Autoliv Inc (ALV) 2009 Q1 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to the Autoliv first-quarter financial earnings 2009 conference call hosted today by Mr.

Jan Carlson, President and CEO.

For the duration of this call you will be on listen only.

However, at the end of the call you will have the opportunity to ask questions.

(Operator Instructions).

I am now handing you over to Mr.

Jan Carlson to begin today's conference call.

Thank you Phil.

Welcome all of you to our presentation of the first quarter results.

Here in Stockholm we have our Chief Financial Officer, Marika Fredriksson; and our VP of Corporate Communications, [Matt Seidman] and me, Jan Carlson, Chief Executive Officer.

We will start with a review of the quarterly results.

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

Then, turning to the outlook, we will focus on the overall business climate and indicate how we see the impact in our company in the near-term.

After that, we will remain available for questions.

And you can find this live presentation through a link on the front page of the Autoliv corporate website under financial reports.

If we turn to the next page we will find the Safe Harbor statement, which as you know is an integrated part of this presentation.

I would also like to mention that the presentation will include some non-GAAP measures where the reconciliation to the US GAAP are disclosed in the quarterly earnings release and in the 10-Q filings.

Moving on to the next page, before we start with the formal presentation, though, I would like to acknowledge all of our employees for their continued focus and commitment to quality, delivery and safety especially during this challenging time.

During the quarter we increased our financial flexibility with the common stock and equity units offering.

In addition, we significantly reduced capital expenditures and inventories to include cash flow.

The combination of $900 million in cash on hand and unutilized credit lines of $300 million remain unchanged from year-end levels.

That is despite reducing our net debt by close to $200 million due in quarter one.

For continued quick implementation of the action program resulted in further headcount reductions of close to 4000.

These actions not only reduced our breakeven point but better aligned our global capacity to the forecasted market levels.

If we turn the page, we will spend a few moments on our recent common stock and equity units offering.

First of all, I would like to emphasize the decision to make this offering was not for liquidity purposes.

On the contrary, the decision was made to further strengthen our already strong balance sheet, increase our financial flexibility and provide funding for potential [sector] consolidation.

The offering was oversubscribed and well received by both US and European investors.

The offering has so far resulted in an improved outlook from negative to stable on our investment grade rating of triple B- by S&P.

To our knowledge, we're the only supplier in the automotive sector to achieve a positive rating action in 2009.

So overall we are very pleased with the initial result of this offering.

Moving the page, again, we have the summary for our first quarter results which was significantly eroded by the continuing freefalling global light vehicle production.

Excluding restructuring we managed to limit the EBIT margin deterioration to less than 8% despite ourselves being cut in half.

This operating result was well in line with our guidance.

Operating cash flow was significantly better than expected at the beginning of the quarter mainly due to aggressive cuts in capital expenditures and inventories, as we mentioned earlier.

And last but not least, we raised $377 million net of the common stock and equity units offering.

If you now turn the page, we have the latest first quarter global light vehicle production figures from CSM and JD Power.

This illustrates the severity of the declines for the quarter with an overall global light vehicle production decrease of 36%, or 6.4 million fewer vehicles than prior year.

The quarter one annualized run rate of 46 million vehicles is 30% lower than the 66 million vehicles produced in calendar year 2008.

Sequentially, $2.6 million or 18% fewer vehicles were produced in quarter one than the already depressed quarter four last year.

In [NAFTA] and Western Europe where we generate more than 70% of our sales, light vehicle production declined by 45% while Japan declined by 48%.

In rest of the world, China and India declined only by 2.1% and 4.5% respectively.

If we turn the page again, we have the Autoliv production figures for the first quarter.

The volumes in our seat belt business decreased with 39% and that is essentially in-line with the global light vehicle production, but that should [end] the production [in the trial].

For [side] systems we continue to outperform the [tires] whether it is significantly higher penetration also than rest of the world.

For steering wheels the declines were significantly worse than our major market, in Western Europe and NAFTA mainly due to lower volumes from the French OEMs.

As a result, we may have lost some market share in the steering wheel, maintain market shares in seatbelts and electronics, with slight gains in side systems.

So, overall, we believe market shares remain relatively unchanged although minor shifts may have occurred by region.

Turning the page again, we have the commodity impact on our business.

The commodity indices are well below 2008 levels and near levels last seen in 2005.

For the first quarter we had a net negative effect of $4 million mainly due to the lag effect of certain steel contracts.

Looking ahead, the commodity prices are expected to turn favorable in quarter two and continue into the second half of this year.

And therefore after considering the lower volumes this year we still anticipate the benefit of $50 million for commodity prices for full year 2009.

Moving on to the next page, we have our gross margin trends.

