Harman International Industries, Incorporated - Analyst/Investor Day

Aug. 8.13 | About: Harman International (HAR)

Harman International Ind. Inc. (NYSE:HAR)

August 08, 2013 9:00 am ET


Sandra Rowland - Vice President of Investor Relations

Dinesh C. Paliwal - Chairman, Chief Executive Officer and President

Sachin Lawande - Executive Vice President and President of Infotainment Division

Michael Mauser - Executive Vice President and President of Lifestyle Division

Blake Augsburger - Executive Vice President and President of Professional Division

Herbert K. Parker - Chief Financial Officer and Executive Vice President


David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Ryan Brinkman - JP Morgan Chase & Co, Research Division

Ravi Shanker - Morgan Stanley, Research Division

Adam Brooks - Sidoti & Company, LLC

Matthew T. Stover - Guggenheim Securities, LLC, Research Division

David H. Lim - Wells Fargo Securities, LLC, Research Division

Sandra Rowland

Good morning. Welcome to HARMAN's 2013 Analyst Day. For those of you who I've not yet met, I'm Sandy Rowland, Vice President of Corporate Development and Investor Relations at HARMAN. Thank you for joining us at this fantastic venue, which, of course, is powered by HARMAN audio, and also features one of our newest product lines, Lighting. I'd also like to welcome those who are joining us on the webcast.

Before we get rolling, just a couple of housekeeping items. First, we ask that you please silence your cellphones. And second, during the course of this presentation, we will be making forward-looking statements. Safe Harbor language is included in your handout, and we ask that you read it carefully.

We have a full agenda this morning. We'll start it off with a presentation from our Chairman, CEO and President, Dinesh Paliwal, who will give us an overview of the HARMAN strategy. And then we'll dive into 2 of our divisions: Infotainment and Lifestyle. And then we'll take a short break and come back and hear about our Professional Division, and we'll also give you our financial outlook.

Before Dinesh begins, we just like to lead the morning off with a short video, which we believe captures the spirit of HARMAN.


Dinesh C. Paliwal

Good morning. It's a beautiful day, and I think this video really captures the spirit as Sandy said. I'm Dinesh Paliwal, and I'm really happy to be here today to share with you, together with my colleagues, something, which we believe we are on a great journey and it's just getting better every year. And we hope we can communicate this powerful story by division, by technology during the session. And later on, we'll have a great Q&A session, which hopefully will also answer all your questions you may have in your mind.

So let me just describe -- this video basically captures 3 main themes, which I'm going to try to build on. This is a visionary company. And that speaks bundles -- story we have built on the intellectual property and the innovation pipeline we have been building on. We are the company who can say, we're the undisputed leader when it comes to iconic audio brands, whether it's infotainment -- brand versus whether it's a professional audio, or home and multimedia car audio. There isn't company who can even come close to it. And we have actually earned the right. We always say growth without profit is meaningless. We have actually earned the right from you, as our owners and investors and analysts, that we have done a lot in executing, taking charge in cost management, being very fanatic about cost management and capital deployment. And we have shown that we can grow. And we have also found that there are lots of opportunities, which were untapped and we're starting to capitalize on them. That's the global growth we are seeing in emerging markets and the whole markets.

So before I get into some of the other themes of the strategy, which I want to share with you, I thought it would be good to do a quick, sort of wrap-up. A couple of days ago, we gave you our 2013 full year results and also Q4. All in all, if you ask me, I think we had a pretty good year in fiscal '13. Given the environment we were in, we came out pretty good, we grew and improved home and multimedia to a record high profitability and some of you -- those who've been tracking our company for a long time, I remember when I joined 6 years ago, many of you suggested is it worth keeping, this business of home and multimedia we used to call Consumer Division. And we said no, we've got to fix it. It's worth keeping, we're to fix it because this is the integral piece of the story of the car audio, they go together. And I think we have shown to you, as well as to our customers, and our customers are actually very delighted -- so we grew double digits starting with 2 and we achieved a record high 8% profitability. HARMAN has never achieved that level of profitability in consumer part of the business. In fact, there isn't another company out there, whether it' s a Bang & Olufsen or Sony, or what have you, who has ever achieved that kind of a profitability. And finally, we got it off. The note we had from KKR and Goldman Sachs, that was a bit of a saga, but I think we are clean and clear, there's no connection, whatsoever. And with that, we were also upgraded by Standard & Poor's and Moody's to investment grade, which we're very happy and we like to preserve that as we move forward.

You know that we are very mindful as a corporation, as Board of Directors, to return the cash to you, our owners and shareholders. And we have doubled the dividend payment as beginning of the fiscal '13 from $0.30 to $0.60. And then, once again, as of last month, our Board of Directors doubled the dividend from $0.60 to $1.20 for fiscal '14, which is, again, a very sustainable, good development and also exudes confidence in our spirit and in our sustainable cash generation.

We have grown the revenue even in a difficult environment last year, particularly China suffered the slowdown across the board, primarily driven from the real estate, but still China as a GDP -- did not do as well as many of us expected. And Europe, obviously, I don't have to tell you, Europe struggled and it's still challenging. We'll talk about that a bit more. But despite all of that, with the little support from other markets like Brazil and United States and with the power of the innovation, and lot of new products we launched in the last year, we're very happy with the results we had, the growth in emerging markets particularly, with the positive growth, although company did not grow compared to 2012.

And even without meeting the top line, which create such an operating leverage effect, we were able to improve the earnings per share and return the money to -- per share -- cash, $2.07 compared to $2.93 year before.

On our operational side, a lot of things were happening. And one thing I want you to take away today, this team, which I'm going to introduce later, is a high-performance team. None of them actually will be happy in another company setting where the stagnation or the push is not there. That's what they like, that's where the adrenaline pumps. And they're all about cost fanatics, all about innovation, all about pushing the status quo, nobody accepts that. So we launched, with that, said, 5 very complex, yet very important SOP start of production. And those have just started to ramp up, that's why fiscal the '14, which you're going to hear later on -- our confidence in fiscal '14, how strong it is because we are just starting to see the ramp-up of these 5 SOPs. And they will generate very good revenue, which has a higher profitability than last year.

We also took another major step forward. You heard me and Sachin, my colleague, that what navigation for Infotainment for the last decade is what the future decade we'll belong to is safety. Safety has become such an integral part. And you will also hear how the integration of safety in Infotainment and connected car will continue to differentiate the offering we bring to the market versus handset or the smartphones. And that's a classic debate, but the debate is actually pretty much over with the story you're going to hear in a second.

We capitalized irrespective of what economy was doing like same we did 5 years. We added record high patterns to our intellectual pattern portfolio. We added nearly 500 patents to the portfolio. And you will see the areas where we lead, that's the safety, energy management, signal processing, special navigation and energy management across the board with a green technology and a few other things you will see.

We expanded our portfolio, because some of you have heard me say that as we go forward, we'll grow organically. But we'll also look for bolt-on acquisitions very close to our core, at the same time, we're looking for some diversification. I would love to see our Pro business, our car audio business to grow faster. Then we reduce the dependence on Infotainment. Infotainment must continue to grow as well. The point I'm making, they are countercyclical. So to create a good cycle of growth story, we got to add more pieces to our pro audio, which is what we did with adding Modern Lighting, which is what you're seeing here and you'll see and hear a little more later. And all in all, the greatest news of the year is, we achieved another record high order backlog for the company. We finished fiscal 2012 with $16 billion order backlog, which was the industry's high, that was HARMAN's record. And I'm going to tell you now, as we stand today, as I speak to you, today, we are sitting with $20 billion order backlog in car audio and Infotainment. And this backlog has double-digit operating margin. And margin's only improving as we take more and more business, as more and more software is coming in. So that's the wrap-up of 2013. That also tells you the momentum, the direction the company is on, what to expect going forward.

So $4.4 billion, I mentioned, couple very interesting things to note here. You see all these logos. In the environment we live in, some of our customers don't like me to mention their names. I guess, it's a rocket science, it probably is. So General Motors, in our case, where we received an order for $900 million more than a year ago, which has been in our backlog already for '13, actually more than double the business in '13. So that's the news I'm breaking first time today with you. More than double the volume. That means they invited us to serve them with mixed segment of the Infotainment. Now we're going to be doing complete high-end and mid-end, displacing 4 competitors. That's the big news and that's very exciting for my team. That what they have done, what they have shown them, the hybrid approach, the Android, the open architecture, yet keeping the proprietary secret sauce what differentiate us and integrating the safety in that has blown their minds away. And the new management of General Motors said, that's the company we want to reshape the future of General Motors, so that's a big news.

So if you look at $19 billion as of June 30, we give you the backlog fiscal year to fiscal year. Since July 1, we have received $1.2 billion worth of 3 orders, one in Asia, that's Ssangyong, a very good profitable order; and 2 in Europe. And my colleague, Sachin, will talk, but just briefly, 1 from Daimler and 1 Volkswagen. And both of them -- all 3 orders are actually competitor replacement, that's another big news I want to share with you.

Moving on, this is the way we present to you our company. It's an update that Infotainment business where we bring in all navigation, telematics, multimedia and integration of safety solutions. That business is $2.3 billion and still short of our expectation of double-digit EBITDA, which is what you will see today, what are we doing to get there. Our Lifestyle business performed reasonably well, $1.3 billion, 14% EBITDA and our Pro business, which has been our highest profit maker. And I always say, this is the crown jewel of our company, 16.6% and did about $600 million -- or $700 million in revenue and it's going to grow very well in coming years.

So if you see that -- where are we playing? What is the industry ahead of us? I always like to see when I'm investing as a personal investor, I look at the companies, how good the company is, and what industry they play in. Is the industry going to grow or not? It's like the same thing in real estate. You buy house in a good locality. So I like to have a company in a good industry. And the industry we are in is growing 8% CAGR. In that, so 8% of industry is growing, I want you to expect HARMAN to grow more than that, because we have grown 4% to 5% higher than the markets for the last 3, 3.5 years. We have grown double digit for faster, whatever, some 35, 36 -- some 15, 16, quarters, some 3 and 3.5 years. So we have a pretty good track record of achieving decent top line growth. So by each business, you can see in my division colleagues, each of them will come and talk about how they're doing. But the theme you will hear is the connected car HARMAN is playing and will play even bigger role in connected car offerings. More automation on the car, more opportunity for HARMAN. Advanced safety. That's the theme you're going to hear a lot more from us. We acquired a small company from Israel for pure technology. They did not have the skill, we have the skill. That's called iOnRoad. And we are already integrating that in our embedded offering and also in our services.

You will here through audio how normally this Modern Lighting we brought in, what else our expectations and aspirations are to bring in, to grow the Pro audio in the adjacent circles of the market.

And the last, but not least, the wireless technology. Everybody wants ease-of-use and the products are going wireless. Home and multimedia achieved some 39 industry leading awards the last 7 months. We got 90% of the products new products we are launching, or actually 2 weeks from now in IFA, Berlin, we will launch of the All Wireless products. Absolutely phenomenal quality.

So then, let me just give you a quick update on the strategy. Strategy does not and should not change, and it does not for HARMAN either. So you've heard me talk about 4 pillars. We have added a fifth pillar a year ago, and that's a good pillar to add because we wanted to diversify to again create a better secular growth story, to bring in businesses which can grow faster in profitability than the other businesses we have. So that's where the fifth pillar will address those business that we're bringing in. So first one, being technology; second, iconic brand; third, growing in emerging markets faster than the OECD markets and optimizing a cost base; and deploying the most sensible capital allocation strategy we can; and the last one is diversification of the portfolio.

So let's zoom in very quickly in these pillars: The Technology. Here again, since I have a luxury today of 3 division presidents to come and talk about each of their businesses, how these technologies play a key role. I'm not going to spend too much time, but you will hear connectivity, user experience and you will hear advanced safety from Sachin. You will here IDX, their Intelligent Information Delivery System in Professional Audio business and Lighting business from Blake. You will also hear from Michael Mauser, my colleague, the surround sound QuantumLogic and GreenEdge technology. So a whole lot of stuff happening in these areas. Now to back it up, those are the themes where our company stands on, that's the platform. Look at our focused innovation approach. We don't innovate just for the heck of it. We innovate where we are leader and we want to stay ahead. And as the efficiency, safety, signal processing navigation and connectivity. And on your right side, you can see a great accelerated innovation graph, which if you were to predict which company will be able to do that, you won't find too many. In fact, that's what got us in Harvard Business Review, a full chapter of some 19 page in a Wall Street Journal best-selling book on Reverse Innovation and Innovation where HARMAN is seen as the most innovative company in our space.

