Autoliv Inc (ALV) 2007 Q1 法說會逐字稿

Good morning to you in America, good after to you in Europe and good evening to you in Asia.

Here in Stockholm we have our Chief Financial Officer, Magnus Lindquist, our Chief Operating Officer, Benoit Marsaud, our Vice President Corporate Communications, Mats Odman and myself, Jan Carlson, Chief Executive Officer since April 1st.

We intend to run this call as usual starting off with a presentation that is available on our corporate website and thereafter I'll open up for questions which we will do our very best to answer.

As I'm relatively new in this role, you have to be somewhat forgiving if I'm not able to answer all your questions as expected and in case I have an excellent team here around me to support me.

My background in Autoliv is 8 years long and started with being responsible for the electronics division between 1999 and 2005.

After this I was appointed Vice President Engineering and had that position until last year in September when I was appointed President of Region Europe and now from April 1st in this role as Chief Executive Officer.

Before Autoliv, I was President of SAAB Combitech, part of the Swedish Defense Company SAAB AB; not to be mixed with SAAB automobile, the well-known carmaker.

I hope I will be able to meet many of you within not too long and get to know you at least a little bit.

So if we are turning to the next page we find the Safe Harbor statement.

I will not go through the content but it is an integrated part of this presentation.

Going to the next page you will find the sales trend.

Reported sales for quarter one were up 8% corresponding to US$131 million, two-thirds coming from growth in Europe and one-third coming from growth in region Rest of the World (RoW).

Organic sales were up 3.5% compared to first quarter last year and up 2% more than guided.

Airbag products were up 2% organic due to continued introduction of curtain airbags and the side airbags.

Seatbelt products were up 7% organically primarily coming from market share gains in all regions except North America.

Region RoW continues to show us strong sales actually and the strong sales development up 12% last quarter mainly coming out of strong performance in China.

And, in fact, our sales in China was up 100% compared to last quarter compared to first quarter last year.

Turning then again to the next page we find organic growth versus light vehicle production and if we start with the red line which represents the change in light vehicle production for the Triad quarter to quarter, we can see a decrease of 2%.

This is mainly coming out of North America with a decrease of 8% and from Western Europe with a decrease of 2%.

Organic sales as I said before were up 3.5%, and this together with a decreasing light vehicle production of 2% is showing an up performance on the underlying light vehicle production with more than 5% actually.

Our growth was primarily driven by sales of seatbelts in emerging markets and introduction of curtain airbags in an increasing number of vehicles.

In summary, all in all we can say that we have now returned to a positive growth as also previously guided.

Turning the page, we find the light vehicle production.

The figures on these slides comes from CSM and J.D.

Powers LMC as you can see.

And it shows basically the same trend as last quarter.

"The Detroit 3" is down, Western Europe is down and Eastern Europe is up.

"The Detroit 3" shows a decrease over almost 12% which is not far from expected figures from last quarter.

Transplants, or we call them here on this slide new domestics, shows an increase of slightly below 1%.

This is, however, much lower than expected figures from the last quarter of close to 6% increase.

Eastern Europe on the other hand shows an increase of almost 12% which is twice as much as it expected.

And, as you know, light vehicle production from China are really not that accurate but is estimated to be up 20% to 25% for the quarter.

And China today for us represents less than 4% of our sales but is growing fast as I mentioned some slides ago.

On the next page, we have our production numbers.

Seatbelt products continue to show a strong growth.

Last quarter we reported for the first time more than 25 million units produced in one quarter and now we have the pleasure to report close to 28 million units produced in one quarter.

Pretensioners here including also pre-pretensioners are up 60% and the Mercedes E Class and C Class were major contributors but also Opel Corsa, Ford and BMW added to the growth.

Frontal airbags as you can see is kind of flat and following the trend in light vehicle production for the quarter.

As I said before, side airbags are up due to installation in more recent platforms.

Steering wheels is also up.

Organic sales grew 24% and the units produced were up 18%.

So all in all you can say that we are taking market shares in both seatbelts and steering wheels.

Next page is the gross margins.

Gross margin reported for the quarter is down 1.1% compared to quarter one 2006 and we should say that last year we had to gain all .4% coming from a divestment of a closed plant in the U.K.

