Autoliv Inc (ALV) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2012 results conference call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Jan Carlson, CEO.

Please go ahead.

Thank you, Caroline.

Welcome, everyone, to this earnings presentation.

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

We will open up today's earning call with a quick review of our first quarter results, including an overview of general business conditions.

Then, we will focus on the outlook and how we see our business improving throughout the remainder of 2012.

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

And this time, we have had some problems with our website, so I turn over to Mats to give us some guidance on how to get the presentation.

Yes, I'm afraid that the direct link that we have on our website, typically have for downloading the presentation, we have had some problems.

I don't know if they've managed to get it fixed by now.

But if they haven't, you shouldn't be worried, because there is another way that you can get the slides downloaded.

And then you go to our website, and on the first page there, you click on News / Calendar.

And when that page opens, you go to Live Webcast Slide Show and log in.

Then you will be able to follow the slide presentation there, and also download the slides from that page.

So it should still work.

Thank you.

Okay, thank you, Mats.

And with that, we turn the page, where we find the Safe Harbor statement, which, as you know, is an integrated part of the presentation.

During the presentation, we would reference some non-US GAAP measures.

The reconciliations to US GAAP are disclosed in our quarterly press release and in the 10-Q.

Moving on to the next page, we continue to execute on our growth and operational strategies.

In the first quarter, we achieved a new record sales of $2.2 billion.

This was mainly due to our strong growth in Active Safety, China and Korea.

This record sales performance was despite European light vehicle registration in March was the lowest level in 15 years.

We met our EBIT margin guidance of 10% for the first quarter, and we are on track to achieve our full year margin indication of 10% to 11%, excluding costs related to capacity alignments and antitrust investigations.

We now anticipate the cost for the capacity alignment program to be in the range of $60 million to $80 million in 2012.

The majority of the cash outlay and savings for this are expected to be in 2013 and 2014.

Over the last several quarters, we have gradually increased capacity in the growth markets and stepped up our technology investments for Active Safety.

We will see the benefits from these investments accelerating during the second half of this year, as we continue to increase our market shares in both Active Safety and in China.

Regarding the antitrust investigations, we are able to report that we are making progress.

Based on the current status of the US investigation, the Company has recorded an accrual of $14.5 million in the first quarter results.

This reflects Management's best estimate at this time of the fine for the final resolution of the DOJ investigation.

Otherwise, there is no further information that we are able to discuss, since both investigations are still ongoing.

Onto the next page.

Our sales increase of slightly more than 3% was 1 percentage point better than our guidance.

The year over year margin decline of approximately 2% was due to higher raw material and R&D expense, and our facility investments for growth along with underutilized facilities in Europe, as a consequence of the sharp decline in light vehicle production.

The negative raw material price effect of $15 million was in line with our expectation, and should remain flat throughout the remainder of the year.

Excluding the effects of the capacity alignment costs, our return on capital employed and return on equity remain very strong, at 26% and 17% respectively.

And lastly, our dividend paid to shareholders in the first quarter of $0.45 per share was the highest ever, and the total dividend amount paid was 29% higher than the previous high before the financial crisis in 2007.

Since reinstating the dividend in 2010, we have returned almost one third of our free cash flow to shareholders.

Turning the page, we have the quarter 1 light vehicle production according to IHS.

The light vehicle production was up 6% year over year.

Our organic sales growth of 5% was according to our guidance.

We continued to outperform global light vehicle production in regions except North America and Japan, and that's due to the tsunami rebound effect.

Since we have relatively low control on Japanese vehicles, this creates a temporary negative effect.

Excluding the tsunami effect, we believe we would have outperformed the global light vehicle production with approximately 2%.

On to the next page.

Our cash flow from operations was $98 million in the quarter, and we believe an operating cash flow of around $0.7 billion is the realistic indication for the full year 2012.

As you know, our cash flow varies between quarters, and this quarter comparison to last year is negatively affected by an unusually high accounts payable at the end of last year.

During the first quarter, our capital expenditures of $78 million was approximately 3.5% of sales.

For the full year 2012, CapEx is expected to be approximately 4.5% of sales, as we mentioned in our last earnings call.

These investments should enable our Company to take care of our strong order intake, and continue to deliver growth rates above the market growth.

And lastly, we maintain a strong balance sheet with a flexibility to adapt to the uncertain macro situation, and take advantage of acquisitions.

On to the next page.

We have example of how our investments for growth are contributing to our top line.