We have come from 1,800 patents 5 years ago to nearly 5,000 patents. While we have been doing cost management, while we have been going through our lifetime's worst recession, while we have been growing and while we have been improving profitability, that's what we -- we are happy about that. We have done on all fronts execution as good as anybody could and now we see our road little easier, so we can accelerate the growth and profitability.

This is a huge differentiator for our company. I get excited about the iconic brands we have. More you go and visit customers outside of OECD market, particularly China, which is up-and-coming, booming. These guys are hungry for -- they have a huge appetite for brands. You talk to Louis Vuitton, you talk to Hermes, they'll tell you they are selling the most products. The largest grossing store for Louis Vuitton is in Shanghai, believe it or not, not on 5th Avenue, not in London, not in Paris. And they're making ton of company. So these are the brand-hungry countries: Russia, India, China, Brazil. For them, owning a piece of American iconic brand means, I have arrived. And now our challenge is, how do we take these brands and make them accessible to them. And that's what you will hear from my colleagues.

Now we have great house of brand. What are we going to do, now we have brought in a world class Chief Marketing Officer? He spent 16 years with Pepsi and 2 years as Chief Marketing Officer of Samsung America, which is a big deal what Samsung has done in the last 2 years. And he is now going to bring in the most smart ways to put the effectiveness of marketing, whether it's through digital marketing, social media, e-commerce, what have you, rather than doing the traditional television and print media that's very expensive and does not have the same effect as other new technologies do. So you're going to see these 3 power brands literally put fire under them with marketing, with innovation, with penetration. That's JBL, which basically stands for energetic, aggressive, authentic. It's about me. It's a me generation. Harman Kardon has always been recognized as a beautiful, sophisticated premium brand, looks good and it's beautiful. And Infinity has always been bold, insightful and visionary. And these 3 brands will continue to be pushed by our marketing dollars with innovation besides all iconic brands you saw, but these are power brands.

Moving on to the emerging markets. As I said, despite the economic conditions, we did grow our top line in emerging markets. And you can see -- and why we do that and why we are more successful and many other companies struggle? I tell you, very simple, yet very difficult execution as formula behind it. The #1 thing is, you can't make products in America and push it in China, Russia and India, Brazil, it doesn't work. You've got to understand what people want, what applications you need and the same great quality, but they must have the flavors, the uniqueness of the market and have that part of your product DNA.

Second, you can't operate these businesses in these difficult to operate countries like China, Russia from United States or from Germany. You've got to have a local team fully empowered, those who understand our business model, our ethics and governance and expectations and compliance. So our country manager in China is an American citizen yet he's from Shanghai. He has worked in Washington, worked for United technology, worked for Phillips, worked for AVB, most trusted guy, and he is absolutely driving it the fastest he can, and he's still keeping the company on the right track. So that's what it takes.

And last, very important thing, and I get a lot panels to talk about China, India example and what do you do and how do you know it, I say, listen, you can't go in these countries by just going there to sell, by going there to make some products, thinking I'm going to make a low-cost manufacturing. You've got to have the full end-to-end value chain. You have to have an R&D, the design, the manufacturing, engineering, sales and service. And then only you will be able to attract some of the best talents because it's becoming extremely difficult to hire great talent in Shanghai and Bangalore, in Ukraine and in São Paulo. So unless you offer the great career and great path forward, you won't be able to. And that brings me to a very important slide of human capital alignment.

One thing is to get excited that emerging markets are growing and we're going to grow 2 times the GDP in emerging markets, which is what we will and we have. How do you deploy and how do you employ people and keep them? First, to employ good people. Second, retaining those people is the biggest challenge. Attrition in Bangalore is running 25%. Those of you who cover international companies would know that. Shanghai is no different. So if you have a 25% attrition off your top people, you're constantly training people and they're turning over, well attrition for HARMAN is in single digit. So again, point I'm making, we've got to do all of those things and show them the career path, then you can attract the people that they have a steep learning curve. At the same time, they have a very terrific career. When people hear that our BRIC market strategy, today we have $500 million -- just over $500 million of revenue. And 2 years out, we're going to be $1.5 billion. So I say, guys, listen, if your 1,000 people today happen to be here, we're going to have 3,000 people. You will be running bigger and better operations. You're going to be senior people on a very steep career. That's the career path I had. I was very fortunate to spend time in China and other countries and that's what happens. But you need to empower these people. And you've seen what we had done over the last 5 years. We have added 4,000 employees in BRIC markets. We have taken 3,500 people out of high-cost countries like Germany, Switzerland, U.K. and United States. At the same time, we have brought in terrific balance. The balance of where do you innovate, where do you manufacture, is not either/or. We innovate in China and India as well. But we have added, in Palo Alto, one of our finest R&D center of innovation and incubation centers in Palo Alto. We have opened a brand-new R&D center in Chicago to attract some of the best talent from Google and Motorola. And we are about to announce 1 more R&D center in United States. That's the power of global innovation and the complement or they work together with our R&D center in Shenzhen, in Shanghai, in Bangalore and in Ukraine.

And same thing about manufacturing. More and more manufacturing, we are creating regional hubs. So Americas would be served out of Mexico, one of the lowest-cost manufacturing, yet highest quality. Hungary is our largest manufacturing hub in HARMAN world and Hungary serves entire Europe. Time is over. You cannot be successful long-term if you continue to make products in high-cost place like France and Germany, especially the stuff we do, these are high runners. There's a timing. It will take several years before we get there. So that would be Hungary, then China and India will serve the Asia Pacific. But engineering is a very different ball game. Engineering, you need to be close to customers. You need to interpret their requirement, their understanding. You need to do testing with them, so there, we will always be close to customers. And we are pretty much in the direction. Today, we've come a long way. Five, 6 years ago, only 15% of our employees were outside of these 5 most expensive countries: The France, the U.K, Switzerland and Germany and United States, only 15%. Today, 55% of our workforce is outside of these 5 countries. And as we go forward, I don't have to adjust much of the workforce in these 5 countries because we're in a growth mode. In fact, we might add more knowledge workers in Germany and United States for innovation and engineering, but most of our growth of people would come outside of these 5 countries. So in 5 years, my expectation is to have 80%, 85% workforce in BCC. What it stands for? Best cost countries. That's Brazil, the Mexico, the Hungary, the China, the Ukraine, the Romania, and India. So we're in a very good path here and that should also tell you why are we doing it? Because we need to be always cost competitive. We cannot sit on our laurels and say we got it now and let's not do it. It's painful to shut factory like last year we did. We divested a factory in Germany. It's painful to get rid of 500 people in high-cost countries, but you got to do it. And by the way, this will continue every year.

People ask me, are you done with the restructuring? I say, if I'm done with the restructuring, company's future is probably 3 years out, that's it. You have to always prune the garden, otherwise you cannot see a well-manicured garden.

So diversity. Service is a big deal for me personally. And my colleague, who I'll introduce in a second, David Slump, who ran a fantastic P&L in former company ABB. He is now started to take our service portfolio of just $200 million or so to $500 million in 5 years. And this business will mid-teens in EBIT margin. And I can predict that's going to happen because we did it before. And we have a captive 25 million cars out on the road, which are 1-year to 5-year old, and they are already getting archaic when it comes to technology. They need navigation, they need hands-free telephony, they need good quality audio sound system, otherwise they cannot be connected. So a lot of those things, it's a totally ignored opportunity by us and by industry. We're going to take a lead there and you will see growth and we'll report to you every 6 months.

And, of course, Infotainment service is a big area in change orders. You have heard me on the investor calls, we have been managing change orders passively. When our customer say, I would like to make these tweaks, these engineering changes, we sort of shun. We said, I don't have time, because I'm busy doing my projects. Now we'll have a service organization who will actually proactively reach out. Mr. Customer, what would you like to change? Because that's what I do for living. And change orders can have 70%, 80% gross margin. That's the business, which we need to develop and prosper and you will see more of that.

Moving on to diversity -- diversification. This slide will be covered by my 3 colleagues. Lots of opportunities in bolt-on acquisitions in each of their businesses, and that's what I'm outlining here, that we are opportunity-filled pipeline, which also reports on the Sandy. We're looking at opportunities which are profitable business, have a growth potential, and they will fit in what we do.

So to wrap up my slide. Most of you are existing owners and you're thinking of taking a larger position and some of you are actually at the fence looking at, is this company ready for me to make an investment? Well, I've got a very strong value proposition here, ladies and gentlemen. I really believe what we have done has given us tremendous momentum and what you're seeing in front of me, $20 billion order backlog with double-digit operating margin. That is not something you'll find in any other company, period. You will not find any company who is on a cutting-edge of connected car, integrated Infotainment with safety, all that drama you hear about the hands phone coming in, taking market share away, and all of that. And here we are, we keep growing from $9 billion order backlog 5 years ago to $11 billion, to $13 billion, to $16 billion to $20 billion because companies like BMW, Audi, Porsche, they have a red carpet rolling out to the head office of Larry Page's office in Google and to Tim Cook. They can go and see what these guys are doing. They look at it, they come back and say, you know what, I see exactly what these guys are doing, HARMAN. I see your pipeline. I'm going to put my trust and my vision in your hands because you guys know how to develop, in the changing environment, the technology, which is what I would need. I don't know what I need in my car 3, 5 years out, but you guys do. That's what this backlog is all about. Big orders coming in now. That should be the biggest nail on the coffin, that I rest my case who is winning. And it's not about competing. I mean, we are complementary with -- the smart headphones and they will always be integrated. But in terms of the safety and the car, not too much to talk about. And Sachin will tell you more.

Powerful run portfolio. That, again, will continue to help us take our story and continue to grow home and car. And car is my catch.If we can build such powerful branding by developing unique, beautiful products in home and multimedia, these are the same consumers like you and I, who go to their dealership and you will say, wow, you've got Harman Kardon? I have Harman Kardon at home. Wow, you have JBL? I have JBL. So that's connection we need to establish and we are starting to do that.

Balance sheet, Herbert will talk about. We are rather conservative and we'll always be that way. We like to keep plenty of dry powder in the industry we are in, although don't see any dark clouds, but we have $1.2 billion liquidity. And if necessary, they could even draw more, but that's not our intent right now.

Emerging markets, we've done well. From $50 million in 5 years -- 5 years ago to $550 million. And I think we have a clear runway in front of us to keep driving.

Innovation. You can imagine the momentum we have under -- before Sachin as our CTO, now Dr. Park, that momentum will not stop. We'll continue to innovate. In fact, what I would like to see in coming years, push my team to compartmentalize this innovation -- these patterns and see some of the patterns we can cross license and start to generate very high profitable license revenue. Or sell some of the patterns, which are sort of getting old for us, because we have moved on to the different technology and someone else might be interested in those. So that's something you should also expect going forward.

And very important, last one, because that's my personal belief, if you want to be a long-term profit leader, you must be a long-term cost leader. That's a mindset, ladies and gentlemen, and that starts from here. And that's my theme. And we are very cost-focused and we will continue to be driving costs down. That's how we'll improve the profitability.

Now before I hand it over to my colleague, Sachin Lawande, I'm going to introduce a couple of people here. David Slump, can you please rise? So David is industry veteran, came from General Electric last. Before that, ABB. He is running our Services business for Infotainment and for car audio. I couldn't find a better executive who has the energy and technology background. And then, I.P. Park, Dr. Park. He came to us from Samsung. He was the head of R&D for Samsung Advanced Research and I.P. now is our Chief Technology Officer, and once again, we are thrilled to have him, and he's built a great team. There's people from MIT Lab and various other organizations. Thank you, I.P. Ralph Santana. Ralph is a veteran in marketing. 16 years with Pepsi. You don't last 16 years in Pepsi if you're not doing something good. And then for the last 2 years, he was the Chief Marketing Officer of Samsung America. So we are able to attract these kind of a quality of talent in our company. I think that speaks bundles. And then, of course, we have, not quite Navy Seal 6, but is quite close to them. Our General Counsel, he's ex-Navy, and again great credentials. So team who is not presenting I introduced to you, and now I'm going to invite my colleague, Sachin Lawande, to take you through his powerful story of Infotainment. Sachin?

