Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Donald J. Stebbins – Chairman, CEO and President

Martin E. Welch III – Executive Vice President and Chief Financial Officer

Charles E. Mazur Jr. – Vice President – Investor Relations

Analysts

Rod Lache – Deutsche Bank Securities, Inc.

Colin M. Langan – UBS Securities LLC

John Murphy – Bank of America/Merrill Lynch

Brian Johnson – Barclays Capital

Visteon Corporation (VC) Deutsche Bank Global Auto Industry Conference Call January 11, 2011 2:45 PM ET

Rod Lache – Deutsche Bank Securities, Inc.

Okay. We are going to kick-off our next presentation, which is Visteon Corporation. Visteon is a $7 billion supplier of climate control systems, interiors, lighting and electronic components for the automotive industry with a $2.7 billion of market cap. The emerged from bankruptcy on October 1 of 2010 with a – obviously much improved balance sheet cost structure and a vastly improved customer mix with Hyundai representing around 29% of the company’s sales, Ford representing around 25%.

Representing Visteon today, I’d like to welcome Donald Stebbins, company’s Chairman, CEO and President; Martin Welch, Executive VP and CFO; and Chuck Mazur from Investor Relations. And I will pass it over to you, sir.

Donald J. Stebbins

Good afternoon, and thanks, Rod. It's a pleasure to be here and thank you very much for the invitation. Marty and I will handle the presentation today and then we will open it for Q&A.

As Rod mentioned, Visteon is a global supplier of climate, electronics, lighting and interior products. Climate is our largest product group with $4 billion in revenue. We have a very strong balance sheet, and we are very strong player in the emerging markets.

2011 was a pretty good year for us despite the pretty turbulent environment, which included the tsunami in Japan, and the flooding in Thailand. In 2011, we had the largest new business wins of our short history at approaching $1.1 billion. We improved our three year backlog by 42%, and we continue to invest in the emerging market regions.

We also received numerous quality and safety awards, and we also received a PACE nomination for a zero-leak fuel containment mechanism that has zero-leak on it. We also made significant senior management changes Marty Welch is one of them as our CFO; and Keith Shull as our Head of HR.

On the financial side, we’re re-listed on the New York stock exchange on January 10, and we’re added to the Russell 1000 Index. We also increased our margins on three of our four businesses, and we hope in about six weeks from now, with our audited financial statements, we expect that we’ll post the highest EBITDA that the company has ever had.

We’ve maintained our balance sheet. The strength of our balance sheet since the spin, and given the actions that we announced yesterday, we fully funded our 2012, and partially funded our 2013 pension obligation.

On the asset optimization side of the ledger, we completed the sale of our portion of our Duckyang joint venture (inaudible) joint venture in Korea. We signed a non-binding memorandum of understanding to sell the majority of our Interiors business to Yanfeng Visteon and we announced our intent to sell the Grace Lake Corporate Center.

In terms of product technologies, in 2011 we continue to invest in these so that our product groups would remain competitive in terms of costs, green technologies, safety, and consumer choice. From Climate’s technological advantage, and both the electric and hybrid space through Lighting, advanced LED and adaptive lighting technologies, through our first-to-market wireless charging product that’s going to be from our Electronics group. We continue to remain the customer choice in terms of brining innovation into the vehicle.

In terms of new business wins, 2011 was quite exciting. As I mentioned, new business wins approach $1.1 billion this year, which is a record for us. In terms of not only the dollar amount, but the types of wins that we have here really do signal a positive move towards the future for us.

We had first time conquest business for high volume European premium and electric vehicles. We hope to release the name of that European manufacturer shortly. In Electronics business, we were added to a number of supplier councils and immediately won business from them.

In Interiors, we continue to expand our reach into South America and outside of Europe and into India. And then in Lighting, I mentioned our both, our adaptive and LED technologies that we continue to win business with.

In terms of global headcount, we have about 32,000 employees around the world that does not include our non-consolidated joint ventures. And then, as we look here, we’ve worked very hard over the past few years to continue to migrate to lower cost regions of the world. And you can see here down on the bottom of the slide, in 2005 at 54% to the current 75% position, we’ve done an excellent job in doing that. And again, this does not incorporate our joint venture partners.

