STOCKHOLM, Sweden, July 18, 2002 (PRIMEZONE) -- Autoliv Inc. (NYSE:ALV) and (SSE:ALIV) - the worldwide leader in automotive safety systems - reported better than expected sales, earnings and cash flow for the three-month period ended June 30.
On the back of a 2% increase in global light vehicle production, the Company's organic sales rose by 7%. Including an acquisition and currency effects, Autoliv's reported sales grew by 13% to a new record level of $1.2 billion.
Earnings and margins improved for the third consecutive quarter. On a comparable basis (i.e. using the same goodwill accounting principle for both 2002 and 2001), income before taxes improved by 20% to $82 million, net income rose by 22% to $53 million and earnings per share increased by 20% to $.53. These improvements were mainly driven by the strong sales performance and the effects of the restructuring program announced in October 2001.
For the third straight quarter, operations generated more than $100 million in cash.
Market Overview
During the three-month period April through June 2002, light vehicle production increased in the Triad (i.e. Europe, North America and Japan) by approximately 2% compared to last year's second quarter.
In Western Europe, where Autoliv generates half of its revenues, vehicle production is estimated to have declined by 1% due to weak markets, particularly in Italy, Spain and Germany. However, two of Autoliv's larger customers, BMW and Peugeot/Citroen, increased their production. BMW boosted its production by 20%, partly due to the new Mini, to which Autoliv is the supplier of the complete safety system. In Europe, therefore, Autoliv continued to have a favorable customer and car model mix.
In North America, which accounts for one-third of Autoliv's revenues, light vehicle production rose by 5%. GM's production rose by 12% and Ford's production by 2%, while DaimlerChrysler's production declined by 5% from the relatively high level in the comparable quarter 2001. Production of light trucks rose by 8%, while the passenger car segment - to which Autoliv is more exposed - increased by just over 1%.
In Japan, which accounts for a tenth of the Company's sales, light vehicle production declined by 1%.
The other big growth driver for Autoliv - the safety content per vehicle - has continued its steady increase. It is expected that during the next several years this effect will continue to contribute about 5 percentage points annually to the growth of the global safety system market. Cur rently, the safety content per vehicle is primarily driven by side airbags, especially by curtain airbags for head protection. Volkswagen has recently contributed to this trend by deciding to make Autoliv's Inflatable Curtain a standard item in its Golf cars (Europe's best- selling car) in the major markets. The effect of "decontenting" (i.e. making side airbags and other non-mandatory safety systems optional) which a few customers have announced, goes against the strong global trend and has negligible effects on the demand for automotive safety systems.
Sales
During the three-month period ended June 30, 2002, Autoliv continued to capitalize on its strong market position in the growth segments of the global safety systems market. As a consequence, consolidated sales rose by 13% to $1,169 million. The acquisition on April 1 of Visteon Restraint Electronics (VRE) contributed $41 million or 4 percentage points to the increase. Even exclusive of this effect, consolidated sales still hit a record high level. Sales by VRE were somewhat better than anticipated, thanks to better than expected production for Ford, VRE's main customer.
Consolidated sales were also boosted by 2 percentage points by the weaker dollar - primarily against the Euro.
Autoliv's organic sales (i.e. excluding currency effects and the change in the consolidated structure) grew by 7% compared to the 2% increase in light vehicle production in the Triad.
In Europe, reported sales rose by nearly 12%. Currency effects contributed 5 percentage points to the growth and the VRE-acquisition added 2 points. The organic sales increase of 5% was mainly due to market share gains, and strong sales of passenger airbags, seat belt pretensioners and steering wheels. Sales in the U.K. were particularly strong, partly due to BMW's new Mini.
In North America, Autoliv's sales increased by close to 13%. The acquisition of VRE accounted for 7 percentage points of the reported increase. Organic sales increased by 6% or at a similar rate to North American light vehicle production. Autoliv's sales were driven by the Inflatable Curtain, which offset the Company's unfavorable customer and vehicle-type mix during the quarter.
In an essentially flat market, sales in Japan rose by more than 20%, even after adjusting for currency effects. Sales were boosted by the Inflatable Curtain, side airbags for chest protection and other new contracts. Sales in Korea also remained strong.
Sales of airbag products (incl. steering wheels) increased by 14% to $832 million. Of the increase, 6 percentage points were due to the VRE- acquisition and 2 points to currency effects. The organic growth was 6% and was mainly driven by a 57% increase in the sales of the Inflatable Curtain and by a 17% increase in the sales of passenger bags.
Sales of seat belt products (incl. seat sub-systems) rose by 12% to $337 million. The organic increase was 10% despite the 1% decline in vehicle production in Europe, where Autoliv has two-thirds of its seat belt sales. Sales were driven by market share gains in Europe, new business in Korea and by an 11% increase in pretensioner sales due to strong demand for more expensive pretensioners. Exchange rates accounted for 2% of the reported sales increase.
