Autoliv Inc (ALV) 2011 Q4 法說會逐字稿

Good day, and welcome to the Q4 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jan Carlson, CEO. Please go ahead, sir.

Thank you, Martin. Welcome, everyone, to this earnings presentation. Here in Stockholm, we have our CFO, Mats Wallin, and our VP Corporate Communications, Mats Odman, and myself, Jan Carlson, President and CEO.

We will open with a review of our fourth quarter results, including an overview of general business conditions. Then, we will discuss our guidance for the first quarter and our full year indication for 2012.

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. During the presentation, we may reference some non-US GAAP measures. The reconcilations to US GAAP are disclosed in our quarterly press release and in the 10-K.

Moving on to the next slide, we continue to execute on our operational and growth strategies. We outperformed the global light vehicle production for the ninth consecutive quarter. Consequently, our full year sales exceeded $8 billion for the first time ever.

We also continued to deliver double digit margins for the eighth consecutive quarter, and achieved our margin guidance for both the fourth quarter and full year 2011.

Our growth in Active Safety continues at a strong pace, and we remain on track to achieve a 30% market share by 2015. For full year 2012, we expect more than 1 percentage points over our Company's total outperformance versus global light vehicle production to come from growth in Active Safety.

In China, we grew more -- almost 4 times more than light vehicle production, and reached close to 35% market share in airbags and seatbelts. For full year 2012, we expect to grow more than 2 times the light vehicle production in China.

As to the antitrust investigations, I can only say that they are still ongoing, and that we therefore cannot provide any additional information at this time.

Overall, we continued to balance our margin and cash flow performance with long-term growth.

Turning the page, we have our fastest growing product line, Active Safety. Over the last four years, we have completed three radar acquisitions, and now have one of the most comprehensive product portfolios in the automotive industry. In 2012, we expect to almost double our radar sensor production from last year. This is partially due to more standard equipment on models such as the Mercedes B Class. Consequently, our investments in R&D, [M&E], and acquisitions in Active Safety are paying off.

Moving on to the next page, we achieved record sales and gross profit for a fourth quarter. Our organic sales growth was 2 percentage points below our expectation, mainly due to the flooding in Thailand and some softening of production in Europe. However, our organic sales of 7% was 6 percentage points better than the global light vehicle production. Despite lower than anticipated organic sales growth, we achieved an EBIT margin of 11%, including $6 million of expenses related to the ongoing antitrust investigations.

And lastly, for a fourth quarter, our earnings per share, return on capital employed, return on equity, operating cash flow, and EBIT margin were all second best ever.

Turning the page, we achieved record sales, gross profit, EBIT, and earnings per share for a full year. This was despite significant commodity headwinds, and RD&E investments for Active Safety growth, along with the negative effects of two natural disasters and the ongoing antitrust investigations.

Our organic sales growth of 9% was almost 3 times better than global light vehicle production. In addition, we had a 2% sales benefit from acquisitions during 2011.

Return on capital employed, return on equity, operating cash flow, along with EBIT margin, were all the second best in this history of our Company for a full year.

Turning the page, our cash flow from operations was $293 million in the quarter, and $758 million for full year 2011. This strong cash flow has allowed us to reduce our debt and create shareholder value by investing in future growth initiatives while increasing the dividend to record levels. During the year, we more than doubled our dividend payment to $154 million from $58 million in 2010.

Capital expenditures were $100 million for the fourth quarter, and $357 million for the full year. $135 million of these capital expenditures, or close to 40%, were used to support our growth initiatives. Looking ahead, we anticipate CapEx to be approximately 4.5% of sales in 2012.

The working capital percentage remained very low, at 6.2% of sales, despite increase in our operating working capital to support sales growth.

Our strong cash flow performance over the last several years has resulted in our strongest balance sheet ever, as illustrated if we turn the page. We have managed to reduce our gross debt to $666 million, and achieved a net cash position of $92 million at year-end 2011. We believe it's prudent to maintain a strong and flexible balance sheet, due to reasons such as uncertain macroeconomic environment, and our investments for growth and acquisitions.

During the first quarter in 2012, we will be remarketing the equity units, which will result in a lower cost of borrowing. Subsequent to this remarketing, the change of the equity units for common shares will increase the average fully diluted shares outstanding to approximately 94.7 million shares in 2012, assuming everything else remains the same.