Many of you know, Yanfeng Visteon is our largest joint venture partner with HASCO, which is a subsidiary of SAIC. It is an extremely large joint venture in China with over $6 million of revenue. It has five different businesses; seating, electronics, interiors, safety and exteriors.

And as I mentioned, on November 30 we signed a deal to sell our Interiors business to YFV. Not only did this strengthened the relationship that we have with HASCO and SAIC, but it also provides the company with the ability to serve 30 different customers from 60 different facilities in 16 different countries.

So with that, I will turn it over to Marty, and then we’ll be back to answer the Q&A.

Martin E. Welch III

Thank you, Don. So, as we announced this week, on Monday we contributed $70 million worth of shares to our pension plans in U.S. that represents all of our funding needs for 2012 of $60 million plus an additional $10 million to our 2013 requirement.

Earlier in December, we received the release of the deposit from the PBGC for little over $15 million, which we also contributed to our pension plans. And in 2011 of course, we put in our normal requirement for $60 million cash. So in the last 13 months, we put a $145 million of stock in cash into our two U.S. plans. We believe that, when all this is sorted out with the auditors and actuaries that both of our U.S. plans will be over 80% funded. We think this is good progress.

We also froze our pension plans at the end of the year for our U.S. salaried workers, so they’re no longer accruing any benefits under these plans, so we switch to [IDC] plan format.

This is just a little refresher for those of you who may not be familiar with Visteon, about $6.2 billion in sales for the first nine months. If you add in the sales of our unconsolidated subs and entities, it’s about $9 billion, when we saw on a market penetration basis. Climate is our largest product line at 48%, and if you take on market penetration basis, then Interiors becomes our largest product line with 42% of sales largely due to the Yanfeng. Climate is 36% on a market penetration basis.

On a regional basis, Asia is our largest region accounting for 42% of sales. And Europe is at 36% on a market penetration basis, Asia climbs to 58%. Hyundai/Kia is 31% of our year-to-date sales, with Ford at 27%. Again on a market penetration basis, they’re each about 21% through nine months.

We realize that we've got work to do on margins. There is no question about that. We took a look at comparing ourselves to some of our peers, and we thought that it was interesting into take a look at our performance, because in general we’re approximately at the peer average, some cases somewhat better.

As many of you are aware, we’ve got these (inaudible) affiliates and equity income and moreover interested in important part of our operations. In addition, we had the de-consolidation of Duckyang, which we talked about in earlier calls. But if you adjust for those two items, our EBITDA is right exactly kind of the industry average. SG&A and CapEx is about 50 basis points better than the peer group average, and our leverage is obviously very, very good. That said, of course we still have a lot of work to do. So I was suggesting that, this data is fixed, but it does have sometimes to put it into perspective.

We move on to the 2012, just a couple of notes here. We did use the IHS volumes. We took a look at it from the perspective of our customers, and I’ll show you a couple of more slides on this in a minute. Some of our major customers are going to grow at lower rates than the industry in general. We've used $1.30 for the euro, down from $1.40 in the prior year. And in free cash flow area, we were not able to complete some of our restructuring actions that we have previously forecasted in 2011, and so those have moved into 2012. And of course, the stock action and the pension affects the 2012 cash flow.

So these are the production volumes by region. And as you can see in each case, they are heavily influenced, I am sure, you’ve heard this in other presentations today, by the sort of re-normalization of Honda and Toyota that’s assumed in the IHS numbers. And so, with the exception of China and South Korea, all other regions are significantly lower in growth when you pull out Toyota and Honda.

Similarly, when you look at Visteon’s particular major customers, you get a similar look. North America is expected to grow 6% in 2012 – 2011, but excluding Toyota and Honda, we got 1%. And Ford, when you take a look at that, you can see here that they’ve had good years in 2011 and 2012. So they are going to grow, continue to grow, but in a much smaller rate than the industry. Similarly, all the way through Hyundai, PSA and Renault/Nissan.

So this is our backlog, we have about $1 billion of backlog. We define our backlog as new incremental business, net of lost business, it will launch over the next three years. Our three year backlog is approximately 42% higher than it was in 2010. About 85% of this backlog is due to our Climate business. And from a geographic perspective, Asia accounts for about 48% and Europe being about 28%. So, as Don previously noted, 2010 was a record year for us winning over $1 billion in new business, an all-time record as a percent of sales.

