TRW Automotive Holdings Corp. Presents at Deutsche Bank Securities' 2012 Global Auto Industry Conference, Jan-11-2012 10:15 AM

| About: TRW Automotive (TRW)

TRW Automotive Holdings Corp. (NYSE:TRW)

January 11, 2012 10:15 am ET


John C. Plant - Chairman, Chief Executive Officer and President

Joseph S. Cantie - Chief Financial Officer, Executive Vice President and Treasurer


Unknown Analyst

Himanshu Patel - JP Morgan Chase & Co, Research Division

Brett D. Hoselton - KeyBanc Capital Markets Inc., Research Division

Rod Lache - Deutsche Bank AG, Research Division

Rod Lache - Deutsche Bank AG, Research Division

Okay. Next up, we've got TRW Automotive. As all of you know, TRW is a global supplier of active and passive safety products with annual sales of $16 billion, a $4.3 billion market cap. This company's above-average industry growth has been driven both by increasing demand for automotive safety as well as fuel economy around the world. Representing TRW today, we're very pleased to welcome John Plant, the company's Chairman and CEO; and Joe Cantie, the Executive VP and CFO. I'll pass it along to you.

John C. Plant

Thanks, Rod, and good morning, everybody. I want to make sure it's got -- right in the middle of the screen, it's got error report. I don't think the error refers to our safe harbor statement, because I'm sure you've seen it before. Thank you. But it's just there because any forward-looking statements, you have to be given this caveat, which I'm sure you're very familiar with. I intend to give an overview of the company and then talk about what's going on and then hand it across to Joe Cantie, our CFO, and then, of course, at the end, we'll be very happy to answer the questions that you may have.

First of all, just to give a summary of the company. Through the first 3 quarters of this year, our results have shown, I think, well. It's been a record and so forth in terms of revenue, in terms of profit, and also, we generated cash every quarter so far this year. And I think in our third-quarter conference, we did say that our intention was to continue to generate cash in the balance of year, although we're not providing any update to that today.

Our strong position and achievements, I think, reflect our core strengths, which John will talk about, in terms of technical innovation, in terms of geographic diversity and a very tight focus on cost and improving the strength of our balance sheet. Of course, when you look at the top of the slide, then I would say to you that macroeconomic factors have certainly impacted the views of the automotive industry this year, being a cyclical industry. And of course, on the tip of everybody's tongue is really -- is what's happening in Europe. And I wouldn't be surprised to receive a question on that later.

Moving onto now to the -- first of all, the company, we're headquartered here in Michigan. We operate in 185 facilities throughout 26 countries. Probably what distinguishes us is that we're able to offer support to our customers around the world no matter where they operate, so we can support those vehicle manufacturers with every technology that we have in basically every jurisdiction, and we do that by providing the active and passive safety products that Rod referred to. And essentially, those on the active safety space, it's braking and steering and suspension products, often with electronics control. And then in the passive safety arena, it's those products which take over in the case of -- if an accident indeed has occurred, which is the implementation of the seatbelt restraints, the airbags and, obviously, the sensing mechanisms to see if indeed a crash have occurred. We do have a modest-size automotive components business, which is, say, about 15% of our sales, which is non-safety-based.

So what do we offer in terms of competitive strength? Really, this provision of safety has served us well. Over the last 7 years, we've grown the company from sales of $10 billion through to $16 billion that, again, Rod referred to, and we don't know the position where [ph] basically vehicle build in the West, certainly in Europe, is still below what we would consider normalized level, so we're still expecting the benefit of that growth to come, plus the benefit of the growth that we see continuing in expansion in China and some of those developed or developing markets.

I am going to show you pictures of the product diversity and the customer diversity. The leading customer for us is VW. It has been probably for the last 5 years. I think our second-largest customer is Ford. And therefore, that gives us a strong customer there to start off with. You will see the diversity of that base. And we've been basically following those customers around the world.