Sachin Lawande

Thank you, Dinesh, and good morning. I would like to start with a brief overview of the HARMAN Infotainment Division. In this business, we offer infotainment systems, 3G, 4G connectivity modules, cloud computing solutions and services with the automotive industry. We have about $2.3 billion in sales annually with 9.3% EBITDA. And with over 1,900 patents, we are the global technology leaders in the space. Our mission in this business is to enhance the driving experience through advanced technology, by offering connected infotainment, entertainment and safety solutions to the industry. We offer all the embedded, as well as upward solutions in support of this vision. We are a pure play in one of the most interesting and exciting areas of the automotive business today, which is Infotainment. Besides being the technology leaders, we are also the market share leaders globally, with over 22% of the global market. 9 out of the 15 largest OEMs globally are our customers. How many of our competitors do you think can say that. And this includes the OEMs that are driving Infotainment technologies, such as Audi and BMW. We're also very pleased with the progress that were made in China and in India. With the significant number of the local domestic OEMs, also as our customers, our strength is our technology competence. Since the early days of infotainment, starting with a turn-by-turn navigation in a CD AM/FM radio in 1997, HARMAN has been at the forefront of most new technology introductions in the space as I've shown on this chart. There is no competitor today in the industry who has our level of technical competence in all the key areas of infotainment, such as navigation, vehicle networking, operating systems, processors and so on. And we also have a very strong patent portfolio in all these domains that I just talked about. We continue to create IP at a faster pace, patents software at a faster pace than our competition. And very necessary, we also acquire technology to keep us in the leading position in this industry.

So why has HARMAN been so successful in this space? You don't get to be a 22% market share holder if you're not doing certain things right. And to understand that, we have to understand what has happened in this industry. Infotainment in the early days, the first innovation systems, if you will, were built as a collection of separate devices with very low levels of integration, which by the way resulted in the cost being fairly high, which meant the systems would only be offered on the luxury vehicles. The reason for this was that the software and silicon technologies that were available to the industry at that time were actually behind the mainstream consumer technologies. HARMAN was their leader. Without exception, you can ask this of almost anybody in the industry. HARMAN was their leader in bringing more advanced silicon and software technologies, such as QNX operating system, Intel processors, Nvidia processors, Android and many other technologies. And in the process helped make these technologies automotive ready. This in turn enabled us to integrate in software the features and functions that were earlier -- or implemented, rather, in hardware. This increased functionality of the infotainment system, while reducing costs, which obviously helped increase penetration. The strength towards greater and greater integration and software of features and functions continues. And that has made infotainment today a very complex system that has over 15 million, 20 million lines of cord in -- at the high-end. Now that compares to about 12 million lines of cord in the latest Android -- based smartphone. So as you see, the smartphones are not as smart as the infotainment systems today.

So now, the only way you can really manage the complexity of infotainment and all of these integration and the strength of our software is if you have a platform approach to software development within infotainment. The HARMAN scalable platform is really a rich software platform that's designed for infotainment from the ground up. We have over 800 engineers that are dedicated to keeping the software platform up-to-date with technology, continuously evolving it, so that it stays at the leading edge of technology evolution. No other competitor has this approach.

Now this is a true differentiation in IP. Our competitors are offering point solutions. We offer an ongoing evolving technology platform that enables OEMs to stay current with technology. You can never keep up with technologies as fast as they are evolving in infotainment if your approach is only to build point solutions like our competitors do. That's a very clear differentiator that I would like you to understand.

The scalable platform allows us another advantage that the competition doesn't have, which is it allows us to build a full range of systems for our customers. From the same software platform and hardware, features can be added or removed to build the necessary level of product. The hardware used in the different classes of systems is different and it is the hardware that usually defines the end functionality or the cost of the system. For example, at the high end, shown on the right over here -- or sorry the left, in the high-end you may have multiple displays, in the front and the rear, and you may show the map -- the navigation map on multiple screens and allow that to be controlled completely independently. In other words, the high-end system is a multi-user system. And by the way, that's not limited only to navigation. Other features and functions such as multimedia, other audio capabilities of the system, can also be simultaneously controlled completely separately. The mid system on the other hand is a single-user system. It uses slightly lower level, lower capable hardware to address cost, one of the big drivers. But it offers most of the functionality otherwise of the high-end. Now the entry system has even further reduced set of features and functions because the hardware set of features and functions because the hardware used often is not able to support the kind of video and graphics that you need for the higher end. The key point I'm trying to make here is that you can build these systems off of the same platform, leveraging the investments that we're making, bringing our high-end competence, so we can deliver really good quality features into the mid-and to the entry systems. No other competitors can do that as well.

So today, most of our customers have either all 3, or at least 2 of the systems that we offer. Dinesh has talked about what happened with General Motors. When we had our first business award with them, it was for a single system. When they saw our platform, when they really looked at what's in it and the capabilities that we continue to offer, so that they can keep up with the technology evolution, they decided to really go completely with HARMAN for all of their mid and high solutions.

So what makes HARMAN unique in this industry? I have already addressed the advantages that we get on account of our scalable platform, but we have also many other capabilities that are really unique, including navigation. Navigation is one of the most important capabilities of an infotainment system. And here, we are one of the only, perhaps the only, Tier 1 outside of Japan that has our own navigation competence. And that's a very big deal in this space. Same thing for wireless connectivity. There's been a lot of talk about 4G in cars. I'm sure you have read all about it. We were the first in the industry to introduce 4G. We have been working with 4G for about 3 years and we were the first to introduce 4G connectivity with LTE, both with Audi and with Chrysler. And we continue to evolve our competence and capability on that front. I'll talk more about that in a few slides later. Same thing with advanced safety, same thing with the user interfaces. So there, it matters. There, the technology is still evolving where we have the opportunity to differentiate. We invest in these technologies to create solutions for our OEM customers. In many cases, before they realize they need it. That's really what makes us different. But there's more. And perhaps the biggest differentiator that we have is our scale and our global delivery model with over 2,500 engineers in infotainment, which is by the way, perhaps an order of magnitude, bigger than almost anyone else. We offer OEMs the scale to launch vehicles simultaneously all over the world.

You might have been reading about a very significant trend that's happening in the automotive industry today, which is called platformization. OEMs used to have many, many different car platforms and they're consolidating because they cannot afford to invest into making car separately for North America versus Europe versus China and so on. So the trend is to launch global car platforms. So instead, in the past, where they used to have staggered vehicle launches, launching their car first in North America perhaps and Europe, and then 6 months later in China. Today, they have simultaneous launches globally. With the scale that we have, with the competence that we have developed in China, in India, in Brazil, of course, in North America and Europe, we are the only supplier who can help OEMs launch their vehicles globally at the same time. This is a very big deal for this industry. So our value in the value chain, through the OEM being able to achieve their strategic goals -- Volkswagen, which used to have over 20 platforms, they're now down to 6. And they will be down to further 4 in the next little while. So this competence requires a few things that I mentioned ready, but I would like to reiterate. You must have a platform strategy for your technologies that aligns with the platform strategy of the OEMs. Tell me again who else in the competitive base can talk about it. So this is what makes HARMAN unique. This is, I think, something that is understated, is difficult to understand, difficult to perhaps communicate, which is why I'm taking the opportunity today to clarify this and hopefully later on, you can ask me more questions if you have.

But at the end of the day, all the talk about competency has to result in actual results and that's in the awards we have won. And Dinesh has talked about the global awards that we have won even since 1st of July. I want to talk a little bit about these awards to give you some flavor as to what were those are. So the business that we won with Daimler is a 3G, 4G connectivity Telematics gateway. That's a cross-car platform global solution that addresses the thing -- the point that I made earlier: Connectivity, competence. It comes on the backs of the wins that we had and the successful launches that we did with Audi and Chrysler. We are already the high system supplier to Volkswagen. And this new award that's shown here, gives us a portion of their mid and entry business. There's a very large, very important customer for us and this then also further gives credence to our strategy of having this high, mid and entry systems off of the same platform and is a proof point that what we are talking about here actually works.

Ssangyong is the other OEM in Korea. We all know about Hyundai motors, as well as Kia. Ssangyong is the third OEM. We have talked to you already about our win with Hyundai, and with this win, we are essentially the high system supplier to Korea.

So I should mention, before I talk about this, our backlog as a result, stands at an all-time high and at the same time, we are extremely, extremely proud and happy about the customer base that we have. I don't think we'll ever have as broad and diverse a customer base as we have today. I don't believe our nearest competitor has 1/4 the number of customers that we have. We do, on an average, between 5 to 6 launches every year. Again, a very difficult thing to do in the industry if you don't have the scale. Our competitors often do 1 or 2. And we can actually do more as you can see in the capabilities that we talked about.

So, so far, I talked about what has happened in the industry. This whole evolution into software integration and how we have reacted to it, how we have responded to it and have, as a result, a very commanding position in terms of the market share, in terms of technology leadership that we enjoy today. But what's going to happen in the future? I'm going to talk about 3 trends that are going to shape this industry. And the 3 trends are: Connected car, advanced navigation and safety. The interest in connected car has been gaining momentum day by day. You can't avoid it in the press today. It has actually mainstream media. That's how important connected car has become. And that's because both consumers and OEMs are driving connected car. And I'll talk about it in the latest slides in a little more detail.

Navigation is still going to be very important, as I mentioned. It's one of the most complex, yet the most important capability of any infotainment system. And we have some unique competence in that area. Navigation is a driver of connected car. It's really important to understand that. And it's important that we have a strategy that meets and addresses the trend. Regulatory bodies such as Euro NCAP in Europe or NHTSA here, are driving new safety standards in an effort to reduce road fatalities. Safety technologies, such collision avoidance technologies have proven to have a real effect in reducing road accidents. These technologies and infotainment are converging in the future. And that's a great thing for us, because just like how we're disrupted in infotainment, we got the opportunity to do the same thing over again with safety. And I'll talk about it in the later slides.

So let's talk about connectivity, what's happening here. There's been a lot of talk, as I mentioned earlier, of 4G in cars. And HARMAN has been working in it for the last 3 years or so of working on bringing 4G into the cars, solving the unique problems that are putting a modem in the car has, that most people are probably not aware of and hopefully they don't need to be aware of because we solved those problems. As I mentioned, we have already introduced it with Audi and with Chrysler, but the reality is that even by 2018, as I show here, 4G and the technology there is called LTE for Long Term Evolution.

That technology will still only account for about 20% of all the connections, which means 3G and 3G+ will still continue to be important in many regions of the world.

Now LTE itself is evolving. From LTE to LTE standard and beyond. So how do OEMs make their cars connected in this very dynamic and evolving technological landscape? So HARMAN has developed an advanced 3G/4G telematics gateway, as I've shown in the picture on the right here. And what it does is with the plug-in module, it's capable of keeping the network technology up to date. That's a very critical innovation. It's not as simple as it seems because you have to solve a lot of problems to make sure that the technologies are fully capable of working within the harsh conditions of the car. And we have the solutions today. By the way, this was the business in which we won the business with Daimler.

In our belief, more and more cars in the future will contain a gateway like this so that they can equip themselves with connectivity, while being agnostic to the evolving and changing technology on the network side.

So the interest from consumers for connected services, such as up-to-date fuel prices or better traffic, Internet, radio and so on, is at an all-time high in the car. OEMs are also driving connectivity, but for totally different reasons.

Cars today have many sensors that contain a lot of information about the vehicle health and its performance. Without connectivity, this valuable information just stays in the car. But imagine with connectivity and cloud computing, this information now becomes extremely valuable to OEMs.

For example, early indication of a malfunction would allow an OEM to mitigate the issue before it becomes a major reason for a very costly recall or worst yet, a repetitional issue. We all know that have happened in the recent past. How do we help OEMs avoid this kind of problems?