But the underlying decrease is rather .7% than 1.1%.

This difference is caused mainly by higher freight and higher material cost.

In summary we can say that we have not been able in the last quarter to reduce direct costs related to material in the same pace as customer price [inaudible].

In the next slide you can see that with this quarter had a raw material price of, up, of US$10 million compared to quarter one 2006.

On top of this we also had these stressed suppliers, you could say.

Regarding the freight that I mentioned on the previous slide we can say that freight is up mainly because of more units produced and also that we have been able to move successfully the manufacturing to low-cost countries but not being able to keep up the move of their supply base in the same speed.

As said in the last call, raw material costs were estimated to go up $20 million for the full year and as you can see here from this page, we have now seen $10 million after the first quarter.

Turning the page we find operating margin.

Operating margin reported for the quarter was 7.4%.

The decrease of 1.6% compared to last year's quarter one comes from gross margin at already 1.1% from gross margin, that's already explained.

And the Mando acquisition had an impact of .2% negative and then also to this we had a one-time cost related to the retirement of my predecessor with an impact of .2% minus.

And then another minus .1% coming out of various different things.

So without the one-time cost, the underlying margin was 7.6% and in line with the guidance given in the previous quarter.

If we turn the next page again it shows the income statements.

Sales in gross profit I guess we have already covered so if we go directly into SG&A, we will see an increase of $10 million and foreign exchange is explaining $4 million out of this and this one-time retiring cost is explaining another $4 million.

If we go farther down we find RD&E.

We show an increase of almost $9 million; again, foreign exchange is explaining $6 million and the rest is mainly related to our region RoW in electronics where we are investing and both of these areas are considered as significant growth areas for us.

Going further down on this page, we see that net interest is up $5 million.

This is coming out of $3 million related to increased rates and $2 million from higher debt mainly from the Mando acquisition and share buyback.

The tax rate for the quarter is up to 33% as guided, previously guided, so from last year's quarter one of 26%.

This is due to a one-time [discreet] tax item in the first quarter last year.

Finally on this page we have earnings per share, $0.91 for this quarter and we come back to that later.

Turning the page, again, we come to return on capital employed.

Return on capital employed is 14.6% compared to last year's quarter one of 17.7%.

In the 17.7% we had the capital gain of .7% coming out of the closed plant in UK as I talked about before.

Adjusting in a similar fashion for this year's one-time effect, we have an underlying decrease of 2%.

And an explanation for this 2% decrease is lower incomes, higher capital employed and the acquisition mentioned, the Mando acquisition.

Next page is return on equity.

And return on shareholders' equity is 12.1% for the quarter compared to 16.3% reported for quarter one in 2006.

If when -- the similar way that's for return on capital employed.

Take out the one-time effect and look on the underlying figures, we see a decrease of 1.9% compared to quarter one 2006.

This decrease, almost 2%, then is mainly explained by lower net income and higher equity.

Turning the page and we find more figures starting with the earnings per share, $0.91 for quarter one, the decrease compared to last year's quarter one is $0.22 per share and it's mainly explained by higher tax rates.

So turning then into operating working capital, it's up to $267 million compared to quarter one '06.

One main reason for this increase is the tax effect, $160 million coming from the releases of the tax reserves, reclassifications, et cetera; also here we see a foreign exchange impact of close to $40 million for the operating working capital.

The change in capital employed compared to quarter one '06 is coming from the Mando acquisition, US$80 million and the change in operating working capital.

Further down we see a net depth, net depth is up $238 million to a large extent explained by the share buyback program we have.

Cash flow on the next page, cash flow from operations is down approximately $50 million compared to quarter one last year.

This is due to lower net income and higher operating working capital.

As you can see in the fine print on this slide, CapEx for 2006 was positively affected of US$23 million coming from sale of assets.

So consequently the underlying figure here for CapEx is down by $10 million compared to first quarter last year.

Going then into the next page, headcount and total headcounts for the group is up 200 people compared to quarter four last year, so quarter four 2006, then.

This increase is 100 people in low-cost countries.

We have another 100 people in high-cost countries.

