Autoliv Inc (ALV) 2006 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to you Autoliv first quarter results conference call with Mr. Lars Westerberg, Chief Executive Officer, Magnus Lindquist, Chief Financial Officer, and Mr. Mats Odman, VP Investor Relations. (OPERATOR INSTRUCTIONS).

I will now hand you over to your host for today's conference call, Mr. Lars Westerberg, to begin today's conference call.

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 usual bunch.

We figured out it is the 20th quarterly report we do together.

The presentation package is available, as usual, on the corporate website under the Financial Information tag.

And then the next slide and the Safe Harbor statement, which we are merely going through is part of the presentation.

If you could then flip to the next page please, the sales trend.

As you have seen, sales is down some 7%, which actually it looks a little bit worse than it really is.

The occupancy strength sales is organically down less than 1%, which we will explain here in a minute.

First off we have foreign exchange influence which is a little bit more than 5%, which means that the organic sales decreases between 1.5 and 2%.

But as we have mentioned many quarters, we're facing now a family of driver hybrid inflators in the United States, and that has decreased the sales with about half.

So actually it was half of the organic decrease.

So we speak about an organic sales decrease which is less than a percent, which actually is better than we thought after the fourth quarter of last year.

Nevertheless, of course it is a decrease, and the reason is quite clear that we have a mix problem, a geographical mix, and within the European -- Europe which is the geographical problem we have.

We have a negative vehicle mix which we're going to get back to in a minute.

All in all though we think that the picture for the full 2006 is probably going to be similar to what we discussed before.

Quarter one came out a little bit better.

We're going to have a decrease in quarter two that is slightly worse.

And we have a fairly pronounced pick up in quarter four that will also last all the way into 2007 and probably also beyond.

We then come to the next slide, the organic growth compared with the vehicle production.

We can say that actually Autoliv sales increased organically in all regions but Europe.

In North America if we disregard that inflator [phase up] our sales organically was up 5%.

And as you're going to see, that is in line with the core production in North America.

In Japan the organic increase was 7%, which does exceed the light vehicle production in Japan.

And the rest of the world, we're up organically 13%.

And then hard to say how that compares with vehicle production.

It is in any case a fairly good figure and what is driving sales in Asia Pacific, Korea and China.

And on the other hand, we have a decrease in Australia.

You may know that the Australian market is relatively weak.

Part of the reason is that the local made cars tend to have very big engines.

And as you know the gas price is high, so the locally made cars are down compared to imports.

Finally Europe we are down 7%.

And the reason is simply vehicle mix.

If you turn to the next slide please, the light vehicle production.

I think it is fair to say that North America came off unexpectedly strong with a 4.8% increase in production.

And actually also Big Three were up a bit more than 2%.

And as I mentioned, disregarding the inflator sales, were up in a similar way.

Europe, we had a flat West European market, and the increase of 3.4% is all from the Eastern Europe.

And just to grab a couple of our largest customers, like Renault, we had a decrease of 18%.

We had a (indiscernible) that was down about 16%.

The Volvo, as you know we have the largest selling and single the model we have is the [XC9] which is about 24%, etc.

We had a number of our largest customers that had a decrease in their volume.

The ones that did increase were primarily Fiat where we as you know have a relatively limited presence.

Finally, Japan, sales was up 2.8%.

And as I mentioned before, we were up like 7% organically.

The next slide is the unit productions we have in Autoliv.

The unit sales is of course negative due to the large influence we have from Western Europe.

Even having said that, seatbelts, side systems in general they are presently running at record levels. [RECs] that we usually single out here in volume, they are up 11% in volume and 13% in value in spite of the European downfall in volumes.

Next slide please.

It illustrates the gross margin, which continues to trail up.

And we're now running 21%.

It is 1% up, and we can break it down roughly in some eager lumps.

About $8 million is the result of larger internal efficiencies.

We talk about lower scraps.

We talk about less premium freight.

We talk about less waste, etc.

That gave us an increase of 8 million.

The next bigger loss is about another 8 million, and that is labor savings, direct labor as well as overhead labor, so that added another 8 million.

Then we have the third item, it is a onetime capital gain when we sold the plant in the UK.

That gave us a onetime shot of $6 million.

Then against that we have had some -- partially offsetting it we had some transaction foreign exchange like C$ versus U.S. dollar and similar.

Plus we also decided to write off some slow-moving inventories.

And those two put together it is about $7 million negative.

All in all we had about 17 or so onetime items, but these are the largest ones.

Efficiency Class 8, the labor Class 8, onetime gain of plus 6.

And then they had the inventory and FX of minus 7.

All in all that ended up with 21.0, which is a full 1% better than last year.

The next slide this shows you the EBIT margin.

And as you can see, we landed on 9%.

And looking at this slide that is the best quarter one we have had here in quite some time.

If we exclude the onetime gain we had on the UK building, the EBIT would have been more like 8.6%.

But even so, it is a full 1% better then the same quarter previous year, it was 7.6.

The next slide gives you the simplified income statement.

And again of course we have the foreign exchange problem going all the way through, starting with the sales of minus 7.

But then again remembering that more than 5 out of those is really FX.

At the gross profit level we have a negative 3%, but if we disregard the FX, we have a positive increase in gross profit of 3%.

We will than continue down here.

We can say that sales and admin costs we're down in dollars, but actually up a little bit, 0.1%, in percent of sales.

The engineering costs, they are down in dollars and relatively -- they are flat in percentage terms.

Having said that, we look forward to, or we expect as you say, rather to have relatively high engineering costs in quarter two and quarter three, which is of course included in the prospects we have given in the forecast.

You have to expect relatively high engineering costs.

And that hangs together with some pretty sizable electronic contracts we have received lately.

The tax rate is only 26% for the quarter.

And that is thanks to some tax grants we will get in France because of engineering costs we have had in France.

That of course made net income go up no less than 21%.

And then as you know, all of you, we are repurchasing shares and the share repurchase is added $0.07 to the earnings per share.

So all in all we booked $1.13 per share as the earnings per share for quarter one 2006, which then is $0.29 per share more than we had the same quarter last year.

One of the reasons as you can see is that the interest cost is relatively flat.

And if you turn to the next slide that is meant to illustrate the advantages we have by utilizing the Temporary Jobs Creation Act, which we did last fall.

As you can see at quarter one 2005 we had an interest cost of about 8.3 million.

