Aptiv PLC (APTV) 2013 Q4 法說會逐字稿

Good morning, my name is Toni, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Delphi's fourth-quarter 2013 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions)

I would now like to turn the call over to Jessica Holscott, Delphi's the Vice President of Investor Relations. Jessica, you may now begin your conference.

Thank you, Toni, and thanks for joining Delphi's fourth quarter earnings call.

To follow along with today's presentation, our slides can be found at Delphi.com under the Investors section of the website. Please see slide 2 for a disclosure on forward-looking statements which we will making on today's call and only reflect Delphi's current view of future financial performance, which may be materially different from our actual performance.

Joining today's call will be Rod O'Neal, Delphi's CEO, President and Kevin Clark, our CFO. As seen on slide 3, Rod will begin the call with an overview of our fourth-quarter, followed by Kevin who will review our financial results in greater detail, discuss our 2014 outlook, and then after Rod's concluding comments, we will open the line up for Q&A.

With that, I would like to turn it over to Rod.

Thank you, Jessica.

Good morning, everyone, I appreciate you joining us.

We had a record fourth quarter and finished the year extremely strong. In fact, when you look at what Delphi has accomplished in the last year, it's further proof that our Company remains laser focused on delivering value to our customers and to our shareholders. Move to slide 5, please.

We capped off 2013 with a record fourth quarter. Revenues were up 11%, EBITDA margins expanded 170 basis points and EPS grew 24%. For the year, Delphi's revenues were $16.5 billion, up 6%, our earnings per share increased 15%. In summary, 2013 was a great year.

We're very optimistic that we will achieve double-digit EPS growth in 2014. We continue to maintain a disciplined focused on capital allocation. Our board recently approved $1 billion share repurchase plan and increased our annual dividend payout of $0.68 to $1 per share. And we will continue to invest in our game changing safe, green and connected portfolio.

So, Delphi has a lot to be excited about, and I am extremely proud of our continued strong results. It's a testament to Delphi's focus on technologies that our customers want and the markets are demanding, and because of that, we are well-positioned for growth and profitability.

Slide 6. You've heard me say this before, but there is no better technology showcase than the Consumer Electronics Show in Las Vegas. Automotive has become one that to attractions at CES. All of the OEs were there, and I had a chance to meet with our customers and several of our partners like Tesla, Intel, Nvidia and Apple.

Slide 7. The week after CES, I and my team met with the top leadership of our customers at the 2014 North American International Auto Show. This year showed the highest attendance in 10 years, a sign of positive momentum we are seeing in the North American industry.

Let's go to slide 8. Delphi continues to focus on solving our customers' problems, and we will continue to invest in innovation for the future. This year we will invest close to $1.7 billion in engineering and development and plan to increase the number of engineers to 20,000.

And as further proof that our technology investments continue to hit the mark, Delphi has three technologies that are finalists for the prestigious Automotive News PACE Award this year. We've already won 16 PACE awards, more than any other company, and these awards are validation of both our advanced technologies and our optional excellence, and in 2014, our technologies will continue to wow the marketplace.

Slide 9. We had a record fourth quarter of $8 billion in new business bookings that included an award before for global safety electronics and a BAIC Mercedes award for wiring in China. And as you can see, we continue to diversify the regional mix of our revenue.

Go to slide 10. Our priorities are very simple and they remain unchanged. All are focused on increasing shareholder value through disciplined revenue growth, optimizing our footprint, accelerating the introduction of advanced technologies, expanding margins, increasing earnings per share and deploying capital in a very disciplined manner.

With that, I'll turn over the call over to Kevin to cover the numbers. Kevin?

Thanks, Rod, and good morning, everybody.

I'll begin by covering our fourth-quarter results and then discuss full-year and first quarter guidance. Consistent with our prior earnings call, today's discussion will exclude all restructuring and other nonrecurring costs to provide clear visibility into the underlying performance of the business. For your reference, the reconciliation between GAAP non-GAAP numbers are included at the back of both the press release, as well as this presentation.