However, for the high-cost countries, which is also shown on this slide, the trend continues to reduce fixed employees and the increase comes from temporary people only.

Turning the next page again, we see the development of dividends.

From this slide we can see the trend since 2002 and also the increase in quarter two this year, the increase of 5% coming up to $0.39 per share.

This gives, then, approximately $125 million yearly dividend pay-out to the shareholders.

Next page, is the share buyback.

In the first quarter we bought back approximately 700,000 shares returning US$40 million to shareholders.

In the last 12 months we bought back shares for US$206 million and thereby returned approximately US$320 million to shareholders in dividend and through the share buyback program.

Remaining mandate to the management within this program here is 5.3 million shares.

Going then to the next page, this slide shows the awards received for our achievements in 2006.

We are all very honored for these recognitions done by the excellent workforce we have in the Autoliv team.

Next page, again, shows the forecasted light vehicle production for North America and this is the forecast that is seen by CSM.

The downtrend seems to continue in quarter two but to come back to a positive trend in second half of the year.

On the next page we find the forecast for Europe and in the similar way for quarter two, the decrease is expected but here it's expected to be worse than in North America actually with the Western Europe down of 9%.

But instead here in Europe, Eastern Europe, it's forecasted to be up 8%.

Overall, though, the pattern is the same in Europe.

As for North America, it's down in quarter two and it's up in second half of the year.

Next page is Japan.

Japan shows relatively stable development for the coming quarters, as you can see from the page.

And finally, then, on the page - the next page - we have the outlook and for quarter two we expect to continue to out perform the light vehicle production and increase organic sales by 2%.

Given the current exchange rates we, therefore, estimate consolidated sales increase of 6% in quarter two.

EBIT margin for this quarter, quarter two, is estimated to be as in quarter one, in other words, 7.4%.

For the full year we estimate organic sales to grow by more than 3%.

And for the EBIT margin for the full year we expect to be close to 8% instead of exceeding 8% as previously guided.

And this is mainly related to material and due to higher direct costs coming out of materials.

So with this slide, next page, should conclude my first presentation in this forum and here we, in Stockholm, thank you all for listening and are ready to take your questions and we'll try to answer them in the best possible way we can.

Thank you.

So Wendy I leave the word back to you.

Thank you very much.

(OPERATOR INSTRUCTIONS) Our first question comes from the line of Alex Toms from Morgan Stanley.

Please go ahead with your question.

Hi.

Sir Alex Toms from Morgan Stanley.

Just a couple of quick questions.

First of all and the guidance for Q2 growth, organic growth of 2%, and looking at some of the charts and growth looks in the major end markets looks quite weak.

Could you just explain why you're going to be growing so much stronger than the market and then sort of the ramifications for the rest of the year.

You're still talking about 3% organic growth for the rest of the year, just what you're sort of implying for Q3 and Q4?

The second question is on how you're winning market share still in seatbelts and the like since you talk about that through the statement; and the third question, could you just explain why there is such a big work in capital outflow in the first quarter?

Thanks.

Thank you, Alex.

I think Mats will support me with your first questions and then Magnus will support me and I will come in and see what I can add.

Mats?

Well, the reason why we think we will have this strong, relatively strong, growth is of course that we have the inflatable curtain that will continue to grow in installation rates particularly in North America.

In addition, we will continue to have strong growth in the emerging markets in terms of vehicle production and in Western Europe we will have a favorable vehicle model mix this year.

We didn't have that last year but we have it this year.

So I would say those are the three reasons.

Yes.

And there will be other new launches this year also that will contribute to this positive, favorable vehicle mix.

In that context is a 3% organic growth for the full year -- is that's cautious just given the production environment that you saw some of those numbers suggesting Q3 and Q4 for North America and Europe?

No.

It's realistic, I would say.

We have (inaudible) in (inaudible) 3%.

This is a best estimate we have.

And then coming back to your third question about the working capital, as you saw in our cash flow statement from the first quarter last year, we have the same there actually.

And there is a seasonal effect in the first quarter that's due to higher sales compared to the first quarter.

Normally working capital will increase but nevertheless it increased more than previous year partly due to higher sales as Jan explained earlier.

