Autoliv Inc (ALV) 2015 Q1 法說會逐字稿

Good day and welcome to the Q1 2015 Autoliv, Inc.

earnings conference call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Thomas Jonsson, Vice President of Corporate Communications.

Please go ahead, sir.

Thank you very much, Lydia.

So, welcome, everyone, to our first-quarter 2015 earnings presentation.

Here in Stockholm, we have our Chairman, President, and Chief Executive Officer, Jan Carlson; our Chief Financial Officer, Mats Wallin; and myself, Thomas Jonsson, Group Vice President, Corporate Communications.

During today's earnings call, our CEO will provide a brief overview of our first-quarter and full-year 2015 performance and general business conditions, while our CFO will provide some further commentary around the financial results and outlook.

Then at the conclusion of our presentation, we'll remain available to respond to your questions.

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

On to the next page.

We have the Safe Harbor statement, which, as you know, is an integrated part of this presentation and includes the Q&A that follows.

During the presentation, we will reference some non-US GAAP measures, and the reconciliations to US GAAP are disclosed in our quarterly press release and the 10-Q that will be filed with the SEC.

With that, I will now turn it over to our CEO, Jan Carlson.

Jan, please.

Thank you, Thomas.

Turning the page, we find our quarter one highlights.

We have seen a strong start to 2015.

Our better than expected organic sales growth of close to 4% was 2 times the global light vehicle production and drove sales to $2.2 billion, despite the currency translation headwind of more than $200 million.

Our strong organic sales resulted in a better than expected operating margin of almost 9%, excluding costs for capacity alignment and antitrust matters.

Our adjusted return on capital employed of 22%, return on equity of 15%, and earnings per share of $1.42 are all evidence that our strategies for growth and capital structure are creating shareholder value.

During the quarter, we reached 0.5 times leverage ratio while returning $152 million to shareholders through our dividend and share repurchase program.

We are now within the long-term target range of 0.5 to 1.5 times, which provides financial flexibility in a cyclical industry to grow the Company and potential costs associated with antitrust matters.

In active safety, where we see some signs of increasing adoption rates on certain models, we had another strong quarter with 31% organic sales growth.

Lastly, I would like to thank the entire Autoliv team for a great start to this year and their relentless focus on quality and operational excellence.

On the next slide, here we have highlighted some of the key models that contributed to our strong organic sales growth during the first quarter.

During the quarter, these models contributed to the majority of our net organic sales growth and on an annualized basis represent approximately 8% of sales.

As communicated earlier, our favorite mix in China with some JOEMs, unfavorable mix in China with some JOEMs remained a headwind during quarter one.

However, we expect this overall situation in China to improve throughout the remainder of this year due to launches, in particular with certain Chinese OEMs.

Looking now onto our market position on the next page, we have our delivery figures for the first quarter.

We continue to enhance our overall market position as we grew faster than the light vehicle production in most product areas.

The slightly negative year-over-year change in electronic control units is mainly due to the timing of new program phase-ins that will occur during the second half of this year.

All other products are essentially performing as expected.

In particular, strong performance with newer products like advanced seatbelts and active safety is evidence that our investments in technology continued to pay off.

Looking now on to our market conditions on the next page, the most recent figures from IHS for full-year 2015 indicate the global light vehicle production will grow by 1.9% or 1.6 million vehicles.

This projected increase is 20% lower than the beginning of the year.

Virtually all of the vehicle growth is expected to come from China, where we see slowing light vehicle production growth rate with steady overall sales demand.

In Japan, light vehicle production demand is expected to decline by 5% for full-year 2015, while rest of Asia is expected to increase year over year by 2%.

In the Americas, the outlook remains mixed.

In North America the light vehicle production growth is expected to be 2% for 2015.

This is mainly driven by a stable US SAAR in the range of 16 million to 17 million, with vehicle inventories at relatively low levels.

In South America, the weak economic conditions continue.

Consequently light vehicle production is now expected to decline close to 9% this year from an already low level in 2014.

In Europe, the overall light vehicle production for full-year 2015 is expected to be relatively flat.

However, Western Europe is expected to increase by 2%, while Eastern Europe is expected to decline by 5%, partially driven by the weakening market conditions in Russia.

To conclude, China remains stable while all other regions appear slightly weaker than what we saw in the beginning of the year, except Europe, where the strong EU27 vehicle registrations could have a favorable effect on the latest LVP projections.

Now our CFO, Mats Wallin, will comment on the financial results and the outlook.

Please go ahead.

Thank you, Jan.

Looking upon our financials on the next slide, we have our key figures for the first quarter.

