Autoliv Inc (ALV) 2012 Q3 法說會逐字稿

Good day, and welcome to the Q3 earnings conference call.

Today's conference is being recorded.

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

Please go ahead.

Thank you, Fola.

Welcome, everyone, to our third quarter earnings presentation.

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

We will open up today's earnings call with a brief review of our quarterly results, including an overview of our general business conditions.

Then we will focus on the outlook, and how we see our business evolving throughout the remainder of 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 will reference some non-US GAAP measures.

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

Moving on to the next slide, we continue to execute on our operational and growth strategies, as we navigate through challenging times.

Despite these uncertainties, we deliver another solid financial result in the quarter, with a 10.1% EBIT margin, in line with our expectations.

Our strong operating cash flow and balance sheet will enable us, enable our Company, to make the appropriate technology and capital investments, as our long-term strategies for growth remain intact.

The macro environment has gradually deteriorated throughout this year, particularly in Europe, where OEMs are increasingly idling factories.

In this environment, we take further actions to adjust our cost structure, and we therefore now expect the capacity alignment costs that we announced back in February to be in the high end of the $60 million to $80 million range.

We do not exclude that further actions will continue into 2013.

Over to the next page, we have some of our key figures for the third quarter.

Our sales of more than $1.9 billion was the second best third quarter ever.

Compared to last year, sales declined slightly, due to currency.

Organically, our sales grew by 2%.

This was one half of what we expected, primarily due to the sharp decline in our European sales, strikes among the [staff] Korean customers, and slightly lower growth in China with the J-OEMs around the political tension between Japan and China.

These negative effects were partly offset by our strong organic sales growth of 13% in the Americas.

Our EBIT margin of 10.1% declined 40 basis points year over year, mainly due to underutilized capacity in Europe, while adding new capacity in growth markets.

Our return on capital employed and return on equity remained strong, at 23% and 14% respectively.

Turning the page, we generated an operating cash flow of $131 million in third quarter.

The cash flow was negatively impacted by $45 million higher working capital.

This was mainly due to timing, and in addition, we had the payment of DOJ fine in July.

Capital expenditures of $98 million was approximately 5% of sales, and the full year 2012 indication remained unchanged, around 4.5%.

This level of capital investment is required to support our strong order intake, deliver long-term growth rates above the industry, and remain competitive.

We also returned $45 million to our shareholders with the dividend, and we announced an increase in the quarterly dividend to $0.50 per share, to be paid in December.

Turning the page, we experienced a positive commodity effect of $4 million year over year in the third quarter.

This was $2 million better than expected, and assuming current commodity price levels prevail, we expect a positive effect of $7 million in the fourth quarter.

We now expect a headwind of $6 million for commodities for the full year 2012, and that is $5 million better than we expected earlier in July.

Steel and oil based raw materials, including yarn, remained the most significant raw materials.

Combined, they represent approximately two-thirds of our raw materials spent.

This concludes our formal comments around the third quarter, and we are now moving to the underlying market conditions, on the next page.

We have the light vehicle sales trend in the US and Europe, based on the trailing 12 months.

The European registrations continue to decline from the peak levels that resulted from the incentive programs during the financial crisis of 2009 and 2010.

The weakness that we now have seen in the Southern European part appears to be spreading to Northern Europe.

And therefore, due to the underlying weak economic conditions, there is no real recovery expected in the near term for Europe.

If you turn to the next slide, we have the overall market situation in North America that continues with a steady recovery.

The US SAAR continues to run in the range of 14 million to 15 million, with healthy inventory levels.

In addition, consumer credit appears to be more widely available during a positive replacement cycle.

Looking ahead, we expect to see a step up in the frontal airbag demand in South America.

For instance, in Brazil, the legislation calls for a 65% adoption rate on new vehicles in 2013, and then to 100% in 2014.

If we now turn into Asia on the next page, China will surpass Europe in light vehicle production during the fourth quarter.

Both passenger car sales and light vehicle production in China continue to grow in the mid to upper single digits.

In addition to the continued increased penetration of our safety products in China, we are well positioned with both domestic and foreign brands to benefit from shifting consumer preferences.

In Japan, the light vehicle market appears to have returned to pre-tsunami levels.

However, we see a risk for further softening.

The South Korean market is rebounding from the labor strikes in quarter three.

However, underlying demand seems to be slowing.

And lastly, in the other Asian markets, we continue to see a moderate light vehicle production growth in addition to the rebound effect of the flooding in Thailand.

Turning the page, here we have updated our launches in Active Safety.

Our sales in Active Safety are expected to grow year over year between 40% to 50% in the fourth quarter.

