Financial overview

in million dollars	2007	2006	(%)	Factors
Sales	6,769	6,188	9.4	See note 1) below
Operating income	502	520	(3.5)	See note 2) below

Factors
1) -Net sales for 2007 increased by 9.4% or by $581 million to $6,769 million, including currency effects of $323 million or 5% and $9 million from an acquisition in India.
-Organic sales of airbag products increased by 2%, mainly due to the introduction of side curtain airbags into an increasing number of vehicle models. Airbag product sales were also driven by higher market share for safety electronics and steering wheels. Sales were negatively affected by price erosion and the expiration of certain frontal airbag contracts.
-Organic sales of seatbelt products rose by 7% due to strong vehicle production in the rest of the World and strong demand for upgraded seatbelt systems with pretensioners.

2) -Operating income declined by $18 million to $502 million and operating margin to 7.4% in 2007 from 8.4% in 2006. The decline in operating income was entirely due to a $30 million cost for a court ruling, which had 0.5 percentage point negative margin effect. Excluding the cost for the court ruling, operating income in 2007 would have been $532 million and operating margin 7.9%.

Sales by region
-In Europe, where the Company generates approximately 50% of its revenues, organic sales rose by 4% compared to a 2% increase in light vehicle production in Western Europe which accounts for 90% of Autoliv’s European revenues. Eastern Europe also contributed to the growth of the safety market and the Company’s sales, despite a lower average safety value per vehicle, by rapidly raising its light vehicle production by 18%.
- In North America, which accounts for a quarter of revenues, organic sales declined by less than 1% due to a 1.5% decline in light vehicle production. The Company's relatively strong performance was due to rapidly increasing demand for curtain airbags, and market share gains in safety electronics and steering wheels. These effects were partially offset by price erosion and the expiration of certain frontal airbag contracts.
- In Japan, which accounts for 10% of revenues, organic sales grew by 13% which was significantly faster than the 1% growth in Japanese light vehicle production. Organic sales growth was recorded in all product lines and was particularly strong in seatbelt.
- In the rest of the World, which generated nearly 15% of revenues, organic sales rose by 10% driven by a 13% increase in the Region’s light vehicle production.

Acquisitions
-In January 2007, the Company agreed to buy the remaining 35% of the shares in Autoliv-Mando in South Korea. The investment is part of global support of the Korean automotive industry which is expected to double production to eight million passenger cars by 2010, with most of the growth outside Korea. The acquisition will enable the Comapny to fully integrate the Korean company into its global business operations.

-In October 2007, the Company agreed to buy 41% of the shares in its 59% held Chinese company Autoliv (Changchun) Maw Hung Vehicle Safety Systems for nearly U.S. $14 million. The joint venture, which has one of Autoliv's nine manufacturing facilities in China, primarily produces seatbelts. The acquisition is subject to customary governmental approvals.

-In October 2007, the Company agreed to buy the remaining 50.01% of the shares in its Indian joint venture Autoliv IFB Private Limited. The joint venture will after the acquisition become a wholly-owned subsidiary of the Comapny. The company has its main facility for seatbelt assembly, including a test facility with a sled test, in Bangalore. Autoliv India has since the start of the company experienced a steady growth of business. Today, the company is the clear leader in the Indian seatbelt market with a market share of more than 50%. Major customers include Suzuki, Telco and Hyundai and sales totaled approximately $45 millions in 2006.

Divestitures
- In August 2007, Autoliv North America announced plans to close its Madisonville Kentucky plant, which produces seat belt products for the North American market. Current operations at this facility will be moved to existing plants throughout North America. Earlier in 2007, the Company announced plans to move high-volume seat belt production lines from the Madisonville plant to the its seat belt plants in Mexico to take advantage of lower costs for labor-intensive operations. Service parts for seat belt products will be consolidated with airbag service production in an existing Autoliv plant in Utah.