OEMs also want embedded connectivity, not just for the smartphone, but embedded because they can deliver certain services, such as volume vehicle tracking, remote door unlock and usage-based insurance that can lower the total cost of ownership of the vehicles to their customers.

The 2-sided pressure that's building up from consumers so that they can access their Internet services in the car, from OEMs so that they can take advantage of connectivity to be able to get closer to the customers, avoid problems in the field, reduce cost and offer capabilities that are really being demanded, is creating what I call as the tipping point for car connectivity.

However, there is a problem in bringing internet services into the car, and that has to do with the mismatch between the life cycle of Internet services and the cars.

Life cycle of an Internet service can be fairly short, as once popular service could be placed by a new one within a matter of a few years. As an example, before Facebook, Myspace was the most popular social media service. And that lasted for about 6, 7 years.

A typical car takes 2 to 3 years to build and has a lifetime after that of 7 to 10 years. So cars offering Internet services run the risk of being stuck with an unpopular service for a long period of time.

So -- or the other solution is that the OEM has to continuously update the Infotainment system in the car to keep up with the very dynamic Internet landscape. So what's needed is a solution that does not require OEMs to continuously keep updating the software while enabling access to the full Internet. There's only really one solution available on the market as of today, and that is the Aha cloud computing platform from HARMAN.

What Aha does is that it enables car users to have access to thousands of Internet services through their Infotainment system without requiring any updates to the car software. And that's really important, that's really key. It's the only automotive grade cloud computing solution of its kind. It also offers a publisher photo that makes it really easy for content providers and service providers to either add new services or to update existing ones. And with the new OEM signature station capability that I have shown in this picture here that recently got launched with Toyota, Aha allows OEMs to curate content and present it to the customers and to have a dialogue with them, which is extremely important for the OEMs to be able to get closer to the customers to know what they prefer and what they do inside the cars.

Car OEMs today have another problem, which is once they launch their vehicles in the field, they have very little real-time understanding of how the vehicles are used or how they perform.

Current options, such as surveys, are really antiquated and are very prone to data bias. Car sensor-based understanding of the vehicle health and its usage provides much different insights. So the Insight solution from HARMAN, it's a complementary cloud computing solution similar to Aha. We've talked about Aha before. This is a different solution from HARMAN, collects these car sensors. As an Infotainment system provider, we have access to this information. We collect this information, such as the fuel gauge level or tire pressure or oil levels, diagnostic codes that indicate what might be wrong or what might happen in the future for the health of the vehicle, as well as usage data for the Infotainment system. What buttons have been pressed? How did they get to the navigation screen? How many levels do they have to go through? And then shift this information to the cloud for further analytics and reporting. The benefit to the OEM is they have extended access to the vehicle's health and usage, allowing remote diagnostics, helping them manage the warranty costs, and ultimately, also, getting to know their customers' behavior and preferences.

So what we are seeing so far is, with respect to connectivity, is HARMAN offers an end-to-end solution with 3G/4G telematics gateways that are future-proof. Aha cloud computing solution that allows OEMs to deliver all the services, every single one that consumers need in the car, safely and reliably, and then the Insight solution that allows OEMs to take benefit of the connectivity. So they have information about the vehicle health, usage and so on. It's absolutely groundbreaking in this industry.

Now since this launch in 2011, Aha is already out with 10 OEMs, and cars have been launched this year with the technology embedded. Some of this are coming from HARMAN, but others are being also implemented by other Tier 1s, for example, with Honda. This is truly, as I said earlier, groundbreaking when it comes to connectivity solution for the automotive industry.

Now let me spend a few minutes on navigation. As I mentioned earlier, it's still the most important and the most complex technology when it comes to Infotainment. The current solutions in the field for navigation, the current technologies, have a problem because they are static and the map database and other information, such as points of interest, tends to get outdated fairly soon. This is a problem for both the consumers and the OEMs. But HARMAN, as I mentioned before, has unique competence in this area. We have about 400 developers, software engineers, working on navigation, which by the way, none of our competitors and dealer supplier base do outside of Japan.

So we have taken the lead, together with few key OEMs, such as BMW, Mercedes and Volkswagen, in developing a new solution that is based on this technology called navigation data standard or NDS for short.

NDS navigation is going to be the navigation technology of the future. We will be the first to launch it next year. And this technology is not just for the German OEMs that I mentioned, but it has applications for all OEMs in the world. This technology allows for partial map updates over the air, which keeps your map database up to date, points of interest up to date and really solves the problems that navigation technologies have all have had.

Safety. This is a huge issue for us in the industry. As I mentioned, it's one of the driving factors behind regulatory bodies coming up with new regulations. Over 32,000 people died in the U.S. through car accidents last year. And the number in Europe is almost similar, about 30,000 people. This is one of the leading causes of nonmedical deaths in the Western world. So it is proper that the regulatory bodies and OEMs be very concerned about it and have active measures to solve this.

So collision avoidance technologies, such as forward collision warning, lane departure warning or rearview cameras, with or without autonomous braking, have proven to really reduce accidents and car fatalities by a significant number.

Now the current systems that offer these capabilities are implemented as separate devices, much like how Infotainment was being implemented in the first rendition. We feel that there's great opportunity to integrate that capability into the Infotainment system so we can leverage the greater computing resources and connectivity that we offer and do even more than what the systems are capable of doing today.

So our acquisition of iOnRoad -- iOnRoad is this technology company out of Israel that we have recently acquired, who are the leaders when it comes to software-based detection of camera images, of pedestrians, vehicles and other objects, allows us the capability to integrate that into our Infotainment systems. We're very excited about the potential here.

As I mentioned earlier, we can fully disrupt this industry and offer safety capabilities in the same Infotainment system that does everything else that consumers won't predict.

So with that, let me now address one topic, which I think is pretty big on people's minds, and that's smartphones and Infotainment. What's -- how should you look at it? Is it a threat? We have been getting that question all the time.

So we all know the risk of using the phone behind the wheel. Yet, people continue to do that. And we see, even in the latest surveys, 35% of those surveyed admitted to using phones behind the car -- behind the wheel while driving. And I think those are just of the ones who confessed. I think the real number is probably even higher, right?

But the fact is just because it's done, doesn't mean they're safe. And there is a growing backlash of using smartphones in the car because of the obvious safety issue. Okay, just having to look at a different display for 2 seconds is equivalent of having a cognitive distraction level of driving under influence.

Now other surveys have indicated that most people find using the phone in the car, irrespective of the safety issues related to that, extremely frustrating because it's hard to navigate, for example, control or modify the settings in the navigation system, add destination while they're driving. So clearly, the phones are not meant to be used that way. We, as the supplier to the industry, we take safety extremely seriously. We work very closely with OEMs. And we have continuously integrated more and more capabilities of the phones into the Infotainment system so that we can offer a safer environment for people to use certain capabilities of the phone, such as hands-free calling, access to media and as we go forward, we'll add even other capabilities, selective applications, streaming audio and so on. So integration into the head unit is clearly the way to go forward to reduce the issue of safety in using the phone in the car. But the question you may have is if it take this forward, does that mean that all you then need is a dumb screen and a phone. And the phone can do everything? And the answer is absolutely no. The reason is to be able to do what people think, which is the phone will do everything and the display will just be a dumb display showing the apps, such as navigation. To do that, it requires, on the head unit side, the kind of capability that allows us to offer an Infotainment system at the same cost. So why would OEMs just put up a dumb display and then say to the smartphone guys, "Hey, guys, you take over from here because we cannot do it." That's not the case.

Number 2, if you have really looked at the performance of technologies, such as MirrorLink, which is one of the technologies that enables what's shown on this phone to be shown on the screen in the car. If you really look at the performance, it is actually a terrible user experience because the phone is not designed to grab all the images as they are being updated, ship it over wireless through this display and render it real-time, and then take feedback from the user and give it back to the phone. It feels like almost Infotainment systems 7, 8 years ago, when you see that user experience.

So these are the main reasons why, at least in the high and the mid-end, we will continue to integrate the phone deeper and deeper to avoid the issue with respect to safety. Phone will continue to have your preferred personal data, your media, perhaps some applications. We'll continue to integrate those into the Infotainment system so we can offer you the access in the safe and convenient manner. But just replacing everything it does and then having the phone take it all over is a, call it, tech fantasy. It's not reality to put it that way.

So with that, what I would like to say here is the trends that we talked about of connected car, advanced navigation and safety, we expect that these trends are going to have a huge impact in increasing the penetration rates of Infotainment systems in the car.

Penetration rates today, on an average, are around 19%. But we believe Infotainment is at a tipping point as based on what I just talked about. I hope you also get the same feeling. And these penetration rates are going to go up in all regions in the world. And I won't be surprised, I mean, we are still using very conservative numbers here and will continue to do that. But my personal belief is that no OEM is going to ship a car, about C class segment, that does not have a screen and Infotainment capability in it. None. It just doesn't make sense.

When I talk to the OEMs, when I talk to their chief technology officers and product vendors, they're all planning for having a screen in every single car. That has become the way how they differentiate themselves from the competition. Not by the engine anymore, not by what kind of tires they use anymore. That's just not the future. Because the future is in Infotainment.

So who would put out a car 3 years, 4 years from now that just has a plain AM/FM CD -- well, CD will be there by the time, AM/FM, I guess, radio, nobody. Maybe, maybe, certain cars in class A or B segment might not have Infotainment. And perhaps, there, the smartphone might still be a primary mode of getting some access to connected information.

But that's a very small percentage. So with that, what I would like to do here is just summarize by saying that there is -- and I've been with this industry for a long time, almost from the very beginning. There has never been a better time to be in Infotainment. It's a very exciting space. How many industries you know that offers the potential of multiples in terms of growth in the next 5 years? I don't know too many. This is an amazing space to be in it now. You have seen that we have great technology roadmap. We have done what it takes to build the global footprint, all the hard work that was done in the last 2 to 3 years, and haven't even gone into our manufacturing capability since on. But you can be rest assured that we have that as well and in a tremendous position to capitalize on the growth that's going to happen here in the next few years.

So thank you. And with that, I would like to introduce my colleague, President of the Lifestyle Division. Michael Mauser. Thank you.

Michael Mauser

So thank you, Sachin. Welcome, ladies and gentlemen. My name is Michael Mauser. I am the President of the Lifestyle Division.

So ladies and gentlemen, the Lifestyle Division is perfectly leveraging. The leading HARMAN technologies and the leading brands Dinesh was talking about and is offering a superior and best-in-class audio solution in the room, in the car and on the road.

Today, I want to deliver to you and to provide you an overview of the Lifestyle Division, it's tremendous growth opportunities and how we are going to leverage those, which we -- how we are delivering today and how we are leveraging them in the future.

So let me give you, first, the short overview of our fiscal year '13 performance. We closed the fiscal year '13 with $1.3 billion of revenue with an EBITDA of 14.2% and, end of June, we had about 4,300 employees.

We have engineering centers and manufacturing sites, as well as safety marketing officers across the globe, in Americas, in Europe and in Asia. And over the last years, ladies and gentlemen, we were able to improve our footprint continuously, now reaching a footprint of 70%. A best-cost countries' share of 70%.

Our Lifestyle Division has a very solid foundation with 3 strong business units. First, our home and multimedia unit, which is offering best-in-class and highly innovated sound solutions, audio solutions for the home, and the go. Our car audio units, which is delivering and serving our automotive customers with best-in-class in-car sound experience. And our automotive services, which we just launched, and Dinesh talked about that, which is creating very fast-growing and higher-margin aftermarket revenue stream for us.

So now let me give you a deeper insight into our first strategic business unit, home and multimedia. Our home and multimedia product offering is segmented in 7 categorizes: in headphones, home systems, car aftermarket, loudspeakers, multimedia, embedded audio and luxury audio. And the estimated size of the home and multimedia market, globally 2013, is $13 billion, with headphones, home systems being the biggest segments.

I think what is very interesting for you, very similar to what my colleague Sachin said, we have a very strong customer base also in home and multimedia. For example, with Apple, Amazon, Best Buy, Media Markt-Saturn, which is very famous there each Saturday. So I'm looking how we are selling in these markets, a very important OEM customer for us in Europe. And we have very strong customers also in emerging markets. For example, with Suning, JD.com, Tmall.com in China, Mbugeo [ph] in Brazil, Croma Industrial and Reliance in India, and there is more to come in the future. The home and multimedia market is offering great opportunities for HARMAN with its global growth and megatrends. So let me talk about these trends in the market.

