Autoliv Inc (ALV) 2010 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Autoliv financial report for fourth quarter 2010 conference call.

The presentation will be followed by a Q&A session, and instructions will be given at that time.

(Operator instructions) Just to remind you, this conference call is being recorded.

I would now like to turn over to the chairperson, Jan Carlson.

Please begin your meeting sir, and I'll be standing by.

Thank you very much, Auda.

Welcome, everyone, to our fourth quarter earnings presentation.

Here in Stockholm, we have our CFO, Mats Wallin, and our VP of Corporation Communications, Mats Odman, and myself, Jan Carlson, President and Chief Executive Officer.

We will open with a review of our fourth quarter and full year 2010 results, including an overview of general business condition, then we will discuss the near term guidance and full year 2011 indication.

At the conclusion of this presentation, we will remain available to respond to your questions.

And as usual, the slide deck is available through a link on the front page of our corporate website.

Turning the page, we have the Safe Harbor statement, which, as you know, is an integrated part of this presentation.

As usual, we will reference some non-US GAAP measures, and the reconciliation to US GAAP are disclosed in the quarterly press release and in the 10-K filing.

Moving on to the next slide, we are pleased with our fourth quarter financial performance.

While our organic growth was in line with our expectations, we managed to exceed our EBIT margin guidance, reaching a record 12.7%, as we did in quarter 2 2010 also.

In addition, we achieved record results in virtually every key financial measure except sales, which was less than $1 million of a new all-time high.

Once again, I would like to recognize our associates for delivering these excellent financial results.

Over to the next page.

For our Company to stay ahead of the curve, we are migrating our organization to sustainability from transformation.

As always, quality is an essential cornerstone of our Company, and I will touch upon this later in the presentation.

Leveraging our innovation and technology even further, we plan to evolve as the leader in active safety, as we are in passive safety today.

Our strong global presence, especially in the emerging markets, should enable us to grow faster than our market, and increase our share.

And lastly, we will continue to generate superior margins, returns and cash flow by maintaining a strong balance sheet, flexibility, and of course, cost control.

All of this, in addition to capitalizing on growth opportunities, will make Autoliv even stronger in the future.

Next page.

Our exceptional cash flow performance continues.

Cash flow was $326 million for the quarter.

This was mainly due to strong sales, effective capital management, and successful restructuring efforts over the past few years.

Capital expenditures fell within the midpoint of the range, $200 million to $250 million, or approximately 3.1% of sales for full-year 2010.

Therefore, we generated $0.7 billion of free cash flow, a new record for our company.

If you now turn the page, we will see how we have used our cash flow.

During 2010, close to half of our free cash flow was used to fund growth opportunities, cost reduction activities, and returns to shareholders.

Most of the remaining free cash flow was used to reduce our net debt throughout the year.

As in the past, we remained shareholder-friendly, while looking to capitalize on various growth opportunities.

You can see these shareholder friendly [notes] on the next page, where we have our dividend trend.

Our most recent dividend increase was 14%, and in the previous quarter, 17%.

The dividend is now $0.40 per share.

This represents an annualized payment to shareholders of almost $145 million.

This is 15% more than the previous best payment in the third quarter 2007.

If you turn the page again, you see the fourth quarter light vehicle production.

The globalized vehicle production improved by 9% year-over-year.

This was 9 percentage points better than what was expected at the start of the quarter.

We outpaced the globalized vehicle production and grew organically by 12%.

This was in line with our guidance, which was primarily based on customer [call-off].

We have outperformed the Triad over the last two years, and for five consecutive quarters, we have outperformed the globalized vehicle production.

As you will see shortly, we will expect that this trend to continue in 2011.

Lastly, our strong presence and growth in China continues to outperform the light vehicle production.

Turning to the next slide, we have our production figures for the fourth quarter, which includes recent acquisitions.

In all product areas, the trend continues as we significantly outperform the light vehicle production both globally and in the Triad.

Therefore, we continue to increase market shares due to our strong growth in the rest of the world, and in NAFTA, along with acquisitions.

Excluding acquisitions, we are increasing shares in virtually all product areas.

On to the next slide, we have our full year 2010 financial performance.

As illustrated on this slide, we posted record sales, profit, earnings per share, and cash flow, as well as margin and return.

Turning the page, we see how our sales by region have transformed since before the crisis in 2007.