Earnings for the Second Quarter - On a Comparable Basis Autoliv's earnings improved on all levels - even excluding the positive effect of the new accounting principle (SFAS 142) which abolishes the requirement for annual amortization of goodwill. On a quarterly basis, the change reduces Autoliv's amortization by $13 million. For compar ability, the new accounting principle has been applied - in the discussions below - to both the reporting periods and to the reference periods last year.
As part of the adoption of the new accounting principle, the Company performed an impairment analysis in the first quarter and concluded that the value of its goodwill is not impaired.
During the second quarter, gross profit improved by 14% to $215 million. Gross margin stood unchanged at 18.4% from the previous quarter - despite a 0.3% negative impact of the strategic acquisition of VRE - and increased from 17.7% in the same quarter last yea. Of the improvement, 0.3 percentage points were due to costs that this year are reported as R,D&E or S,G&A expenses and not as Cost of Sales as in 2001. The improve ment is mainly due to higher sales, the restructuring program announced in October and lower component costs. The restructuring program has lead to the closure of one textile plant in Sweden, the move of textile pro duction from the U.S. to Mexico, and the streamlining of the Seat Sub- Systems Division and of inflator operations in the U.S.
Operating income increased by 16% to $94 million and operating margin improved to 8.0% from 7.8% in the year-ago quarter and from 7.0% during this year's first quarter. This improvement was realized despite the 0.3% negative effect from the VRE-acquisition.
Net interest expense decreased by $3 million to $12 million, primarily as a result of lower interest rates on debt denominated in U.S.dollars. Most of the benefit of lower interest expense was offset by lower income from joint ventures and by reduced foreign exchange gains.
Income before taxes improved by 20% to $82 million, as a result of the better operating income.
Net income amounted to $53 million and earnings per share to 53 cents, an increase of 22% and 20%, respectively. These results are the best profit levels recorded during the past two years.
The effective tax rate declined to 33% from 34% during the first quarter of 2002. Half of the reduction is due to the catch-up effect resulting from a change in the full-year forecasted tax rate. The forecasted rate is now 33.5% versus 34% expected before.
The positive impact on net income of currency exchange effects (including both translation and transaction effects) was less than $1 million.
The average number of shares outstanding (assuming dilution) increased to 98.3 million for the quarter from 97.9 million in last year's second quarter.
Earnings for the Second Quarter - Comparison on the Originally Reported Basis Including the $13 million in goodwill amortization for the corresponding quarter 2001, operating income increased by 38% and income before taxes by 48%. Net income rose by 75% and earnings per share by 71%.
The operating margin improved to 8.0% from 6.5% and the net income margin to 4.5% from 2.9%.
The reported effective tax rate fell to 33% from 42%. This was almost entirely due to the change in the accounting principle related to good will amortization.
Sales and Earnings for the first Six Months During the six-month period January-June, consolidated sales grew by 4% to $2,198 million. The organic increase in sales was 3% despite flat light vehicle production. Reported and organic sales of airbags rose by 5% and 3%, respectively, and amounted to $1,558 million. Reported and organic sales of seat belts increased by 2% and 4%, respectively, and amounted to $640 million.
On a comparable basis, operating income improved by 8% to $165 million and the operating margin to 7.5% from 7.2% during the first six months of 2001. Income before taxes, net income and earnings per share all rose by 19% and amounted to $144 million, $92 million and $.93, respectively. The improvement was due to higher sales and the restructuring program.
On the originally reported basis (i.e. including $26 million in goodwill amortization for 2001), operating income improved by 30%, income before taxes increased by 52%, net income by 80% and earnings per share by 79%.
Cash Flow and Balance Sheet Operations generated $132 million in cash compared to $22 million during the second quarter of 2001. This was the third consecutive quarter with more than $100 million in cash gen eration. In addition to the higher profit, the cash generation was due to a reduction in working capital.
Depreciation (excl. amortization) of $56 million has continued to exceed capital expeditures, net of $51 million. The need for capital expenditures has been less as a result of the past years' comprehensive programs for geographical expansion and additional crash test facilities. In addition, the move of production to low-labor-cost countries has reduced the need for expensive, automated manufacturing machinery.
Due to the lower capital expenditures and the strong operational cash flow, $54 million in cash was generated after investments. The investments included $27 million for acquisitions, mainly for VRE. During the last twelve months, operations have generated $189 million in free cash flow (i.e. excluding acquisitions).