This year, we expect sales of Active Safety products to increase by more than 50%.

Thereby, this new business area will contribute approximately 2 percentage points of our organic growth in the second half of 2012, and help us outperform the market.

The step-up in R&D expense is expected to be approximately $60 million, compared to 2011.

We have another example -- turning the page, we have another example of how our investments are resulting in top line growth.

This year, our sales in China are expected to grow organically by close to 20%, and we'll be approaching approximately $1.2 billion in sales.

This growth is nearly 3 times more than IHS expectation of 7% for the light vehicle production in China during 2012.

And as a consequence, our market share in China will continue to increase, and China will contribute another 3 percentage points of our organic growth in the second half of 2012.

So combined with Active Safety, we have 5 percentage points of our total growth from these two areas in the second half of the year.

Looking now to our outlook, on our next slide, we have the light vehicle production by quarter for 2012 according to IHS.

The global light vehicle production each quarter is essentially flat throughout the year, with the exception of the seasonality of quarter 3. This is important to point out, because when you look at the increase year over year, you get a very high percentage in the first half due to the low light vehicle production last year caused by the tsunami.

This strong year over year increase by the Japanese OEMs in North America and Japan will fade out in quarter 3. In absolute vehicles, the Japanese OEMs' global volume will decline more than 800,000 vehicles from quarter 1 to quarter 4. And in contrast, light vehicle production in China and rest of Asia is expected to increase 800,000 for the same period.

This shift in light vehicle production will be positive for Autoliv.

You should also note that the light vehicle production in Europe will decline in the second quarter, which of course will be negative for us.

Onto the next slide.

We have our outlook for the second quarter.

Based on our customer call-offs, we expect to have another strong sales performance during second quarter, despite a continued sequential light vehicle production decline in largest market, Europe, of 5%.

This is the main reason why we expect our sales to be 2.5% less in the second quarter than in quarter 1. However, year over year, we expect an organic sales growth of 7%.

This is primarily driven by our strong growth in Active Safety and in China.

For the second quarter, we expect an operating margin of more than 9%.

This decline from quarter 1 is mainly due to lower organic sales and higher technology investments, which is expected to peak in quarter 2 at more than 6% of sales, and is expected to return to around Q1 levels in relation to sales for the full year.

Therefore, the margin decline in quarter 2 to less than 10% is temporary, as we expect margins to rebound to double digits in the second half of this year, as you will see.

On to the next slide.

We have the outlook for the second half of 2012.

We expect our growth to accelerate into the second half of this year, despite a somewhat slowing light vehicle production.

Year over year, our organic sales are expected to increase by approximately 8% in second half, as compared to a 3% expected increase in global light vehicle production.

This strong growth is mainly due to our investments in Active Safety and China, as well as a number of new launches.

For the second half, this implies an operating margin of around 11%.

This improvement is mainly due to RD&E expense dropping back to below 6% of sales in the second half.

We will also have a better leverage in our plans for Active Safety and in China as light vehicle production improves there, and we continue to increase market shares.

Moving on now to the next page.

In addition to Active Safety in China, thirdly, our last year in the second half should benefit from many vehicle launches some of you will see on this slide.

Although it's somewhat uncertain how well these platforms will sell in the marketplace, the annual revenues for these platforms are in the range of $40 million to $90 million for each of these models.

Turning the page, we summarize our sales and margin outlook for the current quarter and full year.

All figures are related to our guidance and outlook assume that mid-April exchange rates, and exclude costs for the antitrust investigation and capacity alignments.

For the second quarter, we expect consolidated sales to increase by approximately 3%.

This is driven by the organic sales increase of approximately 7% as mentioned earlier, which is partly offset by a negative 4% currency effect.

Given these sales assumptions, we expect an operating margin of more than 9% in the second quarter.

For the full year, the indications are a consolidated sales increase of approximately 4% year over year, and an organic sales increase of approximately 7%.

This is unchanged from our earlier guidance.

Therefore, based on all of these assumptions, our EBIT margin are -- also remained unchanged, which means that we expect a margin in the range of 10% to 11%.

If we now turn the page, we conclude the formal comments of today's earnings call, and we would now like to open it up for questions and answers.

And with that, I leave the word back to you, Caroline.

Thank you.

Certainly.

Today's question and answer session will be conducted electronically.

(Operator instructions) We'll now take our first question today from David Leiker from Baird.

Please go ahead.

Hi -- hello.

How are you doing today?

