Autoliv Inc (ALV) 2004 Q1 法說會逐字稿

Thank you very much. Good morning to all of you in the United States and good afternoon to you in Europe. First of all I’d like to say that the slides that we are going to start the presentation with they are all available and on the corporate web page under financial information, so financial information on the corporate web page which is autoliv.com. And the first slide as you can see is the Safe Harbor Statement. We will not go through it but it is an integral part of today’s presentation. We understand that the legalistic situation in the US makes it suitable to have one of these statements so here it is you can read it and enjoy it.

The first slide is the sales-slide, the net sales. We think from our point of view that the sales ended up better than we had expected. We though we would see in the interest of some 15%, ending up around 19%. The light week in production actually was similar or very marginally below our expectation. The foreign exchange more or less as expected. So we gained from our point of view a positive model mix maybe also combined with the better option take rate on currencies than we had anticipated so all in all the growth was 19% It was an organic growth of 4, as we will see later and the core production was down 1.

If we take it from the product point of view what was particularly good this past quarter was an Inflatable Curtains, the seatbelt, the steering wheels and also the safety electronics. They all contributed to nice growth and we could say from a region point of view all the major geographic regions in all of them we had an organic growth that was higher than the light vehicle production.

If we turn to the next page we can look at the organic growth we had when we compensate for acquisitions, and that is by the way something that we will not do the next quarter because now we have the owned the NSK plant also in Asia for one full year.

As you can see here we had a negative growth in the Life Vehicle production of some 1% roughly. Whereas we managed to grow plus 4. So as we thought after the fourth quarter we would have another good quarter, but not as good as we had in the fourth quarter when we had an exceptional growth rate. We were almost afraid that we would have a negative growth rate this quarter because of a very strong fourth quarter.

And what you cannot see this is a Tri-ad, which means that Europe, the United States and Japan, the strongest growth we have I would say more or less as usual is the rest of the world China, Korea etc, where the organic growth was more than 10%. So graph now is a change because now we have included Japan for the first time, but the main the major growth is outside of the graph still.

We turn the page and look at the volume development, starting out with North America. We can see that the big three production was down around 5% in volume turns and as you are also aware we are increasingly strong and well positioned with the transplants so we what you call the new domestic here is more commonly referred to as the transplants I believe we had a strong kick up of 12.5%, and nowadays that’s not heard of anymore.

Europe was maybe the weak showing with a negative 1.5%, Japan was pretty much flat and all in all as we said it was a global decrease of around 1% and all in all similar to what we thought.

Turning the page and we are going to look at the volumes development for various products as you can see the seatbelt, we grew 22% year-on-year and then we must deduct the NFK seatbelt in Asia, which means that the underlying growth for some 13% still a lot better than the relatively flat to Light Vehicle production so we are definitely taking market share here. Potentially, its been the same way we are registering 11% in unit terms but if we take out NFK its more or less 5%. Total airbags developed more or less as the market flat volume and as you can see side air bags, just up 2% head to 26%. If you look at the inflatable carton alone and isolate that one out of the head airbags, it is so that we grew 40% in volume terms year on year and 53% in value terms and you know the value depends on what type of cars they’re for, large cars or small cars or minivan whatever car to be shipped. So 40% in volume 53% in values.

Steering wheels had another good quarter up 11% and which is also clearing market share again. So all in all we think it was a very successful quarter when it comes to the market sharing.

Gross margins, I think you are aware that they have had just a short term target to get back to 20% which we’ve actually managed to do here in quarter 1 this year. We grew from 18.4 last year up to 20 so that is 1.5% actually and then, the components here are a little bit different its first of all of course highly changed (indiscernible) cost (indiscernible) depreciation with a lower as a percentage.

But we also managed to have a somewhat lower component cost and that is because of internal mix. And then as you know we closed down a number of plants last year. Last January like Indianapolis like Alton city and so forth so the production overheads have also decreased.

So all of this going down till we hit 20% gross margin in quarter 1 which fairly nice to see that it got back to 20.

Next line would be the operating results. Being compared to the same quarter last year we managed to get close to 1% better operating margin and that is done in spite of a fairly strong increase in the research and engineering percentage because we going to get back to that one a little bit later.

The reason for having this one is of course the major increase in the gross margin but then we also managed to have the same for administration cost fairly flat. I mean actually if we exclude foreign exchange and acquisitions. They are completely flat between the 2 years in spite of increase sale. So 8.1% in the Edith Morgan quarter 1 2004.

Turning the page and then and going through the income statements, we usually start with the (indiscernible) change what happen quarter 1 this year compared to quarter 1 last year and as we said sales was plus 19 and as we go down in the P&L gross profit was up 30, operating income was up 33, income before taxes which were an income that was up no less than 43% compared to last year finally made the income 47% higher and earnings per share actually 48% higher than the same quarter last year.

As we said before the SG&A we had hopefully turned a corner now and last year we had 5% sales in admin cost is now down to 4.8%. We have more or less no change in manpower year on year. So the manpower which is really the headcount is the cost to drive you can say is an admin, is flat between the 2 years.

Research and development actually continues up fairly significantly we are (indiscernible) at 6.7%. and it is an increase of around $26m year on year and when we been analyzing it roughly half of that is really lower engineering and prototype income you could say. So engineering and prototype income is down around half of that figure of 26. And another $8m is sinked in foreign exchange.

We could do the same exercise here and we go through the manpower and the headcount between the years. We are up 1% in engineering, the cost of engineering, manpower is up 1% compared to last year.

With Edith, we seem, as we show here it’s up about $30m, out of those $30m 10 is translation of foreign exchange.

And then finally the earnings per share, the last 12 months we have now been running at $3.08cents. We wish to point out that does include a 1 time effect that we had to include because of the year with the new account we received in the United States.

So 3.08………if we turn the page and look at the key figures, the books for the first quarter here, we did mention that the earnings per share went from 54 cents to 80 cents that was the increase we mentioned of 48% and the ratio we been interested in, return on equity and capital employed. Both of them we managed to get up about 2.5%, 3%. So we presently run a return on equity of 12.7% and return on capital employed of 15.4%

Capital employed itself as you can see is very flat the last 4 quarters we cannot really compare it with the end of the first quarter 2003 because that did not include the NSK.