We now have close to one third of our sales in each of the three major regions, Europe, Asia, and the Americas.

Therefore, our dependence on the European market has declined significantly, and will continue to do so.

Another important development is the fact that China, in 2010, represents 11% of sales.

It is almost three times the level of 2007.

During the last quarter, China was actually 13% of sales.

On to the next page, we have another example of our Company transformation.

We increased our EBIT margin by more than 450 basis points.

This improvement has been achieved mainly due to our action program, where we have adopted our capacity to the new global production footprint.

Our direct material costs have increased, due to higher commodity prices.

However, this has been more than offset by a decline in other expense.

This concludes our remarks around 2010.

If we now turn the page, we will now focus on the outlook for 2011.

As I mentioned earlier, quality is an important cornerstone for our long-term sustainable performance.

In our pro-active way, early last year, we initiated within our Company a quality program called Q5.

This means quality in five dimensions -- behavior, customers, suppliers, product, and growth.

Q5 is aimed to shape an Autoliv culture of zero defects, and the best value for all our customers.

We think the timing was right to introduce this initiative, due to the heightened industry focus on quality seen by publicized recalls.

And regrettably, also, we have been involved in recalls, as you can see from our earnings release.

Turning the page, we have the estimated commodity impact on our business for 2011.

Our best estimate is, commodity costs will increase by close to $60 million during 2011.

The headwind is 3 times more than our earlier indication of $20 million in raw material cost increases that we spoke of in our last earnings call.

On to the next page.

As in the past, we will continue to stay in the forefront of technology.

During 2011, we will hire close to 250 engineers, with an expected incremental cost of $50 million.

These actions are mainly to increase our competence in Asia, and further accelerate our efforts in active safety, and to meet customer demand.

In aggregate, we will have spent roughly $100 million in growth technologies by the end of this year, since we initiated the small car safety program in 2008.

Moving on to the next slide, we have our major launches for 2011 in the (inaudible).

As in the past, we have a strong balance of luxury brands, high volume platforms, and high profile models.

In addition, in the China market, we are launching several important platforms with both local and non-Chinese OEM.

Some of those include models with the Chery with Great Wall, as well as the Volkswagen Passat and Chevrolet Aveo.

If we now turn the page, we have the quarterly production trend in 2007.

Looking at 2011, we anticipate the light vehicle production growth of approximately 5% from 2010, according to the latest forecast from IHS.

However, the majority of the light vehicle production growth, roughly 8%, seen in rest of the world, where the average content of vehicle is less than half of quantities in the Triad.

The Triad, which represents more than 75% of our sales, is expected to increase by slightly more than 2%.

Therefore, the majority of the light vehicle production growth, and almost half of the market growth in dollar terms, will be driven by the rest of the world.

Unfortunately, this will cause a somewhat negative mix for the automotive safety market.

On to the next page.

We have the first quarter light vehicle production figures according to IHS.

The global light vehicle production is expected to increase roughly 6% year-over-year.

However, sequentially from quarter 4, the light vehicle production is more or less flat.

Most of the Triad and rest of the world are expected to grow similarly for the quarter, around 6%.

Most of the increase in the Triad is expected in the NAFTA region, while the growth in China is expected to slow to 4%.

However, this favorable mix in quarter 1 is expected to reverse during the remainder of the year, as illustrated.

Turning to the next slide, is our financial outlook for quarter 1 and indication for the full year 2011.

Our organic sales are expected to increase by more than 10% in quarter 1, primarily based on call-offs from our customers.

Acquisitions and currencies should add approximately 6% and 2% respectively; therefore, consolidated sales are expected to increase by roughly 20% in the first quarter.

We expect the EBIT margin to be at least 11.5%.

For the full year 2011, consolidated sales are expected to increase by more than 10%.

Our organic growth is expected to be approximately 6%, with a 2% increase from acquisitions and a 3% benefit from currency.

Based on these assumptions, and considering the incremental costs mainly for commodities and RD&E, we anticipate the full year EBIT margin to be at least 11.5%.

Turning to the next slide, it concludes the formal presentations of today's call.

And we would now like to open it up for questions, and I'll leave the word back to you, Auda.

Thank you.

Thank you.

(Operator instructions) Our first question comes from the line of Himanshu Patel.

Please go ahead, and announce your company name.

