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Fuel Systems Solutions, Inc. (NASDAQ:FSYS)

Q4 2012 Earnings Conference Call

March 08, 2013 11:00 am ET

Executives

Mariano Costamagna - Chief Executive Officer

Pietro Bersani - Chief Financial Officer

Tim Standke - Executive Director

Carolyn M. Capaccio - Investor Relations, LHA

Analysts

Rob Brown - Lake Street Capital

Alexander E. Potter - Piper Jaffray & Co.

Steven Dyer - Craig-Hallum Capital

Matthew Blair - Macquarie Capital

Jeff Osborne - Stifel Nicolaus

Operator

Good morning. My name is Bonnie and I will be your conference operator today. At this time, I would like to welcome everyone to the Fuel Systems Fourth Quarter and Year-End 2012 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) As a reminder, please ask one question and one follow-up and then re-enter the queue. Thank you. I would now like to turn the conference over to Ms. Carolyn Capaccio, Vice President at LHA. Please go ahead, ma’am.

Carolyn Capaccio - Investor Relations, LHA

Thank you very much, operator, and thank you all for joining the call today. With me today from Fuel Systems management are Mariano Costamagna, CEO; Pietro Bersani, CFO and Tim Standke, Executive Director.

Today, Mariano will provide an overview, Tim will review operations of FSS Automotive and FSS Industrial, and then Pietro will follow with the financial detail and open the call for questions. If you have not received a copy of the release that was issued today and would like one, please call LHA at 415-433-3777, we will send one to you.

Before I turn the call over to the team, I would like to remind everyone of the Safe Harbor statement included in the earnings press release that was issued today. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for certain forward-looking statements, including statements made during the course of today’s call. Such forward-looking statements are based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by Fuel Systems Solutions. Actual results may differ from those projected in the forward-looking statements.

These forward-looking statements involve significant risks and uncertainties, some of which are beyond the control of the Company and are subject to change based upon various factors. For a more detailed discussion of some of the ongoing risks and uncertainties of the Company’s business, I refer you to the Company’s various filings with the Securities and Exchange Commission.

And now, it is my pleasure to turn the call over to Mariano Costamagna, CEO. Please go ahead, Mariano.

Mariano Costamagna

Thank you, Carolyn, and good morning and good evening to everyone. Welcome to Fuel Systems Solutions 2012 fourth quarter and year-end conference call. Today, we reported fourth quarter revenues of $98 million. Our automotive revenue reflects sales decreases in North America and in Latin America, that were partially offset by a modest increase in Europe.

Our global industrial business was stable. (indiscernible) by this, Fuel Systems' 2012 was well in line with our revised outlook. However, we recorded a fourth quarter asset impairment charge finally to reflect adjustment we made over the past few quarters to our expectation for U.S. automotive operation and for the AFS acquisition.

The (indiscernible) global economy continues to pressure goals in our (indiscernible) market and this has resulted in the increased competition. In 2012, we adjusted our management to increase the efficiency of their organisation, streamline product development, and increase our activities to house the organisation. E are working to optimize all activities on a global basis. Our 2013 focus is on our expectation of end profitability. We are working closely with OEMs and continue to maintain our technology edge so that we will emerge an even stronger leader in order marketplace.

Now, I'd turn the call over to Tim for operational review, both of Automotive an Industrial. Tim?

Tim Standke

Thank you, Mariano. I will start with the Automotive division, which consists of the Company's OEM passenger and light duty commercial transportation, automotive aftermarket, and transportation infrastructure operations, as well as the U.S. automotive unit which was formerly a part of the IMPCO division. Automotive posted fourth-quarter 2012 revenues of $68.2 million. This was down 13.5% in constant currency, primarily reflecting decreases in the U.S. automotive and Latin American markets. Automotive operating loss was $16.3 million and included a $16.3 million of the non-cash goodwill and asset impairment charge.

In Europe, DOEM volumes improved and were 9,700 vehicles in Q4. The major makes converted in our Livonia and (indiscernible) conversion centers were Nissan, Hyundai, Kia, Mitsubishi, Ssangyong, Peugeot, Citroen, Suzuki, Chevrolet, and Subaru.

