Autoliv Inc (ALV) 2008 Q1 法說會逐字稿

Good afternoon ladies and gentlemen, and welcome to the Autoliv First Quarter Financial Earnings 2008 Conference Call hosted by Mr.

Jan Carlson, President and CEO.

(OPERATOR INSTRUCTIONS) I will now hand you over to Mr.

Jan Carlson to begin today's conference.

Thank you.

Thank you, Wendy.

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

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

Also sitting in and listening to the call here with us today is our incoming CFO, Marika Fredriksson, who will join our company on September 1st, later on this year.

I would like to take this opportunity to welcome you, Marika, to Autoliv.

Thank you, Jan, and I really look forward to joining Autoliv in September and today I have the opportunity to sit in and listen.

Thank you, Marika.

We look forward to that.

We will now start with a quick review of the results, then discuss the outlook for the remainder of the year.

After that, we will be available for questions.

You will find the slide presentation through a link on the front page of the Autoliv corporate website under Financial Reports.

If we now turn the page, we will find the Safe Harbor Statement and, as usual, this is an integrated part of the presentation and we will not go through the details at this time.

Moving on to the next page we have a summary for our first quarter 2008.

During the quarter we achieved record quarterly sales in operating cash flow for [ending] first quarter.

Our sales of more than $1.8 billion was an improvement of 8% and the EBIT of $127 million, or 7% margin, was slightly better than our guidance.

This was in spite of the adverse effects from the revaluation for the Turkish Lira of almost 40 basis points.

Our earnings per share of $1.11 was an improvement of 22%.

This is a reflection of a lower tax rate and our share repurchase program.

Strong operating cash flow of $165 million represented an increase of 84% mainly due to an improved working capital performance.

Last but not least, we continued the share repurchase program and purchased 1.2 million shares thereby returning 63 million to our shareholders.

So overall we believe this was a good quarter for Autoliv despite the very difficult economic environment and I would like to acknowledge the Autoliv team for this strong performance.

Moving on to the next slide where we have our sales trends, in quarter 1 our sales increased $129 million and this was entirely driven by favorable currency translation of 9%.

The acquisition of our India seatbelt joint venture added almost another 1%.

The organic sales decline of 2.7% was mostly a result of weaker NAFTA and Western European light vehicle production somewhat offset by a stronger performance in Japan and rest of the world.

And then we look on the sales trend.

Our last 12 months sales increased to a record of $6.9 billion and our sales since the first quarter of 2003 have increased on an average of 8% per year.

This should then be compared to the earnings per share on the next slide.

And here we can see the earnings per share trend.

And this represents close to a 16% average growth rate, almost twice as fast as our sales trend of 8% as indicated on the previous slide.

This superior earnings per share performance is above all a reflection of our share repurchase program and improving overall effective tax rates.

Looking specifically at quarter 1 2008, earnings per share improved by $0.20 over prior year mainly due to share repurchase of adding $0.13 and lower tax rate of $0.10.

Moving to the next page we have our return to shareholders where we combine the dividends and the buybacks.

For the last 12 months we returned $523 million which represents a 12.4% return of the average market cap during the same period.

During this last 12 months, the dividend and share buyback is essentially equal to free cash flow generation which is in line with our Company policy or philosophy.

Our net debt has increased by approximately $80 million over the last year.

Essentially, most of this debt increase was used for acquisitions.

Given the current economic climates and turbulent financial markets and uncertainties in light vehicle production in our key markets, we will continue to keep a close eye on our debt level while we also maintain an efficient balance sheet.

Moving on to the next slide we find some of the key business highlights for the quarter.

As we highlighted last quarter, the market turbulence continues, not only by further NAFTA production cuts but also more severe commodity inflation and currency fluctuations.

Although Western Europe is expected to perform better than originally planned in the first half year of this year, the outlook would indicate a slight deterioration in the back half of this year.

We continue to have strong performance in the emerging markets and in Japan where we are significantly outperforming the market.

