Autoliv Inc (ALV) 2007 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Autoliv Third Quarter 2007 Results Conference Call hosted by Mr.

Jan Carlson, President and CEO.

My name is Wendy, and I will be your coordinator for this call.

Throughout the presentation, you will be on listen-only.

However, at the end of the call, there will be an opportunity to ask questions.

If at any time you need assistance, please press star, zero, and an operator will be happy to help you.

I will now hand you over to your host, Jan Carlson, to begin today's conference call.

Thank you.

Thank you, Wendy.

Welcome all of you to this presentation of the third quarter results for Autoliv.

Here in Stockholm, we have our Chief Financial Officer, Magnus Lindquist, our VP of Corporate Communications, Mats Odman, and our Chief Operating Officer, Benoit Marsaud, and me, Jan Carlson, Chief Executive Officer.

We intend to run this call as we normally do, starting with a presentation where we will provide an overview of the quarter and outlook for the remainder of the year.

After that, we will open up for questions, which we will try to do our very best to answer.

As usual, you can find the slides for this presentation available through a link on the front page of our corporate website.

If we now turn to the next page, we will find the Safe Harbor statement.

And as you know, this is an integrated part of the presentation, and we will not go through the details at this time.

So, going through the next page, we have a summary for the quarter ending September 30th.

We were very pleased with the outcome for the quarter.

It seems we have a third quarter record for sales, EBIT and for the operating cash flow.

The sales of $156 billion was an improvement of more than 10% over last year.

And the EBIT of $110 million was 8% better than quarter three 2006.

This EBIT improvement is partially a reflection of our margin recovery programs, as I have described to many of you before.

In addition, we are happy to say that we had an increase in the earnings per share of 19% to $0.81 a share on a comparable basis.

Our strong operating cash flow performance of $148 million represented an increase of 45%.

And last, but not least, we stepped up the pace of our share repurchase program during the quarter to 2.9 million shares, returning $160 million to the shareholders.

So, all in all, we think this was a very good quarter for Autoliv.

Moving now to the next slide, slide four, we find some of the key business highlights for the quarter.

All of these initiatives will help us maintain organic growth and improve the profitability in the future.

If we start from the top on the slide, you find the NHTSA, which is the National Highway Traffic Safety Administration in the U.S., finally approved the long awaited new side impact test regulation.

We have increased our presence in the local countries by closing a seatbelt facility in the United States, and we have built our fifth plant in Mexico.

Additionally, we have increased our presence to support the Japanese OEMs by expanding to a state-of-the-art tech center in Japan.

Furthermore, we have made a joint venture in China now, a wholly-owned subsidiary.

So, moving to the next page, we have our sales trend.

And in quarter three, our sales increased $140 million, or 10%.

Four percent was related to effect on non-U.S.

currencies, translation effect on U.S.

currencies, and the remaining 6%, or $83 million, was a result of strong organic sales.

This organic growth was much better than expected.

That was mainly driven by the Western European vehicle production.

If we turn to the products and look on airbag products, they increased organically with 4%, or $40 million.

This is mostly driven by the increase in sales for our side systems and safety electronics.

If we look to the seatbelt products, they increased organically 9%, or $43 million, primarily driven by an increase for pretensioners, and that is included in the active seatbelts.

Geographically, all regions grew organically, but fastest growth was in Japan and rest of the world.

As an example, seatbelts in Japan continued to show organic growth of 28% versus prior year.

So, now, the last 12 months sales, the sales for the last 12 months is standing up now to $6.6 billion, and that is up 9% from quarter three last year.

Looking to the next page, we have the light vehicle production.

And these figures comes, as usual, from CSM and JD Power.

In North America, if we start there, their domestic OEMs are down by almost 1% and, therefore, is not as good as originally expected.

The new domestics continue, actually, to perform well, and we're up close to 13%.

Within Europe, as expected, we see a strong performance in Eastern Europe, around 20%.

