Autoliv Inc (ALV) 2009 Q2 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to the Autoliv conference call.

My name is Louise; I will be your coordinator for today's conference.

For the duration of the 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, President and CEO, to begin today's call.

Thank you, Louise.

Welcome, everyone, to our presentation for the second quarter results.

Here in Stockholm we have our new CFO, Mats Wallin; and our VP of Corporate Communications, Mats.

Odman; and me, Jan Carlson, Chief Executive Officer.

Mats Wallin has been with the Company since 2002 and served as Corporate Controller.

Welcome, Mats, to your new role, here at Autoliv.

At the same time, I would like to extend a sincere thank you to Marika Fredriksson for her contributions to our Company and also wish her the best of success in her new challenges as CFO for Gambro.

As usual, we will start with a review the quarterly, results including an update on the action program followed by the outlook for our Company in the near-term.

After the presentation we will remain available for questions.

You can find the slide material through a link on the front page of the Autoliv corporate website on the financial report.

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

This presentation includes some non-US GAAP measures and the reconciliations to US GAAP are disclosed in the quarterly press release and the 10-Q filing.

Moving onto the next page.

During the quarter global light vehicle production was 4 percentage points better than expected and up 17% sequentially from quarter one.

In addition, the quick implementation of our actions to right-size our Company has resulted in further cost savings with better margin improving effect than expected.

As a result, we did not only meet but exceeded our guidance for the second quarter, generating an operating profit before restructuring charges.

In the second quarter the net headcount reduction was 200, however the gross reduction was closed to 1000 permanent employees.

The gross headcount reduction of indirect staff was almost 600 and close to 400 were in high-cost countries.

Despite the 35% growth in light vehicle production in our major markets, we managed to generate a positive free cash flow of close to $100 million.

This was mainly due to our actions and continued control over working capital.

In addition, our tight scrutiny over any capital expenditures continues.

This strong cash flow enabled us to pay down close to $100 million of net debt.

Moving to the next page, we have the financial summary for the quarter.

Our sales of almost $1.2 billion were more than 5 percentage points better than expected in our guidance.

This was mainly due to various European vehicle scrapping incentive programs and a steep recovery in China and a batch of platform mix in North America.

New business also continued to the favorable -- contributed to the favorable outcome.

For instance, the Ford F-Series, along with the [Lambda] and [Theta] platforms, and also the Toyota RAV-4.

Excluding restructuring, we managed to achieve an EBIT margin of 1.7% despite an organic sales decline of 28%.

And lastly, our free cash flow was significantly better than expected at the beginning of the quarter.

It was even $9 million better than for the same quarter last year when sales were $0.7 billion higher.

So overall we are pleased with our profitability and cash flow improvement, especially in today's market conditions.

If we move again to the next page we have the details behind our strong cash flow performance.

Our free cash flow of $95 million was supported by a $72 million reduction in working capital.

More than half of this was due to inventory reduction.

In addition we have continued to cut our capital expenditures.

This generated a positive spread over depreciation and amortization and we expect this to continue.

We now estimate our CapEx to be between $150 million to $200 million this year.

Also, we were able to minimize the direct impact of GM and Chrysler's Chapter 11 filings to be around $1 million combined or less.

On the other hand, the environment remains uncertain as another Tier 1 customer and one significant supplier recently filed for Chapter 11.

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

The quarter two annualized run rate of close to 55 million vehicles was up 8 million from the first quarter run rate.

In NAFTA and Western Europe where we generate more than 70% of our sales, light vehicle production declined by 35%.

In rest of the world we saw a net decline of close to 1%.

A decline in Korea of 22% was mostly offset by increases in China and India.

Onto the next page, we see that the US light vehicle inventories has been reduced to 63 days.

This represents approximately 2.2 million vehicles.

This would suggest that OEMs have now adjusted light vehicle inventories to be in line with the current (inaudible).

Moving onto the next page.

We have the Autoliv production figures.

For the second quarter the volumes in our seat belt business decreased by 25%.

This was essentially in-line with global light vehicle production thanks mainly to new business and to China.

For side systems we continued to outperform the Triad where there is a significantly higher penetration than in the rest of the world.

For steering wheels and frontal airbags combined, the declines were essentially in line with the Triad.

And for the electronic control units we outperformed the global light vehicle production, and this was mainly due to market share gains in North America and new business in China.

We believe our overall market share remains relatively unchanged after this quarter.