This is a step up in the growth rate from close to 30% in first half of the year, and that is despite a slightly lower take rate than we expected earlier in this year.

Even during these uncertain times, we remain committed to our innovation of new products, not only in Active Safety, but in Passive Safety as well.

We are monitoring the overall market, and will adjust our priorities depending on how market conditions evolve.

When we look at the long-term light vehicle outlook, as illustrated on the next page, the overall long-term market trend remains intact.

This industry trend is best illustrated by the fact that in 2007, China produced roughly 50% of the light vehicles produced in Western Europe.

Already this year, during the fourth quarter, we see China overtaking Western Europe and Eastern Europe combined, in light vehicle production.

Therefore, even in uncertain market conditions, we must continue to make investments to take advantage of the growth market, while making capacity alignment to reduce fixed costs where production will not recover.

So far this year, we have spent approximately $80 million in capacity, the capital investments towards our growth markets in Active Safety.

This is in addition to the $150 million we spent in 2011.

On to the next page.

We have two examples here for -- of our further investments in growth strategy.

Last week, we announced an expansion to our Tech Center in China to improve our testing capabilities to support our customers, and increase our competency in Electronics and Active Safety in Asia.

In addition, we announced that we are making our largest capital investment ever, to add propellant manufacturing capacity.

This investment is required to support the increase in demand for airbags in Asia, and in addition, this will reduce our logistic costs.

Turning the page now to our outlook, we have our guidance for the fourth quarter.

Based on our customer call-offs, we expect an organic sales growth in the range of 0% to 2%.

This lower growth rate than implied in July is primarily due to the accelerated decline in Europe and lower growth in China, partially due to the political tension between Japan and China.

However, our launches in China remains intact.

For the fourth quarter, we expect an underlying operating margin of 9%.

This lower margin than implied in July is due to the lower organic sales growth.

As compared to last year's fourth quarter, the margin decline of approximately 2 percentage points is mainly due to higher RD&E spend, and underutilized capacity.

On to the next page.

We have summarized our sales and margin outlook.

All figures related to our outlook assume that mid-October exchange rates prevail, and excludes costs related to the antitrust investigations and capacity alignment.

Our fourth quarter guidance calls for virtually flat consolidated sales, and an EBIT margin of around 9%.

This would yield flat consolidated sales for the full year, with organic sales growing around 4%, which is mostly offset by negative currency effect.

As a result, our EBIT margin for full year 2012 is expected to be more than 9.5%.

We expect our strong cash flow performance to continue, and thereby generate an operating cash flow in the magnitude of $0.7 billion for full year 2012.

So to summarize, we remain focused to mitigate the negative effects of a mixed and uncertain macro environment, while driving our long-term growth strategy initiatives.

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

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

Thank you.

Thank you.

The question and answer session will be conducted electronically.

(Operator instructions) We will now take our first question from Rod Lache from Deutsche Bank.

Good morning.

Can you hear me?

Hello?

I can hear you well, Rod.

Okay, thank you.

I just had a couple questions about this -- the guidance, and the outlook.

Just maybe first of all, your operating income in the fourth quarter of last year was $224 million, and this year, based on your guidance, it looks like it would decline by maybe $40 million to $184 million.

And you mentioned that raw materials are roughly a $7 million tailwind.

And this is on roughly flat revenue, and organic growth of low single digits, 0% to 2%.

I was just hoping -- you mentioned RD&E, and some cost issues.

Can you just help reconcile that bridge for us, on what is causing the $47 million to $50 million drag on a year over year basis?

I leave the question to Mats, and he will walk you through the details.

It's principally two items doing this.

First of all, that we had more cost for growth.

As we talked about, we have to invest in new markets, we have to invest in new technology.

So the growth related to production overheads, related to other overheads in order to grow in new markets, had an impact of around -- close to a percentage point on [the amount], a negative impact.

And then you have the investments in RD&E.

Growth increased (inaudible) [on the order] of around zero, or 0.5 percentage point, and the other [percent, half percentage point], is on engineering income.

So all in all, RD&E net close to a percentage point down, and manufacturing input [brings] another percentage point down.

Okay.

And what are you expecting, exactly?

I know that in the release, it said that there is a lot of uncertainty around it, but what are you assuming at this point for European production?

What is the decremental margin that you're applying to that?

And if European production were to stay at roughly this level, can you give us a sense of the magnitude of mitigating actions that you can take?

What kind of cost savings would you be anticipating from some of these restructurings that you're taking?

If you look to the decremental margin, we have talked about the contribution margin varying between 25% and 35%.

So you could -- when it's going up, it's probably in the higher part.