By way of results, I'd say we've shown consistent delivery with our profitability, which has improved. I think part of that improvement is down to the balance posted on the cycle. So I think also the large part of it, maybe 2/3 of it, is down to the fact that we spent a substantial amount, an increasing amount, within absolute terms running percentage of the revenues on our engineering activity. So you can see what I would say is clear improvement in the technical profile of the company over these years, and that's given us the opportunity of repositioning those products.

So you can see we spend money on innovation. We spend money on building out automotive infrastructure, and that gives us the momentum to believe that we'll continue to be a growing and thriving auto parts company into the future, again, with the mantra that we shall make profit and we shall generate cash. And part of that consistency I've talked about is that we've generated cash in years when industry has gone up. We've generated cash in years when industry has gone down. And if you look at it, whether the industry's going up, whether it's going flat or it's going down, I mean, pretty much, TRW has generated cash, and it's a very strong feature of the company. It's enabled us to get our balance sheet in just an outstanding shape and giving us lots of choices of things to do in the future.

The main colors on this chart show the segments that we talked about, inactive and passive, safety and our growing electronic segment. And then also, you can see the split of products within those, within those major segments. So you can see we're not dependent upon any one single product. These are 2010 sales, and, of course, we've already given guidance with our sales this year. We're probably going to be in that just over $16 billion range.

Moving on to this slide, something that's probably more meaningful, you can see the customer set we have is very strong. I already commented that VW is leading the assets [ph] from 19.5%. And as you work your way around that pie chart, in fact, those customers on the left-hand side of the pie have actually increased over recent years to actually further the diversity of the company. So we are what we call a 360-degree company. We're not reliant on any one customer, product or, indeed, region.

In 2010, we did have 50% of our sales in Europe. Clearly, it is a lower percentage this year because of the higher growth rates that you've seen in both North America and, in particular, in Asia and Brazil. And we gave updates of that in the third quarter, even though we don't see it on this chart. So basically, right now, Europe is a little bit smaller. The rest of the world is a little bit bigger and North America is part of that the [ph] 31% area. So that gives you a picture of the regional mix and the customer mix of TRW.

In terms of product launches, our cadence is pretty consistent throughout the year, and after 3 quarters, we've launched just under 250 new programs. We just picked a few out here just to list them [ph] for you, which is a very steady cadence of new product launch, and you'll see that continuing into the future. And in particular, I think we'll be commenting 2010 was an extraordinary year for us in terms of order intake and you'll see the benefit of that coming through in future years for both the orders that we won and also the -- just the actual take-up of content that we get. And in fact, just commenting for a second on Asia, you're seeing the benefits of vehicle build. I'll say the increasing, I'll say, higher-end segment of vehicles being purchased and also the very substantial content growth that are within those for our product ranges.

We've seen the long-term trends do remain favorable. We try to show here the expectations of the vehicle build in those regions over the next couple of years. With the one exception you can see in Europe, we are anticipating that Europe does show weakness in 2012. None of us are really clear just how much it will show. Indeed, it's fundamentally outside the control of the company, and it's a large, I'll say, issues around the handling of the sovereign debt and banking crisis in Europe, which I'm sure you're very familiar with. We do expect China to be a continuing powerhouse for the company and in fact, if you do extrapolate that out into the 2015, '17 timeframe, the rate of the growth in China, we actually see China actually exceeding the U.S. in terms of sales for the company.

In terms of underlying growth rate, if you look at over the 5 years, if you look at 2011 in particular, you could see that we've outpaced vehicle build growth. I mean, we can't say we're doing it in every region every year. So essentially, it's about content, product positioning, technical innovation, just giving us the ability to increase our revenues.

We have been making investments. In fact, in 2011, we have commented very clearly that we stepped up our engineering spend once again, engineering spend for new products that are going to come into the company in the future. We also said we're stepping up our spend in build-out of infrastructure. So even though we had as an example, I think, 11 -- no, to 12 manufacturing plants in China already, we decided that we're going to build that infrastructure further and we're adding another, I mean, I'll say, 7, but I mean, Joe might say more, plant extensions that is actually bigger than that because we're building for the future. And in particular, we're very conscious that even within a country, say, one single country, but there are clear regions within China which we need to make sure that we are able to supply those vehicle plants with the correct logistics and supply-chain structures for them to give us the competitiveness that we need, and we're clearly doing that. We're building out that infrastructure.