Western Europe was a pleasant surprise, coming in around 4% better than prior year, and it was 4% better, also, than expected.

Looking to Japan, there is a decline of slightly more than 1%.

And finally, we have rest of the world, where there is an increase of close to 16%.

And that is mainly driven by China, Korea and South America.

And China, itself, grew 23% for the quarter.

Moving to page seven, we have the Autoliv production figures for the quarter, as compared to prior year.

Seatbelt products continued to show strong growth on the Mercedes C&E class, as well as new platforms.

And here, we can mention [Himeji Outu] and Chery.

Pretensioners, in total, are up 9%.

For front airbags, volume growth resumed for the first time in several quarters, and that is despite expiration of certain contracts.

And the strong trend with side airbags continues, and especially in North America due to increased penetration rates of side head curtains.

Steering wheels and safety electronic volumes continued to show an increase year-over-year.

And we believe that we are growing in line with the market in all the product areas, actually.

On the next page, we find our total organic growth versus light vehicle production.

As highlighted last quarter, we now use global light vehicle production instead of the triad, and that is due to that data from rest of world is becoming more reliable.

Starting with the red line, which represents the change in global light vehicle production quarter-over-quarter, there is an estimated increase of 7.8% compared to organic growth of 5.9%.

The difference here is primarily due to the faster growing regions, like rest of the world and Eastern Europe which have a significantly lower safety content per vehicle than the global average of around $260.

For the first nine months of the year, the Autoliv organic growth is up 4%.

Turning again the page, we conclude our sales analysis with a bridge versus prior year.

And here we see a positive translation effect on the U.S.

currency that added close to $63 million, or 4%.

Seatbelts, side curtain and chest airbags added close to $82 million combined, and that represented more than 50% of the sales improvement for the quarter.

In addition, safety electronics and steering wheels combined provided another $27 million uplift in sales.

And frontal airbags and other sales were down $16 million and $10 million, respectively, and that is versus last year, despite the positive volume effect.

Moving to the next slide, we have an EBIT bridge for the quarter versus prior year.

And here, we have separated the currency effect, so that you can see an underlying difference.

During quarter three, we have been able to improve the EBIT to $23 million due to the strong sales and cost reduction efforts.

In addition, we have RD&E and currency translation effects that has improved the profitability by $5 million and $3 million, respectively.

And this aggregate improvement of $31 million was partially offset by a negative headwind, as we have talked about, of headwind effects from Asian startups.

And that is also -- not including, but in addition to the startups, we have commodity pricing, we have distressed suppliers and some other, which is mainly restructuring of close to $23 million combined.

Onto the next slide, we have the main commodities that impacts our products.

As we commented in July and also at the Capital Market Day, the negative commodity impact for quarter three is close to $3 million, and that is primarily driven, as expected, by zinc and steel.

For quarter four, we expect the total incremental effect to be approximately $2 million, and bringing the full year effect to $20 million.

All in all, we can say the negative incremental effect seems to be subsiding gradually during 2007.

However, we are cautious when we look into 2008, in particular with steel.

Going to the next slide, we have our headcount performance.

At the end of quarter three, total headcount for the group is down 360 people.

This decrease is primarily driven by reduction of 639 persons in high-cost countries.

Of our headcount, 49% are now in low-cost countries versus 46% a year ago.

And for the first nine months of this year, we have already reduced headcount in high-cost countries with more than 1,000 persons.

Looking at the next page, we have combined gross and EBIT margins onto the same slide.

The gross margin for the quarter is down to 19.4% versus prior year of 19.7%, and this slight decline is mainly due to higher material costs and distressed suppliers, as we have discussed earlier and throughout the year.

The reported EBIT margin of 7.1% was slightly ahead of the guidance of 7%, and this result includes other operating expenses of $10 million, which primarily relates to the restructuring as equivalent to 0.7% of sales.

This increase in other expenses is a reflection of a step up in restructuring activities in an ongoing effort to improve the margin.

Turning the page, we find the key figures.

