Autoliv Inc (ALV) 2008 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen.

And welcome to Autoliv's Third Quarter Financial Earnings 2008 Conference call hosted by January Carlson, CEO.

My name is Ina and I will be your coordinator for today's conference.

(Operator Instructions) I'm now handing you over to Jan Carlson, CEO, to begin today's conference.

Thank you, Ina.

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

Here in Stockholm we have our new CFO since September 1st, Marika Fredriksson, our VP of Corporate Communications Mats Odman, and myself Jan Carlson, Chief Executive Officer.

We will start with a quick review of the quarterly results.

This will include an update on our liquidity position and a status report on the action program.

Then turning to the outlook, we will focus on the overall business climate and how we see this impacting our Company in the near future.

After that we will remain available for questions.

As usual, 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 to the next page, we will find the Safe Harbor Statement.

As you know, this is an integrated part of the presentation.

I note that this presentation includes some non-US GAAP measures where the reconciliations to US GAAP can be found in the back of the quarterly earnings release and in the 10Q filing.

Moving on to the next page, we have the summary for our third quarter results.

We are very satisfied that we managed to exceed our margin guidance and reach almost 6% EBIT margin despite a 5% weaker global light vehicle production than expected.

Another important achievement during this financial turmoil was our strong operating cash flow which exceeded $100 million.

And in addition, since the third quarter we have managed to secure close to $200 million of new medium-term financing.

This credit is without covenants even in this difficult financial market.

So overall, this shows a solid performance and I would like to extend a sincere thank you to all our employees for their efforts in this unprecedented environment.

If you will now turn to the next page we have the latest light vehicle production figures by region from CSM and J.D.

Power for the third quarter.

This slide we see here illustrates the unpredictable climate that we operate within.

During the quarter there were close to 800,000 fewer vehicles produced globally than originally expected.

And also 200,000 vehicles less than last year.

At the beginning of the quarter, global light vehicle production was expected to grow by 4%.

The outcome, however, was a decline of 1%.

This deterioration of 5 percentage points was more than the 4 percentage points experienced by Autoliv.

The most important swings affecting Autoliv were experienced in Western Europe, Korea and China.

On to the next page, we have our organic sales developments for [both] global light vehicle production and the Triad.

For the third quarter we saw our organic sales decline by 7% versus an expected decline of 3% in the beginning of the quarter.

The main reason for this deviation to our guidance was in Western Europe where further production cuts at Volvo - 14%, at Renault - 40% and also PSA - 6% accounted for more than half of the deviation.

In rest of the world, the volumes were down roughly 21% and 8% for Korea and China respectively as compared to our earlier expectations.

These are also the largest markets in that region.

Turning the page, we have the Autoliv production figures for the third quarter including the change from prior year.

As you can see, the volumes in our seatbelt business increased by more than 5%.

This was mainly due to continued strong demand in the rest of the world along with market share gains in North America.

The acquisition in India accounted for less than 1% of the improvements.

Curtain airbags were up 9% mainly due to the increased penetration in the world region.

For our other product lines, the volumes declined [there] between 3% and 8%, as you can see.

However, this is still less than the light vehicle production declines in our major markets, Western Europe and North America, of almost 12% combined.

As a result, on a global basis we believe there has been no major changes into our overall market share.

Turning to the next page we have our associate developments.

Since the same quarter last year we have managed to decrease our work force in high-cost countries with 2,500.

This was a partially offset with an increase in the low-cost countries of close to 1,500.

That is excluding the affects of the India acquisition.

In response to the severe market conditions we have managed to reduce our workforce by 1,700 associates since quarter 2.

1,100 of the reductions were in high-cost countries and 600 out of the 7 -- 1,700 affected our permanent workforce.

These changes are to a high degree the result of the actions initiated since the second quarter.

We are very pleased with the fast start and the overall results in the third quarter and, of course, we are prepared to take further actions as necessary.

Turning to the next page, we have our gross margin trend.

The combined negative effects of commodity inflation, a fixed asset impairment charge and the decline in organic sales was 435 basis points.

However, more than half of the negative sales effect was mitigated by our own actions.

This resulted in a decrease in our labor costs and other cost reductions of 125 basis points.

In addition, we had a favorable currency effect of 60 basis points that helped us in lowering our costs.

In this way with actions taken, the declining gross margin was limited to 250 basis points compared to prior year.

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

The 250 basis points negative gross margin effect has decreased to 160 basis points on the EBIT level thanks to our cost reduction efforts in RD&E and SG&A.

And therefore we managed to offset most of the negative 210 basis points sales negative effect we saw on the previous slide with our cost reduction efforts and achieve an EBIT margin of close to 6% excluding restructuring and severance charges and thereby exceeding our guidance in this tough environment.