So 2011 has been a significant increase in that spend. I think we've commented it's close to $100 million in terms of the impact on our P&L. But clearly, it's going to continue in the future, but nothing like that rate as we go into 2012. I mean, I'm just trying to draw your attention that 2011 was exceptional. And as you can see because of the strong sale, strong profitability, we could afford to do so and produce more profit and producing the cash talked about in every quarter. And government regulation has still come to benefit us. We've talked previously about Brazil, where we see the legislation impact coming through now with the car airbags in the front of the vehicle and the anti-lock-brake product that you're familiar with. This is a commentary on that expansion. The capital expenditure is going up. But it's still in the right zone. We've talked previously about 4% of revenues. So I think it's been around about 3.5% of revenue. It's in that zone, so while CapEx increasingly, a fatal increase again in 2012, we haven't given any guidance or numbers associated with that. I mean, you can imagine, as the company expands, we'll be expanding the capital that goes with it.

In summary, I think we're taking the advantage of our strong market position. We are building out the company in a continuing basis. We have a leading technical portfolio. We still see recoveries still coming in the developed markets in the West, and we see, again, strong growth coming out of China and hopefully, as I've said, in the future. We're committed to offering and continue the mantra of being a lean company, investing for the future, generating profit and generating cash.

And with that, I'll hand it across to Joe Cantie, our CFO.

Joseph S. Cantie

Thanks, John, and good morning to everybody. Welcome to Detroit. I have just a few slides that I'm going to cover with you today that's focused on covering our financial performance and a bit of the capital structure, and then we'll move on to your questions. We do -- we will be announcing our fourth quarter and full-year results on February 16. So many of the comments I'm going to be making today and the information I'm going to be showing is through our first 3 quarters. But I think you'll be able to get a good indication of how our 2011 year went based on the results we've put up through the first 3 quarters, which I'm sure will lead to us capping the year with having a very good set of results.

Here's our score card for the first 9 months, and what you see on this scorecard is that on just about most of the financial metrics, we'll be at record-level results, and that includes our sales, our absolute operating profit, our earnings per share, our gross debt, net debt. So it's been a very good 9-month period, and we, as I said, we expect that to continue through the fourth quarter when we announce on February 16. You'll see that, again, these results are basically the culmination of a lot of work that's been done over the years to help us reduce our cost base, getting it in the right spot, but not only that, capitalizing on the technology that we have to have allowed us to grow our sales over and above what the underlying industry production volumes have been.

One of the best lines on here is the last one, where our balance sheet, capital structure, we're at -- at the end of September was 0.4x, and that's a real nice statistic for us, recognizing that we started out as an LBO back in 2003, where we were levered well over 4x.

On this page, this just shows our income statement breakdown through -- we start with the GAAP results and then take out a few of what we call adjusting items, special items, primarily in 2011, pertaining to the fact that we've been buying our public securities back in the market and recognizing losses on those bond repurchases. And then we get to the blue-shaded column, which is more the column that speaks to the operating performance of the company. We compared it to 2010. 2010 was an incredibly strong year for us, as you can imagine, coming off of the industry lows that occurred in 2009 and 2008.