Then we had increased the bad debt which would have resulted -- or should have resulted in an additional interest cost of 3 million, because it went from 625 to 885 roughly in net debt.

Then the rates have been going up, and that should have added another 2.8.

But then we have the Jobs Creation Act that actually decreased the interest cost with almost $6 million, so we actually ended up with the same interest cost in spite of the very much higher net debt we had in quarter one.

So the conclusion is that it pays off to utilize the Jobs Creation Act, as we did last year.

Turning to the next slide, the return on equity.

The quarter four 2005 is -- looks very negative here, because as you may recall that is where we had took some of the hits for the Jobs Creation Act.

A more correct figure here we look at 11.8%.

A more figured correct figure would have been 13.6, if we disregard the Jobs Creation Act.

In the same fashion we can say that quarter one this year it takes advantage of the exceptionally low tax rate because of the French tax advantage.

So rather should have been 15%, rather than 15.3.

And therefore if you clean it all up and want to look at the underlying trends, you take quarter four 2005 to quarter one this year, we actually went from about 13.6 to 15% return on equity.

And in the same fashion, if you take it year-on-year, we went from 11.9 to some 15%, which is after all still a 3% increase in the return on equity.

Next slide is a similar slide, but return on capital employed.

We are smack on the trendline for the time being.

We're running 17.7% return on capital employed.

And again, capital employed is virtually unchanged at $3.2 billion.

And as you know, with 50% of this 1.6 billion is intangible assets.

As we usually do, if you recalculate it to physical assets, we are returning slightly more than 38% return on the physical assets we can utilize in the operations.

Therefore, if you turn to the next slide here, the key figures.

We have touched upon EPS, return on equity, capital employed, but what you can say on the earnings per share that it is up $0.29 and $0.20 of these cents are organic.

And then there are the Forex and share buybacks and so forth.

The working capital is up 34 million to 9.1%.

That is more than we had the same quarter last year, but still well below the 10% which we have as the target to stay behind.

The net debt, as you can see here, is up some 18 million.

But that is because we have really purchased shares amounting to about $56 million.

Furthermore we have paid dividends to the shareholders of $27 million.

So all in all we have paid out to the shareholders one way or the other, $83 million during quarter one.

Finally, the headcount, as you can see, it looks like $500 -- sorry -- 500 persons, but it is actually 440 persons.

It is a rounding error.

If you turn to the next slide you can see what has been going on here.

In the UK we have decreased substantially, that is of course mainly due to the airbag operations we have closed.

And as you also understand, we have sold the building.

But it is also been in the curtain production plant we have I think have been commenting on where a lot of our [good] features after the weaving operation had been moved to Poland.

In the United States we have an ongoing move then to the low-cost country Mexico.

In France we shut down the scraper plant, or initiator plant, we had in March with an existing plant we had a little bit outside Paris.

Australia, as I mentioned, we had a pretty slow market in Australia, and on top of that we're moving some of the value-added over to China and Korea.

Spain looks a little bit ordinary.

The explanation is simply that Spain was the recipient of some of the workloads from the airbag plant in the UK for logistic reasons.

And on the additional you can see China, Mexico are the two big ones.

You have smaller additions in Poland and Romania.

Brazil is up really and offers a low-cost country rather because of the market in Brazil being up substantially here, running about 2.25 million vehicles for the time being which is, I understand, is record-breaking.

The next slide please.

The cash flow we had, and whatever way you look at it, we have to say that the cash flow was very strong quarter one this year.

As you can see here on the gross cash flow we had 139 million, which is a fairly strong figure.

The CapEx net 61, that is influenced by a onetime gain or onetime cash flow we had by selling off the UK plant and the U.S. plant of 23.

So the gross CapEx rather 61 plus 23, or 84.

And therefore the $78 million is of course correct, but it is influenced by 23 million, which you could regard as a onetime shot in the arm.

But nevertheless, 139 is pretty good.

If you take the last 12 months we're now running 521 -- (indiscernible) and 235 net.

The next slide is illustrating the stock buybacks.

We have been buying back about a little bit more than 1 million shares during quarter one.

So far we have bought back a little bit more than 21 million shares, and paid as you can see $754 million.

And today's value is well in excess of 1 billion.

So far so good you could say.

The next slide is also coming back to the same thing we touched upon earlier.

When you run efficient, when you run without waste and running without scrap, it pays off in quality terms too.

And we have never seen so many quality awards as we have received quarter one.

And they are from Toyota, from General Motors, from Honda and more.

And I believe there is even more to come that must be sent out if and when we receive them.

The next slide is about the inventories.

It is pretty self-explanatory.

There is about 3.2 million light vehicles in inventory in the North American system.

That is some roughly 4% lower than it was the same quarter last year.

But -- and as you can also see, that it is a fairly normal level in the form that it is roughly the same in 2004, 5, and 6, and it is also more or less in line with the ten-year average.

Then as we usually do, we tend to try to look what do we think is coming up for this quarter and the full year.

And starting with North America, as you can see we have an anticipated drop of a bit more than 1%.

And here we are -- it splits up as usually in two.

There were the Big Three supposedly going down close to 4%, but the transplant going at about 4.5% for a total of 1.3.

If you look at the full year forecast here of 15.8 it is surprisingly stable, as you can see.

From 2003 to 2006 it is more or less the same figure, 15.8 million.

And then we should see a light uptick here next year when it gross about 300,000 vehicles.

The next slide is the same exercise for Europe.

We will see a decrease then of a bit more than 4%, and Western Europe minus 8.

That is why we are always somewhat cautious in our prospects for quarter two this year.

And Eastern Europe will grow about 11%, but again, Western Europe down 8.

That is problematic given our mix of customers.

And again, we have the lowest forecasting minus 16, plus or minus 11, down or minus 9, etc.

Volkswagen running roughly flat and Fiat up.

But you can also see here the second half is supposed to run faster and stronger than the first half, and that is also what we see in our backlog going forward and part of our forecast.

Finally, Japan, where we have about 10% of our sales, you have a fairly even development as you can see all quarters.

That is supposed to go up another 3%.

And as you can see 2006 will exceed 2005 with about 400,000 units, and a smaller uptick also for 2007.

So that sums up to our outlook for quarter two.

We think that we are going to have a decreased sale of about 8%. 3% of that is foreign exchange, and the rest would be mainly due to the anticipated strong drop in Western European car production of about 8%.