And, in addition, we continue to increase market shares in seatbelts and safety electronics while we are maintaining our share on the side systems.

And, lastly, our customers continue to recognize our superior market leadership position with outstanding supplier performance awards, for instance, at General Motors and at Toyota.

If we move on to the next slide.

We have light vehicle production figures by region.

These figures come, as usual, from CSM and JD Power.

If we look on our two largest markets, Western Europe and NAFTA combined, they were down 5.6% versus prior year as compared to a decline of 6.4% that was expected last quarter.

For the first time in recent history there was also a decline with the new domestic OEM's in North America.

Combining the NAFTA, Western Europe and Japan, which represents approximately 85% of our sales, there is a decline of 2.8% in light vehicle production.

Moving on to the next page, we find our organic growth development versus both Global light vehicle production and the Triad.

Our organic sales decline of 2.7% for the quarter was in line with the light vehicle production decline in our main market, as we saw on the previous slide.

The shortfall to the Triad is due to the increased light vehicle production in Eastern Europe of 15.2% but with a lower content per vehicle, less than $160 U.S.

Dollars.

The difference when compared to the global light vehicle production is due to other faster growing regions like rest of the world with a lower safety content per vehicle than the global average over $270.

Rest of the world is approximately $160 per vehicle.

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

As mentioned earlier, we continued to increase market shares in seatbelts.

We have grown our seatbelt volume including pretensioners by 14% which is more than five times as fast as the global light vehicle production.

Market shares are improving, also, in safety electronics while we continue to grow in line with the market for side systems.

On the next page we conclude the sales analysis with a bridge where it says prior year.

As mentioned earlier, the cost of the currency translation effect added $159 million or 9% to sales.

As illustrated on this chart, seatbelts and side airbags added $20 million combined while we in frontal airbags were down $31 million due to canceled contracts and sharper declines from specific model phase-outs.

Moving on to the next slide, we have the gross margin and the gross margin for quarter 1 has declined by 80 basis points from prior year.

The main driver for this shortfall is the net negative effects of currencies of approximately 40 basis points.

This was mainly due to a balance sheet revaluation caused by the drop of the Turkish Lira.

Commodity prices were in line with expectations of less than $3 million and had a negative 20 basis points effect including fuel surcharges.

The decline in organic growth and overall sales mix added an unfavorable effect of 40 basis points.

This was partially offset by the move of production to low cost countries where we achieved a labor savings of 20 basis points.

Moving on to the next slide, we have the operating margin.

The operating margin of 7% for quarter 1 was slightly better than our guidance of close to 7%.

And the unfavorable gross margin effect mentioned earlier of 80 basis points was partially offset by continued improvements in our RD&E costs corresponding to 40 basis points.

SG&A has done unfavorable effects which was offset by the amortization of intangibles and others.

Despite the eroding light vehicle production environment in NAFTA and Western Europe, we're satisfied that we kept the margin at 7%, especially after absorbing the unexpected 40 basis points of currency.

Moving on to our next slide, we see the moving pieces of currency for our business and due to the weakening of the U.S.

Dollar, the favorable translation effect of converting non U.S.

currencies into U.S.

Dollars had a positive effect on operating income of $11 million.

This, as you know, has no effect on the margin.

The transaction effect, though, of currencies had a negative impact of $1 million.

This figure includes many moving parts that partially offset each other.

As an example, we purchased components from the European part for the NAFTA region and for the Asian region as well as export components from the U.S.

to Japan and another couple of examples.

We had then the Turkish Lira again, as we mentioned earlier, of $7 million.

So to conclude, the net currency effect was favorable $3 million in EBIT but had a negative effect on the margin of 40 basis points.

For the year, assuming current rates prevail, the net currency effect is expected to be positive by approximately $30 million.

However, the margin effects will be negative by 20 basis points due to the revaluation and transaction exposure.