With respect to OEMs, FSS Automotive Q4 volumes were solid for supplies to Ford Europe, Honda Thailand, GM and Ford Venezuela. GM, Ford, and Suzuki continue to represent important strategic OEM relationships for us. Fuel Systems Automotive is the main supplier globally for CNG and LPG systems to GM operating in different markets. In the U.S., we convert the 610 van and 911 pickup models to CNG. In Venezuela, we convert the Silverado and Luv D-Max to CNG, and in Europe and India, we do conversions on several models.

In LPG, we are the only supplier for Europe including the Fiesta, Focus, and C-Max. With respect to Suzuki, Fuel Systems is among the largest vendors of CNG and LPG parts, particularly in India for Maruti Suzuki with volumes of about 5000 fits per month. We also supply the complete DOEM conversion for Suzuki Italia.

Turning to aftermarket, volumes slightly decreased in Europe from the third quarter to the fourth quarter due to the typical winter seasonal most market slowdown and increasing the aggressive competition. On a year-over-year basis, aftermarket volumes in Italy increased or continue to increase, while Turkey and Poland decreased somewhat because of more aggressive local market competition. Our strategy is to reduce our costs in customers and maintain leadership as we compensate against aggressive testing in Italy, Eastern Europe and some of the developing markets.

Now, I'll review some highlights for our other strategic growth regions. In Asia, Fuel Systems has developed a leading position in the OEM passenger car segment. Asia offers a large and growing automotive market where we benefit from the double impact of increasing penetration of both automotive ownership among the population and alternative fuel vehicles among total vehicles. Our OEM partnerships with Maruti Suzuki in India and Shanghai Volkswagen in China remain on track. Volumes remain stable with units steady at 5,000 per month and 1,000 per month respectively.

Thailand continued to improve in the fourth quarter as Honda's volumes increased to 2,500 per month. The City CNG model proved to be successful beyond Honda's expectations, which extended production until summer of 2013. With Mitsubishi, we are still awaiting the formal confirmation of their CNG programs for 2013. We expect kit sourcing to begin for the CNG Mitsubishi Triton and Lancer starting in midyear.

Latin America continues to be an important market for both our OEM and aftermarket solutions. In Venezuela, volumes with Ford were 15,000 per year with the Ford Fiesta being the highest volume model. With GM, volumes were 5,000 with the Luv D-Max pickup and Silverado contributing the highest volumes. While we do not yet know the impact that a change in Venezuela leadership will have, the new Ford Fiesta program B299 has been officially assigned to BRC with a target start date for supplies of this model in 2013.

In North America, in late December, we marked the commercial launch of bi-fuel pickups, manufactured through our program with GM. After an extensive development, testing, validation and approval process, Fuel Systems technology is now providing fleet customers with a pickup option that meets rigorous performance standards. The new pickups meet all environmental protection agency and California Air Resources Board emission certification requirements. Additionally, GM's 2013 contract expanded to the CNG product offering to include both the regular and extended wheelbase length for the Express and Savana cargo vans.

To date, confirmed orders we have received for the two North American GM programs, the 911 and the 610, exceed 2,000 units. This year, we will be working on developing a CNG version of the new K2XX platform that will succeed the 911 model. We expect orders for our U.S. automotive models to start ramping more meaningfully beginning in the fourth quarter. We feel comfortable with the level of orders we are getting from the GM program and are making improvements in gross margins at the production level. We are keeping our 2013 U.S. automotive outlook quite conservative because the market is still unpredictable.

Aftermarket kit sales in North America were down from last year and somewhat lower than expected, as certifications on updated products were delayed and due to now resolved technical problems that occurred in the first part of the year. We expect the kit volumes to pick up as we get into the year and are working on regaining this ground. We have worked on increasing the internal efficiency with which we pursue required certifications and are making progress in this process.

On the technology side, automakers are moving away from port injection to direct injection. To keep in step with the market and maintain Fuel Systems position as a front-runner in providing this technology to OEMs, Fuel Systems has invested in the development of LPG direct injection technology for the automotive market. Our system is now in pilot production and we are testing it in select markets to ensure performance across a wide variety of conditions. We expect to commercially launch it in the second half of 2013. At the same time, leveraging our innovation in LPG direct injection technology, we are working on a new generation of low cost CNG injectors. These will help BRC and our other brands appeal to the more cost-conscious user.