Hi, this is (inaudible) for Himanshu Patel from JPMorgan today.

My first question is on your Europe revenue growth.

I think in this quarter, your European revenue growth was slightly below regional production growth, but North America outperformed industry production.

Should we expect this change to continue going forward?

We should expect, and we are looking into European growth, to get benefit from the premium cars.

We are seeing the benefit from the premium cars to continue.

And we have a positive vehicle mix that we should expect to continue for some quarters.

We have, during 2010, been out for some lost contracts in Europe, and that is one part to what you are seeing in the base revenue compared to light vehicle production.

When you look also to the European part, you can see that the prime growth is coming from the eastern part of Europe, which is -- have a significant lower value than the western European part.

And when you look to, into 2011, for the full year, you are expecting Western Europe to grow with approximately 1%, and Eastern Europe to grow with 3%.

But for the fourth quarter -- for the first quarter, Eastern Europe is expected to grow by 11% in production units, and western Europe only with close to 2%.

So that's why you can see a higher production number, maybe, than what is corresponding to the development in the base market.

Okay, that makes sense.

And then secondly, on your margins, I know you started the year, talked about 8% to 9% normalized operating margin, but your 2011 guidance is at least 11.5%, and that is after your contract for higher commodity price, I guess so.

So what's your sense on your long-term operating margin range now?

Do you think that your long-term operating margin could be higher than 8% to 9% that you started to talk about?

What we have said is that we will continue to deliver double-digit margin as long as the current business conditions prevailed, and that is the light vehicle production forecast that we can see from IHS, that the commodity prices would not go more aggressive than what we have seen here, or when -- and you have operated (inaudible) increases throughout the world.

Okay, and last.

Do you also account for OEM pricing pressure when you provide 2011 (inaudible), you know, type operating margin guidance going forward?

We have seen pricing pressure over some years to be between 2% and 4%, depending on where you are and what type of commodity, and different kind of world climate that we have seen.

And for the time being, we are not seeing above 4%.

We are seeing very close to 4% pricing pressure.

We don't see reasons today why it should go above 4%, but you never know.

There is a strong development in the emerging markets, and there is a strong competition out there.

But so far, we have not anticipated higher pricing pressure than 4%.

Okay, great.

Thank you.

Thank you.

Our next question comes from the line of Rod Lache.

Please go ahead, and announce your company name.

Good morning.

This is Dan Galvin for Rod Lache, from Deutsche Bank.

Good morning.

How are you?

Good.

Good, good, good.

On the operating expenses in 2011, we did see an increase in SG&A sequentially.

Is that -- is $88 million a decent range for us to be looking at going forward, or was there anything unusual in the fourth quarter that caused the increase?

And also, the -- just wanted to double check the increased engineering expense of $50 million for headcount.

Is that a year over year increase, 2011 versus 2010?

I leave the word to Mats.

Okay, so to talk about the SG&A, I think you would expect the SG&A to be around 4.5% going forward.

And if you look into the SG&A now that you have seen it here, 2010 compared to 2009, the main difference is that we now have some performance related accruals also in 2010, which we didn't have in 2009.

So that's why it's a little bit higher than 2009.

But 4.5% approximately for -- going forward, on the SG&A.

Okay, and the R&D?

On the R&D you would expect $50 million, and that is an increase, year-over-year increase, compared to 2010.

You would expect the R&D to be close to 6% going forward, compared to the low 5% you see today.

Okay, great.

And one other question, if I could.

I know you have some operations in Tunisia.

Could you update us on what's going on with your operations there?

And in a more, kind of macro sense, we've been hearing about parts shortages in the industry.

Can you talk about what level of global production your capacity can support at this point, and does tight capacity in the supply base potentially give suppliers any additional leverage over the OEMs in terms of maybe bringing down, the price down from the 4% level you were talking about?

We start with the Tunisian situation.

It has recovered, and it has stabilized.

We were shut down for some days, but no damages was made to our infrastructure in Tunisia.

We have taken some extra measures to have the one day extra of inventory in our shipments, so as of today, we are operating more or less back to the normal level, but with some extra [basis] from the Tunisian [operation].

If you look to the worldwide capacity utilization for us, it varies very much from region to region.

We are continuing in some regions for the restructuring, to adopt to the global -- also the regional life cycle production situation, and in other regions, we are investing in expanding our facilities because of high utilization.