Partly due to, we have -- there's a problem with the distressed suppliers which we cannot really push and force so that -- to delay payments and so on.

Actually we have to, in certain cases, pay a little bit faster then we normally should.

And on the other hand we still have the same struggle with our customers to get paid in time.

Okay.

Thank you.

Thank you.

The next question comes from the line of Anders Trapp from SEB.

Please go ahead with your question.

Yes.

Hi.

I have two questions.

First about the distressed suppliers that you comment about, you can't push them around as you would like to and in some cases you have to pay a bit earlier maybe than is normal.

Relating to that, I just wondered what are the risks that you are taking with these suppliers that they might go into bankruptcy both in terms of losing money that you have with them but also, of course, maybe more importantly losing their supplier?

Well, there is always a risk that if you are under [higher] pressure that you could go bankrupt or you could go bust.

But they are closely monitoring all our supply base and I guess in a couple of cases we have been able -- we have been forced, also, to support our supply base and to really keep them going forward during a difficult period.

And this is actions that we are continuously monitoring and that we are initiating.

And to quantify this, I think it's kind of very difficult for not saying impossible.

We are taking the suppliers by supplier -- each company by company that we have under the loop and we are following and seeing where it's going.

Alright.

When it comes to the western capital outsource that you had which was -- partly was due to the distressed suppliers, does that mean then they then sort of in the near term or through this year we shouldn't expect a return to the normal but let's say 10% of sales in terms of working capital?

Anders, as you remember from Jan's presentation we also had another impact in the working capital and that's partly due to release of all the tax reserves and other tax items for the last 12 months; one of them is $60 million.

On top of that we also had a negative foreign exchange impact of 40 so altogether we are slightly about (inaudible) 13% of sales.

And then of course CapEx could go either way and it could probably go back.

But short term, I think it's difficult to come back to below 10% which is our press (inaudible).

I think it's fair to say, as Magnus said here, from a long term point of view we are not going away from our 10% target.

But in the short term during the circumstances we have, it is difficult to reach that.

Longer term, we'll stick to our targets and shorter term we will not be able to reach it actually.

Alright.

The second question relates to the culmination of your two guidances on (inaudible) second quarter guidance on the margin short of 7.5% and full year guidance of, I guess, somewhere between 7.5% and 8% which is close to 8.

Implicitly that means that the margin in the second half will be about the same level that it was last year in the second half which is a big contrast to what we're seeing now in the first and second quarter, a big improvement.

Could you just sort of elaborate on where this improvement will come from?

Well, I think as we said we expect the problems with the material costs to decrease in second half of the year.

We are seeing sales growth coming in in the second half so we are expecting the organic sales to kick in which will give us an effect and I think that is the main reasons for why we see a stronger second half in this year than we have seen in the first half year.

You are absolutely right.

The margins for the second half of this year are expected to be in line over the margins of last year.

So your calculation and your math are okay.

That's right.

(inaudible) for the calculation.

Thank you.

Thank you.

The next question comes from Frederic Labia from Societe Generale.

Please go ahead with your question.

Good afternoon, a couple of questions.

In your press release you talk about fierce competition in frontal airbags.

I just would like to know if you see new competition downstream and where it is coming from and [are you at risk] that maybe new situation in frontal airbag as of today.

My other question would be under your cash [receipt], given the fact that your earnings may be under pressure this year are you going to continue on buying back some shares or keeping unchanged with dividends or are you maybe changing or keeping the way you used to do it?

I'll take the first one and Magnus takes the second one.

Regarding new competition in frontal airbags, we don't see any real new players on the market, any substantial players coming in.

However, we see -- in Asia we see, and in particular in China, we see local Chinese manufacturers starting to do airbags.

But for the time being, they are not really on a global market.

They are present in China and they are having market shares in China but outside that we are seeing very limited competition.

The next question I guess I leave to Magnus.

About the cash policy - when it comes to the dividends, as Jan stated earlier, we increased the dividend the second quarter by 5% and we see the dividends are some kind of long term commitment to the shareholders.

On top of that, of course, we have been in the past doing opportunistic buyback for shares.

But we cannot comment on the future.

So we'll see next week.