We are a uniquely positioned leader in both the aftermarket and with OEMs. In 2013, our priorities in the automotive division are to increase operating efficiencies, maintain market share, and continue to selectively invest for the future. We are focused on growing OEM and DOEM volumes, particularly in the U.S. and Italian automotive programs, building on our OEM programs in Thailand and Latin America, and competing effectively in the automotive aftermarket.

While the transportation aftermarket faces increasingly aggressive competition, especially in Italy, Eastern Europe and some of the developing markets where some players are now seeking lower prices, we have a leading uniquely positioned brand and are working to drive out costs and maintain a first, second or third position in all of our markets.

Next, I'd like to provide an overview of the Industrial division, which consists of the companies, industrial mobile and stationary and auxiliary power unit or APU, and a heavy-duty commercial transportation operation. FSS Industrial reported revenue of $29.9 million. In constant currency, the Industrial revenue increased 2.1%. Industrial operating loss was $3.5 million and included a $5.7 million of the non-cash goodwill and asset impairment charge.

In our mobile markets, weaker demand from Europe and North America continued to impact our volumes and margins. Industry statistics show Class IV and V forklift volumes were down 6% in Europe and 4% in North America as compared to 2011. That being said, the landscape is changing as some of the North American and European manufacturers are forming joint ventures to produce lower-cost forklifts for the certified and noncertified markets. Also, some of the current forklift engine OEM suppliers are changing strategies. This has opened development opportunities with new suppliers and we are working on them with a number of our OEM partners.

In our stationary industrial market, the low cost of natural gas has created opportunities with OEMs as Tier 4 diesel emission regulations have given up costs 30% to 40%. Our biggest customer in 2012 was within the APU market segment. This is the first time it wasn't represented by a forklift customer. We're taking advantage of this growing market by providing internal cost down and performance initiatives on the diesel APU which will enhance our market share position. We are also relaunching a new design for our low-cost battery product which has been well received by the market.

For the commercial vehicle segment, we are currently evaluating development programs with many OEMs for the heavy-duty bus and truck market in China. We anticipate significant growth in the market as many large diesel manufacturers convert to spark ignited engines. Our lead heavy-duty customer in Japan continues to pursue truck and bus opportunities in Southeast Asia leveraging their existing dominant position in the marketplace.

For 2013, our priorities in the Industrial division are to, as in automotive, execute cleanly and continue to selectively invest in growth and technology. This is evident by our new product development roadmap formulated by the voice of customer and involves all of the markets in which we participate, such as mobile industrial, mobile commercial, APU, stationary, and power generation.

In summary, our customers and markets are global in scope and we will continue to invest to position ourselves as the partner of choice to support their global aspirations in alternative fuels.

Now, I'll turn the call over to Pietro.

Pietro Bersani

Thank you, Tim. One note, Fuel Systems will be filing the 10-K early next week. Our goal was to file it today but the conversion to XBRL has taken a bit longer. Now, let's discuss results for the fourth quarter and the December 31, 2012 as compared to the fourth quarter of 2011. Total revenue was $98 million compared to $111 million. Fourth quarter 2012 revenue decreased 9.4% on a constant currency basis. Automotive represented 70% of revenues and Industrial represented 30% of revenues compared to 74% and 26%.

The Americas, North and South represented 39% of group revenue. North America was 22% and Latin America was 17%. This level compares to 55% of revenue during the fourth quarter of 2011. Europe accounted for 40% of consolidated revenue with Asia delivering the remaining 21%. Fuel Systems' revenue base remains diversified among macro global regions.

Foreign currency translation negatively impacted revenues in the fourth quarter by $2.5 million. The euro average rate for Q4 2012 decreased by 3.9% compared to the euro average rate for Q4 2011. Gross profit was $21.3 million or 21.8% of revenues compared to $24.2 million or 21.8% of revenues. The lower gross margin dollars primarily reflect the change in the lower Automotive revenues and an increased cost in Industrial segment.