Of course lower sales and commodity inflation had a combined negative effect, here more than 1900 basis points.

However, we were able to compensate almost half of this effect primarily in labor and other cost savings which had a positive effect of 850 basis points.

In addition, a favorable currency affect of 50 basis points [held] our lower costs.

In this way with the actions taken, the decline in gross margin was 1040 basis points despite the organic sales decline of 40%.

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

In addition to the 1040 basis points negative gross margin, we have a declining sales effect on our SG&A and RD&E costs of 740 basis points.

Actions to reduce SG&A and RD&E and other cost savings generated approximately $50 million or almost 300 basis points.

Therefore our total cost reduction actions had an offsetting effect on the operating margin of close to 11.5% including the savings from the gross margin.

These actions allowed us to mitigate the operating margin erosion to -7.8% excluding restructuring charges.

On the next slide we look at how the global annualized vehicle production has deteriorated over the last 12 months.

Only a year ago the annualized vehicle production for 2009 was still expected to approach 75 million vehicles.

During the second quarter we then saw signs of a decline in the light vehicle production.

This led us to initiate a major restructuring program we announced already in July 2008.

We were one of the first companies to take such an action.

And since then we have accelerated an extended action program as the light vehicle production has continued to deteriorate to now 52 million vehicles, a drop of 23 million or 30%.

And consequently, we have through the action programs reduced headcount of 10,000 people.

Turning the page, we have summarized our response to the challenging market conditions and these actions include more than just headcount reductions.

We have secured new medium-term financing of $250 million during quarter four 2008 as well as the $377 million from the equity offering.

In addition, we have, for the time being, suspended our share buyback program and dividend payments and frozen salary levels.

Operationally we have decided to shift a significant portion of the R&D effort to our small car initiatives and other key projects.

And lastly we have acquired Tyco's automotive radar business to strengthen our footprint and active safety.

These type of bolt-on acquisitions fill technology or customer gaps in our portfolio.

Moving to the next page, we have our associate developments.

During the first quarter we reduced headcount by almost 4000 people or 11%, down to 33,600.

3200 or 80% of the reductions were to the permanent workforce.

1500 of the reductions were in high cost countries, and as illustrated, we now have 54% of our associates in low-cost countries.

We still have 2800 temporary employees which represent almost 8% of the workforce.

In response to the continued declining market conditions we will continue to adjust our permanent and temporary workforce until we have right-sized our company to the lower light vehicle production environment.

Moving on to the next page.

We have summarized the early results related to the action program.

Of the $74 million restructuring charge in 2008, almost $50 million remained on the balance sheet for 2009.

During quarter one, the cash outlay was close to $20 million.

We expect to pay out the remaining $30 million in quarter two.

In the quarter one we have accrued $[15] million related to further restructuring activities and we expect to accrue another $40 million in quarter two.

In total we anticipate that the full year 2009 restructuring charge to be at the same level as 2008.

Turning the page, we have our cash flow performance which was better than we expected at the beginning of the quarter.

Cash from operations was almost a breakeven at negative $9 million.

This is mainly due to the better than expected working capital performance.

An excellent job was done in reducing our inventory levels by more than $100 million and reducing our overdue receivable exposure.

In addition, we have significantly cut our CapEx to $34 million, a run rate well below the initial indication of $200 million to $250 million.

The CapEx spending was $37 million better than depreciation and amortization and we expect this positive trend to continue throughout 2009.

For quarter two we anticipate a slightly negative operating cash flow similar to quarter one.

Turning the page, we have summarized our liquidity actions that were taken during the first quarter.

In addition to the equity offering, we have applied for a regular commercial loan with favorable terms from the European Investment Bank.

This is an amount for up to €240 million or $320 million with today's exchange rate.

On the working capital side, we have cut inventories dramatically and plan to participate in the supplier rate programs at General Motors and Chrysler.

This should limit our exposure in North America to these customers.

We also continue to take preventive action to minimize the negative cash effects of potential supplier disruptions and reevaluate our capital spending requirements.

Turning the page again, we have updated our liquidity position for the activities during the first quarter.

As illustrated, our liquidity position remains very strong with less than $500 million in debt maturities until 2012.

Our net cash and untapped revolver combined remains unchanged since year end despite paying down $200 million in medium-term notes during first quarter.

Therefore we have a significant liquidity cushion even if conditions were to worsen.

On to the next slide, we will from here now focus on the outlook.

As you are well aware, our industry is in the middle of one of the worst downturns on record.

For example, one we looked at the US market, the recent collapse that started in 2008 and carried into 2009 is of historic proportions.

The two-year combined negative effect on (inaudible) will be more than 45% which is unprecedented.

Moving on to the next page, we see in the table to the right how the global light vehicle production [have been capped] and each forecast division.