When it's going down, it's slow -- rather, in the lower part.

A good hint would be to talk about 30%.

We can, of course, do more, and we are doing more, as we said.

We are accelerating our capacity alignment program from what we communicated in July.

We are taking this into the higher part of the range, up to $80 million.

We are looking into the -- monitoring the market, and as we indicated in the presentation, if there would be further decline, we would probably do even more than $80 million in actions for the year.

What's the payback on the $80 million?

Is it one years, two years?

We have said before -- we said, I think we communicated in July, two to three years payback on this capacity alignment program.

As you recall, we did a quite significant restructuring program with a lower payback some years ago.

And as this is now further deteriorating, you would expect a longer payback.

Okay.

And just lastly, just a quick data point.

What is your revenue from the J3 in China at this point?

The revenue from J-OEMs in China, as of quarter two, it was roughly $65 million -- roughly.

Okay.

Okay, thank you.

Thank you.

We'll now take our next question from Erik Pettersson from ABG.

Erik, are you there?

Yes.

Can you hear me?

Now we can hear you.

Go ahead, please.

Thank you.

Most of my questions have been answered already, actually, but one more.

I think within the margin guidance you gave for Q4, is there an element there of the [sector -- sort of] uneven production rates with your customers?

And if so, to what extent, the way you look at it now, would you expect that to linger into 2013?

First of all, again, coming back, that we see now the uneven utilization.

We have invested a lot in the new markets, and as you also know, that we see also some softening now in the Chinese market due to the Japanese OEMs, and as you know, we have also invested there.

So of course, we are not utilizing the new capital as efficient as we planned for, so that is -- there we have problems.

We have similar, also, challenges with Europe, of course, where we've seen our volumes going down.

And again, we are sitting there, and of course, adjusting and managing it as good as possible.

But of course, utilization is also impacted in Europe.

And on 2013, I don't think -- it's difficult to say something more about 2013.

We have to come back about that, I think later on in January, when we see more of that, year-end.

I don't know, Jan, if you have any --

No, I fully agree.

We comment on that in January.

Okay, thank you.

Thank you.

We will now take our next question from David Leiker from Baird.

Good afternoon.

Good morning, David.

Two things in particular.

As you look at the European market, what's your sense of -- just kind of the pace of declines?

Jan, you and I talked a few weeks ago, but as you look at what's going on in that market, it seems like we continue to see acceleration, and that things are likely to get worse yet before they get better.

Yes, I can confirm that if it goes -- how much worse it's going to get, but it seems right now that it is further, on the further declining path.

And as we indicated, we can see also signs that it's spreading north.

It's not only the Southern European OEMs, but also seeing signs of initiating, weakening signals from Northern European in Germany and in Sweden.

And have you seen that carry over into -- you know, anybody take any extended shutdowns at the end of the year, or has that not happened?

Well, you have seen some OEMs that have announced.

We have one OEM here in the Northern European part that initiated a week plant shutdown here later on in October, just only three weeks ago.

So there has been signs of plant shutdowns coming.

And this has increased, we would say, over the last four to eight weeks, these signs.

And we don't know to what extent it's going to further deteriorate, but we do not see any signs of recovery or [reasoning] out.

Okay.

And then on a different item, as we look at the margins, what -- one of the long time conversations here have been that your EBIT margins have been running above your long-term target ranges, and you're back within that range we used to talk about.

Is this a proper level of profitability that we should look at on a go forward basis, or do you think there's opportunity to get back to where you were just a few quarters ago, longer term?

We have a situation now when we are investing for growth, as illustrated on one of the slides.

We are setting ourselves up for growth in new markets.

And this is, of course, taking costs.

We are investing in Active Safety that will require costs on RD&E towards the target of $500 million in Active Safety in 2015.

And in the midst of this setup and journey for growth, we are hit with an erosion of $180 million on second half on top line, to what we thought and planned for as late as in July.

And it's very difficult to, in such a short period of time, to adjust swiftly.

We are fast, we are early out, and we are taking actions.

But to compensate immediately for that magnitude of erosion is close to impossible.

What do you think the timing is for [all this] investments to generate organic growth that's running well above the end markets?

Is that a couple quarters out, or is that later in 2013 or 2014?

I think it's very difficult to have any good quantification of it.

The launches that we have in China that we communicated in July are running as expected.

The launches in Active Safety are also running as expected.

We are seeing somewhat lower tax rates than we communicated, but that's not so difficult to understand either, when we see difficult times.

And people may not check all the option boxes on the expensive cars.

We believe that the growth we see through the launches will give us a positive boost.