Disregarding that though we think that we might still have a fairly good chance to do the same operating margin as we had last year, in spite of the lower volume.

And if we do so, we would have a margin of about 8.7%, also the second quarter of 2006 as we had in 2005.

And with that, we leave it all open for questions.

(OPERATOR INSTRUCTIONS).

Scott Merlis from Thomas Weisel Partners.

Once again, some great gross margin performance, but the challenge seems to be in France still obviously.

How does that play -- when you look at your backlog how does France and Europe play out towards the second half?

Where is the greatest content gross growth?

Does the new Peugeots help you much?

Is there any content growth at Renault -- we know about the [Magain] problem, but what does the backlog say for the second half regarding Peugeot, Europe and is there any redeeming factors at Renault?

Basically you're right.

We had a problem in France.

As you know there roughly 10% goes to Peugeot, another 10 to Renault.

And that of course is not so good for us.

The new Peugeot will help a lot, if we put it that way.

And that is phasing in.

As you know, we never know exactly how it is going to launch, but nevertheless I believe we have basically all of it.

Plus you know there are some others coming up too.

There is a new Mini.

Volvo has been another problem for us.

If you add actually France plus Volvo, that is 25% of our sales.

And Volvo is coming up with a new [SA], they had a new convertible.

They are coming out with a small town car, or whatever you should call it.

So all in all that should help.

I would say that for the year though Renault looks like it is going to be somewhat difficult actually, and that is part of the forecast.

And the new Peugeot will help it, that is your main question, I guess, so you're more concrete.

Right.

With the content on the new Peugeot is high relative to other Peugeots?

How does the content on the new Peugeot compared to other Peugeots?

We think we have about 60, 65% marketshare with Peugeot.

With the new Peugeot we have basically all of it.

So from that point of view it is marginally better than the average, you could put it that way.

Thank you.

That's very helpful.

Congratulations.

[Avani Shaquila] from UBS.

Just a question, especially on headcount.

I noticed the headcount was up 440 people, and you referenced some of that as being seasonal.

Do you have a target for headcount for the full year?

Do you think you can keep it flat or maybe even reduce headcount?

We don't have a target for headcount, but as Mats tried to explain that was in the last quarterly report.

At the very end of last year there was some very slow production figures for (indiscernible).

And that is why it was more or less artificially down, which I think we commented actually after quarter four too.

And I guess you could say that those are back.

But also if you calculate backwards the volumes are not down.

We talk about less than 1% down on occupancy restraints.

And if you then know that we have a price decrease of maybe 2.5% or something in that order of magnitude, I know that people look a lot at the top line and say volumes must be down a lot, but they're not, they are up.

Right.

And then, of course, we tried to keep the headcount down, as you understand, of course, as much as we possibly can everywhere.

An assumption of overall flat headcount for the year, is that sensible?

I must say that we don't really have a value to be honest with you.

We just try to keep it low.

And if we should employ, we like to employ temps simpley because, as you know, in Europe it is somewhat difficult to get rid of some of the employees unless they are temps.

It is either costly or takes a long time.

And both of them are bad.

Just a second and final question on the front airbags.

I am just trying to understand exactly what has happened there.

It looks like you are losing marketshare in frontal airbags.

Do you think the competition is getting better on their cost structure, or do you think this is an issue your competition are actually accepting lower margin business that your work walking away from?

I think you are very right.

We are losing some marketshare in frontal airbags.

There is no doubt about it, and particularly so in Europe for the time being.

But having said that, and the backlog that is correcting itself.

We have booked some pretty sizable orders the last year on frontal airbags.

But you know, what we're shipping know is what we booked some years ago.

And in those days we preferred side systems, and particularly curtains, because they had a better margin simply.

And sometimes the customer speeded up in frontal systems, side systems and seatbelt systems.

You can adjust your pricing accordingly.

The French and Volvo doesn't do that way, but some others do it this way.

You do have a chance to try to optimize what you're selling, if you understand what I mean.

Lately we have come back and taken some pretty sizable orders of some frontal airbags.

I think it is going to come -- I know it is going to come back.

In general you're happy with the possibility of front airbags that still see some business to be winning?

Some decent business, it is just with all the other business it was even more decent.

Himanshu Patel from JP Morgan.

TRW's recent acquisition of [Delphi Matel], have you seen any sort of change in behavior in terms of pricing with the French OEMs with regard to TRW?

No, we have not.

We are not seeing any change in pricing.

We hope though that we are going to see some, because as we discussed before TRW is the rational competitor.

And that should mean that we see a change in pricing.

We have seen that whenever you acquire something in our line of business, very rarely just one becomes two, because with some customers you become too big, or you stir up some other dust.

And that we have also seen.

And then, Lars, when you think of margins, the last couple of quarters you have had negative organic revenue growth, yet margins are flat to up in every single quarter.

I'm just thinking as you get to the fourth quarter in 2007 where you may be saying low to mid single digit revenue growth, let's say.

Is there a reason why with the benefits of the cumulative cost savings, with the benefit of some operating leverage, you could not break out of this 8 to 9% operating margin band and let's say get closer to the 10% level?

You probably mean the fourth quarter 2006.

Yes.

There is nothing in that would prevent that of course.

But we're not giving any forecast for that other than we are indicating that we think we're seeing a fairly pronounced turnaround.

It is somewhat dangerous for us to forecast, because you know the business as well as we do.

Sometimes the launches do not do go as good as our OEMs think.

But if they go as good as the plans say, there should be more pick up than the 2% you referenced in quarter four.

It should be fairly much stronger than so.

And then the engineering costs escalation you referenced in the next two quarters, I presume that mainly to ramp up for the new contracts that are coming on in the fourth quarter?

No, that ramps up is for contracts that are going to be even later then so.

Those are contracts we have got very lately.

Okay, and then --.

But as you know, this is -- as time schedules get more and more squeezed, we get the orders later and later.

So when we get the order, we have to jump on it.

And that is unfortunately going to drive up the RD&E the here, Magnus, I think it is fair to say more than 7%, isn't it?

For the full year, close to 6.8 (indiscernible).

But for the coming two quarters?

Yes, yes.

It is just a fact of life I'm afraid.

The alternative is not to take the order.

And then Last question.

Recently it sounds like management as well as the Board's appetite to add some leverage to the balance sheet to increase the rate of buyback or the dividend, it seems like there has been an increased appetite along those lines.