And what you see on the different line items here, again, you see our sales up some 15%, our absolute profit right around $1 billion or $971 million for the first 9 months. Clearly, it will be above $1 billion by the time we announce our results. You see a record level of earnings per share for us. And then the one thing I will point out, we did have margin contraction between 2010, 2011. You see the 8.4 going to 7.9. No one ever likes seeing margin contraction, but in our case, I think it's for a very good reason. We had a record level of awards that we won in the 2010 timeframe. That, coupled with the expansion opportunities we're seeing in the emerging markets, primarily China and Brazil. This caused TRW to be in a investment mode for the future that John referred to. He showed you a slide where we are either building or significantly expanding 11 plants between the years 2011 and 2012. Nine of those are in China. When you think about that, that's just symbolic of the investment that needs to be made in these areas. You build plants, you need infrastructure, you need program managers, quality people, and we're making all of those investments for in 2011, 2012, which will allow us to have that next step-up in growth as we get into the '14, '15 and beyond years. So at a time where, I think, believe that we're putting up some pretty good results, we're also balancing and managing growth investments within those results, and that is -- that's the primary driver behind that margin contraction. And then, in addition, we have a bit of commodity inflation that affected us through the 2011 year as well.

Just switching to the capital structure a bit, and as you can see on the bottom of this chart, our net debt position at the end of each of the last 4 years and then at the end of our third quarter, which was -- we had net debt of about $640 million. And as most people who follow TRW know, our best cash flow quarter is always our fourth quarter, and therefore, it's reasonable to expect that we'll be below that $600 million level when, in fact, we do announce our results. It's a good capital structure.

And the slide that I'll show you shortly, we'll you show the gross and net position of our debt, but the key to this is that we've been generating cash. In the upper right, you'll see through the first 9 months, we generated about $208 million despite the fact that our capital expenditures were up significantly in the year, going back to my theme of the 11 plants in the investment for the future, and of course, the $208 million will be embellished by the fourth quarter cash flow that we'll report shortly.

I think this is the slide that when people always ask me, "Well, what as investors aren't we focusing enough on, and what are we missing?" And I think if you look at the history of TRW, we've been through a significant downturn. We've been through growth periods and we generated cash in each of those years. I highlighted the years 2008 and 2009 because those were probably 2 of the worst years in the automotive industry going through the downturn. We generated $545 million. And then in 2010 and 2011, we're going through an expansion growth. We'll be over $16 billion in sales, but yet, we're still generating cash for that.

And as I talked to the investments we're making in emerging markets and to support some of the awards that we received in the 2010 year, we'll be generating cash through those as well. So we spent a lot of time on balancing, making sure we balanced the needs of the short, medium and long-term with the focus on the cash generation. And I think on the far right, it's a real staggering number. If you look over the last 5, 5.5 years, we've generated $2.5 billion of free cash flow, which allowed us to delever our capital structure from the LBO position that we started out with back in 2003.

And on the left side here, just shows you the gross and net positions. We do have $1.5 billion of debt and some $900 million of cash at the end of September, and that gives you the net position. Why I show you this -- and then on the right-hand side, you can see the maturity scale. I show you this because we do have some work to do. In 2014, we have between -- somewhere around $550 million of bonds that are maturing, and we do have a bank facility that matures even before then, so in late 2013. So we're obviously in a great position to refinance our balance sheet. We expect to do that over the next 12 to 18 months, and that's one of the things that we need to get behind us before we start thinking about what next do we do with our cash?

2012 will no doubt be a challenging year. We hope to see clarity over the next coming 6 to 9 months as to what exactly is going to happen in Europe, what the position's going to be, how the automotive industry is going to weather whatever happens in Europe. That's one of the things that we need some clarity on. The company does have an antitrust investigation going on. That's the second thing we'll need some clarity on, the debt refinancing and perhaps, to a lesser extent, some of the opportunities that we might have to further better position ourself against some of our pension plans. Those are the 4 things that we're focusing on for the next 6 to 9 months to see some clarity. And once we see some clarity on that, obviously, we have a wonderful capital structure, a bit on the inefficient side right now, and then, obviously, we'll make decisions as to what we should do with cash flow and return to investors at that point. So we're looking forward to seeing some of the clarity in 2012 and some good decision-making by the company to further make sure we have that efficient capital structure.

