting close in U.S with -7% and do you know the (inaudible).

Okay (inaudible) if you spoke to the first one the ordering takes you in quarter one. The ordering take in quarter continues to be very strong and we can say that we're essentially consuming the same trend that we had last year so on the ordering takes on this very well but as you know these (inaudible) really mean anything for quarter two or quarter four. Basically we talk about (inaudible) 0506 (inaudible) but very generally term very strong accelerated. And then secondly for turn back to the organic mega to growth in the United States and there are many more factors influencing and the basic thing is suppose I should pay the (inaudible) the B510 that is a negative mix among customers. The lost orders is very, very (inaudible) if any. I think its les than a million dollars to takes the (inaudible) one. Our (inaudible) is fairly complicate institute blames their (inaudible) verbal again n the back doing a lot of export from (inaudible) from the United States company order to Europe and to Japan. Gradually these productions (inaudible) all over you know we have a strategy here to try to be neutral to (inaudible). Some of the exports from the U.S I'll say more or les disappeared but that's in our produce today you know there is Japan or in Europe. (Inaudible) looks like sales from North American companies but we (inaudible) most of which is really internal (inaudible) am doing (inaudible) for about 15, 20% yet this is 15, $20m less say quarter one this year compared to last year. To (inaudible) internal (in audible) in the growth to eliminate (inaudible).

Okay which then end up at (inaudible)

Absolutely correct and the of course we have the one that I think we have (inaudible). We're actually taking out some high cost low margin inflated (inaudible) inherited from (inaudible) now that's of course not getting back at (inaudible) because they do want to get rid of that.

Our next question comes as from Grant Phillips, please go ahead and announce your company name.

Good afternoon gentlemen Grant Phillips from UBS Warburg. Like if I could a couple of questions, just firstly on the margin improvement. Given that we also in second quarter that (inaudible) grow and when we see it drop in (inaudible) second quarter compared to the first quarter adds a little bit more strength on the C&A. (inaudible) saying that gross margin should improve in the second quarter (inaudible) a little bit of a feature more of what's happening on these other line SG&A (inaudible).

Okay the --- firstly we never give forecast on gross margin so I think we're very brave we did it (inaudible) and we have to (inaudible). Are the (inaudible) going down I believe that's relatively flat in dollar terms but however if you look at it in relation to a higher (inaudible0 its probably going down but from that point of view you're correct.

Yeah I think in the (inaudible) R&B is stronger in the (inaudible) lower end due to the rebuilding by (inaudible) something like that. I just hope (inaudible) may come down to a 5.1% which (inaudible) in second quarter last which (inaudible) all the margins (inaudible) between the second and third quarter. Anyway --- and there was one point --- the other point was on the raw materials again you met the savings there of .5% I think you mention with the same (Inaudible) you're buying in dollars is why a lot of these things have (inaudible) in dollar sense and I will come back a little bit he non (inaudible0 steels and so on in generally the mood is seems to be onto the commodity prices rising and contract (inaudible) coming in as a delay. And at some point do you expect to see that coming into the equation as a negative later this year or something?

And if we structure the cost on the (inaudible) then we will make the right historical. We do not think that's going to happen this year (inaudible) at the potential pace and basic agreement this have to do with strong ordering (inaudible). As you know we get he order we have to find (inaudible) unfortunate the nature of our business it will probably not happen this year so can the materials I think it is sorry to say that we do better than expected (inaudible) and we do (inaudible) ahead of our (inaudible) material and cost savings. And I do not believe what happen in the latter part of the year.

that I part that I was seeing some base metals and steel (inaudible) rising you don't think that's going to come into equation? Or balancing out on what your other actions have been doing, that's what you're saying?

We believe it will not, no. And as you know we don't buy raw materials really, we buy fabricated products that are only slight portional to its raw material.