Could you give an update on kind of where you guys stand on where you would like your leverage to be maybe a year and a half or two years from now?

Really, we don't give any kind of targets for that.

You know how we work here.

We are going to see where the stock price is and the share prices settle down here by the end of Friday tomorrow then.

And then we start to do whatever we should do then.

Actually we have May Day in Europe, so there won't be anything bought in Europe on Monday.

But Tuesday we will start it off for sure.

And on Wednesday you can look at the Internet to see what we did.

But if we still assume that we believe that we are -- we have unnecessarily conservative balance sheet, we are going to adjust it, either the dividend or buybacks as we have said many times before.

And you will see the result later Wednesday.

One last housekeeping question for Magnus.

Working capital, against your peers your working capital sales ratio I think is notably higher.

Any thoughts on what you're thinking on that?

Is this a structural issue that you don't think you can get your hands around, or is there scope for improvement on that?

Of course there is scope for improvement.

We were actually looking at factoring together with some of our suppliers.

And if that plays out well, we could potentially increase that more and more.

That is one way of going.

Another way could also be we are investigating on selling off some top-rated customer seatbelts in order to get the money fast.

So we are investigating many different opportunities there to improve our working capital situation.

Can I mention that when we look at it here in Stockholm together all of us, we find out that we are a typical European company if you talk about working capital, but the U.S. companies are doing better than we do.

I don't know if they lease more or whatever it is.

We're fairly deeply integrated.

We start with a square and then build the whole thing.

We own our and buildings usually too.

[Thomas Bessen] from Merrill Lynch.

I have got actually three questions.

I would like to start with the organic growth in Europe.

Your performance relative to the referenced market (indiscernible) versus Q4.

You end up with some (indiscernible) 10%, this is 6% in Q4 last year.

You have mentioned frontal airbags more than (indiscernible) transfer to Japan.

Is there something else beyond that?

Because I don't think any of the (indiscernible) you had mentioned had a specifically worse performance in Q1 than in Q4.

Would it be fair to say that some customers, and notably I would say a leading German carmaker, offering maybe to decontent sightly some of their products, and that safety might -- possibly safety might be one of the (indiscernible) decontent, are there other explanations for the organic growth of the performance in Europe?

That's the first question.

Okay.

So if we start with that one, I would say by and large here, no, there is no decontenting.

But what we know is happening in some of them is they go from dual stage to single stage.

And those are those are more -- or I wouldn't say the leading or the high-level German cars but the sort of, the more normal or medium or whatever, without mentioning brands.

They are going from two phase to one phase.

But other than that, nothing particular going on apart from volume of some of our customers of course, like we talked about the new class and so forth before.

There is no decontenting that I would say.

Moving on to gross margin, you mentioned improved efficiency, labor savings, the capital gain, Forex, and inventories write-offs.

Could you say there was any impact both from raw materials, and then obviously from the negative leverage of your organic growth, which should also have impact I guess on gross margin?

We can say here that we did not have any measurable impact of raw materials either way.

We didn't gain, we didn't lose.

And during the day we have received some questions about remarks in the prospect.

And that is I guess you could say reading the newspaper one gets a little bit nervous, but we are still believing that we can keep it in check.

We did not, on sitting here today at least, expect any impact from the raw material increase.

There will be some, but it will be offset by decreases in others.

Regarding the volumes, yes, but I think what we are seeing here that so far we have been able to cope with it.

And as you know, being European, it is the European car production seems too fast.

We have a problem to shrink our cost in Europe at the same speed.

And that is a little bit what you see for the forecast going forward.

But then again it is even more difficult to shrink the cost when we know the volumes are coming back in quarter four you know.

That means that we're going to have a temporary problem.

You understand what we mean?

I'm not sure to understand what you mean, no.

Okay.

If we say that the volumes go down in quarter two and quarter three, but we know we they are coming back again in quarter four, in Europe is not so much we can do.

In the states you can easily shrink your manning levels, not so as you know in Europe like in France or whatever.

Finally, two very small questions.

One, I was quite surprised by your comment on non ferrous metals which are not part of your raw materials, but which could still influence your raw materials bill.

And secondly, another small question regarding the [models].

I don't know exactly your concern from this vehicle, but Renault has been speaking about compensating its suppliers for the, let's say dramatic difference between what they were expecting to produce and what they effectively produced.

Did you say if you receive any compensation?

And when you did receive it, if ever you did receive some money from Renault for that?

I can start with the motors, and Mats will take it through the raw materials.

We have no content with motors.

It is not even in the models we lost.

Maybe we should be happy for that.

And then Mats will cover the raw materials.

We always said that aluminum and zinc is not really that important for us.

We're talking about a little more than 30 million in spend for aluminum last year, and a little more than 10 million in zinc.

This is not the raw material itself, we also buy components, and this is the content of the raw materials.

It is a small number in relation to the whole purchase spent.

But the price increases here have been so dramatic, I think we were talking about the doubling of the price for zinc.

We had a little fear that the suppliers may not be able to cope with this problem and will pass it on to us.

And that is what we are giving you a little notice that that is a risk.

[Tom Painey] from Dresdner Kleinwort Wasserstein.

I have a question towards safety electronics.

You guys are talking about great sales in safety electronics, but I don't really have a very good grasp of the products that you're talking about.

Can you give us an example of what you mean here?

You know, the whole software on how to deploy and when to deploy and at which violence of the crash you should do what.

All about is hosted in the airbag controller you could say in simplified.

It is (indiscernible) simply sitting centrally in the car, and we are a producer of those.

And we are similar size as Bosch and Siemens, and the three of us are in the larger.

I think we have close to 20% of the world market each and the rest is relatively fragmented.

On top of that, we produce satellites, crash sensors, that are usually placed out in the fenders of the car to get hold of the crash really fast, and sending the signal to deploy like pretensioners, like airbags, and so forth.

On top of that we're also producing telematics systems for a couple of car producers here in Europe.

I think two of them are official.

Volvo is one, and I think one of the -- another one in the PAG Group, and we have a third one in the backlog also.

And on top of that we are also presently supplying night vision systems for the BMW, presently their 7 Series.

And as I understand it we will be also in the 5 and 6 Series going for it.

So (indiscernible).

That is the main product in any case.