You should recall, though, that Europe is around a third of our Company, and when see sharp decline of a high value market like Europe, it takes some time for that to compensate in volumes in the lower content market in Asia.

Yes.

Okay, great.

Thank you very much.

Thank you, Dave.

We will now take our next question from Brett Hoselton from KeyBanc.

Good afternoon, gentlemen.

Good afternoon, Brett.

Or, good morning, rather.

Thank you.

First, with respect to Rod's question earlier, I just to want make sure I was clear on this.

As each bucket, some of the major changes that have taken place from the fourth quarter of '11 to the fourth quarter of '12, what I'm hearing is four major items.

One, about a 40 basis point tailwind for commodities.

Two, about a 100 basis point headwind for growth.

Three, about a 50 basis point headwind for RD&E.

And four, about a 100 basis point headwind for engineering income.

Did I get that correct?

Not really.

I think if you combine the RD&E (inaudible), it's close to 1 percentage point.

And if you take the growth part, it's another percentage point.

All right, okay.

And can you explain the engineering income?

What are we talking about there?

We are talking about -- around a $10 million lower engineering income in Q4, compared to last year.

And just -- is that just, kind of just happens to be how it happens to fall this year versus last year, or is there something that's changing there of some significance?

It's more in timing -- it's a timing issue.

So what we are seeing is that we have been more successful in Q3 now to get the engineering income in, of around the same magnitude.

But that is coming back in Q4 this year, of being lower.

So all in all for this year, I think there is not so much difference in the engineering income, but the timing of it is different.

And that's why, when you look into Q4 year over year, it's around $10 million lower.

And engineering income is coming when you complete and finish the projects you are working with towards customers, and getting product into launch, and getting product ready for production.

And we have been successful in completing some of these earlier than expected, and therefore, we have seen a higher level of engineering income in quarter three.

Okay.

And the tax rate was a little bit higher than we would have anticipated in the third quarter.

Was there anything unusual in the tax rate?

Yes, it was.

And as you know, we guided an end tax rate of 28% for 2012.

And that was excluding discrete items.

So now in Q3, we got a discrete item, and that was related to a new law in France, a new law which principally put 3% tax on dividends.

So when we take out dividends, out of France, we are hit by a 3% tax.

And that is impacting our retained earnings.

So what's available for dividends is now impacted in the P&L for the third quarter.

The impact is around $7 million, and has increased the rate temporarily for 4%, just 4%.

And as we look at the fourth quarter, as we look at 2013, what are your expectations for the tax rate?

For the full year 2012, excluding this kind of discrete items, we are still around 28%.

If you look into the near term, it should be around 28%.

But, longer term, we will see tax holidays fading out.

So longer term, we will see end tax rate in the low 30.

And then as we look into 2013, and thinking about on a percentage of sales basis, how do you anticipate RD&E spending to impact your 2013 margins?

Do you anticipate another step up in RD&E spending, impacting your margins by another 50 or 100 basis points, or do you see it leveling off as you move into 2013?

We have said before that we would keep R&D lower than 6% of sales, and that is as much as we have guided on the RD&E.

And it all depends on the growth rate, and how much you are investing for growth.

But we have communicated to you here on earlier calls that it should stay south of 6%.

Okay.

Well, thank you very much, gentlemen.

Thank you.

(Operator instructions) We will now take our next question from Stefan Pieter from Goldman Sachs.

Good afternoon, everyone, and thank you very much for taking my questions.

The first one is just something I didn't catch earlier when you mentioned it, what growth rate you're expecting in Active Safety in the fourth quarter.

And then secondly, I want to come back to maybe one of the positives right now, which is your very strong cash flow and your strong balance sheet.

In the past, you've mentioned several times that you were looking for acquisition opportunities to accelerate growth, and particularly in the area of Active Safety.

Do you think, given the current turmoil in the markets, there may be better opportunities, or let's say, more realistic valuations in the markets, so the opportunity for you to become active may improve?

Or, asking the other way around, do you feel that having an extremely strong balance sheet that you do makes you very, very comfortable in the current environment, and you'd rather say, we want to put acquisitions on hold for now, and wait until we've got more clarity on what's happening?

And maybe just a third one, and I think you answered this in the past, but maybe just to remind me.

We've had quite a lot of plant closures which are being announced in Europe.

Do you see any direct impact from those plant closures to you, or is there nothing specific related to this?

Thank you.

If we start with the growth in Active Safety, we said here in the slide presentation that we estimate the fourth quarter growth to be between 40% and 50%.

And so -- and that is year over year, quarter four growth compared in Active Safety, so that's organic growth in fourth quarter for Active Safety.