Gearing has gone down from some 29% a year ago was at 24 at the turn of the year, we are now down to 23% as the net debt divided with capitalization.

Headcount finally, we’re up about 777 employees here for during the first quarter and out of those actually, we’re up 700 sorry, and 777 of those 700 are in low labor cost countries. And to remind you its actually a shrinkage in the high labor cost countries and that is to develop ones that we are working fairly hard to establish we’re up as we said then 777 in low labor cost and we’re down in the high labor cost countries.

The next slide is the return on equity where we said was up 2.7% year on year and this is the 13th straight year on year improvement, the 13th straight quarter where we have a year on year improvement on the return on equity.

And if we turn to the next slide we see that the same is valid actually for return on capital employed where we increased almost 3%. We came from 12.5% a year ago to 15.4% return on capital employed this quarter. We have received some questions why the return on capital employed is not higher given the fairly good return on sales. And actually if we exclude all the intangibles in the balance sheet the return on the physical assets we have is this year the first quarter is35% and the same quarter a year ago was 31%. And that is of course what we as management can do is give a return on physical assets.

Turning the page again and have a look at the cash flow. We can say that the first quarter here the gross cash flow $120m positive that is in line with the long term trend we have which is around $1/2b for a full year. A month after KPIX we are running around 50 and as you know the longer term trend is around 250 and then, so that is a little bit shy but then you should be aware that during this first quarter her we had one of our largest customer change his payment term so we need to pay him couple of days earlier so that all that over the quarter herein to year end he will look a little bit better. So that cost us additional effect of $35m. That was the one time effect here in quarter 1. So in essence that spoils our figure a little bit, the $35m.

So all in all we think the cash flow was fine and in turning the page we look at the numbers where you can see the last 12 months without going through all of it. The net income is up as you can see here the depreciation and amortization is fairly stable and the KPIX about 259, marginally higher than last year therefore the long term trend also put a net cash flow 283 (indiscernible) or actually exceeding the $250m that we have had as a longer term trend.

So we see that’s a fairly strong cash flow well in line with a long term trend

Turning the page again and we’re looking at the capital expenditures comparing with depreciation, we have a capital expenditure that’s pretty much in line with the depreciation and as we said during the fourth quarter reviews, we would see a slightly higher capital expenditure this year compared to last year and part of it has to do with the build up of capacity on textiles and inflators for Inflatable Curtain and other side protection and as you see that is actually happening.

Turning the page again, we would like to make a couple of comments here on the raw material development. We think that we are in a similar position as everybody else, nothing more dramatic than the others but you have to try to explain to you what it really looks like.

First off, a lot of our sales, 50% of sales is really component cost. It’s been that way for a number of years and surprisingly stable throughout the years Autoliv’s component cost as you can see here on this slide more than 70% is really value added by our suppliers and only like 30% or a little bit shy of 30% really boils down to the raw material itself and if you look at that raw material content on the next slide, you can see that the biggest ones we have is about 35% of the raw material would be steel, another 35% would be petroleum based raw material such as yarn and fabric and plastic for various components and about half of that would then be electronics and then you could say that the two dominant ones of course in other words oil-based and steel. The purchase value for oil-based and steel-based products is about $250m to $300m each. So, that is the total purchase value for raw material content.

The next slide will show you roughly how we perceive the market to be for the time being. You have in Q4 last year and you have Q1 this year. As you can see, we think that the plastics have gone up a bit. We feel that’s been up quite a bit. Other methods in cost components like aluminum and so on is also fairly steeply up, textiles and electronics and then we have the next call you can see our own forecast for this year in spite of what we had on the market to essentially decrease the plastic component cost and then deeply so we’re going to decrease the electronic component cost and the only one where we really see a slight up-tick in Autoliv would be the steel stamped product. And that is the way we perceive it and we will actually see it as you would understand and slightly different from the raw material.

If you then turn to page to the - - we’ll go through the various factors that include the repurchase price that we have. First we consolidate the supply base, I would say that this is the longer term effort. It is starting up [Indiscernible] but there’s a lot more to do.

Increased components are actually low labor cost countries that have started as well. I think today we have about 7% of the purchase in low labor cost countries and as you can understand, there is a lot more to do there.

Growing relative to cost and raw materials is true, but believe in the next month the strong euro offsets part of the raw material cost in dollars. Many raw materials as you know, are denominated in dollars and if the dollar then goes down at least at the pace as if you see it Europe and you buy it in euros you offset part of it because of the euro going up. So, in essence it means that we are better off in Europe than we are in the United States for instance.

If we try to draw a conclusion from all of these raw material slides, I think you are aware from various presentations, capital market base etcetera, that for the next four years or so, we have been running the - - component cost decrease annually at about 3%. If the raw material prices stay where they are today, we think that this decrease will moderate maybe 1.5%/2% decrease this year but we are still going to see a material decrease in Autoliv and the only news is really it might not be as strong as it usually is. We might drop to 1.5% to 2% down but it is not anything worse than so.

Next slide would then be the recent events what have happened. As you know, we are expanding rather dramatically in Asia Pacific so we have a number of sleds that are being installed for the time being in various parts of Asia Pacific. We have decided to start up an electronics production in China and that will be not only for China but for the whole Asia Pacific region including Japan actually.

We have also - - as you know, a fairly new plant in Korea its been in operation two years. We have already boat lined and started out an expansion of that plant even though it isn’t full yet, but we know that two years from now we would have to double the production in Korea according to the business plan. So, even if the plant is only half way we have to expand it already.

In January we got the global supplier award for Mercedes Benz, Chrysler and the truck parts for Daimler Chrysler as well. That was one out of eight awards and we got the award for the best imperial supplier globally to the Daimler Chrysler Group. And then there is a new test program that continues in the United States that continues to confirm the significant benefits of Thorax airbags or you could say head and thorax airbags in the United States and we think that is only reinforcing the already taken decisions in the US.

If you turn the - - to the next slide, we’ll have a look at the US light bills and inventories like we usually do.

