Autoliv Inc (ALV) 2016 Q1 法說會逐字稿

Good day and welcome to the quarter one 2016 Autoliv Incorporated earnings conference call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Thomas Jonsson.

Please go ahead, sir.

Thank you very much, Anna, and welcome everyone to our first-quarter 2016 earnings presentation.

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

It is a bit of a special earnings call today; it is the last one for Mats as CFO and I would just like to take a brief second and extend my personal thanks for great cooperation during the years here before we move on with the call.

So thank you very much, Mats, for that.

During today's earnings call, our CEO will provide a brief overview of our overall Company performance as well as an update on general business conditions while our CFO will provide further commentary around the financial results and outlook.

Then at the conclusion of our presentation, we will remain available to respond to your questions and as usual a slide deck is available through a link on the homepage of our corporate website.

We intend to keep this call around the one hour timeframe and I will give a notice when we have time for one to two additional questions.

Turning the page, here we have the Safe Harbor statement which is an integral part of this presentation and includes the Q&A that follows.

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 that will be filed with the SEC.

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

Jan, please.

Thank you, Thomas.

Taking a look on our quarterly highlights by turning the page, we had another quarter of exceptional sales growth along with solid financial performance.

Our 14.7% organic sales growth was close to 5 percentage points better than expected due to strong growth in Europe, North America and China.

This strong growth drove our better than expected adjusted operating margin of 9.1% and a year-over-year adjusted earnings per share increase of 17% to $1.66.

Our adjusted return on capital employed of 23% return on equity of 16% and strong operating cash flow show our strategies are creating shareholder value.

We are also creating shareholder value through acquisitions net of $227 million and returned a $49 million in dividends to shareholders during quarter one.

During the quarter, we declared a new record quarterly dividend of $0.58 per share which will be paid in the second quarter.

In Active Safety, we had a 39% organic sales growth and as we mentioned last quarter including four new key technologies which we launched on the new Mercedes E class.

Once again, thank you to the Autoliv team for our solid financial performance while delivering quality and operational excellence.

Looking now to our M&A activities as shown on the next page, we are pleased to have successfully closed the Autoliv-Nissin Brake Systems joint venture at the end of the first quarter.

For a 51% controlling interest, the purchase price was approximately $265 million.

This joint venture strengthened our product portfolio towards autonomous driving with current and next-generation braking systems and provides a solid base of technical and manufacturing confidence.

Within our Electronic segment, we consolidated the ANBS balance sheet at the end of the first quarter.

For our full-year 2016 outlook, this joint venture is expected to contribute in the range of $400 million to $450 million in sales.

Also for the full-year 2016, integration costs and purchasing accounting effects are expected to be in the range of $20 million to $30 million combined.

Turning the page, we have our delivery figures for the first quarter which includes the three extra working days in the quarter.

We had another strong quarter where we grew faster than the light vehicle production in all product areas.

High-value added seat belts, side airbags and electronic control units continued to show exceptional growth.

In addition, Active Safety products were boosted by the MACOM Automotive acquisition.

Overall, this performance illustrates our investments for growth continues to pay off.

Looking into our model mix on the next page, we have highlighted some of the key models that contributed to our strong organic growth.

During the first quarter these models contributed significantly to our overall organic sales growth and once again our electronic products are on all of these models except the Toyota Prius.

On an annualized basis, these models represent around 10% of our group sales.

Turning the page again.

During the first quarter, we continued to see a strong rebound in China from this sharp drop in third-quarter 2015.

However, the light vehicle inventories have been seasonally trending up over the last three months as the market adjusts to the government incentives introduced last fall.

We continue to monitor the situation closely as we believe the light vehicle production in China could remain volatile for some time as the market normalizes to underlying demand and incentives.

Our sales in China was a new first-quarter record due to strong organic growth with both Chinese OEMs and global OEMs.

Overall, our organic sales growth in China of more than 16% was roughly 3 times better than light vehicle production.

Looking ahead, we expect our strong performance in China to continue this year due to our strong model and launch mix with both local and global OEMs.

Turning the page, we have the macro market conditions.

The most recent figures from IHS for full-year 2016 indicate the global light vehicle production will grow year-over-year by our round 3%, roughly unchanged from January.

During the second quarter, the light vehicle production in China is expected to continue its rebound to grow 8% year-over-year while Japan and rest of Asia are expected to increase by roughly 5% and 1% respectively.

In the Americas, the outlook remains mixed.

In North America, the light vehicle production is expected to grow approximately 4% in the second quarter driven by a stable US SAAR while inventories remained relatively low around 65 days.

In South America, the weak demand is expected to continue in second quarter resulting in a light vehicle production decline of 16% year-over-year.

In Europe, the overall light vehicle production continues its recovery and is now expected to increase approximately 5% year-over-year for the second quarter.

However, the mix remains different where Western Europe is expected to increase by 7% while Eastern Europe is expected to be roughly flat year-over-year.