And this is a step up compared to the first half of this year, which shows in combination a 30% organic growth.

So we are seeing a step up, and that is consistent with the message of our launches.

But you look to plant closures, or you look to -- before we take the plant closure, we take the plant closures of our OEMs, and -- or growth, is a rather -- the growth rate, and the opportunity to invest in assets.

The strategy we have is to build a strong balance sheet and to take the opportunities to buy companies when it comes.

For many owners of these assets, they see this as strategic assets, and they see it as something they want to hold onto.

And we believe that that could change in difficult times.

So it was after the crisis, when we acquired Passive Safety from Delphi, so it was when we acquired the Tyco Electronics in the fall of 2008 only a few weeks away from the Lehman Brothers crash.

And we would not be surprised if that would come again.

If times are difficult, we would like to have the capacity to make a good acquisition if the right occasion comes.

We don't think that we are on the opposite side, so that we would not buy in bad times.

We think it's a good opportunity for us.

We believe it's good to have a strong balance sheet, because we don't know in the future when the opportunity come, how available financing will look like.

Of course, financing is available today, but we don't know if it will be available, and we saw that a couple of years ago, that financing wasn't available in the same path as earlier.

So our strategy there is to grow through acquisitions, and that's why we have the balance sheet.

The third part of your question, the plant closures, yes, of course we see a direct link in the lower light vehicle production and in the lower call-offs to customer plants.

There is a link in between that, and the increasing idling of customer plants is, of course, one reflection in also the lower organic sales for us in the fourth quarter.

Okay, thank you very much.

Thank you.

We will now take our next question from Bjorn Enarson from Danske.

Yes, hi.

Bjorn Enarson, Danske Bank.

A question on the European market.

There's some discussions, or what is your view on the current number of OEMs in the market, and how are you preparing yourself for potential consolidation or potential corporate actions in the region?

Is this an opportunity or a threat, or how do you look upon that, or is there something that you are doing to prepare yourself?

It's very difficult to comment on consolidations.

We are monitoring it every day, every week, in everything we do, to what's happening with the combinations of OEMs or stakes where owned by some OEMs in others, or so forth.

We are taking actions in our capacity alignment program and preparing ourselves as much as we can, and of course, this is one part of the factor.

The fact is that there are figures out there saying that 70% of all the factories have less than 2% of load, so there are some dramatic rumors out about factory loads among OEMs.

And when we read this, we will -- we can only do one thing, and that is to increase our capacity alignment and be more prepared.

Okay, thank you.

And the second question is, what's the recent trends in terms of the demand situation in Europe when it comes to what type of cars, if you take lesser cars, more cars, etc., if you can give a comment upon that.

Yes.

So far, it has been the volume makers, more of small and medium sized cars that have been affected.

The premium brands, premium auto makers, have held up production very well, and they are still holding up well as far as we can judge.

We see those signs of -- early signs of even that the weakening trend is eating into premium brands, so there are early signs of even there, that it's eating into it.

And also that it's coming maybe to Northern European volume makers.

Thank you.

Thank you.

We'll now take our next question from Hampus Engellau from Handelsbanken.

Thank you very much.

I have two questions.

Coming back to this capacity adjustment program, if it would be possible for you to quantify how much you're reducing capacity by, increasing this to $80 million.

And also, what that would suggest for car production in Europe.

And maybe last part of that question is, do you expect to be in par with capacity in the beginning of next year?

We don't have a good figure on how to -- how much it will sort of increase utilization or reduce overcapacity in our plants.

This varies between plant to plant and country to country, as we go from Northern Europe to Southern Europe, from east to west, and from some plants being loaded, where the others -- so, you can go below 30% utilization in some parts of plants into other plants that are much higher utilization.

So it varies from plant to plant, and this reduction will improve our overall footprint.

If we will be in par with production, it all depends on if we see a further deterioration.

As we said, it could not exclude that we will have to do more.

And if the market is further declining, we will have to do more, and we will not wait to take action.

But it's difficult to say.

From what we see now, we believe we will be in line, but it's all depending on the development of car production.

All right, thanks.

Thank you.

We'll now take our next question from Anders Trapp from SEB.

Yes, hi, there.

I have a couple of follow up questions, I guess.

First, just to try and understand, you talked about 100 basis points negative impact Q4 versus year over year from investments for growth and some other place, you talked about high startup costs.

Is that sort of the same thing?

Yes, it is connected, of course.

I mean, we have startups, we are expanding plants in some cases.

Other cases, we are building entirely new plants, and of course, you get more costs, and you have to wait for the revenue, of course, because you're in a ramp-up phase.

