Autoliv Inc (ALV) 2005 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Welcome to Autoliv fourth quarter results conference call hosted by Mr. Lars Westerberg, Chief Executive Officer, Mr. Magnus Lindquist, Chief Financial Officer, and Mr. Mats Odman, Vice President, Investor Relations.

My name is Tim, and I will be your coordinator for today's conference call.

For the duration of the call, you will be on listen-only, however, at the end of the conference you will have the opportunity to ask any questions. [OPERATOR INSTRUCTIONS]

I turn it over to your host Mr. Lars Westerberg to begin today's conference call.

Thank you.

Thank you very much, Tim.

Good morning to all of you in the United States, and good afternoon to you in Europe, and as Tim said, we're sitting here, the three usual guys.

The presentation package we intend to start with today is available on the corporate website, directly on the first page, or under financial information.

And we are going to go through it in the usual fashion, and then open up for questions.

In slide number 2, the Safe Harbor statement is part of the presentation, but we will not specifically go through it.

Slide number 3 is a little bit of a sales breakdown in 2005, the past year, so without going through all the details you can say that the big picture is that our sales to Ford has in relative terms gone down somewhat from 23% to 21%, and that the Ford North American part of it is still 6%, the same as last year.

And the two runner-ups you could say is Honda, which we're not really specified last year, is now 6%, and Hyundai who is the fastest growing, really it's more like Kia, which now is about 4%.

One observation you can make is if you take the biggest four in Japan, Toyota, Honda Nissan, and Mazda, they now represent 20% of our sales, and if you add the other Asia, we are well past 25% today.

The next slide shows you the global market shares as we perceive them after 2005.

Not a huge change in the picture.

As you can see, we still have a very dominant position in Europe.

And we will come back to that.

That is of course good, but sometimes it distorts a little bit, like the past quarter.

So the next slide is the sales trend.

And the sales in quarter four, has been influenced by a number of, you could say, unique technical factors.

Magnus had to adjust the reporting days so they're more in-line with the calendar days, and that made us have 5% more reporting days during quarter one last year.

And consequently, 5% less working days during the past quarter.

Something that we sort of went out with already in April.

So just one technical thing.

Another technical thing that we cannot influence is the foreign exchange, and that has stolen another 5%.

So all-in-all, those are 10%.

We have also a small one, we have as Mats always points out, we are sending fewer and fewer of what he calls, low margin non-competitive inflators, and really they are loss making inflators, we lost within bracket sales here of $17 million.

We are happy to lose that.

That represents 1%.

The more operational problem we have faced during quarter four has been that the west European production of cars went down roughly 5%.

So the car production in Europe when down in Western Europe, but also disturbing for us, is that the mix within that car production has from a model point of view, has been negative from our point of view.

We believe that that mix problem that we had last quarter is likely to stay for some time, including this quarter.

And we believe that sales this quarter will have an organic decrease of some 3%, that will gradually flatten out.

Towards the end of the year, we start to increase again, and all-in-all, if we would take the same exchange rate for the whole year 2005 and 2006, we believe that the sales will be similar, and the same order of magnitude.

But then starting a little bit negative in this year and ending up on a positive trend.

We believe that that trend will continue into 2007 with positive growth.

The next slide shows you the organic growth, and as we said, we had negative regional mix, and we have a 4% organic sales decline the past quarter.

Having said that, three regions out of four we actually have an organic growth.

In North America, if we exclude those famous inflators, we did have an organic growth in occupant restraints of some 5 to 6%.

In Japan, we had a 3% organic growth.

In Asia-Pacific, dominated by Korea, China, Australia, we had an 8% organic growth, and the problem in Europe where we have seen a 7% organic decrease, and that is essentially the model mix, and a not so good production environment in Europe.

So negative increase in Europe, positive in all the other regions.

We turn the page and look at the light vehicle production.

We had then previously talked about, having a 2% global increase in the Triad, and they came out that way, too.

But really what happened is that it is all about Japan, you could say.

The big increase in car production is in Japan.

And also if you look in North America, Big 3 went down 1%, whereas the new domestics predominantly Japanese, they had an increase of 15%.

Europe, we went down about 1% in Europe, or rather the production was down 1%.

But again Western Europe minus 5, to some extent compensated by Eastern Europe but as we know, there is a much lower safety content in cars, at least so far in Eastern Europe.

So total figures is as we thought, but the mix is unfortunately negative for us.

The next slide, we give you the full year production in [junior] terms, and reason being that it was very difficult to recalculate reporting days, since it varies by region, so this is the full picture of 2005 versus 2004.

And as we can see here, we sold about 94.5 million seatbelts, which is an increase of 4%, and given that the car production is pretty much flat, that is totally a market increase.

You should be aware that we have a number of nonconsolidated seatbelt joint ventures like in Malaysia, France, China, India, all-in-all, they add another 9.5 million seatbelts of our design.

So you could say the Autoliv seatbelts, we produced 104 million of them last year, which is a record-breaking figure.

Pretensioners repeated flat, frontal airbags we lost 4% in volume terms.

And probably lost on market share as well.

Side systems/chest up 10, head protection is up 20.

The Inflatable Curtain itself was up 27% for the full year.

And steering wheels we're coming up to about 9 million, or 15% of the global market.

And we will continue to increase the market share in steering wheels.

So market share gains in seatbelts, share gains in also steering wheels, and some lost in frontal airbags, and the others are growth areas, and it is hard to know how it ended up.

We turn the page, and turn to the gross margin development, the last five years, it is easy to see that the trend so far continues to be very positive, for reasons that we have discussed before.

A lot has to do with our moving the added value from high cost countries to low cost countries.

That is not only about direct labor, but also to a large extent about production overheads.

Also, we have run fairly efficiently fourth quarter last year, with very low scrap levels, very low waste levels, not much re-work, and very little premium freight, so all-in-all, an efficient machinery.

And also, technically, we have helped the figure by reclassification, so that has helped the figure with 0.3%.

We moved it down to research and development, as you will see later on.

I think it is encouraging for all of us to see that the raw material increased year-on-year, which cost about $14 million, as we can appreciate it.

That represents 1 full percent, and as you can see, totally compensated the past quarter.

I think also we can see here that this is cost capping, yes, but it is not cost capping by sort of showing our people, what we talk about having a more efficient cost structure for the long term.

It is not traditional cost cutting.

Next slide, we give you the same graph for for operating margin, or EBIT margin, and this quarter we ended up at 9.3%, which we are very satisfied with, better than previous years.

The only year that is in the same ballpark is really in the fourth quarter of 2003, and that was helped, as we discussed in that time, by some license income on some products from a Japanese colleague in the business.

And there hasn't been any particular one-time items, that is relatively neutral.

If there is any help, we have the engineering income, where we got a little bit more income that we were daring to hope for during the fourth quarter.

But all-in-all, it is fairly representative, 9.3%.