And Jan come back on the question on the competition.

If it doesn't come from a new competitor, it's coming from the current one so who is getting market shares actually and how do you want to enter that competition?

I leave that question to Mr.

Benoit Marsaud.

Yes, your question was related to the frontal protection and in frontal protection we don't see any change in market share.

Jan told you we are more or less following the (inaudible) we use and we are following the same thing in term of market share for (inaudible).

We are winning market share for the products.

That's clear.

Thanks.

Thank you.

The next question comes from the line of Thomas Besson from Merrill Lynch.

Please go ahead with your question.

Thank you.

I've got a few questions starting with pricing and raw materials environment.

You stress the raw materials impacting the first quarter is already half of what you are expecting for the full year.

Are you riding your prospects for the impact on the full year?

And at the same time you're mentioning a very difficult situation in terms of pricing pressure from customers while other suppliers tend to view the situation as being a bit better and having a better ability to transfer the part about where you are with your costs.

Can you comment on that?

And I've got other questions or thoughts.

Sure.

We can start with the raw material.

As I said in the presentation we have seen already $10 million out of the last quarter stated $20 million.

As I also said to one answer (inaudible) or the previous questions here, we expect the price increase to go down in the second half of the year but as we have already consumed 10 out of the guided 20, we may have to revise this 20 million to be in the span of 20 to 25 million for the year.

But as I said, we don't see these at all as a trend shift; that there is now suddenly becoming sustainable more difficult with our suppliers.

This is something we would have to go through and we are -- we are expecting this to come back to a normal situation later on.

In what speed this will take, it's of course very difficult to say.

It's nothing that we can really judge upon.

We are doing our utmost to adjust for it but the guidance here and the figures we believe is 20 million but now expanded with its span to 20 to 25 million.

And your second question was --?

Yes, the release that the price pressure -- we see -- I guess we have always stated and we see a price pressure and one thing is that what you give and what you are giving to the customer but we continue to see a strong price pressure from Autoliv's side from our customer base and I wouldn't throw -- be prepared here today to say that we are seeing a less price pressure from our customer.

It's rather flat and it's as bad as it ever has been, actually.

So I cannot confirm from our side that we are seeing a lighter price pressure from our customer base.

That's not what we see here on the Autoliv side.

Thank you.

Moving to the second question, could you please remind us of the overall cost of your Chinese start-up cost forecast in 7 and how much it weighted in Q1 and what you're expecting in Q2?

Yes.

Well, I guess we have guided in our previous call that the start-up cost it would be in the range of $25 million.

And what we have seen here to start off with in the first quarter is somewhat lower start-up costs than we had expected.

But for the full year there is no change in the start-up cost.

We will remain at the level of $25 million and that is what we will say as of today, actually.

Could you give a number for Q1, please?

It's about $4 million.

Thanks.

One last question, please, which is linked to your (inaudible) as the new CEO of the Company, could you comment on your view about external growth and acquisitions?

Obviously you've been head of the fastest growing part of Autoliv over the last few years.

Could you say what you consider as possible external growth, whether you would be eventually prepared to change the Company (inaudible) given and whether you would eventually be prepared to put Autoliv in slightly different markets.

By that I mean more into active safety and passive safety to eventually accelerate the growth potential of the Company going forward?

Well, again, relatively speaking, I think this Company -- we are in safety to start with and we will remain in safety as a foundation of Autoliv.

Safety is our core business and we intend to grow in the area of safety.

When it comes to, then, active safety versus passive safety there is a lot of discussion of active and passive safety coming together.

We are looking for acquisition as we always are doing and when it fits into our business model and in the area of safety.

I think for the foreseeable future when it comes to car safety, passive safety will play a dominating role.

And if we look into active safety, what's out there today, you can say that stability control is really the only active safety product as of today which has some kind of a higher tank rate in the vehicle.

There are other active safety products out there that will come.

Matter of question is how fast will it come?

We will be there.

We will monitor it and we are prepared to do acquisitions in the area when we find them interesting.

I will use whatever I have in my background and you know I've been buying companies in the area of electronics.

For Autoliv we have acquired Visteon Restraint Electronics.