Moving on to the next slide, we have the EBIT bridge for the quarter versus prior year and here we have separated the currency effect.

Overall, the slight improvement in EBIT is driven from the improvement in our RD&E utilization of $10 million and this was mostly offset by the decline in our organic growth of $7 million.

So the net positive effect of currencies and lower amortization of intangibles was offset by a higher commodity cost and SG&A.

So overall, considering the negative effects of the revaluation and the decline in organic growth, we are encouraged that we are able to keep the EBIT level.

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

The main increases have resulted from the acquisition of our India joint venture and the remaining increase results from ramping up production in low cost countries such as Romania and China and that is mostly offset by decline in some of our higher cost countries such as United States and France.

Looking at the next page we have the summarized -- the tax effect.

And as reported, we had the benefit of lower than expected tax rates.

We will not go through the details here but I would like to mention that we expected lower tax rates to generate a little more than $16 million of tax savings for the full year 2008.

This is an incremental $11 million for the remainder of the year assuming 28% tax rates for full year 2008.

We also expect the longer term tax rates to remain around 30% over the next few years.

Looking on to the next page we have the key figures on comparable basis.

Return on equity of over 13.7% was more than 1.5 better than the 12.1% of a year ago.

And this is due to both higher net income and lower shareholder equity, mainly resulting from the high level of share repurchase over the last 12 months.

We are very pleased with our working capital performance, over 9.5% of sales, and not only we have decreased it by $163 million income from a year ago but we remain below our goal of less than 10% of sales.

The factoring program of $131 million now represents close to 1.9% of last 12 month sales and continues to reduce the overall cost of capital.

Lastly, our net debt to capitalization increased to 33% from 31% a year ago, mainly due to acquisitions as the free cash flow has been allocated to share buybacks and dividends.

Turning the page, we have the cash flow.

The $106 million of free cash flow is a record high for any first quarter and is an improvement of $91 million over the prior year.

The last 12 months free cash flow of $557 million is a record for any 12 month period and this performance is not only a reflection of strong earnings but also continued working capital and capital expenditure disciplines.

Although we do not expect our CapEx spending levels to remain at this low level, we do not expect them to exceed 5% of sales for the year 2008.

Turning the page, we find our share buyback.

In quarter 1 we bought back more than 1.2 million shares, returning 63 million to our shareholders, in addition to the quarterly dividend of $29 million.

This brings the cumulative buyback up to 31.8 million shares or -- this2222 average cost of $42.80 is close to a 20% discount over today's share price and even after the recent turbulence in the stock market.

Accumulated, we have bought back shares for approximately $1.36 billion.

Now, roughly, 5.8 million shares remain on the current authorization.

On to the next slide.

We can see how the light vehicle production in NAFTA and Western Europe has changed over the last three months and if you look on the chart, and we start from the bottom, you see the solid red line and then you have the dashed red line.

These two lines represented light vehicle production change for the NAFTA region.

The solid line as it is seen right now in April and the dashed line how it was seen back in January.

Moving upward, you see the dashed black line with the triangles and the solid black line with the triangles representing the Western Europe change in light vehicle production.

The dashed line, again, as it was seen in January and the solid line as it is seen right now.

Overall, we can conclude that Western Europe is expected to be slightly better than expected, 1% or down 3.9% for the year; whereas the NAFTA region, as shown by the black lines with the triangle -- or the red lines with the rings, it's now expected to be worse for the full year by 2%, or down 6.7% for the year.

On to the next slide.

We have the revised global light vehicle production outlook and again, here, you can recognize now their new updated changes in light vehicle production for Western Europe and for NAFTA.

The bottom line here is the NAFTA region, the red line with the rings, and then the black line with the triangle representing the Western Europe.

Moving upward, you also see the line in green representing the change in Triad and then globally in purple the line for global light vehicle production.

Overlaid on this you see, also, the expected quarterly organic growth throughout the year in that thicker, solid blue line.