On that topic, you are saying that the RD&E that is going to hike up in the short term from quarters that are not coming in this year.

But is that what we're expecting here in the safety electronics?

The orders have come in.

And that is why -- that is the problem and the advantage of course.

The orders have landed here.

You would say during the spring.

That means we have to jump on them, because times are short.

But on the other hand, the sales will come typically two to three years later.

So we have to take the cost before the sales.

It is basically each member of these ECUs or whatever they are (indiscernible) are adapted to the customer in question, and even to the cars in question.

All of them have different crash policies and so on.

I guess what I'm trying to ask is it all four of those products that you just -- or is it one particular product here, something I can possibly model in to my spreadsheet?

(indiscernible) if you understood the question, why don't you --?

I think you have to tune the electronic control unit to each car model, because a heavy long car has a different crash [pulp] than a small card that stops more aggressively.

You have to do some application engineering for each model, and hence each contract that we receive.

Did that help you or --?

Not really.

When you're talking about the spend that you're doing for RD&E is there a dollar amount that you could give us what you expect for safety electronics in three to four years?

We cannot really because we're spending it only when we receive the order.

We're bidding contracts, but we're not having the resources normally when we bid.

It is an outgoing business.

We recruit as we see we get the orders.

That is why we wanted to say here that we have to take in temporary help, it is going to the slightly more expensive.

And as Magnus said, when everything is said and done this year, we think we're going to be marginally below 7% on total RD&E.

And then we just tried to explain why.

And the major reason is really increased engineering and electronics because of new contracts taken.

I'm sorry, I meant to say in three years where do you see your safety electronics sales?

I would say somewhere -- in three years -- somewhere 8, $900 million.

That's very nice.

Thank you.

I also have a question to your low labor costs strategy.

You were targeting 45% after the first half of 2006.

That's correct.

We're at 41% now.

So you are expecting a pretty big jump in the second quarter.

No, it is somewhat confusing here.

I'm sorry about that, becuase what we talked about 45, 55 as you are correct, those are employees.

There where we should have 45% in the low labor cost countries of the employees today, as we speak we have already 44.

So we are well on target there.

It is only one more percent to take.

The numbers that we present here, and I think that is somewhat confusing, here we have total headcount, everybody that we pay a salary.

Some of them are not employees, they are temporaries you know.

It is only the full-time employees when you're talking about -- (multiple speakers).

Exactly right.

The ones that are truly employed.

There we want to have 45, and we are presently at 44.

At the fourth quarter conference call you was mentioning that the savings that you had received from the industrial action in 2005 had only 50% come through.

Do you remember that comment?

Could be.

I don't -- maybe -- I can't say that I remember it off hand.

What I was going to ask is how is that now?

What of the restructuring costs that you took in 2005, how much of that savings have now come through?

We haven't recalculated, but as you saw in the manpower here, we took out the whole French company basically now during quarter one, so that is down.

And very little of that was done in quarter four.

Most all of them were still onboard, so that is a new one.

We continue, as you saw, to decrease the manning in Australia, but we have not calculated exactly how much that is done.

I have one last --.

Pardon me.

We are on schedule for the whole (indiscernible) actually.

Lars mentioned earlier that net net the savings in labor cost in quarter one was 8 million in the quarter compared to the first quarter last year.

So there you have something --.

There you have some guidance, correct, Magnus.

Thank you for that.

I have one last question.

In that content per vehicle in the 2007 are you prepared to give the euro value or the dollar value?

(indiscernible) we're not, and you know why.

I understand.

Thank you very much for your help.

[Anders Traub from Instuda]

I have a couple of questions, if I may.

First of all if you could just clarify a bit to me, I might be a bit slow today, about the model and mix development that you expect going forward.

As you said, it has been clearly been one of the biggest reasons for your sort of negative development on sales.

How you see that panning out?

I understand sales are going to be negative in Q2.

What about Q3 and Q4?

It is going to be positive I guess in Q4, but what about Q3?

And also will it be as negative in Q2 as it was in Q1?

That is sort of one of the questions.

The other one is really if you have said anything about exciting new products that could help sales growth in longer term.

And I wonder if there's anything worth saying there at the moment.

And also actually at the end I also wonder if the workload at Autoliv has come down recently, since I noted there has been a Board appointments for you, Lars.

How shall we interpret that?

The first one was a lot of (indiscernible) exercise here.

And Mats is digging into his papers.

Are you going to find something, or should I start with quarter two?

Sorry, question two.

New and exciting products, I would say that it depends on what you think is exciting.

One of them for sure is the low risk deployment airbags, the LRDs.

That is growing rapidly, and they are quoted to a number of OEMs.

You know, of course, that the ultimate goal here is the U.S. they will not have to include those sensor maps, that is the whole thing.

And as I understand the OEMs will save, at least try to save, about $95 per car.

That is one of the most exciting.

I think we probably have one of the best products, not to say the best product on the market.

Then what do we have more that you would say is particular exciting.

Of course you have the night visions.

You have the fixed hub steering wheels and so forth.

You have a lot going on on the pretensioners side also with a number of different customers.

Two of them are on order with us in five, six models.

But there's a lot more quoted and the interest is fairly large actually.

Regarding the workload, it is my private workload.

I delegate a lot more these days, you know in my eighth year in Autoliv.

But seriously speaking, I have stepped out of two boards, one being [Ausag] and one being CV Instruments, and I picked up another two.

Not so complicated.

Have you found the months for Q (multiple speakers)?

Yes, it is a combination of things here.

First of all, both we and our customers expect the decline for our major models to be less in the second half.

For instance, the [Nagain] will not decline as much as it has done since the third quarter.

It sounds to me like upgrade as well.

Yes.

There are several reasons why that decline will moderate, and perhaps even be reversed in some cases in the second half of the year.

Then you have actual new contracts.

We have been talking about the two (indiscernible).

That is in new models being launched.

It will sell better than the current one, particularly when we have the [sales] out of the production, we have a standstill and not [shipping] anything there in the first quarter at least.

It started in March.

And then we have other subjects -- Lars mentioned the BMW Mini.

We have also the X5 Mini BMW, and we have the Volvo S80.

And there are others that I don't remember off the top of my head, but there are a bunch of them that are coming here.

And the BMW X5 is for your information, we have not a single screw on it today.

But in the future we have at least half of the content.