Then turn the page, and look at the income statement, as we usually do.

I'll start with the sales, we have a negative of 14%.

And that is of course down for the reasons we talked about before.

The reporting days, to the foreign exchange, et cetera.

But as we see, the further forward down we go in the profit and loss statement, the smaller the negatives become.

So gross profit is down 10%.

Operating income is only down 7.

To compensate for the foreign exchange rate, it is actually only down 2%, in spite of the sales drop.

And when we get to the income before tax, we are down 5%, but that is, all of that is really foreign exchange.

In operational terms, we produced the same earnings before tax, as we did the same quarter last year.

We can also see that the overhead costs in dollars go down, and a little bit on the engineering income, we commented on, of course also here we have some help from the stronger dollar, and converting Euros into dollars, we got it down in dollar terms.

One factor that influenced the whole profit and loss here, which we want to come back to, is the fact that we took advantage of the temporary tax advantage you can get by sending money back to the United States, the so-called Jobs Creation Act, and as you can see in the profit and loss here, we had a net income of $70 million.

Had we not taken advantage of the Jobs Creation Act in this particular quarter, we would have booked a net income of around $81 million.

And that would have meant that the earnings per share would not have been $0.81, but rather $0.94.

Having said that, we were happy to take advantage of this opportunity, we believe that in a full year, it should save us about $17 million in the net income line.

But year-on-year, since we did have advantage of it already in the fourth quarter, there is an extra $13 million of improved net income in the year 2006.

So it does hurt one quarter, but long term it is going to, of course, be very beneficial.

The next slide shows you the return on equity.

We are reporting 11.8%.

But again, if you just compensate for the one-time effect of the Jobs Creation Act, we would have been at 13.6%, which is still a pretty reasonable figure.

The tax rate is of course particularly high, because of the Jobs Creation Act.

We believe that as the guidance for 2006, we estimate the tax rate to be around 33%, but somewhat volatile, because as you know, this is event-driven these days.

But we believe that the year would end up around 33%.

Next slide gives you the return on capital employed.

The capital employed is pretty stable.

It went down marginally actually, but as you know the EBIT went down a little bit more, and as you recall, mainly because of the foreign exchange.

And the organic was only 2% down.

Still 17% is a pretty reasonable level.

And if you then remember that the raw materials, in particular the steel for us, cost about 1.9% return on capital employed.

If we would have had the same raw material costs in '05 as we had in '04, we would have had a record-breaking 19% return on capital employed.

Next slide is summary of the key figures that we talked about the earnings per share that is excluding Jobs Creation would have been $0.94.

The working capital, as you can see, we ended up with $518 million.

Or 8.3%, which is well within the target of 10%.

But not as good as it was the year, at the end of 2004, which so far is the record-breaking 7.8%.

The net debt has gone up from last year end, 600 roughly, to 877.

That is an increase of 278 million, and that is because we have paid out dividends of $105 million, spent even more on share buybacks for a total give back, you can say, of $483 million.

So we gave back 483, you could say, and roughly 278 more net debt.

Also worth commenting is maybe the head count, which is down about 1,000 persons.

Which in itself is a good figure but even better is that out of those decrease of 1,000, 2,400 is coming from the high labor cost countries.

One might say though that some of the decrease, and also in the high cost countries might be temporary, because as you understand, the core production in Western Europe fizzled out at the end of the year, and just to save costs of course, we let some temporary people go, and as business picks up they may come back again.

But so far, so good. 2,400 high cost positions gone.

Next slide, we will show you the cash flow.

In the year 2005, you can say we did not really get up to the target where we want to be.

We have talked about before that cash flow, net cash flow after CapEx, we would like to deliver about 250 million.

And last year, we ended up like 168, but that includes a voluntary payment to the pension plan of about $30 million.

So we ended up with $200 million.

But that is about $50 million shy of our target.

What we use to point out also, is that the quarter four in itself was just not the problem.

The cash from operations generated 155, and here we have already charged those $30 million.

And same for the net cash flow, $77 million, which then excluding the pension fund would have been more than 100 million in one quarter alone.

And it could be good for you to know that the pension plan is now fully funded, and there is no more contribution to expect.

Next slide shows you the shareholder returns, which we have tried to split up in dividends paid, which is 105 million, and the rest is then stock buybacks.

We bought 3.3 million shares in quarter four.

As you also may recall, we have got a renewed mandate from the Board during the December Board meeting, so we now have a mandate to buy back another 10 million shares. 10 million shares.

The next slide shows you the stock buybacks, and we have by now bought back 20 million shares.

All-in-all, we have spent $697 million.

Market value today exceeds by some margin actually $900 million.

So far it has been a positive exercise.

Next slide demonstrates the raw material increases we have had, and I hope this is the last time we have to look at it.

We came in the fourth quarter with a $26 million increase in raw material prices, dominated by steel, compared to the start of the whole raw material peak.

Compared to last year, it was more like $14 million, as we said previous.

And for the total year, we think that the total cost that we had to absorb to defend the operating margin, was more than $90 million, which is about 1.5% of sales.

That we just had to pay in extra raw material charges.

The next slide shows the cost breakdown for the full 2005, compared to four years before 2005.

I think worth noting is, that the direct labor has gone from 10.8% to 10.2%.

The indirect is from 16.8 to 15.8, so you can say the labor direct and indirect and some other production overheads went down 1.6%.

The other costs have gone up, as you can see, and that figure does include what we have discussed so many times before, that we get less and less engineering income from our customers.

Also worth noting is that the direct material between '04 and '05 was relatively flat, in spite of that large material surcharge that we got, mainly focused on steel.

The next slide is not to be taken actually too deep here, but we believe sitting here today, that we will get back to direct material cost trends to the normal trend, which is down at least 3% a year.

And that is 3% of purchasing value of $0.04.

So that would indicate that we should get it down at least 3%, and we are back on-track, we think there might be an upside on steel, but we think also that there might be a down side on anything that is oil based, like resins, plastics, et cetera, to be relatively neutral going forward.

Next slide we will update you on the move to the lower labor cost countries.

The total manning level is down, as we said, and during the fourth quarter -- or sorry, the full year, we took down 2,400, and as you can see, that is initially, we could take the sales increase in low labor cost countries, but now we also have to go down in high labor cost countries.

You can also see the sales per employee is plotted as a graph here.

The next slide shows you where the decreases actually occurred, and the largest ones are in the U.K., where as you know, we shut down basically our bag facility in the southern part of England.

France, which includes an element of temporary personnel, but it also includes an initiator plant to shut down during the fall.

United States has moved to Mexico, and so on.

Sweden, Australia and Canada.

And where we employ more people is in Mexico, Poland, China, Romania, Korea, et cetera, all of them in low cost countries.

And then again, some of the decrease might be temporary but of course, if you take the cost per employee, it is down relatively dramatically during the past year.