The home and multimedia market is expected to grow with a CAGR of 8.5% to a level of $16.6 billion. And very important, I will come to that later again, portables and headphones and soundbars outpacing that growth with double-digit growth rates.

But beside that overall market growth, we see 3 very significant trends in the market, which are providing additional growth opportunities for us.

First, megatrends, which are driving new product innovation opportunities for us. Second, the increase of new spaces of applications of audio devices, which are creating incremental sales channel opportunities for us. And last but not the least, the fast growth of emerging marketing of home and multimedia in the emerging markets.

What are the megatrends in home and multimedia? First, a very important one, the annual sales of smartphones have grown dramatically over the last years and are expected to reach a level of about 1.5 billion smartphones to be sold in 2016.

Smart devices have become the major source of music and have fundamentally changed how our consumers are listening and where they're listening to music. And that change in customer behavior has created great new product innovation opportunities for us, especially, as you can imagine, in the segments of portable devices, wireless devices and headphones.

Another megatrend is related to TVs. TVs are becoming thinner and thinner, making it impossible to deliver good sounds. According to the latest forecast, we see 2 billion thin TVs being in the households in 2016. And that creates great opportunities for us, our product offering in regards to home theaters and sound box.

As audio devices are becoming smaller and smaller, they're becoming more and more relevant for today's modern lifestyles. And I want to share you one very good example in that aspect, that's our JBL Micro Wireless. I think everybody of you had that in the back. So great product.

And as I see that trend, so the number of use cases and the applications are continuously growing. And what does that mean? So we're using these products, as you can imagine, as small as they are, wireless, portable, during sports, while commuting, during business travel or as permanent companion of the smartphones, the smart devices. And I think you would agree if you use a smartphone or tablets, the sounds of these devices is very bad. So you need a companion in order to get real good sounds with you, while you're traveling or commuting.

And of course, all these changes will result into a new safe channel opportunities, such as sports shows -- source like fitness studios, like airport channels or mobile operator channels, as well as eCommerce.

And we see, of course, a fast growth of home and multimedia in the emerging markets. Home and multimedia is expected to grow with a CAGR of 13% in the emerging markets, which is completely outpacing the overall market, which is just growing at 8.5% CAGR.

So now ladies and gentlemen, how are we capitalizing on these opportunities which we have identified in the markets? So first of all, we're introducing new products in order to address the megatrends I was talking about. We are continuing to expand our safety channels and of course, we continue to leverage the fast growth of home and multimedia in the emerging markets.

So now let me talk about our new product introductions. The most recent launch of our JBL portable speakers was a huge success for HARMAN. And we are extremely proud that our product, JBL Flip, is the top-selling product in, yes, in 6 months in a row. I have it here in my hands. I personally -- it's my personal companion all the time. I have it always with me in Germany, in Asia, in U.S. A great device, great sounds. We sold more than 2 million portable devices, in the meantime, in the last 10 months. What a great success. And ladies and gentlemen, I can tell you there's more to come. Dinesh mentioned, we're going to launch new great products in the case of [indiscernible] beginning of September this year. So that will be also, I saw the products, absolutely fantastic products will be huge success.

We have a very strong wireless streaming product portfolio. On the picture, you can see the Harman Kardon Go and Play Wireless. And 90% of the new products, which we are launching, as I said, in a [indiscernible] are coming with wireless streaming capability. So exactly addressing the megatrends I was talking about.

We had a great year and history of '13 with headphones. And we expanded our offering in our 3 of our leading brands, in AKG, JBL and Harman Kardon. And had a huge success by increasing our sales for headphones in fiscal year '13 compared to prior year by 70%. And also, in this case, there's more to come, as we are launching new great products in September this year.

We have successfully launched new cutting-edge, JBL soundbars. And great new and outstanding Harman Kardon soundbars will also launch in -- during this -- in September. So ladies and gentlemen, the overall market response of these new product introductions was fantastic, resulting in a major gain of market share for us. And a record, which I am extremely proud about, we won 39 innovation and design the awards across the globe over the last 8 months. And as I'm so proud, I brought them all with me, so that you believe me. So I have it here, in fact.

So we won 8 CX Innovation Awards in U.S. We won 17 red dot design awards in Europe, 8 iF Product Design Awards in Europe, 4 Red Star Design Awards in China, and Dinesh mentioned, we're delivering products, which are matching the requirements of these markets, and 2 EISA Product Awards in Europe.

Our second growth initiative for HARMAN multimedia is focused on the safety channel expansion. And the ramp-up of the mobile operator general was a huge success for HARMAN in fiscal year '13. And we are now selling HARMAN products for more than 3,500 stores, AT&T, Verizon, Sprint and T-Mobile stores. We also successfully entered the airport channel, now selling products in the national and international airports in Americas, in China and in Europe. Hence, we are forcefully driving our home and multimedia sales through our eCommerce channels, together with our partners like Amazon, Conrad, Redcoon, Croma in India, but also through our own eCommerce sites, jbl.com or harmankardon.com. And we're going to increase in fiscal year '14, as we're adding more customers and more stores in the mobile operator channel and in the airport channel. But also, very important for us, in fiscal year '14, we are going to launch and ramp up the important and attractive sports channel for our products.

We continue to forcefully leverage the fast growth of home and multimedia in the emerging markets. In our measures and activities, in the emerging markets, in the BRIC countries, are extremely focused. We are offering highly compelling and very competitive products in these regions. HARMAN is able, better than any other competitors around the globe, to perfectly satisfy the tremendous demand in the emerging markets for great brands, for great products, great designs as highly attractive price points.

We have, as you all know, a very strong footprint in the emerging markets, and we just added 2 strong and very experienced leaders for lifestyle in India and in Russia. We're continuously increasing and optimizing our distribution channels in the emerging markets.

And I can share with you one example, which I experienced just 2 weeks ago when I was in China. We are selling our products for now more than 140 JBL, Harman Kardon or Infinity stores, which is a great distributor channel, which we have there in the meantime. And by the way, very cost-efficient, very efficient because all the stores are funded and managed by our dealers and partners.

So by the way, there's a model which I took with me. And I also want to apply in the other markets, in U.S. and in Europe. So a very, very good situation, which I have found there.

And by the way, I found it very interesting. So we have one store in Tibet. So without the question, so it's a height of 3,800 meters over sea level. So there is a HARMAN store.

So before I go to car audio, let me summarize. We were able to increase our home and multimedia sales in fiscal year '13 by more than 20%, completely outpacing the overall market. In other words, we were able to win and gain market share, taking shares away from our competitors in U.S., in Europe and in Asia. And based on that great success we have seen in fiscal year '13, but also the opportunities I mentioned, I presented to you, which we see the markets. We have set an exploration level for us. We are forcefully striving to a revenue of $1 billion with a margin of double digits.

Let me now introduce you to our second strategic business unit, the car audio business units. Our car audio product offering includes highly innovative and best-in-class brand of premium audio systems, but also high-quality and high-performance component audio.

The market size of car audio in 2013 is $3.4 billion, with branded audio being the biggest segment, representing 65% of the overall market. And HARMAN is the undisputed technology leader in car audio and the world market leader when it comes to branded audio with a market share of 35%.

And again, I am referring to our customer base in Infotainment, in home and multimedia. We have an extremely strong customer base in car audio. On the one hand, you can see very loyal long-term customers, which are relying since many, many years on our great products, innovations and our absolute outstanding services. You find customers like BMW, Daimler, Lexus, Toyota, Chrysler and many, many more. And on the other hand, you see newly-acquired customers, which we were able to add to our customer portfolio in fiscal year '13. There are significant trends in the car audio markets which are driving great growth opportunities for us.

The car audio market is expected to grow with 8% CAGR to $4.3 billion, with branded audio outpacing the other segments. So what are the major drivers for that continuing growth of car audio? First, it's the growth of the global car sales. According to J.D. Power, the car sales are growing from 70 million in 2013 to the 83 million cars in 2016.

And in addition, ladies and gentlemen, very important to know there is a constantly increasing penetration of branded premium audio systems into the biggest and fastest-growing car segment, the car segment of smaller cars of the A, B and C levels.

Beside that market growth, we also see very significant trends in the markets, which we want to leverage and we had to identify. First, the consumers are requesting superior in-car listening experience. Automakers are demanding strong and differentiating brands and superior design and, again, the fast growth of car audio in the emerging markets.

There's a continuously increasing demand of automakers for their superior in-car sound experience. Best examples are, the demand for the ultimate surround sound experience, noise cancellation and sound enhancements. Automakers are strongly demanding differentiated branding and superior design. So strong car audio designs and strong car audio brands are becoming more and more relevant for automakers as major competitive differentiators in the market. And very, very interesting, leading automakers, like BMW, Ford, Volvo, Audi, Porsche, are asking an addition for multi-tier branding. On the one hand, they are asking for a strong mainstream brand addressing the continuously increasing demand for branded premium audio, also in their smaller cars, in higher volumes. And on the other hand, they're asking for a very differentiated brand for highly exclusive grant supporting their distinguished super premium audio system offering. And car audio, also very similar to home and multimedia, is outpacing in the BRIC countries the global market growth with the CAGR of 13%.

So are we addressing these opportunities? First, we are continuing to increase the penetration of our systems in the market. We are offering best-in-class, highly innovative technology and superior brands, and we leverage the fast growth in the emerging markets.

We're increasing the penetration of our systems in the market, ladies and gentlemen, in order to further strengthen our market leadership position, by winning awards with new customers, which haven't been part of our customer portfolio yet. And I can report to you we were very successful in fiscal year '13 by adding brand-new customers to our customer portfolio, such as Volvo, Ford, Fiat, JAC and Changan in China.

We are forcefully addressing, as I told you, the fast-growing small car markets, which was so far underserved with branded premium audio systems. It's a huge opportunity for us. And a major competitive differentiator and a success factor for us is our scalable audio system, which we, and yes, I think you have heard scalable several times before, which we developed and launched, copying the very successful, scalable Infotainment system approach and play model. This scalable audio system allows us to address and to offer premium branded audio sound into that smaller car segment, with high profitability at very attractive and competitive price points.

We are continuously driving our take rates across all of our car audio systems, across all customers in all regions with forceful measures. We are positioning our systems in high-volume term packages. We are managing very selected merchandising and advertising campaigns. We work together with our customers through dealer trainings, through sales incentive programs and much more. What I want to report to you, for example, in regards to sales incentive programs. We were able to increase the penetration of our system, of our Harman Kardon system in a BMW with the dealer incentive program by 70%. And that is what we're going to roll out now more and more also into other customers into other systems.

The second goal with initiative is focused on delivering and providing highest value to the customer in regards to superior sounds and in regards to best-in-class technologies. Ladies and gentlemen, Dinesh said, I would report on that, which I will do, we are the technology leader in car audio, always setting the benchmark in the industry. We are the leader in surround sounds with our QuantumLogic Surround sound technology, which creates a fantastic 7.1 channel experience. Out of any music source, if it's a 2-channel or multichannel source, and turning the car into a concert hall. We are the leader in sound management with our cutting-edge HALOsonic technology, which creates internal and external sounds for hybrid cars and electric cars. But it also offering best-in-class noise cancellation solutions, for example, for engine noise cancellation and road noise cancellation.

We are offering the revolutionary SIGNAL DOCTOR technology, a technology which analyzes compressed audio data, MP3 data, and restores and recreates, in real-time, lost or removed audio data of a compression process.

And our highly energy-efficient GreenEdge technology, which is delivering and offering best performance sounds while dramatically reducing the system wait and the power consumption.

Most importantly, ladies and gentlemen, HARMAN is the only company on this globe, which is able to integrate all these leading technologies in one comprehensive solution for our customers and providing an end-to-end service package. Meaning, starting from the concept phase through virtual development, engineering, manufacturing, up to the launch of the product, including marketing support, which is a huge competitive differentiator for us.