The March figure is not particularly good as you can see, it’s the relatively high inventory level in the US after sale more actually slightly above the level we had in 2003 and we are going to need a similar summer blow out until we deplete the inventory. But having said that and having read the latest statements from Ford and General Motors, the last couple of days, we did not hear any noise at all regarding decreased production numbers. So it seems like the US suppliers are very confident that they can take down the levels even though they appear fairly high.

Turning to the next slide and looking at the forecast for light/ week of production in North America. In Q2 according to CSN, we would see an up-tick here over close to 3% and then that will be followed by a couple of fairly flat quarters for the remainder of the year and the first figures we have down for next year is that we are going to see a next year not too bad, increases coming up to about 16.4 million or 400,000 vehicles more next year than this year. So, it looks like after a couple of - -two flat years, we should see a slight up-tick next year.

Turning the page and looking at Europe, we have the opposite, we should see a slight decrease for Europe around 4% according to LNC and then also in Europe we will have quarter 3 and quarter 4 fairly flat compared to last year and a similar trend here next year in Europe.

The forecast today is that we will go from 16.1 to 16.4million during this year’s production. So, we could say that for quarter 2 they go different ways. For quarter 3 and quarter 3 and quarter 4 they are flat and next year should see a slight up-tick for both Europe and the United States.

Our next slide shows the core production in Japan and you could say there is really no news and if you read the last couple of years there hasn’t been a lot of news lately. It seems like we are going to have three consecutive years with 8.4 million units. So, flat as usual, I guess is what you can say.

Then finally, the outlook that we are looking at for the time being. We think that the foreign exchange, knowing what we know today will have some 5%. We believe that the organic growth for quarter 2 will be in a similar order of magnitude as it was in quarter 1, that means another 5% or so, over and above. So all in all, the overall magnitude of the increase would be around 10% phased growth.

And the EBIT margin we had last year, we had 8.3%. We believe are in a position to exceed that margin slightly for quarter 2 of best this year, and then of course we can tell you that the European region going down the way its forecast is negative for us. But we think we will because you know we have half of the sales in Europe but nevertheless we think we can compensate that but we think that we will exceed the market also for quarter 2 compared to last year.

And with that we will be happy to answer all the questions we can. So, over to you Annie Cam and open up for questions.

Thank you sir. Ladies and gentlemen if you do have a question at this time, press the number 1 on your telephone keypad. To cancel that request depress the hash or the pound key. Once again, that’s the number to register questions or the hash or the pound key to cancel. And the first question comes from Angus Trapp, please go ahead announcing your company name

Yes hi Angus Trapp from (indiscernible). Congratulations on very strong results. I am particularly intrigued, if you could elaborate a little bit more about how you were able to raise the growth margin as much as you did. You said something about components costing lower but could you elaborate a little bit on that?

Sure we’d be happy to and when there are a couple of things on the growth margin you know that is it is influenced by the material cost of course and they are way down about .8% if you want (indiscernible) and then we had a little bit of an offset with some transportation costs. Then you could say that in the production over head that was a part of growth margin, here we had a fixed depreciation of course and when sales pick up you know the depreciation as a percentage of sales goes down. Anything else we should add Magnus?

Material cost, depreciation, and production, overhead labor

Labor and production overhead, and that has to do you know Angus, with when you take out plans like we did and take the load and put it into already existing plants, we can do with less overheads, so you are right. Salary component of production overhead as well as depreciation really went down. So you could say structural work.

Very good. When looking into the future, analysts here, should we expect continued improvement from the levels you are now do you think or is it more a function of where the faith goes?

Angus, I think we take one quarter at a time for the liquidating here and we think that it’s a good opportunity to further increase, the growth margin in the coming quarter.

Okay on your order intake in your last quarter or quarters maybe, how has that developed compared to what you used to be the very good numbers hear about very good numbers rather.

Right and you can say it’s difficult to measure quarter by quarter but you can say the last 12 months is usually what we measure and you can say there is nothing in particular. It’s not particularly strong and not particularly bleak if you take the last 12 months, if you’re driving at an explanation for the engineering cost.

Yeah, well no, not really, I was more thinking long terms about what to expect in terms of growth rate. If you continue to gain market share from your competitors, or green patrons rather is what I’m driving at.

Yes that is certainly our ambition but the last 12 months there’s just been nothing remarkable happening.

Alright, thank you very much.

Thank you. Our next question comes from Kenneth Tom, please go ahead announcing your company name.

Yes I’m Kenneth Tom with Deutche Bank. Two questions, first on the order intake, how has developed in the quarter compared to previous quarters and then also on the raw material cost side, have you done any …. taken any specific actions in order to mitigate the increases you’re seeing or what are you doing there?

Well Kenneth the order intake was the same answer to you as to Angus Trapp earlier that we measure the last 12 months all the time at the moving average and it’s not particularly anything standing out either way. You could say it’s been fairly normal. What I recall we had a year, I think was 2001 when it was very low and then we had 2002 that was exceptionally strong, maybe compensating for 2001 and for the last 12 months there is nothing particular. You talk about raw material cost, we do the same as everyone else, even though we are maybe not as cocky when it comes to getting the truth. We try of course to raise our prices or lower or prices less when we discuss with our customers but that is very easy to say and to get it through is another story but we’ve certainly done that or we have mailed out a lot of requests in the United States and we’re going to do the same in Japan where the situation is a worse one. So we try to take advantage of it. In our case as you know, we typically have to go down with our prices and this is one reason to use why we do not, why we cannot go down as much as we would usually do and then we compensate for it. I hope that you also heard that it’s nothing real dramatic, we usually are 3% down on material cost, now it might be 1 ½ % or 2% down so it’s nothing exceptional. The conclusion is yes we try to take advantage of it, no we do not promise that we are able to do it.

Okay, thanks.

Our next question comes from Nicholas Herst, please go ahead and announce your company name.