We integrated them into our Company; we boosted the sales.

And we will look for acquisitions in the area of when we find them and we think they are right.

And then we will go ahead.

So you would eventually be prepared to -- well, if you find (inaudible) acquisitions to go beyond the limit that have been fixed so far in terms of net gain ratio if you (inaudible) acquisition?

We didn't really understand your question.

Sure.

My question is simply, if you find a suitable acquisition, would you be effectively prepared to spend more money and effectively putting -- gear your balance sheet a bit more than what you've done in recent past?

Yes.

If you're referring to the gearing of the balance sheet, the question is yes.

We would be ready to invest and to gear the balance sheet if we find the right acquisition for it.

I think that question is, is yes.

Thank you very much.

Thank you.

The next question comes from the line of Tom Aney from Dresdner Kleinwort Bank.

Please go ahead with your question.

Good afternoon.

Tom Aney from Dresdner Kleinwort.

Good afternoon.

I want to talk to you guys about your guidance for the second quarter, the 7.4% margin.

I just don't really understand why it is so low.

You're talking about 2% organic growth, normally the second quarter you have a higher volume.

You don't have the CEO retirements.

It looks like raw materials are going to be lower.

It seems like I'm missing something here.

Well, I guess, when we do our math here - we talked about math before on this call - when we do our math, this is what we come into.

And as I said, I will stress it again, we will continue to have higher material prices.

We will continue to have distressed suppliers, et cetera and this is all best estimates for the moment.

Magnus would you add some more meat to the bones?

No.

And what we also have comes from previous calls.

We see the engineering expenses to gradually increase and, as Jan mentioned previously, we are expanding the safety (inaudible) area and also in Asia and that drives a slight increase in the R&D expenses so we expect to be in percent of sales as we have guided before in the ballpark a little bit more than 6.5% and now it will assume the 6.4% for the full year.

And for raw materials, you're saying that it's going to be -- well, you're indicating it's going to be -- what I'm seeing is lower, but you're saying it could be at the same level?

I'm not really getting that raw material story clear.

Well, we continue to see the raw material pressure and also the discussion we had about distressed suppliers.

But there's also another factor impacting short term is on the even production because it goes down quite substantially for something in Western Europe and then it's expected to increase in the second half.

And then we have different models that goes up and down which means that with this kind of quite volatile forecast in production that (inaudible) might also some extra costs for us.

But you are expecting in the second quarter higher volume?

The organic growth of 2%, is that -- are you saying volume is going to be down but mix is going to be up?

Or --?

Volume is up but the underlying light vehicle production is -in Western Europe and North America - is down.

Is down.

Yes.

But your volume will be up?

Right.

(inaudible).

Yes.

And then is there going to be a price mix effect there?

I'm still not getting the 7.4% because you don't have the CEO retirement payment.

After all the CEO retirement is 0.2% on the bottom line or on the EBIT part on the operating margin.

I think we are -- we are seeing a volume increase for the second quarter and that is -- and together as we come back to again, with the cost side we are really not able to push down the costs in relation also to the prices and to the price development that is giving us these effects.

As Magnus said, we continue to invest.

We have start-up costs, we have lots of engineering costs in the electronics.

That is giving us this effect for the second quarter.

Then coming back into the second half of the year, again, here which I know it's not on your question here now but the second half is then up again and then we see the volume effect kicking in for quarter three and quarter four.

On the cost saving side, that was also one of my questions, last year you guys did pretty good.

Like if I calculate correctly you were doing about almost $8 million a quarter in cost savings plus/minus a little bit.

Are you saying that those cost savings are not coming through or being soaked up in the market this year?

I don't know your calculation about the $8 million but what we're saying is the cost savings when it comes to direct material and the right cost and that is (inaudible) rate, they are not coming through as fast as we have found before and that we also are revising the full-year guidance down slightly.

I think your conclusions are right.

The cost saving is not coming down -- as coming through as previously expected at actually the same level.

I think that's the straight answer to your question.

And the cost savings traditionally, last year and the last couple years, we've seen as personnel costs, is there any positive effect this year to be expected in personnel?

Yes.