Let me start on slide 12 with a snapshot of our fourth-quarter financial performance. As Rod already mentioned, we were very pleased with our results, which reflected strong underlying market, especially in China and North America, and continued very solid operating performance. The net result was strong revenue, strong earnings and cash flow growth; however, we remain cautious about the macros in Europe and have concerns about the current environment in South America, which I will touch on later on in the presentation.

Revenue totaled $4.2 billion, that's up 11% for the quarter. Adjusting for the effects of FX, commodity prices and acquisitions, revenues increased 8%. That's roughly 4 points over our underlying market. EBITDA increased almost 26% to $611 million and EBITDA margins expanded 170 basis points to 14.6%.

Operating income reached $472 million, and operating margins expanded to 11.3%. That's 190 basis point year-over-year increase. Net income totaled $345 million and earnings per share increased, as Rod said, over 24% to $1.12. Lastly, capital totaled $520 million.

With that as a backdrop, move to slide 13 and I will review revenue in greater detail. As I mentioned, revenue increased over $400 million, or 11%, to just under $4.2 billion during the quarter. Price downs of 1.6% in lower copper price and pass-throughs presented a combined $78 million, or almost a 2 point headwind to year-over-year growth. FX added $55 million to revenues and over 1 point to our growth rate, volume totaled $369 million, adding 10 points of growth, and the MVL acquisition, which we closed on in late October of 2012, added roughly $70 million of revenue, or 2 points to our growth rate.

On a regional basis, European revenues were up 7%, primarily the result of easier year-over-year comps. If you recall, in the fourth quarter of 2012, the European market was very weak, and our revenues were down over 18%. However, during the quarter, we did benefit from the ongoing improvement in the underlying market, especially during the month of December. But as I mentioned, we remain cautious about the pace of this improving trend.

North American revenues increased roughly 9%, reflecting very strong December production schedules, partially driven by the transition to the K2 SX platform. Asia continued to be our fastest-growing region, revenues increased over 14%. China revenues actually increased 17%, and were actually up over 20% in the month of December alone, driven by strong growth across each of our business segments. Revenues in South America decreased 6%, reflecting the recent softness in the market, which gives us some concern regarding the outlook for 2014 production in the South American region.

Slide 14 reconciles the $125 million increase in EBITDA to $611 million. As I mentioned, that's an increase of 26%, reflecting flow-through in higher revenue, solid operating performance and MVL related synergies, partially offset by price-downs and increased investment in information systems and advanced engineering. As I already mentioned, EBITDA margins increased 170 basis points to 14.6%.

Slide 15 details our segment results. Electrical architecture's adjusted revenue was up 12% from the prior period, driven by strong growth in China, North America, and Europe. Segment EBITDA increased to $318 million. That represents 15.5% EBITDA margins, up 240 basis points from the prior year. The result of flow-through on revenue growth, continued strong operating performance and synergies from the MVL acquisition.

Revenue in our Powertrain segment totaled just under $1.1 billion. That's up roughly 3%, the results of strong growth in North America, low single-digit growth in Europe and Asia, partially offset by lower revenues in South America. As I mentioned on our third-quarter call, the mix headwind related to the lower sales of diesel fuel injection systems is behind us, but it will not turn into a tailwind during 2014. Segment EBITDA increased $29 million to $177 million, and EBITDA margins expanded to 16%, primarily the result of savings from our restructuring initiatives, timing of engineering rebuilds and volume growth.

In our Electronics and Safety segment, revenue totaled $692 million. That's an 8% increase from the prior period, the result of strong double-digit growth in Asia and solid growth in North America and Europe, partially offset by lower revenues in South America. The sale back to safety products almost doubled during the quarter, which is partially offset by lower sales of less profitable Megatronics products.