Turning the page, we have the fourth quarter light vehicle production according to IHS. We outperformed the light vehicle production in all regions except Japan. This underperformance is mainly due to the fact that the mix in Japan has shifted over the last two quarters to vehicles with lower safety content as a result of the tsunami.

Our outperformance in the Americas, Europe, China, and rest of Asia, is mainly attributable to our continued strong platform mix and a strong order intake in prior years.

Turning the page, we have the production figures for the fourth quarter and full year 2011. We estimate that our strong outperformance versus the global light vehicle production, along with acquisitions, has resulted in an increase of our global Passive Safety market share to approximately 36%.

During 2011, we almost doubled our Active Safety sales from 2010, where we believe our market share is 20%, approximately.

Turning the page, for the fourth quarter, the negative commodity effect of $25 million year over year was in line with our expectation. Consequently, the full year 2011 commodity effect of $95 million negatively impacted margins by 1.2 percentage points.

This concludes our formal comments for 2011. Looking ahead into 2012, assuming current commodity prices will prevail, we expect a negative effect of approximately $16 million in the first quarter, and to be flat for the rest of the year.

Moving to the next page, we have the first quarter light vehicle production according to IHS. The overall global light vehicle production is expected to be up 2.3%. This increase is almost entirely driven by the 1 million vehicle recovery in Japan, where we have lower market shares than in most other regions. In contrast, IHS expects a 12% year over year decline in Europe. Even in China, they expect the light vehicle production to be down 4% year over year.

Despite these negative trends, our organic sales are expected to grow twice as fast as the global light vehicle production. This is due to our strong presence in growth markets, along with our favorable platform mix.

Onto the next page. We have the light vehicle production outlook for the full year 2012, again, according to IHS. As illustrated, the growth outlook has declined from 11.4% to 4% within the last six months. Consequently, since July, IHS has reduced their light vehicle production expectation by nearly 6 million vehicles, to approximately 78 million units.

Also for the full year 2012, we expect to continue to outperform the global light vehicle production by close to 3%, despite an 8% year over year decline in the important European market.

Onto the next page. We have our quarter one guidance and our full year indication for 2012. As usual, our outlook is primarily based on customer call-offs for the current quarter, and the IHS light vehicle production forecast for the remainder of the year.

Due to ongoing shifts and adjustments in light vehicle production, we will need to align our manufacturing capacity with the demand in the individual markets. We currently believe this cost could be more than $50 million during 2012.

All figures related to our guidance and outlook assume mid-January exchange rates, and exclude costs for the antitrust investigation and capacity alignment.

For the first quarter, we expect consolidated sales to increase, of approximately 2%. This is driven by an organic sales increase of nearly 5%, which is partially offset by a negative 3% currency effect for the quarter and full year. Given these sales assumptions, we expect an operating margin of around 10% in quarter one.

For the full year, consolidated sales are expected to increase by approximately 4% year over year, while our organic sales are expected to increase by approximately 7%. During 2012, we intend to invest more than $60 million in additional research and development activities. Based on these assumptions, our EBIT margin indication is expected to be in the range of 10% to 11%.

In conclusion, we continue to grow our Company, invest in R&D, and are aligning our footprint to the market trends. We have had eight consecutive quarters with double digit operating margins, and expect to continue to have such margin also for this year.

If we now turn the page, we will conclude the formal presentation of today's call, and we would like to open up for questions and answers. And with that, I leave the word back to you, Martin. Thank you.

Thank you, Mr. Carlson. (Operator instructions) And we can take our first question from Himanshu Patel of JPMorgan. Please go ahead.

Hi, good afternoon, guys.

Good morning, Himanshu.

Two, three questions. One, the -- you mentioned your Q1 guidance was based on what you're seeing from your production schedules from the OEMs. How are those call-off schedules looking versus IHS' Q1 production forecast?

Number two, you know, you did a lot of restructuring during the Lehman downturn. It sounds like you're enacting another restructuring plan. Can you talk a little bit about just kind of the payback period, which we should think about on kind of the new $50 million investment that you're thinking about.

And then, just a housekeeping question. You know, North American production in 2012 is expected to be up, but I think there's quite a big divergence between the Japanese and Detroit carmakers. Can you just talk a little bit to your intra-North American OEM mix?

If we start with IHS, we believe that IHS is fairly accurate as far as what we can judge from what we are seeing from our call-off systems. And as we said, we are basing our Q1 guidance on the call-off systems.