It's still continued to expect -- we will still continue to keep on moving our people from high-cost countries to low-cost countries so we will see that part continuing.

That is one thing that has been very effective.

I will still continue these activities.

What we will also increase here which I commented on earlier is to start seeking for supply base and find our supply base closer to our low-cost country manufacturing.

And this will take some time and this will kick in later but that is now next on the agenda in our effort to moving to low-cost countries from high-cost countries.

My last questions, sorry about this guys, but raw materials -- you're saying it's going to ease up in the second half but we're seeing alominium, zinc and all the other -- and oil all creeping up sequentially.

How confident are you on the raw materials in the second half?

I guess we are estimating the market prices as well as anyone else, actually.

It's very hard to say how confident we are.

This is our best estimation as we have as of today and you can really never know really what will happen with the raw material prices.

Something suddenly happens in the market and then raw materials are up.

But we are estimating these prices to stabilize more in the second half of the year and that's the best we know for now, actually.

Are you hedged for this year now?

Not really.

We are heading very, very small amounts.

In general, it's really a negotiation with the suppliers that is our hedge.

Thank you very much.

Thank you.

The next question comes from the line of Himanshu Patel from JPMorgan.

Please go ahead with your question.

Hi.

This is Raul for Himanshu.

Good morning.

Good morning.

My question is that some of the start up costs which are currently hurting margins, do you expect these costs to recede in '08 versus '07?

Yes.

And could you sort of put some numbers around that or how should we think about it?

That's what I said.

We think -- if everything goes according to plan we think that most of these start-up costs will be away in 2008.

Then we will be up around the -- in the (inaudible) in China.

We have some start-up costs in India that will take a little bit longer but that's a very small part of this $25 million.

Yes.

We are going to (inaudible) completely the plan specifically in China and (inaudible).

Thanks.

Thank you.

The next question comes from the line of Ron Tadross from Banc of America.

Please go ahead with your question.

Hello and good afternoon.

This is actually Joe for Ron.

A couple things, one, if you could just expand a little on exactly how you're going to get at the working capital.

I know you started the factoring program but it looks like you actually decreased that program this quarter.

So if you could a little bit about that; and secondly, if you could talk a little bit about the trajectory of the China investment and when you think that could break even?

Magnus take the first question on working capital and Benoit take the second one.

Magnus?

Yes.

When it comes to the working capital, yes you're right, that factoring level in the first quarter is reduced compared to the fourth quarter last year.

And we make the factoring when it's cost effective, really, because it's sort of a borrowing process.

When the margin and cost for factoring is much lower than our cost of borrowing then we do it.

So it very much depends on the pricing we get from the bank.

I would say that we would not expect the factoring to increase substantially more.

So we will be in the ballpark maybe US$100 million or slightly higher.

But not significantly higher because we don't want to have the factoring put charges that have some kind of material impact in the income statements.

And then coming back to the underlying work with working capital we are working hard with our suppliers, as Jan said earlier, to really find ways to improve their situation and make sure that we get paid and also can make sure that we can have the proper payment terms.

So when it comes to the customers it's just in everyday, hard work to make sure that we get payment in time.

Second question?

Second question, when are we expecting a break-even in China?

It depends on activity.

But let's say we are starting plan-by-plan to be profitable starting later 2008 and to be fully profitable early 2009.

The answer is 2008, early 2009.

And then finally just for Jan, I guess congratulations on your first quarter call, but if you could just maybe - and you gave a little bit of your background - but if you could just talk about one or two things that you'd like to do to really make an impact at Autoliv?

One of the things we're really -- first of all this business is -- this Company is doing, I think, very well so to maintain the business growth and to continue and develop our product portfolio in the passive area and in the active safety area I think is what we are focusing very much on.

Of course, also, to return the money to the shareholders and focus on shareholders' return would be one focus area.

We are driving our share buyback program and we are increasing our dividends.

It's about handling shareholders' money to the best and you can do that in many ways.

We will do it as good as possible, here.

Thanks.

Thank you.

There are no final questions at this time.

(OPERATOR INSTRUCTIONS).

I have a question from the line of Bryan Verona from [Veridian].

And that question has now gone, I'm sorry.

(OPERATOR INSTRUCTIONS).