Looking first at the earnings per share, the 19% improvement, or $0.13 on a comparable basis, is partially due to a share repurchase of $0.06 and a translation effect of $0.05 a share.

We have already approved the dividend for quarter four of $0.39 a share.

Going further down, we have return on equity that improved 1% to 10.6% on a comparable basis, and represents the second highest level for a third quarter, actually.

Further on to working capital, we are pleased to be back close to our goal of less than 10% of sales.

Both receivables and inventories contributed to this improvement.

And our net debt to capitalization increased to 32% from 28% a year ago, mainly as a result of the accelerated pace in our repurchase program.

Turning the page again, we have cash flow.

And the cash flow statement here, we can see that our strong free cash flow performance continues, actually.

This is best illustrated looking into the last 12 months cash flow of $398 million after CapEx.

And that is a record for any 12 months period.

This also represents close to a 6% return on the last 12 months sales.

Turning the page again, we find the share buybacks.

In quarter three, we bought back almost 2.9 million shares and returned $160 million to our shareholders, as we said before.

This bring year-to-date buyback to $257 million, or 4.5 million shares.

The cost of that 28.5 million share repurchase, to date, is close to $1.2 billion, which the market price today exceeds $1.8 billion at the current stock price.

There is roughly 1.5 million shares outstanding in the remaining authorization.

Onto the next page, we have return to shareholders, and this combines dividends and share buybacks.

For the last 12 months, we have reached close to 9.5% in relation to Autoliv's market capitalization.

Included in the last 12 months, $121 million was related to dividends while the share repurchase were $323 million, or in total, $444 million.

Okay.

Turning the page again, we first have the global light vehicle production, as forecasted by CSM and JD Power.

Looking specifically at quarter four 2007, it is expected that global light vehicle production will increase 5.6% from 2006, whereas the triad is expected to increase 2.8%.

Moving into some further detail for quarter four on the next page, we can see that this increase is mainly being driven by the increases in rest of the world of 12%, and Eastern Europe 20%, while North America and Western Europe, where Autoliv has most of its sales, are expected to be down and flat, respectively, or 1% combined.

Both North America and Western Europe are worse than anticipated back in July.

Compared to the current outlook, there is a negative swing of close to 2%.

This trend also carries into 2008, where we have a negative swing of more than 1%.

So, to conclude here, we see signs of a weaker market as compared to July, in particular in North America.

On the next slide, we have the Autoliv outlook.

For quarter four, we expect to increase our organic sales by more than 2% and, given the current exchange rate, consolidated sales increase of approximately 8%.

This more than 2% in organic sales may seem low, but light vehicle production in North America and in Western Europe, where we generate more than 70% of our sales, is expected to decline close to 1% combined, as we said before.

Consequently, we are almost 3% better with this guidance than our most important markets.

For EBIT margin, we expect quarter four to exceed 9%.

For the full year, we now estimate organic sales to grow by close to 4%, while full-year EBIT margins is expected to be close to 8% underlying, and GAAP reported to be close to 7.5%, including the legal provision.

To sum up, during quarter three, we have reported record sales, EBIT and operating cash flow.

We have accelerated our returns to shareholders, while the financial outlook remains positive.

Moving on to the next slide, and we conclude our presentation.

We thank you all for listening, and we are ready to take your questions.

As said, we will try to do our very best to answer them.

I'll give the lead back to you, Wendy.

Thank you.

(OPERATOR INSTRUCTIONS.) Himanshu Patel, JPMorgan.

Please go ahead.

Hi, good afternoon.

Good afternoon.

The pace of restructuring activity seems to have stepped up, and it looks like R&D spending levels have maybe come back a little bit as a percentage of sales.

Should we think of this trend in both of those buckets continuing into 2008?

If I start with the restructuring a little bit, Magnus can take it further on, on the R&D.

I think we are seeing restructuring activities as a tool for improving our operating margin.

And we will come back to this for 2008 in the next earnings call, on the level of it.