Hi good afternoon Lars, Nicholas Herst, Morgan Stanley. Just a couple of questions on the commercial side, 2/3 of your business had very low growth mainly airbags and yet your side impact air bags were up strongly at least the curtain side and the steering wheels also were up 18% so could you address the potential commoditization of the frontal airbags area which seem to actually probably have declined if you add the neutral organic growth in airbags and then conversely on the seat belt side, you grew 11%. Is it sustainable to expect a double digit growth rate over the next 18 months for seat belts? I know you’re gaining market share but that seems a little bit of an aberration this quarter.

Yes very good Nicholas. What is going on in the airbag side is we believe we do loose a little bit of market on the frontal system, not very dramatic. We’ll probably as you saw here we had fear of loss in unit terms during quarter one and as you recall the core production was down 1% but if you take a little bit longer term I think you’re right, we might have lost a couple of percent on the frontal system. And then we it’s because of (indiscernible) you could say that is a very competitive area. It’s the most mature area of the frontal system so sometimes the price crease is worse on frontal systems than the initial tide system. You mentioned side air bags and they high head airbags in particular. What you also see when we discuss airbags, Magnus dust rolled in also external inflators phase and that is pulling down the figures clearly dramatically and the reasons are I would say two fold. One of them is that we phased out a lot of, should we say, older inherited inflators which had a high cost for us to produce and then they lower margin and that is not really hurting our pocket but it does hurt the top line and second I would say is that there is a little bit of how competitors have greater internal loyalty like the Toyota group, they had Toyota Gusey and did buy from their own family group companies you could say so there’s a little bit of both lost market share due to better loyalty within competition but also some of it that would cost ourselves knowingly by getting out of some inflators which we think we shouldn’t be into. They are hurting profits but increasing sales.

Question 2 seat belts 11% I cannot tell you if that’s sustainable, I suspect not but for the time being we’re doing exceptionally good in both United States and in Europe. If you remember about a year and half ago, we lost market share in the US and we said we know it will come back and now it is coming back in a fairly big way. I think we said at the time also that we’re going to end up being three roughly the same size suppliers in the US and that is still our view. It would be ourselves, TRW and Pacata. In Europe we’re gaining market share, I’d say we are around 60% of or so in the European market and that is just organic growth. In Japan, I would say minus the growth, it’s not so astounding but as you know we bought the MSK Step 1 two years ago and Step 2 one year ago and what’s happening there is actually the EBIT is up to zero and actually past zero so we made I think it was a whopping 1.1% EBIT margin.

Which is a huge improvement, you should be aware.

Can I ask a couple of question from the cash flow to finish off. It seems that your cash flow after CapEx was a little bit below the average of the previous four quarters which were strong, can you elaborate on that and on the use of cash, you bought back some shares, you had the dividend and I’m wondering about the proportion going forward, of returning cash to shareholders between dividend and share buy back.

Nick, Lars had mentioned previously that we had a one exceptional event affecting the first quarter cash flow and that was the change payments conditions to our major customer which really delayed payment from those customers four or five days which means that we have the negative technical effect for over the first quarter closing.

Right

And that’s where (inaudible) would remain $35m US dollars and so if you add that back I would say that completing that it was a very good first quarter

It was a very good first quarter and if this was cheaper for us to do rather than give discounts.

And coming back to the use of the excess cash flow of course we have said previously that we don’t at the time could see any major acquisitions or any need for the excess cash flow, in one way or another we’ll of course have to distribute it to the shareholders but in what way ---that will have to be decided by the board by time.

But you mentioned in your release you have a – you could buy back up to 11m shares and you’ve boosted the dividend by 80% these are both pretty sizable potential commitments, can you give us an idea of where its going to go?

Not really Nick, what we’re going to do we have as you know we take being a U.S company we have to take external advice all the time nowadays so we take all these external advice from a well known company. And then we think a little bit and when we look at what the analyst community believes and then we’re going to draw some conclusion and soon as we have drawn that you will know.

Thank you

You’re welcome.

Thank you our next question comes from James Rustin, please go ahead announcing your company name.

This is James Rustin with Janna Partners. I have a few questions, just coming back to the pricing issue and the question has already been somewhat asked, you know, I wonder if you could go back to what you said. You said that component prices that have continued to decline for you--- that have been in decline over the past few years will decline but perhaps less rapidly as they have historically. I was wondering if you’d comment on the pace of components price declines that you’ve seen over the past few years. What you kind of see going forward? And then couple that with pricing pressure that you must feel just looking at what some of the manufacturers margins have gone to overtime, you know Ford has gone down from 6% in ’99 to 1% margins right now. So I was wondering if you could sort of, you know, talk about pricing pressures you might see and the margin impact for you of your component prices sort of going down a little bit less rapidly over time, that’s the first question. The second question is, you know, 13% SG&A growth year-on-year, I sort of wonder why is that---why are SG&A costs as variable as they seem to be. And the third question I have is I’d just love to hear your view of mix in the auto industry going forward. What do you see in terms of being going through an upgrade cycle it seems over the past 5+ years is that still continuing? Is gathering momentum or is mixed or starting to deteriorate from this point based on your order backlog.

Alright I see but I am not sure we understood all the questions but we’re going to do our best and you can just repeat otherwise. You started out with the component price down so what have they been looking like historically? If we take the last years I would say 2002, from 01, 02 and 03 we have seen declines of 3% more or less exactly every year and that is declines from ongoing down (inaudible). And given that we see the raw material going up now if the raw materials stay as high as it is today then we think we cannot achieve 3% this year maybe it goes down to 1 ½ , 2 but it still going down. And that pricing that you requested regarding the future prices, we believe we’re seeing a peek so we don’t believe it going to be as bad as it looks today. So what we’re trying to do is try to give you guidance, if it stays where it is today then this would happen. But we think it’s a peek and we think here there are some indications already that it is turning around so therefore I think it’s probably going to be better than what we say here. If only you could see---if we look at it the way it is today we’d be slightly less this year. Our chances are that this I the peek and it improves.

Second question regarding the SG&A, actually it is not as valuable and you know, the cost drive if we’d say its an administration cost. If you take out some old things like legal costs or stuff that just happens because you have a law suite or so. Those are the human beings that we use and those are exactly flat between last year’s quarter one and this years quarter one and those are the cost drivers. So what you’re looking at is mainly foreign exchange translation and also that we added MSK in Japan but totally flat other than that.