To conclude the full-year 2016 light vehicle production outlook according to IHS, remains stable with an underlying growth year-over-year of approximately 3%.

This assumes a mid single-digit growth rate in China along with a stable North America and a steady recovery in Europe.

I will now turn it over to you, Mats, our CFO, for the financials.

Mats, go ahead.

Thank you, Jan.

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

Our record sales were $2.4 billion for the first quarter were driven by strong organic sales growth with volume makers in Europe, non-US OEMs in North America, China, Active Safety products and the inflator replacement business.

As we mentioned back in January, the Q1 2016 organic growth was boosted by 5 percentage points due to three additional working days.

This calendar effect will swing back in Q4 2016.

Our consolidated net sales increased by close to 12% despite negative currency translation effects of around $8 million.

Our gross margin improvement is due mainly due to higher organic sales, product mix and commodity cost savings.

Our adjusted EPS of $1.66 was 17% better than the same quarter last year.

This improvement is mainly due to strong growth and improved profitability.

Despite investments for vertical integration, inflator replacement capacity and acquisitions, our adjusted return on capital employed and return on equity improved to 23% and 16% respectively as a result of our higher earnings.

Looking now at our operating margin development on the next slide.

Our adjusted operating margin of 9.1% was 60 basis points better than our guidance.

Looking on the chart to the left, our margin improvement for this guidance was mainly due to better than expected organic sales growth.

Compared to prior year as illustrated by the chart on the right, our adjusted operating margin was 20 basis points better than last year.

The benefit from organic sales and commodity costs was partially offset by higher investments in RD&E net of 150 basis points to support our future growth and other net which primarily includes launch costs and our investment for growth including vertical integration.

Looking now on the next slide.

We achieved $201 million of operating cash flow, our best ever for Q1 which was mainly due to higher net income and timing in working capital.

We estimate an operating cash flow of $0.8 billion for full-year 2016 excluding any discrete items.

This remains unchanged from our previous indication.

CapEx net of 3.1% of sales for Q1 was lower than expected mainly due to timing of expenditures.

However, due to increasing our inflator capacity to supply up to an additional 10 million inflators during 2017 and 2018, we now expect CapEx net to be in the range of 5% to 6% of sales for full-year 2016.

During the quarter we expensed [$14] million for capacity alignment activities and had a cash outlay of [$18] million.

Despite this somewhat higher level in Q1, we still expect our capacity activities to be around 30 basis points of sales for full-year 2016.

The capacity alignment and commodity cost savings in the quarter were around $5 million and $14 million respectively.

For full-year 2016, the capacity alignment savings are now expected to be $25 million and commodity cost savings are estimated to be $30 million.

Looking now to our segment reporting on the next slide.

We have summarized our segment reporting for the first quarter.

In Passive Safety, organic sales growth of close to 13% was primarily driven by strong growth in Europe, North America and Japan in particular airbags, high value added seatbelts, and the inflate replacement business.

This growth was impacted by a negative 4% currency translation effect.

Consequently net consolidated sales effect was a total sales increase of $158 million to $2 billion in Passive Safety.

In Passive Safety, higher organic sales of positive product mix and favorable commodity costs were partially offset by higher RD&E and capacity alignment costs resulting in an operating margin of 9.6%.

In the same quarter last year, the Passive Safety operating margin was negatively impacted by the antitrust related settlements.

In Electronics, the strong organic sales growth of around 27% was primarily driven by new model launches and higher customer take rates in Active Safety while the acquisition benefit was 5%.

This strong growth was negatively impacted by 2% currency translation effect which resulted in a consolidated net sales of close to $0.5 billion for the segment.

The 2.6% operating margin for the Electronic segment was negatively affected by the planned higher RD&E net.

Looking now to our guidance on the next slide.

We have our guidance for the second quarter which includes the Autoliv-Nissin Brake Systems joint venture.

Based mainly on customer callouts, our organic sales are expected to increase year-over-year around 10% mainly due to strong growth in all major regions and Active Safety.

In addition, acquisitions are expected to add 6% year-over-year in the quarter.

Sequentially, our consolidated sales are expected to increase by more than 8% mainly due to the AMBS joint venture.

As a result we expect to achieve an adjusted operating margin of around 8.5% for the second quarter.

Year-over-year, the benefit from higher organic sales, commodity costs and currencies are offset by higher RD&E net and costs related to the ramp up of capacity and new technologies for growth along with integration costs and purchase accounting effects relating to the AMBS of around $10 million.

Sequentially, the adjusted operating margin decline is mainly due to acquisition effects.

Looking now upon our full-year 2016 on the next slide.

Our full-year indication includes the AMBS joint venture.

Our organic sales growth indication for full-year 2016 is now expected to be more than 7%.

This more than 2% improvement from previous indications of 5% is mainly due to better than expected first quarter and increased growth in Western Europe and our inflator replacement business.