So you have costs before you get the sales, and that is a little bit the case we see here.

With what you can see now in terms of the production plans with your customers, how long will you have this quite substantial headwind from investment for growth?

It's very much about how the vehicle production will develop now, and if you now look into the fourth quarter, and we see now a 7 percentage point decline in organic sales for the fourth quarter compared to previous guidance, that means that you will have to wait longer.

And to say when and how, that's difficult.

Yes.

But what you're saying is, you need car production to turn up again before you will see an elimination of this -- call it, headwind.

Yes, of course.

I mean, it is all -- again, about to get the return on investment.

So of course, light vehicle production is a factor, and if we now see, for example, softening in China, where we have invested a lot, then you have to wait longer.

Are we seeing a softening in China overall, or is it sort of only the Japanese OEMs in China that are suffering?

It's a combination of a slight softening overall in China, and also, in addition to this, the hit on the Japanese OEMs coming from the issues between China and Japan.

So it's two things.

The Japanese OEMs is one thing, but there is also a slight softening right now in China.

We believe that is temporary.

We believe that overall, the long-term China development is steady growth.

But as we have expected, there is always some down trending in the curve, and now it seems to be a softening.

All right.

Do you have any view on the inventory levels in Europe and China, if there are any particular issues there, that means that we might be having production lower than sales ahead of us?

Do you think -- you are thinking about our own inventories --

No, no.

I mean car inventories, sorry.

Car inventories.

Well, if you look to -- there are no good datas.

There are new datas coming out of China, and their inventory is fairly much as it was a couple of months ago, so really, no change.

If you look to the inventory situation in Europe, there is not a good, reliable set of data.

But if you dare yourself to look on the production volumes and the exports and the net of it, it appears that it's an inventory increasing in Europe.

But that is based on our own estimates.

It appears that the inventory is increasing.

There are no other data that is out there, as far as we know.

Okay.

Just finally, also, about this headwind that we're talking about in Q4, almost 100 basis points in RD&E with $10 million of that being lower engineering income.

I guess that one will not be an issue for next year, as a whole, of course, if it's a timing issue.

But will it be a headwind for R&D next year, basically, on margin, or not?

As we have said, the R&D should stay within the 6% range, net of sales.

And we will of course monitor the situation, and also the development in the market and adjust accordingly.

We are committed to invest in technology, and that has been one of our success factors, and we will continue to do so.

And as long as we will keep our commitment of 6% of sales, we will continue to invest in technology.

All right.

And also, raw materials is improving, I guess.

Do you have any estimate of that, if we have the current prices, basically, or whatever you have calculated with for the fourth quarter, what the impact will be for the full year 2013 if the same prices prevail next year?

We haven't done any calculations for '13, more than if the current prices will prevail, we will have a tailwind for 2013.

But we will have to come back in January more exact with concrete figures to you.

All right.

Very good.

Thank you very much.

Thank you, Anders.

We'll now take our next question from Richard Hilgert from Morningstar.

Good afternoon.

Good morning.

Good afternoon.

I was curious if you could talk a little bit about -- I have recognized that a lot of the investment is going into the Active Safety portion for growth to reach your $500 million sales mark.

But I was curious to know where it is geographically that that $500 million winds up at.

Is that North America, is it Europe, or is it more spread across all of your geographic regions?

Active Safety, so far, in the vehicles, is predominantly North America and in Europe.

The new technology are so far coming along mostly on the premium vehicles in these countries in the larger volumes.

Then of course, if you take the Mercedes S class or the BMW 7 series, or other cars in, for instance, China, there is a tendency to be very highly equipped, with a lot of equipment, including Active Safety.

If you take the higher volumes and the higher take rates of, for instance, lane departure warning or blind spot detections, etc., in smaller vehicles, it is still Europe and North America.

Okay.

On the developing markets, where the average safety content per vehicle still lags the developed markets, do you have a general rule of thumb or growth number on penetration into those markets for additional safety equipment, say, over the next five years?

What I'm looking for here is, obviously, what's your take on the general production levels are going to be, but more so, what are the programs coming down the pike that we're going to see where they're starting to catch up with the safety content in more developed markets?

Well, we don't have a rule of thumb.

We will see that if you look to China, for instance, there is a penetration increase of side systems and already today, if you take frontal airbags, passenger and driver, you are above 70% penetration rate for both of those products.

And they will increase with a percent or two per year.

That is our best estimate.

But then when you come to other markets, like Brazil, for instance, where they legislate frontal airbags, as we talked about in the former presentation, you will have a much higher adoption rate going through.

If you then take other markets, like India so far has not reached a lot when it comes to safety equipment in the vehicles for the cars produced for the Indian market, so it varies between market to market.