Onto the next page we have the gross margin trend.

Lower organic sales had a negative effect of more than 610 basis points.

However we were able to compensate 160 BPS primarily in labor and other cost savings.

In addition, favorable currency and commodity effects reduce our costs by 60 BPS combined.

In this way the decline in gross margin was limited to 390 basis points despite an organic sales decline of 28%.

And I might mention that the impact used to supply disruptions was limited to $1 million during the quarter.

Moving on to the next page, we have the operating margin and the dashed line on the slide you can see here for 2008 and 2009 excludes restructuring charges.

The decline in sales effect on our operating cost was 440 basis points.

This is in addition to the 390 basis points from the previous slide.

Actions to reduce SG&A and [RD&E] generated approximately 190 BPS of margin improvement.

Our total margin improvement effect was 3.5% including savings from the gross margin.

We thereby achieved at operating profit of 1.7% excluding restructuring charges.

Moving onto the next page, we have summarized the results achieved so far by the action program and other actions.

In second quarter we accrued $32 million related to further restructuring activities and we now have $59 million accrued on the balance sheet.

During the quarter the cash outlay was close to $21 million.

As we continue to evaluate our global capacity footprint, we have found more improvement opportunities and this may result in more than $75 million in restructuring costs than we have anticipated so far for 2009.

We will come back to you after the third-quarter report with more information about this when we have completed the evaluation.

Turning the page, we have our associate developments.

During the second quarter we have reduced our net headcount by more than 200 to 33,400.

This includes an increase of temporary manufacturing labor in local countries for volume increases in China and India.

Therefore, these changes in headcount mix have of course reduced our breakeven going further.

Since June 2008 when we introduced the action program, the headcount reduction net has been 10,000 or almost 25%.

One portion of these 10,000 were indirect staff, approximately 68% were permanent employees and more than 50% were in high-cost countries.

Currently close to 11% of our workforce are temporary employees while 55% of our workforce are in low-cost countries.

We will continue to adapt and right-size our manufacturing footprint to the different trends in light vehicle production in each country and in each region.

Moving onto the next page, we have the commodity impact on our business.

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

For the second quarter we had a net positive effect of $3 million.

Considering the lower volumes we still anticipate a benefit of $50 million for commodity prices for full-year 2009.

Moving onto the next page, we have updated our liquidity position.

Our combined cash revolver capacity of $1.2 billion remains unchanged from quarter one, despite paying down almost $100 million in net debt during the quarter.

As illustrated, we have used $600 million of our cash to pay down the revolving credit facility.

Our upcoming debt maturities until 2012 are close to $300 million, and we could therefore repay the full amount from our cash on hand.

In addition, as you know, we do not have any financial covenants on our debt.

During the quarter we issued a $77 million medium-term note and the EIB European Investment Bank board approved our EUR225 million loan application.

However, the final documentation remains still to be completed.

Therefore we continue to have a significant liquidity cushion, even if market conditions were to worsen or for potential industrial consolidation opportunities.

Onto the next page, we show in the table to the right how the global light vehicle production has been cut each successive forecast division, except for the recent update.

As we have highlighted during our quarter one earnings call, production cuts have been persistent for the last 15 consecutive months and there is a general industry belief that we have seen the low point in the global light vehicle production during quarter one.

However, recovery is not yet well entrenched in all regions and this could further -- cause further market uncertainty and turbulence in the future coming quarters.

For example, it is unclear what the pull-ahead affect will be from various vehicle scrapping programs throughout the world.

Turning to the next slide, looking specifically at the third quarter, we have the latest global light vehicle production figures.

The forecast of 13.6 million vehicles is 14% below 2008 levels.

However when looking at the sequential trend from quarter two, light vehicle production is essentially flat despite the fact that third quarter is a seasonally weak quarter.

In NAFTA and western Europe combined, the anticipated decline is 16%.

China and India are the only exceptions to the downturn.

They are expected to show production increases of 18% and 5%, respectively.

Turning to the next slide we have the latest full-year global light vehicle production.

As illustrated, 2009 is expected to decline 19% from 2008.

For our two largest markets combined and the Triad, the decline is almost 27% versus prior-year.

On then to the next page.

We have our financial outlook for quarter three and the full year 2009.

In quarter three, organic sales are expected to decline between 15% and 20% while consolidated sales are expected to decline between 20% and 25%, given the current exchange rates.