The growth coming from acquisitions for full-year 2016 is expected to be around 5%, mainly due to the AMBS joint venture.

Based on mid-April FX rates, we expect a negative year-over-year translation effect of 1%.

Our adjusted operating margin more than 9% for full-year remains unchanged since our higher organic sales growth is offset by the integration costs, purchase accounting and mix FX related to the AMBS joint venture.

Year-over-year, the positive margin of FX from organic sales, commodity costs and currencies are more than offset by higher RD&E investments and costs related to the ramp up of capacity and new technologies for growth and acquisition effects.

In summary full-year 2016, these estimates indicate strong growth with an operating margin at the high end of our long-term range despite higher RD&E net acquisitions and higher CapEx to support future growth.

On the next slide, we have summarized our outlook which excludes costs for capacity alignment and antitrust related matters.

It assumes mid-April exchange rates and includes the AMBS joint venture.

Our consolidated sales growth for Q2 is expected to be 15% mainly due to our strong organic sales growth and acquisitions which are slightly offset by negative currency translation effects.

Our full-year 2016 indication for consolidated sales is now an increase of more than 11%.

This is an increase of 9 percentage points from more than the 2 in January.

This improvement is due to high organic growth or more than 2 percentage points, 5 percentage points from acquisitions, and 2 percentage points from less negative currency translation effects.

Based on these sales assumptions, we expect an adjusted operating margin of around 8.5% for Q2 and more than 9% for the full-year 2016.

Assuming our present currency mix and mid-April exchange rates, we believe the positive transaction effects excluding revaluation effects could neutralize the unfavorable translation effects on EPS for full-year 2016.

Lastly, we still expect a tax rate of around 29% excluding any discrete items for full-year 2016.

Turning the page, I will now hand it back to Jan for some closing comments before the Q&A.

Thank you, Mats.

So to summarize, we are pleased with our strong start of the year which provides a solid base for sales growth of more than 11% and an adjusted operating margin of more than 9% for full-year 2016 as we execute toward our end of decade targets.

This concludes the formal part and comments for today's earnings call but before we open up for Q&A, I would first of all like to extend a sincere thank you to you, Mats, for our friendship, for your dedication and service to Autoliv and our business as Group CFO and as Corporate Controller over the last 55 quarterly reports.

I wish you all the very best in your endeavors in the future, Mats.

Thank you, Jan.

After 14 great years with Autoliv, I would like to extend my sincere thanks to Autoliv and to Jan.

But I also would like to give my sincere thanks to all of you being on this call for the great cooperation over the years.

Thank you, Mats.

With this, I would like now to open it up for questions so I turn the call back to you, Anna.

Please go ahead.

(Operator Instructions).

Hampus Engellau, Handelsbanken.

Thank you very much.

I have three questions if I may.

Starting off more an integrated question on the first quarter, if it would be possible for you to provide how much of the [$13] million was related to acquisitions in the quarter?

And second question is more on how much capacity in terms of you are investing in for this increase in inflators and given that we are facing maybe even a larger recall on these inflators, what would you say would be more invested for you if that were the case?

And then lastly, if you could talk a little bit about new vision systems and if we should expect any new platform launches from your customers before summer?

Thanks.

You said $13 million, what was that you meant in the first question?

In the P&L in first-quarter you said that you had $13 million increase in costs reported which was related to acquisition costs.

What we have seen in the first quarter maybe I can help out there but of course we have some costs related to the M&A activities in our SG&A and I estimate them to be close to $3 million.

The $13 million number I don't -- (multiple speakers)

No, you said it was $3 million I was looking for.

If you look to the vision systems, we have launched a whole sensor suite with the Mercedes E class.

We will continue to progress on that sensor suite and as you know, that is a very solid base for our business in the Active Safety going forward.

We are planning to further develop the vision part of this into AEB for Mono Vision but that will come in 2017.

The Mono Vision camera will come as a part of the sensor suite already now but that is not for AEB.

If you look to your question regarding inflators and speculations around further recalls, if we have further recalls of other types of inflators we will have to look into that at that time.

That has been figured out mentioning 85 million units being potential to be recalled.

We will have to see how that is looking when that is coming and that would probably suggest it would need further investments too.

But that is too early to say.

The additional investments that you see mainly related to the inflator and the increase from the up to 20 to up to 30 is coming in the increased CapEx range.

We had a CapEx range of 4 to 5 and the higher end of the range and now we have the CapEx range of 5 to 6. So that is mainly related to that increase in the inflator business.

10 million, that is from 20 million to 30 million inflators.

Is this additional 10 million, is that a new OEM or is it the existing ones?

We don't comment on specific OEMs on this one.

We can say that these additional 10 million inflators is mainly almost solely coming in 2017 and 2018 and to be able to give you a flavor of between 2017 and 2018 is very difficult.

We refrain from doing that.

This has been or still is a changing material and it is in 2017 and 2018 as it looks today but we can't give you any color on where between the two years.