Our sales of $2.2 billion was driven by strong organic sales growth in active safety, premium brands in Europe and transplants in North America, and also includes an unfavorable currency translation effect of more than $200 million.

Our adjusted EPS of $1.42 was essentially at the same level as last year, despite an unusually high tax rate in the quarter due to discrete tax items.

Despite higher CapEx, our adjusted return on capital employed remains at roughly the same level as last year, and adjusted return on equity increased to 15%, mainly as a result of our share repurchase program.

Looking now at our operating margin development on the next slide, our adjusted operating margin of 8.9% was 90 basis points better than our guidance.

If you look to the chart on the left, the higher profit generated from the better than expected organic sales growth and lower than expected overheads essentially drove the margin improvement versus our guidance.

When compared to the prior year, as illustrated by the chart to the right, our adjusted operating margin was 30 basis points better than prior year.

The benefit from organic sales, currencies, commodity cost, and RD&E net was offset by other net, which also includes increased footprint cost for growth.

As we have noted previously, the increased cost in our footprint mainly includes our buildup for growth, including vertical integration in China and active safety.

We continue to make progress in executing our plan to improve operating inefficiencies.

However, a deteriorating market condition in Brazil and Russia continue to hamper the situation.

Looking now to our cash flow on the next slide.

Our operating cash flow of $84 million for the quarter was affected by antitrust-related settlements of around $80 million and timing of payments in Q1 versus last year.

CapEx net of 5.9% of sales was within the range of 5% to 6% of sales that we indicated last quarter for the full year.

This level is higher than prior year, partly due to the ramp-up of activities related to inflator replacement programs but also to support vertical integration in China.

We anticipate this higher level of CapEx to continue into the second quarter.

For full-year 2015, we expect CapEx to remain in the range of 5% to 6%, which is essentially 100 basis points higher than our long-term target range of 4% to 5% of sales.

This is due to the inflator replacement investment mentioned earlier.

Related to the capacity alignment program for full-year 2015, we estimate the cash outlay to at least $50 million, while we plan to expense at least $60 million for the further capacity alignment actions and expect savings of close to $20 million.

Looking out for the remainder of 2015, we expect another strong year of operating cash flow and remain on track to reach $0.8 billion, excluding antitrust settlements and any other discrete items as we saw during Q1.

Looking now at our next slide, we have summarized our segment reporting according to our new organizational structure.

In passive safety, organic sales growth of more than 3% was primarily driven by premium brands and steering wheels in Europe, along with side systems and seatbelts in North America.

This growth was impacted by negative 9% currency translation effect.

The net result of this was a consolidated net sales decline of more than $120 million to $1.8 billion.

For the quarter, the reported operating margin for passive safety was negatively affected by the antitrust-related settlements and capacity alignment costs.

Year over year the CapEx increase in passive safety reflects mainly the inflator replacement program and activities in China.

In electronics, the strong organic sales growth of 7.6% was primarily driven by active safety launches and better take rates, which were slightly offset by new model changeover effects in passive electronics.

The growth was impacted by 8.6% currency translation effect, which resulted in a consolidated net sale of $351 million for the segment.

For the quarter, the lower reported operating margin electronics was mainly a result of higher RD&E costs and negative currency transaction effects.

Looking now to the next slide, we have our guidance for the second quarter.

Based mainly on our customer call-offs, our organic sales are expected to increase year over year by 6%, mainly due to strong growth in all our major regions, including active safety.

Sequentially our consolidated sales are expected to increase by around 5%, mainly due to China and North America.

As a result, we expect to achieve an adjusted operating margin of around 9% in the second quarter.

Year over year the benefit from higher organic sales, lower commodity costs, and currencies are mostly offset by RD&E costs in electronics and the ramp-up of capacity for growth and vertical integration in China.

Sequentially, this slight increase in the adjusted operating margin is due to the net effect of sales growth and higher RD&E net.

On the next slide, we have our full-year 2015 indication.

Based on our current outlook, we anticipate another strong year of organic sales growth of more than 6%, which is more than 3 times the global light vehicle production.

This strong growth is mainly due to Europe, North America, China, and includes the inflator replacement business and active safety.

As a result of our continued execution, we estimate an adjusted operating margin of around 9.5% for full-year 2015.

Year over year the positive effects from organic sales, commodity cost, and currencies are partially offset by higher RD&E, net and the ramp-up of capacity for growth and vertical integration.

For full-year 2015, we still expect RD&E net to increase by around $50 million from prior year, assuming comparable currency rates, and commodity costs to improve around $33 million year over year.