Excluding restructuring charges we expect quarter three EBIT margin to be positive 1% to 3% excluding the restructuring charges.

For the full year 2009 we anticipate our organic sales to decline 3% to 5% less than the light vehicle production in Western Europe and NAFTA.

This implies an organic sales decline of 22% to 24% assuming the forecast is 27% light vehicle production decline.

Based on these assumptions and the customer call-offs, we should generate a small profit resulting in an operating margin of at least 1% for full-year 2009 excluding restructuring charges.

So to summarize, thanks to our actions and the improving light vehicle production we are already back to profitability excluding restructuring costs and we are generating a positive free cash flow even in these difficult economic times.

Moving to the next page, this concludes the formal presentation of today's call.

But before we start the Q&A, I would like to turn to the entire Autoliv team to acknowledge and sincerely thank you for your support and your commitment to quality, delivery and safety during these tough times.

Thank you all for an excellent job.

We would now like to open up for questions and I leave the word back to you, Louise.

Thank you.

(Operator Instructions) Tim Rothery, Goldman Sachs.

Good afternoon, it's Tim Rothery here from Goldman Sachs.

Two quick questions.

When we look at your full-year guidance and given what you've now given as third-quarter guidance and obviously what you have reported in the first half, it looks fourth-quarter margin should be in the region of 5%, possibly even closer to 6% in the quarter.

Is there anything in particular in terms of timing of benefits coming through in the quarter which is likely to make that particularly strong?

And, how much should we use that as an expectation or as base for run rate going into 2010?

And then my second question is, just in terms of CapEx first half around $70 million, what is your expectation for the full year now and also thoughts in terms of how this might ramp up in 2010?

If we look into -- we'll start with your first question there and talk about the fourth quarter.

I think your calculation of 5% to 6% eventually, it's a good sanity check of our own calculations, to start with.

So I think that's probably not so far out if you reverse-calculate what we have presented here.

Thinking about fourth quarter, you know fourth quarter is normally and always seems so far a seasonally strong quarter.

You have many projects that are finishing up, you have engineering income, etc.

So seasonally you have a fourth-quarter effect that we also expect to happen this year.

If we assume that we are now having the continued raw material benefit that will continue also in the fourth quarter the stable prices on raw material, we would benefit from that in the fourth quarter.

We have light vehicle productions up on a run rate of 58 million vehicles compared to the 53 million vehicles that we are seeing in -- or 55 million vehicles that we are seeing in quarter three and in quarter four.

So you have a step up in sales which we should be able to take benefit from.

And we have of course the action program that will continue to generate effect when we go along sequentially.

We have talked about an annual benefit on the action program of around $300 million for the full year and we have seen the benefit of the action program so far of $75 million for second quarter.

So that is of course the components that should build up to the fourth quarter part of 2009.

So to take it just maybe slightly stupid here, but if you were to see a $58 million run rate next year barring the seasonal impact from engineering income, then there is nothing strange in terms of the fourth-quarter margin?

Let us do so that we come back to that when we come further here after fourth quarter or later on here during the year.

We normally not give indications this early in the year for the following year.

But we of course expect the effects of the action program to stay where they are, of course.

And so, then coming back to your second part of the question, the CapEx level.

We have said in our previous earnings call close to $200 million for the year 2009.

We have revised that figure slightly down to $150 million to $200 million for 2009.

Looking ahead, we have said that historically CapEx has been around 5% of sales.

We have revised that figure to be slightly north of 4% of sales looking forward.

So, that's more to that level you should look upon.

Okay, very clear, thanks very much.

Rod Lache, Deutsche Bank.

Good morning, or good afternoon.

I think -- you just mentioned $300 million of cost savings.

I think you recall $250 million.

I'm wondering whether, first of all, is this an upward revision?

And secondly, when you look at the $73 million of savings in the gross profit line, $18 million in SG&A and $16 million in R&D, it looks like the run rate is in excess of that $300 million.

So can you just reconcile that for us?

I think you're right, Rod.

We have said $250 million to $300 million, and based on the achievements we have seen so far and based on what we can see looking ahead we have come to the figure to stay with $300 million, around $300 million.

I think that is about as good an indication as we are seeing.

We don't see as of today and cannot commit to a higher run rate of the savings effect than $300 million.

If you then look onto the margin affect of this, all of that is not margin improving, as you know.

This is capacity (inaudible) (multiple speakers).

