Autoliv Inc (ALV) 2003 Q3 法說會逐字稿

Welcome to the Autoliv conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. If anyone should require assistance during the conference, please press star on your telephone. I will turn you over to Mr. Lars Westerberg. I will be standing by.

Thank you very much. I'm sitting here as usual with Mats Odman, information officer, and Magnus Lindquist, who is the Chief Financial Officer. We are going to start by going through some slides as usual. They are available on the Autoliv home page under "Financial information," and I will try to remember to tell you when to change slides. So we will start with the first kind of introduction here, I guess we could say that we believe that the Quarter 3 came out actually better than we had expected. We did grow the market share fairly considerably. Production was down about 5%, and if we disregard currencies and acquisitions, we actually grew 2%. So that is a difference of 7 full percentage points. Particularly strong was the growth on a product point of view was electronics and inflatable curtains and if you take it from the geographical market point of view, it was particularly Asia and Europe where we did remarkably well. The currencies added less than we had anticipated. They added 8%, we anticipated 10. So all in all we recorded 14% sales increased during this quarter, and we had expected somewhat less. We had indicated 10, or roughly 10. The operating margin came out fairly much in line which last year, which was also our guidance, we came in 7.1 compared to last year 7.2. So that was only 0.1 percent.

If we can change the slide and have a look at the net sales, and we can see that there is a strong increase, and it breaks down, as I indicated, currencies added 8%, acquisitions added 4%, and we had expected 3%, and organic growth was 2%, whereas we had indicated we thought we would have an organic decline of about 3%, so 5% better from the organic growth point of view. If you take some of the markets, China doubled, we had Japan grew 14% organically, and the crane (ph) line as we look at it now measured in dollars is running plus 18% in annual pace. So a strong quarter from a sales point of view.

If we change the slide and have a look at the organic sales, then this slide indicates only Europe and North America, and we found out we need to change it going forward. So the next review we will also include Japan and the rest of the world since they are becoming more and more material to our result here. Again we had an organic growth of 2%, and U.S. and Europe were down around 6%. The decline in Europe was actually down 7, and we believe that that was fairly much lower than we had expected. We did see some slow startups, some model changeovers from some of the central European car makers. Nevertheless, all in all, we think it is surprisingly good performance, class 2 compared to the global -5.

If we change the slide and have a look at the light vehicle production, it is not a huge difference for what we had planned for in July and what is the actual outcome in Quarter 3. As can you see, we lost 76,000 units here, and most of the decline was, as we said, in Europe. So U.S., Europe down 6, Japan only down 2, average minus 5, and the biggest problem was the slow launches. And generally speaking we saw in the month of August, it was very bleak, and then we recovered fairly nicely in September. And in Japan, the minus 2%, we probably did not suffer at all because it was mainly the domestic -- production for domestic consumption was down. But we as Autoliv, we are much more exposed to the export production, which did fairly well, actually, in Japan.

Change in slide again, and looking at the unit sales here on Quarter 3 compared to Quarter 3 last year. The seat belts were up in June in terms of 11%. That looks very fine. But if we exclude the acquisition of NSK, there it was flat in volume development. The percentage was up 5%, but if we exclude NSK percentage, the volume was down 4% or not too far away from the core production. The side airbags, chest bags are up 5, really. The head protection is 25, and if we take the Inflatable Curtains in volumes, they were up 41%. But actually in currency terms they were up 50. I think one of the contributing factors here is a large chunk of the sales is in Europe in Euros and, and converted to dollars that led to a 50% increase. So relatively strong performance from a unit sales point of view. We can also see that steering wheels were up 10%, which is a good figure.