As you can see, based on the Q2 guidance and full-year indication, these full-year 2015 estimates imply continued improvement in organic sales growth and margin performance during the second half of this year.

On the next slide, we have summarized our outlook, which excludes costs for capacity alignment and antitrust matters, and assumes mid-April exchange rates prevail.

Based on these currency assumptions, consolidated sales in Q2 are expected to decline more than 4% due to negative currency translation effect, which more than offsets the strong organic sales growth.

Our full-year indication for consolidated sales is now expected to decline by around 2% due to negative currency translation effect, which offsets the organic sales growth.

Based on these assumptions, we expect an adjusted operating margin of 9% for Q2 2015 and of around 9.5% for full-year 2015 indication.

For full-year 2015, we expect an underlying tax rate of around 31%, excluding discrete items.

Also assuming our currency mix and mid-April rates, we believe the positive transaction effect could neutralize the unfavorable translation effect on EPS for full-year 2015.

In conclusion, we are pleased with our execution and strong start to 2015, which provides a sound basis for continued strong sales growth combined with margin improvement in 2015, despite making record investments in RD&E and CapEx for future growth.

On to the next slide.

I will now hand it back to you, Thomas.

Okay.

Thank you very much, and before we open the call up for Q&A, I would like to mention that we have decided to postpone our Capital Market Day to October 1 and 2, as this timing works better for us.

I wanted to mention that.

So, this concludes the formal comments for today's earnings call, and we would now like to open up the call for questions.

So with that, I leave the word back to you, Lydia.

(Operator Instructions).

Ravi Shanker, Morgan Stanley.

A couple of high-level questions.

One is on the Takata situation.

Clearly the industry is adding a lot of capacity across the board to service this recall.

What do you think happens once the recall is done?

Because the industry could wind up with a fair bit of excess capacity, especially at one of your competitors, that's obviously trying to recover market share and reputation, et cetera.

Do you fear they get aggressive on pricing?

Well, I think is too early to determine.

From our point of view, we are helping the industry out in this situation right now.

I think we are only in the beginning of the replacement cycle, and how this will play out with sustainable business remains to be seen.

We have seen some early signs of also sustainable business coming our way so far, but how it will play out in the end, I think it's too early to say.

Okay.

And also, on the balance sheet, you said that you've reached your 0.5 to 1.5 leverage goal.

What does that mean for pace of buybacks going forward?

Are you going to sustain what you've done the last couple of years, or do you think you slow down given that you've reached this target?

Okay.

Regarding this, we have now come into that range we described in 2013, between 0.5 and 1.5, and we are, of course, very proud to come into that range, although it is one quarter later than we earlier thought it should be.

But this range gave us the right flexibility in a cyclical industry for this Company, and we believe it also is a range we can prepare -- so we can be prepared also for possible future settlement or antitrust costs.

Long-term we believe we will, of course, go to a leverage of [1], but we will not describe how and when that will happen.

So that is sort of the view on where we are on this leverage.

I think what Mats said is correct.

We don't guide on the buybacks on shareholder returns, and have never done that, and I think that is all we can say today, basically.

Great.

Understood.

Thank you so much.

Anders Trapp, SEB.

Just one question, really.

I wanted to help me understand or interpret the comment regarding volatility in the exchange rates, and it's making it more difficult to predict the earnings generation for the Company, on the one hand.

On the other hand, you say that you expect a neutral effect.

So, what is the background behind this comment and how should we look upon it?

Of course.

We have seen all of us that exchange rates has been very volatile in the last quarter, but we also see that transaction effects in the quarter were positive.

We believe also that transactions effect will continue to be positive for us, given the structure we see now in mid-April and given the rates we are seeing in mid-April.

And we also believe that that positive effect on our transaction effect should neutralize the negative effects from translation.

So the uncertainty that the volatility creates which makes you make this comments, is that related to that you could see future changes in the exchange rates that are different from the ones we have seen so far?

It's just that we have seen, of course, a lot of volatilities in Q1.

And then, of course, that makes, of course, every prediction more difficult.

But, as I said earlier, given the mid-April rates, we believe that the positive transaction effect could neutralize the negative translation effect on EPS.

Right.

Thank you.

Brian Johnson, Barclays.

This is actually Steven Hempel on for Brian Johnson.

Just wanted to follow up on the last question there.

I believe back in January you were expecting roughly a 50 basis point tailwind from favorable FX transactional exposures.

Is that still the case today?

Or given where the US dollar has strengthened since then, are you expecting a greater tailwind from beneficial and favorable transactional exposures?

Our view is that, of course, we still believe, given the currency rates we are seeing, that the transaction effect should be positive for the full year, and we also basically remain also on our belief on the base level that those effects should be able to neutralize the negative translational effect.