Right, and is the $300 million cumulative since June of '08 beginning, or is that a number that refers to '09 versus '08 cost savings?

That figure is referring '09 to '08.

Okay.

And the 3% to 5% excess growth over the production changes; do you anticipate being able to sustain that into 2010, and would you expect if there is some impact -- some payback from the scrappage scheme in Europe, would that be something that actually affects you less, just given that it seems to be smaller vehicles?

We believe that we are suffering a little bit from the sort of increased program as we are underrepresented relatively on the A and B segments in Europe.

We are -- through our leading technology we have traditionally been introduced on the high-end vehicles based on the technology position that we have had, and therefore in [this place of] sourcing between different supply base, we have negatively impacted on the lower segment.

We believe that we will take this back during the next year.

That's the indication that we can see for the time being in our outlook.

And just lastly, there is a comment in the text of your release saying that you expect a tax benefit of 30% going forward.

It looks like you're turning profitable.

So could you just tell us if that is correct?

And is the EIB loan a term loan, or is that a revolver?

I will say the tax benefit of 30% is principally what we said was in the last quarter, and that is really, you know, the best estimate we can do in this world.

But as you know, I mean we will see loss of some profits in different areas of the (inaudible) world and our best estimate is really a benefit for 30%, assuming a net loss before tax, so to speak.

Okay, and the EIB loan?

What was the question on the EIB loan?

Is that a term loan, or is that a revolver that you're seeking?

It's a term loan; it's not the revolver.

It's a term loan with an average 7.5-year maturity.

Thank you.

Thomas Besson, Banc of America/Merrill Lynch.

Hi, good afternoon, it's Thomas Besson with Merrill Lynch.

Congratulations for this massive improvement in profitability.

Just a quick question, and sorry to ask if it's a bit maybe aggressive; it isn't aggressive at all.

Are you not low-balling with your Q3 guidance, Jan?

Because looking at any other forecast for production in Europe than the source you've used, we have much higher numbers than what you have shown us here.

I was attending in Paris this morning a presentation by (inaudible) which has quite a lot of exposure to Europe, and they seem to expect European production to be flat in Q3.

Don't you think you can do much better than you say in Q3?

Well, I think this is our guidance.

You know to have the obvious answer; this is our best estimate.

Let me elaborate a little bit on this one.

You have the CSM forecast, you have the JD Power forecast.

For this quarter we see a bit of a difference between JD Powers and CSM.

We are seeing JD Powers being much higher, or relatively higher than CSM for Europe in particular.

And on top of that, as you know we are factoring in the customer call-offs when we guide for the top line.

So the guidance that we have is looking in our own customer call-offs in our own ERP system, comparing that with the CSM and with JD Power, and that has given us this conclusion.

So that is why we are coming to the guidance that we have.

If you look on this bottom line and you look into this situation for the operating margin, we believe it's a fairly strong quarter to come out same as quarter two.

You know, seasonally third quarter is a weak quarter.

And to be able to come out at the same if you take the midpoint of the guidance in the ballpark of the same level, we believe it's pretty strong, actually.

We have less of engineering income normally in the third quarter as we have less of [project] (inaudible).

Let me say differently, Jan.

You're saying that global production is going to be sequentially flat in Q3?

Well, normally it's a weak quarter, but this time you expect it to be sequentially flat.

And raw materials are going to be a $25 million benefit while it was only a $3 million benefit.

You have done $1.7 million in Q2, so $1.5 million to $3 million should be easy, no?

Yes, I think you're absolutely right on that one.

But as I said, the customer call-offs is also including a vehicle mix for us for second quarter where contract is facing in and facing out.

And if you take the raw material prices, you're absolutely right, $25 million, but that is year-over-year.

If you look sequentially quarter to quarter, it's rather flat, actually.

The raw material prices has not really decreased from quarter two to quarter three.

So if you take that on the same impact, we basically think that's sort of the right guidance.

Okay.

If I try to [project] myself into something like Tim was trying to earlier, given the kind of operating leverage we're already seeing in your gross margin sequentially, should we expect you to possibly be close to your historic margins already in 2010, or is that way too ambitious?

As I said before in my previous answer, let me come back to that where we are -- when we are coming closer to 2010.

We don't give an indication of it.

I think this recession we are in for the time being is far from over yet.

So let us take one step at a time.

We think we have done a pretty good quarter behind us and we will continue now to make all the efforts to continue to improve in quarter three and quarter four.