So this is an important slide. Here is a walk from our 2011 to our 2012 guidance. And we start out by talking a look at product sales and EBITDA adjusting for the Duckyang de-consolidation in currency. Currency reduces both product sales and adjusted EBITDA on a year-over-year basis. Whereas the Duckyang reduced the sales by – probably about almost no impact on EBITDA.

Volume mix is expected to be a neutral factor in 2012. On a product sales basis, overall European volumes will reduce sales in the Interiors group offsetting positive impact of higher volumes in the other three product groups. We expect volume and mix will have a negative impact on adjusted EBITDA due to product mix in Climate and Electronics. So that’s through just enclosures, we expect to have a slight negative impact on both sales and EBITDA, and net new business wins will positively impact from sales and EBITDA.

Pricing and other net earnings changes will have a negative impact, but they would be more than offset by our net efficiencies, and we've built into the planned cost savings, increased productivity on our product, and we have a positive net business equation in 2012.

So here is our full year guidance in chart form. First 2011, we’re reaffirming our full year guidance for product sales and adjusted EBITDA. We are improving our guidance for free cash flow. The free cash flow improvement is driven by the timing of restructuring related payments, which were expected to occur during 2011, but now they’re going to occur in 2012.

In right column, we provide our 2012 guidance projecting the full year of $7.1 billion to $7.5 billion for sales. Full year adjusted EBITDA is $650 million to $690 million, and full year free cash flow is projected at a positive $25 million to $50 million. In addition to the retiming of the restructuring items, the 2012 free cash flow results are impacted by the pension contribution we talked about earlier. It should also be noted that 2012 guidance includes the impact of de-consolidating Duckyang.

So one other point just my last slide, I’ll talk a little bit about how we view the year rolling out. We think that the first half of the year, we expect margins to be lower than the prior year primarily due to the non-recurrence of commercial agreements that were fairly good for us in the first half of 2011. But as we roll through the year, the second half of the year, we believe we will get improved traction and we’re launching higher margin products from a number of our procurement initiatives and from our indirect headcount savings and cost efficiencies.

So with that I will turn the presentation back over to Don.

Donald J. Stebbins

Thanks, Marty. So what are our key initiatives for 2012. First, we’re going to continue to invest in technology, our innovation, in our emerging market platform to support our customers and grow our top line.

Secondly, we’re going to continue to optimize the portfolio and the asset base that we have by: one, completing the projects that we’ve already talked about; and two, evaluating and executing additional options that we have; and then three, as Marty mentioned, we certainly know that we’ve got significant room for improvement in both the margin and the free cash flow performance of our business. And so those are certainly two key items for us as we go into 2012.

So with that, we will take any questions you have.

Question-and-Answer Session

Colin M. Langan – UBS Securities LLC

Hello, Colin Langan from UBS. Last week you told, then I guess some additional (inaudible) facility and a better restructuring action benefits like $80 million in total restructuring. It seems like margins are fairly flat and I mean you highlighted customer accommodations and but (inaudible) the lag of, it seem like restructuring really showed up in the margin really for the consolidated business and how much was that customer accommodation really the two things in 2011 important?

Donald J. Stebbins

So a couple of things, one in terms of restructuring some of the plans that we have closed over the past couple of years, actually had very strong businesses and strong margins with those businesses, one certainly the powertrain control module business that we had hit higher margins, probably the highest margins in our electronics group. However what the issue was there is that we were winning the follow-on business and so we have to push up the facility. So the closure of that is a margin hit. So the speed versus what I think people would normally expect to be a margin uptick particularly on a closure?

Colin M. Langan – UBS Securities LLC

(inaudible).

Donald J. Stebbins

That's the one that in Spain that we’re closing right now.

Colin M. Langan – UBS Securities LLC

Okay. And any color on the profitability that (inaudible) is obviously embedded in your total adjusted EBITDA guidance. So we expect status continuing better and then I think…

Donald J. Stebbins

Yeah, I think the expectation is that we’ll increase from 2011 levels.