R&D expense was $6.4 million compared to $7.5 million. FX impact on R&D was $0.1 million positive. The decrease in R&D is primarily attributable to the Automotive business where we had begun to reduce cost as we integrated U.S. market activities into our global technology strategy.

SG&A expense was $13.7 million compared to $16 million. The decrease in SG&A includes by segment; in FSS Industrial, $2.9 million in Q4 2012 compared to [$3.2 million] (ph) in Q4 2011. The decrease relates primarily to one item in 2011 and general lower levels of G&A in IMPCO U.S. In FSS Automotive, $9.5 million in Q4 2012 compared to $11 million in Q4 2011. The decrease relates primarily to one-time credit items in 2012 and some severance reversals.

As detailed in today's press release, the Company recorded fourth quarter 2012 non-cash goodwill and asset impairment charge of $22 million, comprising of a goodwill impairment of $9.9 million and a write down of long-lived assets of $12.1 million relating to the U.S. automotive and AFS operations. This impairment adjust our asset carrying values to be flat to the adjustments we made over the past few quarters to our expectations for revenue for U.S. auto and the AFS acquisition. Our outlook has been affected by growth developing at a lower than expected rate, partly due to economic pressure.

Total operating expenses were $42.1 million or 42.9% of revenue, including a $22 million non-cash goodwill and asset impairment charge compared to $23.5 million or 21.1% of revenue. Excluding the non-cash charge, operating expenses were $20.1 million or 20.5%. Operating loss was $20.8 million or 21.2% of revenue compared to $0.7 million or 0.7% of revenue. Excluding the non-cash charge, the Company recorded fourth quarter 2012 operating income of $1.3 million or 1.3% of revenue. FX impact on operating income is approximately zero, neutral. Income tax benefit was $1.2 million compared to income tax benefit of $0.4 million. Our fourth quarter income tax reflects the current mix of income and raise by jurisdiction. Our full year 2012 effective tax rate was approximately 16.2%.

Net loss was $21 million or net loss of $1.05 per diluted share compared to net income of $1.4 million for net income of $0.07 per diluted share. Excluding the aforementioned non-cash charge, the Company recorded fourth quarter 2012 net income of $0.2 million or $0.01 per diluted share.

Now, on to the balance sheet. At December 31, 2012, our cash and cash equivalents balance was $75.7 million compared to $96.7 million at December 31, 2011. Cash provided by operations during the quarter ended December 31, 2012 was at $10.4 million compared to cash provided by operation of $7.6 million in the same period a year ago.

During the quarter ended December 31, 2012, $2.4 million were used for fixed asset purchases and $1 million was used for financing activities. Inventory was $104.1 million at December 31 compared to $103.4 million on December 31, 2011. Inventory turns were 2.9 times and inventories are at levels consistent with the prior year and improved actually from Q3 by $10.4 million. Inventory management remains the key initiative for the management team as we strive to operate an efficient manufacturing platform.

Accounts receivable at December 31, 2012 was $75.2 million compared to $62.6 million at December 31, 2011. The increase in our accounts receivable is primarily attributable to the increase in OEM volumes and a decrease in the aftermarket. As our business mix changed, our concentration changed and we have larger accounts receivable balances with longer payment terms with the OEMs than we had with our aftermarket customers.

Day sales outstanding were 79 compared to 67 at 2011 year-end. We remain diligent in our collection activities and are certainly aware of its impact on our cash flow. Total assets as of December 31, 2012 were $419.8 million compared to $450 million at December 31, 2011.

Now, on to our financial guidance. Although as we discussed in the last quarter, while global demand for our (indiscernible) fuel solution is growing, end market growth is accelerating more slowly than we anticipated and some markets are suffering from global economic pressures. Aftermarket competitors are reacting to this environment by lowering prices.

Fuel Systems is a technology leader with a diversified product and geographic portfolio and ample cash resources which puts us in a position of strength in this environment. We do continue to invest in expanding our product innovation in order to further advance the market for CNG and LPG solutions and to build OEM relationships around the world. Our aim is to remain the leader and a beneficiary of market growth and dynamics over the long-term.