Thank you very much.

Anders Trapp, SEB Enskilda.

I have two questions.

First of all.

I wonder in your full-year guidance on volumes organic growth rather what type of consideration you have made if any to the (inaudible) in production in Japan following the earthquakes?

And my second question is you are now changing that your wording and phrasing on basically saying now that you are gaining long-term market share or long-term contract at least as an effect of the disturbances in the recall market so to speak.

You are also showing very good growth figures, higher than expected, etc.

Would you say that you are getting slightly closer to the stretch target of $15 billion sales by 2019 through the recent events?

We start with the first question.

Regarding the earthquake, we are seeing as of today roughly around a sales impact of $5 million to $6 million.

That is as it looks today.

So that is essentially the impact of the earthquake effect that we can see.

If you look to the market share and the impact of long-term business we talked about order intake and we talked about contracts and we have seen also not only replacement business but also sustainable business coming our way.

To revise the target from 12 to the ambition of 15 as of today is too early.

We will see how this will evolve and we will see the effect out of our strong start and a strong year and see how that will affect but that is too early to say.

So no change of today.

Thank you very much.

Rod Lache, Deutsche Bank.

Good morning, everyone.

It is actually Pat Nolan on for Rod.

Good quarter first off.

A couple of questions on the full-year guidance.

Could you maybe just give us a color on the above 9% margin similar to I think what you said previously for the full-year.

Should we interpret that as conservatism or is there higher R&D costs or kind of footprint costs related to the higher inflator business?

This is our best estimate that we can give you here so this is to the best of our knowledge we can see when we factor in all the different parameters here.

What is worth mentioning here is that we maintained more than 9% margin guidance despite we are seeing $20 million to $30 million of costs related to the Nissin Kogyo joint venture related to purchase accounting integration, etc.

We are also seeing less of a tailwind of commodities, the tailwind is less with $11 million.

So compared to January, we are seeing an increased cost here between $30 million and $40 million and we are maintaining the margin.

So I think this is given the fact of a strong execution and a strong momentum for the time being despite the cost increase we maintain the margin.

That is helpful, thank you.

And on the CapEx guidance for this year, it is pretty clear that is going up because of the higher inflator business.

Do you expect that to come back down to the around 5% or sub 5% level in 2017 and beyond or will it remain elevated?

We haven't talked about 2017 but we have sort of indicated that over the long-term it should come back to the levels we have seen of between 4% and 5% but for the moment we are in an investment period so that is why we see 5% to 6%.

Thank you.

Good luck, Mats.

Victoria Greer, Morgan Stanley.

Good afternoon, just a couple please, mostly on organic growth.

You mentioned a couple of product launches and drove organic growth particularly in airbags.

Can you just flag some of the key ones to us there?

Secondly on China, what is the mix of the organic growth between local OEMs and the foreign JVs?

And can you just remind us what your mix is now between the local and the foreign JVs there?

Thanks.

We have a series of important launches.

We stay out of upcoming launches until cars are launched so we don't talk about future launches, we talked about the launches that we have had during the quarter.

We have had a number of important launches also here but for future stuff we will comment on that when we are arriving to it.

Sorry, I was wanting the ones that had helped the organic growth in the quarter.

Sorry.

We have had major launches.

Of course the class is an important launch for us.

We have had other important launches where we have also radar business and Active Safety like the Chrysler Pacifica, we have the Kia Cadenza, we have Cadillac XTS, Jaguar F-Pace, etc.

So there are very many important launches with delivery values up to over $500 in average and then the peak value is even higher.

So they are having important launches during the quarter that have contributed to it.

If you look to the Chinese mix and how it split between domestic and global OEMs, we have outperformed the production numbers in both domestic and global OEMs significantly.

We had a 25% organic growth to the local OEMs and the light vehicle production increase there was close to 9, so 2.5 times outperformance.

When you look to the global OEMs, we had an organic growth of close to 14% and the light vehicle production increase there of almost 2%, so close to 7% outperformance so that has been a good mix between the two.

Great, thank you.

Brett Hoselton, KeyBanc Capital Markets.

I will move to our next question.

Joseph Spak, RBC Capital Markets.

Thanks, good afternoon everyone.

Congrats on the quarter and congrats, Mats.

First question is with respect to the new guidance.

I didn't see any updated language on RD&E or D&A for the combination.

The prior commentary was I think for RD&E was 6.5%.

Is that still the right range even with the Nissin JV in there?

We still believe that it is between 6% and 6.5% and maybe it is still in the higher end of it.

And then do you have a D&A forecast because how much is --?

Yes, I have.

We said on the earnings call that we expected a D&A for the full-year to have been impact of 60 basis points and we remain with that excluding the ANBS impact.

I think it is also worth pointing out here that we have this increase of 80 basis points in RD&E, we have the 60 basis points increase in D&A and we have approximately a 30 basis points as I mentioned earlier included in the more than 9% margin compared to last year.