On to the next slide, we have the EPS bridge for the quarter versus prior year.

And here we have also separated the currency effect.

The positive currency effect was $0.18 a share and while the lower tax rate and the share buyback improved the EPS $0.05 combined.

Commodity and energy inflation negatively impacted the EPS by $0.31 and the decline in organic sales also negatively impacted the EPS by $0.32.

However, our cost reduction and action programs mostly offset this negative effect by $0.29 per share.

On to the next slide, we have the cash flow performance.

Cash from operations exceeded $100 million during the third quarter which traditionally is a weak cash flow quarter.

This cash flow was mostly used for capital expenditures which continue to track less than 5% of sales.

More than ever we are focused on working capital management where we saw our working capital decline to 9.2% in relation to sales from 9.5% last quarter.

This was mainly due to a decline in accounts receivables of $160 million resulting in a 75 day sales outstanding and that is a one day improvement from last year.

Turning the page, we have our return to shareholders and our combined dividend and buyback program over $412 million over the last 12 months represents the 12% return on our average market cap.

And of course a good question from many of you would be, "What is the future of our buyback program?" And as we normally say, you will see the results on the website within four days, beginning of next week.

But also in this environment it would be prudent, of course, to hold on to cash.

Turning the page, we have our net debt to capitalization trend.

During the quarter our net debt increased by $84 million and our net debt to cap grew to 36% from 33%.

However, this increase was entirely do to the Tyco acquisition and acquisition of the automotive radar and the share repurchase totaling $107 million.

As stated before, we remain committed to a strong investment rate and that, of course, especially during this turbulent economic environment.

Moving to the next page again, we feel it's appropriate considering the turmoil in the credit market to highlight our strong liquidity position.

Autoliv has a very favorable financing position with $1.75 billion of debt available for the next two years.

And this is well in excess of our gross and net debt requirements.

$1.5 billion is available for four years or longer.

We also have a very strong liquidity position with cash on hand of $500 million as of today and this is more than our commercial paper and medium term note maturities during the remainder of the year and this also covers for most of our capital market maturities for 2009.

More than half of this cash is currently invested in government T-bills and the remainder is invested with selected four banks that participate in the funding of Autoliv.

And last but not least, of course, we have a healthy cash flow.

On to the next slide, we have summarized the early results related to the action program and other actions in response to the market developments.

As mentioned earlier, we have decreased our workforce by 1,700 people since quarter 2.

This is including Norma selection with production volume as well as structural changes.

Our estimated savings during quarter 3 was in total $5 million for -- allotted for these activities and based upon the continued eroding environment we anticipate decreasing another 1,300 associates during quarter 4.

And that will come in both high-cost countries and low-cost countries.

We expect the second half savings to be at least $20 million and we anticipate savings from accelerating the material initiatives to begin in second quarter next year.

Turning the page, the effect on the credit crisis, the weaker consumer confidence and an unstable commodity and currency environment, continue to take a toll in our industry.

As an example since our last conference North America, the 2008 light vehicle production, has been cut to a 17-year low of 12.9 million vehicles.

In Western Europe the expected light vehicle production is also expected to be cut to an 11-year low of 15.4 million vehicles.

And as we also alluded to in our last call, the rest of the world has shown that it is not immune to the current environment and the light vehicle production has been cut and expected to be cut with 900,000 vehicles and that's all since July.

While looking ahead to 2009 we anticipate a further drop of almost to 2 million vehicles within the Triad.

On a positive note, the commodity costs continue to decline and side systems penetration, of course, continue to increase in the Triad.

Turning the page, we have the latest expected light vehicle production figures by region from CSM and J.D.

Power.

This is now for fourth quarter and versus last year's fourth quarter.

For the first time in the recent history you can see that all regions in total with the exception of the part of Europe, or Eastern Europe, is showing a decline.

In North America the light vehicle production decline is expected to be around 19% and Western Europe is expected to decline 13%.

And combined this represents a 16% decrease in our two largest markets.

Additionally, the market deterioration is expected to spill over into Asia and South America as we said before.

In Japan, light vehicle production is expected to decline 7% and the rest of the world light vehicle production is expected to decline 1%.

Where in China and Korea we saw our largest markets in the rest of the world is expected to be down 4% and 9% respectively.

On to the next page, we have the most recent changes in light vehicle production for North America and Western Europe.

These two regions make up 70% of our sales.

The NAFTA region is represented by the lines with circles.

For quarter 4 this deterioration is 8 percentage points from minus 11% expected in July to minus 19% now in October.

This is mainly due to continued erosion of the truck and the SUV markets, important for us as we are over-represented on cars.

The car production is actually expected to increase which is favorable for us.

Western Europe is represented by the lines with the squares.

The quarter 4 change is also 8 percentage points here from minus 5% to minus 13%.