Okay thank you.

The third question what was that, I think on mix

What’s your view on mix in the auto sector in general going forward if you have a view at all?

Obviously we have a view at all. Our view is that we’re less vulnerable than we were a couple of years ago and that particularly apply to the U.S because if we have these conversation three years ago we were standing and falling a big tree and we’re not anymore. So for us it’s not so significant anymore. It’s the American consumer by say transplant to car or U.S car so we are less depending on the mix nowadays to where we use to be.

And if I may ask one more ---congratulations on the gross margins which are tremendous. I just wonder what he risks are that you become a victim of your own success. If I were the chief procurement officer at Ford and you’re not seeing my margins go down to sixth of where they were five years ago, I wonder if seeing your gross margins go up as impressively, if they have makes me want to call and really renegotiate prices. Is that a risk at all or not really?

They sold with the (inaudible) but I don’t think there’s any industry going to have slow growth purchasing management that we have our industry. But having said that you know if you were the procurement officer at Ford you would like to pay the lowest possible price and as long we can offer the lowest possible price we should be fairly well off. And having said that I’m sure they’re going to use their order (indiscernible) and twist our arm a bit.

You’re doing a great job regardless so thanks very much and congratulations.

Thank you very much.

Thank you. Our next question comes from Scott Merlis please go ahead announcing your company name.

Scott Merlis Thomas Weisel Partners, congratulations.

Thank you

In your release you itemized twelve launches of your new products---new models and I’m wondering to what extent this is normal for a first quarter or unusual in terms of cost---change over cost. And to what extent---which one could be most additives in subsequent quarters for example do you have a lot more content on the new Astra [ph] versus the old Astra.

Thank you Scott I think its sort of---it’s getting more evenly spread. Once upon a time you know it all happens during quarter three and we think its spreading a lot more than it use to. Also I think that I am really not in a position to say all of these on whether there is more or less. If you take from all of us in the phase two we have all of it but we have all of it in the previous one too.

Your complete question regarding Astra,- yes there’s a lot more in this Astra than there was in the predecessor. Then I can seem to mind really how could you say that you took out the Rolls Royce because that has no (inaudible). So this is a (inaudible) various types Scott and I think you’re probably in a better position than I am to figure out where the volumes are but the Astra does have more Autoliv content than the predecessor.

And the other question would be when you look at your R&D expense could you review what gets repaid what kind of tooling reimbursement might come next year and what happens to the kind of the net R&D effect or net engineering effect as we go into ’05.

You know we have discussed that Scott and what we’re doing now, what Magnus is doing now ---he has modified, you could say, the P& L to be able to measure how much do we sort of call it invest if you like in engineering and prototypes. Because all of that we need to make sure we get back. Having said that I don’t think its going to be a lot in ’05 but it will come in ’06 and ’07 if we still beat all of it. (Inaudible) increase in dollar terms we feel was lower income on engineering in prototypes. So we need to be sure that we get it back. The good news though is that we experienced it all so that means that if then some well known customer sends it out for global sourcing, we are not sort of forced to take it again, we can decide not to, because we don’t to write off a lot of activated engineering in proto-type, so we are taking the conservative route and it should mean that ’06 or so we should have a higher bargaining end.

Okay, that’s helpful. And the last questions is on re-purchase, you know, is ex - - is your excess cash flow through the year seasonably stable enough so that re-purchase would be kind - - a relatively stable activity as we go through the year.

I would say its - - if not very, a quarter is possibly too short of a time. Magnus maybe you can elaborate.

I think the balance sheet is so strong today, so I don’t think we have to look on a particular one quarter, I think its more important to look at the market due on the Autoliv share and expectations for the stock market.

Okay, thank you very much.

Thank you Scott.

Just to remind all participants, that’s the number 1 or the “hash” or pound key to cancel.

Our next question comes fro Robert Langwhick, please go ahead announcing your company name.

Hi, it’s Rob Langwhick from (indiscernible). And just four questions, two on the top line and two on margins. First of all you talked in the fourth quarter about the catch-up effect for USC (indiscernible), were you snapping back from weakness from provisioning bad models? And can we expect equally the catch-up effects to stop flowing as it were, later in this year? and secondly on the sales guidance in the second quarter, you’ve now come off the fence and don’t a very conservative sales guidance as it were, before you talk about greater than zero, greater than one organic etc. now you’re guiding a 5% growth, do you have increased - - a reason for increased confidence and that’s why you’re now giving mid single digits organic growth guidance for the second quarter?

And then on the margins, on the gross margin it looks like - - if my math is correct, like if half of sales is costs - - gross costs and 30% of that roughly is raw materials as effected by price changes, how come you only have a1 ½ % to 2% fall in those prices rather than a 3% fall? That looks like it would only have impacted the balance at 20 basis points on your gross margin and that should easily be counter balanced by the shift to low labor cost countries and the (indiscernible) cost or action program. Can you justify if that’s the kind of sensitivity we’re talking about on the raw material prices.

And then finally on the R&D line, if you one of you can have some steer on that as a percent of sales this year given the extreme rise, and being placed to your 7%. Thanks.

Well thank you, if we start with the first question regarding the seatbelts, we leased stocks during the end of the year at 35% off. Why did we not continue like this of course because we are probably approaching at the end of the year somewhere - - I believe to be shy of 30% markets quite possibly in the U. S., as we said long term, we think we’re going to land near like 30 or 32, so will the other two. So we think its going to be a digressive growth here.

The sales guidance, we were somewhat (inaudible) after quarter four, you saw yourself here, we had an extremely strong organic growth at the same time as the production volumes were decreasing and we felt that it has happened before- - particularly over the year end, some kind of hang over, we get it back so to speak, with the lower sales in quarter one, that didn’t happen. So, now feel a little bit cockier maybe and we’re saying that we think we’re going to have a similar organic growth quarter two as we had in quarter one, we frankly don’t see any reason why it should not be that way. So that is why we have upgraded the guidance somewhat. When it comes to a discussion about material costs minus - -

If I understand you correctly, the component costs represent about 50% to our sales value in total, and what we said is that, instead of having a decrease of about 3 % on our components costs we expected, but if the present path is correct, that we would a decrease of 1 ½ %/2%. So if you take - - then half of it, then we have ½ % effect on the margin, that you compensate the sales price decline.