Next slide comes into the Job Creation Act.

It is too complicated for me, so Magnus will take you through those two slides.

Thank you.

The Jobs Creation Act was adopted in 2004 by the U.S.

Congress to provide for 85% U.S. tax deduction on certain non-U.S. earnings, that were distributed to the U.S. before the end of 2005.

And you have to invest these funds into a qualified Domestic Reinvestment Plan, the so-called DRP.

Also, as you have seen in the press release, we distributed 855 million of which $810 million U.S. qualifies under the Act.

We have because it is a huge amount of money, and a very complicated tax concession, we have received will opinions from independent tax auditor, and this so-called will opinion is the strongest opinion you actually can get from tax advisors.

And we have recorded incremental tax expenses of 17 million in 2005, we're up 14 million in the fourth quarter.

You have also seen in the press release that we actually also have generated some interest expense savings of pre-tax 7 million in 2005.

If you sum it all together, and look at the future savings, we expect to have interest savings given current conditions of approximately 13 million in 2006.

So all-in-all, we expect net/net to have a pay back of one year for this transaction.

On top of that, we will have annual tax savings of approximately 5 million per year, for the future, as long as we can forecast, given current conditions.

So it is a very, very good transaction, given all the circumstances and conditions.

If you look at slide 24, you can see the impact on the fourth quarter here, on the Jobs Act which Lars described earlier.

If you excluded all the impact, you can see that the earnings per share would be $0.94.

And the return on equity would have been 13.6%, instead of reporting 11.8%.

Very good, Magnus.

Thank you so much.

And again the guidance for the tax rate this year is 33%.

This is a one-time effect, which we happily took advantage of.

We will then try to look a little bit forward here.

We come back to the traditional picture with the inventories in the United States, and as you can see, it seems like everything boils down to one figure really, and the December inventories represent 65 days of sales, which seems to be the same in '04, '05, and the 10-year average.

So no particular trend to read-out of that one.

Next slide shows you the forecast as we get it from CSM for next year in North America, and without going through all of it, you can say it should be a slight uptick in quarter one ,and for the last three, four years, it is very, very stable, 15.9, 15.8, et cetera, but as we all know behind the scenes, there is a lot of things happening really, with the transplants increasing their market share dramatically, being too losing market share, and lately the come back of the light vehicles, so the cars you could say, at the expense of the trucks, but total number of vehicles surprisingly stable.

Next slide shows you the same thing for Europe, really, which is 20-point something since we changed statistics, you remember early we had only western Europe, and as of '04 we started to include the Eastern Europe, and we should have a slight uptick in quarter one, and it looks maybe a little bit optimistic to us, but nevertheless that is what JD Power-LMC forecasts, so that is what we usually show.

The next slide is the only one with a real trend, and that is the light vehicle production in Japan, that seems to be having a trend going up, and is forecast to reach 10.3 million during the coming year.

And as you know, unfortunately, we have the lowest market shares in Japan, we are working at it, but we are still a little bit shy of 20% in the Japanese market.

Except steering wheels, where we are 25.

Coming to the outlook for Autoliv, quarter one 2006 compared to the same quarter 2005, we believe that the consolidated sales we estimate to go down about 8%.

Most of that, or 5%, due to the currency, and hence, we would have an organic decrease of 3%.

And that is, as we mentioned before, mainly because we have a negative customer mix in Europe, and maybe we think that the production figure in Europe is somewhat optimistic.

In spite of that, we believe that we have a good possibility to exceed the operating margin we had in 2005, and we also believe that we have a good chance also to exceed the operating result of the 129 million, that were recorded for the year 2005.

So with that ladies and gentlemen, we would be ready to answer the questions as good as we can.

Thank you very much. [OPERATOR INSTRUCTIONS]

Our first question comes from the line of Ronald Tadross from Banc of America Securities.

Please go ahead with your question.

Okay.

Good afternoon, Lars.

Good afternoon.

And team.

The organic growth I guess for 2006 for the first quarter, is going to be negative, about 3%, you said, and I guess I'm just wondering, what it was without mix?

I'm sorry, for the fourth quarter, what it was without mix, like what was the organic growth?

In other words what are your top programs doing?

Okay.

The top programs for quarter one, we know what the top programs are, and the ones that we are losing on, we can rattle them off pretty fast, and basically it is because our customers say less cars, you know, so we talk about Ford, [Citroën], Renault, Volvo, Volkswagen, all in our estimation being down from $10 million in the coming quarter one, offset by General Motors, and some others, with an increase so all-in-all, it boils down to we had an organic, this is airbags Europe I should emphasize, and that is really where the problem lies, so all-in-all, that means we would have a negative organic growth of some 3%, because of these customers mainly.

Let's go to the full year 2006 for a second.

If your sales are flat, I guess in part because of the negative mix of your top programs, what do you think would be the organic growth, if you stripped your top programs out, and you assume that those top programs were flat?

We haven't really done that exercise, sorry to say.

And you're right, that the organic would be about, if we assume the same 4x over the year, that would be flat for 2005.

We have not stripped out the top programs.

They are sort of evolving, too, you know, in the fall here, we will have another top program that doesn't exist today, and that is partially pulling up the sales of course, and it is hard to do because the top programs change.

Okay.

And then just one other thing, on the R&D, you said there was some recovery of engineering payments coming in.

You could just give us an idea in the fourth quarter what the -- I'm sorry, in the December quarter, what the payments were coming in, and what's normal versus trend?

The low engineering costs, Magnus has all the details of course, but if you take it to the big picture really, we did have lower costs, but we did have maybe say less than $5 million more of engineering income than we dared to hope for, because as you know, there has been a trend that this goes down year-over-year.

But it is very hard to predict, actually, because everybody, including our customers, they try to clean up the books at the end of the year, and this year, we got more paid than we were daring to hope for.

So I would say engineering income may be 5 or less more than expected.

Okay.

Thank you very much.

You're welcome.

Thank you.

Next question comes through from the line of Austin Earl from [Yumen Regorsy] , please go ahead with your question.

Hi, good afternoon.

I have a few questions, hopefully quite quick.

The first is one of the reasons you cite for the better margin is the new model start-up costs being lower than normal.

I just sort of wondered when will that return to normal?

Well, this is normal, you know, you always hope so.

Unfortunately, experience shows that when you have a lot of start-ups, you usually end up with some problems somewhere.

And then you try to limit the problem for your customers.

So you end up flying around products.

I have to say that the last couple of years, they have been going down.

But I believe it was in the year 2000 or so, that cost us a lot of money, because they were in deep trouble and that is by the way why we did buy OEA, because we had only one initiator plant in the whole world, and we had to fly initiators in chartered flights all across, very, very costly exercise.

So we hope that the trend is that we would see lower start-up costs.

An if we have higher, that is because we have screwed up somewhere.