In April last year the forecast showed a production of almost 75 million vehicles.

One year later the production plan had been cut to 52 million, a 21% decline from 65.9 million or close to 66 million as of end of last year.

However you can see the production caps are leveling off in the later updates as illustrated by the bar chart.

Turning the page, we have the latest global light vehicle production figures from CSM and JD Power.

As illustrated, full-year 2009 is expected to be off 21% from 2008.

For our two largest markets the combined decline is almost 30% versus prior-year.

This decline is similar to the [try-out] where we [derived] more than 85% of sales.

Turning the page, again, we have the quarterly progression of light vehicle production.

The quarter one level represents a run rate of 46 million vehicles, while the anticipated (inaudible) sequential improvement would indicate a run rate approaching 60 million vehicles in quarter four.

This would be a 30% improvement from the first quarter.

On to the next slide.

Looking specifically at the second quarter we have the latest global light vehicle production numbers.

Although the forecast 13.1 million vehicles is sequentially 1.6 million or 14% better than previous quarter, it still represents a decline of 21% compared to over prior-year compared to last year.

In naphtha and Western Europe, the anticipated decline is 35%.

China seems to be the only exception to the downturn and is expected to return to a production increase this quarter of almost 3%.

Turning to the next slide, we have the financial outlook for quarter two and the full year 2009.

In quarter two organic sales are expected to decline slightly less than the light vehicle production in our major markets, when consolidated sales are expected to decline between 40 to 45% given current exchange rates.

Consequently, we expect the EBIT margin to be better than negative 3% excluding restructuring charges.

Any potential customer default is difficult to forecast and is therefore also excluded.

For the full year 2009 we anticipate our organic sales to decline in line with the light vehicle production invested in Europe and NAFTA.

To summarize, the first half-year of 2009 will continue to challenge our organization to cut costs and line capacity.

As the second half evolved, tailwind from commodities and the action program along with volume improvements should allow us to offset the negative effect from the first half of the year.

So, in conclusion, we reiterate our EBIT indication from January.

Despite the lower sales volume that we will potentially generate a positive operating profit, excluding further restructuring charges and possible customer defaults.

Turning the page, this slide will conclude the formal presentation of today's call and we will now like to open up for questions.

(Operator Instructions) Michael Andersson, Evli Bank.

Good afternoon.

It's Michael from Evli Bank in Stockholm.

Regarding the negative effect from the [McGannon and Golf] phase out that were talked about in the Q4 result, how has that been in Q1 now since you actually managed to do slightly better than the light vehicle production in Europe?

Has that been smaller than expected or is it the other part that has been so much better in relative terms?

For the first quarter even for the French part it has been a slight improvement for the quarter.

In particular, if you look into the March figures we can see some effects out of the incentive programs in France having a positive effect for us.

So we have seen some improvements from the incentive programs here in France.

Okay, very good.

And a quick regarding Japan which organic sales were down 70% due to SUVs and so on, how do you see that coming in Q2 and going forward rest of the year?

We see Japan still continue to be down, as we indicated.

And we see also the effect of the [curtain] programs and the fact that the majority of the export vehicles out of Japan are equipped with curtains.

We are saying also a tendency to slightly go away from the voluntarily commitment of side system and curtain installation inside Japan.

So, that can have a continued effect also going forward into quarter two.

Okay, thank you.

Rod Lache, Deutsche Bank.

A few questions.

First of all on your plan to participate in the supplier guarantee programs for GM and Chrysler, could you just talk about what the financial impact is of that?

I know it is a relatively smaller percentage of your sales, but do you have to take a 2 to 3% cost through your cost of sales for the insurance?

Or how does that work exactly?

Right.

You can either choose between to ensure your receivables for a cost of 2% or you can even choose to have a factoring effect on to it for another percentage.

We are looking toward the insurance effect and would then pay a 2% fee on the receivables.

So, that will flow through your cost of goods sold and reduce the margins temporarily while you are doing that?

Right.

And I would also like to better understand also what you are conveying on slide nine in terms of the gross margin impact.

You had a 40% organic decline in sales it looks like, ex currency and a 19.2 point impact on the gross margin.

So, am I interpreting that correctly that that is like a 48% decremental margin on the organic sales decline?

Yes, I think so.

It's around that ballpark, yes.

And that is the kind of impact that you would anticipate going forward or is there anything unusual about that number?

Just the organic impact on the gross margin?

Yes, well, I think we haven't really done any specific investigation on that looking ahead.

I think you should call (inaudible).

We have said that the contribution margin normally varies between 25 and 35% and I think that is the best estimate you should look towards.

So I think that is probably the best figure and the best range I can give you for the time being.

Is that the normal contribution margin of the 25 to 35% just to clarify that, is that --

It is the normal contribution margin.