That varies from region to region, from our side, and you can guess that China, of course, is the region where we are investing.

We have communicated that we will invest close to $100 million between 2010 and 2011 in further capacity expansions in China.

If you look to our supply base and you talk about component shortages, we have been affected through 2010 of shortages of components in the electronics part, and we have -- it has been an issue for us, and we have been worked very hard, our team has been working very hard with our suppliers to overcome that situation.

We have not had any customer damages or anything that had been, sort of, causing major issues for our customers.

This situation has eased up.

It is much better today, and we expect it to go away during first half 2011.

If you look to the leverage from the supply base and the sort of utilization of the leverage, if you then mean that commodity pricing and pressure can have leverage on our side, we are fighting that back, and we have an excellent purchase organization in Autoliv that is fighting back.

And the key thing, direct material on the level of 52% of sales, despite severe price increases of raw materials.

So we have so far been successful doing that.

If you mean that we have, at Tier 1, we'll have extra leverage on our customers, I doubt that that will be that much of leverage on that situation.

I'm afraid that we will see the same competitive situation and landscape as we have seen than for a long time.

Thank you very much for the color on that, and congratulations on great results in 2010.

Thank you very much.

Much appreciated.

Our next question comes from the line of Johan Trocme.

Please go ahead, and announce your company name.

Good afternoon.

Johan Trocme from Nordea.

Two questions, please.

First question, regarding your guidance for 2011, you are guiding for organic sales growth [globally] over that 6% roughly in line with the increase you see for global car production.

Given your very strong track record in performing more strongly than that in growth terms, and your ambitions as you have already described in this call, should we see that as cautious guidance regarding growth, or are there any other reasons why, perhaps, you might not grow as quickly as you should?

And the second question is just if you can give us your current thoughts on your very strong balance sheet, what you're thinking in terms of priorities for acquisitions, buybacks, and then, dividends, going forward.

You look on the sales growth and outlook, this is the best of our estimate that we can have.

The third quarter guidance that we have is based on the call-offs, and that we, of course, are [shackling] to IHS, but the basis for these is the call-offs that we have in our production system.

If you look throughout the year and the indication for full year 2011, it's based on IHS production forecast.

If you look through the outperformance and compare the organic growth of approximately 6% with a global light vehicle production of 5%, and it is so that the recent geographical difference this year than it was that year, and North America is down to between 5% and 10% growth, and was close to 40% last year, and as we alluded to here on the presentation, the growth is coming from the emerging markets, to the largest extent.

And that is, you know, contributing with a much lower value than the more developed markets, in Western Europe and in North America.

So that is the reason.

If you look to the vehicle mix, we are continuing, if we have a more negative vehicle mix throughout the year, we will continue to have a -- if we have a more negative geographical mix, sorry, or throughout the year, we will continue to have a good vehicle mix, at least for the first half of the year.

We will see, then, later on, we will have to come back to what extent positive vehicle mix will also expand throughout in the second half.

And we are having very good launches.

We have had important launches also over the last year.

But some of the platforms that we are -- that we have launched, is also only peak, and probably fade out in the second half of the year.

But that's too early to say.

You never know that, and how a car is selling.

So that's about it, and that's the explanation to our top line guidance and indication.

And if I can just add on to that, is there any assumption on your part for any sort of significant market share gains or losses, when you look at your organic growth expectations for 2011?

If there is specific reasons to --

I'm thinking in terms of contracts you have won over the past 24 months or so, in that there will be any contribution from that, and you having improved your position through that period relative to the competitors?

We have talked a little bit in the past about, if we had had a good order intake, and that is, for sure, the case.

But you never know how those platforms are going to sell, and how they will be received by the market.

It remains to be seen.

We have some indications that we should have some good development, but it remains to be seen how it will develop.

If you take on market shares, as we said before, China market share is expected to grow from 30% around today, up to close to 35% in 2012.

And that is due to, of course, a very good performance in China.

And the balance sheet, finally?

The balance sheet, the use of our strong balance sheet has not changed since our last earnings call.

The focus is still on acquisitions and to use the cash and the strong balance sheet for investing in technology, and investing in our future.

Having said all of this, we are a shareholder friendly company, as I said before in the presentation, and we have increased the dividend, and we have the highest payout, quarterly payout here, and the annual payout on this level that we have ever seen.