When it comes to payback, we don't have a good estimation of this. We are in the planning period right now for this capacity alignment. We believe, though, it will be longer than the previous program that we had, as we just we went through a program, and this is capacity alignment, but somewhat longer.

I refer to -- the final part, to Mats. He's right now looking on the figures.

Yes, but it's small, the numbers here, so I can hardly see what this says. (laughter) New domestic is supposed to be up 14%, whereas the Detroit Three is -- what does it say? Zero, I think it says.

Right, but what is Autoliv's mix of new domestic versus Detroit Three customers within the North American region?

We believe it's almost 50/50. We can come back and confirm that to you.

Okay, great. Thank you.

Our next question comes from Rod Lache of Deutsche Bank. Please go ahead.

Hi, everybody. First, a question on the run rate of these -- the antitrust investigation costs. Is that something we should assume is sustained at this level for the foreseeable future? Is this something that's lumpy? Any kind of just general thoughts on how we should be thinking about that, going forward?

We don't have any estimation of the future costs of this -- as we said, an ongoing investigation. And the level of activity, etc., is impossible for us to predict, and thereby also, the level of costs, unfortunately, Rod.

Okay. And can you give us a sense of the -- you've said previously that the trajectory of price deflation is towards the upper end of its historical range, at least in 2011, closer to 4%. How are you thinking that progresses in 2012, in light of some weaker volumes in certain key markets such as Europe? And is there an expectation that you'd be able to mitigate that?

Over the cycle, it does be in between 2% and 4%, and as you'll recall, it was in the lower part of the range during the crisis, and in the upper part of the range. Recently it has been between 3% and 4%. We don't -- we cannot speculate of the future of it.

I have no reason to believe that it will go outside the range, though, for this year. It all depends on how the year is developing. But between 2% and 4% is my best estimation for 2012. We'll be back to you after the first quarter, and see if there has been any change.

But just generally, do the negotiated price-downs moderate, or are they sensitive to actual volume performance?

Well, it's always a discussion about volumes, and if the volume commitment is coming through or not. Generally speaking, you know how it is in this industry. It's always a tough pricing pressure from our customers, and I expect that to remain also 2012.

Okay. And just -- my last question is, I think you had said that a significant portion of your hires in recent years is -- post the trough of the crisis, have been temps. And I just wanted to get a sense of what -- where your temporary staffing levels are today, and you mentioned on this call that the paybacks would be longer from any restructuring, longer than historical. I'm just trying to flip these two comments, because it would seem that usually if you have more temporary staffing, that you'd be able to effect a quicker and more impactful restructuring.

Yes. Well, it is also -- we have a fairly even level of temporaries over -- between the different parts of our Company. But this capacity alignment is more to follow our customers, and to grow with our customers, and where the customers are growing. And we will, of course, look into the possibility, and also to use temporaries as a part of this capacity alignment, as a part of it. But fairly even distributed across our Company, is temporary level.

Thank you.

Our next question comes from [Stefan Pieter] of Goldman Sachs. Please go ahead.

Hi, good afternoon. Thanks for taking my question. First of all, if we look at Europe, you're highlighting that the market, or the production rates in Q1 will be relatively weak, but I think there will -- there's probably going to be a big difference between the German OEMs and the volume players. To what extent to you think you can benefit from this potential product mix, positive product mix? And then actually, can you confirm that this is happening?

And secondly, can you just clarify on Active Safety, how much growth do you expect, and can you shed a bit of light on how you think the profitability in that segment will develop? Is it still a drag on profits? And then, do you expect that to improve?

And then, just assuming that there's no news on the antitrust investigation, can we assume similar costs in Q1 compared to the fourth quarter? Thank you.

If you take the vehicle mix in Europe, it is a platform mix that is positive to us. We are well present on the platforms on the good selling parts for us, like the Ford or the BMW 5 Series, the Mercedes E Class, etc. And we are also well positioned on the cars that have launched during the fourth quarter, like the 3 Series, etc. So, it's a platform mix.

Then you can say that the German car OEMs are higher represented on the premium segment, which had been a well selling segment, so from that point of view, you are right. We expect this to continue for -- as far as we understand, for 2012.

Then if you take the profitability and on the Active Safety, we have said that long-term wise, there would be no reason why Active Safety would be in line with corporate average. As of right now, due to heavy technology investments, we have a somewhat lower profitability in the Active Safety arena.

And the third part of your question was --

Costs for antitrust.