And on the next slide, we can see the gross margin development, we added 0.3% compared to last year and that was in spite of the acquisition of NSK which actually diluted 0.4, so the underlying trend was 0.7% up Quarter 3 this year compared to the same program Quarter 3 last year. From a product point of view, you could say the mix was not favorable. We had a strong increase in steering wheels United States, electronics and frontal airbags went down. But all in all we came in at 18.3%, which was up. Operating margin, same level as Quarter 3, as expected. We did experience here some inefficiencies, partially because of a lot of new models being launched, maybe particularly so in Europe. But also as I believe most of you already know we were running more or less the last quarter in Indianapolis and in Denver, and you always have an inefficiency problem when you're shutting down a plant at the very end because you do need to have overhead remaining and the volume is relatively small to spread the overhead out. So that also added to the inefficiencies, which we knew was going to happen, of course. All the need continues to rise. We have at least three reasons for it. The first one is depending on the order intake as we have discussed many times before. As we have discussed lately, the engineering income goes down as a percent of sales, at least, and a little bit down in nominal figures, and so a trend towards more models on the same platform, thus increasing year by year, so that will continue to add engineering costs, unfortunately.

Changing to the income statement. If we take the middle column and see what changed this quarter compared to the same quarter last year, you can see that sales is up close to 14%, as we mentioned. Gross profit went up 15%. Operating income was up 12, and part of the problem is then the engineering cost. Income before tax, though, we're up 18, and by the end of the day, after everything, income tax and so forth, we are up on a net income about 25% year on year, measured in dollars. Then we have bought back some shares and some others, so we have in the earnings per share, we're up 29% compared to the same quarter last year. And the increase of 12 cents, 4 cents is currency translation effect. And as we mentioned, the need continues up, which is of course on the negative side. Part of this is the lower engineering income is that we will be paid on piece parts, rather, so even if the engineering income goes down, which means the ODE goes up, we will see a higher gross profit. That is basically all the comments to the income statement.

Changing slide and having a look at the key figures, if we compare this quarter again with the same quarter last year, we had an increase from 42 cents per share to 54 cents per share. The return on the shareholder's equity we bought from 8.3 to 9.3%, and capital went from 10.8 to 11.3%. So you could say that this was the -- another quarter with fairly nice increases on the return. Unfortunately, we did increase the working capital and we did pass, shall we say, our target of keeping it under 10%, and as we're going to see later on, the big reason is we had a very unexpected payable decrease of 57 million. We were too ambitious paying our bills, obviously. And also the NSK has added 30 million roughly to the working capital. Net debt increased about 29 million, which is explained by dividends, 13 million. We have paid off debt towards retirement of 14 million and some severance costs that I mentioned, Indianapolis and also in Denver, with was another 6. So that more than explains the 29 million. Net debt to capitalization was unchanged from Quarter 2 to Quarter 3 and two points less than a year ago, so 29% net debt to capitalization.

If we have a check on the next slide, the profitability, we can say that this was the 11th quarter with increased return on equity and also increased return on capital employed. And we believe that that's a good trend, particularly since the weighted cost of capital is probably trending down. As you might have seen, we have an average rate for our loans of about 4.0%.

Next slide shows you the cash flow came out to be zero, which is fairly disappointing. As I mentioned before, the big problem we had here was that the payroll went down about 57 million, which is roughly the cash flow we normally have during a quarter. So in spite of having taken down receivables of 47 million and had a relatively flat inventory, we only achieved a zero cash flow. So we have to look upon that one as a potential for the fourth quarter, I guess.

Next slide, the operating and free cash flow. The last 12 months, as you can see, the net income is up 40 million, a bit more. Depreciation is still higher than the net CAPEX, but the bad news is that the working capital is up, and that has to do with the payable I just mentioned, the 57 million. So the CAPEX we could comment also, as you see, the last 12 months is 258 million. I think we guided in the annual report, we expect to be in the bracket of 230 to 260, so you can say that we are running at the higher end of the bracket for the time being, closing in on the 260 million. It has to do with capacity increases, inflatable, production machinery, and also a little bit, as usual, inflation production equipment but nothing particularly extraordinary.