We do have a question from Bryan Verona from Xerion Capital.

Please go ahead.

Thank you.

Two questions, 1Q European production, was that in line with your expectations; and number two, is the 2Q J.D.

Power forecast in line with your expectations for Europe.

Number two, can you speak to operating profit out of Western Europe relative to Eastern Europe given that Western Europe is about 76% of total units.

Just trying to get a sense of the profitability of the different segments.

Thank you.

Well, they have trimmed their forecast a little so it's getting tougher here in Europe than anticipated for -- at least for certain customers (inaudible).

So therefore, first quarter was lower than you initially anticipated?

Sorry.

I thought you meant second quarter.

No.

The first quarter, as we said, we had anticipated a decline of almost 3% and it was 1.9%, I think, the number it came in at?

Yes.

It was a little better than expected.

Little better than expected.

Thank you.

And then with respect to second quarter, it sounds like the mix is different than you initially anticipated which actually references my second question of operating profit out of Eastern Europe relative to Western Europe.

Is your content higher or your profitability higher there especially given the fact that the performance in Europe or the units in Eastern Europe in the second quarter is anticipated to be better than you initially anticipated?

The problem with -- or the problem -- what you should remember is that the supply value per vehicle for an Eastern European vehicle, the average is much less than for a Western one.

Take for instance, the [inaudible] which we have that has increased our production (inaudible) -- production by 96% in this quarter for the (inaudible), but we only have seatbelts for that.

There are only seatbelts in this vehicle.

So we don't get the same sales revenue and if we have in percentage terms the same margins, we also get less dollars in profit from that vehicle.

It's good, of course, but it's very difficult if you have a decline in Western Europe to offset that by an increase in Eastern Europe.

It has to be a five-fold increase to make -- break even there.

Thank you.

Thank you.

We have a further question from the line of Frederic Labia from Societe Generale.

Please go ahead.

Yes.

Just an initial question if I may.

Just on your statistics your predecessor started a quite comprehensive move and terms of production to low-cost countries so I'd just like to know where you are today in terms of production in low-cost country and what is the target?

Is there a limit on that issue?

And just a question on your margins, what you consider maybe for your group as in normal (inaudible) margin.

Is that something like 7 or 8-ish percent?

And have you any plan to go further eventually?

We take the move to low-cost country, I think we will -- we are continuing the move to low-cost countries and, as I said before, we have started off with the manufacturing.

We have close to 50% of our total headcount in low-cost countries as of today and we will continue with a further move to low-cost countries also in other areas there.

We will see purchasing activities, we would see engineering activities coming up.

I don't think, generally speaking, there is a percentage of limits in moving in percentage in low-cost countries versus high-cost countries.

We have some practical issues where it is not good for us to move away from the relations to our customers so that is playing an important part.

And then into the next question when it comes to margins, I think we have guided before and we'll stick to that.

Over the cycle we have a margin expectation of 8% to 9%.

And we will stick to that.

I think we have also said before as a Company that sometimes you are below 8% and sometimes you could be above 9%.

And now we see here one quarter under forecasting, another quarter that is below 8%.

So we stick to the 8% to 9% over the cycle.

Thanks.

Thank you.

The next question comes from the line of Hampus Engellau from Handelsbanken.

Yes.

This is Hampus from Handelsbanken.

I just have a short question, just an (inaudible) really on the penetration rates on inflatable curtain.

How would you see it in North America, Europe and Japan and obviously developing and going forward?

We will give that question to Mats.

And I forgot to bring that data.

I have it only for Asia-Pacific.

Maybe we can take that later then.

I think we have to.

Maybe we will have to come back to that later then, Hampus.

Thank you.

Sorry for that.

Thank you.

There are no further questions in the queue so I will now hand you back to your host to wrap up this conference call.

Thank you.

Thank you very much.

And we will then thank all for you for all of your questions and for your time here on this call.

We hereby close this conference call and we are looking forward then to see you and to talk to you on July 26th when we are reporting on quarter two.

Until then, have a good time and a good summer until July 26th.

Thank you very much.

Thank you, ladies and gentlemen.

This conference has now finished.

You may now replace your handsets.