I think for quarter four you should expect around $5 million in restructuring costs, and that is as far as we can talk about it today.

But, there are restructuring activities that we will see going forward.

But, the level, we will come back to.

And coming back to research development and engineering experiences, as you saw in last year, close to 6.4% of sales, and partly due to we had a lot of product innovations in our safety electronics business and a number of launches.

And as we are now partly through that, and we also stepped up the sales, we can see that the ordinary relations to sales actually will gradually to go down.

So, for this year, it will be slightly below the 6.4% as we were at last year.

And Magnus, I mean, do you think that because many of the new product launches are behind you, the rate of R&D spending should moderate even beyond the fourth quarter?

I would say that we can talk maybe in the range of 6% to 6.5%.

We have previously been talking about 6.5%, and it could potentially be a little bit below that, yes.

Okay, that's helpful.

And then, if I go to slide 10 -- thank you for that bridge on EBIT.

Is there any way to break down the $22 million contribution between sales and cost reduction?

How much was each of those components?

Yes, it is.

But, we don't disclose it.

It's actually a combination, I would say, a lot of cost reduction, both when it comes to -- as you see that the research development and engineering is down.

But, also, in the operating expenses, we have improved efficiency.

And as Jan said, we have laid off a number of people during the third quarter.

And that, of course, has some positive impact on the cost side.

I guess--.

--You could say, all in all, actually, we have talked about starting action programs on the margin and efficiency and different type of activities.

You see the results, always, partly here.

You see it also, a part of this, in the R&D programs, where we are focusing our projects and our efforts to the most important thing that will have effect on our company.

I guess my broader question on this chart was you saw $22 million profit contribution from sales and cost reduction combined, and it looks like your organic revenue growth was about $84, $85 million in the quarter.

That sort of implies 26% contribution margin for every dollar of revenue.

That's a pretty impressive level.

Is that a rate we should think about going forward, or was there something in the rate of cost cutting this quarter that inflated that ratio for Q3?

Well, it's nothing particular that inflates the ratio in the third quarter.

But, of course, as you have seen in previous quarters, it could go up and down, depending on what kind of activities we have ongoing, and also how they are executed.

But, what you also will see, as Jan said earlier, that these cost improvements will continue to generate profit increases in the fourth quarter.

Okay.

And then, one last question, Magnus, maybe for you.

As more and more of the footprint moves to low-cost countries, do you see the working capital lines becoming more and more stretched, just in terms of your shipping goods all across the world now?

Should we think of very low levels of further working capital improvement potential over the next year or so?

As Jan also said before here, that we are pretty proud with the level of the working capital in relation to sales because, if you remember some quarters ago, we were actually much above.

And we said that we are striving to take it down to below 10%.

But, during these pretty tough days with some customers having financial problems and also suppliers that have been distressed during a number of quarters, we don't foresee any significant improvements.

But, we are very happy with the level we are at.

Okay, thank you.

Anders Trapp, SEB Enskilda.

Please go ahead.

Yes, hi.

I have two questions, if I may.

First of all, if you could elaborate a little bit more about what you said in your comment about raw materials going into 2008 and you're now cautious at least for steel -- excuse me -- what you see there and why you say that.

And I seem to remember from the Capital Market Day that you were sort of optimistic on 2008 overall with the margin potential, partially because you saw raw materials being less of an issue next year.

There were, of course, other reasons, as well.

But, if you could comment upon if this has changed in any way.

Also, you are forecasting a pretty impressive EBIT margin improvement in the fourth quarter, sort of like a trend shift, I would say.

I wondered if you could -- I guess it's very much because of the cost saving part of your EBIT which will maybe improve in that quarter, or is it something else really that's behind this impressive margin expansion that you're expecting?

And also, what are the reasons why that should continue or not continue into 2008?

If we start with the raw material prices, as I said, we are cautious for steel.

I think if you look onto the non-ferrous metal, the zinc and aluminum, we believe based on our information that they should be basically on the same level as we are today, not dramatically improved or decreased.