And just go back to this earlier question, the engineering income, is that why the R&D was a little bit lower than your guidance as a percentage of sales?

Yes, I would say so.

But we also had lower costs actually.

So do you have any particular thing --

No, I think it is a mix.

It is both the lower income, as Lars said.

Sorry -- Higher engineering income, but also lower costs.

So it is a mix of both.

And have you to remember that a lot of the R&D happens outside the U.S. currency belt, and therefore let's say Euros when you translate those into stronger dollars, the foreign exchange actually helps a bit here.

Yes.

Okay.

And then the jump in minorities, is anything odd in the quarter why the amount of profits from minorities went up?

No, it is our Asian operations that are profitable, and expanding.

Which operation?

We had a number of joint ventures in Asia, the biggest ones I would say being, Korea and Malaysia, and they do well.

All the joint ventures we have for the time being in the whole world make money, actually.

And just a clarification question.

When you talk about production in Eastern Europe, is that for models only produced in Eastern Europe, i.e., maybe destined for elsewhere in the world, or is it for Eastern Europe to be sold in Eastern Europe?

Most of it is to be produced in Eastern Europe, but shipped into Western Europe assembly plants for our customers.

But some of it, an increasing portion of it is actually staying in Eastern Europe, because as you have might have seen, the trend is that the Eastern European car production has an increase of some 7, 8% where as the west European car production is pretty darn flat, actually.

But today, if you ask today, most of it ships back from say Turkey to France, from Poland to Germany, et cetera.

But why is the -- you talk about the mix being so negative.

Is it because these are lower-end cars that are produced in Eastern Europe?

Yes, of course millions of cars that are lower end, too, like the whole Russian car production, to my knowledge, there is not yet any car in Russia that is produced in Russia, that had airbags at all.

Plus of course there are a number of Dutch, and so on which have a limited safety content.

Okay.

Later it will increase and I know in Russia, they will not, [Kalene] I believe the name is, and Autovaz, and I think there is a second Autovaz coming later in the year, but those to my knowledge are the first ones that have airbags at all.

Then my final question was just regarding any sort of funny items.

I don't want to use the word exceptional.

But you did sort of highlight I think in the first quarter and the third quarter that there were some unusual costs, and I thought that maybe there were going to be some more coming through in the fourth quarter.

Was anything there at all?

I'm not sure if it is unusual but we had some restructuring charges, which we recorded on other income and expense.

And how much were those?

Those were in the quarter $2.7 million U.S.

I don't think you should think about them as extraordinary.

You know, we try to be a little bit ahead of the game, and move the plans, so we structurally get lower and lower costs.

So we can compensate the lower and lower sales prices.

So I'm afraid it is not extraordinary.

It is part of our normal day-to-day business.

Sure.

But I guess I was referring to some issues that maybe you pointed out in the first quarter, about moving the U.K. plant to Turkey.

That sort of issue.

You're saying that was about a 2.7 million charge?

That's correct.

And you have a point, U.K.

I would say is the most expensive plant we have ever closed, and that has to do with the severance rules in the U.K. that are somewhat unique.

It is relatively costly, but we had two problems there.

One was the quality level and the second one was the cost level.

Okay.

That's great.

Thank you very much.

You're welcome.

Thank you.

Next questions come through from Carl Holmquist with Handelsbanken.

Please go ahead with your question.

Okay.

Thanks.

Just a follow-up it to clarify on the minority interests.

If we assume that Japan and Korea continues on these pretty strong growth levels, would that imply that the level of minorities in the fourth quarter, could be annualized into 2006 at least, which would be sort of an extra at least 16 million, if you follow me, for the full year compared to 2005?

I'm not sure if I follow, but sure, if our majority control joint ventures in Asia continue to grow, that will increase the minority expense in the income statement, that's for sure.

But in Japan, we have very little minority.

We own basically all of them, but the bigger one is really Korea, as you touch upon, Malaysia actually is an affiliated from our point of view.

Just to be very clear then, so the level of minorities in the fourth quarter, could very well continue going into next year?

Well, it will continue for sure.

But as Mats pointed out in earlier discussion, we did have a little bit of a catch-up effect in Korea.

You might recall that in quarter three, we discussed that the inventory was relatively high, because there had been a bunch of strikes in Korea.

And now, on the other hand, they worked overtime during the fourth quarter to compensate for it.

Okay.

Great.

That's very helpful.

I don't think you can separate fourth quarter alone.

Okay.

Great.

Thanks.

You're welcome.

Thank you.

Next question comes through from the line of [Avani Shaquila] from UBS.

Please go ahead your question.

Good afternoon, everyone.

Just going back to this issue of the organic growth guidance for 2006, I can understand in Europe why you might see the negative effect in the first half, of [Megane and Scenic] through '06.

And I can understand maybe second half it gets a bit better with 2007.

I know there is a what looks like a good contract on the Dodge Caliber as well.

But in terms of North America, how much are you assuming you can grow in North America organically in 2006?

Have you got some sort of assumption built in for carmakers moving from an optional fitment of Inflatable Curtains to standard fit?

And is there any growth built in for North America from that area?

Yes, and there obviously is, because if we have received them as orders, they are in our backlog because, what the three of us discuss here, is really what we see in our backlog for the year 2006 and '07.

So as far as we have got the orders from our OEMs, then they are part of the figures.

Not all OEMs have ordered, though.

Some of them discussed with us, and they want various concessions and commitments, and so from the point of view that the orders are there, it is part of it.

And just very roughly, can we think about any particular number or range that you're thinking about, in terms of organic growth in north America, just to get a feel for how that fits into the overall flat organic growth picture for the group?

Not really.

I think what we saw, if we exclude those inflators that Mats talked about every quarter, we had if I remember 5.5% organic growth in North America during quarter four.

And you know, usually things don't change so dramatically quarter to quarter.

Okay.

So Europe is actually expected to be negative in 2006.

That is correct.

And particularly so in the first couple of quarters.

And in the fourth quarter, it will not be negative any more.

But then of course the other world is already today, we have an organic growth in both Asia, North America and Japan.

And in Europe, as Lars pointed out earlier, particular airbags in Europe.

Okay.

And then just one last question.

On the share buyback policy, it looks like you dramatically increased the share buybacks in 2005, and I was just wondering, is this a change in strategy, a change in thinking of management?

In the past, you perhaps spent more on acquisitions.

Is there a change in focus here that is going to continue into 2006?

Or were you just taking advantage of weakness in the share price, or some other factors?

You know, we see the investment in shares.

We compare that with any other investment of course.

And the investment in shares, we know exactly what we're doing because we have a business plan.

The problem with acquisitions, is first they are associated with risk, which we can handle, but the problem is in many parts of the world like in Europe, it is very marginal if we could buy anything, because the market shares are challenging, if you take it from a free trade point of view.

In other parts of the world, we could buy but then there seems to be very little for sale.