Despite the significant headwind of light vehicle production, we expect for the full year to out perform not only the NAFTA and the Western European markets but also the Triad by more than 3%.

We still expect our organic growth to improve sequentially throughout the year.

And, including the recent acquisition of the India seatbelt company, we expect to grow 4% more than the Triad.

As we highlighted on the last call, a major reason for this improvement is illustrated on the next slide where we have identified the top six launches for our Company during 2008.

In addition to these platform launches which represent an excellent mix of incumbent replacement business along with new conquest business, we benefit from the GM Global Delta and Epsilon platform launches and also the [price and mean] of our launch.

It is expected during 2008 that these launches will contribute significantly to the sequential improvement during the year in organic [pace].

Moving on to the next slide, as we have alluded to in our previous earnings call and also back a few weeks ago in a published Reuter's interview we said that the commodity environment continues to deteriorate and could have a further negative effect on our business.

And as we can see here, we now expect the negative commodity effects to be around $32 million for the year versus the $12 million expected a quarter ago.

As illustrated, the increases are related to steel, magnesium and aluminium, $20 million combined.

It is expected that most of the incremental effects will be loaded more to the second half of the year.

For quarter 1 we came in pretty much as expected, around $3 million, while we expect $8 million for quarter 2, $5 million more than originally expected thereby leaving approximately $20 million for the second half of the year.

Moving on to the next slide we have highlighted the major headwinds that we expect for the full year 2008.

We estimate the commodity surcharges, currency related to transaction effect and then the effect net of the start-up costs will have a negative impact of $45 million versus prior year.

This will have a negative effect on the margin by approximately 50 basis points on the operating margin from our earlier guidance.

However, this negative EBIT effect will be substantially offset by the favorably currency translation tailwind of $45 million.

So to offset this headwind, we continue to keep up the pressure internally and externally on materials, labor, sourcing in the low cost countries and overhead reduction.

And, in addition, we are developing also our means to meet the negative effects of commodity pressure to an increase reimbursement from our customers.

Moving on to our last slide before we open up for Q&A, we have the financial outlook.

For the full year 2008 we expect our sales to increase by more than 10% of which the organic sales increase of 2% remains unchanged.

And this is despite the -- [reoccur] light vehicle production outlook in the Triad.

The India acquisition is expected to add almost 1% while the currency is now expected to add 7%.

Our EBIT margin guidance remains unchanged, 8.0-8.5% despite the uncertain situation of light vehicle production and the headwinds mentioned on the previous slide.

For the second quarter 2008, consolidated sales are expected to increase by 14% of which 2% is organic growth and 1% related to acquisitions.

The EBIT margin is expected to be at least the same level as last year of 7.7%.

As mentioned earlier, we expect the lower effective tax rate to generate close to $60 million of additional cost tax earnings.

That was not included in our earlier guidance for full year 2008.

So overall, we believe this is a positive outlook especially given today's environment and economic climate.

Moving then to the final slide which concludes today's presentation.

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

Thank you.

(OPERATOR INSTRUCTIONS) Himanshu Patel, JPMorgan Chase & Company.

I have two questions.

On slide 15 I think you show RD&E expenses being a $10 million favorable on EBIT.

I thought it was roughly flat year-over-year and it may be just a housekeeping issue but I'm just looking at the year ago RD&E expense.

It looked like it was about $112 million and this quarter it looked like about $113 million.

You're right but this is adjusted for the foreign exchange so we have the net of the total impact when it comes to the EBIT in the plus $3 million here.

So this is adjusted for exchange rates.

You have the same comparable exchange rates last year's quarter as you have in this year's quarter.

And then you have this improvement of $10 million.

You have the same, but smaller effect, also on SG&A.

That's fair.

And then the second question is working capital performance, it was relatively benign this quarter.

Is there something in the working capital performance this quarter that you would call out as being particularly favorable or should we think of this as a normal performance for the first quarter of the year?