Okay, good. I see the pension charge, I mean I know it's small in relation to the liability in your balance sheet overall, but it could win up near 20%. Where's the - - where's the charge - - is your P&L provision coming through, and if so where is that buried through? Is that being absorbed within the gross margin?

We will have Magnus answer that one he is the pension expert.

Yeah, it's (inaudible) to put to the state; the main cost is in the gross margin, yes.

Sorry, I couldn't get that actually, what was that response.

It is booked according to the salaries and wager, through the main process in gross margin, that's correct.

Okay, and the - - is that going to be, I mean have you made a decision to sort of increase the charge, or you've reduced the discount rates or you're filling up the pensions a little bit more? Is that going to be an ongoing charge?

Well we have said that we believe that the pension (inaudible) will increase with (inaudible) this year, hope for the full year. So (inaudible) - -

Okay.

put yourself into (inaudible) about $US7m, for that's really (inaudible)

Right, you can order it here, (inaudible) produced company that's not a very big deal, we talk about 2 or 3 million higher and, a very small number to start with.

That's right, I mean it - -they - - I mean figures gone up I think in the balance sheets from 39 to 46 (inaudible), I was just looking at that figure which is obviously a bit more than that 2 million annualized, I mean I don't know what else is going on in there, but this is a - - I'm just looking at the liability side of the balance sheet, obviously you're - -you put out the facts that's going on in there.

That's correct, you can see that the increase in the fourth period from - - from just the $43m after 46, and that's (technical difficulties)

Okay. On the low cost labor laws, I mean to figure you give - - the passes at 30%, where are we now and what's sort of the target?

Yeah, we sent somebody up the center of the MPVs and the we're trying to re-calculate because you guys are probably more interested in the cost and that is what we call head-count. In (inaudible) I would say, correct me if I'm wrong (inaudible), I think we're so secure with something - -right now. And if we take total head-count including all the temporaries we have, and we try to run with say 3 1/2 - 4000 temporaries all the time because those are faster to decrease if volumes go down. Then I think we're writing - - (technical difficulties) - - 50 cents if we take the total. And do you believe I should correctly say we can possibly reach thirty-five or so, buts it's - - we take the (inaudible) first of course.

Okay. And then finally on share buy-baks, I think you've said in the past that it's up to the board to decide if it's going to - - if they're going to be cancelled, there's no, sort of, need for shareholder approval. You've got, was it 2 million - 2.2 million remaining to be bought.

That's correct.

And the situation with regards to (technical difficulties) - - regards to, you know, if the face the quarter fees that you're probably going through, I don't know, the third or fourth quarter before you would look to cancel, if you were to or would you actually make some interim move just to replenish the reserves to buy more if you weren't thinking of going that route? I mean really the question perhaps should be wrapped more line of sort a strategy going forward, I think you've been interviewed recently about the business having to grow perhaps more with partnerships. Is there something else on census setting aside from fallback? Or would you still be willing to pursue an active program of returning cash to shareholders buy-backs as well?

Well we will most likely continue to return cash to shareholders by buy-backs and dividends, we have, as you see today, we have no big news for - - of cash for the time being. We don't set aside cash for any particular investment or acquisition or joint venture for that matter. So, if the cash flow continues to remain strong, you will most likely see us buying back shares.

Okay, but you could cancel a portion of some point if you wanted to, would you tend to wait until you've gotten to the full 10% before you did that?

We don't have to decide at 10%, we can just keep it as cash (inaudible).

Right, or cancel a portion of it some point - -

Or cancel a portion or cancel all of it - -

Yeah.

It's really a decision for the board.

Okay. All right thank you very much.

Thank you.

The next question comes from (inaudible)

Hello.

Ladies and gentlemen - - stay on the line - - we have some technical - - Ladies and gentlemen we're still fixing technical difficulties, please stand by.

The next question comes from Mark Ferguson; please announce your company name.

Hi it's Maxwell from (inaudible) Goldman. Can you hear me now?

Yes Max. We were to hear some music and then we were disconnected unfortunately.