However, worth mentioning here is that these estimates are from September.

Consequence is the actual change could be even higher given the financial turmoil at the end of September.

On to the next slide, we have the commodity impact on our business.

For the full year 2008 we have raised our assumption slightly from $60 million to $65 million and this is the result of a $5 million higher cost, mainly steel, in quarter 3.

For quarter 4 we have taken a conservative approach and assumed that this run rate will continue.

As communicated during the quarter we are changing some more short-term contracts to be able to take advantage of the current trend of decreasing prices in the raw material markets.

Consequently, if the current trend continues there would be a positive effect in 2009.

Moving on to the next page, we have made an update to our estimated headwinds.

As mentioned on the previous slide the commodity, fuel and energy inflation is now expected to negatively impact our full year 2008 results by $87 million or 130 basis points of margin versus last year.

In addition, we now expect also organic sales to decline by 7% and not the 1% as in July.

This 6% drop in organic sales for the full year 2008 erodes the margin by approximately 108 basis points.

However, more than half of this erosion should be offset by cost savings from the action programs and other cost reduction actions.

And the calculation, therefore, implies that we would have a 6.5% margin for 2008 excluding the effects of restructuring and action programs.

This calculation is, of course, based on many uncertain assumptions but it is the best estimate that we can give you at this stage.

On to our last slide before we open up for Q&A.

We find the financial outlook for the remainder of the year and this is based on the current assumptions.

In quarter 4 we expect organic sales to decline in the order of 12% due to the light vehicle production drop that we talked about primarily from the major markets.

Consolidated sales are expected to decline by 10% and we expect fourth quarter EBIT margin to be approximately 5%.

For the full year 2008 we now -- this would lead to a consolidated sales increase of 2% and that is including the organic sales decline of almost 6%.

Acquisitions are expected to add almost 1% while currency is expected to add 7%.

Our full year 2008 EBIT margin guidance has, therefore, been revised to around 6.5% excluding severance and other restructuring costs.

To summarize, I'm pleased that we started to develop our action program already in July.

This and the other actions have given us the possibility to offset a significant portion of the current and upcoming headwind.

It's also important that Autoliv maintains a strong balance sheet especially during these uncertain times.

Turning to the next page, this concludes the formal presentation of today's call and we would very much like to open up for questions and so I leave them all back to you Ina.

Thank you.

Thank you.

(Operator Instructions) Himanshu Patel, JPMorgan.

Hi.

I have two questions.

Can you guys talk about the rate of production schedule revision from European carmakers?

Have they started to slow down and sort of stabilize in the last couple of weeks?

Well, we have seen over the last couple of weeks during October a continued change.

And in particular we would say that it is significant or affecting Western Europe or the European production.

And, therefore, we believe that the figures we see here in the forecast might be too good, actually, in reflecting the current environment.

And that's related to Western Europe.

We haven't seen for the time being any significant cuts in North America, for instance.

This is mostly related to Western Europe.

And then lastly, you mentioned Fx transaction was more favorable than you expected.

Which currencies were involved there?

Both the Turkish Lira and the RON, the Romanian currency.

Thank you.

Thank you.

Thank you.

Kenneth Toll, Kaupthing.

The R&D costs were lower in this quarter and generally you get some payments back from customers in the fourth quarter.

Since it was lower already in the third quarter should we expect a higher R&D cost hitting the P&L in the fourth quarter this year?

Compared to last year, you remember last year we had an exceptionally low R&D cost net and that was due to unexpected engineering income that came in very late in the quarter, as you remember.

And in relation to last year you should expect to look towards a higher R&D.

But overall we have found that we should come in on the south side of 6% when it comes to R&D costs in relation to sales.

And that is still valid.

Thank you.

Thank you.

Thomas Besson, Merrill Lynch.

Can I continue on that?

Two or three quick questions.

You say in the presentation on the last slide that you expect Fx to have a positive impact of 1% on your Q4 revenues.

Can you elaborate on that because seeing the Euro dollar rate at $1.32 and currently, I think, at $1.36 for Q4, I struggle to find the particular (inaudible).

This is based on where we -- on the current exchange rates.

It has not taken into account any changes of the currencies between the dollar and if we would see a further strengthening of the dollar it, of course, would be changed.

This is due to the current environment.

To follow-up on the question about R&D, if your revenues were to eventually be under pressure next year with volumes coming down, could we imagine R&D brought back up below 6% or are you going to try to limit the upside amount of R&D significantly next year?

We have now seen the action program back.

You realize, if you remember, that we are consolidating the application engineering part.

We would continue to do so and we will continue to offset to the absolute highest extent and maybe even more the consolidation on the engineering, application engineering side, with the increased development that we have in technology.