If you want to sort of try come through with it quarter by quarter, the very negative effect we have seen for the last -- at least two quarters on model mix will gradually be less there turning to maybe something positive towards the end of the year.

Is that --?

Towards the end of year we expect to see a fairly nice sales increase with positive numbers basically all over.

Very good.

Looking forward to that.

Yes, so do we.

[Andrew Mays from Corsat].

I have two.

The first is in the press release you had highlighted something about legislation going through the U.S. Congress.

I was wondering if that is relatively important to your outlook for this year or for 2007.

And then the last one is the pace of buybacks.

Is there anything in terms of the number of days you can actually buy, because I know there are some limitations, does the first quarter have fewer days that you're allowed to be in the market buying?

And if so, could you continue at the same pace as we anticipate Qs two through four to see more shares rebought?

The legislation we hand over to Mats Odman.

It is his favorite topic.

Yes, what we're talking about is a upgrading of the current side crash test regulation in the U.S.

Currently you don't measure the violence to the head, believe it or not.

That is the most important part of the body to protect, but there is a loophole in the current regulation.

And now --.

In the U.S.

In the U.S., yes, yes, not in European regulations.

You measure the chest intrusion, but not the violence to the head.

This is what NHTA, the National Highway Traffic Administration wants to change.

There are other minor changes also.

And we expect in our industry, and everybody else, as a result of this that there will be a significant need for curtain airbags to be able to meet the criteria in the future.

According to the proposal, this will become effective during -- phased in during a three-year period starting 2009.

And then the question is, how early will you see effects from this?

We have a strong pick up already today in curtain sales for us and the rest of the industry, but maybe it will become even a little stronger because it will have a signal effect if Congress mandates -- in reality mandates, in fact mandates curtain airbags.

It will not be, of course, specify that it should be curtain airbags.

It would be test required (indiscernible) target.

But as I said it will be difficult to fulfill the criteria without a curtain.

And to fill in a little bit here actually, you could discuss whether what we even need the law, because under the threat of the law there was a voluntary agreement between all the car producers.

So as Mats said, we are seeing the (indiscernible) going up substantially already.

One additional point in the law, however, was the there were was demand also on a maximum chest intrusion, which is more difficult for us to translate into dollars.

But that would be normal thorax bags.

The law would be good.

I believe personally that the inflatable curtains we will see in any case because of the voluntary agreement.

Your question number two regarding buybacks, we leave over to Magnus, the CFO.

He has to pay it.

Regarding buybacks, first as you might remember we released our fourth quarter earnings release February 9, which means that for the first quarter we have fewer days available to buy back before we were into the (indiscernible) period.

So, yes, counting the number of days, and assuming the same pace, we would be able to buy back more shares in Q2 and Q3 and Q4.

But of course, that was assuming the same pace.

I don't want to give any forecast on that one because it is up to the Board to decide.

And also one has to consider the share price and other alternatives like dividends, etc.

We will be back on that one next week.

David Kramer from Morgan Stanley.

I just wanted to come back briefly to your operating margin for 2006.

I think you said on the last call that you are aiming for higher margins year-on-year.

Is there anything you have seen in the first quarter or learned about the coming quarters that make you less confident on this?

And the second question I have is just on the tax rate.

The positive impact you had on the first quarter, is that likely to continue for subsequent quarters or was that a one off?

The first one regarding your operating margin for the full year and the forecast or whatever indication we gave.

Given that quarter one was slightly better than we had anticipated there's no reason to change the full year outlook.

I think you're looking at it from the negative side.

There is no -- if you start better than you thought then you should not take it down, I guess.

Your second question regarding tax rate goes to Magnus.

As we have mentioned in the press release, that it is really a one off, so we expect the underlying tax rate to be 32%.

If you adjust of course for this one off.

[Ralph Waller from HVB].

The first question would also refer to the tax rate, because you mentioned in the interim report that you're only benefited in the first quarter from the 2005 effect you could gain back.

You said that for 2006 you expect also an attack on the tax rate.

Maybe you can a bit elaborate more on that topic.

The second question would be you mentioned also that you benefited in the first quarter from lower startup costs you had, and that impacted the EBIT margin favorably.

When we look now on the second half of 2006 where you expect organic growth to pick up, should we expect that the operating leverage, meaning your cost efforts and also the then greater economies of scale, greater capacity utilization should overcompensate these startup costs?

Do you expect them?

If you start with the first question, Magnus.

Yes.

Regarding the tax rate, really what we were talking about in the first quarter was the catchup impact, really what was related to 2005.

So what related to 2006 is (indiscernible) our forecast of 32%.

That is down the line tax rate.

And as you might remember, when we released the fourth quarter earnings release, we said that profits should be around 33%.

We have actually taken it down slightly, and part of that is due to this R&D credit for '06.

So if you repeat it, quarter one we ended up 26%.

That means that we think that the full year will be 30.0.

But as Magnus says, the underlying is actually 32.

And then your second question regarding the startup costs.

Startup and startup, it is more lunch costs.

And I guess what you're saying is that we normally screw up when we launch.

We always try not to screw up, but it does happen that we do.

So when there are fewer launches that is of course getting to a steady-state and you can tune it.

I wouldn't say that we necessarily should have high launch costs.

We do our absolutely best to avoid it.

I think the worst we had was somewhere in the year 2000.

Since then it's become better and better every time.

And let's hope that we can cope with it.

In any case we don't want to put a figure on how much we're going to screw up.

Excellent.

Congratulations to the first quarter.

[George Rujon] from Exane.

(indiscernible).

A few short questions.

On the Jobs Act you had mentioned 17 million advantage for the year, and you had around 6 million in the first quarter, so should we keep the 17 million figure for the full year?

Magnus could explain this.

It has to do with the interest rate.

The 17 was the net saving for the Jobs Act, and the $6 million you saw us report in the first quarter was really the gross saving before tax.

So what we expect to save, if you add it altogether, we can say that maybe in the order of magnitude of 15 to $18 million on interest rate.

And if you take a tax rate from that you're down to maybe 12, 13 million.

And then on top of that we expect to save close to 5 million directly on the tax.

So altogether we expect to save 17 million roughly net after-tax due to the Jobs Act this year.

I think you do have a point also because I think the interest rates have gone up further in the U.S. than they have in Europe.

And from that point of view, the figure is anything is better than we said when we exercise this option.

You do have a point.