And that ½ % we try to get back of course by customary balance, but we cannot guarantee that that will happen nor can we guarantee that it happens timely, you know, to get anything out of our type of customers usually takes time.

And then there - - sorry the fourth one, thank you Mag. There was the R&D, we think we will end somewhere around 6 ½ % for the full year. I think we’re slightly higher than that for the time being but think it would end up 6 ½.

If I could just ask a quick follow-up just to clarify the third question, about the sensitivity into your spiking raw material prices that’s enduring. Somewhere in the presentation, you showed a pie chart saying 50% of your sales price is component cost, and then I think you said only 29% off of that is exposed to the spike in the raw materials market, but now Magnus is saying it’s actually the whole 50% of sales that is exposed to this differing price decline. So just to make it absolutely crystal clear, its correct then, if there’s a 1% then that’s a pricing of (indiscernible) plus the (inaudible) and the way you look at it, at only 2% rather than a 3% trend for the last three years, then that will impact half of your sales or rather, you know 50% of sales. So that means there’s ½ % sensitivity on the gross margin 50 basis points, is that correct.

Yes, because when we talk the price decline we talk about total decline on component cost and that what he terms 50%. So he answered it correctly.

but at the same time - -

On the gross margin we talk about those 50 basis points (inaudible)

And that would mean that the same prices stay as high they are and the old prices and the old prices stay as high as they are and remain so for the remainder of the year, that’s when you have this effect, yes.

But at the same time you expect counter to any factors in the mat- - the (inaudible) which is low lane across country, start (inaudible) program and operational gearing.

Absolutely and we try to get it off because we didn’t take it in the book, but you never know.

And then you were tossing around 20% - I remember the last capital market stay and you’ve been very successfully getting that. I wonder now, we’re at that level, if you at all quantify without giving a time scale, what internally you’re shooting for on the gross margin?

We are relaxing now. No, seriously, of course we always try to improve on these targets have to be something that we do internally and that is achievable and we felt that 20% was the reasonable one. I think the next natural one to be of course to the new record high, and that’s going to be something like 21 ½ or so I guess, but we have no clue when that would happen.

Okay, thanks for answering my question.

Thank you.

Thank you. Our next question comes from Humphrey Singulaow, pleas go ahead and announce your company name.

Hi, and good afternoon, I’m Singulaow from Kelsingh Bunt. I have two questions if I may, and the first question is looking at your boost in sales for Inflatable Curtains in the U. S.A., is that also due to high to take it that big three of yours or is it only the European manufacturer and the Asian manufacturer and the increase in the production. And secondly my other question is, looking at your customer mix in Europe this quarter, you said that - - you mentioned that it was more negative than last quarter during - - and the first quarter too – inaudible - due to the weak sense for (inaudible) and delayed in production report, they showed 2,407. Do you see this also being the case in second quarter?

If you start with the Inflatable Curtain we think that that one is growing particularly in the U.S. and in Europe, not so much for domestic Japan or domestic Korea. So, but that of course is somewhat difficult to measure as you know, because many of the curtains are delivered down to Munich or to Stuttgart or to Gothenburg but the cars end up in the U.S., so even though they are sold in Europe they often times end up in the United States. But more in Europe than the U. S., and less so in the local Asian market.

Regarding the negative customer mix I’ll hand it over to Mag.

Yes I mean in the fourth quarter we grow organically by 9% and week of production is down 1%, if I remember the numbers right clearly. And we’re now out growing the Vehicle production by 5%, it’s still very good, but it is definitely less than the 10% we have in the fourth quarter.

Okay

And that’s what we mean by this (indiscernible) in the pocket overview

And by going back to (indiscernible) I’m not sure that I understood you correct or not. What I was looking for is have you seen any change in behavior for the big three in the take rates on Inflatable Curtains?

No. I would say not particularly we hear the noise, we hear discussions, what if we went a 70% insulated rate? What if we did this, what if we that. And that has triggered us and I’m sure also our competitors, because we are going to run out of capacity fairly fast and I think they will too and that’s why we said that we have---we are installing and we have an order a number of new loans. We need to expand the building in Canada and so forth and so on but that has not happened yet.

We have allocated resources, the saves isn’t there yet, but all the things that come before because as you might suspect Danny if you were a North American car builder, (inaudible) from 10% installation to 100, you send it out for sourcing again because you’ve going to buy 10 times as many so you want a better price.

Okay thank you.

Thank you and our next question comes from Austin Earl please go ahead sir and announce your company name.

And hi good afternoon it’s Austin Earl from Newman Regatcy (ph). I had a couple of questions at first it’s just on referring to slide 18 about the raw material input cost. I’m not quite sure how to interpret this are you saying that it went on part and the right this issue or to left trend? Is that what you’re forecasting for each of those items that most of them will now moderate or is that you’re saying that actual impact of the raw materials in your input, cost could you maybe just expand a little bit on that?

Let’s see slide 18, which one is that? Yes what we meant to describe here is that in quarter 4 in ’03 we had a certain view on the market as you can see. In quarter 1 this year what has happened (inaudible) I think we’re all aware, and most of the prices have gone up compared to what we thought in the fourth quarter. What -- That would mean with the alternate trend is that as you know a company like ours have a mixture of a long term contract, one year contract and sort of spiked pricing. So therefore we have a forecast, what will happen in this particular year 2004 if the prices stay where they are today.

And then with one exception as you see with one exception we don’t see any of the increases. The one exception is really the other metal components, I thought it was steel components really that are going to go up nothing dramatic. If I take it on top of my head what we know we would see as the steel costs increase this year, we talked about $3m which is sort of a fact as we speak.

But these slides tries to describe to you what happens if you we who price line stays where it is and that’s why we say that the decrease will not be the typical 3%, but rather a decrease of 1.05% to 2%.

Okay now that’s great I think I understand it and then just as sort of follow up on that, you then eluded earlier saying that eventually at some point if prices do remain this high and therefore your long term contracts starts to run out, that you would then be able to pass on some of these costs, when you have a new contract negotiations?