We are good.

Thank you, Dave.

How are you?

I'm doing well, thank you.

I would start on these alignment costs.

Can you detail -- you know, you talked a little bit about what you're doing, but how much of it is plant relocation costs and investments, versus headcount reductions, and -- kind of put that into some buckets of where that spending is going.

I can take it.

We don't have a lot of details to shed on this, unfortunately, Dave, but we can say that the majority of it is severance payments going out.

Okay.

And then, on the -- your comment about the Japan/China production mix being positive for you in the second half.

What's the difference in average content that you have in China versus Japan?

Because I would assume that's what's driving that difference.

I leave that word to Mats.

Give me a second, I want to come back on that.

I have forgotten the number.

I have to look it up.

Okay, we can come back to that, Dave, in a second.

And then one last item.

When we look at your Q2 numbers, and your guidance is based off on your call-offs from your customers, the number you put in the presentation is IHS.

How much of a difference is there between those two numbers right now?

Well, it's hard to say, Dave.

For the first quarter, we indicated that was a correlation between IHS for quarter 1, and our call-offs.

And we turned out that it wasn't that complete alignment between what we see and saw in our call-offs.

So I don't know how much the difference is today.

It's difficult for me to comment on it.

Okay, great.

Thank you.

Thank you.

We will be back with a complete answer on the Japanese content.

Okay, thank you.

We will now take our next question from Stefan Pieter from Goldman Sachs.

Please go ahead.

Good afternoon.

Thank you very much for taking my questions.

The first one is, on the antitrust investigation, you obviously gave us a bit more color on the US.

I was just wondering if there is also something in Europe ongoing, or if there's any news on that.

And then secondly, are there -- I mean, you've sort of got a very strong balance sheet, and how do you think about deploying that cash?

Obviously part of it you need for your organic growth, but do you see any acquisition opportunities?

In the past, you mentioned about potentially looking at things in Active Safety, and then on the other hand, if you can't find any opportunities, what would be your preference for those sums which you've set aside?

And then my third question would be, can you give us a bit of color on your operational gearing in Europe versus the other regions?

I mean, presumably, you've got very strong growth in Asia.

You also need to add capacity at the same time.

Does that mean that the margin benefits we should expect for those to come through with a bit of a lag?

Thank you very much.

Thank you.

We start with the investigation.

As we all know, we have two investigations ongoing, and we have what we have talked about here is our current best estimate for the US investigation.

And that investigation is still ongoing, as well as the European investigation, which is still ongoing.

And we have no comments to say about the European investigation at this time.

[On the] (inaudible), afraid, but that is -- that's the thing.

Regarding Active Safety, and regarding our acquisition opportunities, we are determined to seek acquisition opportunities in Active Safety.

We have a strong balance sheet, we have reported our strategy to keep a strong balance sheet for several reasons.

There has been the acquisition opportunity, the uncertainty, and of course, also the ongoing investigations.

There is nothing imminent on the table that I am able to report to you at this time.

We have been successful, I think we have been showing several good acquisitions over the past few years, in the Vision area and as well as in the Radar area.

And we believe we have a good opportunity to continue to do good acquisitions in Active Safety, but unfortunately, nothing today that I can report back on.

On the operational gearing for Europe, we don't comment, as you know, on either regional or product area specific profitability.

We have mentioned earlier that China, as such, has been above corporate average due to a very high utilization, and a very high growth rate in China.

And apart from that, we have no comment.

And I am not able today to give you any more color on it either, unfortunately.

Okay.

That's all very clear.

Thank you very much.

Thank you.

As to the question about the supply values in China and Japan, the -- for the market to the supply value for Passive Safety is almost $200 per vehicle in China.

And in Japan, it's $375, roughly.

And we have, as you saw, a 38% market share in China next year, approaching that, whereas our market share in Japan is roughly 20%.

So if the Chinese vehicle production is strong, that is very helpful for us.

Thank you very much, Mats.

Was that answering your question, Dave?

Okay, maybe he will come back if --

Okay.

That is fine.

Yes, very good.

We will now take our next question from Anders Trapp from SEB.

Please go ahead.

Yes, hi there.

I have three short questions.

First, about the Active Safety contribution, you said that it -- 2% on Group level from second half.

If that's something we should expect also going forward, but -- and also, what has it contributed, let's say, last year.

That's the first question.

Second, about the estimate of $14.5 million for US investigation, is that an estimate based on an agreement with the DOJ, or is it an estimate of what you think a court will levy?