But is that net of headcount adjustments that you make or is that before restructuring?

It is before, it is before.

It is before?

So with the 4000 people you are taking out now, your contribution margin would be less than that?

The negative impact on the contribution margin.

The negative impact would be less than that, yes, exactly.

So you could calculate with a slightly higher contribution margin.

And that is also what you are seeing here actually on the figures here.

So it is indicating that it is slightly higher for the time being.

But if you model this on the longer run this is now a temporary effect.

What you also will have to build in here when the market is turning back again, we will be probably forced at least on the direct side reemploy temporary workforce to start with as volumes start to increase again.

So we will then also try to hold down the indirect workforce as much as we possibly can to take the best operating leverage for it.

Therefore, for the longer-term modeling, 25 to 35% is probably the better range even if it could be higher temporarily right now.

Just lastly, you took 4000 headcount reduction in the quarter.

What is the expectation for this year?

We have not made any expectations for the year.

Due to that, we are seeing now a slight uptick here on the production levels for quarter two and quarter three also coming another level up in quarter four.

You should see a lower rate on the headcount reduction.

We have still not right sized the company so you should expect more, but not in the same speed and the amount you have seen so far.

Thank you.

[Thomas Bestin], Merrill Lynch.

Good afternoon I've a few questions as well.

If we look at the monthly trend, I know it is a bit of a difficult (inaudible) it clearly seems like March was a much better month than January and February probably was a trough.

Is it something you can confirm and is that something you see as well in April?

And my main point being don't you think that the volumes assumption you are taking for Q2 are very conservative?

Well, we have tried to look at what we have in our ERP systems.

We have checked that against the forecast that is coming out of CSM and JD Power, so this is our best estimate for the time being.

We have not closed in the month of April yet so we cannot comment on how we look for the month of April.

But, you are absolutely right that March was a much better month than January and February.

We hope to see that will carry through into April and the rest of the quarter.

Okay.

Can you comment on your order intake and pricing power in the current environment?

You are clearly the strongest name in your subsegment.

(inaudible) effectively profit in terms of new business, in terms of your ability to price your products or is it still too early to see this kind of benefit coming?

We are seeing a benefit from the strong balance sheet that we have.

We are seeing the benefit already among our customer base.

We have made the market offering that we are even improving our balance sheet even further during the quarter.

We see the positive reaction from our customers.

That is absolutely clear.

We are getting sort of requests for indications or at least questions around competitors' production volumes and whatever we could do, if it would be possible for us to increase our production.

We take that as a sign that we are seen as there strong, long-term partners.

If you go back to the first part of your question, the order intake, it is a bit irrelevant as you know.

There is a leadtime of at least 24 months or they would [reinstate] until it comes into production.

But one indication can be that we are seeing some (inaudible) either prolonged (inaudible) production volumes, projects are being prolonged and some of the models are being brought forward (inaudible) more today.

We are also seeing to the contrary that the industry seems to outsource more and seems to rely more on their trusted supply base.

So we are saying actually from that point of view engineering income this quarter.

Even if it is a bad quarter engineering income is up even compared to last year.

We take that as a sign that they are outsourcing more activities to the strong supply base.

Okay.

If we come back to some of previous questions on gross margin, what is your best guess of where we should see gross margin in Q2 and for the full year at this stage given what you have told us in terms of production and (inaudible) benefits?

To be honest, we haven't any such figures to share with you at this point.

Okay.

May I ask you to (inaudible) on the tax effects that you that indicate drove your EPS higher than my expectations?

Well, the tax rate, if you are looking towards certain tax indications, what you should look towards is a sort of 30 to 35% tax benefit for this year.

Which means that we will get a tax return in the ballpark of 30 to 35% for 2009.

Longer-term, we will turn back to what we had communicated before, around 30% tax rate.

That is on the longer run.

So that is how you should look upon tax for the time being.

Last question and maybe it's a bit ambitious but you suspended your dividend before going for this equity offering.

Given how comfortable you are your liquidity position, when should we expect to eventually get back to a dividend?

You know the answer Tom.

I have to [revert] to the board.

Thank you very much.

Adam Brooks, Sidoti & Co.

One thing you guys have talked about repeatedly is kind of consolidating your supplier base and clearly with a lot of distressed suppliers out there, can you maybe add some color on how that is going?

And kind of -- if you have seen any type of stabilization as far as people not having quite as much trouble?

I know you have kept a list kind of on distressed suppliers.

We can say that we refer to the last earnings call about 35% suppliers on the watch list.

We were in a very steep increase during that time so we were just a few weeks later on the level of 60 to 70 critical suppliers on the watchlist.

If anything we can say that it has stabilized during the last maybe one to two months.