So that is a significant impact also to the margins.

Okay.

And then I can appreciate that the incremental 10 million units we are not quite clear on the timing yet and that is something to obviously monitor.

Can you help us though understand how many units you have already satisfied of that and then maybe how many you are anticipating at least for this year?

It will ballpark -- it will be probably less than half after this year or ballpark half when this is over after this year.

Okay.

And then last quick one, the implied guidance shows decelerating organic growth in the back half, is that mostly be tougher comps from anniversarying some of the inflator launches in 2015?

I didn't get your question, sorry.

So given what you did in organic growth in the guidance in the first quarter and the guidance for the second quarter, the full-year would imply a little bit of a slowdown.

Is that because you start to get some of the tougher comps and also some of the giveback of the extra days from the first quarter?

You are absolutely spot on.

You would have the givebacks in fourth quarter and that is affecting the comparison first half to second half.

We have the effect of almost 2% organic growth in first quarter related to the inflator replacement sale and that means that for the year the organic growth on the replacement business is virtually zero so that is a tougher comp on the second half.

Okay.

Thanks a lot and congrats again.

Bjorn Enarson, Danske Bank.

Thank you.

Two questions.

First of all on your radar business on the Mercedes E Class, if you can talk a little bit about the take-up rate versus your expectations and also talk a little bit about your capacity utilization there.

Second question is first you are gearing, you are now already back at the very low end of your targeted gearing ratio of 0.5 to 1.5.

Would you allow yourselves to short-term go below this or how would you treat that?

Thanks.

On the E Class on the take rates, this is just in the ramp up phase.

We see good take rates as of so far but it is only in the initial ramp up phase still.

So it is too early to say to see how it is playing out but as normal, I think you see a lot of highly specified and highly equipped cars as you normally see when you launch vehicles like this.

This is not an exception.

So it is a good take rate on that.

The capacity is also following the path of a buildup launch so we are in a good place there and we are having a quite high utilization there on the capacity.

I will leave the gearing question to you, Mats.

So regarding the gearing now, we are ending the quarter with 0.5 in the gearing which is in the range.

We have been talking about 0.5 and 1.5 and we believe that this range gives us the right flexibility for the future to grow the Company but also to manage future uncertainties.

But would you allow yourselves to go below that range or are you are very strict to keep within that range?

Our target is for us to be within that range and now we are within the range but how we will end will play out in the details remains for the future.

I don't think you could exclude to go under the range.

I think it is a lot of depending on how the macro situation is developing and what you are building up for but our targeted range is to be within 0.5 to 1.5 and that is where we are today and where we should be.

But to just say we would never go below I think is just to say too much.

Cool.

Thank you.

Matt Stover, SIG.

Thank you very much.

I apologize.

I wanted to clarify the guidance as it related to the incremental inflator volume of 10 million units, that being over 2017 and 2018.

I guess by rough math, you have been looking for underlying inflator volume of around 7 million units-ish based on your previous guidance in 2017.

So would this be an incremental $10 million annualized or $10 million total?

It is a total number.

This is up to a $30 million total number.

Okay.

And that would not take into account increases reflected from recent broad industry recalls?

This is the best estimate we have today in our discussions with customers, etc.

and this will be an impact of what has been recalled and what has been discussed and is out there.

I think there might be more because there have been very high numbers communicated but that I believe is also including inflator types not yet recalled and speculations around other types of inflators being recalled and thereby this number could be revised.

But this is only speculations as of today and these are the numbers that are related to the already announced recalls.

Just so I clarify my own understanding of it, I don't believe that any side bag inflators have been recalled, is that correct?

And in Takeda's case, did they use the same compound in those inflators as they did in passenger (multiple speakers)?

What we are talking about here and up to $30 million on replacement side is frontal airbags, it is frontal inflators and frontal products.

When you talk about sustainable business and talk about other resourcing, it may also include side systems.

Okay.

Thank you very much.

David Lim, Wells Fargo Securities.

Good afternoon.

So I wanted to go back to the inflators.

It went from 20 million to 30 million and I want to say that the $10 million is going to hit in 2017 to 2018.

How does the 20 million sort of flow through?

Can you just sort of provide us with the history of the flow through of how the 30 million all together is going to flow out for the next couple of years?

Well, I gave an indication before and I said maybe less or up to a half being produced last year and this year.

I think that is the very best estimate that we have today and a very, very rough figure for it.

This is so volatile and we have been talking about you remember we started to talk to about up to 25 million and then we lowered it to 20 million and now we are up to 30 million.

This is what it is, it is a volatile situation and we have pushed in the last call volumes into 2017 and in a quarter later, we come back and then we up the total volume.

So it is very difficult to give you more exact numbers as what we have already given you.

So just to be sure, just so that I understand so roughly half of the 30 million in 2015 and 2016 and the other half in 2017 and 2018, am I understanding you correctly?