Changing slide again and looking at the capital expenditures and appreciation, we can see that the last quarter has been more or less in line with the depreciation and the capital expenditures.

The next slide coming in to the recent events, as you may know, we did acquire a very small German outfit called Protector, and they are in itself, maybe it's not so interesting, but the whole idea is to move over the small batches of production volumes we have for, you know, cars like Bentleys or Rolls or Lamborghinis, to protect it, rather than have it in the big plant production, we have it in a larger plant. We also received three awards from Chrysler, in quality and excellence, which we are very proud of. The Industry Week magazine gave us an award for the steering wheel plant we have in North America in Columbia city. Two Japanese competitors, Tokai Rika, both of them belonging to the Toyota family, they have started up a tech center or a technical company in the Detroit area, and then finally we had one of our long competitors, they have been acquired, as you know, so they changed name to Key Safety System and they have moved their headquarters from Florida to Detroit. Next slide gives us the U.S. light vehicle inventory, and maybe somewhat surprising, but as a technicality, the inventory measured at days kicked up a bit in September. That has to do with the very strong sales figure we had in August that ran about 19 million, so number of days of sales in August was very low, unusually low, you could say. Overall we can say that the inventory levels are fairly much in line with the ten-year trend line, but still a little bit higher. We would like to see it go down just a little bit more.

Next slide gives you the forecast as we see it for the North American light vehicle production as compiled by CSM and some others, and as you can see here, we believe that the fourth quarter in North America will be pretty much the same volume as we had last year or the previous year. So we still believe that the forecast of 15.9 in the U.S. is valid and the production volumes in the States should then be back to normal, you would say, same level as the last two years.

Changing slides, we have the European light vehicle production. The Quarter 4 forecast is below the earlier indication. When we spoke in July, we still thought that we'd see an up tick in Europe of a percent and a half, but that has been revised down to -2.2%. So the total for 2003 we have now changed to about 16.1 million. And I think it's fair to say that some of the ramp-ups here in Europe are not as fast as we would like them to be, and as I mentioned, particularly the ramp-up in the month of August.

Finally when it comes to production figures, we have a new figure for Japanese light vehicle production that we intend to follow going forward, and you can say here that this is a new supplier of data, so we don't know the history so well. But basically they foresee a fairly sizable cutback in Japan. Having said that, the level of production is pretty much the same in Quarter 2, for instance, or Quarter 3, for that matter. And from our point of view it is also fairly much depending on is it going to be for domestic consumption or is it going to be for export? Roughly 70% of our sales in Japan goes to export.

Finally we have the outlook for Quarter 4, and we are, in spite of the somewhat gloomy picture in Europe and the unchanged picture in North America, we are fairly bullish on the sales. We believe that the sales will increase somewhat faster than Quarter 3, which means that it should exceed 14% growth, that is given that the dollar stays where it is presently. And then on the EBIT margin, we think we could reach last year's margin and we have the potential to get in last year's EBIT margin of 7.5%. And again assuming that the interest rates stay roughly where they are today. So, ladies and gentlemen, we would be happy then, the three of us, to try to answer the questions you may have. Over to questions and answers, please.

Thank you, sir. If you have a question at this time, please press number 1 on your telephone key pad. To cancel the question, please press the hash or pound key. The first question comes from Nicholas Hurst (ph). Please go ahead and announce your company's name.

Yes, Nicholas Hurst of Morgan Stanley. A quick question on your R&D. It did jump up quite a bit. Can you say whether this is very contiguous to the launches you had, i.e. you had 17 launches in the quarter. Is this a temporary uplift? I suspect the answer is no, but can you clarify what the outlook is going forward for the next 9 to 12 months.