Okay, thank you very much, and well done again.

Thank you Tom, thank you.

David Leiker, Robert W.

Baird.

Good afternoon.

A bunch of numbers moving around.

I think I missed something here, but $300 million of cost savings.

How much of that is running in your P&L as reported here in Q2?

We have $75 million there in the quarter two, so we are seeing a saving from the action program of $75 million in quarter two.

On a cumulative basis, how much of that $300 million is already realized?

$125 million.

$125 million, okay.

And the timing for realizing the balance of that by the end of the year, or does that roll into 2010 as well?

By the end of the year.

And how many incremental reduction in headcount is there coming?

I can't go into that total more specifically as we all have not finalized.

We are in negotiations with unions, etc.

We have not finalized all of the detailed plans.

But as you can see, we have reduced during the quarter 1000 permanent employees.

We had in the previous quarters reduced sort of like in the ballpark of 4000 employees.

We should look more on the level of the second quarter in reductions.

To this, Dave, you have to add the temporaries that we can foresee, and also sort of employees may happen when that market is improving in the growing market.

And so let me come back to the headcount when it comes.

But we will continue the efforts in headcount reduction gross, but it may be offset with capacity increases in the growing region.

Okay.

And just a question here in China.

Do you have any further clarity on a time line for content in China approaching something that is closer to Europe and North America?

Not any update, more than what we have said before.

We believe the content in China is around $190, slightly south of $200.

We are seeing an improving focus or increasing focus on safety for all of the car manufacturers inside China, but I have no figure, Dave, that I can give you today on sort of this is the timing for 250 or so, unfortunately.

Are you seeing (multiple speakers) China today that are being introduced that have $400 of content in them, or has that not happened yet?

Oh, yes.

We are seeing cars in China that have -- we have a car here that we're launching that -- a (inaudible) vehicle that have over $350 of content in the car.

So there are definitely cars inside China today where it has a high level of content.

Okay, great, thank you very much.

Adam Brooks, Sidoti & Co.

Just a quick thing on the cost.

You guys have clearly stripped out a whole bunch of costs.

How much of this is really going to be temporary versus kind of a long-term thing going forward?

I'm just trying to figure out as far as leverage a few years out once the growth really returns?

If you think about the $300 million of the run rate of savings as we are talking about here, you should think in the level of 50% being margin improving.

Okay.

That's it.

Thank you.

Peter Testa, One Investment.

Thank you.

Just following on from that question, the margin improving part, is that above the gross margin line or below the gross margin line?

And then as volume starts to pick up again, do you think you will start to bring back on temporary employees Q4 or -- as you have a higher volume production?

Then the $300 million cost savings, does that include your comment of examining extra plans that you will talk to us about after Q3, or is that also new to come?

The last question was on cash flow.

Can you give us some sort of view as to what you think you can do with working capital to sales, say maybe benchmarking versus the year-end '08 by the year end '09?

Those are (inaudible) questions.

I -- let me see.

Should we take it one at a time?

Please.

Yes, we would look forward to sort of an increase of the workforce in quarter three and in quarter four when, if you are looking on the temporary workforce when the market is sort of picking up.

We will require to take on board extra resources to be able to cope with the increased production levels.

So that's clear actually.

But that doesn't take away that we are continuing the restructuring activities, and that is too early to go into the details of what it will happen and we can't (inaudible) as we are in discussions with different parties here.

But that will continue in quarter three and quarter four.

Your next question was?

I had a follow-up question of the previous one when you talked about costs being retained.

You said about half would be retained or were, say, margin improvement.

To what extent were those costs that were taken above the line?

Because you mentioned fixed production overhead decline of 70 million-some-odd in the quarter, or versus below the line where you have seen efficiencies in SG&A and so on.

If you could give us a sense as to where you think the permanent reductions in costs have been taken.

I can't specify on -- it's a mixture, of course, gross margin, but also overhead reduction.

And, as you have seen during second quarter a lot of the margin improvement has been on the overhead side where we have reduced indirect people in the second quarter.

So it's a mixture between gross margin and overhead, SG&A and [RD&A].

Okay.

And then the extra resources you take on for Q3/Q4, were you saying those were put on only temporary employees?

Yes, predominately, but it's also going to be a mixture of -- it's going to be permanent employees also.

And the reason for permanent or temporary is very strong country to country where the restriction of taking people on board might not differ between temporary and permanent employees.