On the raw materials, could you share with us which raw materials you see a decline in cost for yourself -- for this year?

It is essentially steel.

And what we have done is we have more or less locked in the steel prices earlier in the year than today.

And what was much alluded to a bit earlier is it happens if you are a small participant like we are in the steel market that you sort of get an ultimatum if things get real rough.

But if you want any steel, you will pay this price period.

But in the absence of that, we think still we can contain these price increases we have on aluminum and zinc.

We should be able to compensate that one with the steel price down.

You have a contract that was more favorable than last year's?

We have been a number of contracts.

It is not one.

But all in all there as the price decrease in the cost, unless something gets real violent for us.

And that should compensate roughly the aluminum and zinc increases.

The last question is on the Ford supplier consolidation you had last year.

And is it going to -- or has it already started to bring some benefits, and will you see an acceleration during the next quarters?

We have seen some contracts before, but I don't know really if that is because of the size -- the price consolidation or not.

In any case, we had seen some.

But I think is also fair to save that there hasn't been so many contracts up for Ford lately.

It is sort of counting waves, and there hasn't been a lot from Ford, neither United States nor Europe really.

I would say it remains to be seen.

It depends on their own marketshare in the U.S. certainly -- in Europe?

There has to be some contract to bid on, and so far very little has been decided.

What has been decided we have gotten a fair chunk.

And if that is because of suppler consolidation, I don't really know.

But what I'm saying it is not very big numbers yet.

Brett Hoselton from KeyBanc.

I wanted to ask you about, first of all to make sure understand the organic revenue growth. comments from earlier.

It sounds like what you're suggesting is in the first quarter your organic revenue growth, depending on how you cut it, was done about 1 to 2%, if I understood it correctly.

That's correct.

The second quarter given sales are going to be down about 8%, production about 2, FX about 3, it leaves about 3% unaccounted for.

It is kind of suggesting the revenue growth is probably going to be down in or around 3% in the second quarter.

I don't know if that is a proper interpretation.

But then to reach flat for the year, it would suggest that obviously you would need to be up kind of in that 2 to 3% range for the back half of 2006.

And if I understood your comments earlier, that rate of increase would be a good approximation for where you see yourself in that back half of '06 into '07 timeframe.

Is that a proper interpretation or would you adjust that?

It is somewhat difficult to comment upon.

I can comment on the first one, that we understood loud and clear.

It was 1.5 to 2% down organic.

That's correct.

However, half of that decline was those inflators we're phasing out.

And as I understand what we really phased out this quarter was around $12 million, and there is not a lot left.

It is like $25 million left on those contracts.

They are going to -- through another Tier 1 to one of U.S. customers.

We're happy to get rid of it.

We're not sort of sorry to see that decline.

So from our point of view the decline was more like 1%, actually a little bit less.

If you take our guidance for quarter two, our guidance is really we think that the FX is going to (technical difficulty) 3%.

And having said that, we calculate it within the euro to dollar of about 1.21.

And I understand today it is more like 1.24.

But you know this is changing every day.

If we take it at the exchange rate we have, that would have meant 3% for the FX, and organically about 5.

We derived the 5 problem mainly from the West European car production of minus 8.

Then I don't explicitly talk about -- or we don't explicitly talk about quarter three.

What we are saying is we think that when everything is said and done in 2006, we think organic sales, again taking out the FX, we think it is going to be relatively close to last year, which indicates that we have a fairly good pick up in quarter four.

But you know how it is in this business, it is always a risk that either we, or more likely the OEMs, get delayed in their launches and so on.

But if we know -- knowing what we see today, we think we should have a fairly good end on the year.

As you think about it, I know we have had a number of questions here on this.

But as you think about the expectations for share repurchases going forward, you had a very aggressive year last year, about 8 million shares.

You did about 1 million shares here in the first quarter, of course.

And then the question would be simply would you suggest that the pace of share repurchases going forward is going to approximate more along the lines of the 1 million share purchase rate that we saw in the first quarter, or the 2 million share purchase rate we saw in 2005?

I'm sorry to say we don't want to indicate anything.

We just -- you're going to have to see what we do actually.

And you know, share repurchases is not the only thing.

Sometimes we can do dividends too or other things like it.

There are many things in the book you can do.

You're going to know late as Wednesday actually.

And if you saw quarter one we had, if you remember, a cash flow of 78 million, and we gave back 83 to the shareholders.

So you could quarter one we gave back the cash flow basically.

And then finally just in talking with a number of automakers, we are seeing or hearing, or they are telling us let's say that we're seeing a pretty good shift in RD&E expense towards active safety.

And they actually have been quite complementary on your development of active safety.

My question is, as you think about this trend let's say a move maybe towards -- away from passive, or maybe a greater emphasis I should say on active safety.

As you think about this as being a trend in the industry, over what timeframe do you think that this plays out in terms of having maybe a material impact on your revenues?

Is this something that plays out over the next to 2 or 3 years, or is this more of a 5 to 10 year impact in your opinion?

I think latter time span is more likely.

It should have -- anything substantial financially impact is more than five years.

Because you know we have these timelines in our industry, so if we get an order today we talked about three years out before we ship.

So I think it is five years out for sure.

That is a tendency here, because people -- we talk a lot and we seem to forget that everything gets delayed when it comes to new technology.

After all it is relatively stable and conservative.

So the answer is five years or more, but it will come.

As you put it, it is going to be on top of the passive.

I think it is not going to be that it cannot replace passive, but it is going to be an additional market for a lot of us in the passive restraints and also new participants for all of us to participate in.

[Patrick Lindquist from HQ Bank].

I had a question on the organic growth in the different regions.

If you look in the first quarter you had down 6%, adjusting for the shift to Japan of some production.

That is 9 worse than the market.

And as I understand you are saying that you think you're going to do not as bad relative to the market in the second quarter.

If you then look at the U.S., Q1 was the first quarter in a long time I think where you sort of under performed relative to the market, if you wish, if you look at the car production.

It is there any specific reason to that?

Is it only the phase out, or is there anything else in there?

And what about second quarter there?

I can't say.

We won't do all the questions here regarding the under performance in the U.S., it is not there simply.

We're doing well in the U.S..

I was doing it [east] in saying that car production in the U.S. grew by almost 5%, and you grew 2% organically.

I think that is 3 almost less than --.

But then Mats has forgotten the phase out of the inflators.

If you add those back, it is actually 5.