Okay, Nicholas, we will be happy to do so. I think you're right, it is probably not temporary, it is something that will probably stay for the next 9 to 12 coming months here. If you take income as a percentage of sales, the engineering did go down 0.2% compared to sales and that is coming directly into the EBIT margin then. As we start to pay for the products, having paid for the engineering ourselves, we will get paid on the product piece part going forward, but there is of course a time lag in between because we need to do the engineering, we need to launch the product to start shipping. I hope that clarifies somewhat.

Yeah, that helps. The second question I had was on Asia. You mention -- you have mentioned several times this year this really strong trend in Asia. You mentioned the exports again today. When I look at the launches, including the first quarter, you had the Toyota Corolla, I just don't see as many products as I see in Europe, in North America. Can you help us understand and maybe also extend it to Korea and China, what kind of models are very important for us to track your progress in the region?

I think if you take Japan, our market share, I think we talked about, we have about 25% of the steering wheel market. We have probably only around 20% of the seat belt market. And actually I think the latest we saw was 19 on the airbag market. So we are, of course, having considerably lower content in Japan than we have, for instance, in Europe. So that's basically where we are. And if we talk airbags, we are particularly strong on the side systems and less so on the frontal systems. And then what we don't follow but which you should also know, of course, is the inflators, we believe we have 35, 40% in Japan. If you talk about Korea, China, and so on, I think we have roughly the same mix as we have in Europe and the U.S., maybe a little bit less on the side systems and more on the frontal systems.

Okay. But what about specific models in those two areas that we can look at for Korea and China?

To be honest with you, I don't know exactly. You can calculate, Mats. It's better you tell them afterwards. Essentially, you know, in Korea it's all about Hyundai and Kia. It has nothing to do with Daewoo. In Japan I would say that what is growing very fast in Japan is Honda, but we haven't seen that coming yet. We have seen it in the order intake but it's not coming in sales. We had a good market share in Mitsubishi and Nissan, of course Toyota we're never going to be very strong, as you understand, because they have Toyota, they have Tokai Rika. We're always going to be in Toyota but we're never going to be a particularly strong participant.

Thank you.

Thank you. Our next question comes from Rob Langley (ph). Please go ahead.

It's Rob Langley. Quick question on your gross margin. You talked earlier about using direct materials, production, etc. I just want a quick update on where we are now on the number of suppliers supplying you, whether you're ahead or behind that cost cutting plan.

I'm sorry, we cannot do that because we don't know. The only thing I could tell you that we have launched it, and this is a kind of, you know, ongoing effort, and I think it's never going to be finalized, we are also launching a new purchasing system or a group purchasing system. We are running the pilot now, actually, so we have to make it work before we can -- it's a lot of base work to do, because in that one, all the drawings have to be called up, they have to be perfect, they have to be the same drawing wherever you are in the world with the same specification and type number, so it's a lot of base work. It is being launched -- we haven't seen yet a lot of payback, of course, probably mainly costs so far. But nevertheless you can say from a gross margin point of view, we are doing, if you take the same product range this year as last year, we're up .7%. Then it is diluted somewhat by the NSK products.

So is it realistic to expect further up a few percentage ticks up next year in the gross margin?

We certainly hope so.

Our next question comes from Graham Phillips. Please go ahead and announce your company name.

This is Graham Phillips from UBS. I apologize for the line. It might be bad. A couple of questions. Can you update us on the share buyback program, I believe you didn't buy back in the third quarter, especially with that cash flow level at that zero level. Is this one of the reasons why you didn't buy back?

Graham, we can hear you loud and clear on that line. We decided we'd rather kick up the dividend, which we did in Quarter 3. As you're aware we kicked it from 13 to 16 cents per share which will materialize in quarter 4. That's what we did for Quarter 3. For the time being, you're right, we did not buy back shares, but that's not any kind of new policy, we're just trying to take advantage of it. I think you're aware the average share we had paid about $21.66, which is roughly 10 cents, which is where it is today. So far it's been a good deal for our ownership, I'd say, and we hope it stays that way. But we have not really changed the philosophy.