We announced a further development of between 200 and 300 people in technology development for small and fuel efficient vehicles.

So we expect this to still be the situation for 2009 as we are able to compensate for it.

If we would see an even cut in the sales side in the sales, we should not be significantly above 6%.

That is clear.

We would then adjust accordingly as we have already done in quarter 3.

I have a quick question, when looking at the full year '08, you speak about $75 million costs for your action program implying that there will be more in Q4 than Q3.

But there seems to be a positive "Other" income.

Can you elaborate on what's in there?

Because in previous years it's been mostly a negative "Other" income and expense line and it seems that outside your action program this year you've got something positive for the first time since 2003.

Could you comment on that?

I don't know that there is any other significant positive effect on the "Other" income and expense.

It's mostly related to the restructuring charges.

So I'm not sure I'm really following what you're after, Tom.

I'm asking you if there was going to be something else in the "Other" income and expense or if it's only going to be (inaudible) 75 million in [H2]?

That's all I'm asking.

I understand but it's not any major thing.

There is maybe some smaller portions but the absolute majority of it is related to restructuring.

Perfect.

Thank you very much and good luck for the coming quarters.

Thank you.

We appreciate that.

Thank you.

Patrik Lindqvist, HQ Bank.

Thank you.

I had a question on the timing of the savings.

We have difficulty hearing.

Sorry.

Can you hear me now?

Yes, better.

Okay.

Sorry.

I had a question on the timing on the savings.

I'm getting some noise.

Am I getting through?

Sure.

You are being heard perfect.

The timing on the savings, the 120, you mentioned that you were aiming at getting a run rate of 80% of that on mid-year.

Is that only -- on the savings on top of that we should look for the materials efforts or is that included in the 120 number?

The material is that we have announced -- that the part of the action program is included in the 120.

What we are seeing on top of this since we presented the action program is the possibility for lower raw material prices.

Yes.

And I was getting into that.

You mentioned that into a potential positive between 30 and 40 million for '09 given the current, I assume, spot rates.

Are those positive effects coming from virtually across the board or is there any specifics that you want to point out which is driving this?

Basically coming across the board.

Actually, you'll see more or less falling raw material prices across the board for the price that is important for us.

There are certainly lag in the various kinds so if you take for instance steel prices that we are farther away from the steel mills, we don't buy a very, very small portion directly so there is the lag effect but virtually coming from across the board.

And relating to that, have you seen any (inaudible) or beginning from the OEMs that they are starting to say, "Hey, you guys, do you have now a tailwind coming out in raw materials.

Thus with the bad volumes you should -- you need to help our bottom line and hence give us more on price."

Well, I think the customer always thinks we should lower the prices all the time.

So they will find whatever possibility they would say to lower the prices.

Final question on the mix for 2009, you have a feel for where your order books are and assuming that the rates of different models roll out should we expect the mix to be a positive contributor to your growth in 2009 in models?

Yes.

We expect the mix to be positive.

First of all, we have during the 2008 suffered from the phase-out effect of the two largest platforms we have here in Europe, the Renault Megane and the Volkswagen Golf.

These are now relaunching so we should have a phase-in effect here in Europe and a positive effect we would expect it to be.

Even so important when we talk about North America, our most important -- or one of our most important markets here, we see a decline for the year forecasted to be 9%.

But if we look on cars it's much less.

And, as you know, we are all represented on cars.

For North America we have only 25% of our sales in trucks.

So as cars are doing better we should see, also, that being in favor to us when we hear about the general downtrend in light vehicle production in North America.

That would be a positive for us.

Thanks.

So if I understand you correctly, the total nets in Europe should still be a positive because you have models -- being a positive but I assume that the growth is coming out of Eastern Europe where the installed level of penetration is lower on safety for cars so that's a negative.

But the net is positive.

Too early to say about the total sales develop and we will have to come back to that a little bit later and see how that develops.

But from a mix point of view we should have a positive effect next year.

That's as much as we can say.

Thank you very much for the time.

Thank you.

Brett Hoselton, KeyBanc.

Good morning/good afternoon.

How are you gentlemen today?

Well, we are not doing so bad here.

And ladies, my apologies!

First of all, with regard to the restructuring, you are looking at $120 million run rate.

I'm assuming that's what you're expecting run rate to be by the end of 2009, beginning of 2010.

Is that correct?

That is correct.

And you already are expecting to achieve about $20 million as of the end of 2008.

Correct?

Correct.

How should we think about that ramp-up of the $120 million through 2009?

Would you consider it to be a steady state ramp-up or is there a particular quarter where you're going to see a step-function improvement in the savings rate?

I wouldn't see it would be a step function.

As we said before, we said initially we thought a lot of it would come gradually during 2009.

As you now see, we have accelerated the pace quite significantly.