I think we have a target to stay below 10% of sales and we ended up with 9.5%.

So from that perspective we are well in line with the target.

But, as you know, the cash flow and the working capital could fluctuate between the different quarters and in the first quarter last year we had a little bit weaker quarter but we don't have anything particular that should tell us that this should be much weaker in the second quarter.

It depends on the seasonality of the sales in the quarter, if you have particularly stronger sales in the end of the quarter or in the beginning of the quarter.

In this particular first quarter we had actually a bit stronger sales in January and February and a little bit weaker in March.

And that's as (inaudible) explanation.

I think in general we could say we have increased effort in managing the working capital and we have communicated that throughout the earnings call.

And what you're seeing here is sort of an effect of that.

We are putting even more focus on accounts payables, receivables, inventories, etc., on the daily activities.

Having said that, it's not impossible that it would fall some quarter and also bounce back above the 10%.

And then, Jan, just a question on European restructuring.

Or maybe this is for Benoit?

What are you guys thinking right now?

It sounds like the first half industry production was a little bit better.

Sounds like CSM is talking about some incremental softening in the second half of the year.

I know you've internally toyed with the idea of accelerating some of the European restructuring ideas.

Have you guys put a better framework around that and would you be willing to discuss any of your thoughts on that at this stage?

We continue to discuss restructuring work as a normal part of our business.

As you know, some of our customers are moving out to the Eastern part of Europe.

We are following them both when it comes to production, both when it comes to RD&E.

We have communicated that we will take restructuring as it comes, when it comes.

There will be no isolated, big restructuring program announced.

And that is how we're operating now and for the future.

Thank you.

Rod Lache, Deutsche Bank.

A couple of questions.

The Lira, the Turkish Lira revaluation, was that a one timer adjustment or is that something that continues to flow through?

We would hope it would not continue to flow through.

It was a continuous decrease of the Turkish Lira and then we went in and made a balance sheet revaluation for, as an effect of the decreasing Lira.

Okay.

But that flowed through the income statement, not just purely through the balance sheet?

Yes.

And just talking about the full year outlook for margins, Q1 was down but you're still expecting a positive comparison for the full year.

You did talk about raw materials headwind being tougher in the second half.

To what extent is the benefit from cost savings that you're expecting coming in unevenly?

Is this mostly a -- just easier production comps?

Can you just elaborate a little bit on what some of the drivers would be of the second half improvement in margins?

Well, I think it's a mixture of a number of things.

It's a mixture of activities that we have initiated throughout the last year.

It's a mixture of an even more stronger focus on the cost side -- the general cost awareness.

It's, of course, an effect also that we are increasing the efforts in getting back commodity price increases from our customers.

And, in particular, when it comes to magnesium, magnesium is a vital part of our steering wheel business.

Should be not so difficult to isolate compared to steel, which is sort of an ingredient in many of our parts and distributed throughout the products that we have.

And we are increasing our efforts to get magnesium price increases back from our customers.

One example is, one of our larger customers that has already accepted to reimburse us 70% of the magnesium price increase, as an example.

So we are encouraged by that and we will go back to our customers for the price increase.

Another part is the low cost country sourcing.

We've talked about low cost country sourcing.

During the quarter that went by we increased the low cost country sourcing with 4%, only in a quarter.

And that is giving effect and should give effect throughout the second half of the year, also.

Then we have the design changes and the general cost controls.

And this, all in all, gives us the comfort to stay with the guidance despite the headwind and the commodities and also the currencies.

Is the benefit from the shift in inflator production, the China, already in the numbers or is that something that comes in later?

It's already in the numbers.

This is nothing new so this has been factored in already earlier.

Okay.

And then thinking about global mix changes that are occurring with higher energy costs and also the commentary you gave earlier about the out-performance in emerging markets where content is somewhat lower, over the long run, over the next few years, does that have a meaningful impact, do you think, on your long-term organic growth view?

