Henderson to gain from airbag recall

Henderson, as one of the largest shareholders in Sweden’s Autoliv stands to gain from expectations that US safety regulators may force a competitor maker of vehicle airbags to recall up to 90 million more inflators.

The recall of millions of further inflators used in airbags supplied by Japanese company Takata has been reported as under consideration by wire service Reuters. In Sweden, business daily Dagens Industri reports that local company Autoliv and other makers have been stepping in to deliver replacement products. According to Reuters, up to 120 million vehicles in the US market alone contain airbag inflators made by Takata, which have been linked to injuries and deaths allegedly caused by parts fragmenting and hitting drivers.

Henderson was reported at the end of 2014 owning some 3% of Autoliv. This was reportedly increased to 5.1% by May 2015.

Recently, John Bennett and Asim Rahman, fund manager and assistant fund manager respectively on the Henderson Gartmore Pan European Fund said in their note for January 2016 that they had taken some profit from the Swedish company following a strong showing in the fourth quarter of 2015.

The latest news about Takata suggests Autoliv could increase its sales in this area. It stated in its annual report for 2015 that it sold about 140 million airbags through the year, for a global market share of about 40%. This could well be given a boost if Takata is unable to overcome its current technical and regulatory challenges.

The Japanese company’s problem is understood to stem from the manufacture of the parts that inflate airbags in the milliseconds after a vehicle is involved in a collision; Takata’s inflators rely on a particular chemical reaction, which has shown itself susceptible to water ingress, while during inflation parts have broken away allegedly injuring or killing vehicle occupants.

The US National Highway Traffic Safety Administration (NHTSA) noted in a consent order relating to an earlier recall programme agreed with Takata  that it “may have violated” the National Traffic and Motor Vehicle Safety Act of 1966, and demanded a civil penalty of $200m.

“Takata admits that it did not satisfy the notice provisions of the Safety Act when it failed to provide notice to NHTSA of certain information potentially relevant to one or more of the safety-related defects that may arise in some of the inflators that are the subjects of Recall Nos. 13E-017, 14E-073, 15E-040, 15E-041, 15E-042, and 15E-043 within the five-day period provided by the Safety Act,” the consent statement noted.

The NHTSA has published a website detailing all the vehicle models it knows of having been already affected by the earlier recalls of airbags made by Takata. An estimated 28 million vehicles are affected: http://www.safercar.gov/rs/takata/takatalist.html.

Besides Henderson, other noted local investors in Autoliv include Alecta, Swedbank Robur, AMF Pensionforsakring and Nordea Investment Management, according to investor information available on Autoliv’s website.

The company reported in its 2015 annual results that “On average, operations have generated $750m in cash per year over the last five years, while our capital expenditures, net have averaged $400m. Since 1997 the company has converted approximately 93% of its net income to free cash flow, i.e. cash flow after capital expenditures.”


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