Ah, costs for antitrust. As I said, we don't comment any -- we have no comment to the costs of the antitrust investigations, more than they are ongoing, and we'll have to take it when it comes?

No, I'm sorry, my question is on the legal costs, not any potential fine, or just --

No, I understand that. And that's my answer. We don't know the activity, so this is an ongoing investigation, and you know, to what extent the activities will decrease or increase, we don't know, and we'll not speculate in it. So therefore --

That's clear. Thank you.

-- cost for lawyers, etc. Yes.

Our next question comes from Brett Hoselton of KeyBanc. Please go ahead.

Good afternoon, gentlemen.

Good afternoon, Brett. Or, good morning, rather.

Thank you. The RD&E in the expenses -- you had a pretty significant step up last year in terms of RD&E in 2011, and now you're looking for another additional step up in 2012. My question is, is this, in your mind, going to be kind of an ongoing trend? Should we continue to expect R&D as a percentage of sales to continue to trend upwards into -- you know, 6%, 6.5%, 7% range, with an incremental bump up each year of a fairly significant amount, or is this second step kind of your expected final significant step up?

We have said that R&D expenses should be at 6% of sales, or below 6% of sales. And that is what we have said, and that is still valid.

We are spending this money because we believe we can see the growth benefit from it, and as you heard during my presentation, more than 1% of the total outperformance is coming from Active Safety, and we are doubling our sales for -- more or less, from 2010 to 2011. So believe these are the right investments for us to do.

And the restructuring. I know that it's still very early, you're still in the planning stages. But generally speaking, can you talk a little bit about the regions that you're looking at doing some additional restructuring?

Well, as I said, this is in the planning period, and we have no further information to give to you at this stage. We will be back in quarter one when we have come further into the planning point.

Okay. Thank you very much.

Thanks, Brett.

Our next question comes from David Leiker from Robert W. Baird. Please go ahead.

Good day, everybody.

Good morning, David.

Can you hear me all right?

Yes, we can hear you.

Great. Thank you. Question for you, as it relates to this -- overall resources within the Company. Your revenue today is running 60%, 70% higher than it did two years ago. And in that ramp up of volume, I just want to get some sense if you've been able to bring your resources -- not [necessarily] from a manufacturing perspective, but from a management perspective, and middle management, and just -- you know, all of those other operational aspects. But whether you have those resources in place for a level of volume, or if there's a need to put more resources in there, or there's room to leverage them going forward. Just what your thoughts are on that.

I think we are very accurately staffed when it comes to capacity, being able to cope with the growth. There is a continuous focus on talent management on all levels in our Group, and one of the absolute most important assets that we have in our Company is people, of course. And therefore, there is a focus on this one, and I believe the people are doing an extremely well done job for our Company.

Okay, great. Thank you very much.

Thanks.

Our next question comes from Peter Nesvold of Jefferies. Please go ahead.

Thanks. First is, I guess just maybe a housecleaning question. So it sounded like in the prepared comments, you said that the RD&E expenses will be $60 million higher in 1Q, and I assume that means year over year, so to roughly $175 million, and then flat year over year in subsequent quarters. Is that right?

Like I said, $60 million for year over year, for full year, year over year.

And how do you expect that to be distributed? Is it front loaded, or evenly balanced?

Yes, let me -- I don't have a good, quite -- let us chew on that for awhile, and we can be back to you in some time.

Okay.

It would not be a huge difference between the year -- between the quarters, over the year. But we can come back to you at a little bit later stage.

Okay. And then, a follow up question. Why are you restructuring again? I mean, it suggests that the geographic imbalance that you're seeing in terms of demand versus capacity is more than just this slowdown that we're currently seeing in Europe. Am I right in thinking about that, or are you shifting high cost manufacturing capacity to low cost countries again, or -- any additional color that you can provide outside of just like a 2012 dip in terms of European demand would be helpful.

It is, if you look over the -- a longer timeframe, there is a huge shift in vehicle production across the globe. If you take the years 2007 up until 2017, you are going from a total volume of below 70 million vehicles to over 100 million vehicles. If you look to the established markets, it was a production of 40 million units in 2007, and it was -- it is forecasted by IHS to be roughly 40 million units in 2017.

And to be able to adjust for the shift in vehicle mix, and to get the right attention to our customers where the customers are going to produce, we see a need for a capacity alignment. And that is the reason for it, why we are doing this.