Okay.

Right.

That is in line with the market.

Regardless of that, I think what we're all interested in is the EBIT, and that way we have a good development in the U.S., partially compensating for the more lackluster performance we had in Europe.

Your first comment was about Europe and what was that really --?

My other question was more like -- you can just forget that.

You already answered that one.

But let's move on to the rest of the world where you grew 13%.

That's a very strong figure.

Where you had been accelerating over the last few quarters.

Just looking into the second quarter, are you expecting a similar kind of growth rate, given nothing material comes on, or if the 13% figure contains something very (inaudible)?

This is difficult for all of us to forecast, including ourselves here.

Because as you know 13%, to be quite honest, we don't know if that is good or bad.

We think it is good.

But we don't know about the car production.

As you know, we have the double components there.

More cars, and more equipment per car.

Hard to saying how the market develops.

The trends we have here are that in Korea we take market share.

We're growing pretty rapidly in Korea, much more rapid than the car production.

In China I think we're growing more in line with the car production, but that is growing very nicely at present, as you know.

That was different a year ago.

But then against that we have a big market share in Australia.

And as I mentioned, there is a replacement of domestically produced cars by import cars.

And we see that the domestic cars in Australia, they want strong engines and big engines.

But now you know because of the gas prices, they're losing out, so there are more imports in Australia.

We're going to have a continued negative performance in Australia.

We're going to have a continued positive market share gain in Korea.

And I believe also continued going with the market kind of increase in China.

And then you have a number of others, like Malaysia, India and so forth, but they are fairly small in relation to these three markets.

Quickly on to 2007, in terms of total contract size, would that be more significant than the (indiscernible) contract, or is it more like a C class in size?

You mean the Peugeot (indiscernible).

It is a well equipped car without curtains and so forth as it has today.

So the content will not -- and the sales price will not -- per vehicle, will not be a material difference to the ones we have today.

No, the only difference is of course they're phasing down (multiple speakers).

And that is the problem we have.

The equipment is the same.

They are probably going to ramp up.

And here we're back to the uncertain ramp upstreams we always get.

A final on on the frontal airbags.

You said the competition is heating up.

And I presume pricing is, at least in what you are delivering now, has been a bit under pressure.

You said you took some new big frontal orders.

Are those -- should one assume that those are taking lower margins than historically, or is it anything else that is making you able to keep margins on those?

I think what we said is that some time ago when the present shipments were taken as orders, we got better margins on the side, systems.

So in the cases where you had a chance to select, we took the side systems.

As time goes by and as the inflatable curtains get more normal, and everybody else considers curtains too.

And also at the same time we have taken down costs on our drive-in inflators.

We could say that the margins are improving from our point of view on the frontals, and maybe deteriorating on the inflatables.

So lately we have taken a number of fairly big contracts on frontals, and they are not bad contracts by any stretch.

Whether or not they are better or worse than the historical depends on where you start your history.

We have [old money].

It has been 17 years in the program.

We saw some real nice contracts in the mid '90's.

They aren't that good, but they aren't bad.

[Fred Labelle] from Societe Generale.

Just two or three questions.

You today are in the middle of a relocating process, I mean relocating more and more production to low labor cost countries.

The question is, to what extent should we expect additional restructuring costs this year, and what would be the magnitude?

We are relocating, and that is quite correct, and we are going to continue to do so.

I think we're going to see that the (indiscernible) is probably going to legally continue to (indiscernible) no doubt.

You won't see an explosion there.

I think what we're really trying to do now is shift a little bit to the second level of this game, you could say.

But we want to buy more and more in the low cost countries.

And as I think we have talked about before, if you (indiscernible) and try to find supplies in a low cost country, we simply didn't find them.

Once we're out there and get established in the low cost countries, we do find a supplier.

I emphasize we are shifting a little more to supply or components from low cost countries.

But most of those supplies will be from countries where we're active, just because that is where we know the market.

And then as you know, there's a third leg which we have barely started, and that is to get some of the more should we save application engineering efforts over to low cost countries.

But that is not meaningful today in financial terms.

Actually there wouldn't be any additional cost?

It will continue.

I think what you'll see is a continued effort in North America, and maybe the big one that is ahead of us is a shift towards China from Japan.

But it is a somewhat complicated issue.

Without explaining too much, you have to build the plant in China before we have a number of things to move around in Japan.

And when everything is said and done, we have moved a lot of the value added from Japan to predominately China, and to some extent, Thailand.

But just to rebound on this frontal airbags issue, come just to be sure.

Do you see any new competition and new competitors coming from places like China today, or are barriers to entry remain too high to enter that business?

No, we don't see anything in China.

What we see are numerous seat belts suppliers, with numerous technical, how should I say, levels.

Some of them not so good and some of maybe halfway decent.

We don't see anybody in China produce -- outside the normal ones -- supplying inflators or anything like that.

So there is no new entries from the frontal airbags.

And as somebody alluded to earlier, when TRW buys (indiscernible) that is actually one less, and that should ask how a fairly good impact on pricing.

The fewer the better in our business.

Just a regional question.

I would just like to know where this night vision and telemetric business are located in seat belt units or airbags units or in divisions?

Any idea of what we could expect -- if we could expect one day to see your business in their own division at Autoliv?

You know, the night vision that is located in what we call an electronics business area.

And it is what complicated, but that is a global business area.

Because in that particular discipline, the electronics, we think that the worldwide combination is more important than it is in any of the others, because it has to do with you have to standardize on one ASIC.

You have to standardize on one microprocessor and so on.

And therefore it is more beneficial to act globally.

It is the only global business area we have.

As you know, otherwise we run Europe, North America, Japan, rest of the world, so it is a separate business area is the answer.

But just in the breakdown of sales, where do we find this?

(multiple speakers) that's true.

Okay, from a reporting point of view?

Exactly, yes.

Sorry about that.

But organizationally it is separate.

We have no further questions in queue. (OPERATOR INSTRUCTIONS).

We have no further questions in queue, so I will hand back to our speakers today to wrap up this afternoon's conference call.

Thank you very much.

And then the three of us here in Stockholm, we are saying thank you very much for all your questions.

And we look forward to have a similar discussion on Wednesday, I'm supposed to underline, Wednesday, July 26, in the middle of the summer.

Thank you very much all of you.

Thank you for joining today's conference call.

You may now replace your handsets.