Okay.

We'll have to do some math here.

I guess a broader strategic question here, when we look at the underperformance in China, we would have thought here with just overall increased regulation, share gains with local OEMs, as well as just up-contenting in general that Autoliv would at least grow in line with the market.

What makes you comfortable that these mix effects will diminish throughout the year?

What we see here for the year in China is that we have a number of important launches coming up throughout the year.

In fact, if you count the launches that we have on plan today, it could be up to 20 important launches coming out here in terms of either updated models or new models for us.

And these are not small launches.

All of them they are relatively sizable launches with high content per vehicle and a high annual sale.

It could be up to 20, but you never know because the OEMs can push them out at a late stage into 2016.

But given that fact, we believe that this will offset, gradually throughout the year, a continued negative mix, if that continues.

We have said that it depends on that we have some continued negative mix with the JOEMs.

We cannot determine whether that is going to continue, but we can see the strong launches coming on board.

Therefore, we believe the situation will change gradually throughout the year.

Okay.

Great.

Thanks for taking our questions.

Richard Hilgert, Morningstar.

Just wanted to ask a little bit about the R&D number this quarter.

It's down versus the same quarter a year ago, both on an absolute basis and on a percentage basis.

I suspect that might be because of the R&D cost in euros relative to the dollar, but I just wanted to make sure that it wasn't a reduction in R&D activity.

I kind of have two comments on that.

If you compare the RD&E in the first quarter with the same quarter last year, there is a lot of translation effect reducing the RD&E because of RD&E being also based in the euro area.

If you look into the 2015 perspective, the lower RD&E in Q1, we believe that the full-year RD&E spend as we earlier communicated of around $50 million increase versus 2014 on comparable exchange rates, still remains.

So for the full year, we have the same perspective.

Okay.

The answer to your question is that it's not lower activities in RD&E.

That's not why we have lower spend.

Okay.

And I suspected that the same would be the case for the depreciation and amortization numbers also.

Yes, I mean we haven't -- the CapEx outlook remains of 5% to 6% of sales for 2015.

So that is also the same, basically, and of course, that will also mean the same for D&A.

Okay.

Very good.

Thank you very much.

Hampus Engellau, Handelsbanken.

I have a first question on Europe, more generally.

Given the outlook, I presume this IHS number on Western Europe with a 2% increase in production.

I mean what's your feel given what we see in terms of intention to buy new car being on extremely high levels and also retail sales being very good, starting off this year almost double digit?

Did you see any upward pressure on that number?

The second question is maybe coming back to the China situation with domestic players gaining market share for the first time on foreign brands and mini SUVs being very popular.

And we also hear that government is favoring local OEMs [from flattening].

Do you see the recent trend shift?

I know you spoke more about your mix going forward in launches.

And maybe last on -- it would be interesting to hear a little bit about the active safety business, you are hiring engineers and what areas are you intensifying your work on.

Thanks.

Well, if you start with -- so we start with the European situation.

I think we are seeing -- we saw a better than expected sales for us during the quarter.

And it was to a large extent related to an active safety piece coming from the premium automakers, but also from other automakers in Europe.

When it comes to passive safety, we had a good quarter behind us, both on passive and active safety, related to the European part.

At least what we can see going forward, we believe that premium automakers will continue to do well.

We followed IHS forecast, and we see that the US -- or the North American part is continuing to be forecasted doing well.

China is also going to continue to do well, and that normally means the premium automakers in Europe will continue to do well, which should be good for us.

If you look to the China situation, as you know, we are well positioned with the domestic Chinese brands.

We are there in China since a long time.

So any specific progress to the domestic automakers in China should do good for us.

And, therefore, that could also be a good situation going forward.

Thomas will comment a little bit more on this question, but before we do that, let me take the third point on active safety.

We are continuing to hire people, and we are still at the aim to recruit 200 to 300 new engineers in active safety.

This is related mainly or an absolute majority into the areas where we were active in, and that is in the vision, in the radar business, and also in the electronics -- the general architecture area, where we see the need to cope with new products with ongoing execution, and therefore, we are investing into it.

Thomas, any addition to China?

No, just on the Chinese OEMs.

If you look from Q1 2014 to 2015, you can see them as a percentage of sales going up slightly from roughly 21% to 24% for us.

So that's absolutely in line with your point.

And then Jan already pointed out about the importance of the Chinese -- for the future launches as well.

And yes, we can see on this mini SUV trend.

We also see that in the statistics that the passenger vehicles are increasing on the expense of the broader light vehicle number.