So we will have to discuss that in the Board, but the focus for now is to use the balance sheet for growth.

Thanks very much.

Thank you.

Our next question comes from the line of Michael [Wynn].

Please go ahead, and announce your company name.

Hi, it's Peter Testa, actually, One Investments, thank you.

I had a couple questions, please.

The first one is on the emerging markets.

Can you give some sort of sense as to how you think the negative mix effect of models is offset by increased penetration?

Then I had a question on your raw material costs, the figures that you give.

Are those net of any particular negotiations with suppliers?

And how would a more easy electronic component environment help you in the other direction?

And then the last question was just on the integration of the acquisitions.

I was wondering if you could give us some sort of sense as to what impact that had on gross margins in the quarter, please.

If we start with the penetration and on the take rate and the growth in the emerging markets, there is too that the growth in the emerging markets is contributing on with the lower value.

If you take China, for instance, we are looking to an average content of roughly around $200 in China.

So every car in China that we are growing, and the increased growth in emerging market, is not as effective as the car in the Western Europe.

But all of this balances out, and if you look to the content and take of safety product in China, we expect that to increase.

The situation in China, though, is a little bit more complex, as we have talked about before, because the market is combined with very low content vehicles like minivans, with virtually no content or very low content in seatbelts only, and up to cars with content of $300 or similar.

But the influx of new vehicles -- so the growth is keeping the average content flat, or maybe even slightly declining, just due to the fact of the growth of the low content vehicle.

We are convinced that over time, it will grow, because the content per vehicle in all models will grow in -- from a safety perspective.

How that is to develop is too early to say.

I have no really good color to give you on that one.

The second question was --

Raw materials.

The raw material impact net for the year is $58 million.

And that is predominantly two factors.

We have, for the full year, year-over-year impact of $20 million on steel, and $24 million on yarn -- yarn for airbag cushions and seat belt webbing.

So these are the two factors, and this is much more than we anticipated a quarter ago.

There are risks to this -- to the discussions of steel prices can further increased raw materials, so the raw material prices here, and the increases we are talking about, is based on today's situation.

So what -- but if it's not anything we can speculate in -- just right now, this is to the best of our knowledge for the time being.

But my question on raw materials is also the extent to which it included the efforts of your purchasing organization, and the degree to which there may be any offset from an easier situation on electronic components pushing the other direction.

Well, you know, the prices on steel is -- 36% of all the raw material buy is steel, and electronics component is nowhere.

So if you take the balance of the increased steel price, and how that influences our raw material by much more important to us.

And if you then continue and look upon -- what was the second part of your --

(Inaudible).

Yes.

Acquisitions and the impacts on margin.

We have an integration to acquisition in Korea, and we are working on it in the United States.

And it has -- had really, not any, really, no major impact on our margin.

It is an integration that is very well done by our teams in Korea, and also in North America.

It's -- from a margin perspective, it really has no major impact.

And are the gross margins similar on the acquisitions as they are for the Group as a whole -- are the gross margin, direct margin?

I don't think I can answer that question just not over like this.

We'll have to come back with that (inaudible).

Okay.

Thank you very much.

Thank you.

Our next question comes from the line of David Leiker.

Please go ahead, and announce your company name.

David Leiker, Robert Baird.

Good afternoon, everyone.

Good morning to you, Dave.

Thank you.

A couple of things.

I think in some fashion or another, we may have addressed some of these, but I want to zero in on a couple of specific items.

On the commodity, you've got $58 million of headwinds that you acknowledge or have identified going forward.

How much offset from that do you have embedded in your guidance for first quarter and full year?

What do you mean, offset?

Or is that the number that's rolling -- floating through in your guidance?

Yes, of course.

This is all baked into our indication for the year and for the first quarter.

I guess, what I'm trying to get at, is there a net number of what you think you can offset over the course of the year at all?

You mean, and how much of this we can recoup from our customers or push down to our suppliers?

Both of those, correct.

We don't have any -- I don't have any such good numbers, so how much this can, sort of, be handled.

But you know that we have been relatively good in handling the direct material piece.

We have been less successful -- so that we have kept the direct material and the value added piece has been shrinking, to the cost of the raw material part.

But we have been less good in pushing prices out to our customers over the year.

I have no good numbers to give you, David, unfortunately.