Does that answer your question, sir? Our next question comes from Kenneth Holt from Deutsche Banc.

Just a question from the product launch. You have this nice list in the report and it says in several places there the frontal airbags have been launched. What do you mean by this? Is it just airbags or stage inflators or do you have electronics in there as well as well?

It's typically not any electronics, at least not the base sensing system. It's always a stage inflator and it could be a more advanced electronic control unit because the control unit would be able to inflate the bag more or less.

So it's not any sensors.

Not really, Kenneth. Sometimes we even have dual stage bags, side ruptures and dual bags and so on. But the common denominator is duly stage inflators.

Okay, thanks.

Our next question comes from Aaron Ewling (ph). Your line is now open. Our next question comes from Andy Trapp (ph).

Andy Trapp (ph) of InSkilla Securities (ph). One question regarding the cash flow. What do you expect it will be going forward? I guess you are not going to report $62 million negative in operating assets and liabilities on average. What do you expect going forward ?

I'd be happy to turn that question over to Magnus. I agree with you. We're trying to improve.

We are trying to improve the cash flow in the fourth quarter. The main issue is really that we paid the account a bit too ambitious. Now we have an action program going on, to make sure that we pay. We are also in the process of reviewing our payment system in the negotiations we have in the supply market and at the same time we want to work with trying to reduce our receivables, so hopefully we will have a much better cash flow.

So you can say, Andy, that this was (inaudible). We were too good paying our bills.

I hope in the future to correct.

We should be.

The receivables, they've gone down. And the inventory, if you compensate for the dollar, was only up 1 million. So the 2 difficult ones we made, but not the payables.

About the – how well are your customers behaving when it comes to payment at the moment under pressure.

They may behave basically as usually, which means you have (inaudible). But we did get paid. That wasn't the problem.

Right. Thanks very much.

Thank you. Our next question comes from Patrick Lindquist (ph). Please go ahead and announce your company name.

Patrick Lindquist (ph) of (inaudible). I had a question on the fourth quarter outlook on the margin side. well you are saying that organic growth should look even better in the 4th quarter than they were in the third. Indianapolis being closed. We know that R&D might not receive the big boost, like it normally does. It's fair to say that it's going to be flat from last year. Why is it not showing better marking given the strong organic growth and Indianapolis helping you?

We start with the latest one here. I have an echo. Can you hear me?

It's okay.

Okay. Very good. The problem we have is we touched upon a little bit earlier. As we shut down production, like Indianapolis, like Denver, at the end of the production, we have to build up something of a safety stock or a little bit of inventory before the line moves. And the Indianapolis line will probably move to Mexico so we have to have a couple of weeks down. In the end, it is accounting, so you have to correct me if I'm wrong, Magnus, but basically you had an overhead that is way too high for the production volume you have, but that overhead is charged to the product that we receive. As we ship up the safety inventory, then we have a negative market, and that harms the EBIT. So we are not seeing all that much benefit, I would say actually nothing at all for the fourth quarter, because we will ship out the safety inventory buildup where we have charged too much overhead because there's no other way to do it if you want to follow U.S. cap. So in spite of having basically no personnel left, we are still going to book a sizable loss. Did you understand that? Hello?

Can you hear me?

I can hear you now, yeah. Was that understandable?

Sure, that was perfectly understandable.

Another second. If you compare to last year, this year we have the MSJ seat belt operation in Asia, and I want to report (inaudible).

Okay, thanks.

Once again, gentlemen, if you want to ask a question, press the pound key to cancel. I have a follow-up question from Graham Phillips. Please go ahead, sir. Mr. Phillips, your line is now open.

Sorry. I thought we had been cut off the earlier call. Just one follow up question. The U.S. presence involving the transplants. Have you got any new business wings on the transplants rather than the Japanese or the European transplants that you had mentioned.