Therefore, as Tim mentioned, in 2013, we are focusing on executing cleanly and in as profitable a way as possible, forging additional OEM customer relationships in key markets and making key technological investments to maintain our innovative edge so that we emerge as a strengthened leader.

Our 2013 outlook is as follows. We expect full-year 2013 revenue to be between $400 million and $420 million, 2013 gross margin of 21% to 23%, and 2013 operating margin of 2% to 4%. This outlook is based upon the following expectations. Automotive operations; growth in OEM and DOEM programs, particularly in the U.S. and Italy, combined with contributions from Thailand and Latin American automotive markets, partially offset by a lower transportation aftermarket given increasingly aggressive competition in developing countries and Europe as well as in Italy. Industrial operations; growth in the APU market aided by the launch of a new battery product; slight growth in stationary equipment and mobile industrial markets overall with a mix of stable and weaker geographies; a comparable managing performance in 2013 relative to 2012 as the Company focuses on achieving greater operational efficiencies, given some margin compression expected from an increasingly competitive environment; and continuous selective investments in key leading-edge technologies.

This concludes our prepared remarks. Operator, now, I will like to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Please limit yourself to one question and one follow-up and then re-enter the queue. Our first question comes from Rob Brown of Lake Street Capital.

Rob Brown - Lake Street Capital

You mentioned pursuing some new OEM relationships. Could you give us a sense as to sort of how many are out there, how much more penetration you can get, maybe some of the geographies you're looking at?

Pietro Bersani

We had some important plans in this respect. When it comes to Automotive, we have an interesting project with a very important U.S. OEM, mainly in South America, in particular Venezuela. We are starting with the OEM relationship inside the U.S. OEM play directly in its factory and that's very important because we want to use – this OEM is going to use BRC and to prefer BRC rather than internal system which is available in-house.

In addition to that, we want to draw to your attention that we are also going to benefit from the expanded relation that we have with same OEM from one country to another one, and I think that a perfect example in this respect is what we have done with Honda. So, from our corporation with Honda in Thailand, we switch it to a very interesting corporation in India as well for the City car on CNG. And the same about Ford from Europe to Venezuela, particularly in connection with the Ford Fiesta vehicle.

Under an Industrial standpoint, we are working with a North American OEM in order to develop a new fuel system for our forklift market, we see growth in China, especially with some large Chinese engine manufacturer. I am specifically relating to the forklift as well as stationary and the power generation market. Last but not the least, we are also developing fuel system for some larger power generation company located in the U.S. as well. So this is the scenario supporting what we just said.

Rob Brown - Lake Street Capital

Great. Then on the U.S. GM business in particular, I think you said a couple of thousand units you've got orders for. I guess does that sort of mean that's your order level this year, is that where you stand today and you could add more, could you give us a sense of how many units this year could be?

Pietro Bersani

(indiscernible) Obviously, the reason (indiscernible) we want to be conservative in this respect. What I can tell you, Rob, is that we are extremely satisfied when it comes to the portfolio order that we have right now. We are very well positioned based on our projection and we can (indiscernible) ways on even more let's say development, especially in the fourth quarter of this year, I mean 2013.

Operator

Thank you. Our next question comes from Alex Potter of Piper Jaffray.

Alexander E. Potter - Piper Jaffray & Co.

I was wondering if you could elaborate on that comment just now, what is it about fourth quarter of 2013 that leads you to think that could be a big quarter for you?

Pietro Bersani

Well, when we look at the fourth-quarter and you look at especially on a year-on-year basis, you see macro trends there I would say. First, of course U.S. automotive was down, Latin America was down, and at the same time, we experienced kind of a modest increase in Europe, but in Europe it's a different story depending on what countries we are referring to. So, good performance from Italy because of the strong prices (indiscernible) between alternative fuels and traditional fuels continue to be a very strong catalyst. We are basically flat in certain other Western European countries like Germany, and at the same time, we are experiencing a strong local competition on certain Eastern European countries like for example Poland and Turkey that you know are very important for our business.

No need to say that, coming back for a while to U.S. automotive, that they had a significant increase year-on-year, especially Q4 2012 on Q4 2011, was in connection with the big shipment of ADT vans that we experienced last year on December this time. But overall, when you look at the Q4 this year on the Q4 last year, when it comes to the automotive, these are the main factors.