So yes, I just wanted to add that.

Okay.

Okay.

Thank you very much.

Joe Spak, RBC Capital Markets.

I'd just say, I wanted a little bit more clarification on the comment in your report about how, for some of the replacement business, the agreed-upon customers ordering volumes for 2016 are lower than previously expected, and how that follows through to your thinking about that you are seeing some signs of sustainable business going forward, when it would appear that even some of the replacement business is not up to your expectations.

So maybe just first a comment or a clarification there.

I don't think that is related at all, actually.

I think that customers are dealing with the replacement business separately from choosing how they wanted to pick the suppliers for inflator technology for their future business.

So that I don't think is related.

It's more like that if you are in a good position, supporting customers with replacement business as fast and accurate as you can, you are probably in a better position to get further on business.

When it comes to the replacement business, we have seen then lower expectation for capacity throughout the quarter, but we are still building to 25 million capacity for 2015 and 2016 despite this, customer commitment is lowered.

We don't see this as affecting the 2015 volumes.

It's affecting the 2016 volumes.

Okay.

And then maybe just if we could think a little bit bigger picture on two dynamics which came out, one obviously you had the Toyota announcement on active safety where they are obviously making it much, much more broadly available.

I was wondering if you could comment on just general quoting activity in the industry from some other automakers, potentially responding to the Toyota announcement.

And then similarly, it sounds like maybe China is considering adopting the Five Star NCAPs around the 2018 timeframe.

So have you seen any step up in activity on active safety quoting in that region?

I think there is a general increasing activity regarding active safety, and we can see also here in quarter one that the take rate has picked up somewhat.

And that is coming from several OEMs.

Not only premium automakers spreading it down into lower segments, but also other volume makers showing an increase of interest in active safety.

So that is happening.

I think it's happening because of the intense focus from Euro NCAP, but also from the American side on AEB and other functionalities.

So we can confirm there is an increasing interest, but also somewhat higher take rates.

On the China NCAP side?

Yes, I think what we see is that we clearly see an interest in China on active safety now and activity, but probably not yet directly turning into orders.

But clearly the activity is picking up, and I think the NCAP statement and ambitions are part of that, absolutely.

Okay.

And then maybe just one quick housekeeping, going back to I think Richard's question.

Can you parse out what percent of RD&E is non-US dollar-based?

I don't think we have that offhand right at this very minute.

I'm sorry.

Okay.

Thank you.

But we can say that a lot -- you know, we have a lot of activities in Europe, so there is a lot of activities related to R&D in Europe.

It historically is Europe is a high R&D center for us, but I'm sorry to say it's not possible to give you the correct figure here right now.

Okay.

Fair enough.

Thank you.

Rod Lache, Deutsche Bank.

A couple questions.

First, maybe you can just clarify for us what the nature is of the agreement for the 25 million more inflators.

Was there basically no volume assured for that?

Is there some kind of baseline commitment that you received in order to initiate that expansion?

The original was commitments or instructions from customers to build up capacity for 25 million units in 2015 and 2016, and that has been all along.

And now this need for capacity has been lowered.

Okay.

But it was not a commitment?

You wouldn't necessarily receive something from those customers (multiple speakers)?

Well, it was a commitment, or it was an instruction to build up capacity, and that capacity has been lowered.

So, the request for capacity has been lowered during quarter one.

Do you have a new estimate for what that ultimate capacity is ultimately going to be?

No, we don't.

We see this as an evolving journey, and it is evolving.

So we don't have a new indication to what this can be at the end of the day.

We don't have a good indication on that.

All right.

And just two questions on active safety.

Just based on the nature of these programs, I assume that many of these programs like Mercedes were awarded a few years ago, and there's obviously a lot of activity ramping up right now given what's happening with the Euro NCAP and US NCAP.

Can you give us a sense of how your book-to-bill looks like today in active safety or over the past year or so?

Are you starting to get some visibility on the growth trajectory into 2017 or 2018 at this point?

You know, we are not for passive safety.

It hasn't been commenting a lot on our order books.

We've commented here during the Detroit Auto Show of our target of $1 billion by 2019, and for us it hasn't been meaningful to communicate order books.

Because we also see, in particular in active safety, that it's take rate, and as I indicated here earlier, we have seen signs that take rate is picking up.

And, therefore, maybe unlike others in this industry, we don't comment on order books and the book-to-bill ratio.

Okay.

As just a general characterization of it, active safety is a very broad theme.

It includes blind spots.

It includes rearview cameras, things like this.

Can you give us a sense of when you're thinking about longer term $1 billion of business roughly how much of that would be coming from the foreword crash avoidance and mitigation, the kind of things that these NCAP rules are pushing?