Ballpark.

As I said, this is very, very rough numbers but you can say that is approximately what it is.

Sure, sure.

Great, great.

And then the other question is looking at your margin guidance, it looks like maybe the second half could be better than the first half.

Is there some sort of acceleration or flow through that we should be thinking about?

Also when it comes to the content in general terms between cars versus trucks, what is the content difference there?

I can start off a little bit about margins in the first half and the second half.

Generally speaking in this Company, we are seeing more engineering income to come in the second half versus the first half.

That is a contributing factor.

On the content part cars versus trucks, you have in some trucks you have a third row of seatbelts which gives you more content, you have somewhat in bigger side curtains which may give you a somewhat higher CPB.

Apart from that, there is not a lot of difference.

And just to clarify, is that maybe $100 or $200 more in general terms or is that something that you haven't really disclosed?

It is about 15% to 20%.

15% to 20%.

Okay, great.

Thank you so much.

Appreciate it.

Chris McNally, Evercore ISI.

Good afternoon, gentlemen.

Just a quick question on Electronics on the margin side.

Obviously very good growth topline and you are spending a lot on R&D currently.

I was curious if you could just give a sense for what incremental margins would be once R&D flattened out or if we ex the 30 basis points, I think you have discussed in terms of increased R&D, what sort of volume incremental margins we can see just from pure volume?

Could you repeat the question again?

Sure.

It is just around electronic incremental margins.

Obviously the margins are low now but we are curious what the margins would look like on a year-over-year basis once we ex out the R&D increase?

Right.

We have not discussed margins per se more than over the long-term we should not see a different but a corporate average or around that on the Electronics side for the longer haul.

We set out also the target of reaching corporate average on the Electronics business by end of the decade of 8% to 9%.

And besides that, we have not talked about incremental margins or gross margins would that take on the Electronics business.

Maybe said otherwise, could we expect margins to start to increase?

Obviously you have a lot of launch costs this year with the E Class.

Could margins start to go up next year, meaning the increase would start in 2017 and move toward that target in 2020?

As I said, we haven't and we aren't guiding for margins next year.

We will come back to guidance for the next year on the corporate side in January.

We have set out the target to reach 8% to 9% by the end of 2019 and that is what we have talked about.

You know it is all very much related to the amount of investment for growth and we are seeing good growth numbers and we are continuing to invest.

That is about as much as I can give you today unfortunately.

Okay, thank you very much.

Richard Hilgert, Morningstar.

Thanks for taking my question.

Good morning and good afternoon, everyone.

Just a couple of questions please.

First of all on your comments about retaining the full-year guidance for the 9% operating margin, one of the things that you said there was that the commodity cost comparison was going to get less favorable for you.

In the first quarter, the cost of goods sold was on a percentage basis much lower than the first quarter a year ago but where we are releasing the difference is showing up in the RD&E, a little bit in the SG&A.

So I am wondering as the year progresses, does the cost of goods sold percentage go up and then are RD&E and SG&A percentages kind of drop a little bit?

Or how should we be thinking about the way these different line items are going to be moving given your comments about leaving the margins the same at 9%?

If you talk about the commodity costs, we are seeing more of a tailwind on commodity costs in the first half of the year year-over-year.

The year-over-year effect on the commodities are better for the first half of the year.

We had a $14 million tailwind in the first quarter and we are expecting to have a $10 million tailwind in the second quarter and for the year now we are seeing a total tailwind of $28 million compared to a tailwind of $39 million in January.

So that is giving less of a favorable commodity price of $11 million.

I don't know if you had any other?

I think that on that cost level, as I said earlier that the biggest difference we see between the first half and second half is normal engineering income.

The other [divisions] are very difficult to comment on.

Okay.

And then on the revenue guidance year-over-year, better than anticipated organic growth going on there.

Geographically speaking it looked like growth was strong pretty much across all of your segments.

It seemed to me and I was forecasting better European volume versus your original guidance but on a regional basis, does it look like things were much stronger in every region around the world?

Obviously with the exception of South America but Japan is still very strong, Europe is still very strong, North America looks like it is doing pretty well.

Which regions were specifically a little bit more of a surprise for you in the quarter versus what your original expectations were?

I think we did better in all regions actually and I think as we said before, we had in North America, we had new model launches and new, good progress with the reasonably new launches like the F-Series, the Mercedes GLE, etc.

We had a favorable mix also with volume makers in Europe.

And as we commented earlier, we had a very good effect out of the launches we talked several times about in China we talked in 2015 we had a heavy launch second half of that year and this we see now the effect of into 2016.

And also in Japan, we have also there some good growth models but also in Japan the inflator replacement business had a favorable effect.

So it was a positive quarter overall if you look to the quarter that went by.

We believe in China, China is an important market that we continue to see strong growth also into the second quarter, a lot based on good model makes good launches.

Okay, very good.

Thanks again for taking my questions.