Categorizing on HARMAN's very strong brand portfolio, we are able then, better than any other competitor in this market, to satisfy the requirements and the demands of the automakers for strong and differentiated branding and, as I explained, the multi-tier branding.

Multi-tier branding, from one supplier, just one supplier is providing huge benefits for the automakers, ladies and gentlemen. Because it's opening the opportunity for the automakers to review their own engineering efforts and to leverage technical, purchasing and marketing synergies in between the brand levels. HARMAN is the only supplier and competitor and company, which is able to provide to the customers this benefit.

As design is becoming more and more important for the automotive industry, our world-class industrial design team can make a huge difference by designing systems, which are exactly matching the DNA of their cars.

We are continuing to pursue the emerging markets and to leverage the fast growth of the emerging markets by continuously growing our sales with our domestic customers in the BRIC countries. As you can see, we have a strong customer base already, and we're going to add more customers, domestic customers, in the BRIC countries in fiscal year '14. In addition, we are forcefully driving ourselves into BRIC countries through our international customers, leveraging the continuously increasing demands for international luxury cars in the BRIC countries for some BMW, Daimler, Hyundai. China is the #1 market for luxury cars. And we have successfully launched the semi-OEM audio business. Also, we see an increasing trend of OEM-installed audio systems in the market. There's still a huge number of cars which are coming with equipment and with audio solutions which are not good. And we're addressing that opportunity with our system in the box. The system in the box integrates custom tuned and tailored system for specific vehicles. And we are selling that box or that system through aftermarket and through dealer accessory jobs.

So ladies and gentlemen, we grew our backlog to $4 billion, a very strong $4 billion backlog for car audio, which is equal to an increase of 29% by winning highly attractive awards across all the initiatives I just mentioned.

So let me summarize. The Lifestyle Division is perfectly positioned to leverage the opportunities which we have identified in the market. And there are 2 major competitive differentiators, which made us so strong and so unique. First, our technology leadership. No company, no competitor, other than HARMAN, has access to such a broad and powerful technology portfolio. And the Lifestyle Division is able to leverage these leading technologies in between its units, home and multimedia, and car audio. And it's also able to benefit from the cutting-edge technologies of the other divisions, like Infotainment and Professional.

We are forcefully leveraging the strong and diverse brand portfolio across all product categories of home and multimedia. And on the other hand, in return, the home and multimedia products, they are both winning products, are constantly enforcing the great brand image of our brand portfolio, which is so important and essential differentiator for us in our car audio business segment, in order to win new business and in order to elevate our penetration levels in our systems to the next level.

Thank you very much, ladies and gentlemen, for your attention. And I have the pleasure to now inform you and open the coffee break, which I have been told would be in the second floor. Thank you very much.


Blake Augsburger

Good morning. My name is Blake Augsberger, I'm the President of the Professional Division. In Professional, we have 4 strategic business units, our largest being in loud speaker, with facilities in California, Mexico, Brazil and China. This is a JBL brand.

We have amplifier and signal processing, with facilities in Indiana and Utah, and this is Crown amps; signal processing by BSS, dbx and Lexicon; and also, our DigiTech guitar pedals. Mixing, headphones and microphones is in the U.K., Austria and Switzerland. This is the AKG headphone brand and consoles by Studer and Soundcraft. And most recently, our newest SPU [ph] is lighting, located in Denmark, and this is the Martin brand.

We serve 5 vertical markets. Our largest being installation, where we sell to contractors and consultants, who in turn, install our products into fixed facilities. Second is portable PA, where we sell to retail dealers, such as Sam Ash Music locally or Guitar Center. Touring, we sell to rental companies. And rental companies, in turn, provide a service back to the artist. In broadcast, we sell to specialized designers who install our product into on-site broadcasting trucks or studios. And then, finally, cinema, where we sell direct to customers, such as AMC and Cinemark.

Our brands are #1 in most of the vertical markets we serve. This past year, the addressable market size was $5.5 billion. And we expect that to grow at a 5% CAGR over the next several years.

There are 4 pillars to our growth strategy. Number 1 is how we go to market. Number 2 is providing differentiated pro sound systems. Number 3 is growth through acquisition. And number 4 is to have a best-in-class cost structure.

We have recently adopted our model to go-to-market in a vertical market fashion. We have split distribution, and we have brought on more dedicated dealers in areas such as hospitality, transportation, education and house of worship.

We put in structure around the world, on a regional basis, to support this change. We can now book orders and service product in the 4 regions of the world.

We have put in expert application and design support, particularly for this installation market. We are now using local transaction tools. We can book and order in multiple currencies, we have global warehousing to provide products in time, and we recently launched an e-commerce system. And our dealers can also interface into our SAP system through a portal and manage their own accounts.

Our goal has been to dominate in the emerging markets. We have done that by putting in local management and operations. Today, we have almost 1000 employees in Brazil, India and China.

Because of this local footprint, we've been winning prestigious awards. For example, Brazil FIFA. We have won 7 of 12 FIFA stadiums, and there's more to come. Shanghai Disney, we won the first offering of amplifiers. The second offering is coming in this couple of months.

And then just last month, we commissioned the newest Bangalore airport.

We are also winning in these territories by designing products specific for local culture. For example, K-TV or karaoke in China. In commercial audio, it's very important when to getting to territories such as India and Africa, but it's also adaptable around the world.

We are taking a vertical market approach even with our dealers. This allows us to control the pricing to our customer and more importantly, the marketing message.

We are one of the few competitors that can provide an end-to-end complete pro audio sound system, that is, from the microphone to the loudspeaker. And we complement that with unique software platforms to control and manage the system.

It's software that is becoming a key differentiator in the Installation business. We started on the configuration side, but we've now moved into the operational area. For example, performance manager allows a sound engineer to set up and tune a system and save tunings for multiple venues.

We have decided to take an agnostic approach to the transport algorithms. There are many interchanging, whether it be the new ADV, the classic CobraNet or even our own proprietary BSS Blu Link, we can manage any of these changes.

For the professional, it's the technology that delivers. Our customer buys our product to provide a service to his customer. If we can save him money or allow him to differentiate himself from his competition, everybody wins. We do that with proprietary loudspeaker designs, mainly focused on directivity and sound quality.

We were one of the first to put a digital wireless microphone system in the marketplace. Our mixing consoles are unique and advantage for a sound engineer.

Our amplifiers are the highest efficiency of any in the marketplace. And our library of single processing algorithms are scalable. We could put them in a standalone box. We can embed them in a console or even embed them in an amplifier.

And with our newest acquisition of Martin, we are now the leader in the transformation from incandescent to LED lighting.

We are expanding on our system strategy into large facilities, using what we call IDX or Information Delivery. We can manage paging, prioritizing. We can store forward and assemble messages. We can do audio, but more importantly, we can do visual messaging. And our system is capable of doing custom content for very large facilities such as airports.

Today we are focused on the application data. This is a typical example of a screen that you would see at the airport, scheduling flights. You might see it at a train station, but this is the data that we are providing.

We can also do personal data, ambient data and environmental data. All of those have applications in hospitality, universities and hospitals.

We've been working on this a couple of years and we are starting to see great results. Just recently, we booked an order for Amtrak over the next 4 years for all of their stations.

I talked about the Bangalore Airport. We are now providing business with MGM Hotels worldwide over the next 2 years.

We also have a lot of business that is currently coded and due to be released. Examples of that will be the Rio Santos Airport, which is really due to the FIFA Games and upcoming Olympics. There's a large transit system in Kuala Lumpur.

And we're also doing interesting applications in shopping malls. Any venue that has a lot of space and have to move people around is an application for IDX.

We are very excited about the acquisition of Martin lightning, and we believe it is a perfect strategic fit. They are a brand leader and number one in moving heads. They serve the touring and the installation vertical markets, where we are very strong and see a lot of synergies, particularly on the installation side.

Their manufacturing style is similar to hours in terms of low volume, high-value product, where we have a lot of experience on how to become very efficient in that area.

And probably the most exciting is the opportunity is the first step to merge lightning, audio and video. And I say video because I do large LED screens. And they are also positioned to go to the next level with the transformation from incandescent to LED.

We see opportunities to continue to grow this division through acquisition, in particular video. There's a lot of synergies in the market channels. We have the same customers, we're in the same venues, the same installers. We operate the same way so there could be efficiencies, buying -- material buying power.

There are really 4 main components in video. There's controls. There's content management, which can be very similar to what we do with IDX. There's backbone hardware, this is the plumbing that routes a video around, similar to a BSS router for audio. And then there's displays. And for us, we are interested in projectors.

But the real game changer here will be the first to provide a complete AV system that is controlled and managed from 1 place. If you look at the back of the room, you see a lot of consoles and a lot of people working together. If you add the video component, it even gets larger.

We also see the opportunity to continue to grow the business on the audio side. As we've dug into vertical markets, have been more aggressive at the field level, we've seen opportunities to move sideways, very close to us such as intercom and conferencing.

We see opportunities to build on our portfolio in commercial audio to go along with our IDX solutions.

There's also a lot of change happening in loudspeakers, as we go from a passive speaker to a powered speaker. And then we look at how to play sound in 1 chair versus 3 chairs.

And then our business is continuing to evolve on the software side. And you can also throw in accessories on that end, cables, stands, all the pieces that go into making a complete pro audio sound system.

We have spent a lot of time over the past several years creating a best-in-class cost structure. This is going to allow us to easily integrate acquisitions. We form strategic business units to simplify the operation.

We put in common division process and business systems globally. We have a best-in-cost manufacturing footprint. And we are organized around engineering centers of excellence, which is driving our product roadmaps.

So let me summarize. Our brands are at the top of their category in all vertical markets. Today, we lead at the top of the pyramid, but we are moving more downstream with commercial audio and IDX.

Our customers are looking for systems solutions, and this is a competitive advantage because very few of our competitors can do that. But at the same time, we have to continue to focus on individual categories to compete with the specialized manufacturers.

I think we have a solid strategy in place with 4 major components. It is the vertical market focus with the local team that is bringing us business. And having products that are designed for the emerging markets are going to separate us from all of our competitors.

We are one of the few that can do complete systems, but connected systems take it to the next level. And IDX just expands on that strategy and gives us credibility when you're dealing with airports and transit systems.

There's still a lot of opportunity to grow the division through acquisition. And in my belief, I think video and audio is going to be the next big thing. And it is our best-in-class cost structure that is going to ensure that we have a solid bottom line going forward.

Thank you very much. I'd now like to introduce our CFO, Herbert Parker.

Herbert K. Parker

Well, good morning. I think it's still good morning, it's not 12 yet. We had a very exciting day. I guess a bit of a long day for some. This is normally time when someone would make that overused statement that I'm the only person that's standing between you and lunch. But in my case, it's more difficult. It's worse. I'm the only person that's standing between you and your financial models. Although I -- I will get started, I will be brief.

Okay. First of all just, kind of recap what my colleagues have said, financial objectives, driving profitable growth, optimizing our cost structure, diversifying our portfolio, returning capital to shareholders.

And just to show, on the left side, we do have the liquidity to do just that, $1.2 billion of liquidity. And you're all aware of the fact that we have $270 million outstanding authorization for share buyback. As Dinesh mentioned earlier we doubled our dividend last year, and we'll do it again in fiscal year '14.

Now, get right to do numbers. Let's talk about our assumptions first. The first column you see the economic growth assumptions. Most of you are quite aware of that, European is quite low, close to flat. U.S. is getting better, China is still strong, globally, so so.

But the item the we look at the most in our business is the passenger vehicle production, specifically, our Automotive business. And you can see the growth rate we expected in North America, 2.5% to 3%, Europe is negative, we are not expecting a big change and China is still robust, total growth 4% to 5%.

Another item that we look at very closely is the penetration rates or as we call it take rates. And you can see, Europe has 29%, U.S. 23%, China 17% and globally 19%. Those are very important drivers.

And of course, at the bottom our assumption $6 million to $7 million shares -- outstanding shares and a tax rate of 25%. You will get these handouts later.