Well, I don't have the figure at hand of what is pushing like NCAP per se, but we believe that the regulatory environment is going to push this quite a bit to start with.

It's like the initial push on the flywheel, and then when you have it out, we believe that this is going to generate the customer interest behind just that you want to have a five-star and maximum points on the safety ratings because you see that this is effective, and you hear a lot of good sayings about the active safety equipment and the value of it.

So we believe that that's going to generate also business.

I don't have a right figure as such to give you on the Euro NCAP meaning of it.

Okay.

And just lastly, I was hoping you might be able to clarify.

When you give the divisional experience on slide 10, it looks like the passive safety business in electronics is -- it looked like that declined slightly, but the overall passive safety division group, wouldn't those two businesses be somewhat correlated with one another, or is everything basically being awarded on an individual component basis, so not necessarily?

No, passive safety electronics isn't necessarily sourced at the same time as you source the airbag.

Sometimes it goes along, but not necessarily.

And in this case, if you look to the passive safety units here coming down a bit, it is as we indicated here because of changeover models throughout the year.

Okay.

All right.

Thank you.

Agnieszka Vilela, Carnegie.

I have a couple of questions.

First thing on active safety, and looking on one application, which is emergency braking -- autonomous emergency braking.

Can you help us to figure out what can the penetration be today in the new cars in the US and in Europe?

You know, I think this will gradually be phased in.

What will be the ultimate penetration of it, I think it's related to very much the number.

I cannot give you a good number of the ultimate penetration, but you can probably compare this in Europe with other installations like curtains and other on the long run.

But today, do you think it is like 5% or 10% of all cars that already have the autonomous emergency braking?

Maybe I can fill in a little bit.

The exact number on an aggregate level I think is hard to tell.

But if you take an example as UK, you can see that it's offered on 30%, roughly, on the new vehicles.

But the take rates are much lower today, maybe 5% to 10%.

And then I think that, just like on the AEB versus Euro NCAP, in 2016 you will see the pedestrian part becoming -- coming into the Euro NCAP, then moving on further into 2018 and beyond 2019, I think the Euro NCAP start to see it as more or less gradually becoming a standard like other similar features have been previously.

So I think that's the path, but exactly what that means from penetration beyond the specific example I gave now, I think it's a little too early to tell.

If you look, too, at the premium automakers like Daimler, et cetera, they have this as a standard.

So it varies, as you know, from carmaker to carmaker and premium segment to volume makers.

Okay.

Thank you.

And then just to clarify, the emergency braking function it can be done through the stereovision camera or the combination of radar and a monovision camera.

Is that right?

Yes, that's right.

It can also be demonstrated -- have been demonstrated and shown to be done by monovision camera, but, of course, also stereovision camera and also a fusion between camera and radar.

And then could you give us the ballpark delivery value for you of this function to the automakers?

I don't have it at hand for us, but if you can take it generally speaking, you can divide this up in two areas.

You can have a lower end version of the AEB sensing, which is in the range of $100 to $150.

If you only want to meet the Euro NCAP requirement, which is in good weather conditions, according to the test requirements, you can probably get that functionality, we believe, for between $100 and $150.

If you want to have a what we think is the entry ticket to the same functionality, but being possible to scale up and to build on for future autonomous drive, that will probably require a fusion between a camera and a radar.

And it would then also work much better in bad weather conditions.

And then you would probably pay between $200 and $300.

Thank you.

And just if you could provide us with an update on your camera business, and what's your position today, what's your market share, and how are the automakers referring to your technology?

We believe we get a good feedback when we show the systems and demo our systems.

We believe we get a very good feedback on this.

You know we are going to launch the monovision -- stereovision, monovision functionality, and also the long-range radar, and also fusion controllers gear in second half of the year, starting ramping up production in quarter four.

We believe that is a good position that we will have looking ahead with our own technology.

And last questions from me on China.

You're saying that you were gaining some business from -- or that you are performing well, especially with the Chinese OEMs.

And my question here is, is it the fact that they are doing well in the market, or is it that you are getting market share with them, or is it the content of safety in the Chinese cars is growing?

I think we see signs of content growing with several of the Chinese OEMs.

We have a good position as we have a good base in China.

We have a lot of engineers.

We have a lot of good connections with Chinese OEMs because we have been there for quite some time with a lot of engineering expertise.

So, we believe that that is giving us a good position inside China with Chinese OEMs.

Thank you.

Erik Golrang, Nordea.

I have two questions.

The first one is on the replacement volumes from the sector (inaudible) inflators.