So, basically, on the same level.

You should remember it's still a fairly high level, though, but there's not any major changes we see going forward.

So, that statement remains from the Capital Market Day.

I think we have started to see signs that steel is going to increase, or could increase during 2008.

So, I think there is the difference and, therefore, we say that we are more cautious about the steel thing.

And that is probably something that we see now coming, actually, on the raw material side.

Could you remind us about your relative exposure to steel versus the non-ferrous metals in--?

--We are buying steel for about $400 million, a little bit more than $400 million in steel.

And Mats, you have the non-ferrous metals, probably?

I don't recall it.

I don't recall it, actually.

We have to come to you--.

--Yes--.

--With that one.

But, definitely the highest exposure we have is on the steel price.

So, we are seeing that might go up here in 2008.

Coming back to your second part of the question, the margin improvement in the fourth quarter and we are guiding for exceeding 9%, I think it's a couple of things there.

We have seasonal effect that is taking place.

We have engineering income that is coming down, that is more engineering income due to that many of the products we have with our customers are completed by the end of the year and, therefore, the payment and the results is coming in on the fourth quarter.

So, the seasonal effect that is coming there -- we are seeing actions from our initiatives in cost-cutting that is giving the margin improvement.

I think that are the main things that is generating results.

We have also taking out, as we have mentioned, 600 people in high-cost countries which, of course, is also generating effects.

We have closed a plant in the United States, and we are moving to low-cost countries, which is also generating effect.

Okay.

Looking into 2008, if that's what you want to a have a hint of, the same hint you will have that you had before, we are striving for the 8% to 9% operating margin.

And I will tell you more in the next conference call how 2008 will look like.

All right, very good.

Just on the cost-cutting, on the 600 people taken off in Q3, I assume that the impact in Q4 will be greater than it was in Q3 from that action.

Yes, yes, absolutely.

Yes, all right.

That's true.

Thanks.

Thomas Besson, Merrill Lynch.

Please go ahead.

Hi, good afternoon.

Hello, Thomas.

I have a few questions.

Could you give us an indication of what your trends in gross will continue in the fourth quarter?

Because you've just been through four positive quarters in terms of organic growth but, curiously, four quarters where gross margin has dropped quite strongly.

And can you elaborate on why your gross margin dropped so much, actually, in the third quarter despite significantly positive product mix improvement on the labor cost side, and not such a strong impact of raw materials and supplier disruption?

That's the first question.

The second question is could you update us on cash returns versus acquisitions?

I mean, you've clearly expressed, I think, in Frankfurt and before that you were a bit more open to possibly acquire a business to reinforce growth (inaudible).

Where should we see you in the next 6 to 12 months (inaudible) to make you say that you're going to buy something next week?

But, basically, should we expect you to remain at some kind of buyback or dividend space, or should we expect you rather to refocus more on external growth?

Thank you.

If we start with the first question, gross margin and elaboration on the fourth quarter, we don't comment really on the gross margin as such.

So, I'm afraid that you have to bear with us until we come to the next earnings call to know more about the fourth quarter gross margin.

And I'm very sorry, but that's how we deal with it.

If you look on, as you commented about, the significant drop, I'm not sure it's such a significant drop.

It is, of course, a drop from 19.7% to 19.4%.

And of course, the main reason here is the material costs, and it is the distressed suppliers.

And all in all, in total, we have around $6 million related to the raw material and related to the distressed suppliers.

Going further into your second question about growth and the handling of cash, we have communicated and we are looking for acquisitions to expand and to target further expansion in the emerging markets, primarily, also somewhat, if we could, in Japan as we have a lot of fast-growing OEMs.

We are targeting and looking for acquisitions in the area of technology and in the area of active safety.

However, these assets are not always easy to find.

I would rather say they are quite difficult to find, actually to find the right asset.

And in absence of that, we are returning money to our shareholders through our repurchase program.

And looking more into what that would mean for fourth quarter, we will have to wait until Monday.