This is my last slide, and it just tries to sum up what the proposition is to investors. Why invest in TRW? There's a lot of different choices out there, and I tried to -- I know that I only get one slide to do this, but I tried to throw out the 3 things. One, well, we will have growth over the next 5, 10 years going forward. John highlighted some of the technologies that are just winners for us and are necessary to the industry over the short, medium and long term. So the company will have growth. Our cash generation, I highlighted that point before. And then the last one on here is market positions. We have great market positions. We're a global company. We have great positions with our technologies. I think one of the highlights I'd also encourage you to look at is look at the history of how we manage the company through the challenges that have come over the last 7, 8 years, be it spikes in commodity inflation in the 2005, '06 timeframe, the downturn that occurred, the need to invest for the future. We've done a very good job managing all those different pieces, and that's something I think you should look at as well as the 3 items that I have on this chart.

Thank you for your time. We'll now take some of your questions.

Question-and-Answer Session

Joseph S. Cantie

Go ahead, Brett.

John C. Plant

I've got a microphone to...

Brett D. Hoselton - KeyBanc Capital Markets Inc., Research Division

I have 2 questions. One is your company has always been -- you mentioned you've [ph] always been very forward-thinking vis-à-vis risks as well as opportunity. One thing whether you can provide some color on what you may be doing differently or just in anticipation of the volatility in Europe, either from a cash management perspective or other things that you're trying to manage with leading [ph] contracts and that sort of thing. And then secondly, you did highlight there was a big ramp-up in expenses from your launch in your plants in 2011, and that was -- I think you said the growth rate would moderate. But can you just give us some color on some of the cost outlook for 2012, whether it's launch, engineering or commodity?

John C. Plant

Yes, I think probably more than 2 questions there. I'm going to deal with Europe first. And basically, since 2008, we have not hired any permanent workers in Western Europe. We have hired workers, but, I mean, when we got through the short-term working activities we did, but there will always be temporaries. So we have the ability to flex our cost structure, I can say [ph], within a reasonable degree. And question what's reasonable within the suggested reduction, it's sort of about the number -- the IHS is about minus 5% for the 3 to 7. We can cope with all of that and more with the bandwidth of the temporary layers that we have within our plant. So that in itself is not particularly an issue. We have other decisions to take regarding what do we do with, let's say, fees which are not production-related, so for example, engineering or this sort of thing, but that really leads to a different rhythm, and if it was a severe distress period, then I guess vehicle manufacturers will be changing their program, pushing them out. We've seen it all before, and we've seen when we're clear, we actually, as a company, knew very quickly. And the best witness to that is -- I remember in 2008 when Lehman went, on I think it's September 17, by October 3, we had designed and then we had -- then went to execute our first thrift-ing program, which is finished by October 31, and then we followed that with successive ways of actions following that. So once we know what we're dealing with, if we're dealing with anything at all, because we just don't know. I mean, I've never known such uncertainty around the major region and the inability to fundamentally calibrate it. We shall deal with it. But right now, in terms of what I anticipated, then we just take it on the run, I think. It depends in the end, though, it's going to go in a smooth line, or there will be a big dip and come back. I mean, I don't think anybody really knows. But within a reasonable bandwidth, we've got it covered. In terms of -- I think you asked about the new contract and expenses, and I mean, essentially, we've pumped in, I think, hit about $100 million in this year. That's moderating substantially in 2012. So nothing like that can be very modest by comparison. So I think maybe it's a very small increase, taking all the things that we've done. Just because we've put our normal efficiency programs into place, and then some of those things may -- they do start to launch as we go exit '12 into '13 and, obviously, into '14. So obviously, that's when we see the benefits of doing so. And I appreciate the comment about forward-thinking, because we did a lot of forward-thinking not only in terms of the cost structure of the business, the employment profile, but even when, for example, we were thinking about what we will do with our capital structures. I mean we put into place, as you saw last year, not just generate a lot of cash, but we used some money to start the program of reducing our legacy liabilities. We've been very conscious about that. We've thought about the interest rate movements that we anticipate and when those things may actually move very easily back into the surplus. And what we want to do progressively during the next year, 18 months on a whole variety of fronts, so let me comment on those. The question haven't been asked, so I'll just comment. We thought about, obviously, the refis, the necessary parts of our capital structure, but we are going to use money to free some liabilities. So we'll use the money to -- we think about returning money to shareholders. So that's all in our long-range plan. It started in 2010, and we're on track to execute that as we have through '11. And obviously, we'll tell you more about that in February, and then we'll update you in the course of this year. So I think that's covered out everything that you asked. Himanshu?