How much does that make up of the organic growth guidance for this year?

Between 1% and 2%.

Excellent.

Thank you.

And then the second one on capacity alignment costs, you've given guidance for this year, what do you think about 2016 there?

We will have to come back about that later on.

I think we have the full-year guidance now for 2015, but for the longer perspective, we will have to come back and talk maybe more about that on the capital market day.

That's it.

Thank you.

Itay Michaeli, Citi.

Just want to start off with a modeling question on margins.

Your guidance for the full year at 9.5% clearly implies some improvement second half versus first half.

Can you just remind us in terms of what the big, sequential buckets of improvement are, besides the top-line growth?

If we talk about the first half/second half for this year and compare the second half with the first half, we see higher growth in the second half.

We see also a better utilization.

We have a lot of CapEx coming in now in the Company in the first quarter, and the second quarter will also have a very high level.

And we believe that utilization will increase in the second half on our capital and our ramp ups.

And secondly, as you know, also in the second half, we normally also have higher engineering income in second half in the years we have seen at least in the past.

Great.

That's helpful.

And then just a couple of questions on active safety.

First, any update on the M&A environment out there, what you are seeing?

Are you actively looking at other areas?

And secondly, I think you mentioned before investing in vision and radar.

Curious to get your thoughts on lidar and laser scanners.

It sounds like we're seeing more and more laser scanners being a part of certain concept and testing vehicles that automakers are showing for Level 3 automation.

Where do you stand in your strategy around lidar and then, of course, M&A?

If you start with M&A, we are as a part of the strategy looking for actively for acquisitions, and we are focusing in the area of active safety.

And the focus has been, of course, primarily related to the areas where we are in advanced driver assistance systems, (inaudible), radars, and related business to that.

Lidar is, of course, a technology that is there for autonomous driving.

We are monitoring this, and we don't have any specific activities in this area today, more than as a part of the overall development program we are monitoring various kinds of technologies.

Not only the sensing parts but connectivity parts, et cetera., as a part of the overall future-oriented activities that we are working with.

Okay.

Great.

Thanks.

That's all I have.

Thanks, everyone.

Fei Teng, Credit Suisse.

My first question is just going back to the issue on replacement inflators.

Given that you said that OEMs have reduced their volume demands, can you comment on whether their attitude towards pricing in airbags has also changed?

No, we have not seen any change in terms of pricing, and for the short term, we have not seen any changes.

For the long term, I think it is too early to say.

We will see how this will play out a little bit later on.

Okay.

And my second question is on the capacity alignment costs.

It seems unusually high in the first quarter of this year.

Can you maybe give some reasons why that is?

It's always like that with this kind of cost.

They are very much based on the different events, and when we take decisions to make a closure or a size down, then the costs will come and follow with that.

And it's not symmetric over the year.

It comes more with the events.

Okay.

Fair enough.

Thanks very much.

Sheila Weekes, Bank of America.

Just a quick one on active safety.

You've made a clear break from Mobileye in terms of offering your own mono and stereovision systems this year.

What has the customer takeup of these systems been?

And I know you won't comment exactly on the book-to-bill, but how should we think about the progression of that generally with your active safety business?

Well, I think, as we said, I think we have a system that is very competent, that is very state-of-the-art technology that we will launch.

And I think technology there is very competitive in terms of performance and in terms of scalability being able to give a range of sensors that you can use from a lower end into a higher end by developing this from stereovision functions, fusing it with radar, et cetera.

So the suite we are launching here we believe is very competitive from a market standpoint.

Okay.

Thank you.

That's it for me.

Edoardo Spina, Exane.

Thank you for taking my quick question left unanswered.

About the financial outlook for operating margin, I just wanted to ask, you exceeded your own targets for the first quarter but left the full year, 9.5%, unchanged.

And I just wanted to ask if in your budget that you have something that's getting worse in the rest of the year or you are just leaving, let's say, some room for error?

It's more a timing issue regarding RD&E.

As you could see also that in the first quarter, we had lower RD&E expenses than we actually thought we would have in our forecast for the first quarter.

But we believe that the full-year spend on RD&E will still remain the same as we thought at the beginning of the year, with an increase of around $50 million at comparable currency rates.

So that means that we are catching up our costs later on here.

Understood.

Thank you very much.

Brett Hoselton, KeyBanc.

Let's see, answered a lot of questions about active safety.

I think what people are really driving at is, is it possible for you to provide us with some sense of the percentage of awards that you have won in mono and stereovision over the past year?

As we said, we haven't commented on our order book for our passive safety in the past or our electronics business, and we find it also even probably less motivating for us to do that, as there is always a risk when it comes to the take rates on the active safety systems.