Talk - - that was Dido, talked to me for thirty - -, just a couple of quick questions. The motor approach for the moment seems to be Asia (technical difficulties). And if I remember correctly, you said before that margins on Japanese business tends to be a little lower than U.S and European customers, is that still the case or are you beginning to see that change?

That is still the case actually, we can say that in Japanese - - in the Japanese do get lower margins than we have in the United States and Europe. And the rest of (technical difficulties) - - to Korea and China go up a bit.

Right, what explains that difference to the Japanese? Is it that they give you less responsibility for designing a whole system or is it something else (inaudible)?

I think the Japanese is just used to run with lower margins than we are actually and then I talk about of course those very, very low financial cost if any, we pay less than a percent on our net there. So the cost is probably lower but then the history, you know, in Japan if you make 4% (inaudible) more than that it's considered to be pretty much the standard, we do better than four but nevertheless we do not do as well if we do it in the U.S. and Europe. And if you take it on the other hand in China it seems like people are having fairly good (inaudible) possible because they always (inaudible) lots of money than (inaudible)

That's helpful. Second question just on Breed, you mentioned that Breed has been bought by a financial buyer.

That's correct.

And you say that both Breed and TOW - - such hand, I think I detected, sort of positive note in that comment. Did you feel that as a - - under financial ownership, Breed is going to be a little bit more rational on pricing?

Lets hope that - - will be so at least, I mean historically were not very rational at all, and for some time they were owned by banks and we didn't see very much of them, we don't see too much today either. We have the impression that - - continue to slide for a couple of years then I hope to probably hope for a pickup. Honestly (technical difficulties) all but vanished you can say and in North America they see less (inaudible). And we hope as you say that the financial loans is going to be tougher on the financial figures.

That's very helpful, thanks.

Thank you.

Next question comes from Robert (inaudible). You may go ahead and announce your company name.

Hello, Robert (inaudible) from Capital (technical difficulty). Two question from first of all from pricing pressure given the competitive industry in the US right now. How do you see any changes in the pricing pressure being passed on to you the supplier? Than are you still having a singular, broad 2% price decline (technical difficulty) product range? And in particular what's the pricing on decline on the inflatable curtain right now? And then secondly, what impact you have had so far with the dealer marketing program for the inflatable curtain in the US, what does that (technical difficulty) traction. Thanks.

The first one regarding price pressure, I think its (technical difficulty) as ever you could say in the US and they try every trick in the book to sweep down suppliers' pricing. I would probably do the same if I had a difficult market as they do. But yet having said that I don't think its any worse than it has been, it probably about similar, so, I think you are right. About 2% or even maybe 1.5 to 2% would be the decline at which they believe that a reasonable forecast will be coming in, or close to so at least. So (technical difficulty) so that's smack in the middle.

Regarding* high seats, its very difficult to answer the question because the high seats as you understand they vary a lot in shape and actually the price (inaudible) possibly moves up now, but because that's more and more coming into this crossover vehicle with longer curtains and some curtains even have dual inflators. So I cannot give you those readings on the high seats because they vary too much in shape. I guess that they as similar as airbags, around 1.5 or 2%.

Regarding the market campaign (inaudible) all the money (inaudible) profits

Okay, thank you.

Well we have studied that a campaign in its include several activities. All the way from the way from lobbying activities in Washington to informing the general public to these public service television announcements that you can have in the United States. So that campaign is under way you can say.

Okay, thank you very much.

Thank you.

The next question comes from Nick Lisbon (ph.). You may go ahead and announce your company name.

Yes Nicholas Hertz at Morgan Stanley, hope you can here me.

We here you. Probably was on a ---

(inaudible) the last time I tried. My question is on the North American outlook. I mean I'm sure we have touched upon that already but, can we really believe that the down turn is only quarter? You sight about 10% decline that's the CSM forecast for the second quarter. But what are you seeing in terms of what the car-makers are doing to reduce this inventory? Is it just second quarter or do we think that this could be an ongoing effect until the end of this year? And then also could you clarify whether in Q2 you can grow the top line organically, given that you have another benefit of at least 10% on currency? Thanks.