But are you basing that on current prices, or do you have some expectations in there where you think those costs are going to go, those raw material costs are going to go over the course of the year?

Predominantly, it's the current price.

Okay.

And the margin number of 11.5%, you know, you're saying at least 11.5%.

Obviously, volume and commodities are some swing factors on the upside of that.

Are there any other items we should consider?

You should, of course, expect there are some savings coming off of our restructuring program.

So -- I mean, if you look into our impact and improvements and savings from the restructuring, you would expect around $24 million plus 2011 versus 2010.

Is that in that guidance already, or is that realizing those -- the upside to that number?

It's inside the guidance.

Okay.

And then lastly, Jan, as you've looked at the active safety and built out your capability there, where do you see that there are some holes in your technology portfolio today that you either need to develop or go out and acquire a partner?

Well, I think we are the leader in -- or, among the leaders in the radar activities through our acquisitions of Tyco Electronics some years ago.

We are definitely the leader in night vision and far-infrared technology.

We are on our good way in vision technology.

I think we could benefit from acquisitions or similar in the vision area.

If you look into chassis electronic, we are in a very good position since our launch of the [sensor clock] (inaudible) back some years ago from stability control and (inaudible) control.

But still, to come even closer and evolve further into that area, we could also benefit from acquisitions in this area.

Those are the two major areas we are looking on.

Okay, great.

Thank you very much.

Thank you, Dave.

Our next question comes from the line of Thomas Besson.

Please go ahead, and announce your company name.

Thomas Besson, Bank of America, Merrill Lynch.

I have just a very simple question on tax rates and CapEx, please.

Tax rates was (inaudible) in Q4.

Can you give us your best estimates for 2011 and 2012, given that (inaudible) level (inaudible)?

And then for CapEx, (inaudible), please?

Yes, regarding the tax rate, you will expect around 29% tax rate in 2011.

If you look upon a little bit more medium term, you will expect some tax rate to go up and be in the low 30s, because tax holidays in our emerging markets will fade out over the coming years.

If you talk about the CapEx for 2011, you would expect a CapEx of around 4% of sales, or being $300 million, $350 million.

Great, it's very clear.

I just want to concern another point you said, referring to another question, that R&D to sales would move up to 6%.

Is that effectively what you said?

One point higher than in 2010, in 2011?

Could you say again?

I didn't hear --

Yes.

I think -- well, I just want to check if I understood correctly a reply to an earlier question.

R&D to sales ratio, moving to 6% of sales (multiple speakers)?

No, if -- no, what we have said is that we have given us a guideline for you guys doing your models that we would be south of 6%.

We have said that all along.

So that is what we are saying.

Okay.

So still in -- more, more like 5% to 5.5% and 6%?

It's between 5%, be 5.5% and 6%, you can say.

Okay.

Okay, great.

Last one from me.

Can you comment on your view of what the passive safety content recall in major markets in coming years, now that we've probably reached almost full penetration for most of your products?

Do you think we should anticipate the passive safety content in major markets to decline going forward?

If you look -- if you take the established market, you have reached a lot of penetration of the current product.

But there may be other current -- there may be products to come.

We have, for instance, the latest coming out from (inaudible), with the [standup time] on the [curtains] in the United States, which will drive additional value on the curtain side.

(inaudible) rollover (inaudible).

You know, rollover [injection] mitigation, that is coming out.

You have further value potential in the pedestrian detection and pedestrian protection area.

That could also drive further value in the established market.

All of this should be offset by the pricing pressure that we are seeing.

We don't foresee any increase on the value.

It is a flat, or maybe slightly decreasing value.

But it's not massive.

We are not therefore seeing a massive decrease on it, as it looks today.

We will have to look further into this on the outer year and then maybe come back to you.

Okay, great.

So, (inaudible) to say that your expansion into active safety is (inaudible)?

Well, we of course see the growth coming out of active safety in much higher percentage terms that it is in passive safety.

That is absolutely clear.

But we should also remember that the market in passive safety is -- we have anticipated this to be around $18 billion.

And even if the growth number is lower, that will take a long time before the active safety market will reach this size.

So for a long time, the passive safety will be the dominating safety equipment in the car industry.

Thank you very much, and [well done on these sets of] numbers.

Thank you.

(Operator instructions) Our next question comes from the line of Hampus Engellau.

Please go ahead, and announce your company name.

Thank you.