Himanshu Patel - JP Morgan Chase & Co, Research Division

A couple of questions. First, can you guys give us a little bit of color on what you're seeing on the ground on European production just in the past couple of weeks? Number 2, [indiscernible] your expected visibility on the next 6 to 9 months. I don't understand your comment and I don't understand [ph] if that's generally a comment or whether you actually have seen some recovery time on that where you think maybe there's some more visibility on time, if you could touch on that. And then, lastly, just going back to some of the cost questions, it sound like there's been some increase in [ph] cost inflation. There's been commodity, there's been the sort of the $80 million to $100 million increase in engineering spending, which we've kind of talked about. But there's also the [indiscernible] that's been alluded to with the sort of non-engineering, SG&A spend, and just sort of an employee's benefit going back to normalized levels. [indiscernible] but maybe can you talk about that -- those expenses [ph] in particular? Where are we on the normalization process on that? Are we kind of already there? Or is there another big step-up on that next year?

John C. Plant

First of all, European production. In the fourth quarter, we did see, I'll say some turning back at what we expected within Europe. So it was not strengthening. It was -- actually, I think it was weakening but really fractional at the periphery, so nothing that you could even really comment on at this point. We haven't been abating [ph] Q4 for you today. Right now, when we look at -- again, our expectation is, essentially, everything seems to be in order. Clearly, you've got differential rates of strength between the vehicle manufacturers in Europe. So, I mean, VW last year grew by 2 percentage mark -- points of market share, or 200 basis points of market share. And if you look at the countries, you're going to see that continuing, I think. I mean, VW is just doing really well as they start up in 2012, going well, they're going well. The weakness, really, is in that -- in these countries which you're familiar with, in France, in Spain and Italy and reflected, obviously, the mass-market manufacturers, which are more exposed to those countries. So that, basically, gives you a road map to it. But right now, add it all together, there's no discernible difference, I'll say. And in terms of exports of the luxury vehicles into China or into the U.S., if anything, you show strength rather than anything else. There's no perceptible weakness at all that's manifested itself. So the likes of BMW and Audi and Mercedes are just doing -- seem to be just fine. And as you know, we have a lot of content on those vehicles. So at this point in time, you can think -- you can see where the weakness is, and you can -- if you just take the pie chart of what we put up there, and you can -- you can even probably put in much mapping out of TRW. And as you took the macro assumptions between assets and sales, you can map it out pretty readily. On antitrust, we have nothing to say. Clearly, as things go forward, you get more clarity. I think what we're trying to say to you is there's a series of things that we need to be out of range further as we go through the next 6, 9, 12, 18 months, and I don't think that we shall do one thing. We're just going to do some of this, some of that, some of the other. So I think you'll see actions on multiple fronts, as always, to benefit the company and benefit the shareholders. Commodity inflation, I mean, it's -- I don't know if we see that already done here before [ph], but commodity is great [indiscernible]. Clearly, you see some benefits in some of the ferrous metals, where -- which was a massive issue as we went through 2011, is clearly abating and coming down. We haven't got a handle on predictions for the future, but that is clearly reduced from its highs around about the July, August timeframe when cost did increase substantially. But there are other commodities which have increased, like specialty chemicals, resin. There's some, like leather, sort of business that we also use. We hope to give you a much better picture when we get to February. Basically, some of the stuff has moderated, some of it's increased. We're not ready to give you just the full guidance yet. But it's in a manageable area, let's call it, and probably nothing like we've seen in the more recent past.