We could take the first one --- the first question first there Nick. It is going to be one quarter only and if we can beneath GSM that --- the answer is that will be mainly during quarter two and there is a short little one in quarter three too. But having said that I think all of our (inaudible) they have always been to pessimistic actually. The (inaudible) have been higher than expected, and I understand that GM is pumping in more incentives again.

So, our base approach is its going to be minus then in quarter, only a very slight increase in quarter three and back to normal an quarter four. That's our basic approach. And again (inaudible) to prices may (inaudible). If you trust year forecast revenue is going to be around $15.9m and that would --- last year was $16.4m or there about. So its something like 4% or less if I take it --- its 3%? Okay, its 3% down.

The second one that called to two organic growth we have essential (inaudible) and will be (inaudible), that's the mathematics to some earlier question here. So plus ten and eight, and minus ten in the exchange rate.

And do you expect then that organic growth would be constrained for the foreseeable future? Or do you see it as back to normal as well as you mentioned for the production trend in North America? I --- is it going to follow the change in North American production, or, can it beat that?

I think historically we have always had an organic growth, so I think that growth chances are going to come back to an organic growth. And essentially given the unstable period picture today, we have decided we'll take GSM as if it as the pack. And maybe that is pessimistic, we don't know.

Thanks a lot.

Thank you Nick.

The next question comes from Graham Finnick (ph.) you may go ahead and announce your company name.

Actually it's* (inaudible) asking the question. I'll ask you the one, just on the pricing pressure referred to Nicholas comment. Isn't the second quarter ---- the number of zeros that people are implying for the organic growth is there buried in there? Just that the fact that you think there maybe some more negative pricing pressure in the second quarter compared to earlier quarters? And hence, once --- you may miss a couple of contracts that are having that impact, cause I don't think buried in that line is a pricing issue, isn't there?

You are right, buried in that line is a pricing pressure, but we believe in quarter two will be nothing more or less than the other quarters. So, I --- we would calculate it 1.5 maybe 2% and also for quarter two. But you are very right. Even if it is organic growth and its market share but its also pricing pressure.

Okay, thank you.

The next question comes from (inaudible) Lindsay, please go ahead and announce your company name.

Hi, its Patrick with H&Q in Stockholm. I have one question on the US and Europe where you saw the organic growth for yourself being very much down in the US while production was up, and the reverse is true in Europe. I here big swings for the market relative to production. Could you just give us an idea on just how that could spell out in second and third quarter? Not any sort of big explanations but some models are running on in second or third quarter but not on in the first or the (inaudible).

We basically don't make forecasts on market tracks, Patrick, but we can make --- try to explain the hit. And the (inaudible) here in North America, than it --- the bid drop we have had in market share which we are leaving in the seatbelt. The airbag which we knew you (inaudible) asked will be market developed I can tell you. And the seatbelt has potentially two factors. First they are more exposed in cars, and secondly the cars we are exposed to are not fortunate enough to be selling very well. We are not sure if that's a temporary thing or not we cannot tell you. But some other (technical difficulties) cars which we have been sort of launching our way (inaudible) Chrysler specifically have been doing much better than expected too. So whether that's going to continue inn the future I cannot tell you. Some of the other (technical difficulty) that is inflated that we explained earlier --- some of these inflations we don't want to continue. Simply because they are very neatly (technical difficulty) in them. And we think that it's a high cost, high priced, no (inaudible) kind of (inaudible). And then we (technical difficulty) was up not exporting from Europe but (inaudible) in Japan and France to take away the dollar exposure. But they one where I can see where we have a market share problem is would be (technical difficulty) mainly for this reason.