Under an Industrial standpoint, Industrial is up slightly. It depends also on the geography that we are referring to, so they are kind of offsetting depending whether we talk about Europe, North America and Asia, in particular China, but this is overall the picture.

Alexander E. Potter - Piper Jaffray & Co.

Okay, thank you. I was wondering also if you could give, I know that might be somewhat difficult to predict, but you had given your breakdown, total group revenue breakdown by these four different regions. What do you think that mix will be at this time next year? Do you think there will be a big shift one way or another or do you think it will be basically the same?

Pietro Bersani

I think that you may expect an increase when it comes to North America and Latin America in particular. These are the two geographies where we are expecting the most significant let's say increase over the next few quarters, and that's in connection with the OEM programs that we have that we talked about. Those are the countries that I would look more.

Operator

Thank you. Our next question comes from Steve Dyer of Craig-Hallum.

Steven Dyer - Craig-Hallum Capital

On the GM business, would you expect with the K2XX you'll be on additional models vis-a-vis the GMT900?

Pietro Bersani

Well, we have experienced it already, we already know that we could experience it in expansion of our offerings in connection with a different wheel-based van in connection with those vehicles and things start keeping moving there. I mean, just think about what the GM CEO recently said in this respect. I think that we are in good shape and I think that we need to look at – we may look at the picture in a way which is consistent in terms of expansion of further offerings to the current base of pickup trucks and vans that we have.

Tim Standke

And just keep in mind that the K2XX program is an extension, it's a successor to the 900 series pickup trucks, and the K2 designation for GM isn't implying a global architecture, and following that, GM is lining up to work with their global entities with products that work across the world.

Steven Dyer - Craig-Hallum Capital

Okay, that's helpful, thanks. Then maybe just a quick update on the Italy market. It seems as though adoptions increasing there are relatively solidly with incentives?

Pietro Bersani

Well, it is something that's – I mean when it comes to Italy, you should think about, first, a very good performance when it comes to the OEM in particular, and a good position in terms of aftermarket. When it comes to the OEM, as a matter of fact, we have a strong offer, especially in connection with Ford Fiesta which is one of the top five best seller when it comes to LPG, and to be precise, that doesn't relate to the aftermarket – sorry, to the OEM.

We continue to have very strong market share in Italy, we are number two right behind (indiscernible) and Lovato, but if we look at the market share evolution from 2011 to 2012, we have experienced a slight increase, which by the way is a little bit bigger than the increase by (indiscernible) and Lovato. That means that the CNG and LPG vehicles and penetration rate in Italy are growing up.

Mariano Costamagna

Talking about the Italian government incentive, government has budgeted €40 million of incentive to support the purchase of new clean vehicles. The incentives are very well organized but it's focused on the company vehicles, and the incentive is €35 million in 2014 and €45 million in 2015, and around €40 million for this year, mostly particularly on the passenger car.

Operator

Thank you. Our next question comes from Matthew Blair of Macquarie.

Matthew Blair - Macquarie Capital

Just to follow up on Italy, is your only partner Ford in this region or I thought you were also partnered with Chevrolet?

Mariano Costamagna

Of course, we supply many (indiscernible) OEM to trademark and company car in Italy, and regarding Ford, we have also one OEM buyer, one OEM supplier that we provide a kit and not just the conversion, and while in other model of Ford, we provide kit and conversion in our facilities in (indiscernible) and [Livonia] (ph), and for example we are of course one of the biggest (indiscernible) OEM that we supply kit and conversion is Chevrolet as you correctly mentioned.

Tim Standke

And like you said, there are several makes. We've got Nissan, Hyundai, Kia, Mitsubishi, Ssangyong, Peugeot, Citroen, Suzuki, and Chevrolet.

Mariano Costamagna

So, it will remain the biggest one with the model coming from Korea, while today, Hyundai growing very fast and more than we expected, more than 700 cars per month at this moment. Also Kia and Peugeot remained also strong in the volume.

Matthew Blair - Macquarie Capital

Thanks, and it looks like the Venezuela in currency was devalued in early February. Is that going to have an impact on your first-quarter 2013 results?