It might be equal to the Company or for the employee itself, whether it's sort of defined as temporary or permanent.

That's why it can be both.

Okay.

And then the third question was, the $300 million figure that you put out for cost for the full year.

You also referred in your remarks to some extra plans that you're engaging with that you're under discussions.

Is the benefit of those included in that $300 million, or is that a plan which you should look forward to more benefit in 2010 with some incremental savings?

It is what we have in our mind, including the benefit.

And then the last question just on cash flow, if you could give us some sort of feel as to what you thought you could achieve on working capital to sales for 2009 using 2008 as a benchmark?

Well, we have -- you know the working capital level is 10% of sales, and we should be below 10% of sales as far as I can commit for the time being in this situational rebound.

So we are going, sticking to our target of 10% of sales.

Very good, thank you for the answer.

Stefan Cederberg, SEB Enskilda.

Thank you, it's Stefan Cederberg, SEB Enskilda.

What is your thinking about using your financial strength in terms of buying financially [weak] competitors?

I think technology.

And what is your region of focus, and should we also expect dividend being paid [out]?

We thought with the last question, because it's an easy one, that is a Board decision as you know.

So I refer to the Board for the last one.

But for the Board meetings ahead here, I have not proposed it on the agenda.

But if we then look on the acquisition side, we are of course looking towards acquisition and potential acquisitions, and that was one of the reasons why we went out with the market offered, to be able to participate in the restructuring of the industry.

The thing is that there is not that many acquisitions that we would like to do that is out there for sale, and it's a bit of a [digital] situation.

Either the assets that we would like to have is for sale, and then we are very interested in buying them and looking to them, or they are not.

So we will continue to monitor this.

But in this situation with the continued distress, in particular on the supply side, I believe there is going to come more opportunities here maybe within the six K 12 months.

Okay, thank you.

Peter Testa, One Investment.

Just one question.

As your customers are now maybe thinking a bit more forward in their views, can you give some sort of sense as to degree to which you start to see product development discussions and new launches and product penetration discussions re-igniting with some more vigor now?

Yes, I think there is an interest very much so from many of our OEMs when it comes to small car safety.

I think a lot of our customers are looking towards safety performance on the smaller vehicles.

There is a clear trend towards the green environment and to lower emissions and lower fuel economy and better fuel economy, and what the implications this will have on the safety performance is an increasing topic.

As you know, we have since the year launched a special activity towards small car safety.

So that is an interesting discussion that we are having and that we'll continue.

And do you think these discussions are more active than they maybe were when they were worried about financing a quarter or so ago?

Yes, I think they are.

They have sort of focused on how can we sort of maintain and how can we continue to perform on the safety rating in a smaller vehicle from many perspectives, yes.

Very good, thank you.

Thomas Besson, BAS-ML.

A follow-up on the optimistic tone we have now.

Is it still a good time for you to get positive commercial terms to continue to transfer our R&D efforts to customers, or are they already looking at recouping some of the gains you're generating from the restructuring assets you have been able to implement, and that they will not be able to implement themselves?

You mean on the engineering side, or --?

No, overall.

I mean, they're going to see your profitability swing much quicker from deep losses into profits than what they can achieve themselves.

So my question is, are they still deeply concerned by their own supply, and therefore allowing you slightly better commercial terms?

Or, is it already the tying back to negotiate to be able to keep your savings?

It's always tough negotiations with our customers.

I think they have really never relaxed on that part of the story.

So the pricing pressure has been in the range of 2% to 4%, and I think we are not going to come by here with an easier situation.

We have said here on the last quarter on the last call that it wasn't a lower part of the interval.

For the time being, it is still like that.

But when the world is turning around and supply base is getting healthier and things are going back to more normal, I think we will see the same pricing pressures we have seen before.

I don't think there is any real change on that one.

We have not gained any significant contributions from our customers on the raw material prices.

You remember when they went up and you know on the way down there is still claims for our customers to get paid back.

We are fighting back as much as we can due to the situation of lower volume.

So it's a constant fight; it is still the same, really.

Okay, thank you very much.

Himanshu Patel, JP Morgan.

On the operating leverage part of the business, I think in the second quarter the contribution margin worked out to be about 35% on new revenue at the EBITDA line.

Can you just talk through how you think about contribution margin on a more normalized basis?

Should we think about that into 2010, or does that moderate into sort of a mid-20s rate down the road?

I think if you look on contribution volume, we have said we don't disclose that, as you know.