We are still saying in the ballpark of 65 suppliers on our critical watchlist.

So it hasn't gotten worse over the last month.

If you look onto the consolidation of supply base it's going so-so.

And the reason for that is we are moving more of our sourcing to the low cost countries and the (inaudible) suppliers for phase-out volumes are remaining in high cost countries.

So we will therefore add suppliers to low-cost countries and not remove suppliers in the same magnitude in local countries -- in high cost countries.

Sorry.

Looking on the amount of money we are anticipating to spend for distressed suppliers we have not changed the figure.

We have said last quarter $14 million.

We remain firm on that figure.

So far we have all only use one-tenth of that amount, so $1.5 million for the distressed suppliers in quarter one.

You can then say, well, that may be a conservative figure but we have an uncertain environment right now.

In particular, we don't know if or what would happen if somebody in the US would file, a customer would file, GM or Chrysler would affect the supply base.

Therefore, we remain firm on the $14 million.

Okay, thank you very much.

Hampus Engellau, Handelsbanken.

Thank you.

I guess most of my questions have already been asked.

I will put this question like this.

I was looking for the restructuring program maybe on what kind of a level you were aiming to take down your headcount.

And as you said Jan you would not comment on that.

But I guess my question to be turned around then, the 40 million you are starting to take in the second quarter and [57] if I do the math for the full year.

How --

For the first half year.

Yes, yes.

On what do you intend to spend this money apart from laying off more personnel?

There will also most probably follow a possible impairment of equipment, etc.

that will follow along with the restructuring.

And as we said, we can't comment about -- most probably there will be further plant closures down the road.

I cannot and will not comment on it here today where it is going to happen but it is likely to happen.

And therefore you will have impairment activities coming on into the short.

Sure.

I guess, how does the dynamics work on [shortening] your plans?

If we see a pickup in production let's say fourth quarter and onwards.

Do you have the possibility to start up a (inaudible) or is it the final close?

You will have to look beyond.

We will have to look.

A plant closure is something you don't do and then open it up again.

We will have to look beyond what we believe is a sustainable core production volume and how we can utilize the capacity we will have remaining after [eventual] plant closures and how we can moderate that with adding another third shift.

Adding more temporary workforce, utilizing capacity in other parts of the world, for instance.

So once a decision is taken for a plant closure it should be a lot happening before it would be reversed.

But that is why we have also been reluctant to go out and comment on plant closures because we are looking up on this from quarter-to-quarter from time to time.

And the way we have taken the approach, we have been counting as much resources as possible to adjust.

And now we may come into a phase where we will have to see this leveling off and leveling out and then take a decision of how we move on.

Last question and you probably have said that, but this $40 million that you mentioned that were for sub suppliers that would be in distress, are they included in this $57 million restructuring program (inaudible)?

No it's not.

No it's not.

This is a P&L effect above the other income and (inaudible).

So this is coming (inaudible) in the P&L (inaudible) is not included in the restructuring charges to answer your question.

All right.

Thank you very much.

Patrik Lindqvist, Hagstromer & Qviberg.

Thank you.

I had a question on your (inaudible).

The 70% organic growth is monumental or very big.

Just trying to get a sense for whether the impact on your gross margin was substantially higher than for your group [of average].

Because I mean those kinds of under absorption effects do very bad things to gross margins over there.

Is that true?

Well, of course if you have a drop of 70% you have a substantial effect.

You're right on that front, Patrick.

Because the flipside of that is the effect on the European and North American business on gross margin wasn't that bad.

And then the question that I have on that, you grew organic growth a bit better than production for the first time in 8 quarters in Europe.

But you are still saying that for the whole company you expect organic growth to be about in line with core production for the year.

Is that because you see some other things will happen in Europe?

So you will basically go in line with core production?

Or is it because you say that Japan, rest of the world and others will take down, take away outgrowth you will have in Europe and the US?

If you look into the core production as we said I think we commented on China is already returning to growth next quarter along the forecast.

But if you look onto the [delivering] values that we have in the emerging markets, one core is one core.

The (inaudible) produced.

And therefore emerging markets so far doesn't have the same content of vehicle as the NAFTA and Western Europe.

So, therefore the returning to core production as we will see in the forecast is still not having the same effect when it is coming in the emerging market.

For instance, India month of March that just went by.

They had sales of 198,000 vehicles in the month of March which is the best month ever in India.

So there is science that it is turning around again and coming back.

But that is not having the same effect and that is why even if light vehicle production is growing we will probably not -- we will not outperform it sort of for the year.

That is the indication we have today.

Coming back to the gross margin in Japan.

You should remember if it is even if it is a severe decline in Japan, Japan is 10% or less of company sales, of course.

So it has sort of a limited impact.