We, as we mentioned here, we will reduce our workforce with more than 3,000 or more by the end of the year already.

So there is an accelerated effect coming into 2009 as we have seen previously.

The other thing is, also, the raw materials, how that is affecting us.

That will most probably affect us more heavily on the second half of 2009.

So still an overweight of the savings will be in 2009 of the combined effects of the raw materials and action program.

And along the commodity costs and also the fuel and energy costs here, as we think about the $65 million and the $22 million, how much of that is weighted toward the back half of 2009?

It sounds like virtually all of it or the bulk of it is.

Is that a fair statement?

Yes bulk of it, you could say, is back weighted.

Yes.

As we think about 2009 revenue outlook it sounds like you feel that you're going to have a positive mix in Europe.

Is that correct?

And then in other regions of the world would you expect your mix to positively or negatively impact your revenue?

We would expect the mix, of course we are hit by the general decline in the volumes that we are generally down, but the fact we are launching a lot of new cars during this year and we are launching in particular here in quarter 4 in Europe, that particular mix effect should be positive in 2009, yes.

And then as we think about your margin outlook for 2009, you've got the benefits of the structuring program, you've got the headwinds with respect to the commodities costs, is there anything else material that you think might positively or negatively impact your margins?

I think you know we are taking all and every item into account in the action program.

The action program is such and how much we can accelerate that is the most important part together with the raw materials.

Those are the two things.

And finally with your solid balance sheet, and obviously you're very fortunate to have that at this point, and given the weaker market conditions is there any opportunity here to make additional acquisitions here given that some of your competitors or suppliers may be a little weaker?

We are monitoring this, of course, as careful as we are always doing.

But the room for financing and the room for maneuvering even though we have a very strong balance sheet ourselves is, of course, different than it normally is.

But we are looking very close to the opportunities that may come up from here and there on migrating into interesting adjacent areas in active safety or similar.

Thank you very much.

Thank you.

Thank you.

Rod Lache, Deutsche Bank.

Just a couple points of clarification.

First of all, did you say that you exceeded global production with your organic growth?

Can you just help us a little bit with that versus the 7% organic growth that you reported?

Maybe you can take it?

Yes.

We're talking about two different things.

If you look at the swing in the production compared to what was expected in July we have a decline in global production of 5% whereas we have a deviation of 4%.

It's, of course, not so that we are exceeding by a decline organically 7%, the global light vehicle production was down 1% for the quarter.

So we are not exceeding that but we are less off in the variance than global light vehicle production.

And just to clarify also on slide six the production volumes, is that all more or less aggregating to something like a 4% decline in production volume?

You have seatbelts up 5%, you had --

I think it is around 2.5% unweighted.

Yes, unweighted.

Alright.

And then -- oh, okay, so that's not a weighted average based on your different exposures though?

No.

It's not.

But versus the Triad decline of 4%, would you say that you're performing more or less in line with that on a weighted basis?

I think what we can see here is that we are, as we said, we are clearly up in seatbelts.

We are clearly up in curtains.

The reason is as we just explained and that is the growth coming from rest of the world primarily and also market shares in North America on the seatbelts side and, of course, the penetration on the curtains.

I think that's as good as we can say for today.

And then lastly, on the prior call you had mentioned a pretty stiff headwind from energy costs.

Can you just update us on how that is affecting your P&L at this point and your expectations going forward.

Why don't we look into that while we take the next question and we will get back to you on that one.

Thank you.

Thank you.

Thank you.

Anders Trapp, SEB.

I have a couple of questions.

My first, you have to be 100% sure the page you show about your financing, does it cover all of the maturities that you have including also special loans that is -- what is a majority.

Yes.

Very good.

Also I wondered, you were talking of the loss this quarter, the second quarter, that you expected as being impressive, mixed improvement already in the fourth quarter from the launches of new models.

Is that still on or is that delayed because I can't really get out the -- well, it seems like you have (inaudible) explanation for why your Q4 will be down so much more than what you said before.

You are very right here.

If you look onto what we said for quarter 4 last quarter and what we see today it is a decline.

And the reason for that is mainly that if you look on the global light vehicle production or if you look on the decline in our major market it's 7% or 8% so there you have one thing that is down in the fourth quarter.

The launch part as such is corresponding to approximately 2% decline.

And then we have another 4% decline in the fourth quarter related to vehicle mix.

We have important customers of ours with large platforms to ours that have not performed really well and that is corresponding to another 4%.

So there you have basically all in all 14%.

And that's why we alluded to in one of our slides last quarter plus 2% and now we're saying minus 12%.

Okay.

I guess your friends on the West Coast are partly (inaudible) for that, I guess.

Maybe that's not a bad guess.

Also, the restructuring program is impressive, increasing pace.