Do you have some updated thoughts on what you think that should be over time?

We don't think so overall.

We communicated back half a year ago in our capital market day, we could see that the market will grow between 4% to 5% over the longer term.

We believe, still, that is the fact.

Over the longer term you will have an increase content per vehicle in the emerging markets and we would foresee that the content in the vehicles built in China, in Eastern Europe and in other emerging markets will have -- be on the same levels as Western Europe and in NAFTA in the longer run.

So we believe it will not have the longer term effect.

For the time being, and as of now, we are seeing a growth in seatbelt products, primarily in the seatbelt product, have a higher material content for the time being.

But after some time, we would not expect that to be the effect.

Thank you.

Thomas Besson, Merrill Lynch.

I've got a few questions, as well.

Jan, to start with, on your guidance when you stress specific (inaudible) commodities and production is it a way to tell us that you are going to be more the low end of your guidance or is that step into saying it might become more difficult reach it?

I think it is the first part.

It is the way to tell you that it is in the lower part of the range.

Fair enough.

Can you say something about the gross margin trend?

Are you expecting sequential improvements in organic growth?

Is it fair to expect that in the second part of the year that your gross margin could pick up again?

It's fair to say.

We communicated that back in the previous earnings call that we have a target to come back to around 20%.

And that target is still there.

And it's fair to expect that it would grow back.

Of course the headwind and changes that we have seen now and particularly coming from the commodities make it more difficult for us.

Our target is still to be around 20% and it is not impossible we will get there by the second half or end of the year.

Do you think your comments about debt and giving -- is it fair to expect your pace of buyback to slow in the coming quarter versus what you've done which has been quite impressive, specifically in '07.

The buyback (inaudible)?

I think, as we've said, the Company philosophy is to allocate free cash flow for dividend and for share buyback and I see no reason why we should go away from that right now.

Of course this is depending on the acquisition, the [imminent] acquisition and how close you are to an acquisition that is standing in front of your door.

But we are, in general, a shareholder friendly Company and we should return the money as much as we can, then.

Sure.

Looking at your other operating income in -- it's been a variable (inaudible) depending on someone else, do you have any kind of way to predict that number or is it really something that depends on either potential litigation issues, recalls and so on?

No.

Not really.

Last year we had the judgment, as we have discussed in several calls, but most normally we take the [severance] charges for restructuring activities and last year it was roughly $23 million U.S.

Dollars for restructuring charges.

And we have said that for this year, 2008, it will be approximately at the same level.

Last question to (inaudible) on the works question, on the long term (inaudible) at Autoliv.

You stressed in one of the first slides that the reported top line growth over the last five years has been around 8% for Autoliv.

Can you remind us the organic portion of this 8% top line growth for the last five years, please?

I'm afraid we cannot, Tom.

I'm very sorry.

But we will for sure be back to you.

Mats is running out and trying to get the paper.

Sorry.

I didn't --

We will get it later on.

Thank you very much.

Patrik Lindqvist, Hagstromer & Qviberg.

I had a question on the margins in the first quarter.

You could, in a way, say that the 40 basis that you were hit by the Lira was -- you managed to offset by some things that went the right way.

Could you talk a bit about what they were and also whether you expect those effects to continue throughout the year?

Yes.

As Jan alluded to earlier, we have a lot of ongoing activities when it comes to cost reduction.

First of all, sourcing from low cost countries where we have increased the sourcing just in the first quarter to 4%.

We have then ongoing layoffs of people in production like in France and in the U.S.

and we are increasing the production in low cost countries.

So there's a lot of activities going on in order to in small steps improve our margin.

But it's not one particular activity or action that is behind it.

It's a number of small activities.

Since you're saying you're guiding towards maybe the lower end of the margin range for the full year and we know that you have Delta roughly 20 basis points, where we are referring to the raw material issues from 12 to 30.

That still implies that you're seeing some other headwinds because you are getting, as you say, you are running with cost improvements over low cost countries, and what have you, that would boost margins also in the latter part of the year.