Colin M. Langan – UBS Securities LLC

And in terms of margins there, where there any margins factor in each item given them…

Donald J. Stebbins

Certainly it is more competitive in China than it has been in the past. I would also say that in terms of the interiors piece of the business that if there is more and more cockpit assembly business, which is by its very nature lower margin business.

Unidentified Analyst

(inaudible), couple of questions. Just on your guidance. Can you talk a little bit about what the 2012 guidance of that differ higher margins, expanded like a lot of the pressure on how well over the last few years is related to abnormally high pricing pressure (inaudible), and where are we kind of on the whole cycle?

Donald J. Stebbins

Our expectation for the climate business is that margins will improve in 2012.

Unidentified Analyst

I think that, as indicated in that cost performance basically it’s kind of neutral. But it’s kind of a goal, and I think that’s sort of – since we’re having the third quarter call in Q4, we just maybe quite positive. But what’s kind of the assumption for that line item on the EBITDA loss for 2012?

Donald J. Stebbins

Yeah, in the last column there of the chart that Marty showed, he had red arrow down for net pricing, green arrow up for EBITDA. So the assumption there is that, net cost performance will be positive in 2012.

Unidentified Analyst

The MOU is contributing to this business, but slightly like to – actually working on that for almost a year. And just could you just give us some background on kind of where the cost design, that conversation take long because SAIC are with those (inaudible) calling that out, but initially we’re just kind of having the positive influence on or nobody is actually always interested in (inaudible) budget or details around project agreement for valuation or whatever it went?

Donald J. Stebbins

I would say this that SAIC is a global and strategic partner. And we have strategic discussions all the time. Certainly, the bankruptcy of Visteon put a hold on a number of those strategic discussions. And then, SAIC had its own restructuring last year that also put up a kind of a time block in terms of executing our most discussion. So those were two timing issues, I would also not agree with the concept that we massage them into agreement.

I think it really was a situation where we both saw the benefit of joining the two companies together. Certainly, as we approach the customers with a business that has over $4 billion in revenue located in 16 or 17 countries with 60 facilities. I think we’re going to be a very, very strong player together than we were two separate. Even though, we try to, okay, we have this joint venture in terms of quoting global programs; it will become much more seamless once the two companies are put together.

Unidentified Analyst

(inaudible) On that transaction – I will come back to that later. On the pension contribution, when you guys made the $70 million contribution, what we could have even done it with cash on hand, what was the logic of (inaudible) equity?

Donald J. Stebbins

So I think we were really focused on taking a look at conserving cash, and I think we saw the flat price now as an opportunity maybe two, I have some appreciation in the pension plan. We really can’t control that because when that goes into the plan, it’s the – these factors tends to be controlled by an independent trustee.

But as we looked at what other companies do, we should have benchmark a number of groups of companies do so on a regular basis. I think (inaudible) three times in last 10 years to extent that stock goes up a little bit now, that will be for the benefit of pension plan. And so we just thought it was good time, and good opportunity to do it.

Unidentified Analyst

(inaudible).

Donald J. Stebbins

We have – Yanfeng has two facilities in North America today. So whether or not that needs to be added as we go forward, we’ll see based upon new business wins.

John Murphy – Bank of America/Merrill Lynch

This is John Murphy. Thanks for the presentation. First question, you had an asset optimization as a key strategy for key focus for 2012. I am just curious, are there any actions that you’ve right now just what are the things are being considered. I mean it’s really the sort of the asset optimization, what might be your color and your cash really sort of the rough or sort of the discussion that you’re having with some investors, a lot going to be a little bit more – potentially a little bit more assets.

I’m just trying to understand what’s going on the asset optimization and really some sort of discussion with investors, maybe a little bit more aggressive, I don’t know if now is the time (inaudible) I am just curious what your real focuses are?

Donald J. Stebbins

Yeah, certainly, when we emerge from Chapter 11, we recognized that after asset optimization or dealing with the portfolio that we had was certainly one way to maximize the value in this down. And you can easily see what some of our weaker businesses are versus some of our stronger businesses.

And so we just need to make sure that the businesses that we’re in are strong enough to compete globally. And so whether that means buying somebody to strengthen the business or divesting of the business, or partnering it with our JV partner, those of the types of things that we have under consideration.