I just, of course, I wonder is this enough or if it's not enough can you do more and, if so, when?

We are continuously looking into the action program as such.

And as you can understand the 1,700 was not according to our plan a quarter ago.

We have accelerated it significantly and we are taking off 3,000 or more by the end of the year.

So we will continuously monitor what's there to be done, it needs to be done.

And you can never rule out that we will be forced to take more than the $75 million at the end of the day if it will continue.

For the time being, this is the best estimate that we have on the table.

I wonder about the commodity, fuel and energy cost increases.

Today now you're estimating them to be, what, 65 plus 22, I think, for the full year, sort of $90 million if you round it off a little bit.

And then you were talking about that maybe with the falling spot prices we are talking maybe $30 million or $40 million of that you can get back next year.

If that's correct, should it really be more than that?

We said at least $30 million to $40 million with the current rate.

If this is falling more, it could be more, of course.

But that is what we have said today.

Finally just one housekeeping question, what should we expect the tax rate of CapEx for next year?

If we look onto -- you can take the tax rate, Marika, (inaudible).

29%.

Yes.

If we look into the CapEx we are looking into the CapEx as such.

If you start with the CapEx for this year we are actually on the run rate on the last 12 month run rate right now, all $289 million, so close to $290 million.

And this is lower than expected in our last call, actually.

So you should more look towards that run rate.

We have said in the regional guidance for full year was between $350 million and $380 million in CapEx.

Very good.

Thank you.

Thank you.

The next question is coming from Jessica [Weeks], [Moon Capital].

Jessica, please go ahead.

Jessica, your line is open, please go ahead with your question.

We seem to have lost that line.

The next question is coming from the line of Adam Jonas, Morgan Stanley.

Adam, please go ahead.

It's Adams Jonas from Morgan Stanley.

I'm sure Jim Irwin liked being called Jessica there!

But anyway, the question about the $500 million draw down on the revolver, first obviously, I think everyone can agree that's a good move.

Can you just -- I missed where you said you parked the proceeds but more important than that, is there any meaningful spread in terms of what you're paying on that borrow and what you're getting.

From where it's best, any meaningful spread or costs you for having that flexibility drawn down?

The 200 that we have withdrawn or financed after the quarter closed, we have an average interest rate of 6.75% and currently, yes, it's -- the first interest is one quarter and then we have replaced these to (inaudible)% in T-bills.

And what about the draw on the revolver?

The revolver we have LIBOR plus 17.5 basis points.

And that's also invested in T-Bills?

Correct.

Yes.

To a large extent, yes.

Not all of it but to a large extent.

Question on the cash component of the restructuring costs.

Is it fair to assume that as you take them you will pay them in cash?

Is it a meaningful delay?

Like, for example, of the $33 million in the third quarter, when's the cash outflow for that?

As you saw we had a cash out in the quarter of $7 million in the third quarter.

Out of the $33 million that has been allocated we have had a cash out of $7 million for the third quarter.

So we'll assume, then, this takes the better part of six months then for that full $33 million to be reflected in your balance sheet or what would --?

It depends on when it's related to a major restructurings like plant closures or part closures of it.

If you look on the cash outlay, as we said on the slide four accumulated for the year we will have another $9 million in quarter 4.

So in total, $16 million for the second half of the year.

My last question is just a bit theoretical but I think you've attempted to at least answer this before.

And I ask again because your cost structure changes over time as you continually shift from HCC to LCC but all else equal, I know it never is, but all else equal, what is your variable margin that we could assume to apply in organic growth decline or increase into an EBIT bridge for you?

Well, as you said it differs from high-cost countries from product to product and from region to region.

You can calculate it backwards if you take the gross profit which could be sort of in the range of close to 20% or below and then you add back 5% of D&A and then you can come to one and you can also take it from above.

And you can come to another end of sort of 35%.

So it is between the ballpark of 25% to 35%.

Thanks very much.

Thank you.

Joe Amaturo, Buckingham Research.

Quick question, you did a good job with your working capital improvement in the third quarter.

What's your expectation for the rest of the year?

We feel we are committed to be below 10%.

So there's no -- you're not anticipating any kind of payback or reversal of this accounts receivable benefit that you received in the third quarter?

No.

Not really.

We feel committed to this level.

And then given that you revised your margin guidance and such, could you just give us an update of what -- where you feel free cash flow will come out for 2008?

Free cash flow, we haven't done any of that estimation for the fourth quarter for the moment actually so we'll have to report back to that question.

Let me ask you it differently, maybe.

There's no reason to believe that you should be cash flow negative in the fourth quarter.

Right?

No.

No.

Okay.

That's all I have.

Thank you.

Thank you.

Michael Andersson, Evli Bank.

Thanks, it's Michael here at Evli Bank.