Now, fiscal year 2013 forecast. Infotainment, $2,460,000,000 with an EBITDA of 10.5%. Lifestyle $1,425,000,000; EBITDA 14.1%. Professional, $850 million, EBITDA 16.8%. All leads to a total consolidated HARMAN, $4,700,000,000, 9% growth from fiscal year 2013 with EBITDA of 10.5%, with an EBITDA growth -- sales growth, sorry, of [indiscernible] EBITDA growth of 19%. Leads to an EPS $3.85 with a 25% growth over fiscal year 2013.

Now let's talk about some of the drivers of that growth. You've heard most of it earlier today, but sure you again here. One of the big drivers is the launch of the new platforms. Take great expansion. The global production is improving. And of course, we got the Martin acquisition, adding just a little bit to it.

On the EBITDA side growth, you see the scalable system we talked about a lot, which is coming along. It's going to be close to 50% of our business in fiscal year '14. Restructuring progress that we've announced. And of course, we get good operating leverage. Brings us to $490 million in EBITDA.

Okay. So you've seen what we have for fiscal year 2014. Now let's talk about our long-term outlook.

Let's start with the backlog. You've heard a lot about it, how do we go from $13 billion to $15 billion in Infotainment first. You see that $13 billion we started with. Of course, we had the revenues of $2.3 billion. We had new awards of $1.8 billion and platform and take rate expansions, which we update annually, $2.2 billion, a big change there. And a smaller change in foreign exchange. Leads to a backlog of $15 billion for the Infotainment division.

Likewise looking at the audio, car audio backlog of $3.1 billion last year, same awards revenues $700 million, new awards $1.4 billion, platform exchange-rate gains, foreign exchange. Leads to $4 billion in the car audio backlog.

So that's the basis to start off before we can get to assumptions for fiscal year 2016 outlook.

If you take the total, Automotive backlog, as you've seen earlier already, $19 billion on the left side. Adding to it together. And why do we feel so confident about earnings that we will show you soon? You can see the slide on the right. It shows the Infotainment revenue segmentation year by year, with the blue being the higher-margin business getting a larger and larger part of our portfolio.

So the assumptions long term. Not much of a change in economic growth. But again, the passenger vehicle is one of the drivers for us.

We've seen a slight uptick, 5% to 7% now globally as opposed to 4% to 5% earlier. In Europe being a pretty significant change.

Infotainment rates, we expected a big change tere. It was 19% globally in fiscal year '14. We are looking at now 25%, 6 percentage points. We think it's very reasonable. It's basically saying there were 100 people buying a car today, 19 had Infotainment, in another 3 years, it will be 25. We think it's a very reasonable number.

So our fiscal year 2016 outlook $6,050,000,000 at the company level, 12% CAGR from fiscal year '13, industry growth, only 8%. EBITDA side, $790 million with a 24% CAGR from fiscal year '13.

Taking that to looking directly at the Infotainment side. You can see where it's coming from. Our fiscal year 2014, 100% of the revenues are already in the backlog.

And in fiscal year '16, we have close to 75% fully booked in the backlog, with another $900 million coming from take rate increases and platform expansions. And as you saw what happened in fiscal year '13, we updated the backlog, that's a very reasonable number.

If you go to the right side. EBITDA, we are expecting 13% in Infotainment with a 28% CAGR from fiscal year 2013.

So that brings the long-term outlook -- to summarize as I told you, Infotainment and I'll say it again, $3.4 billion of revenues, 14% CAGR. 13% EBITDA, 28% CAGR.

Lifestyle $1,700,000,000 in revenues, 8% CAGR. EBITDA 17%, 15% CAGR. And our most profitable division, Professional $950 million with 12% CAGR and EBITDA on 19% with a 17% CAGR.

Sometime ago we had a vision, aspiration, where we mentioned 6, 6, 16 meaning $6 billion on $600 million earnings by 2016. We're well on track there, as you can see the total company level of $6,050,000,000 and 13% EBITDA. That is the summary of the finance report. So I would now ask our colleagues to come up. We'll prepare and get ready for Q&A, as I'm sure you have many questions.

Question-and-Answer Session


Fast track. We now have about 30 minutes allotted for Q&A. [Operator Instructions]

Unknown Analyst

Thank you for a fantastic presentation. In just a few hours, I think we've learned a lot more about your company than I certainly had understood before. In thank you very much, I thought it was a very granular, which is and usually in many companies today to go as far deep as you did.

If I can ask my first question, which is to do with the Japanese auto component suppliers such as the Denzo and then the chip companies like Infineon, who seem to have deep relationships with their auto counterparts. How do you see the relationship that you will develop with them evolving vis-à-vis players like Denzo and et cetera, who come in from the safety side, who come in from even more deeply embedded even in the navigation side compared to your offering, if you can help us understand that.

Dinesh C. Paliwal

Why don't I take that question. We have existing relationships, by the way, with many of the suppliers that you mentioned. Infineon is one of them, and there are others. I do want to clarify one thing that although we don't do the body of electronics, so we are not at that level of embedded, we have far greater relationship and collaboration with the value chain suppliers in the Infotainment space, whether it is Texas Instruments, Intel, and media and others. So where Infotainment is going, technology wise which, as I've discussed earlier, we have very strong relationships at each step of the way with key partners who are important for us to bring this technologies to the market.

Unknown Analyst

Do you think your assumptions for Chinese growth are too optimistic since we are seeing some slow down at the moment?

Michael Mauser

I don't believe so. I think -- we had a China boss as a company. And for good reasons, we have seen our numbers, actually go up in a pretty steep slope, China had a bit of a slowdown last year. We all know and I think it seems like that was more of a reorganization at the macro level. And we, as a company, believe that they are doing a lot of right things to increase and create a faster-paced development of consumerism in China, which will have everything we do, whether to build more airports, more shopping malls or to buy more cars or to buy more home in multimedia, especially with brands and iconic brands we have. So we have all the reasons to believe that we will have a good '14 in many years ahead.

Dinesh C. Paliwal

And after that perhaps, we also see more concent migrating to the cars even though the cars themselves are growing in production. We see Infotainment and Branded Audio getting into more of the cars being made and sold in China.

Sandra Rowland

Thank you. Lori, right next to you? And will you please introduce yourself?

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

David Leiker from Robert W. Baird. Sachin, you talked a little bit about AHA [ph] and the economics of it. Mazzda is essentially going to use AHA as its Infotainment system. It looks like it's connectivity but all content comes from AHA. What are the economics to HARMAN as AHA comes into the vehicle, particularly in items like that at the entry level.

Dinesh C. Paliwal

So in our case, there are a couple of ways we monetize that technology. One is through the licensing. So it's a royalty-based technology. In addition to that, we have content sharing and revenue sharing agreements on the content side. So we have the true primary models for monetization of at this point.

Ryan Brinkman - JP Morgan Chase & Co, Research Division

Ryan Brinkman from JPMorgan. We've been hearing about scalable Infotainment for a number of years. And obviously that's a big part of the story. We are only just starting to hear about scalable audio in the last couple to several quarters. What is the potential for this to become a big part of the story going forward? Can you just kind of remind us how it works? Is it sort of the same principle of lower price point products but higher-margin, just -- what's the opportunity in scalable audio?

Michael Mauser

So first of all, from a markets perspective, to answer that question, so we're going to address. As I mentioned in my presentation, the markets or smaller forms but also bigger country which remarks provided with branded premium modern systems, now, right? So far. So we're extending our reach at the scalable solution, which is offering a full range of sound performance from a lower end but also to a higher end. So as we do in the scalable Infotainment system for of course, very effective price point in order to also address this model[indiscernible].

Dinesh C. Paliwal

Mike, if I may add to that, starting up the car audio service business, the scalable play a big role in the service side. Because all of these cars with either nothing or very subpar quality audio systems. They are the right candidates. And they're looking for solutions, which are inexpensive and easy to install and easy to operate. And it's actually -- nothing out there. I know a few years ago -- a couple of years ago, I installed $850 worth of better [ph] system from France that's more like [indiscernible] in size. It doesn't have any screen or what-have-you. All it does is gives 5 points to repair, so you can do hands-free telephony. And that's the safety I'm looking for my wife and my children. That's what million -- hundreds of millions are looking for. So what we plan to do with scalable, a lot more. We're giving them great acoustic [indiscernible] We're giving them some level of connectivity built into their price point that are very attractive. So that's the service delivery model, which we are very excited about.

Ravi Shanker - Morgan Stanley, Research Division

Ravi Shanker, Morgan Stanley. Dinesh, I'm just going to follow up on that. How much of the Infotainment services business is built into your backlog in '14 and also in '16. And also what's driving the big improvement in take rate in your backlog? Is that something you're already seeing with your existing business once it's launched? Or are you doing some kind of improvement in mix going forward, given that Europe obviously was pretty bad the last couple of years?

Dinesh C. Paliwal

Very great question. Let me start first with the service. 2014, we have been pretty conservative. So we have pretty much what is already embedded in current systems business, basically carving it out and then start to grow from there. So the growth will be pretty nominal. If Infotainment is growing we'll be just maybe putting a couple more percentage points. But the real push in the growth comes in '15, '16 because this is the year we are putting systems for the reporting, doing a lot of productization of the technology which we are already providing to the 5. The Daimler is a bit -- great new technology. How do we productize and modularize and create the price points and the distribution channel through dealers, through online, through OEMs? So that work is going on. Now that's on the car audio side. So you should expect double-digit growth, 15%, 17%, 18% year-over-year in service business. And by the way, it's profitability level. Then the take rates, we've been pretty reasonable in terms of going forward assumptions in take rate. We've seen 1% or 2% take rates increase already. And then we're also seeing take rate increase will not come from our traditional, very ultrahigh luxury premium a market, where we already have penetration, 95% to 100%. Mercedes, BMW 7, Audi A8, Porche. Since we're getting more into the mix segment, that's where the penetration is coming, in Chrysler and Fiat and VW and Toyota, and that's where we are also seeing penetration going faster because we have a lot more headroom because the starting points are in 20s or even less than 20s. So the third element is based on a lot of research we've seen. People are saying in 5 years, 55% of the cars will be rolling out of the production line, with embedded Infotainment another 40%, 45% would have some sort of aftermarket product, whether it comes to the service part from us or smartphones with some link, whether it's the middle link or we will have some interfaces or a combination. So headroom for Infotainment industry is pretty large to growth. And most of the growth will come from middle entry because the high-end side will not have a lot of growth opportunity. Holding onto the rate market share will help us go deep into the middle segment because of the halo effect here.

Adam Brooks - Sidoti & Company, LLC

Adam Brooks, Sidoti & Company. Just a few quick questions here. Can you give us a sense of what price you're assuming for the growth rate and Infotainment segment?

Dinesh C. Paliwal

Infotainment, we have assumed 4% because we have, on an average, sometimes 3, even 2.5, sometimes we have 5. So on an average, to be safe, so that we don't have a bad surprise is what 4% we're assuming. By the way, at the same time -- for the general audience, we have 4% annual price reduction on an average built into our backlog, built into our revenue forecast all the way to the '16. At the same time, we had a good track record of getting savings from our $2.5 billion worth of procurement we do. That's also reporting under my colleague David Slump. And last year David delivered 7.5% net savings on $2.5 billion of purchasing. So that more than offsets the APR, and then of course all the productivity improvement, whether it's a footprint engineering, innovation, new technology, the scale, operating leverage helps us improve the margin. So that's the APR part.

Adam Brooks - Sidoti & Company, LLC

Okay. And then can you guys update me on any competition you're seeing as far as the scalable platform? And you've been around with that for sometime. It seems like no one has really caught up. Do you think someone will? And are you just kind of staying a step ahead?

Unknown Executive

Yes, we don't really see anybody in the market having a solution like what we just showed in my presentation. People are still putting out point solutions. They are essentially taking orders from OEMs. And they are trying to build the system as per the spec. One key thing that I hope people took away from the presentation is that we don't wait until we OEMs tell us what needs to be built. We are investing in R&D, so we are staying ahead. That approach is still unique to us. We have been at it now, as we mentioned, for a little while. But we are still in the clear lead here. We don't see anybody step up and offer a similar competitive solution.

Adam Brooks - Sidoti & Company, LLC

And then just lastly, if we look another 5 years beyond fiscal '16, do you have a sense of where you think penetrations could be? 25% is still very low in fiscal '16. Where do you think we can get to?