But we have said between 25% and 35%.

It's the range you should look towards.

And, you know, longer-term it hasn't changed.

You should look towards that part of that range also looking ahead.

So, when does that happen?

Is it fair to say that the first few quarters of volume recovery, you would still be at the high end of that, but maybe as we move into 2010 we sort of start moving towards the middle of that range?

Well, I think, not being too specific about it because we don't want to be too specific about it, I think your assumption is very right.

When you are earning the highest benefit of the leverage as we are doing, [just] turning it around and seeing the uptick of it, you probably look to the higher range.

And then moving further into next year, etc., probably moderate it downwards.

You're on the right track there, of course.

But that's as much as we can say.

Can you talk about the market share?

You mentioned earlier that you thought your overall market share was stable in Q2, but what are you seeing on market share for new quoting activity, just given the level of distress in the supply base?

Do you sense that you're gaining any share on the new contract awards?

Hard to say, actually.

We don't have full visibility on what it is despite our situation and the leading position we have in our market.

My personal feeling is that, we have been present in most of the quotations that has been out there, of course, and we have earned a favorable position to the competition base.

But I have no clear view on that one.

We have gotten also requests from our customer base to quote our competition's products, and in some cases here during second quarter we also got some programs into us on the airbag side.

So, it has been -- the feeling has been sort of favorable to us, but that's as much as I can comment.

Okay.

And then lastly, you gave full-year CapEx outlook.

Can you just give some color on second half working capital outlook?

On the second half working capital outlook, I think we have to reiterate a little bit that our target is to have a working capital below 10% of sales.

And of course, we're working with all metrics but that is what we can say for the moment.

You know, we have been able to reduce inventory significantly during second quarter and to be able to continue this level of reductions is very hard for not saying it's very difficult in the rebounding times.

So you may see it bounce back a bit.

Okay, very good.

Thank you.

Tim Rothery, Goldman Sachs.

Just a follow-up in terms of your thoughts on further restructuring.

Given that you have now brought down headcount close to 20% to 25% from the peak, which is broadly in line with how much vehicle sales have fallen from the peak, what is the logic for doing more?

Is this about bringing manned capacity further, or is it now more a case of trying to address particular areas or particular geographies where you maybe see a different geographical pattern in terms of sales going forward?

As we've said, there are no differences between the regions.

Some regions are increasing rapidly and some regions are not increasing that rapidly.

And, as you recall when we launched this program back in last year July -- actually a year from today, we came out with this program.

And we then said it was a mix between reduction and margin improvement.

And I think we have seen that during this year, the last 12 months that has went by, a lot of the actions, the other actions not related to the original program, has been capacity take-down due to the falling volumes.

It remains hard to still be down on the restructuring side to get the right structure in the Company and we are seeing further opportunities and we are seeking now the possibility to make that also a reality.

So, do you envisage -- obviously you can't say much -- but, do you envisage headcount in absolute terms coming down significantly from the levels that we see today, or is it more?

As I said, it depends on what you mean significantly, but you have seen 4200 people net here in the second quarter in reduction.

But as I also alluded to, you may see a significant increase coming here during second half on markets that are accelerating and markets that are rebounding.

But, underlying there, you may continue to see headcount reduction.

Even if the net figure might be even be an increase so that headcount net may go up, you will continue to see headcount reduction as an affect of the action program underlying there.

Thank you very much.

(Operator Instructions) Brett Hoselton, KeyBanc Capital Markets.

Thank you very much.

Good afternoon.

I just wanted to make sure that I understand the restructuring.

It sounds like you ordered 75 -- you did $75 million in the second quarter, which implies an annualized run rate of $300 million.

It sounds like what you are suggesting is that you're going to save a total of $300 million from 2008 to 2009, which implies that you're going to see an incremental increase in restructuring savings from the second to the third quarter of maybe $12 million to $13 million.

Because, obviously, you did $250 million or an annualized rate of the first half of the year is only $250 million.

So it sounds like you're going to save more money as you move from the second quarter to the third quarter to the tune of maybe $12 million to $13 million.

Is my math right?

I think it's about correct, yes.

We are going to see an increased effect in the second half, compared to the first half, yes.

And then, your impression of whether or not there is the opportunity to save more money this year beyond the $300 million?

I would not commit to more than $300 million.

As you have heard us saying, we have said between $250 million and $300 million, and we are now saying around $300 million, and I cannot commit to more.