Regarding 2009, again, when I looked at some old annual reports from 2001 the organic sales decline was 3% and the underlying volume was 6%.

What's your feeling when you hear those numbers to going into next year, is there any structural difference now a days?

In the annual report from '01 there was a lot of talk of pricing pressure and so on.

Do you feel that we should -- that that is different this time or is it more a matter of where we see the market and how much production rates will fall?

And also regarding the mix there, you are talking about a positive mix but still aren't we seeing a global shift towards smaller cars and we'll see a lot less V70s, XC90s and BMWs being produced next year which should hurt you, I think.

Thanks.

Two things, we are in the midst of an action program so it's different than 2001 when we were hit quite surprised by a significant decline.

We are right now in the midst of a strong action program that we will accelerate according to the pace.

The second thing is that we have a much higher low-cost country position.

We were, I would guess around 2001, less than 20% of our workforce in low-cost countries in 2001.

So that is one area.

The second area, of course, we will use and we have already used is, of course, the temporaries.

We have still a 13% temporary workforce in our group.

So things are different right now structurally in our Company than it was in 2001.

Coming back to the second part of the smaller vehicles, it's all dependent on what specification level you have on the vehicle; whether it's small or large it's less of importance.

BMW we're in, for instance, $550 per vehicle in content for Autoliv.

(inaudible) is having over $350 per content.

Both of them very small cars.

So as small cars (inaudible) highly safety specified (inaudible).

Very good.

Thanks.

Thank you.

Patrik Sjoblom, Cheuvreux.

Thanks.

This is Patrik Sjoblom of Cheuvreux.

Just a little bit of a sort of follow-up here.

I couldn't really follow you on that guidance that you gave on Fx effect in the fourth quarter.

When I look at, for instance, the Euro against US Dollar is trading now at roughly $1.32 or so, that means it's like down 8%, 9% against last year.

And with half of sales in Europe, that's like kind of 4% negative if you make a blunt calculation.

So there must be something else that been going up so very much.

Just help me with how I should think here.

And then I have sort of a more general question on the outlook.

I think I have to come back to you on that and look at the facts here a little more.

So bear with me on that.

Okay.

And then to the more general thought, then.

I'm just thinking of to get your view on the (inaudible) car demand in Western Europe and North America and looking back at the drops we saw say in 2000 and 2001 to when we had that kind of downturn previously.

At that time interest rates were clearly higher than they are now and, I guess you could say, central banks and so on, policy makers, stimulated the economy and car sales by lowering that, too, seems to be a little bit deplete this time around.

And when we hear J.D.

Powers talking about 12 million cars and 17 year lows, etc., do you see any reason to believe there's going to be a recovery from these levels or should we expect to remain at these levels for quite awhile now because it's at least one of the keys to financing costs seems to be already at the lowest levels.

I think, of course, the financial turmoil makes it difficult for consumers in some cases to buy cars.

People can't seem to afford to buy a new car this year.

On the other hand, all fleets will get order.

Maintenance costs will increase and at some point people will sort of buy a new car anyhow.

It may or may not be delayed depending on where it is.

I think when it comes to North America, a leading indicator is the home market.

The home -- the prices for homes.

When that is stabilized and you can see that stabilizing we can also see car buying coming back at some point.

And also you have the effect of fuel consumption an environmentally friendly more -- being more environmentally friendly and less emissions.

That will also affect the people that want and drive who buy new cars.

Thanks.

And then please come back on that currency thing.

We will do that.

Thank you.

Rod Lache, Deutsche Bank.

I just wanted to follow-up.

Can you just tell us how large your commercial paper program is in total and is it correct that the program is not backed by receivables?

We can do that in the (inaudible).

Okay.

And is it your assumption that the commercial paper can be rolled at this point or are you assuming that you are taking this out with your revolver?

We have our expert here just next to us, Mr.

[Hannas Widdel].

The pressure.

Good afternoon.

We have two commercial paper programs - one US Dollar program or $1.1 billion and one Swedish program equivalent to $1 billion.

The outstanding under these programs currently is best of $300 million and we are rolling maturities in both programs currently.

And we have a $1.1 billion total back-up until 2012.

And it's not backed by receivables or it is?

No.

No.

It's not.

It's not backed up.

Great.

Thank you.

That answers my question.

And on the $200 million financing that you commented on earlier, were you taking out actually a maturity in '09 that was out there just -- did some of the numbers you're talking about in your future maturities now didn't match exactly what you had had in your 10K.

Is this an additional financing source?

Yes.

This is an additional.

This is a new medium term financing.

The one part of it is over two years and one part of it is over three years.

Great.

Thank you.

Thank you.

[Anti] Vartiman, [Barister] Capital.

Good afternoon everyone.