Are there any other headwinds that you are seeing or expecting, supplier issues becoming more of a problem?

No.

I think there is the supplier issues and the other issues that we have been talking about are very much on the same level.

It is the uncertainty in the light vehicle production.

If you just look literally into the light vehicle production for quarter 4, you could see that quarter 4 seems to be a little bit weaker in the current outlook than it was a quarter ago.

But there is really not any other headwinds that we are seeing.

Final question on the organic growth which you say will accelerate quite significantly already in the second quarter.

I presume that is related partially to U.S.

launches of trucks and what have you.

What's your feel for those and what are your clients saying about the roll-outs?

Are they still progressing according to plan?

The roll-outs and the launches are according to plan and some of the launches are sort of very much steep.

Some of our customers can change orders very fast, actually, from one day to another basically, in general.

So thereby you have an effect of the launch pretty much very quickly.

We also see that once the launch is coming up, the sales will increase again.

You have the double effect of the negative sales for an old version of the car.

So for us it's a combination of additional platforms, additional vehicles and also re-launch of existing platforms where we are incumbent with the higher sales, hopefully higher sales.

So the increased risk that you are talking about does not refer to your clients telling you that they are less certain about the prospects for their new launches.

No.

There's not any such comments.

The light vehicle production in general and the sales in general we can all read about but no specific information about the launches.

Thank you.

Brett Hoselton, KeyBanc Capital Markets.

Can you go into a little bit more detail on slide 17?

What's going on again with the taxes?

Magnus, I leave the question to you.

Slide 17, yes.

In the end of last year, 2007, there was an upcoming change in the tax legislation in France which then allows you to make further tax credits for R&D activities in France and that then helps us to, therefore, get tax credits and effectively reduce the tax rate from underlying 31% as we guided at that time down to 28% for this year.

And then on top of that we have certain discreet tax items which we will very likely have from one quarter to another given the different kind of tax activities in various countries.

But the main change in the underlying tax rate is the new French tax law.

And the new tax law, is that extended for the next, it sounds like, two years at least?

Until further notice and where we made the previous guidance we were not really sure how the new law should apply to us and our R&D activities.

But we have assessed that in the first quarter together with our auditors and our tax experts and come to this conclusion.

And then looking at the change in RD&E, obviously a fairly significant change, or at least in my opinion a fairly significant change, is that indicative of anything?

It sounds like, are you in effect spending more money -- or less money on RD&E expense and that's going to be something you're going to see going forward?

We are more efficient when it comes to application engineering.

We have not changed at all the spending on future development conceptual programs, research or basic development of new products.

What we have done is that we have moved more people from high cost country to low cost country.

Last year we took out 300 people in high cost countries and we replaced them with 270 in low cost countries.

This quarter behind us now, our first quarter, we took out 40 heads in high cost countries -- 41 heads and replaced them with 40 heads in low cost countries.

It's a continuous transfer to be aware the growing customers are and also take advantage of the lower costs.

And then as far as CapEx, a little lower in the quarter, just simply seasonality or according to certain contracts or programs that you have?

Yes.

Basically a seasonality and also a focus on investing in low cost countries.

So not any significant changes.

Thank you very much.

Anders Trapp, SEB.

I have two questions, if I may.

First I wonder if you could tell us a little bit more about what you see happening to the average selling value per car, or per vehicle, in the places in the world where we actually have growth?

You said it was $160 per vehicle in rest of world.

Can you say something more about that?

What leads to growth rate?

Is the big difference in China and India and Eastern Europe and what do you -- I know you said it's going to be the same as in the Western world in the longer run but I guess it's a very long road to walk before we are there.

Can you say something about the growth rate and progression increases, etc.?

Also, I wonder if you could comment upon what's happening when it comes to steel prices or what's your take on -- I understand there's some of the world's biggest steel players that are aiming to raise prices on all of the fine contracts and, after in retrospect, to compensate for rising costs for iron ore at least in the U.S.