My point was that it was 20% of the organic drop.

Anyway, final two questions.

One on CapEx, it was very low in the first quarter.

Given current structure, what is the main kind of level?

Would you dare comment on that?

Now we have gotten is question a couple of times and the maintenance we see every CapEx related to a new car platform is either type of facelift or new platform which requires a new production line, new tooling etc.

So we refer to the absolute majority of CapEx to be new investments in new programs because that is how it works in our business.

And so I know that is not the normal definition.

You normally define that as maintenance.

Final question, (inaudible) you just had a view, when we talk now normalized things here because it is very un-normal right now.

Would you have any figure in mind on what your view is on sort of a normalized level of car demand in big markets like North America and Europe?

(multiple speakers)

I don't think we have any real view.

I think looking ahead we believe at least we will have the 60 million units somewhere around -- to start with we will at least go above 60 million units.

That's what I think.

The indication for that is quarter four currently shows a run rate of $58 million looking into 2010.

I think the latest figure is in the ballpark of $60 million.

So when the world is recovering from this recession and the unprecedented that we have we would see core production go beyond that I think.

Thank you very much.

David Leiker, Robert W.

Baird.

A handful of things here, Jan.

First of all to start, your comment at the end related to looking forward with the actions you are taking and the current build schedule.

Did I hear you correctly saying that you still think the fourth quarter your EBIT could be positive?

We haven't commented on the fourth quarter.

We say that second half the EBIT will be positive.

We say we will have despite the sales decline, we have -- we can potentially reach positive EBIT margins for the year excluding restructuring charges and any possible customer defaults.

So in the run rate of the business we potentially see the possibility to reach profitability for half-year compensating the loss for first half in second half.

Thanks for clarifying that for me.

A couple of other things, as the volume comes back, how much of a headcount to do think you need to add proportionately if you could give us some sense for that?

It is difficult to say David.

Coming back in the emerging markets probably before it is coming back in Western world, in Europe and in NAFTA market.

We have a little bit of different production setups with more manual lines and low-cost countries which could eventually lead to a higher re-hiring of headcount, direct workforce.

It is difficult to say.

I don't have a good figure to give you on it.

And then as you look at the competitive landscape, are you seeing any opportunities there with your competitors who might be struggling more than usual in terms of picking up incremental business today?

Of course, as I indicated earlier, we have gotten some questions that if we could manage to sort of take on board more business and we know it is coming from some of our competitors out there.

So we are getting this type of request here and there.

And I can't really comment on it.

We have probably the industry's strongest balance sheet today.

We have an excellent liquidity situation.

If there would be opportunities to pick up assets, the right assets, we would not hesitate to evaluate and do so of course.

Are these opportunities of that takeover business is that something that is relatively short and like a week or two or are they setting the groundwork for somewhere down the road that they want to move the business?

Well, it doesn't work in a week or two.

It is sort of much more longer-term horizon depending on if you're going to retool and move production lines, etc.

You're talking at least six months or so.

If a competitor of ours would sort of go bust then we would be forced to take over the existing tooling and equipment it can of course go faster.

But it would be very difficult to manage sort of in less than a month at least or a number of weeks.

And lastly if you look at the new safety regulations coming in place here in the States and in Europe, have you seen increased activity there for additional content from you and (inaudible) characterization on that in terms of what that opportunity might be?

Well, we believe that the increased regulation and the different regulation in particular in Europe, will mean increased content for us also potentially in the United States.

In Europe I think the highest interest is around pedestrian protection following a change of the (inaudible) and the different star rating system.

That is of course meaning increased opportunities for us in terms of new products.

Are you seeing that customers are already moving that way or has that not happened yet?

They are.

They're moving that way and we have seen a significant increased level of interest in particular accident protection and the way to solve it.

Do you think that in terms of showing up for you is a year out or two years or three years from now?

Well, if you're going to give an answer I think it is more two years than one year out before it is going to show up on the sales side.

Great, thank you very much.

Anders Trapp, SCB.

I would like you to help me calculate please.

Okay.

If we are to gather what you reported in the first quarter like (inaudible) negative EBITDA margin.

You talked about up to 3% negative in the second quarter and then you talk about the indication for the full year of a positive EBIT -- adjusted EBITDA margin.

To me it ends up that you must (inaudible) report 5% or more positive the margin for the second half year.

Is that -- am I thinking correctly?

Am I calculating correctly?

I'm sure you (inaudible) these calculations.

I think you can reverse calculate what type of number of accumulated dollars we will have to recoup if we are sort of going to form (inaudible) according to what we have guided.

And then you can back or reverse calculate what that would mean for the second half in terms of the sales growth and what it would mean.

What we have to bear in mind here is that we have a difficult tailwind affect of the savings program.