And what is important for us is to be close to each market, to see the development, and to be there with the right product, as we have been in China, where we have increased our market share significantly.

Okay.

On Europe, I was curious to know, we hear a lot about price war escalating in Europe at the OEs.

Have you factored in a draw forward in the weak demand we see, such that we would see a protracted trough in demand over there?

Or has -- how do you look at that, when you're looking at your volumes, going forward?

Well, historically, our pricing pressure has been between 2% and 4%.

That has been over the cycles for a long period of time.

And we didn't see, even during the worst crisis in 2008 and 2009, pricing pressure to go outside of that range.

It was in the low end of the range.

And then when times are good and competition is worse and volumes are up, and then pricing pressure can go higher.

So we are monitoring this.

We are seeing what's happening.

We are following the consolidation also of domestic players in China to see whether that would have any effect.

We are of course seeing the situation where we take market shares in China and we are growing to close to 40% market share, whether that would have an effect on pricing.

So far, we haven't seen that, I can say.

But you should never say never, of course, and this is the best -- 2% to 4% is the best expectation we are having for the time being.

That's good information, and I appreciate that.

I was referring to pricing at the OE level in the market in Europe.

What I'm referring to is, cutting their prices to their customers, and potentially pulling forward any demand that still remains in the market, even though the market is very low.

And I was referring to how you're looking at -- how you're doing your production forecast in Europe.

Are you factoring in these price wars that are going on that could be potentially pulling forward some demand, what's left of it, anyway?

Basically, we are taking the customer call-offs that we have in our production system, and based on the production call-offs that we have, we are making our own judgment from these call-offs.

As we learned in 2008, as we have learned from time to time, call-offs can change very fast.

And if times are bad, they can be cut rapidly.

If times are good, they can be increased.

We are trying to do our best estimates, factoring in what you talked about, and that is the basis for our guidance, that we have taken every effect of every price wars and every angle of it into our basis.

I am not sure I can confirm that, but we are trying to do our best estimate as the basis for our guidance, based on the call-off.

Okay.

Can you tell me, from your perspective, how -- when you're looking at the demand coming from your customers, and your customers are looking at their market, how does this 50% fleet of the European market factor in?

What are businesses doing in terms of ordering vehicles?

Is it about the same as the retail level of demand, or do they swing more so than the retail?

You know, we don't see any different.

We see the light vehicle production call-offs from our customers, and whether it's retail or not, or fleet, we don't really see the difference in there.

I think that's the -- as it is, that's more a question, I would think, for an OEM.

We see the call-offs from Volkswagen, Volvo, Renault, PSA, whoever it might be, and we don't see whether it's going to whatever end customer.

Okay.

All right, thank you very much.

Thank you.

(Operator instructions) We'll now take our next question from Agnieska Vilela from Carnegie.

Hi.

Could you please provide us any update on the antitrust investigations in Europe?

How is it progressing, and when do you expect any decision?

On the European, if I assume it is the European investigation you are interested in, I am afraid I have no update on this investigation as of now.

And their investigation is ongoing, and has been so for a while, as you know.

We have no update on timing, either, to whether we could see any [further] conclusion, or anything on it, so nothing further I can disclose to you here and I can talk about here, and we don't have any update.

We have also the class action lawsuits that you are aware of, and that has come, and that is also a continued discussion between those parties, and that is also in progress.

In addition to this, we also have some very early discussions with authorities in Canada and authorities in Japan, but that is in a very early stage.

So nothing really new that we can communicate here today, unfortunately.

Okay, thank you.

And one more question on the balance sheet, again.

You're talking about -- that you want to acquire.

Could you please specify, what product do you lack right now in the Active Safety?

Because I reckon that you have quite full product portfolio already.

Or do you just want to consolidate the market?

What's your ambition behind it?

You know, Autoliv is very well known as the leading OEM in our business of Passive Safety.

We have made substantial [in break] into Electronics and into Active Safety.

We would benefit from an even strong trademark in the area of Active Safety.

And in this area, an addition of an order book and addition of a presence with resources would be beneficial for Autoliv.

And of course, if we can consolidate the market, we believe that is also good for the market and good for Autoliv.

And regards to the Passive Safety, are you looking an acquisition there?

We have stated that it would be possible for us to have an acquisition in Japan, because we are below our corporate average.

We are slightly above 20% market share in Japan.

That's due to that this market in Japan looks different, due to the heavy [keiretsu] supply in the -- to the Japanese industry.

We would be happy if we could grow this through an -- we had an acquisition to our corporate average, 30% or something in that ballpark.