And I wonder if you have -- what's your view on that if it's happening or if it's included in your revised guidance.

We'll start with the sales value in emerging markets.

I guess you are somewhat right that it will take some time to walk down the path to reach the same level of content in emerging markets as in Western or Europe and North America.

However, we are seeing an increased take rate of the unit.

We said rest of the world $160.

It's increasing but you also have to take into account the price decrease.

We have maybe a slightly higher price pressure in the growing markets in the rest of the world than in established markets due to the increase in volumes.

And that is partly offsetting the content per vehicle in the rest of the world.

And we are at $160 today.

It's hard to predict where it's going but it's definitely increasing and it's also going -- if we would say, as we've said before, maybe somewhat faster in this part of the world, the take rate of new products as it was in Europe and North America when products were launched.

I have no good figures, Mats, if you don't have any for the future take rates.

I don't think we have that on hand, actually, for what it could be in two or three years.

When it comes to the raw material prices, we haven't seen any retrospect price increase and maybe that's the case that they will increase steel prices based upon iron ore.

But that is also some layers away from us, actually.

And we have not seen -- suppliers, they want to renegotiate already existing contracts and we are pushing back and of course holding tight against that as much as possible -- as much as we possibly can.

So already negotiated prices could be up for discussions and we are holding back, but no retroactive prices.

Thank you.

Anders Bruzelius, Swedbank Markets.

Do I interpret you correctly if I say that the fourth quarter is the most important quarter to meet the margin of 8.0% to 8.5% for the full year?

Fourth quarter is also this year, as it was last year, the most important quarter.

And you are right.

And then if I read you correctly, you said that the cash flow will be headed back to the shareholders.

Is that correct to say that you will be more aggressive on share buybacks after you had very strong cash flow?

As we have said, the philosophy has been to return free cash flow in dividends and share buybacks.

What we have also said and we communicated last quarter, we can reiterate here.

We watch closely on the financial market.

We watch closely on the credit situation and also the uncertainties in light vehicle production.

We, of course, also watch close to what could come in terms of acquisitions and from a strategic review that you are making.

So to commit to an increase on here and there, I guess you will have to wait and see up until Monday.

And there you will -- Thursday, maybe it is.

Yes.

And then you will see where we are.

It used to be on Mondays.

Used to be Mondays.

You are absolutely right.

But we should not live in the past.

No, that's true.

And then lastly, on the take backs, you said not more than 5% of sales.

Is 350 a good guess?

350 to 380, yes.

Thank you.

Thank you.

That was our final question and there are no more in the queue.

(OPERATOR INSTRUCTIONS) I have a follow-up question from the line of Brett Hoselton from KeyBanc Capital Markets.

Please go ahead.

During the conference call you've mentioned acquisitions a number of times and my question is, what are you thinking about at this point in time?

I've heard mixed -- in terms of smaller acquisitions but I've also heard the possibility that you could be looking at possibly a larger acquisition.

So what are you thinking in terms of acquisitions?

I think what we are looking for is acquisitions in the area of active safety and the technology that could be gained for us incoming -- factor into the market of active safety and we are looking for acquisitions in the emerging markets and there, also, when it comes to passing safety that we could grow the business even faster in the emerging market.

Is it a large acquisition or is it a small acquisition?

I think it has to fit with what is right for us.

We are reviewing this.

We are looking on opportunities in both areas, actually, for the time being.

But you know how it is, the acquisition, it has to be something that is for sale for you that makes sense and that don't increase your risk level into the Company also, which is important.

Thank you very much.

Thank you.

That was our final question so I will now hand you back to your host to conclude today's conference.

Thank you.

Well, here from Stockholm we thank you all for your participation and for your interest and questions.

And we look forward to seeing you again on the second quarter earnings call which is July 22.

Thank you very much.

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

You may now replace your handset.