Thomas Jonsson - VP, Corporate Communications Jan Carlson - Chairman, President & CEO Mats Wallin - CFO.
Ravi Shankar - Morgan Stanley Anders Trapp - SEB Steven Hempel - Barclays Richard Hilgert - Morningstar Hampus Engellau - Handelsbanken Joe Spak - RBC Capital Markets Rod Lache - Deutsche Bank Agnieszka Vilela - Carnegie Erik Golrang - Nordea Itay Michaeli - Citi Fei Teng - Credit Suisse Sheila Weekes - Bank of America Merrill Lynch Edoardo Spina - Exane Brett Hoselton - KeyBanc Ryan Brinkman - JPMorgan.
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, Lidia. 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 of Corporate Communications.
During today's earnings call, our CEO will provide a brief overview of the 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 will remain available to respond to your questions.
And as usual, the slide deck is available through a link on the homepage 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-U.S. GAAP measures and the reconciliations to U.S.
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 highlight, we have seen a strong start to 2015. Our better than expected organic sales growth of close to 4% was two times the global light vehicle production and gross 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 cost for capacity alignment and anti-trust matters.
Our adjusted return on capital employed of 22%, return on equity of 15% and earnings per share of $1.42 are all evident 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’re 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 cost associated with anti-trust matters.
In Active Safety where we see some signs of increasing adoption rates on certain models we had now the 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 the 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 at 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 on to 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 unit is mainly due to the timing of new program phased in 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 seabelt and Active Safety is evidenced that our investments in technology continue 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 life 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 at 2% for 2015. This is mainly driven by a stable U.S. 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 '15 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 remained stable while all other regions appear slightly weaker than what we saw in the beginning of the year except Europe where the strong EU 27 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 were 2.2 billion was driven by strong organic sales growth in Active Safety, Premium brands in Europe and transplants [ph] in North America. And also include an unfavorable currency translation effect of more than $200 million.
Our adjusted EPS of $1.42 was essentially at the same level as the last year despite an unusually high tax rate in the quarter due to discreet 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 the 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 point 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 point 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 build-up 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 continued 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 anti-trust related settlements of around 8 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 on activities related to our inflator replacement program but also to support vertical integration in China. We anticipate this higher level of CapEx to continue into the second quarter.
For full year '15 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 a cash outlay to at least 50 million while we plan the 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 anti-trust settlement and any other discreet 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 anti-trust related settlements and capacity alignment costs.
Year-over-year the CapEx increased in Passive Safety reflects the mainly 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 FX in passive electronic.
The growth was impacted by 8.6% currency translation effect which resulted in a consolidated net sales of 351 million for the segment. For the quarter the lower reported operating margin electronics was mainly result of higher RD&E cost 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 of 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 the 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 cost in electronics and the ramp-up of capacity to grow and vertical integration in China. Sequentially, this slight increase in the adjusted operating margin is due to the net effect of sales growth in the 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 year of organic sales growth of more than 6% which is more than three 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 our continued execution they estimate an adjusted operating margin of around 9.5% full year of '15.
Year-over-year the positive FX 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 cost to improve around 33 million year-over-year.
As you can see based on the Q2 guidance and full year indication this full year '15 estimates imply a continued improvement in organic sales growth and margin performance during a second half of this year.
On the next slide, we have summarized our outlook which excludes cost per capacity alignment and anti-trust matters and assumes mid-exchange rate 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% due in '15 of around 9.5% for full year 2015 indication.
For full year '15 we expect an underlying tax rate of around 31% excluding discreet items. Also assuming our currency mix and mid-April rates we believe the positive transaction effect could neutralize unfavorable translation effect on EPS for full year '15.
In conclusion we're pleased with our execution and strong start to 2015 which provides 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, 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 1st and 2nd 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 Lidia..
[Operator Instructions]. And we will now take the first question from Ravi Shankar from Morgan Stanley.
A couple of high level questions, one is on the Takata situation, I mean 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 industry could wind-up with a fair bit of excess capacity especially at one of your competitors is obviously trying to recover market share and reputation etcetera.
Do you feel that they will get aggressive on pricing?.
Well I think it's too early to determine. From our point of view we're helping the industry out in this situation right now. I think we’re only in the beginning of the replacement cycle and how this will playout with sustainable business it remains to be seen.
We have seen some early signs of also sustainable business coming our way so far but how it will playout I think it's too early to say. And also on the balance sheet, you said that you’ve reached your 0.5 to 1.5 leverage goal, what does that mean pace of buybacks going forward.