The action program.

We have reduced 4000 people now in the first quarter.

We will continue to right size.

That will kick in fully in the second half of course we will the full effect.

We have said we will have a savings of $58 million.

For (inaudible) quarter you will have more.

You will have the full effect of the raw material prices.

Yes.

So of course your calculation I think it is in the ballpark right, but you have to do the math and you will come to the figures.

My follow-up was exactly that.

Which is the most important factor for you to go from basically minus 5% in the first have to [rough five] in the second half if that will happen.

If it is the sequential increase in corporate action or is it the cost of capital from personnel and what about the raw material with you see there happening in the second half compared to what we are seeing happening in the first half?

What you are seeing a savings compared to first half for roughly $50 million.

Because almost all of the savings on the raw material that we are seeing for the full year is coming in the second half.

So all of that is kicking in.

You will have the full effect.

And we are approaching around $70 million to $80 million for the upcoming quarter on the savings from the action programs.

So that will accelerate.

So it is a combination of raw material and full effect of the action program and of course the fact that light vehicle production is coming back.

We are talking about a level close to [60 billion] in the fourth quarter.

All right, thank you.

Himanshu Patel, JPMorgan.

Hi.

Just two follow up questions.

Could you comment given the magnitude of the headcount cuts done, what would be a breakeven point on production in North America and Europe for Autoliv now?

In terms of headcount or maybe I misunderstood you.

I'm just thinking in terms of operating profit, breakeven point.

Once all of the restructuring savings are fully implemented, do you have an estimate on where you think the business would breakeven now in terms of industry production volume?

Oh, industry production, yes we be leave the breakeven point, global light vehicle production is between 50 and 55 million for the company.

50 million, 55 million globally.

Would you care to give sort of a breakdown for North America and pan Europe?

We haven't looked into that.

But you can see for your self where we are guiding right now in terms of better than negative 3% excluding [operating] and restructuring charges and the fact that we are talking about the production level of around $52 million for the second quarter and third quarter.

Okay.

And then number two, the European scrappage programs obviously volumes are benefiting from there.

How did Autoliv handle the fact that there is mixed degradation happening there with small car growth and much more weaker volumes on high-end cars?

When you think about it from a net revenue perspective for Autoliv, is the scrappage program really a benefit for you guys or could it actually be a negative?

It is probably a good thing for us.

If you break down the levels of sales.

If you just take Europe as a whole we haven't separated out for Italy or Germany but if you look out from Europe and you divided out in these segments, if you take the smaller segments you have about 60/40 in terms of sales related to the [A to Z] segments.

If you look onto the average supply value for the A to Z segments, if you exclude the A to Z segments some of the very small cars there, they are significantly above $300 (inaudible).

So if you look for instance in the B segment and the C segment like the Renault (inaudible) we're talking about (inaudible) per vehicle, 350 vehicles for the [PSC C4], the [PLSA], the [official 207] we have talked about before and we have this for the BMW Mini that we have also talked about before.

So, all in all, we are actually seeing this not to be as negative as you intuitively would have expected it to be because normally you think about more sales into the higher segment.

As I said 60% of our sales comes from the A to Z segment in Europe.

Okay.

And the US Treasury's supplier guarantee program, we have heard initially that just the mechanics and plumbings of that had not been fully ramped up yet.

Where does it stand now?

Is Treasury ready to launch this fairly soon or have they launched it already officially?

I'm not sure I know more than you on this one.

I think we are all now eligible and we are into the system for both Chrysler and GM.

As far as I can understand, it is still not into the system Mexican-produced parts.

It's only US produced parts.

Canadian produced parts are then going to be supported by the program handled by the Canadian government, as we have some manufacturing in Canada.

We have of course a lot of manufacturing in Mexico.

I don't know the details.

I think my feeling obviously is it's still not tested yet.

It is still not firm, signed and sealed, the final version of it.

It is still up for changes.

And it is US produced parts to US carmaker assembly plants?

Or can it be US produced parts to Canadian or Mexican assembly plants?

If I understood it right, it is US produced parts even to other plants if I understood it right.

But I may be wrong.

(multiple speakers)

I'm not certain of the answer here but that is my understanding; the same understanding as you.

And last housekeeping question, do you have an impact on EBIT foreign exchange translation?

I am looking towards the paper here to your first question and I think I have to correct myself here.

I think the US program is not covered to plant locations outside the US.

It's US produced parts for US assembly plants.

Okay.

That is the latest that I figure.

What was your question about the currency?

My only question was you disclosed foreign exchange impact on revenues so you just have a foreign exchange impact on operating profit?

Translation effect?

Or even if you have a combined translation and transaction effect even if it is a combined number?