It is not so we are avoiding acquisitions, just it has to be compared with buying back our own shares, and what could be best for the shareholder, and given that they are the same, of course, the reason for buying back shares, is it's a lot less.

And so is it safe to assume that in the absence of acquisitions in the next couple of years, we can assume that share buybacks continue at a relatively high level?

It can be assumed but like we always do, as you know, we are going to see where the stock ends up here, and then we are going to let you know on Monday, then over the next exactly what do, day by day.

Okay.

Thanks.

Thank you.

Thank you.

Next question comes through from the line of Lee Cooperman from Omega Advisors.

Please go ahead with your question.

Thank you very much.

First, let me just congratulate you, in this day and age of strong cost pressures of business, to have value and contraction, and maintain your profit margins is a real testimony to the quality job that you folks are doing, and you should be congratulated.

Thank you very much, Lee.

You're welcome.

Basically, I have four questions.

They're all kind of housekeeping, mostly housekeeping.

What were the actual shares outstanding at year end as opposed to average?

83.7 million shares.

Thank you.

Second, CapEx and D&A as best you can tell for 2006?

CapEx is 225 --

325, 350, Lee, as usual we always say so.

And D&A this year?

In the lower of that range.

I'm sorry, in the middle of the range?

In the lower of that range.

So maybe 320, 330, somewhere.

Got you.

And lastly, if you had to guess, and we pushed yourself out a year out from today, and you looked at the slide 17 and the buybacks do you think, is the intention presently to buyback the 10 million shares in 2006?

And let's assume the stock is at the current price, so if the stock was 51, 52, would you like to buyback 10 million shares over the course of the year?

We are going to let you know Monday, Lee.

Clearly if we asked for a mandate, it is of course the intention to use it.

But we of course cannot use it at any share price, so when you see that on the net, on Monday.

Sounds good.

Congratulations again.

Thank you very much.

Thank you very much.

Thank you.

Next question comes through from the line of Thomas [Bessen] from Merrill Lynch.

Please go ahead with your question.

Hi, good afternoon.

I am afraid I missed the beginning of your presentation because I was stuck in another meeting in Paris, with one of your clients, so I may ask a stupid question Lars.

We can guess who were you stuck with.

I also wanted to congratulate you for your results, just one thing I've noticed which I think is linked with R&D, on which has there has been a few questions already, and I would like to ask, if there is any change in the trend that we've seen in the last few years, with R&D moving basically from 5 to more than 6.

Shall we expect R&D to remain around 6.2, or is it still trending to around 6.5 in the next two to three years?

First question.

I think we would rather have it like 6% in the vicinity of 6%.

It would be great if it was a new trend but we don't dare to believe so yet.

So despite the fact that you reclassified some elements of your gross margin to the R&D, that's going to continue to slightly increase?

Life isn't so exact.

If it is 0.1, 0.2, but somewhere like 6 or so.

Again, sorry for all the question but I missed the beginning.

I've notice that you report a negative organic gross, and clear improvement in margins, so if you could maybe explain the steps to get there, knowing that you also had a negative impact from raw materials?

Yes, it is the same things as we talked about the last quarter, really, almost, it is about, you know, the move to lower outlay, because countries will help us with direct labor, but it also helps us with production overheads of course, so those two have been pretty good.

And then during the last quarter, I would say all fall, we have had very few quality hiccups and very little premiere freight scrap and waste, it has been run relatively efficiently.

Without a lot of hiccups, I would say.

So it is a cost base that has gone down, but not something that is cost cutting.

This is a structural move, you know.

We are moving from environments where the cost level is high, to environments where the cost level is low.

And we will continue to try to be proactive because we know and you know, that the prices in our industry will only go down, so we have to be faster at cutting our costs and so far, we did it, you could say.

It is no guarantee for the future of course, but so far, we manage to do it.

Okay.

Congratulations again.

Thank you.

Thank you.

Our next question comes through from the line of Tom [Ainley] from DRKW.

Please go ahead with your question.

Good afternoon.

This is Tommy from Dresdner Kleinwort.

Congratulations from my side.

Thank you.

I have a question regarding Renault actually.

Renault in the short term, regarding them again, is there any way you can quantify the sales development that affects your first half, or your first quarter there?

And today, we heard Carlos [Gon] saying he expects a 14% decrease in purchasing costs.

And I was wondering if you had had discussions with Renault, or is this any of a threat to your probability?

Well, I think that you probably follow production statistics probably better than we do.

If I take it on the top of my head it is like $325 per Megane.

Is that correct Mats?

Somewhere in that order.

Somewhere in that order of magnitude.

It depends a little bit, what type on the X84 platform.

But call it order of magnitude is 325, and then it is easy for you calculate the number of cars time times 325.

Secondly the annual decrease to Renault, yes, I would say for the most part, we have had it.

If it came in connection with the sourcing of the new Megane, the so-called W95, and in this business, you never know, maybe they come back again.

So if I have that right, you have a 14% price reduction on the new Megane?

No, we never reveal the prices for the new Megane, and it is not that easy actually either because it varies year by year, and it is very complicated agreement with Renault on the Megane, some of it with existing backlogs, and some with the new Megane, and some of it with engineering costs, and some of it with tooling costs so you cannot just put up a figure like that.

Do you see any difference in the strategy coming from Renault?

Are they being more aggressive on their safety per content, or on their pricing?

I think Renault is still very ambitious about the safety content and I think it has paid back.

I think they have a very high proportion of 5 star rated cars, I believe all new Renault's pass five stars.

And as far as I understand, they continue with that philosophy.

It is a clear that the target for the new Megane as well.

You don't see any change in the relationship there?

No.

Not really, we don't see any change in relationship, and the cost pressure is the same as always.

I have another question regarding your restructuring charges, or actually your structuring or your low labor cost content.

Are you still forecasting 45% by the first half of 2006?

Manual labor?

Yes.

It was in here somewhere.

It was.

But you didn't go off to the first half of 2006.

But you're right.

Yes, I don't think there is any change.

Not that I can tell you on top of my head.

But that has clearly been, when we did it last time, that was the clear, we know much of what will happen here, you know.

So that remains unchanged?

That remains unchanged?

Are you seeing anything for the end of 2006?

We have more programs, but we haven't calculated yet what it will really do.

But there are more programs coming in after this one.

I mean this one you could say is a short-term bunch of restructuring that ends middle of '06, but we have started new once again, because we have, as we said before, we have to be proactive.

And then regarding the restructuring costs, or the pay back from your low labor cost strategy, could you quantify what the pay back was in the fourth quarter?

And what you expect in 2006?

Well, when it comes to the restructuring charges, by shutting down existing plants and moving production, normally we do that with a pay back of about one year.

But when it comes to moving production to low labor cost countries, in comparison to high cost countries, we have not quantified it for a particular quarter, but we have said that we benefit quite a lot, and you have a factor 1 to 7 when it comes to labor costs from a high cost to low cost country.