John Murphy – Bank of America/Merrill Lynch

So it sounds like a lot of options on the table.

Donald J. Stebbins

Absolutely.

John Murphy – Bank of America/Merrill Lynch

Second question is, as we look at your intention for global volume, you showed your global exposure (inaudible). As we go forward might there be the opportunity to diversify your business mix so you don't have these kind of performance versus sales level you’re going to have in 2012?

Donald J. Stebbins

Yeah, certainly as we talk about asset optimization, I think many people focus on the divestiture side. There are also is an asset side or an acquisition side that would help solve that problem for the product groups as well. And certainly we are heavily exposed to those two customers, and that's great, we love them as customers, but certainly that we’d like to grow our business with some of the other OEMs globally as well.

John Murphy – Bank of America/Merrill Lynch

Thank you.

Brian Johnson – Barclays Capital

Brian Johnson, Barclays Capital. As you think forward with the (inaudible) relationship, I guess couple of questions. One you have the, how long does it take to (inaudible) 2012. And then after expos where does the relationship stand going forward, because part of the recent state (inaudible) stay inline with Western companies just to get the technology and presence internationally you’ve now given, you’ve now transferred that. So clients are asking why does William need Visteon (inaudible). You must have a discussion with the remaining partners, where do you see that going from 2013, 2014?

Donald J. Stebbins

In terms of timing it is a fairly complex transaction in couple regards. One our interiors business has 19 facilities in 16 different countries. So you can imagine the various structures that needed to be implemented to transact that business essentially one or two per country et cetera. And then secondly, the other important point is that unlike many buyers why have we doesn’t have an global infrastructure and which just lay on top of, the business can lay on top of. So there certainly will be transition services agreements as well as the transfer of employees into YFV.

So in terms of the documentation it’s probably another three months or so and then as we work forward that maybe depending on the negotiations and there maybe a series of closing or to speak depending on regulatory issues that we do have to get Chinese authority approval, we do have to get EU authority approval. So those types of things as well and although, they shouldn’t last very long given that it’s a Chinese buyer with no minimal international operations I mean international, but no Chinese, it’s shouldn’t take very long, but those will be some of the issues that we’d have to face.

In terms of the discussion with SAIC and HASCO in terms of our participation, I think the relationship is very good, we’re in the 18th year of the relationship and there has been no discussion of that changing at this point.

Brian Johnson – Barclays Capital

(inaudible).

Donald J. Stebbins

Okay. Go ahead, Brian.

Brian Johnson – Barclays Capital

Just maybe a follow-on. As I think about your basically interiors business, transporting and then multiply. I think which are prior company which is excellent, (inaudible), what’s your cost, what would be your customer id. Do you have company that doesn’t export business, that they offset directly and volatility. And then second question is about, does any of your thought maybe change or partly interested in acquiring European interiors and what could be very powerful year for Europe taking out the rest of the world?

Donald J. Stebbins

I think in general and the numbers just about 10,000 let’s call it hourly workers in Europe for us. It’s probably split 50-50 western to eastern and of that workforce about 20% are temporary or agency employees. And again there has been no discussion about the stopping the deal so to speak based upon a year and again I think this is a long-term partnership with YFV and I think we both really feel that there is significant strategic value in lengthening these two businesses together. One in the back.

Unidentified Analyst

That’s a repeating line. I was wondering, if you cut through the interiors business you have that up, significantly up in electronics business as well. And I’m wondering if you say what the cumulative value that (inaudible) keeping the relationship between the two businesses in that regard?

Donald J. Stebbins

Yeah, the electronics business for us is much more integrated with YFV. Today if you look at our electronics engineering platform it is within Yanfeng Visteon Electronics. So it’s a share today. So there is much more overlap. The other piece of that puzzle is that unlike Yanfeng Visteon Interiors where we have 50-50 ownership with HASCO, Yanfeng Visteon Electronics we actually own 70% and YFV owns or HASCO owns the 30%.

Okay. Well, thank you very much. I appreciate your attention and appreciate your support. Thanks.

Martin E. Welch III

Thank you.

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.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

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

Source: Visteon's CEO Presents at Deutsche Bank Global Auto Industry Conference (Transcript)
This Transcript
All Transcripts