Dinesh C. Paliwal

Sure. We have seen people talk about 50% as an example, so half of the cars will come built-in Infotainment system. We think it's very possible because anything that is seeing above from a vehicle segment viewpoint will have some level of Infotainment. Even at the entry level, you will start to see with entry systems the kind of applications that we currently have in Infotainment solutions today, connectivity, media, navigation. So is 50% possible? I think it is highly likely. My personal expectation is that it's even higher than that.

Dinesh C. Paliwal

Just to add to that. We have to also see where the growth is coming from. China has become the largest automotive market, the number of cars sold in China or even produced. And I think someone mentioned earlier in the morning that the way Chinese or Asian first-time buyers buy car, they don't buy a car like we in America do. Look at the engine size and the torque and how many cylinders. That's the right way of doing it very technical way. These new buyers are buying based on the seat of the car and they look at the experience. The first thing they want to talk about is look at my screen. The big screen is next trend. Watch out for that. On the 4 engine six-inch, BMW has launched with us 14-inch screens. That is already showing even larger screen. Screen is expensive. Once you had a screen as such and said, that's easy [indiscernible] So screen is coming in the car because consumers want to have it. Another thing they want to do is turn up the volume ends a look at how beautiful it sounds. That's Chinese new consumers. And they will drive day rates higher and higher because that's the experience they want to talk about and show it to others.

Unknown Analyst

Brian Sponheimer from Gabelli & Company. For Dinesh and Herbert, you've obviously expressed some confidence in being able to achieve $800 million or so in EBITDA in a couple of years, this year $600 million maybe next year $700 million in your cash position. Is this confidence in what you're able to earn change your view of your own balance sheet? And maybe provide some attention, put some leverage on to increase returns to shareholders?

Dinesh C. Paliwal

Let me just start, and then Herbert can give more color and close on. We could have done a lot more leverage. We could have levered our balance sheet a lot more earlier. But I think it turned out to be the right thing to do, what we did. Especially, we've been through very rough patches as an industry, not just as a company. And we made it through. So having a little bit of conservative approach in balance sheet has helped us well. And I believe it's the right thing to do. And we will generate, as you perhaps heard from Herbert, 90% conversion of EBIT on an average you should expect them to cast. So we'll generate a lot of cash. If we can find high internal rate of return acquisition target or if we don't have too many new initiatives which require organic investment, the only way we're going to do it is to return cash. Now the 2 ways to return, we borrow and then buy. We can do that but we sort of have considered that but we have not gone on to that direction. We keep that. And in the future, we'll continue to look at dividend and buyback and also evaluate how is the debt? Is that remaining as inexpensive as it is today? I think we'll evaluate. But Herbert, do you want to...?

Herbert K. Parker

I just want to add one thing to it. We're not opposed to it at all. As a matter of fact, when we paid off the we could have done that by just using our revolver. But we did take out the $300 million term loan. So we are taking them step by step. So we are not opposed to it of all.

Unknown Analyst

Christopher from [indiscernible]. Just a follow-up to the last question, is there a maximum level of debt that you put on the balance sheet?

Herbert K. Parker

I wouldn't call it a max, but we have a target of 2x to 2.5x EBITDA, debt to EBITDA. We think that will still keep us in an investment grade level.

Matthew T. Stover - Guggenheim Securities, LLC, Research Division

Matt Stover. A couple of questions. First thing, I assume the projections don't include M&A. Is that a fair assumption?

Dinesh C. Paliwal

That's a fair assumption. There is nothing of significant size bolt-on $10 million, $20 million, $30 million is different. But oru board and us as the management are very clear, anything over a threshold of less than $200 million will be treated outside of our projections. Rather, it's a guidance or even compensation scheme to be set for our management.

Matthew T. Stover - Guggenheim Securities, LLC, Research Division

Okay. And if we look at the bridge on your backlog, obviously, you were awarded some significant business. But then you described platform and take rate expansion as being -- almost doubling that. As you analyze that -- the platform expansions, is that actual new awards from an OE on a derivative? Or is that a judgment on the basis of HARMAN's management team, where there will be greater take rate assumptions on particular programming levels? I do have a follow-on.

Dinesh C. Paliwal

It's a great question, and I'm glad you asked because that will help everybody. The way we do our backlog assessment every end of each year is what is the current take rate based on our customers production releases versus what they were a year ago and we upgrade that. So what you have seen today, that is the backlog based on today's current take rates. Even for '16 and out years, the $20 billion including all the new awards, that is not reflecting 25% or 20%, 35% or 40% take rates. That's reflecting current take rates. So if take rates start to take off -- sounds funny, take rates take off. If they do take off, this backlog will start to grow. The current backlog will start to grow. But we only have or update this on an annual basis. So we stay very close to the current situation, where our customers believe in

Matthew T. Stover - Guggenheim Securities, LLC, Research Division

Okay. And the last question was on insight. You'll be collecting this information from the vehicle and storing it in the cloud. Right now, there's a challenge between the OE and the dealer about the ownership of that information because they'd like first look at it. Now as you think about monetizing that information, is that HARMAN-owned data or is that company-owned data? And how do you think about monetizing that?

Sachin Lawande

It is not HARMAN-owned data, although there is a question mark on who exactly owns that data. It is not clear just yet. But in all cases, we work with the OE, with BOEM. And it is together, in collaboration with them that we offer this service. So we are not necessarily in the first line of fire, so as to speak, on that issue. But we are confident that the OEs themselves want this information, need this information. There will be certain things done to anonymize the data so that it's not something that goes into any privacy or any other concerns that people have. So those things are already under consideration. And I think the value add is still nonetheless quite significant, based on Insight.

Sandra Rowland

More questions?

David H. Lim - Wells Fargo Securities, LLC, Research Division

David Lim, Wells Fargo. Just 2 questions. How do you guys balance market share and margin, given that I'm going to assume that your cost structure is probably one of the better among the Infotainment suppliers? You have scalable systems, where you get decent margin. Where is that point where you want to sort of push out the weaker competitors by leveraging your own strengths?

Dinesh C. Paliwal

Not as a strategy because the suppliers we want to pus hover. I think it's been a pretty simplistic approach, so to say, that we have a proper process of risk review. Anything over $200 million will come to me and Herbert, and will go to -- I'm talking Infotainment. Generally, the sizes are much bigger. The other way of looking at what is the profitability, number one. Number 2, is it scalable, nonscalable? Is it new technology? Who is the customer here? What is their track record in terms of the whole history? So based on that, that's one. Second, we'll quickly first jump to does it have 10% of margin. If it doesn't, why doesn't it? Why should we take it? Is this an existing customer? Is there a strategic reason? Generally, people will say the strategic side taken at lower margin and strategic means higher margin. So that's sort of a healthy tension debate we have part the process doing. So right now, the margin margin driven rather than pushing away bigger ones., but if you look at many of the big houses, those that do hell of a lot more inside the car, they have been literally shunned from the last very high visible visibility orders because they could not provide the technology roadmap because the order you're getting today is actually for future technology roadmap you have to convince that I don't have the solution, nobody else does. Neither do you, Mr. Customer, know what you want. But what you're trying to figure out, do I have enough on the base here, where you and I can consider what will be next-generation. That's why BMW gave us after MBT, they call it MBT Evo. Evo stands for evolution. They said we want to have an evolution, which will start in '16. That system is still being configured jointly by us. So in those situations, a number of suppliers were disqualified in the first round itself because they did not make technology, so it's not even a commercial discussion.

Matthew T. Stover - Guggenheim Securities, LLC, Research Division

And to follow up to increase your penetration rate or the take rate on Infotainment, I think -- and I apologize if I misheard you. I think you mentioned something with working with the dealers. Can you sort of expand on that? Are you providing some sort of incentive to the general managers when they put in the order or -- what's exactly going on there?

Sachin Lawande

Maybe I should clarify. That remark was not in reference to Infotainment but car audio.

Dinesh C. Paliwal

If I can take over? So talking about car audio, as I explained, we have regular incentive programs in across all our customers. And as you said, it's involving that specific incentive programs, like for example products special events, which we are offering if a dealer would exceed special sales, right? Or exceed special penetration rates of our systems. And as I told you, in the case of BMW, it's very successful and in other cases as well. We were able to increase by 70%.

Dinesh C. Paliwal

And typically, David, these initiatives are started by OEs. They ask us -- like Lexus is a classic one for Mark Levinson. Lexus has HARMAN to jointly work with them for dealer training. So we do big dealer training program. And after dealer training, they will actually launch some deal incentives, and they will ask us and other deal ones to come up to create large dealers, large milestones the target settings and said if you hit that, here's your sort of ticker [ph] in. So those are the kinds of things Just like in retail. You have big box movers for retail channels, and you expect the high targets. If you hit it, then you get some sort of ticker.

David H. Lim - Wells Fargo Securities, LLC, Research Division

And to sort of piggyback on that, I mean, have you thought about incentivizing dealers to improve or increase the take rate on Infotainment systems that you currently provide?

Sachin Lawande

Honestly, we don't really see the need for that. There is in marketplace for Infotainment today. As we discussed earlier in my presentation, we see the demand actually getting higher and penetration is growing. And so -- if, however, in the future, there is a need, we will certainly take a look at it. But right now we don't see the need for it.

Sandra Rowland

We have time for one more question.

Unknown Analyst

I'm not a tech person, so apologies for a tech question, nonetheless. I read that Microsoft was deployed even before the fusion car, and the low-end car, we have about these sorts of operating systems trying to sort of become kind of a platform over which some applications can be -- how do you see that sort of provider space, even if it's at the low end vis-a-vis what you are trying to do?

Sachin Lawande

That's a pretty good question for someone who claims not to be a tech, but let me try to address it. So SYNC by the way was a very successful program, and it really created awareness for Infotainment. And one of the value adds was that it had the ability to have third parties add software to it. We have been doing the same thing together with OEMs on all of these awards that we have been discussing. So very specific automotive used case and experience driven applications are being developed for all the awards that we want. Anywhere from 50 to about 150 applications are being designed by third parties. And we have created an environment, a much greater environment than SYNC. SYNC was a very basic system. You can do a few things such as connecting your phone and maybe doing certain things that were, from a technology perspective, very simple but it did its job. We have taken it to the next level. So we have now a full sandbox, as we call it, an environment within the Infotainment system, that allows third parties to create their apps and create it with very fast time-to-market. You can develop a new app, deploy it within a matter of 2 weeks within the space is on and off. So I think we have well advanced solutions like SYNC. Very controlled, not completely open to everybody who develops an app, but that approach is likely how it will develop in the future.

Sandra Rowland

We thank you very much for joining us today. And I'd just like to turn it over to Dinesh for closing remarks.

Dinesh C. Paliwal

I'd just like to say thank you very much. And as he see, we are pretty enthused, based on what we are seeing, in terms of what we achieved in a rather challenging year 2013. But '14, we all believe that will be a better year for us. You've seen last year showing you the numbers are challenging. But we believe that's an achievable target, which will motivate this team. And '16 has further improvement, significant improvement, almost doubling the EBITDA from $400 million to $800 million. I think that's the kind of performance we want to bring to you as our owners and our shareholders. And we have also made a point, hopefully, today to give you a few points that we are emerging in a secular growth story, with our professional business taking even a steeper growth rate and our car audio and other things coming up or even our laggard, what used to be called Consumer business is no more a laggard, and we are to have a double-digit profit on that. So all in all, it's a good story.

And also, I hope you saw it's a serious team effort, serious team effort because these kinds of development you cannot drive with 1 or 2 or 3 individuals. We've got a team, and the team below are absolutely motivated. And I think our consumers are also helping us making long-term backs on HARMAN, especially Infotainment. That gives us confidence to continue to invest in R&D. So costs, clear cost focus, clear innovation focus, clear focus on execution, I think these 3 things, nothing fancy about it. But if these 3 things we can manage to do what we have been, I think with a little bit of help in the marketplace, I think we will definitely achieve and hopefully do better things in the coming years.

With that, thank you so much for coming. I appreciate it. So difficult for many of you, so many companies announcing earnings, especially the month of August is a very tough month for many of you. So generally sincere thank you to all of you. And I look forward to seeing you and talking to several of you one-on-one.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!