Agnieszka Vilela, Carnegie.

Thank you.

Coming back to Japan and your very good organic growth there, I just wondered if you have already seen some effects in your regular business, Passive Safety business that you are winning market share from your competitor?

No, I cannot see that really as of sales because that has not yet transpired.

The sales that we are seeing now is coming out of order intake some years ago so we can't say that has been an effect on the sales side.

It is a good result out of the models that we have there.

Some of the Toyota models that has been doing well but also as I said the inflator replacement business has been doing well inside Japan.

Perfect, thank you.

And then if you could comment on your order intake, do you see kind of the same levels that you are winning right now or do you think that you are gaining more or less?

We are continuing to see a strong order intake and that is what we commented about in the first quarter we talked about between 40% and 50% or 45%.

But we also said that we believe it is better to come back on an annual basis to speak about the order intake because it has to take a year or two or maybe even longer to move the needle on global market share from strong order intake.

One or two strong quarters won't make the global market share to move.

So therefore, we continued -- our comment today is we continue to see strong order intake in Passive Safety in general but that is what we have for today.

Thank you.

Erik Golrang, Nordea.

Thank you.

But all of my questions have been asked already.

Thank you.

David Leiker, Baird.

Hello, this is Joe Vruwink for David.

With the raw material tailwind in the quarter if I strip that out and look at maybe the incremental volume or the incremental contribution on volume, is that running at a level you would like it to be at or are some of your footprint actions still taking that let's call it pure organic contribution below target?

If you look to the footprint or the vertical integration or investments for growth, that is not in full effect and that will still take some years before that is in full effect.

You can't see the full effect out of that only until toward the end of the decade when everything is in place and up and running.

If that is the answer to your question that is not fully contributing yet.

It was.

Thank you.

And then I am wondering on your seatbelt growth, have the last two quarters been particularly strong for new launches?

I think it makes sense, the other segments would be growing double digits but it is less intuitive to me at least that seatbelts would be so far above the underlying market?

Thank you.

Well it is if you look to the seatbelt side, it is mainly related to active seatbelts and pre-tensioners and a more advanced type of seatbelt and it is related to the mix and the success we have had in investing in new technology and capitalizing on the technology investments also from a relatively mature product.

Great.

I will leave it there.

(Operator Instructions).

Ryan Brinkman, JPMorgan.

Thank you for taking my question.

Can you say to what extent the stronger organic growth outlook for the full-year is driven by higher than expected take rates of Active Safety products?

And if it is helped by better take rates, is there any particular product or application that is driving the incremental improvement?

There is of course a strong quarter one behind it.

We have seen in quarter one also a stronger inflator replacement business and also the visibility that we are seeing into quarter two with a very strong growth in the second quarter organic growth of around 10% that is causing us to update also the full-year guidance.

We also have seen in the first quarter a very strong organic growth on the Active Safety side.

Are you seeing increased penetration for your radar assist products?

We have seen an increased take rate and we are seeing increasing take rates and that has also been valid for the first quarter in Active Safety, take rates have been going up, yes.

Okay, appreciate it.

Thank you.

Brett Hoselton, KeyBanc Capital Markets

Good afternoon, gentlemen.

I apologize for not connecting earlier.

A couple of questions here for you.

First of all, kind of a typical question, Active Safety or Electronics as you are calling it, growing by 30% year-over-year in the first quarter so I kind of think about your longer-term growth rate and I am wondering what your longer-term growth rate might look like because obviously 30% is pretty impressive in the quarter.

We have no more information to give you than what we gave you on the capital market day and you have seen our outlook there for the end of the decade targets of around $3 billion for our Electronics business combined.

We have seen a strong quarter now.

We have also a strong year behind us but you know also that growth of that level is hard to keep all the time and we have also communicated we would see slower growth more towards in line with the market.

So I have no more color to give you on that one.

On the contrary you are seeing higher take rates than we have seen but the longer-term targets that we stay with is what we said in the capital markets day.

And let me ask you this, Jan, and maybe just directionally, it seems like based on your comment regarding the take rates which is consistent with what we are hearing from other folks as well as a lot of the information we see in the news media, etc., it seems as though we are seeing a very --I would almost call it an aggressive acceleration of the adoption of these technologies relative to where we were maybe a year or even two years ago.

Is that a fair assessment or is it -- is that a fair assessment?

Aggressive or not aggressive I think it is hard for me to judge here.

We are seeing higher take rates and we are very pleased with that.

As I commented earlier also, the cars here that we launched are the E Class here is a very sophisticated vehicle with a lot of equipment and in the beginning at least it is traditionally has a lot of stuff on the vehicles being shipped.

So it remains to be seen what it will be going down the road but so far it looks good and so far we have also seen generally higher take rates.

Then I don't want to say if it is aggressive or not.

That is fair.

And then with regard to the airbag situation, the inflator situation here, can you somehow give us some sense of the impact on your new business wins going forward?