Joseph S. Cantie

And I think just to add to that, you talked about those 3 buckets, and John gave the comments on the commodities, some going up, some are going down. When I look at 2012, if nothing else, you'd have the annualization of that. So I do expect it to be a headwind in 2012, but, again, we'll try to frame that for you on February 16. In terms of the third item, that I call the cost-creep item, which is the recovery, coming back from, as you know, in 2009, '10, we cut costs significantly on the downturn. Some of that started coming back in '10 or '11. I don't think that -- if there is something there, it's not material at all. I think you'll hear me talking less about that as we go into 2012 versus what I was saying in '11. It certainly was a component of margin contraction in '11 versus '10, but I don't see that being a big factor going forward.

Unknown Analyst

In fact, just a question around the [indiscernible]

John C. Plant

I can't see again. Just bright lights, but you're out there somewhere.

Unknown Analyst

Two questions. One is on the top line and one is on cash flow. You've mentioned a couple of times that you've won a lot of business in 2010. You talked about the ramp-up in costs in '11 and '12 to '13 and '14? Or when do we see this business hit the top line? Will it create a notable increase in the revenue growth rate?

John C. Plant

It comes in progressively. I mean, starting, some of it, modestly at the back end of '12, into '13 and then '14, '15 picks up.

Unknown Analyst

And then on the cash flow, you noted general '08, '09 was a tough period that generated cash. So can you remind us how much of that was from working capital, and that's kind of a one-time event? Or would you be able to squeeze out a similar amount and still generate cash if we experienced another similar downturn?

Joseph S. Cantie

Yes, when I look at the '08, '09 timeframe, a component of that was working capital, but not a material component of it. And quite frankly, when you look at '10 and 11, when our sales returned from a $14 billion level up to a $16 billion level, there was cash flow usage in those years, but despite that, it was overcome significantly in each of those years. So I understand the question on '08, '09, and -- but when you look at '10, '11 and when the sales returned, you didn't see the cash flow volume...

John C. Plant

I want to clarify '08 and '09 for you, because in '08, it came in, working capital came in, in the fourth quarter. If you remember, it went real low, I don't know if [ph] you can remember at that time. The first quarter, of course, it was even lower. But by the end of '09, we had this fundamental working capital outflow, so we had a working capital inflow in '08 but working capital outflow in '09. We generated cash in both years. And obviously capital was consumed in both '10 and '11. So I want to make sure you understand. You didn't see the benefit in 2 years of big cash flow. That's after everything working capital went out. It came in '08. It went out in '09.

Joseph S. Cantie

Right, so towards the tail -- John's right, towards the tail end of '09, the sales were already recovering and would have had that working capital hit for that, so even within that '08, '09 period. But even '10 and '11, you look at the sales growth, and it doesn't matter. We still generated cash through it.

John C. Plant

Well, it's cutting you off with 40, 37 seconds to go. Go ahead.

Unknown Analyst

So I wonder if you could provide some color [indiscernible] And it sort of feels like, sounds like we're building it and hoping it's coming towards the [ph] -- I think that's an issue the market's rough point was. And I think it would help us if you could sort of couch how you think about the growth over the course of the next few years. In light of the industry outlook that you provided here to the backdrop of IHS, how do you think about the changing growth rate in the company? How do you think about the prospects for the change in the growth rate? And when you think about that period of 14 [ph], did you see a fundamental increase in the core growth rate of TRW, so that you think [indiscernible]?

John C. Plant

Okay. We've not come back out and said -- what we did before was say what our compound annual growth rate is. But we're not building and it will come. Not at all. I mean, everything is contracted. We only do business like that. We provided this capacity expansion. The fact that we won't need to do it again. So we've built a plan. Everyone is going to be profitable, coverage cost of capital as facilitized today, and then we'll just stick more in. So there's a benefit to come. The rate of growth, if I look at the -- I did try to do my own graph, right? It would be 2 -- I did about blocks of 2 years, blocks of 3 years, and the block of that period coming up in that '13, '14, '15 is going to be a higher growth rate than we've had in the last year or so.

Thank you.

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