And I think, generally, you could say that Autoliv is and will be a very shareholder-friendly company and will return money to shareholders if we are not investing in other areas.

Sure.

Can I follow up just on the gross margin question because you don't really reply to my questions?

You say (inaudible) that such a bit margin decline is not much given the--.

--Oh, well--.

--$6 million raw materials and distressed suppliers, but you don't speak about operating leverage.

And 6% organic growth, obviously, should bring you something.

And you've laid off 600 people in high-cost countries, so that comes in the same basket.

So, what else is there to explain the margin decline at the gross margin level?

As Jan said, that more of the explanation is due to the raw materials and distressed suppliers.

That's 40 basis points, or .4%.

But, then, on top of that, as also stated in the earnings release, is that we have a higher growth on softer products that have a higher material contents, like seatbelt products, active seatbelts, and safety electronics.

And of course, that has some impact on the gross margin and such.

But, it has not a negative impact on the EBIT margin by the same percent, so to say.

It's still a profitable business.

Okay, thank you.

I find it very -- well, I still have a much -- difficult to still understand why you had the rising gross margins when your organic growth was negative and when it's been declining since you have positive organic growth.

But, maybe I'm missing something.

Thank you very much.

Thank you.

Thank you.

[Rob Lash], Deutsche Bank.

Please go ahead.

Hello, this is [Dan Giles], actually, and good afternoon.

Thank you for taking my question.

Good afternoon.

I have two quick ones.

With respect to SG&A expense as a percentage of sales, given that the levels have been helped your move of certain operations to low-cost countries, can these SG&A levels be sustained for the long-term?

Yes.

Well, what we have said that we have increasing SG&A levels in relation to sales due to the, as you indicated, expansions into low-cost countries, but also expansion into safety electronics.

And we expect that as -- we have had the startups in China, India and so on, we expect that the SG&A relation to sales should gradually go down.

Okay, thank you.

The second question is can you give us an idea of what costs incurred in 2007 will be non-recurring to 2008?

Yes.

First of all, I don't know what you mean.

We don't have a known recurring cost.

We have restructuring charges mainly in severance, we have as another expense.

And then, we have, of course, the legal provision as another expense, also.

And I would say that the legal provision, for sure, will (inaudible).

That's one time.

Restructuring charges, that will, of course, vary from quarter to quarter and from year to year.

But, normally, when we make this kind of restruction, we have a very quick payback on those.

Okay, okay.

Thank you very much.

Thank you.

Thank you.

Jairam Nathan, Banc of America Securities.

Please go ahead.

Hi, good afternoon there, I guess.

Good morning.

This is actually Joe Speck for Jairam.

I just had a couple of questions.

One, CapEx for the quarter seemed -- it was lower sequentially on year-over-year.

Yes.

Should we expect a pickup in the fourth quarter?

We have said that we believe that the capital expenditures for the full year will be around $325 million U.S.

Initially, in the beginning of the year, we got it between $325 to $350.

And when we were at the Capital Market Day, we said it will be on the lower part of that range.

Okay.

And then, you said earlier in the year that the China startup cost would be about $25 million, if I'm--.

--Right--.

--Adding right.

Yes, right.

It sounds like there's about maybe $9 left.

So, it looks that will bleed into 2008 at this point, at your current rate.

Is that--?

--We believe that startup cost will reach almost $25 million, somewhat lower maybe than $25 million.

So, maybe more in the range of $22, $23 million.

And will it be done this year or--?

--Well, this part of the startup cost will be done this year.

We will see startup costs going forward.

We've also talked a little bit about that before, where we see them going forward in 2008.

We have said half or less than a half of the amount that we have seen in this year we will see in 2008.

Okay.

And then, just one more quick one, and then just maybe just a longer-term question.

Was there any additional legal costs in that $10 million expense for the quarter, or was that all taken care of earlier?

It was all taken care of earlier, so no extra legal expense in the third quarter.

Okay.