Hampus Engellau, Handelsbanken.

I have three questions, if I may.

My first question is related to the GM recall, basically, if you could quantify how much in [true] costs this will result in for you guys?

And the second, maybe coming back to the question on your outlook for this year on organic growth.

It seems like the outlook is front-end loaded, and I guess, is that on the back of your visibility on first quarter and second quarter?

Because if I compare with production numbers for cars globally, it seems like we should have some drop in volumes in second quarter and third quarter, and then a pickup in fourth quarter.

So if you could maybe give some more details from -- on that outlook.

And then lastly, it's more of a general question on penetration rates on the European and NAFTA OEMs in China, if you see any difference in trends in terms of penetrations rates, when it comes to active and passive safety components, in those vehicles sold in China.

Thanks.

Thank you, Hampus.

If we start with the GM situation, as we mentioned and disclosed in the earnings release here, we have had some quality problems leading up to recalls with General Motors.

And this financial impact, short-term, is immaterial, actually.

And if we look long-term on this, in the outer year, it depends on what impact it will be, and how long the non-business hold will have on -- as to how long time it will be in effect.

We take this very seriously, and we are working with every possible resources that we can put in to mitigate this now, and to come back and to fix the issues, and to come back to get and be awarded new business from General Motors.

So nothing has the higher priority here right now than to fix this issue.

If you look to the situation with General Motors, it's not, of course, surprising that they could pay a supplier like this on this (inaudible).

You should recall that we have 50% market share with General Motors, and this is a safety product.

And the clear message from General Motors was to us, it's much better that you work on your 50% market share now and get that fixed, instead of diluting your attention to try to get new business with us.

So we have taken that message very loud and clear, and we are working onto it.

But the long-term effect is a little bit difficult to say.

If you look to the outlook, and it's front-loaded, you are absolutely right.

It is a little bit front-loaded.

You can see that from the organic growth.

And I think you mentioned it yourself, is that in combination also with what I talked about, where it's potentially a little bit weakening vehicle mix throughout the second half, could -- I guess, hard to say, could affect the second half to be a little bit negative loaded, as it looks today.

You should [remember] that this is only an indication based on the IHS that we have the production numbers, and we will see how it develops over the -- throughout the year.

The penetration rate in China, if you look to the penetration rate of the different products, if you look to the curtain side, the side systems, it is in the range of 10% to 15%.

It is going slowly upwards.

But if you looked as of the date that it will take a longer time, and that's harder to say how fast it will grow.

Sometimes the estimations here are maybe a little bit too conservative.

If you look to the total number -- also, the front system, we estimate that the passenger cars have around 80% to 90% [take] rate on the front system.

But if you take the total light vehicle number, the percentages comes down.

That is more like in the range of 70% or so.

And so, depends on the mix in China, it depends on what type of product it is.

The best and most efficient way to drive quantities, of course, the awareness of the Chinese government and the introduction of the China (inaudible).

Right.

But -- and the numbers you're mentioning, that's for the total market, and again, I'm just asking more specifically, then, if there are any difference to them, western European and North American OEMs products sold in China versus sold in Europe and North America, as Japan used to have a lower content on local sales while their export [would have a] higher content.

Have you seen any difference in that perspective?

No, not really.

I wouldn't say that it's not like that.

I think the OEMs exporting, they have access to the same technology, and they are exporting very good and very high quality standard vehicles from Western Europe and from North America into China.

And that is also partly where -- why we see growth in China, on the, also, domestic OEMs and of course, built in China.

So I don't think that that's not really the issue.

You should also remember that many of the cars imported to China from Western Europe or North America are built on order, and they have a tendency to tick every check box and everything that is possible [to where] you have the [option].

So, yes, they are relatively well equipped.

Thank you.

Our next question comes from the line of Anders Trapp.

Please go ahead, and announce your company name.

Hi, Anders Trapp from SEB Enskilda.

I had a bunch of questions; almost all of them have been answered.

But you haven't really spoken anything about what you think if -- like if a market share development for you in 2011.

Basically [you are on the point of] having a good development of market share for several years now, and [not least in the] emerging market of China, what is the -- for 2011, I guess, you should have very good visibility of that one.

Yes, we haven't really looked into the global figure of it.

We will have to look into that, and maybe come back to that in our next earnings call, where we can anticipate.

We believe that our market share in China will continue to grow.