That is not easy, that will probably take time.

But that's what we have talked about in Passive Safety.

Thank you.

And just one more question, with regards to the balance sheet.

Can you consider any share buybacks?

I know that your competitor has recently announced a new buyback program.

And I assume that you still have some monies to buy back shares.

We have an outstanding mandate to management for over 3 million shares.

For the time being, we are focused on execution of our strategy, and we have been so for some time.

In addition, right now, we see also a weakening market out there, and a more difficult macro environment.

And in macro, a weakening macro environment, weakening times, a strong balance sheet is always good to have, not only for that we are having -- or, potentially seeing more opportunities, but also for a safer environment, to be safe in the rougher environment.

In absence of all of this, this is, of course, shareholder money.

We have been a shareholder-friendly company, we are a shareholder-friendly company.

So if we would, at some point, for some reason, conclude we have failed in our strategy, we would of course discuss how to return the money to our shareholders.

But that is a discussion for the Board.

Thank you.

Thank you.

(Operator instructions) We'll now take our next question from Ryan Brinkman from JPMorgan.

Hi, thanks for taking my question.

Of course.

Could you please comment a little more on the nature of these temporary work plant -- these temporary plant closures in Europe?

What sort of lead time do you get on the closures, and I ask because I'm curious to what extent your lower margin guidance relates to just typical decremental margins on lower production, or instead, the extent to which it relates to the suddenness of the temporary closures and related inability to flex cost on near term.

I would say in these times, when you see the plant closures we are talking about here, I would say typically between a couple of days, up to four weeks in advance.

That's typically what you could see in plant closures.

And if you go beyond that, it's more like a lowering of the build schedules and lowering of the releases, the build plans that we have in our production system.

Otherwise, it can vary, depending on the situation of the OEM, from a couple of days up to -- you know, three, four weeks.

We had one OEM here closing down.

We got one week, and we got this about three weeks in advance.

So -- but that's sort of the range.

Okay.

And then you stated that the pace of year over year decline in Europe light vehicle production seems to be accelerating.

I think that was mostly a 4Q comment.

Are you able to share with us at all your initial thoughts on Europe as we head into 2013?

No, we are not really, actually.

It's a rapidly changing environment, and it would be premature for me at this point, when we are seeing so recent rapid change into quarter four, to now speculate in quarter one.

And we'll have to come back to that in our earnings call in January, and if there is anything we can share with you, we will do it earlier, but in the earnings call for -- in January.

Sure, that's understandable.

Last question, then.

You know, you mentioned that the softness in Europe production volume was spreading north and -- are you seeing any spreading in terms of segments?

You know, for example, it seemed earlier that luxury production was much better off relative to mainstream vehicles.

Are you seeing any change in that at the margin?

And it is better off than the mainstream, we'll call it, still is the situation.

But we are, as we indicated, we are seeing some very early signs also that premium brands might be affected by this.

And it is not so difficult to expect that to see happening.

And we are seeing some early signs.

But we should also be clear on, that premium brands are holding up better still than the volume makers.

Okay, thanks for the color.

Appreciate it.

We will now take a follow up question from Anders Trapp from SEB.

Yes, hi.

I just wondered, actually, about this class action suit, what it's really about, and basically, more importantly, who is suing you, and on what grounds?

Well, of course, that is, if I [corrected, (inaudible) corrected summary], sum it up very fast, it is a claim that people out there may have lost money or paid too much for products in various stages, due to an antitrust behavior or unlawful behavior, that price collaboration or price fixing would lead into a, at the end of the day, a more expensive product for end customers, and also, higher up in the value chain.

And what people then are doing is, that they are coming together and collectively suing companies that have made unlawful behaviors.

That is (multiple speakers) --

But it is not the OMs, like your big customers, like GM or so.

It is private persons (multiple speakers)?

I think that customer -- it's legal people coming, trying to assemble a number of stakeholders, and they are are trying to get stakeholders into these class action lawsuits, and that can be single customers like you and I, that can be other stakeholders, and could also be OEMs.

And they -- I think that they are trying to get as many into their class in as possible, and then making the case as strong as possible.

Fascinating.

All right, thank you.

[Good work].

Thank you.

(Operator instructions).

It seems we have no more questions.

If we have no more questions, I would like to thank everyone for your attention and continued interest in our Company, and we look forward to talk to you again during our fourth quarter earnings call on Thursday, January 31, 2013.

And in the meantime, until then, I wish you a safe and relaxing holiday season, and goodbye for now.

Thank you very much, all of you.

Ladies and gentlemen, that will conclude today's conference call.

Thank you for your participation.

You may now disconnect.