And then, just I guess longer-term, when we think about organic growth, is the bigger opportunity in continued penetration of side curtains due to the mandate in the U.S.

or just generally in Europe, or do you think sort of just emerging market safety is the bigger opportunity?

And maybe also if you could just remind us what current penetration levels are in the U.S.

on side curtains.

Mats?

Well, we estimate the penetration rate this year to be, say, 45% in North America.

In Europe, say, 55%, in that range, Japan 40%.

And the rest of the world, it varies very much, so I don't know if it's relevant to talk about an average.

But, let's say, typically, it's roughly 10%.

Um-hmm.

And is the bigger growth from just seatbelts and other -- from seatbelts in emerging markets, or continued penetration of side curtain?

Well, the growth here from the curtains in North America and the other side airbag could be close to $1 billion, in that magnitude, when you get 100% penetration rates for these products.

Right.

And according to the new regulation, that should be 2012 and, for all vehicles, 2013.

So, that's the potential in there.

Exactly what the potential are in the rest of the world for seatbelts is much more difficult to calculate.

And we don't have any number for that.

Um-hmm.

When Mats said $1 billion, he meant the potential for the industry.

Yes.

Right, right, right.

For the industry, yes.

Yes, yes, yes, of course.

Right.

I have some additional information to a prior question here, in the meantime.

I have got some good team members providing me with information about the non-ferrous material and exposure here.

We are buying magnesium, zinc and aluminum for roughly around $100 million U.S.

Thank you.

Anders Bruzelius, Swedbank Markets.

Please go ahead.

Thank you, and good afternoon.

We have talked about the startup costs in China, and you can all see here from your chart on what one would expect a very--.

--Anders, do you mind speaking up?

We have problems hearing you.

Yes.

Sorry, guys.

Excuse me.

We have talked about the startup costs for China expansion and, looking at your charts on what one could expect to see very strong growth there in the coming years, I mean, including 10 million cars in the not too distance future.

Do you believe that the factory or the plants that you've built is enough, or how long will it be enough to supply the market?

Or will there be a sooner new step-up program to meet the demand?

What we have said here is that the plants and investments that we have for now should be enough for the foreseeable future.

We don't foresee any new sites.

Mainly, we see expansion to the existing sites.

Benoit has more details on this one.

At least (inaudible) years, we foresee some expansion in Europe.

It could maybe some new investment coming.

But, that, we can tell you more in the coming year.

Okay.

So, it's smaller investments, then, we're talking about in China to increase the capacity.

No needed--.

--Yes, no new sites, but expansion of the current sites.

That's the long and the short of it.

Okay.

And secondly, where's the level of safety per car now in China compared to Europe and the rest of the world?

Is it moving fast, or is it stable, or do you see any new trends there, the average content?

We only make that calculation on land basis.

And it's not so relevant to look at the average because it's the added lot of low-end vehicles with only seatbelts.

The average won't grow.

But, the total market could grow, nevertheless, because you have a lot of vehicles that are coming on the market, and some of them will definitely -- if they have driver airbags.

And the driver airbag penetration in China is actually quite impressive.

Sure.

I think we have said that we believe it's all 80% already in China on the driver's side.

Okay.

And that's the ones that is sold also in China, or is it the ones for export?

We always look at the production.

But, currently, they don't export so many vehicles because they have such a strong demand domestically.

Okay.

Thank you very much.

Thank you.

Thank you.

Thank you.

There are no further questions at the moment.

(OPERATOR INSTRUCTIONS.) Thank you.

And we seem to have no further questions coming through, so I will hand you back to your host to conclude today's conference call.

Thank you.

Thank you, Wendy.

Well, here in Stockholm, we thank you all for your participation and very good questions.

And we look forward to see you or hear you all again in January 31st, 2008.

And that concludes our call.

And in the meantime, we wish you all a safe and relaxing holiday season when it arrives.

Thank you.

Ladies and gentlemen, thank you for joining today's conference.

You may now replace your handsets.