Outlook for 2008
-During 2008, the Company expects to ramp up production in its new Chinese manufacturing facilities and to benefit from higher vehicle production in Asia Pacific and Eastern Europe and from higher installation rates of side curtain airbags in North America and Europe. Light vehicle production is expected to increase by an average of 2.5% but to decline by 5% both in North America and in Western Europe.

-Sales in 2008 are expected to grow by 7% with the organic sales portion growing at approximately 2% and the acquisition in India contributing 1%. Operating margin is expected to improve despite the drop in light vehicle production in the Company's largest markets and to reach a level between 8.0 and 8.5%.

(in million $)	2007	2006	2005	2004	2003
R&D expenditure	396	398	386	368	305

-Of the $396 million in 2007, 80% was for projects and programs for which we have customer orders, typically related to vehicle models in development. The remaining 20% is not only for completely new innovations but also for improvement of existing products, standardization and cost reduction projects.

Product Development
Front Edge and Bumper Airbags
In June 2007, the Company introduced two new airbags. The Bumper Airbag for SUVs (Sport Utility Vehicles) addresses the compatibility problem associated with them and other high-hooded vehicles colliding with passenger cars and other low-profile vehicles. The Front Edge Airbag will save the lives of pedestrians when struck by an SUV. SUVs are of particular concern for pedestrians due to their higher and more box-shaped fronts. The fatality risk for pedestrians is 2.5 times higher in SUV impacts than it is for regular cars. Another difference is the impact area. While most pedestrians killed by passenger cars perish when they hit their heads on the hood or windshield area of the car, the majority of severe injuries to pedestrians caused by SUVs occur when the front hood edge (also called the Bonnet Leading Edge or BLE) hits the pedestrian's chest and abdomen.

Stereo Vision Camera and Vehicle Radar
They accurately measure the distance to traffic hazards ahead of the vehicle. These systems forewarn the driver or prepare the vehicle’s safety systems when the crash is unavoidable. Pre-crash sensing will improve occupant protection in side impact collisions and enable the car manufacturers to pressurize the door beams in a crash using airbag inflator technology.

Active Structures
It has been impossible to tune the design of a vehicle for each specific crash condition, however, this drawback could be eliminated by combining pre-crash sensors the Company's developing. This system solution can offer lower weight and less CO2 emission. An active structure could use a "crash box" at the front end of the vehicle beam. An empty crash box is relatively soft to provide the protection to pedestrian's legs in low to medium speed crashes. In event of an imminent high-speed crash, a pre-crash warning system will trigger a gas generator that pressurizes the crash box. The structure then becomes stiff and offers more efficient protection in the crash. With this improved structure and crashworthiness, it could be possible to make vehicles smaller, more compact and with less weight, thereby reducing fuel consumption and emissions.

Alcohol Sensor
- An new area where the Company see significant long-term potential is alcohol sensors called “interlock systems”. Toyota hopes to fit cars with a system by the end of 2009. Nissan is testing preventive drink-driving technology. Saab has ongoing field tests and tentative introduction within 1-2 years. Volvo's "Alcoguard" will be offered as an option in Europe and the US from the beginning of 2008.

in million $	FY2007	FY2006	FY2005	FY2004
Investment	324	328	315	324
% against sales	4.8	5.3	5.1	5.3

-Capital expenditures continue to exceed depreciation of $301 million as a reflection of the need for additional manufacturing capacity resulting from the growth of the automotive safety market.
-Capital expenditures for 2008 are expected to range from $350 million to $380 million.

Overseas Investment
-In October 2007, the Company installed a state-of-the-art test facility in Tskuba, in order to support the continued business growth in the important Japanese market. The investment includes a new advanced crash sled which is better suited to replicate the crash dynamics of future vehicle designs. The Company is the only automotive safety supplier with this new so called "pitching technology". Vehicle bodies can be tested at speeds up to 80 kph (50 mph) in both frontal and side impact crash conditions. The cost for this 4,200 square meter expansion amount to $13 million.