I guess it's an agreement.

All other cases so far have been agreements.

But if you could comment on that, please.

And also, do you feel more secure now in -- be daring to use your cash pile to a more productive use than generating 0.5% interest?

Well, we will come back to the Active Safety question a little bit later, and I will start with the US part.

The only thing we are able to comment on today is that we have made progress in the investigation, and this has enabled us to make a best estimate of the resolution.

And apart from that, as the investigation is still ongoing, I will stay out of any further comments on it.

And then, when it comes to the use of cash and the strong balance sheet, we should recall that we have, first of all, this fund is not concluded yet, and second of all, we have the EU investigation that is also ongoing.

And thirdly, I refer back to what I said in the previous question, that our strategy has been to build up and use a strong balance sheet for acquisition opportunities.

And we remain committed to seek for growth opportunities through acquisitions.

If that at some point turns out not to be feasible, and I cannot give you a timing for that, of course, we are have historically been very favorable and looked on shareholder returns in various kinds of forms.

I think it's also important to point out that we are already on a dividend level that is record high.

So still, we are having a strong balance sheet, and we are returning a lot of money to our shareholders through the dividend.

And with respect to Active Safety part, maybe I can refer --

Last year, we had $160 million in sales, roughly, which is almost a doubling of the sales from 2010.

And this year, as we said, we expect it to increase by more than 50%.

And it's a very strong development here.

Exactly how it will then play out in the other years coming here, I think we will come back to you there.

But it's growing very, very rapidly.

And so last year, going from $80 million to $106 million, [so that is $80 million], so that is 1% contribution, I guess, to your Group growth, roughly speaking, and now we expect 2% at least for second half.

All right.

Good.

Thanks.

Yes, that's correct.

But if you -- yes, exactly, that's correct.

(Operator instructions) We'll now take our next question from Philip Watkins from Citi.

Please go ahead.

Oh, hi.

Thanks for taking my question.

Just one very quick one, really, which was, maybe you could comment on how our pricing has developed.

I know it didn't necessarily move so quickly within a quarter, but whether there'd been any notable changes in pressure, particularly in Europe.

Thank you.

No, there has not been any big changes, actually.

We normally see a price down of roughly 2% to 4%, and this time, we are reporting a price down of -- in the mid part of the range, actually.

So there haven't been any big changes than what we previously have communicated.

It's about the same.

Okay, thank you.

Thank you.

(Operator instructions) We'll now take our next question from Adam Brooks from Sidoti & Co., LLC.

Please go ahead.

Yes, good morning, guys.

Just a quick question on Active Safety.

Maybe you could tell us how launches have gone thus far compared to your internal expectations, and what's driving the acceleration in growth in the back half of the year, seeing Active Safety up 30% in Q1 and going up to 50% for the full year?

The launches are going very well.

I think we are performing our launches to our customer satisfaction.

And if you look into the next year, or into the second half, rather, we will continue new product launches.

We will have new versions of our existing products coming out, and we will also have new car lines going into production during second half.

And the second half launches here, new car lines going into production is a strong contributor to the increased growth in the second half.

(multiple speakers), new car lines.

And just real quickly, if we look into '13, and I know it's early, can we expect another jump up in R&D, or are we kind of leveling off here and we're staying in that 5.5% to 6% going forward?

We have committed ourselves to be below 6%, and we are still committed to be below 6%.

For the quarter to come, we may jump above 6%.

That is a temporary effect, quarter over quarter, for this quarter.

But we are, for the long term, committed to stay below 6%.

Great, thank you.

Thank you.

We'll now take a follow-up question from David Leiker from Baird.

Please go ahead.

Yes, one additional follow-up here.

If you look at your growth rate -- not the organic growth, but take production out of there and look at your growth versus the market, that's been moving around a lot here on mix and some other items.

If we look out two or three, four years, what is your target of what you want that number to look like as you go after new business?

Well, we have -- as you know, we have been outperforming, with the exception now for this quarter, we have been outperforming the global light vehicle production for a number of quarters in a row historically in the recent history.

And we are -- continue to investing for growth in Active Safety.

We are investing in the fastest growing markets, as you know.

I have no good figures to you, Dave, to date, to give you X percent above light vehicle production, or an absolute number in target.

We are continuing to strive to grow faster than the market.

But we will have to come back to you a little bit later, and give you some more lights on that.