We’ve already started to that and I’ve been in this metal business before in a former employer and I know that it takes time to get it through. Sooner or later you usually do get it through. And once it through you do your best not to know when the material cost go down again, so it’s somewhat of timing affect too. But we are of course going to try to do that.

Okay I just have one other question which is just regarding the $35m you said that would come through in the cash flow because of the change in payment terms with one client. Should I assume that would then come true in the second quarter, you’ll get that $35m coming in?

No, no, no really that’s the one time impact on the first quarter, it’s really often – it’s pretty simple you know, given that this particular big car producer would us like March 30th. We have agreed that he will pay us April the 4th, so he looks better at the first quarter closing and we had a one time effect where we move over the income for five days. So this is the one time affect where you have already seen it in the cash flow--- we still think the cash flow was good, even taking this hit but what will happen is that you will see the normal cash flow only.

Sorry I am being a bit slow, I don’t understand if it was moved from March into April therefore aren’t you going to show the working capital inflow of that $35m in April for the second quarter?

It’s not for one payment. It’s an exchange of on going payment condition, which means that you will have a delay for the payment in the second quarter up through their being paid (Multiple Speakers).

Okay have a rolling impact…

Exactly right.

Okay got you fine.

He’s got a time on it to look better, but he’s already looking better we have already taken the hit.

Got you okay thank you very much.

You’re welcome.

Thank you and our next question comes from Frederick Lave please go ahead and announce your company name.

Good afternoon Frederick Lave from G. C. Strategies in Paris.

Just a question on price pressure, several times in your presentation you are mentioning pricing pressure from your customers, is there any inflection maybe you can give us a pricing trend per product on --? This is my first question.

Well I would say that in general terms it’s nothing different used to be, sometimes you might feel its different better or worse but I would say that the (indiscernible) is the same.

Okay (indiscernible) and regarding to CapEx are you satisfied with current (indiscernible) offer slightly below 5% can we imagine to--- (indiscernible) base to go further?

We think it’s probably going to stay roughly the way it is for the time being and that’s (indiscernible) is somewhat of an extraordinary thing building up for (indiscernible).

Okay and maybe a last question in Q4 you talked about (indiscernible) margins of dilution due to (indiscernible) acquisition. Can you give us an update on these points?

Yes the dilution is getting better and better you could say from--- we both (indiscernible) two steps. The timing we see marching (indiscernible) the first step I think (indiscernible) to 2000, it was a very large margin we shouldn’t even talk about it. It was a large big negative EBIT number and consequently the price was reasonable, so what we needed to do—that was to make two things. We needed to start to change our (indiscernible) program from the NSK product to the alternate product because the automate product is less costly to produce.

But as you know in the auto industry that takes a long time and if we knocked it down for many years yet to come. Secondly we started to improve after valued added from Japan that is relatively high cost to Thailand and that’s half (indiscernible). So from the large big negative number with a lot of dilution and as late as last year I think we had like 5% may have (indiscernible) and we’re talking about plus one which is not too impressive already we admit but it’s a big difference in any case so the dilution is getting less.

Okay thank you.

Thank you our next question comes from Patrick Lindquist please go ahead and announce your company name.

Hi Patrick Lindquist with (indiscernible). I have a question on the R&D side, where it seems if you look the gross rates are pretty high or particularly if---it’s the invoicing side which is decreasing as I understand. But (indiscernible) accelerate in the first quarter I mean---because it has been going on for a few quarters but it seems-- is it accelerating as we speak? We’re talking about $13m roughly in the first quarter (indiscernible)?

(Indiscernible) accelerating and you’re also right it’s been going on for some quarters and it will continue to go up with that. (Indiscernible) can say that most of it there will not be a whole lot of motions for engineering and prototypes at least not in U.S. or Europe. In the (indiscernible) is a different topic but then again at some point in time in the future the (indiscernible) charge to do engineering (indiscernible) prospect and we have already taken it’s cost.

Just to get sound (indiscernible) how much of the invoicing on average do you do say while it last for a months on a quarterly basis? About how much is it more to go to get down to zero in Europe and U.S?

I cannot tell off hand actually Patrick.

If I could maybe I can slip in a short question in between.

(multiple speakers)

I don’t off the top of my head how much we do in engineering income. I’m sorry about that.

I’ll take it later. SG&A it has I think it was a really good number but I understand the IT, legal and insurance costs are stabilizing in the first quarter. Do you foresee any change to this – I mean have they reached new level and hopefully staying there? Or is there any reason for believing that they would continue to tick on because IT particularly tends to have a tendency of slightly rising.

Yes and you’re right, they are stabilizing. The IT is stabilizing I would say and definitely stable in the US, maybe slightly going up in Europe and they are on a low level in Japan as far as we are concern. So there may be some kick back. Legal costs are going down because we don’t have so many cases. You might recall the one time gain we had last year from Disen that was not coming in by itself. That also involves some legal costs. So those are the two cost drivers. And then you have the insurance which I think if any thing has started to go down rather than go up.

Okay.

So all in all in the big scheme of things may be what we see Magnus and myself on SG&A is more or less related to head count. It’s of course salaries, wages, trips, tickets whatever. And therefore our aim is to keep the head count stable because those are the cost drivers. And they are exactly stable year on year.

Sure final question on this issue with one client moving their payments dates. Is that something which you’ve been experiencing pressure from others to do the same or -?

No this was to good opportunity Patrick because it was – when you have these cost down or price down negotiation all the time some times you get the feeling that they have – for what ever reason want something real bad. So we could sort of make a lower price down. And on the other hand we have to extend the credit terms a little bit. And that is cheap you know 4, 5 days doesn’t cost anything in today’s interest rate. So we did that for all that going down with prices.

Okay. But there are no other ones in there?

We’ll be happy to do it for other if we could use at the same cost level.

I understand thanks.

Thank you.

Thank you and we have a question from Graham Phillips, please go ahead sir and announce your company name.