My question is actually related to the ownership structure of Autoliv in a Norma and how you've been treating the minority shareholders Norma since 2005 and there's a number of election out of (inaudible) profits being on a quarterly basis being deposited in Autoliv.

And since no other shareholder has any say to those deposits other than Autoliv which allows it to pay quarterly dividends and maintains this quarterly dividend stream, how do you plan to continue with that?

This is actually against Estonian law.

Well, I know they have heard these arguments before and there has been discussions at the Norma shareholder meeting about these things but I can assure you that, definitely, that we [aren't] violating any laws, of course.

They may --

They are mistreating the minority shareholders completely and this only -- you wouldn't be able to pay such dividends and continue with the share buyback program and you know that.

Well, if you read our report --

I have read that.

Do you want me to answer or why are you calling me then?

Please go ahead.

As everybody can read for himself we have now more than $0.5 billion of cash on hand so that's simply not true.

The fact is that the Norma management gets to factor into (inaudible) deposit the money to Autoliv and that's why they do that if we have extra cash and that seems to --

Well, I'm sure they get better rates from elsewhere.

-- with Norma management because we have not taken the position where they should put their money.

Well, why the supervisory board in that company only consists of Autoliv people and you continue with this program with Norma?

Why don't we take this as a separate topic?

I will be available for you to discuss this as a separate topic and we can take that off line.

Okay?

Thank you.

We currently have no questions coming through.

Just a reminder, please press seven if you'd like to ask a question.

We have a question from the line of John Buckland, MF Global.

Thanks.

Much earlier in your presentation you mentioned that the forecast you are making may not be correct because of developments in recent weeks.

Is that based on the schedule you've seen and perhaps you can just give us an idea about how your estimates might have got more pessimistic.

And, I'm not sure whether you did actually give us a clue what you thought the development would be in 2009.

And the first, the last question is you said you were also letting people go in low-cost countries which seems to surprise to me.

But perhaps you could tell me what low-cost countries you feel you are reducing the workforce?

We start with the first question on 2009.

I think it was not any of our meaning to give you any guidance for 2009 because we can just elaborate on the raw material prices will most certainly come down, we will lose more vehicle in production and we have an action program in place that we will accelerate according to the market condition.

So I think that's basically everything I can say in 2009.

Regarding the accuracy in our forecasting, you have seen the production schedules change so fast and that is changing even as we speak that as production schedules are changed or be decreased to the absolute most.

So this is to the best of our knowledge today that we can give you the guidance for production and for the, thereby, also the operating margin.

Coming, then, into the low-cost countries, when you see falling demand in the regions even in rest of the world, do you see for instance Korea, you see falling growth in China, you also see there a need to adjust the resources.

And in Europe and also in respect to the low-cost countries part of Europe, we have a combination of exporting out of low-cost countries into high-cost countries.

So therefore it will be a mix of reduction of workforce where we have the product being affected by lower volumes.

And I cannot share with you here today which country that is reducing and what we are intending to reduce here right now.

Can you not give us a bit more information about the schedules?

You say they are changing everyday and they are getting worse.

What degree are we seeing in the last days?

Well, in the last couple of days what we are seeing is that we are -- some were getting updated from our customers.

If we will receive - and I don't know what that will mean - the official figure will come out of J.D.

Power for Europe here within the next couple of weeks, the week or week and one-half for Europe.

And I would not be surprised if that is down from where we are today.

That is the indication that we see when we look into our production schedules for quarter 4.

So to give you more exact update on which customers, you can read also in the press about the contacts, the important customer rewards like Volvo, for instance that we talked about earlier and that is cutting back production and also laying off people here in Sweden.

So there is a change in the environment, in the production environment, that is affecting us.

Thank you.

Thank you.

We have no further questions.

I'll hand you back to your host to wrap up today's conference.

Thank you, Ina.

We will have some outstanding questions regarding currencies and also maybe regarding fuel costs and updates on that so we need to work them up.

I got some information from our associates here.

As to the Fx effect, most of the payroll effect will come from Japan there.

And the Euro rate that we have based the guidance on is $1.45 so it's correct that it's somewhat higher today.

Specifically what effect that will have on our sales, you can calculate for yourself and that's why we have written in these reports that the exchange rates are more instable than in quite a long time.

As for the utilities, we have an increase there including freight of $22 million now in our guidance there.

It's in our guidance.

That's a small decline compared to July when we had $23 million.

And this $1 million will come in the fourth quarter, in this quarter.

And, of course added to that, if the oil price will stay on this low level that we currently see, we would expect a positive decline in 2009.

So with that I would like to thank everyone for your attention and for interesting questions.

And I look forward to talking to you again next year in January 29th and I hope in the meantime everyone can get a nice holiday season.

Thank you very much.

Thank you for joining today's conference.

You may now replace your handset.