Pietro Bersani

Not much. Probably you know Matthew, that when it comes to Venezuela, we do have our selling operations from (indiscernible) in euro and also we have our Argentina subsidiaries selling product in Venezuela in U.S. dollars. We have of course (indiscernible) Venezuela local subsidiaries, but in that respect, we do have at the same time the functional currency exactly in a listed currency of the operation. So in short, we do not expect any significant downside from the current situation. And by the way, even if certain – there are definitely some uncertainties in connection with the political environment, we do not have any signal that our proposed business operations may be back by what is most probably or most likely scenario.

Mariano Costamagna

You probably know that Venezuela is one of the biggest and stronger market, currently fuel market in CNG in the world, with a good future in my opinion even if today there is also a very bad momentum with the (indiscernible).

Matthew Blair - Macquarie Capital

Okay, thank you.

Operator

(Operator Instructions) Our next question comes from Jeff Osborne of Stifel.

Jeff Osborne - Stifel Nicolaus

I've got two quick questions here. One, I was wondering if you could talk about the market share that you saw in 2012, or what your estimated market share is for both the OEM programs but also the delayed OEM?

Pietro Bersani

Yes, what geography are you referring to?

Jeff Osborne - Stifel Nicolaus

If you have it for Europe and South America, that would be the most helpful.

Mariano Costamagna

Delayed OEM in 2013 for Italy for example, we expect an average of 3,000, 4,000 conversions per month during all of year 2013, with 13 different brands that we currently supply.

Pietro Bersani

Jeff, let me just clarify. If we look at Italy, which is as you know the most important market, when it comes to (indiscernible) aftermarket, we are approximately around 23% in 2012 compared with the market leader, which is like I said (indiscernible) Lovato, which is approximately 29%. Like I said, our market share increased from 2011, it's a little bit higher than that one experienced by the current number one, which is (indiscernible) Lovato. It's a different story when it comes to CNG because they have more CNG let's say capability. As a result, the market share is definitely higher than ours because it is approximately 37% compared to approximately 90% for Fuel Systems.

Out of Italy, which is the most important country, we are definitely in the top three, four rank in position on all the most important markets, and definitely it's extremely important because we are in a leading position and we have a market share increase perspective, especially in South America and in particular in Venezuela as well as in Thailand and India.

Jeff Osborne - Stifel Nicolaus

That's great to hear, and then the second question was on the truck side that you mentioned, China and Japan, can you just talk about how those are progressing, when you expect them to be more material in terms of revenue, but also if you could touch on any possibility of expanding the opportunity on the truck and bus side into the U.S. and Europe?

Pietro Bersani

About the heavy-duty market, our offering to our main customers probably will be experiences like volume decrease, switching between flat and light decrease. There is also some additional competition which means certain kind of selling price pressure, but especially with China, we see growth opportunities. And that's just not in connection with the big boxes but also in connection with some programs that we are starting to develop with the Industrial business. Like I said, when it comes to power generation and forklift, we have interesting opportunities over there.

So, the heavy-duty transportation continues to remain a strong component of our Industrial business in those countries. Our visibility about this year is like I said basically flat to slightly decreased because of the volume and the price competition, but under more mid, long-term perspective, we are definitely very bullish because we'd be getting the full opportunities that we have just started to work on.

Jeff Osborne - Stifel Nicolaus

I understand. Is there any possibility to explore partnerships for the U.S. or North American market as well as Europe or are you content in the more competitive Asian market?

Tim Standke

I mean, we are always in a position where we're looking for partnerships and growing our businesses and opportunities. So, the answer to your question is, would we be looking in the U.S. and Europe? Absolutely. But in the short term, any direct access into the U.S. and European markets in the heavy-duty truck industry will probably result from our partners overseas in Asia and things launching into those markets with products on their engines.

Jeff Osborne - Stifel Nicolaus

I Understand. Thanks for the clarification.

Operator

At this time, there are no further questions. I'll turn the call back over to Mr. Pietro Bersani.

Pietro Bersani

Okay, thank you for your participation and we'll speak with you next quarter. Thank you very much for your time and your attention.

Operator

Thank you. This concludes today's conference call. You may now disconnect.

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