Good after noon gentlemen. Graham Phillips from UBS. If I could just come back to the $35m I mean it’s a particular nasty if someone says we’re going to pay you four days later – well we’re not going to pay you four days later. We’re going to actually repay over a longer period of time. It’s as if other then do the same thing. Because I know you’re saying well we’ll measure up the cost of it. But I mean it seems like you’re not winning the $35m straight back. I mean at what time 12 months, 18 months do we expect to win that $35m back?

No that’s not the deal Graham, and they have – we have agreed to extend the credit terms say another 5 days. And by doing so we move over for our customer, his credit you could say over the quarterly date line and that seems to be very important for this customer in question. And that will stay that way.

We’ve currently change it. Okay so what can be changed (multiple speakers)

(multiple speakers) to make it simple you can say that rather than having 60 days you have 65.

Yes that will always be effective – you know it’s indebted to you another $35m back which you’ve extended him for the period 4 days or what ever?

That is correctly right.

Okay. But to – the question just going back to the previous question I mean how many other companies match your request list. Now I know this is your largest customer I think it was refer to. So presumable other may think that’s not bad we’ll drop them for 20 or 30m. And then if there will be another hit we’ll just have to watch in another couple of quarter’s time, that it may come from another customer.

Well we’re going to make a business decision because this is nothing you do unilaterally. You have to discuss it and we felt that this was a good deal for Autoliv as a company to agree with it and on the other hand make a lower cost down for this particular customer, who by the way was one of the biggest. Not one of the largest.

So we think it was good for us not bad. What Magnus tried to point out that this particular quarter the cash flow was influenced $35m. Going forward the cash will be exactly the same again every quarter. But it just that this particular customer will pay say 65 days rather than 60 that’s all.

Yes I understand the length of time there but what is the average for the other customers, that number of days credit?

You can’t say like that because you know it’s very, very different. Because it’s in Italy it’s a 150 days typically and France it’s more like 95, in northern Europe it’s much smaller, in the US it’s another one and in Japan a third one you know.

I mean it’s just another reflection of pressure back to the suppliers. Because okay yes it’s less price down and I respect that. That’s obviously coming through your P&L but then if they’re using you as a sort of a bank to extend their credit times then it’s another way of them winning back to help themselves.

I don’t think you need to be too worried of that I think the day receivable as I recall it is flat from year on year. So it has in the interest.

Okay, just got to the Inflatable Curtain and penetration rate now could you up date us please for the range of regions what the penetrations rates are? I know they differ across the world. But maybe where they sit in early ’04?

Yes I’m Graham I think the pattern is the same but I don’t have it exactly quarter by quarter. But as you know I say it’s 40, 45% penetrated in Europe. I’d say that the US probably and similar to Japan is around 10.

In that magnitude.

In that order of magnitude.

We had a slide last time.

We had a slide last time in the (indiscernible) yes. But then I think if you look into Japan you will probably find that those 10 or all of them go on export and very few ends up in Japan.

Okay and the North American figure I thought it was a little bit higher than 10, I though it was like 15 or some thing. I mean is that the side air bags or Inflatable Curtain I’m not sure which one we’re talking about here. But when will it start to reach the sort of 45-odd% in Europe do you think?

Magnus you know the commitment that are taking.

Yes in December the alliance automotive manufacturers announced together with insurance institute for high way safety. It’s a commitment where they should have 100% of the vehicle to meet the size impact criteria by September 2009. And 50% of the vehicle from these participating companies should be in compliance with the new criteria by 2007, I think it was September 2007. Yes 2 years before.

So that means we at least we triple the side airbags until 2007 from today.

Okay but at the same time I mean I guess depending on their model cycle you know they will have to be introducing them a lot earlier. So we can’t just say we’ll factor 50% in ’07 and 100% in ’09. It most be a couple years earlier than that.

That’s true Graham but what we are seeing is that they are designing the vehicles so that we can put them in. And then some of the (indiscernible) to see request for quotation we see that they will – they ask us to charge it with a certain penetration rate up to one date and another penetration rate after another date.

So I would say that they prepare the cars to have chargers but do not always install them until they have to.

Okay Lars fair enough. And just finally on the raw material page, 18 again, I mean if we’re looking into ’05 the noises coming out of the commodity companies is that they will get those increases into ’05 on their contracts. Now I respect that you are saying that you will try and pass it through and so on, but is the contracts -- are they at a certain time of the year that would (indiscernible) around what you may be looking to re-negotiate than are typically more at the end of the year sort of Novemberish so that maybe in ’05 we will see a sizable increase.

No it’s a whole mix of contracts of course with different solidities and we wanted it that way and our customers want it that way too. So it’s not one big date when the whole world changes. And we also have various lengths of the supply contracts too, some shorter, some longer and that – you can not say it well change all the date when all of it changes.

You’re right that means those that you’re getting today we’ll be looking at the raw material –sorry I beg you pardon at the stock price and saying yes it’s up 30% or what ever, now we can talk about our new contracts. Now they will be asking for higher 12 months or 2 year or what have you. And indicate the ones that are being negotiate the last month. Is that not a fair assessment?

That is a fair assessment and that’s why we wanted a guarantee of what would happen if the prices stay where they are today. What would happen? And as we said then again, 1.5, 2% downs rather than 3 which would be normal, if they stay as high as they are today when we speak.

Okay just to understand that I you could give us an idea of a particular contract I mean are they asking for – they are not asking for 30% obviously which may be the stock price is up. They are asking for what 5 or 10% is that sort of fair enough?

I can’t tell you really I think it depends a lot on what customers, what product and what commodity we talk about. Because you have to remember again we don’t buy the raw material we buy component from some one.

Okay that’s all embedded in there?

That is embedded and not always so easy to understand what is the raw material part of it.

Okay alright thanks very much for that.

Thank you.

Thank you. Gentlemen there appear to be no further question at this time. I’ll hand the conference back to you.

Very good so we would like to thank you very much for all these questions here. One and the only one we’ve had so far and now we’re in the quarter. We look forward to talk to you again in the middle of July and -- the 22nd of July I’m told here in the middle of the summer. So thank you very much all of you. And enjoy the time until July. Bye-bye.

Thank you ladies and gentlemen this concludes today’s conference. You may now disconnect your line, thank you.