Are you going to sustain what you’ve done over the last couple of years or do you think you slowdown given that you’ve reached this target?.
Okay, regarding this I mean we have now come into that range we described in 2013 between 0.5 and 1.5 and we’re of course very proud to come into that range although it is one quarter late than earlier thought it should be. But this range gave us the right flexibility in a cyclical industry for this company.
We believe it also is a range we can prepare is we can be prepared also for possible settlement or anti-trust cost. Long term we believe we will of course go to leverage of one but we will not describe how and when that will happen. So that’s sort of the view on where we’re on this leverage..
I think what Mats said is correct, we don’t guide on the buyback much whole returns and have never done that and I think is all we can say today basically..
And we will now take the next question from Anders Trapp from SEB. Please go ahead. Your line is open. .
I have just one question, I wanted to help me understand or interpret the comments regarding volatility and exchange rate and making it more difficult to predict earnings generation for the company on one hand.
On the other hand you say that you expect the neutral effect, so what is the sort of background behind the comment and how it should we look upon it?.
Of course I mean we have seen all of us that the exchange rate has been very volatile in the last quarter but we also see that transaction effects in the quarter were positive.
We believe also that transaction FX will continue to be positive for us given the structure we have seen on mid-April and given the rates we’re seeing in mid-April and we also believe that positive effect on our transaction effects should neutralize the negative effects from translation..
So the volatile creates which makes it common, it's related to that you could see future change in the exchange rate that are different from the ones that have been so far..
Yes that we have seen of course lot of volatility in Q1 and of course that makes of course every prediction more difficult but as I’ve said earlier but given the mid-April rates we believe that the positive transaction effects could neutralize the negative translation effect on EPS..
And we will now take the next question from Brian Johnson from Barclays. Please go ahead. Your line is open..
This is actually Steven Hempel on the line for Brian Johnson. Just wanted to follow-up on the last question there, I believe back in January you’re expecting roughly a 50 basis point tailwind from favorable FX transaction exposures. Is that still the case today or given where the U.S.
dollar strengthen since then, are you expecting a greater tailwind from beneficial favorable transaction exposures..
Our view is that of course we still believe given the current rate that we’re seeing that the transaction effects should be positive for the full year and we also basically remain also on our belief on the first level that those FX should be able to neutralize the negative translation effects..
I guess broader strategic question here, when we look at the underperformance in China. You who would have thought here with just overall increased regulation, share gains with local OEMs as well as just up-contenting in general that Autoliv will at least grow in-line with the market.
I guess what makes you comfortable with 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 plans today it could be up to important launches come 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 sizeable launches with high content for vehicle and high annual sales.
It could be upto 20 but you never know because the OEMs can push them out at the 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 JOEM we cannot determine whether that is going to continue but we can see the strong launch is coming onboard therefore we believe the situation will change gradually throughout the year..
And we will now take the next question from Richard Hilgert from Morningstar. Please go ahead. Your line is open..
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 want to make sure that it wasn’t a reduction in R&D activity..
I have two comments on that. If you compare the RD&E of course in the first quarter with the same quarter last year there is of course lot of cancellation 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 as we early communicated of around $50 million increased versus 2014 on a comparable exchange rate still remains. So we have full year we have the same perspective.
The answer to your question is that it's not lower activities RD&E that’s not why we have lower spent..
Okay and I suspect the same would be the case for depreciation and amortization numbers also..
Yes I mean we haven't sort of -- 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 RD&E [ph]..
And we will now take our next question from Hampus Engellau from Handelsbanken. Please go ahead. Your line is open..
I have a first question on Europe, given the outlook I presume it's [indiscernible] number on Western Europe with 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.
Do you see any upward pressure on that number? Second question, if maybe coming back to the China situation with domestic players gaining market share for the first time on foreign brands and mini-SUV is being very popular and we also hear that government is favoring local OEMs for that.
This is the latest trends, I know you spoke more about your mix going forward, launches and maybe last one on -- it would be interesting to hear a little bit of the active safety business you’re hiring engineers and on what areas are you intensifying your work on? Thanks..
Well if you start with talk with the European situation, I think we’re seeing a we saw better than expected sales for us during the quarter 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 the IHS forecast and we see that the U.S. or the North American part is continuing to be forecasted to 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’re well-positioned with domestic Chinese grants. We’re there in China since long time.
So in the progress, 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 and we’re continuing to hire people and we’re still at the aim to recruit 200 to 300 new engineers in Active Safety.
This is related mainly absolutely 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 and where we see the need to cope with new products with ongoing execution and therefore we're investing.
Thomas, any addition to China?.