And certainly, I remember that slide in your deck, and you've had that in there for awhile, so I don't want to put words in your mouth. But it almost sounds like this must be part of a longer term plan that you've had in place, as opposed to perhaps a restructuring -- you know, for which the catalyst was some of the weakness we're seeing this year in Europe.

Well, as we said, we have continued to invest for growth in growth markets, and for technology in Active Safety. And this is following our strategy that has been in place, as you said, for quite some time, actually.

And then when you see different trigger points, and when you have opportunities to do this, and you see the real needs, then you trigger certain parts of your strategy. And it's more from that horizon that this is coming right now.

Great, thank you.

Thank you.

Our next question comes from Thomas Besson from Bank of America Merrill Lynch. Please go ahead.

Thank you. It's Thomas Besson. Two questions, please, one on the evolution on emerging market margins. We've seen the growth in light vehicle production specifically in China and LATAM slow over the second half of 2011. Can you comment on the evolution of your margins in these regions? I'm concerned that they've been historically extremely high.

Second, can you comment on your flexibility in terms of CapEx and R&D? Should a much weaker scenario than you currently plan develop in 2012, and give us your estimated CapEx for 2012. Thank you.

Estimated CapEx for -- sort of that end, is 4.5% of sales. That is the estimation that we have. If we then take the other question you have about flexibility, we can only refer back to the disaster times we had in 2008 and 2009, where we really took fast actions and very drastic actions, and really did big change of the Company due to the necessity, from a market perspective. We reduced with 25% of our workforce in nine months, which is, of course, a very drastic situation. But we did it very, very quick, because we felt it was necessary.

If something would happen that would go beyond what we are seeing today, we would act very fast, from CapEx point of view, from every possibility to mitigate the situation. That will be no change, Tom. So I have nothing to say more concrete in terms of how much would we reduce CapEx in relation to sales, or what would it mean for workforce reductions, etc., given that light vehicle production would drastically decline. I will only point to the history.

If you then take the first part of your question, which is the margin, we don't talk around margins for different part of the [ball] and for different regions, actually. The only thing we have said is that margins vary from regions. In general, if you have a fully utilized part, you entertain somewhat higher margins, and that's what we have said, and that's what we can say today too.

Thanks.

Thank you, Tom.

Our next question comes from Hampus Engellau of Handelsbanken. Please go ahead.

Thank you very much. I have three questions, just a clarification on your outperformance in Europe during the quarter, because that's related to platform mix versus OEM mix. Second question, and also third question, is related to Active Safety. You're targeting reaching a 30% global market share by '15, I think, and do you need to spend additional CapEx to reach that? And then, how much? And also, is that including current product offer, or is that including maybe additional product launches? And a final question on Active Safety. What kind of a price pressure do you see in Active Safety?

Outperformance in Europe --

I'm sorry, Hampus. I missed your first part of the question, (multiple speakers) --

(multiple speakers). That was more related to how much is it favorable OEM mix, or is it a platform mix within the OEMs that is favorable?

Well, I think it's somewhat both.

Okay.

You know, it is -- in many case, it is premium OEMs that have a good platforms, and that's a good selling vehicle mix. So I think it is a mixture of both. Whereas the platform mix has been very good for us, we have been able to target the right platforms, and have had successful launches also in the past, been -- having a high content on the launches just recently coming out.

The second part of your question was --

Active Safety. What kind of an additional CapEx do you need to spend to reach 30% global market share by '15, and what kind of price pressure do you have in Active Safety currently?

Yes, but the price pressure in Active Safety, if you have a new technology, it's traditionally somewhat higher as -- because it's new technology, and prices seems to -- has a tendency to go down faster. But you know, so far, if you talk about the CapEx, and you talk about the level of CapEx, it's very -- actually a smaller part of the total CapEx for the Group. And that is due to that, if you look to the total amount of sales of Active Safety, even if it's growing fast, it's still a smaller part of the total turnover, and therefore, also, a smaller part of the CapEx.

And also maybe a question on (inaudible), in particular. How is that product offer looking currently? Are you expecting to launch a more simplified product, more suitable for small car segment?

And my question is, you know, going through an evolution where we started off with only a screen to monitor, then we added pedestrian detection, and then we added animal detection, and it's also going through several technology changes. And we are working towards having this coming out also, with opportunities to offer it to a broader market. It is a niche market today, predominantly. But nothing that I can unfold here for you today. But that has been in our strategy all along, to sort of take down costs of the product.

All right. Thank you much.