Okay, fair enough.

And then, as far as the potential to win some takeover business, so existing business from some competitors, let's say Delphi or someone along those lines, do you see that as having a meaningful impact on sales; meaningful meaning 1% or 2% of sales, or something along those lines?

And if so, what kind of time frame might that actually start to take place?

Well, you know, it can be smaller individual programs that are resourced or taken over or by the customer moved from one supplier to the other.

It could be sort of takeover or buyer business or piece of businesses, etc., piece of business segments, etc.

It can be sort of a lot of things here.

I have no clear figure to give you more than, as I said, we took over here an airbag program during the second quarter from one of our competitors as an example of that this is happening right now.

From a timing perspective, again, it's very difficult to say.

It is very difficult to come up with a timing for it.

I can say, it can happen -- it depends on when the parties are ready to sell or the customers are ready to resource.

The program that you mentioned, can you provide kind of a rough annualized revenue run rate for that?

Is it a $10 million program, is it a larger program, smaller program?

While this is an airbag program, it's sort of in the ballpark of I would guess around some tens of millions of dollars.

It's a relatively smaller program.

It's not any material differences, actually, that would make any meaningful difference on this one.

It's an example of what we are talking about is rather happening actually.

And then, as you look at the terms of some of these programs, how are these terms possibly different than maybe the terms that you have had before on these -- on programs?

In other words, pricing or commodities escalators or anything along those lines; are the terms the same, or are they incrementally better than existing business?

This varies from piece to piece and this varies from negotiation to negotiation with the customers and what will happen.

There is no real, as far as we can see on the discussions we have had on the inquiries we have had, any meaningful difference to it.

There is not anything sort of sticking out or standing out in either a positive or negative way.

And then, as you look at your future vehicles, the future contracts and so forth, changes in terms at all.

Are they -- I guess my point is that, you obviously have some distressed suppliers here.

The supply base Delphi, TRW, etc., distressed supply base.

As you're looking at these businesses, as you are looking at these contracts and so forth, the distress in the supply base, is it allowing you to benefit in the form of either maybe better pricing or better terms, lower cost reductions, those types of things?

I cannot say that it's really causing us a better market situation, the distress.

We should remember that all of the suppliers here in this safety -- passive safety segment, are not under distress, as you know.

And I think the core level of competition is still [fierce full] among the supply base with suppliers here.

You have some of us that are doing better than some of us are doing sort of worse.

And that is causing this situation to happen from time to time on various programs here and there.

We have not lost any programs for obvious reasons [than this for], but we have been able to pick up some of them.

But to say that the whole industry is in such a distress that we would benefit from it, it's not the situation.

Fair enough, thank you very much, Jan.

Richard Howe, Polaris Capital.

Thank you.

I would like to ask about -- you said earlier your CapEx has historically been 5% of sales and it's now targeted at 4% of sales.

That reduced target, how long will that be in effect?

And secondly, what portion of your capital expenditure is for maintenance as opposed to growth?

And what I mean is, what is the amount of CapEx, the minimum amount of CapEx, that you must spend to maintain the normal operating level of the Company?

Well, if you look on the 4% or slightly north of 4%, of course all of the outlook that we can see, we should stick to this level.

This may change.

If you remember, we have had a significant investing period in China.

We have invested ourselves quite a lot in China which has caused the investment level to go up and we have expanded in general in the emerging markets.

So we should be able, we believe, today to stay slightly north of 4% on a longer-term basis.

Right, but that would also include the expenditures for growth initiatives, such as in China and elsewhere, is that correct?

On sort of on a normal basis, yes; that's true.

I think historically you know we have been investing for the future in China to a large extent, and we have increased capacity and increased the resources significantly in China.

Now, I know when things are normal, your plans along those lines will continue.

But just for my understanding of the Company, were you to decide that you would not invest for growth, what amount do you feel would be necessary just to maintain your current level of operation?

We haven't done that calculation, to be quite honest with you.

We are not looking on our Company to sort of not invest for the future and invest for growth.

Okay, thank you very much.

(Operator Instructions).

We have no further questions, so I hand back to your host for closing statements.

Very good.

Thank you, everyone, for your attention and interesting questions.

I look forward to talk to you again on the next earnings call on October 20, 2009.

In the meantime, I wish you all a relaxing summer and drive safe and remember to buckle up.

Ladies and gentlemen, thank you for joining.

You may now replace your handsets.