As I said, we are -- the figures that we have, and the material we have access to, points to close to 35%.

I think that's down [to] for some time, and that is on track.

So the Chinese market share is, of course, one of the most interesting regions and growing regions, so that is on track.

But for the other regions, I have no new numbers for you, unfortunately, on the others.

And the IHS forecast for China, I'm wondering if [George] agrees [on the level] or if you have a different view.

Well, obviously, we don't know that one.

I think you will see a strong (inaudible) using the call-offs, and on the long haul, using the corporate [ballot].

We are much more standard in this company, and (inaudible) quarter production numbers.

All right, thank you.

Thanks.

Our next question comes from the line of Kenneth Toll Johansson.

Please go ahead, and announce your company name.

Yes, it's Kenneth Toll Johansson here.

I'm seeing that you're hiring a lot of engineers this year.

Is this a sign that it's very hard for you to do acquisitions in this field?

Well, to be honest with you, we have been talking a lot that we want to do acquisitions, and we have done a lot, but we could do more.

And in absence of doing the more to the level that we would like to do, we -- this is the way for us to act.

And we think it's important to act.

So you can say that if you want.

But that is also a complement and buildup internal know-how and competence when you do acquisitions.

You are even a better buyer for assets.

So you don't rule out major acquisitions in active safety if something pops up?

Not at all.

Okay.

So this hasn't, sort of taken out, or sort of increased the likelihood of more money coming to shareholders?

Well, that's a discussion we will have to take in the Board, to start with.

So we will see how that develops throughout the year.

Okay, thank you.

Thanks, Kenneth.

Our next question comes from the line of [Johann Eliason].

Please go ahead, announcing your company name.

Hi, this is Johann (inaudible), Stockholm.

Just once again on the M&A front.

I know you're being willing to do acquisitions if they're around.

How do you see this as it come closer to actually being further deals in the market, or what's the progression on that front?

Well, there are no imminent deals that is out there.

There are different proposals coming here and now, and there are different initiatives coming here and now.

We are initiating some of them, some of them are being brought to us.

But there are no imminent deals on the table for the time being.

But I said it before, when a company decides to sell, it is a process before you decide to divest.

It's a strategic process.

And when that is happening, it can go relatively quickly when it's coming out there.

So we believe that will be a good opportunity for this to happen, yes.

Okay, thank you.

Thank you.

(Operator instructions) Our next question comes from [Johann Dahl].

Please go ahead, and announce your company name.

Hello, Johann Dahl, (inaudible) Bank.

Had a question, looking at the Q4 performance on the sales.

I mean, it was quite a big deviation there from the forecast put out in October to what the outcome was until you delivered on your 12% growth target.

What was the main -- I presume you would have expected it to be better, really, in Q4?

It's the light vehicle numbers from my address.

They were just too conservative, and we said that.

So it didn't come as a surprise.

The other thing you should remember with the fourth quarter is that it really depends on what happens in December, if you have long Christmas shutdowns or not.

And there were no, really, major deviations.

There were smaller ones in Europe.

For instance, the luxury manufacturers had a better production whereas some other ones did not have that.

So you can say that was more or less [smack] on.

Okay, then.

And finally, also, on -- is it fair to say -- I mean, it's quite a significant [deviation] on the -- your expectations for raw material costs.

I presume that will come up in the pricing discussions.

I mean, you've alluded to 4% price pressure the last couple of quarters.

I presume that that's also impacted your price discussions going forward.

Are you equally pessimistic going forward?

I have no reason to change this for the time being.

If we -- we will still see how it will develop over the next quarter or so, but I don't have any reason to believe we should go away for the time being.

We are still seeing a significant growth in emerging markets, etc., that is increasing the pressure on prices.

So for the time being, we stick to this as the best effort.

Okay, I think that was the (inaudible) question on prices, so I'll stop there.

Thanks.

Okay.

[Good talking].

Thank you.

We appear to have no further questions at this time, so I'll hand the conference back to you.

Thank you, Auda.

Well, thank you, everyone, for your attention and continued interest in our Company.

We here in Stockholm look forward to speaking with you again on our first quarter earnings call on Wednesday, April 20, 2011.

Thank you very much, all of you.

Ladies and gentlemen, thank you for your participation.

This concludes today's conference, and you may now disconnect your line.

Thank you.