Despite the acquisition of VRE, net debt decreased by $10 million to $953 million. Working capital declined by $5 million to $418 million or from 10.7% to 10.3% in relation to sales of the last twelve months, despite an increase in accounts receivable of $127 million. This increase was more than offset, however, mainly due to an increase in accounts payable. The receivables correspond to 83 days of sales compared to 84 days at the beginning of the quarter. The increase in the amount of receivables was therefore not due to delays in receiving pay ments, but to the weakening of the dollar at the end of the quarter, the acquisition of VRE and the high sales in June.
The net debt to capitalization ratio continued to decline and amounted to 32% at June 30 compared to 33% at the beginning of the quarter. Equity increased by $80 million, partly as a result of a $57 million favorable effect of the weaker U.S. dollar. The U.S. accounting prin ciple SFAS 133 had a negative effect of $19 million (mainly related to cash-flow hedging of transaction exposure). Equity was also reduced by the payment of the quarterly dividend of $11 million. HeadcountThe total headcount (employees plus temporary hourly workers) increased by 1,100 during the quarter and by 1,200 during the six-month period. Move of production to low-labor-cost countries added 700 to the headcount. The rest of the increase was almost entirely due to the acquisition of VRE.
Prospects for the Third Quarter
Assuming that the mid-July exchange rates prevail, Autoliv's sales will be favorably affected by the weaker US-dollar by nearly 8% during the third quarter.
Light vehicle production is expected to decline in Europe by 5% compared to the third quarter of 2001. In North America, however, light vehicle production is expected to increase by 9%. This implies flat production in the third quarter as a weighted average of Autoliv's two most important markets compared to the corresponding period last year.
Given the currency exchange rates in mid-July and the vehicle assumptions stated above, Autoliv's sales (including VRE) are expected to continue to grow in the third quarter at approximately the same rate as in the second quarter. In addition, the operating margin is expected to be maintained at approximately the same level as in the corresponding quarter of 2001, despite VRE's lower margin and uneven capacity utilization due to the projected declines in vehicle production in Europe.
Major Launches during 2nd Quarter:
- Audi's new A8: Smart passenger bags, side airbags, Inflatable
Curtains, seat belts
- Audi's new A4 convertible: Seat belts
- Chevrolet's Silverado, Suburban, Tahoe and Avalanche: Passenger
bag upgraded to smart systems
- Dodge's new Viper: Smart frontal bags, seat belts
- Dodge's Neon: Driver airbag
- Chrysler's PT Cruiser: Driver and passenger bags
- Chevrolet's Astro/Express, GMC Safari/Savana: Pretensioners
- Ford's new Amazon: Driver bag with steering wheel, passenger bag
and seat belts
- Ford's new Transit Connect: Driver bag with steering wheel,
passenger bag, side bags and seat belts
- GMC's new Envoy: Passenger airbag
- Honda's Accord: Side airbags
- Jaguar's S-Type: Anti-whiplash systems, rear seat backrest,
occupant position detection and Inflatable Curtains
- Mercedes' new CLK: Side airbags and Inflatable Curtains
- Saab's new 9-3: Driver bag with steering wheel, passenger airbag,
side airbags, Inflatable Curtains
Other Significant Events
- Autoliv has commenced airbag production in Shanghai, establishing itself as the first producer of airbags in China. The new plant will supply frontal airbags to several vehicle assembly plants such as Shanghai General Motors (SGM), Dongfeng Citroen Automotive Corporation (DCAC) and Shanghai Volkswagen (SVW). Deliveries for additional contracts are due to commence during the next two years. - The Board of Directors has decided to increase the number of members to ten and has elected Mr. Dionisio Garza Medina to the Board until the 2004 Annual Shareholder Meeting. Mr. Garza is the Chairman and Chief Executive Officer of ALFA, a leading diversified Mexican company with a division for engine blocks, cylinder heads and other high-tech aluminum automotive components. He holds a Master's Degree in Industrial Engineering from Stanford University and an MBA from the Harvard University Graduate School of Business. The other nine Board Members are from Sweden (4), the United States (3), Japan (1) and Germany (1). - Autoliv has received the Top Supplier Award of Mitsubishi North America. This was the third award of its kind that Autoliv has received this year from the Japanese vehicle manufacturers.
Dividend
A dividend of 11 cents per share will be paid on September. 5, to share holders of record as of August 8. The ex-date (i.e.when the shares will trade without the right to the dividend) is August 6.
Next Report
The next quarterly report, which covers the period July 1 through September 30, will be published on October 17, 2002.
"Safe Harbor Statement"
Statements in this report that are not statements of historical fact may be forward-looking statements, which involve risks and uncertainties, including - but not limited to - the economic outlook for the Company's markets, fluctuation of foreign currencies, fluctuation in vehicle pro duction schedules for which the company is a supplier, continued uncertainty in program awards and performance, the financial results of companies in which Autoliv has made technology investments, and other factors discussed in Autoliv's filings with the Securities and Exchange Commission
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