Thank you, Hampus.

Our next question comes from Philip Watkins of Citi. Please go ahead.

Oh, thanks -- thanks for taking my question. I realize there's still uncertainties on the market this year, but you look at the balance sheet, it's in great shape. I'm wondering if you could just comment on what you're thinking about, acquisitions and dividends, really. And in the context of that, and I don't know, just a small housekeeping on net interest. So that's going down. Could you give it an idea how that -- what that might look like in 2012? Thank you.

We start with the interest.

Okay, on the interest, it is so that we are now going to remarket our mandatory convert loan, which is $106 million loan, today carrying an interest rate of 15%. And that will be remarket now during Q1, at the end of Q1. And based on the current market rate.

So we will, due to that, be able to reduce the interest rates, and also, later on, throughout 2012, we will also be able to do further payment backs for loans. We have today around -- a little bit less than half of our gross debt is short-term today, and on that less than half, you could say at $106 million will be remarketed, and the remaining will be amortized.

And any idea of how -- where it might actually go, the number for net interest? Are you able to give that, or still too early?

I think it's a little bit too early to give a number on the interest rates, but yes, you can hear, with a [50%] interest rate on this $106 million, and compare it to the rates we have today, it will be different.

Thanks.

And, referring to the dividend, is that we have a record high dividend currently, and as you know, this is a discussion we have in the Board every quarter, about the dividend rate, and the dividend.

The use of balance sheet, as we said earlier in our introductory comment, we are having a strong balance sheet due to our strategy of invest for growth, and also that it is somewhat an uncertain market out there.

Underlying this, the Company is a shareholder friendly company, but we are right now looking at investing for shareholders in growth. So that is what we are doing for the time being.

Thank you.

Our next question comes from Bjorn Andersen of Danske Bank. Please go ahead.

Yes, hi -- hello. A few questions here on your outperformance that you expect for the full year. Is it possible we could get here -- to get some comments on that by region? You have touched upon it for Europe already, but if you can give a few more comments, that would be helpful.

And also, on Active Safety, how we should look upon that by region. Is that basically Europe and North America? Thank you.

We don't have that much of color to give you on the regional split, neither when it comes to the outperformance, nor to the Active Safety. We look to a global outperformance, both for first quarter, and as we said, for the full year.

Active Safety, as such, is -- of course, to extent, right now, much related to the premium OEMs. We have activities both in -- in fact, in all regions on Active Safety for the time being.

And maybe, is that also in a relative sense the same kind of impact -- and also in the Asian region, and then Japanese -- or in Japan, as I said, is it in Europe, for instance?

Not as of right now. We have ongoing discussions with customers also in Asia, of course. But not in the same -- to the same extent yet in Asia as it is in Europe and in America.

Thank you.

Thank you.

Our next question comes from Agnieszka Vilela of Carnegie. Please go ahead.

Hi. I have a question, again, on Active Safety. Could you just remind us about market size of the whole Active Safety market, and also, about the split between radar, night vision and vision?

The current market size in Active Safety is roughly -- approximately around $800 million for our part of the market that we are talking about. And then it's growing to beyond $2 billion by 2015. And what we talk about here is that sensor market.

In addition to this, you should recall that we also announced our stability controller, integrated brake controller product that we have now a production order for, and that is, we believe, a $6 billion to $8 billion market. So that is --

Okay, thanks.

-- a different order of magnitude.

Thank you, and one more question on Active Safety, just to confirm. Have you already reached breakeven for Active Safety?

As we said, we are lower than corporate average. We don't comment specifically on the Active Safety market, and on the different product lines from a profitability point of view. Long-term, there should be no reason why we should not reach corporate average.

Okay. And do you hear about any new regulations that could drive safety content in the near future, or in the future? I think I have heard something coming from India that the government is discussing a legislation that would make the car producers to install airbags in the cars. Is that true? Do you hear anything similar?

We have heard the same thing, but I don't know how realistic, and when that will come, if it will come. But there are discussions going on.

Okay. Thank you so much.

Thank you.

(Operator instructions) Our next question comes from Richard Hilgert of Morningstar. Please go ahead.

Thanks. Good afternoon, gentlemen.

Good morning.

Thanks for taking my call. In your prepared remarks, you had mentioned about Japan, that there was an unfavorable mix. Is that correct?

Right.