We're getting new business all the time, Graham, for U.S. and for Europe. And actually we believe that the sales outside Japan is higher than in Japan, you know. So what we see going forward is maybe the sales in Japan will flatten out because more and more of the production of Japanese cars will happen outside Japan. But that doesn't change our efforts in any case because we have to be present in Japan at the clearing offices to get the orders, even though again the production of cars in Japan for export will probably be flat or even thought to go down because more of the market is in China but also, of course, mainly in the United States and Europe. So many of the orders we get are from production outside Japan, I would say most.

Outside for export. What about actually in the transplant in the U.S.?

Maybe you understood the question.

You know, when we get the contract, then typically it's a global contract. It includes the transplant--

Oh, I'm sorry. If we get a platform, you know, we get it normally for Japan and Europe.

What percentage of U.S. sales are Japanese transplants or do you see it as part of your Japanese sale even though it's effectively U.S.?

No, we do not. When we say Japan, we mean Japan, the emperor's Japan. And in the U.S., even though it happens to be for Japanese car manufacturers. We are presently gaining market share in the U.S. with transplant, particularly with Nissan, and we are relatively flat on Big 3.

What percentage of your sales out of the U.S. is predominantly (inaudible)?

I can't do that, Graham, because I don't know. I know that Honda presently is about 2% of sales, and if you go out two years in time, that will be 5 to 7%, and that's 5% of the bigger cake, you know?

and Nissan.

I'm sorry, I don't have that really.

All right. Thanks.

Our next question comes from Hinta Boardmann (ph) .

Hinta Boardmann (ph), NWQ Investment management.

The issue about on your cash flow paying back receiving your accounts receivables and payables doesn't seem to be a new issue, not only for three, four, five years. I was wondering if there's something structural has to happen for you to get paid on time. The next question I had was regarding your long-term view on margins. When you spun off, your margins were 200-300 basis points above now. About 7.5 operating margins. Is this the best you can get? Or do you think airbags you can actually see your margin go back up (inaudible).

Okay, thank you. So Magnus will take the first one, I'll take the second one.

When it comes to the payments, I agree with you that it is not really anything structurally that has changed. We need to work on a daily basis with all our routines in order to try to (inaudible). Third quarter but we were too ambitious.

Is that something that -- does everybody in the industry know because (inaudible)?

Everybody would like to show a good cash flow. If they have issues with the cash flow, of course, they have to show much better cash flow, if they can't pay a few days later than one day before. That's exactly what we can see in many cases, that we can pay in the first days of October rather than in the last days of December.

But basically the problem at this time is that you saw we actually take down the receivables by $45 million, roughly. The second one, Magnus, regarding the long-term year-end margins, we could have made life easier for ourselves by not having all these expansions in Japan in electronics because most of them has been diluted. Nobody had the markets we should have, so whatever we should buy, it became diluted. So we would see a shrinking margin basis. So we took the stance probably to build on hopefully ever increasing earnings per share for the shareholders, so we did expand in the spring of '02 in electronics. I would say today it's not diluted at all. But for a year and a half it has been dilative. Now we acquired the NSK seat belt system. Our thought it would be strongly diluted if we brought it in the year 2000, so it had only 40% then. It remains diluted and probably will so for some time. It will probably come back sooner or later because we're adding value over to Thailand and we are changing product on our own. We believe we are building something that is long term bigger value to the shareholder. So I say that short term we're not going to get back to 10%. The 10% -- somewhat blown up because there was so much about inflation and there was a lack of suppliers. Overall it was fantastic. That's never going to come back. But I think we do have an upside of the market. Some of them have corrected and in this case it remains to be corrected, it will take some time, but as we correct it, the margins will increase up again.

Also you're taking a lot of smart airbags know. Is that leading to any sort of improvement in market or is it being dealt with on an individual product by product basis?