Okay second one now, if you look at your basic assumption for (technical difficulty) percent in production in the US and Europe, lets assume that it wouldn't have a serious (technical difficulty) in that case. What kind of cost would that imply into the (inaudible) in production? About is it downwards? Do you have tents so that you basically can cope with say 5 to 6% down without having to incur additional cost?

We cannot do that. I think we have close to 4,000 tents for the time being, that is on a worldwide basis. And 4,000 out of 34,000 is what, its a bit more than 10%. But if we take 4 or 5% down in more than what we have forecast that's going to be tough. The figures we are presenting in the slide package indicate like 2% in North America, 2% in Europe and think we have been saying more or less what the general here that we think its going to be two to four. You look much better after quarter one, we think its quarter two and three we are going to have these two problems. First in North America then Europe so on ---

Okay, thank you ---

(inaudible) five or six its going to cost money.

Sure, thanks. Bye.

We have a follow-up question from Thomas (inaudible). Please go ahead sir.

Yeah, I had a quick follow-up question on road cutting through partnership of certain acquisitions you made during this (inaudible). Could you finish the roads you made about that?

I am afraid not. I have thought about that. You know if you are going to team up with someone you never say anything until its done. I guess --- I'm afraid that's the only answer I can give you.

Move on with your question sir. Mr. (inaudible)?

All right lets leave it there. I think (inaudible) was the intention.

You are right, I'm afraid so.

Just a reminder ladies and gentlemen, that's one to ask a question. It appears today no further questions --- we just got a question from Jane Henderson. Please go ahead and announce your company name.

Hello, good afternoon gentlemen. I just --- one very basic question I want you to follow-up on. On what date did you consolidate VRA? And if we assume that you consolidate the Japanese deal from the 1st of April, then you'll continue to have roughly up from 3% impact for the top line that will follow through for the rest of this year. I just wanted to make sure that the VRA deal was in like for like.

Yeah (inaudible) 1st of April last year, so when we come to the second quarter we don't have to compensate for that one anymore. But then as you correctly remarked then we are going to have the NSK begin to compensate for which coincidentally also is on April 1st. And that is about 3%.

Right. Could the acquisition affect the year or will remain roughly at about 3% on the top line?

That's correct.

Great. And obviously the dollar's like for likes as we go through the year becomes less helpful in terms of your reporting boost for the top line.

That's also correct.

Okay great. Thank you.

Thank you.

The next question comes from (inaudible) please go ahead and announce your company name.

(inaudible). You discussed (inaudible) before, and obviously TIW was taken over by Blackstone last year. Have you seen any change in the competition and how the approach the clients in (inaudible)?

No Lee we cannot say that we have seen anything from them last year we saw what me call a more irrational behavior than usual from TIW they've usually been a very predictable competitor you could say, not so last year and we thought maybe that that is because (inaudible). Its too early to say, we really don't know yet, we haven't seen anything remarkable at least

Just a question (inaudible) didn't manage to get into the telephone conference from the start just as the working capital that was negative again, or you tied up more money in working capital during the quarter. You think you could get back to the lower percentage you had compared to sales say during Q4 last year again or is this just a temporary thing that you're tying up money for the moment.

I don't think it has anything to distract (inaudible) in working capital, basically I would say that this quarter was 250m higher than the same quarter last year but (inaudible) slower working capital so I would target (inaudible) below ten.

So we shouldn't expect any change to the underlying (inaudible)

We try to say below 10, that's the only answer I can give you because you know we cannot control working capital to the extent that we're down to parts of a percent. It's just not doable in real life.

Thank you very much

Thank You

There appear to be no further questions at this time so I would now like to turn the call back for any closing comments.

Thank you very much. Thank you for all your interest we are just a little bit sorry that and apologetic that you got interrupted and we have try to do better next time. We heard some nice music I don't know what you heard but I'm happy you stayed on board even though there was an interruption. So thank you very much all of you and talk to you some time in July, in the middle of the summer. Bye bye.

That completes today's conference call you may now disconnect you line.