And when it comes to expenses.

On the other hand, you have then some move costs, and extra logistical costs, but it is a huge impact on our results.

Are you willing to, I mean to say what today, what you're expecting there in the pay back in 2006?

Or is that --

No, you know, we make the P&L for the total project, and that is expanded usually already, at least a year, and exactly which quarter, the costs come, and the benefits come, it is hard to say.

One thing you should note, that if you combine these with low labor cost sourcing, then it becomes even better.

Because we have noticed if [steep central] tries to buy in a country, let's say Romania, if have you no operations in Romania, you have a problem to find the suppliers.

But if you all of a sudden start to produce in Romania, you find out about the infrastructure, you find good suppliers, and so on.

So moving into a low labor cost country allows you to save a lot on labor costs, but you find a lot of new suppliers as well.

Okay.

One last question.

We show the calculation about this, when we had the Capital Market day in June.

And that I think is an indication of the magnitude of the savings at least for you.

Right.

And I was hoping to, actually I was hoping to get that figure for 2006 but I will try again later.

[Laughter]

I have one last question and that is regarding your Asian minorities.

There any wish there to consolidate these companies now that they're very profitable?

Yes, it has been a wish all the time.

And we have gradually consolidated a number of them.

And the last joint ventures, there are four of them in China, I believe, the last seatbelt venture, we start out with 100% ownership.

We have an inflator venture, we start out with 100%, in electronics same thing, and steering wheel same thing, but they really aren't joint ventures any more, they're fully owned subsidiaries, and the ones that remain are up in the northern part, Chang Chung, pardon my Chinese, and a couple of historical ventures in Malaysia, India, Korea, and we would be very happy to buy out the minorities, but it takes two.

Okay.

Once again, congratulations.

Thank you so much.

Thank you.

Our next question comes from the line of [Johann Truckne] from ABN AMRO.

Please go ahead with your question.

I join in please on congratulating on on your cost work in the quarter, which clearly must have exceeded expectations, it certainly exceeded mine.

I'm just referring back to your capital markets day in June last year, when you gave us a lot of information about the move to low cost countries, and you mentioned in the report you now have 42% of your employees, and looking back at the slides from June, you had as an ambition I think from 2005 to get to 35%, so you seem to have to have moved a bit faster and made even more progress than what you indicated back then?

Would that be a fair assumption at this stage, and that is part of the explanation of why volumes have held up so well in what has been a tough market environment?

And have you changed your ultimate level of ambition in terms of low cost country moves, up from the 45% of employees for next year, that you talked about in June of last year?

It seems like none of us really remembers -- if you say 35, we trust are you right and if that was the case, then we obviously came out better than we thought in June.

And the ambition this year, as you heard, in the middle year to be 45%.

But we won't stop there, either.

We will continue.

So -- but if you remember from what we've said also, we said that #1 was to move the value-added and #2 was to start to get supplies also from the low labor cost countries, and sooner or later we are going to start discussing about moving to record the customer engineering projects also to low labor cost countries, and there is an abundance of good engineers in many of those countries, at a fraction of the cost.

So I can't say off the top of my head, if 35 became 42, you may be right, and if that is the case, we are just happy.

I'm sure you are!

And then the ultimate goal, can you see that moving to half, or would you be more interested in the other type of advantages on the engineering side that you just described.

There is at least a limit for it and 50%, I don't know, it might be 50, but it is only a guess.

I can't tell you offhand sitting here.

But the second line about purchasing in low cost countries, maybe that potential becomes bigger sooner or later.

And if I can just follow-up, you mentioned you might see a little bit of upside from your point of view on the steel side, when it come to material costs for this year, what do you base that on?

Is that based on your ongoing discussions with suppliers on this deal side, or do you see some other trends in the background, which suggest there might be some upside?

Basically it is the ongoing negotiations and so you know, already, if you end up with the contracts with various lifespan, you could say, and you can say that we believe it might be a possibility to take down a little bit from last year, but nothing dramatic, unfortunately.

And there is a pressure particularly on the resins that we use for the bags themselves, and our best estimate is that it evens out.

Thank you.

Thank you.

Thank you.

Our next question comes through from the line of [Frederick Labelle] from Societe Generale.

Please go ahead with your question.

Good afternoon.

Just the first question on the restructuring again, the benefits were quite amazing, and really rapid, I would say, due to offset this raw material cost.

My question is, if we strip out how much this raw material cost, does it mean that your underlying margin is higher than 9%, closer to 10%?

How do you view that?

Would you bet on the margin or long term margin, or normative margin of close to 10% from now on?

And my second point is, given the success of this measure, are you intending to accelerate this kind of measure?

And what kind of challenge should we expect next year?

Something that is of this magnitude, or maybe more?

The first question I understood, the way that the 9.3% would be roughly a percent better, if the raw material costs would have stayed the same.

Than is mathematically correct, of course, and the second point I didn't quite understand.

Just my question on the material costs, just to try to estimate the numbers for next year, the charge given the success of these kind of measures, can we expect an acceleration or maybe something in that nature?

Restructuring charge for '06, was that the question?

And I would say that we can expect at the same level or lower, rather lower than higher.

Okay.

Because we have this extraordinary expense of English severance costs during '05, that we believe will not repeat this year.

I get it.

And did you mention any forecast as an impact for next year, I mean for 2006?

Yes, we think that the raw material, we think it is going to be relatively flat, as we said.

Okay.

Thanks.

When we say raw material, we mean brought in products, and so on.

Thanks a lot.

Thank you.

Our next question comes through from the line of Scott Merlis from Thomas Weisel Partners.

Please go ahead with your question.

Good afternoon.

How are you?

Can you hear me okay?

Sure.

Going deeper into the margins, the plant restructuring that you did earlier in the year, the plant closings, does the full effect, the full benefits get realized in 2006 more, or did we start to see the full effects of those plant closings earlier in the year, already in the fourth quarter?

Okay, Scott, we saw probably a large chunk of the English benefits toward the end of the year.

I think we agreed that the French inflator plant was delayed closing, because one of our customers did not want to approve the new supply, you could say, you know how it is in the automotive, so we had most of that manning level still on board I would say during the fourth quarter, too.

The Australian one, it has started for sure, but it is going to continue into '06.

So the full benefit is not there, but it is partially there.

Most of the English is done.

The Australian is somewhere midway.

The French one is not done, to the best part of it.

Okay.

Plus you will have the benefit of no MG Rover bankruptcy expense?

That will be gone in the first quarter?

Yes, hopefully.

There might be another one, you never know.

I'm not going to touch that one. [laughter] Were there any unusual benefits to gross margin in the quarter?

No, nothing that is sort -- I mean we talk about a gross profit of about $300 million, so we think it is fairly representative.