I think in the past you have talked about your historic win rates on maybe driver-side airbags or side curtain airbags and so forth.

And then your most recent win rates increasing and so on and so forth, can you kind of give us some sense of how is that potentially going to affect your new business growth rate in the out years?

We commented this in our January call that we had a strong order intake and as I said before, we may update this on an annual basis just to give it some time before we draw any type of conclusions of market share gains or so one or the other quarter won't move the needle.

So it is a continued strong order intake after first quarter here on the Passive Safety side and we will have to monitor and see what it is going forward.

And the replacement business that we see here is also then causing the CapEx increase but that is mainly related to the replacement business.

This is Thomas.

I was just going to say that as I said in the beginning of the call, we intend to keep the call to around one hour.

We are running slightly behind now so we have time for one more question on the call.

Brian Johnson, Barclays.

Good afternoon, management team.

So one question for Jan, more strategic and then one question Mats.

I will give you one more financial question.

So hopefully it is not too hard but just trying to figure out the puts and takes on the operating cash flow guidance.

It looks like you are still guiding to roughly $800 million yet you have consolidated the 51% stake in the Autoliv-Nissin JV which is expected to add $400 million to $450 million of revenue.

I guess just, can you help us walk from call it the increase in organic growth, the acquisition of the Nissin JV and then also the reaffirmed cash flow guidance of $0.8 billion?

First of all, the capital guidance as we have said, we talked about $0.8 billion in January and we maintain that guidance.

We also have to remember that we also have capacity alignment payments to go out also this year so that is also a factor for the operating cash flow.

Regarding the numbers for the acquisition impact, I mean then we are coming back then the guidance again where we had 5% I think acquisition impact for the full year in our growth guidance.

So that is of course a big part of that is related to the ANBS joint venture and as we have said earlier, the range of net sales of that joint venture is between $400 million to $450 million for the 2016 numbers.

So if I read you correctly then a little bit of the organic bump for full-year 2016 is driven by the acquisition of the Nissin JV?

Yes, that is the acquisition part of it on top of the organic growth we have been talking about earlier on this call.

Right, I guess I'm just trying to put the acceleration of organic growth overall in and then also the consolidation of that.

I would imagine there is some cash flows coming from that JV so just trying to foot down to the reaffirmed $0.8 billion.

Yes, we reaffirm the $0.8 billion including the ANBS.

Okay, so is there some additional costs from the walk from net income down to catch CFO that we are missing?

No, but we also have other aspects and we have for example you have seen that we have a quite high capacity alignment also now coming in Q1.

So with our capacity alignment, cash out will increase and we said earlier around -- that will be more than $90 million coming out of capacity alignment for full-year 2016.

That is also factored into the operating cash flow.

Okay.

And then Jan, just one for you around night vision, I understand it is a fairly expensive option today.

It is -- production today in terms of potentially limiting customer adoption uptake in terms of cost right now.

I think overall the market is fairly consolidated I should say.

So I just kind of get your thoughts on the potential for the cost curve to come down anytime soon driving potentially greater uptick across mid-level vehicles?

And also just kind of remind us of the competitive landscape.

And then also lastly, just kind of how much roughly is this business within Active Safety and where do you see that going over the next call it three to five years?

We are constantly looking to upgrade the technology and the major costs in the night vision camera is the cost for the component, the microbolometer and to try to achieve a new generation of that isn't really easy.

You need to have a good performance, you need to have technical performance, you need to have a good deal on it to be able to make it more cost-effective.

But we have been doing that gradually since we came out with this more than 10 years ago so that has been the evolution of it and we may also be able to take the cost down further.

We are seeing and we are having activities on that path.

The competitive landscape I think we are if not the only one we are the most successful one in the far infrared technology.

We are also combining this with near infrared technology so we are offering both of the systems onto it.

And we believe it is a superior system for seeing in darkness and seeing pedestrian detection that if the cost situation that you are alluding to here would improve, it would be also a very important part for the sensor suite for autonomous drive.

It remains to be seen how successful that is going forward.

But it is a part we haven't disclosed how big the different kind of products contribute to the Active Safety segment to our ADAS sales.

It is not the biggest part of active, the biggest part of the ADAS sales is the radar business.

Got you.

Great.

Thanks for taking the questions.

Thank you.

With that I would like to thank everyone for participating on today's call.

But before we thank you finally, I also would like to at this point to extend a very warm welcome to Mats Backman, who will take over as Group CFO on May 2, 2016.

And who also brings to Autoliv close to 20 years of experience with several European-based industrial and financial companies.

So most welcome, Mats, to the Autoliv team.

We sincerely appreciate everybody's continued interest in Autoliv and we look forward to our second-quarter earnings call on Friday, July 22.

With that, I would like to say goodbye for now and thank you very much all of you.

Thank you, sir.

Ladies and gentlemen, this now concludes today's conference call.

Thank you for your participation.

You may now disconnect.