Do you think that you can grow faster than the market in your traditional core products of airbags and seatbelts?

Or what -- because that seems to be a little bit more of a challenge for you.

Well, I think it varies between market to market.

I think in some important markets, we will have a chance to continue to grow faster than the market, at least for some time to come.

And that is proven by our fast growth in China, for instance.

And then you have, other markets is more established there, the situation might be different.

So overall, I think, as we are having the market share we have, depends on the platform mix and how successful we are going forward.

But in keeping the good vehicle mix as we have today, and also to improve the situation further with our Japanese OEMs.

Okay.

Thank you.

Thank you, Dave.

We'll now take our next question from Johan Dahl from Erik Penser.

Please go ahead.

Yes, thanks.

I just had a question, comparing to what you provide in your outlook in the last quarter, we've seen some upward revisions of market estimates for global vehicle production.

And I'm just thinking, you're sticking to your forecasts for the full year, despite this upward revision.

What is the point here?

Which areas, or which markets can you mention there?

And secondly, I wonder, given the accrual you are putting up now for a potential fine in the US, should we expect significantly lower costs associated with this process?

I mean, they were low in the first quarter, but sustainably low?

If you look on the markets, to start with, disappointing markets, I think we -- disappointing or not, we are having a situation in Europe that is unstable, and it's hard to predict, and I think it's very much coming from the overall macro situation.

So the market, as such, is declining, which I think is, of course, a headache for the auto industry as such, looking ahead, at least for many players in the industry.

Disappointing, I think it's always when a market is declining, we like to see growth.

When it comes to the legal costs and legal fees, I don't want to speculate and comment on the forward costs looking ahead.

The investigation is still ongoing in the US.

We are able now to make an estimate of the costs for the fines here.

But it's still ongoing, the European investigation is still ongoing, so we stay out of a speculation of the legal costs.

Okay, thanks.

Thank you.

We'll now take our next question from David Lim from Wells Fargo Securities.

Please go ahead.

Hi, good afternoon.

I'm sorry if I missed this, but was there any kind of impact from the resin situation for you guys, and can you provide us with more color if it does impact you?

We have resin in one of our products at least, and we have secured material that is affected here for our production up until August.

If we would not be able to get the material at that time, so the production will not be up and running again, we have several other materials qualified.

So from our production, we are safe.

Now, whether this will affect the overall demand in the auto industry, I cannot speculate on, but Autoliv is safe.

Great.

Thank you very much.

Thank you.

We'll now take our next question from Adam Brooks from Sidoti.

Please go ahead.

Yes, real quick.

If we look at China, the market share expectations have continually crept higher, and it seems like you've achieved chart targets quicker than expected.

If we look out about five years, what do you see as a target share?

Can you get to 45%, or do you peak out at about 38% to 40%?

Well, that's a good question.

I wish I would be able to answer it.

I cannot say that.

We have having a very strong position.

We are continuing to grow our share, and we will see what this is playing out, and how it will be.

I'm not able to comment on it.

We will try to do our best to increase our shares, and so far, we have been successful.

You remember in 2008, we had 26% market share, and now we're talking about 38% in 2013, so that's a nice story.

But unfortunately I cannot give you an outlook.

We'll now take our next question from Bjorn Enarson from Danske Bank.

Please go ahead.

(technical difficulty)

Hello?

It appears he has been removed from the queue.

Okay.

(Operator instructions) We'll now take a question from Bjorn Enarson from Danske Bank.

Please go ahead.

Can you hear me?

Yes, we can hear you now.

Yes, that's good.

Thank you.

I have a follow-up question on the outlook statement on the back of the upward revisions we have seen during the quarter for the full year.

Do I read you correctly that you are taking a little bit more cautious stance than the industry forecast, or are you seeing that you have a less favorable platform mix?

I think we have a continued strong vehicle mix, and I think we are using, of course, IHS as the prime for the full-year forecast, but we are also mixing in our own impression from our discussions with our customers.

So I think that is a blend of what we can see here in the figures you see from IHS.

It's a blend of our own forecast and a blend of IHS.

Okay, thank you.

Thank you.

As there are no further questions in the queue, that will conclude today's Q&A session.

I would now like to turn the call back over to your host for any additional or closing remarks.

Well, I would like to thank everyone for your attention, interest and questions, and continued interest in our Company.

We look forward again speaking to you on our second quarter earnings call on Friday, July 20, 2012.

Until then, I wish you all a good time.

Thank you very much.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.