Now, if we assume that in the fourth quarter of next year, that the French production -- well, the Peugeot is over changeover in the 2007 mostly, for we just assume European production is slightly up, is that type of business plus with your new business that you're getting, can you describe in general terms the profitability of that, I'm trying to, profitability of the business, if we show 2007, or just the European production that could come back by fourth quarter, is that a little below average profitability, or about average profitability?

In other words, I'm trying to understand how, the extent that could expand margins further, and the operating leverage that would be associated with that production.

And I don't think any of us three here knows what the new Peugeot would mean when it gets into production here in the fall, whether it is better or worse or average, we cannot tell you simply, and of course I understand your point that one would have an increase in gross profit, but then have you to remember that we have a top line erosion all the time, so we have to do these French, Australian, and English exercises, to defend the EBIT line, because we know that we're going to have to give our customers something all the time.

And you heard one of the previous gentlemen talking about 14% down from [Renault].

Well, that is out the question, of course.

But we are going to have to give of course.

So I don't think you can necessarily say that these plant closures will expand the margin.

Hopefully we can defend the margin.

And if we can expand it a little bit, we will be very happy.

The point I'm trying to make if European production comes back just 1%, shouldn't there be significant operating leverage to help gross margin further in the fourth quarter, if you isolate the volume increase by itself?

Yes, of course, more volume and the same cost structure would help, no doubt.

So it just seems like if there was not, if there wasn't any nonrecurring benefits to the gross margin in this quarter, any increase in production in a flat commodity environment could have significant margin expansion in the fourth quarter of next year.

Theoretically, if we continue to run very efficient with very few start-up problems, et cetera, et cetera, then it would help.

But of course you have to realize, too, that we have that erosion, and how it really pans out, we don't know simply sitting here, because there are is a lot of price discussion all the time, and as you know, it just pays to play, if you want to get an order, have you to give sometimes.

Well I would not say sometimes.

Always.

And then compensating for this, is that we talked about before is really the increasing R&D expenses as a percentage of sales.

The last quarter '05, it was a good quarter, but the trend is that we're getting less and less in engineering income.

So from that perspective, you also have to consider that, when you think of Q4 for '06.

Right.

But are you saying we should model, so once again, what should we think of R&D at as 6% plus, right?

We're about 6%, yes.

We had earlier sales around 6.5.

In that ballpark, yes.

So for the full year.

Between 6 and 6.5?

Around 6.5.

6.5, right, that's what I have now, okay.

Good.

Well, once again, congratulations for your margin expansion, in the face of production declines and commodity surge all put together, it is really unprecedented, congratulations.

Thank you very much, Scott.

Thank you.

Next question comes through from the line of Patrick Sjoblom from Cheuvreux.

Please go ahead with your question.

Yes, good afternoon.

Most of my questions have been answered.

Just a follow-up here, on the slide where you show the light vehicle production in Europe and the full cost, you said it was a little bit ambitious with 2.2, but that is Europe.

Have you got any kind of split of how much is for the full cost for Europe east, and west Europe in these numbers?

How much is west falling and east going up?

And just to get a feeling for sort of the mix effect?

I think Mats is looking desperately for the figures.

Here he comes.

Mats?

It is going to be down 0.5 point in Western Europe according to this, and up 13% in Eastern Europe.

And that gives an average of 2%.

Okay.

And can I ask the same question for Q2?

Of course.

Okay.

Then, the decline is expected to be 4% in Western Europe, and an increase of 9.5%, almost 10% in Eastern Europe.

And when are we going, Q3 and Q4 as well.

Minus 5, and 17-plus.

And then 1% up, and 12% up.

In the fourth quarter.

In the fourth quarter, yes.

Thank you very much.

That that was helpful.

Thank you.

Thank you.

That actually was our last question in the queue. [OPERATOR INSTRUCTIONS] Okay, we do have some further questions coming through.

We have question through from Himanshu Patel from J.P. Morgan.

Please go ahead with your question.

This is actually Ron for J.P. Morgan.

Just wanted to know, side curtain airbag penetration in North America, where is it right now?

And given the orders you're seeing, where do you see it ending at the end of this year?

Okay, Mats?

We are just in the processing of updating those numbers.

We do that on an annual basis, and have it in our annual report and so forth.

I can't really say, give you any definite numbers but it should be something like 30% by now, and just continuing increasing of course.

That's great.

In terms of, in response to earlier question, you said some OEMs in North America have not totally made up their minds, in terms of side curtain airbags, and I guess installation, can you sort of identify those?

Are those sort of the Big 3 or -- ?

We can of course identify them, but we don't want to do that in public.

You know how it is, it boils down that they have to have a certain percentage with a certain treatment rate, and some of them are in a good position, so they don't see that there is any time constraints.

Other does it for marketing reasons.

So all of them have different strategies.

And I think it is, you know that, too I believe that the transplants, by and large, have a higher fitment rate than the domestics.

Okay.

So when do you expect to get a better clarity on this?

I mean do you see upside, for example, to the orders that you are seeing right now in North America?

Well, as you know, we believe that come the year 2010, all of them will have it.

So Mats I think gave you an estimate of 30% presently.

So it means that the coming five years, we should have another coming up to triple the value today roughly then.

Okay.

All right.

Thank you.

Thank you very much.

The next question comes through from [Greg Rujon] from Exane.

Please go ahead with your question.

Yes, good afternoon.

I have a few questions.

First one is you used to talk about an average safety market growth of about 4% in the past, if I am correct.

Do you think you are going to come back to this trend after two weaker years?

Well, our total market has probably grown at that rate also in '05, to something like 17 million -- $17 billion, sorry.

But I think this year has been a bit special, because virtually all of that growth has come from increased car production, and increased car production in Asia, where the safety content is rather low.

So instead, you have had a decline in Western Europe, where the safety content is high.

So if you have a decline in Western Europe of say 0.5 million vehicles and they have four times as high safety content, as a vehicle in China and India and so forth, which they definitely have, that means we have to increase the car, or our industry has to increase production by at least 5 times, to offset the decline in Western Europe.

So that's the explanation why you have this situation.

Okay.

But do you think for '07 this maybe, the geographic mix issue will be over?

This was for '05.

We have virtually an increase of almost half a million vehicles in Western Europe, and if they have an average supply value of say $400, that's $200 million.

Then you need to in Asia, the safety content is $100, then you need to increase the production in that part of the world by 2 million, you have to offset it.

So that's the mathematics behind it.

And if you put it in words, it is basically so that the market will start to go up in a big way, when the Asia-Pacific, [orient], the Chinese, India, Thai vehicles start to increase their safety content, and much faster than they do today.

Because today, you know, the production goes up a lot.

But the safety market does not go up a lot, because it is a very limited treatment race, and believe in some countries less than $100 per car.

Okay.

Thank you.

Now, another question, is you started to decrease in your head count in the high level cost countries this year, do you intend to continue next year, or do you think in these countries the bulk has been done in '05?