I mean the translation effect basically is the same as on the top line.

We also have a transaction effect which is shown one of the slides.

That is what the percentage on the slide is.

So is that purely transaction affect?

(multiple speakers) Purely transaction.

We have no effect some emergence from this translation effect.

It's in both the top and bottom line, so the translation effect follows through on the same level along the P&L.

Understood.

Okay, great.

Thank you very much.

Brett Hoselton, KeyBanc.

Good morning or I guess good afternoon to you.

Looking at slide 14, I'm looking at the savings line about halfway down the page.

And I know your original plan.

You were thinking about annualized savings of about $120 million and I believe that was an annualized savings number.

And so as I look out into the first quarter, is my understanding correct that that represents an annualized savings run rate that you currently have in the first quarter of $50 million?

The savings is around $50 million here.

It is the quarter of -- the quarterly savings.

So that is basically -- (multiple speakers)

It's the quarterly savings that we have seen for first quarter 2009 so it's not an annualized savings.

It is (inaudible) savings we have in fact seen in quarter one.

So that would imply, just multiplying that by four, that the annualized savings of the program would be up to $200 million.

Is that kind of a rough idea?

At least that's what that implies.

That is what (inaudible) if you take this times four, it is $200 million.

It is probably going to be more as you have not seen the full effect out of the reductions and actions that were taken during the quarter.

So it is probably going to be approaching $300 million actually for the full year.

But what is important to point out is that this is cost down activities and they are not margin improving all of it when the sales is turning around again.

As you think about moving from let's say an annualized savings rate of $200 million to $300 million, do you expect to achieve the majority of that as you move into the second quarter?

Or is it more of a steady improvement rate as you move through the next three quarters?

It is a steady improvement.

As I alluded to in one of the previous questions here this $50 million is probably going to be in the ballpark of $80 million quarterly for the second quarter sales.

So it's a gradual improvement throughout the year.

And switching over to slide eight, just so I'm understanding this correctly.

The commodities, that is just at the bottom, the plus 4, negative 5, negative 25, negative 25, that is just a year-over-year quarterly change in commodities, is that right?

Right.

There you can see the whole savings and the whole benefit is coming in the second half.

And then as we think about interest costs, how should we think about interest costs, let's say in the second quarter and the third quarter?

The interest costs for the second quarter will increase by approximately $4 million due to the newly issued (inaudible) for the bonds thereby.

But it is approximately, too, out of those that we will have a cash flow effect.

The [housing] effect or the accounting effect will be around $4 million on top of what we had in Q1 or $20 million in total.

Thank you Marika.

As we think about third quarter, is there going to be another small increase in the third quarter?

Or is that -- I would not expect it to, but is there any particular reason it would be increasing sequentially from the second to the third quarter?

No.

And -- you think about the potential for let's say acquisition opportunities, you talked about takeover business quite a bit here.

But acquisition opportunities, is there anything out there that you look at today that you think we might be able to acquire something in the next 12 months, of some significance?

Well, we have of course a list of assets that we would like to buy and that we would like to sort of add to our company.

If it's technology, resources, technology and market presence as we have said in emerging markets if that would be available.

It all depends on if the assets are for sale or not and that is how [digital] it is unfortunately.

We have a strong balance sheet, so if and when it will become available, we are interested in having a close look at it.

That's as much as I can say.

We're going to participate actively into it, but also in this time [until] we can really see solid ground on a turnaround, we are taking a cautious look on this.

It's not so that we are running out and buying assets just because we have a very strong balance sheet.

It is not like that.

We're cautious on this and saving liquidity for the right occasion.

So you're not planning on buying Saab anytime soon?

Not really.

Thank you very much.

Patrik Sjoblom, Cheuvreux.

I would need also some help with calculations and that is regarding your net debt.

You closed the year-end Q4 at [1195] and you had about $45 million out from your operations.

You paid $15 million from -- also to your shareholders and you have $377 million in and then you closing the quarter at [1010] and that leaves me with a sort of a residual of 130 or a little bit more.

How does this work?

Where should I find an explanation for this?

The $377 million that you are referring to, that is not -- the part of that is debt as well.

So, you have to include the common offer and $25 million out of the convert and that would be $236 million with [the] equity.

And why should not they include everything?

Is that because (multiple speakers)

$140 million out of $165 million in the convert is treated as fixed from an accounting point of view and $25 million is equity.

Okay.

So that is going to generate the residual then, okay.

Okay, thank you very much.

Correct.

Thank you Patrick.

Thank you.

We have no further questions coming through.

I will hand it back over to your host to continue the conference.

Very good.

I thank all you for participating and for very interesting questions and I look forward to talking to you again on our next earnings call at July 21.

Thank you very much all of you.

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

You may now replace your handset.