No. Just on the Chinese OEMs if you look from Q1 2014 to '15 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 of course 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 of course we also see that in the statistics that passenger vehicle are increasing on the expense of the broader light vehicle numbers, so yes just going--.
We will now take our next question from Joe Spak from RBC Capital Markets. Please go ahead. Your line is open..
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 OEM volumes for '16 are lower than previous expected and how that follows through to your thinking about that you’re seeing some signs of sustainable business going forward when it would appear that even some of the replacement business is not sort of up to your expectations.
So maybe just first comment or clarification there..
I don’t think that is related at all actually, I think that customers are dealing with the replacement business that’s separately from choosing how they wanted to pick the suppliers for inflator technology for the future business.
So I don’t think it's related it's more like that if you’re in a good position supporting customers with replacement business as fastest and accurate as you can you’re probably in a better position to get further on business.
When it comes to the replacement business we have seen them lower expectation for capacity throughout the quarter and but we’re still building two 25 million capacity for 2015 and 2016 despite this customer commitment is lower. We don’t see this is affecting the 2015 volumes, it's affecting the 2016 volumes..
Okay and then maybe just if we could think a little bit you know bigger picture on two sort of dynamics which came out, one obviously you had the Toyota announcement where on active safety where they are obviously making much more broadly available.
I was wondering if you could comment on just general coding 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 2018 timeframe, so have you seen any step up in activity on Active Safety coding in that region?.
I think there is general increasing activity in regarding Active Safety and we can see also here in quarter one that to take rate test picked up somewhat and that is coming from several OEMs and not only premium automakers spreading it down into lower segment 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 your [indiscernible], but also from the American side on AEP 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-U.S.
dollar-based?.
I don't think we have that of hand right at this very minute. I'm sorry. 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 that exact figure here right now..
And we will now take the next question from Rod Lache from Deutsche Bank. Please go ahead. Your line is open..
A couple of 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--?.
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 of that..
All right. And just two questions on active safety. Just based on the natures 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 U.S. 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're 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 to 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 defective 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 source as the same time as you source the airbag. Sometimes it goes along, but not necessarily. But in this case, if you look to the passive safety, it's coming down a bit. It is as we indicated here because of changeover models throughout the year..
And we will now take the next question from Agnieszka Vilela from Carnegie. Please go ahead. Your line is open..
I have a couple of questions. First thing on active safety and looking on one application which is autonomous emergency braking. Can you help us to figure out what can the penetration be today in the new cars in the U.S.
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 AAB 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 can be done through the stereovision camera or the combination of radar and a monovision camera.
Is that right?.
Yes, that's right. It 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..
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're going to launch the 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 were 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..
And we will now take our next question from Erik Golrang from Nordea. Please go ahead. Your line is open..
I have two questions. The first one is on the replacement volumes from the sector [indiscernible] inflators.
How much does that make up of the organic growth guidance for this year?.
Between 1% and 2%..
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..
And we will now take the next question from Itay Michaeli. Please go ahead. Your line is open..
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 to 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..
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're as a part of the strategy looking for actively for acquisitions and we're focusing in the area of active safety. And the focus has been of course primarily related to the areas where we're in the advanced driver assistance systems, [indiscernible] radars and related business to that.
Lidar is, of course, a technology that is there for autonomous driving. We're 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're monitoring various kinds of technologies.
Not only the sensing parts but the conductivity parts, etc., as part of the overall future-oriented activities that we're working with..
And we will now take the next question from Fei Teng from Credit Suisse. Please go ahead. Your line is open..
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 positions to make a closure or a size down, then the costs will come and follow with that. And it's not symmetrical over the year. It comes more with the events..
And we will now take our next question from Sheila Weekes from Bank of America. Please go ahead. Your line is open..
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 take-up 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 the stereovision functions, fusing it with radar, etcetera.
So the suite we're launching here we believe is very competitive from that market standpoint..
And we will now take our next question from Edoardo Spina from Exane. Please go ahead. Your line is open..
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're catching up our costs later on here..
And we will now take the next question from Brett Hoselton from KeyBanc. Please go ahead. Your line is open..
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're 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're ready as of today to comment on. If you want to have any more forward-looking statement for as 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 can 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--.
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..
[Operator Instructions]. And we will now take the next question from Ryan Brinkman from JPMorgan. Please go ahead. Your line is open..
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 segments? 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, was 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. And 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 then 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 that 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 for the full year. So we're 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're seeing some changes there in favor of steel materials, so some of them flow through -- it is taking longer time than we had 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..
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, 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..
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, Lidia. I would 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..