Okay. And we're also expecting R&D to go up, restructuring actions to occur, which would mean that there would be some disruption in your production. But yet, for the full year 2012, you're anticipating to hold your margins to 2011 levels. And I was wondering if you could talk a little bit about where it is that you're going to make up the difference, when you've got these three areas where margins are going to be a headwind for you.

Yes. First of all, we have to remember about 2012, and our guidance between 10% and 11% margin, is that we expect to have higher sales for 2012, compared to 2011. And we talked about that. And that higher sales will of course give us more contributions. So that will, itself, be a positive impact on the year over year basis. And then, that the fact we also will carry more RD&E, in terms of $60 million, more than $60 million. We will have some more raw material expenses.

But anyhow, thanks to the higher sales, and thanks to everything else we are doing in the Company to improve our margins, we will be able to do 10% to 11% margin.

So it's mostly the operating leverage that you're anticipating in 2012 that will make up the difference?

Yes.

Okay. And then --

Hello?

Hello?

Yes, sorry. Lost my question.

Oh --

I'll have to follow up with you later. I had another question, but I lost what I was going to ask. (laughter)

That is all fine.

(multiple speakers) --

All right. Thank you.

Our next question comes from Johan Dahl of Erik Penser Bank. Please go ahead.

I had my question answered. Thank you.

Okay, thank you.

Our next question comes from Philippe Barrier of Societe Generale. Please go ahead.

Yes, good afternoon. Philippe Barrier of SocGen. Just -- I'd like to ask three questions, the first one regarding the FX impact. (inaudible) impact, you made some impact in term of profitability just, or is it just a question of translation from foreign currencies to dollar? Could we see some impact in term of profitability?

Second question is regarding the commodity price trends you have in your budget of 2012 earnings. Actually, what -- I suppose it's based on the forecast on (inaudible), all the commodities price. And (inaudible) you have some way to hedge this purchasing. In term of costs, you can actually limit the impact in your costs for the full year 2012.

And the third question is regarding the change you expect in Europe in car production, which would be [extremely] negative in Q1. I see you see that's the risk of abnormal, quite high costs. We're getting fixed costs of the Company in the first quarter, which will may be a risk for the full year of forecast.

Okay, let's -- to take the first question, and if I get that right, the currency effect we now have in our outlook is translation effect. And those effects should principally not impact our margins. You will have a similar impact on the sales, but you will also have corresponding impact on your cost side.

So from the margin point of view, regarding translation, we do not expect any impact.

Was that the answer of your question?

Yes, yes, please. Yes, it's certainly -- it's okay, thank you. Thank you.

On the hedging, and regarding raw materials, we don't normally hedge on raw materials, and up to now, we are not hedging. So if we will have changes in raw material prices, that will impact us, and that is also what we have been talking about for 2011, as well as for 2012, where we expect to be around $50 million negative impact.

Okay, thank you.

Commodity prices, they are based on the level we had here at the end of the year --

(multiple speakers) --

(multiple speakers) --

Okay, it's clear.

Did we have a third question from you?

Yes, but that was whether the drop in the light vehicle production in the first quarter will affect our profitability for the full year.

I think it's built into the forecast.

It's built in.

It's all built in for the full year. So what we have in Q1 is part also our full year guidance.

What is important to say here is also that despite the drop in the light vehicle production here in the first quarter, we are outperforming the global light vehicle production. Despite that you see a drop in Europe of 12% for the full -- for the first quarter, we are outperforming the total global light vehicle production. So that is an important remark to make.

We can now take our next question from Anders Trapp of SEB.

Yes, hi, one question. I wonder if you -- what is -- say, about the impact on the Thai floodings going forward. I know what you said about the fourth quarter, but are there any costs for that to be expected in Q1 and forward?

We expect in the first quarter to have an extra cost of around $3 million, and that is a part of our guidance today.

Oh, that's included in the guidance? Okay, very good. Thank you.

Yes. Yes.

Mr. Carlson, we have no further questions in the line.

Okay, then I think we all want a clarifying remark regarding the split of the R&D cost over the year. I hand it over to you, Mats.

Yes, thanks. We talked about that we will have more than $60 million increase of RD&E net 2012 compared to 2011. And that will come in the three first quarters of 2012, compared to 2011. And it will be evenly split between the three first quarters.

Okay? With that clarification, I would like to thank everybody for your attention and your continued interest in our Company. We look forward to speaking to you again during our first quarter earnings call on Friday, April 27th, 2012.

Thank you very much, all of you. Thank you.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.