And, therefore, we are not commenting on the order book and staying out of that.

Okay.

As we look at your active safety growth here of 31% in the first quarter, guidance through 2019 implies a 15% CAGR.

Obviously that implies a fairly material slowdown in the growth rate.

The law of large number kind of starts to work against you.

But as we think about that 15% CAGR that's implied in your guidance, is that a conservative number based on the potential variation in installation rates, or is the 15% just, look, I think it's a very realistic number for our Company and that's what I would model at this point in time?

Well, we have our 2019 target of $1 billion, and I think that is as far as we are ready as of today to comment on.

If you want to have any more forward-looking statement for us, we communicated that, as you know, in Detroit.

And then Takata.

If the customers originally said please build 25 million units of capacity and now they are reducing expectations here, why do you continue to build 25 million units of capacity?

We believe this is in the best for us, because we believe that this isn't yet over.

And we have made the decision, at least for now, to continue to build capacity up to 25 million units based on what we see and how we interpret the situation.

Okay.

So even though your current customer base is saying build a few less, do you think there's some more opportunities possibly with them or with other customers or something along those lines?

Yes, you could say that.

Exactly.

Okay.

And then how do we think -- you mentioned I think during the call that you are seeing some early signs of maybe some sustainable new business relative to this issue.

How do we interpret that?

In other words, does that imply that customers are coming to you saying, hey, can you quote on some new business for us?

Are these actually material quoting activities, or is it just kind of general discussions at this point in time?

How do we think about what you are interpreting as early signs of sustainable (multiple speakers)?

Well, there has been indications and there has been discussions with customers that we could be awarded here now business on a longer-term basis as a result out of the situation with the inflators being changed and replaced and also then for the long haul after replacement that this could come our way.

Excellent.

Thank you very much, Jan.

I appreciate it.

(Operator Instructions).

Ryan Brinkman, JPMorgan.

I see on slide 10 where you break out margin by the new reporting segments, but are you able to break it out by adjusted margin by segment?

It's a little hard to see here what the normalized margins of each division might be, given the charges.

And I would have expected most of the antitrust charge to be allocated to the passive safety segment, is that right?

But I see that it actually had the higher margin in the quarter.

Yes, as I said, also earlier that the indication for you is that the settlement costs, as well as the capacity alignment costs, they are impacting the passive safety.

And we have tried to -- or we have described this on the new segment page in the quarterly report as well, which is page 6, where this is stated verbally if not in tables.

Okay.

Thank you.

I'll check that out then.

Then just last question on raw materials.

Last quarter you mentioned, what, I think a $30 million benefit or so for the full year, and you said that that was mostly related to oil-based fabrics and yarns, et cetera.

I think oil is a little bit higher than at the time of the 4Q call, but then other raw materials are lower.

So I'm just curious how you think you are tracking relative to the earlier guidance.

And then just on raw mats broadly, how should we think about the savings being shared between automakers and suppliers?

I think there is virtually no change.

I think we have $1 million more this quarter -- this quarter for the full year.

So we are at $33 million instead of $32 million for the full year, lower raw materials, though the mix is somewhat different.

The oil-based materials we are seeing some changes there in favor of steel materials, so some of them flow through -- it is taking longer time than we have anticipated on the oil-based material side.

But we see more coming through on the steel side instead, so net on the net, it's basically the same.

When it comes to savings and keeping the savings, there are not that many customers that are willing to pay raw material upticks all around the world.

It varies from region to region, and therefore, when raw mats is coming down, we believe that it's going to be the same here.

And we hope to keep a good part of this.

Okay.

Thanks.

Any comments relative to Brazil?

The press release talks about difficulties relative to continued lower production volumes.

But in the past, you've also talked about difficulties in vertically integrating any further because of the quality of the Tier 2 supply chain.

Are you having any conversations with automakers to get any sort of pricing to compensate for the difficult operating environment there?

No, I think that our team in South America is doing a good job in executing, but -- so, I think that is all okay.

But they are not helped by even lower volumes this quarter compared to what we saw in January.

So from an overall perspective, it is still a difficult situation for us in Brazil, and we forecast this to be difficult for some time also in the future.

Appreciate it.

Thank you.

As there are no further questions, I would like to turn the call back to the speaker for any additional or closing remarks.

Thank you, Lydia.

I'd like to thank everyone for your attention and continued interest in our Company.

We look forward to speaking to you again during our second-quarter earnings call on Friday, July 17, 2015.

Have a good time until then and goodbye for now.

Thank you.

This will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.