It will continue in '06, and we will probably continue as long as we can do it in a profitable way.

Okay.

And given the strong performance as a result of your recent management actions, and do you think you can maybe be more optimistic on your margin target of 8 to 9% range you gave recently?

You think you can overcome the 9% on a full year?

I think we gave you 8 to 9%, and the last three years we have been in that region, even though it has been in the lower 8 region, so if we do well, maybe we can move up in this span, but that remains to be seen.

It is not unlikely.

Okay.

And the last question on acquisitions, what should you expect from an acquisition?

Would you expect something like volume effects, to benefit from additional volumes and market share?

Or would you benefit from low margin player, and make restructuring this unique benefit from rearranging of the targets?

You know, the first problem we have, is the difficulty defining a legal target, because of the market shares we are enjoying for the time being.

That is one of our headaches.

Secondly if we could have a wish, the end target would have some technology that we don't presently have.

Something that would extend our product offering.

That would be ideal of course.

To buy something that is more of the same is maybe less interesting, but it all boils down to price, of course.

Okay.

Thank you.

And maybe a last question.

Are there further contracts you would like to exit, low margin contracts maybe in frontal airbags, that could weigh on growth over the medium term, short or medium term?

Not really.

What it is that we talk so much about these hybrid, particularly driver inflators, that we sell in North America, those are the result of an acquisition that we made in the year 2000.

But you know what it is, that company had just taken on some orders, and they are shipping of course through, 2003 through 2008, and we will be very happy when the shipments are over.

To answer your question about other frontal airbags, no the contracts we have on frontal airbags are sound, all of them.

And one other product line, however, that we wouldn't mind exiting are the seat structures that we make here in Scandinavia, it is a non-profitable business, either.

But as you know in the automotive, you can't just stop shipping because you create a lot of problems for your customers, so we try to run that business with at least a zero margin, and a zero cash flow.

But if you could get out of it, we would be very happy.

Other than, that we like to keep what we have.

It is a relatively focused company, you know.

Okay.

Great.

Thank you for all these answers.

Thank you very much.

Thank you.

Our next question comes through from the line of Adam Jonas from Morgan Stanley.

Please go ahead with your question.

Great.

Thanks.

First I will start off by saying congratulations on the fourth quarter buyback.

I think your return on that investment has been about 20%.

So 80% annualized return, not too shabby.

No.

Not too shabby.

Thank you.

I have a question on operating leverage.

I think one of the obviously points that you show, was showing such margin expansion with very sharp negative organic growth, so just imagine how good it could be when the growth ultimately returns.

I think many of us would agree, it is hard for a company, a supplier like you, supplying the types of products with the shares that you have, to lag a global organic growth much longer.

I think you would agree with that.

But maybe you could refresh us on what is the contribution margin, or the variable margin on organic growth that you would be comfortable with?

If I just add up your SG&A, your R&D, and your depreciation, let's say for more or less fixed costs, I'm getting well over 15% margin on incremental organic growth.

Does this sound right to you?

Or do you have another figure you would like to share with us?

Magnus is shaking his head.

He probably doesn't want to discuss that.

You can see the gross profit as well, of course, and go from there.

And then the margin you can always discuss how much is fixed overhead and how much is variable overhead, and I think it is better if you do the math, and you will end up pretty correct.

Do you think we end up closer to your gross margin, or closer to 15?

You run the math and you decide.

I think I know what the answer is, but we cannot tell you.

I'm sorry.

Okay.

Just wanted to try.

[Laughter] Why not.

Thanks.

That's all I have.

Have a good evening.

Thank you very much.

Our next question comes through from the line of Tom from DRKW.

Please go ahead with your question.

My question, just regarding the production schedule that you went over, the only major car that we're knowing about for the fourth quarter launch in Europe is the Opel Corsa.

I was wondering if there is a particular model that we should be watching for your return to growth in Europe in the fourth quarter in 2007?

I think it is the one we just talked about a little bit earlier, the new 2007 from Peugeot, which is kind of a volume car, but there are a couple of others that are getting out there, the new mini for instance, and many facelifts, and they all have a tendency to kick in again then.

And we think there is more of a trend starting again.

We see these as a temporary slow down in a couple of quarters.

And we have probably seen the worst, or if quarter one is the worst, we don't know.

And then we can pull it back into growth mode, where it is a variety of cars, and when I look at the list here, it is a lot of numbers, positives and negatives.

But we should be back in growth again towards the end of the year.

And compensate for the slow start.

Is it kind of like a base effect?

Is that also what we could be seeing here?

Well, yes, maybe, I don't know, it's off the production figures, if I recall correctly, even western Europe should have an increase towards the end of the year in production volume.

That on top of eastern Europe, and that helps of course.

I guess what I'm trying to get to, is there another Megane in the pipeline in the next two years?

There is another Megane in the pipeline, but it is towards the end of '08.

No, I mean like a Megane, with a high safety content from you guys?

Well, you know the Megane is the biggest contract, and there is a jump to the second and the third.

So I think there is not any content that is by far, as important as the Megane used to be.

That's true.

Okay.

Thank you very much.

Thank you.

Thank you.

We have a question from Richard [Hagen] from Neuberger Berman.

Please go ahead with your question.

Good morning.

I join in the chorus, it was truly an outstanding quarter.

Could you just once again recite the expected tax rate for '06?

Was it 33%?

Yes.

That is the best estimate we have.

But unfortunately you have to estimate it to be volatile, so don't run into despair if it's too high one quarter.

Could you spend a moment and expand on the commentary in terms of looking at the debt ratios, that you once again talk about in your text?

And what that leads you to believe is your excess debt capacity at this point in time?

Yes.

As you see in the press release, out net debt is 1.1 times, which means that we have plans to have room to increase debt, and still be a fairly good investment grade.

So I think, guessing that we have between 200 million, up to 400 million, to keep an A- rating, and maybe increase it another 200,300,400, 500 million, up to maybe double the net debt, and still be BBB or BBB+.

It's not your goal to be an A-, is that BBB satisfactory?

We don't have any goal to be an A-, we have said we would like to be a safe investment grade.

And that's really the objective.

We have an ambition to further increase the gearing in the Company, if that creates shareholder value, and for the moment it seems like it does.

Really I can tell you that Magnus really tried to [inaudible] become an A-, but he didn't succeed.

Keep up the good work, and I look forward to see how this year evolves.

Look forward to seeing you.

Thank you very much.

Thank you.

Thank you.

We have no further questions in queue.

I will hand back to our speakers today to wrap up this afternoon's conference call.

Thank you so much.

A lot of interesting questions.

Thank you all for your attention.

And next time we are here, I believe April 27, and hopefully spring time, it's snowing here in Stockholm.

Thank you so much, all of you, have a good evening.

Thanks for joining today's conference call.

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