There's essentially two trends. I would say today we are shaping more airbags but to be honest -- in Europe some of our customers, I would say, for example, Volkswagen and Fords, they are going back to seat inflators too. So it's a mixed bag we're seeing going forward. I think the smaller airbags have added to our margin a little bit. Going forward we hope we can protect the margin we have in any case. It's a little bit difficult to understand what's going on. Some of the smaller cars are going to have single stage only, it looks like.

All right. Thank you very much.

Thank you. The next question comes from (inaudible).

Hello, good afternoon. I have a few questions. First one is, can you please explain the difference between (inaudible) and also '03 and (inaudible) other expense (inaudible).

All right. That is a complicated one. You mean Quarter 3 this year or last year?

No, from Quarter 3 (inaudible).

Should you do that then, Magnus?

Between from -- yeah. Do you want to repeat the numbers? I don't have it. It's from a negative of 4.3 last year first nine months. For this first nine months it's a plus of 5.8. (inaudible) we normally restructuring like several costs, etc. And in the last year, we had some of the provisions, as we told you, during the year, and we want to have that in the fourth quarter, as you see in that report, 7.5 million in the fourth quarter. Then it becomes positive. It's really that we have actually put aside too much severance charges last year and we have not used that money and so we are release that go money back into the income tax at the same time. For releasing and earlier, you could say, we've already made provisions.

Can you say the line where you can address --

Not really. No, not at all. If you are having a plant closure, as we have talked about already, Denver plant, Indianapolis, etc., if you then shut it down, you plan to have shortages. Then you make provision for those charges and we do that. If we don't need all those charges, then we will get back. But then you have another -- you can make some gains in real estate sales which we had 5.8 or so, building a plant in Spain, which gave $1 million as a net gain. That kind of accounting to that line.

Can you also just explain is it a trend we're currently seeing in equity earnings of affiliates which a bit more than doubled in the first and something which you expect to continue in the fourth quarter and going forward, or is it (inaudible) integration of NSK.

I think you understood it correctly. In previous years we had NSK as an equity -- we own them 40%. And this year we consolidate 100% against CNL. As was said before, the operation was not making money, it was losing money, and that is the major explanation. The next explanation is that a number of our affiliates are in Asia, and we are increasing our sales and also our profit sales. I would say that, yes, you can expect to have a positive development on this line.

To sum up, you know, historically we have had NSK as a negative factor in the earnings of affiliates. Now as we consolidate as of Quarter 2, it brought up to be a negative on the EBITDA and the earnings (inaudible) remain more positive. And in China particularly and also in Asia, we have a number of these minority or 50-50 type of joint ventures who affiliates, and they are doing real well, so they trend actually up. We have moved a negative from below the EBIT line to above the EBIT line. That's the explanation.

Another question. You continue to gain market shares almost everywhere. Could you tell us where you're most successful and if it's possible, I know you don't like to say what is your competition, but can you tell us who is losing the most?

I think we're doing the best in terms of Europe and Japan. Because in Japan we went up 14 (inaudible). In Europe, a similar thing. Core production -7 and we are up, and that is somewhat surprising since we have 50% of the European market. Those are the two outstanding ones, I would say. Who of the competitors that are losing out? I cannot even speculate. I know for the time being we do slightly better than TRW, because we picked up some filing in SEC. Most of them are privately held. As I understand, the only public one. TRW is private and (inaudible) is private. It's not easy for us to know.

Final question, what do you think would be the highest market share you can gain of the global (inaudible) market?

Today we have about 50% of the European market, so that seems to be acceptable in Europe. Maybe that is acceptable world wide. Who knows?

Thank you very much.

Thank you. Mr.(inaudible)-- I turn it over to you for closing comments?

Thank you very much all of you for participating then and next year, we have the full-year report and that is January -- we will let you know. January 22nd when we have the full-year closing and hopefully we (inaudible). Thank you very much for participating, all of you. Bye-bye.

This concludes today's conference. You may now disconnect your line. Thank you.