Segment EBITDA increase of $99 million and margins totaled 14%, reflecting flow-through on higher revenues and improved product mix, more than offset by increased spend related to advanced engineering and information systems, as well as timing associated with engineering rebuilds. Lastly, thermal revenues increased 7% to $377 million, and EBITDA was up slightly to $17 million, representing 4.6% margins, flat year-over-year, but up sequentially. We expect thermal margins to continue to improve on a sequential basis throughout the balance of 2014.

Turning to slide 16. Earnings per share increased $0.22, or 24% to $1.12, driven by increased earnings and a lower share count, partially offset by a higher tax rate, which was 9% for the quarter versus 8% in the same period last year.

Moving to slide 17 to touch on our full-year results, we delivered strong margin expansion and earnings growth in a relatively challenging environment in Europe during the first half of the year. Revenue totaled $16.5 billion, that's up 6%. EBITDA totaled almost $2.4 billion, and EBITDA margins increased 70 basis points to 14.5%.

Net income increased to just under $1.4 billion, earnings per share totaled $4.40. That's an increase of almost 15%, and free cash flow totaled just under $1.1 billion. So, with that as a backdrop, let's move to slide 18 to review revenue for the full year in greater detail.

As I mentioned, reported revenue was up 6% to just under $16.5 billion. Price down totaled 1.5% for in line with our expectations. FX and commodity prices had about a $67 million positive impact on revenue, adding 1 point to our year-over-year growth rate. Sales volume totaled $417 million, adding 3 points of growth, acquisitions net of divestitures added $695 million of revenues, or 5 points of growth. Excluding FX, commodity prices and acquisitions, revenues were up 1%.

On a regional basis, our revenues were strongest in Asia, up 11%, driven by continued strong double-digit growth in China. Revenues increased 5% in North America, and 2% in South America, and declined 6% in Europe, reflecting lower vehicle production, further exacerbated by mix headwinds related to the sale of diesel fuel injection system in the light vehicle and commercial vehicle markets.

Slide 19 illustrates the benefits of our lean and flexible cost structure, which has driven significant margin expansion. EBITDA totaled almost $2.4 billion for the year. That's an increase of over 11%, reflecting the impact of price-downs, which was more than offset by very strong operating performance, flow-through and volume growth, MVL related synergies and restructuring benefits. EBITDA margins expanded 70 basis points to 14.5%.

Slide 20 includes our segment financial results. Electrical architecture's adjusted revenues increased 6% to over $7.2 billion, and EBITDA margins expanded 160 basis points to 15.5%. Revenue in our Powertrain segment was down 6% to $4.4 billion, primarily as a result of the 10% reduction and European revenues and softness in the global automotive aftermarket.

EBITDA margins and this segment declined 30 basis points to 15.2%, reflecting the impact of this slower revenue, as well product mix, partially offset by cost reduction initiatives. Revenue in our Electronics and Safety segment was up 2% to almost $2.8 billion, driven by strong growth in Asia and mid single-digit growth in North America, partially offset by lower revenues in Europe and South America. As a result of revenue growth, improved business mix and operating performance, EBITDA margins increased by 70 basis points to 14%. And lastly, Thermal revenues declined 2% and EBITDA margins totaled 5.4% for the year.

Turning to slide 21, earnings per share increased 15% from $3.84 to $4.40, primarily as a result of earnings growth, but also benefiting from share buybacks, both of these partially offset by higher taxes on a year-over-year basis.

Moving to slide 22, in 2013 we generated almost $1.8 billion of operating cash flow. That's up almost $300 million from the prior year, primarily the result of increased earnings and lower CapEx. We used our cash flow to fund just over $680 million of CapEx during the year, make $85 million of mandatory debt paydowns and return almost $670 million of cash to shareholders through share repurchases and dividends. We remain very committed to executing a very balanced and disciplined capital allocation plan.

Slide 23 details the assumptions underlying our 2014 guidance. We are forecasting global production of roughly 90 million units, which represents a 3% increase. Looking at our forecast by major region, in North America, our guidance assumes a 4% increase in production, in China, we are expecting production growth of 9%, we're forecasting European production to increase 1% year-over-year, and in South America, we're forecasting a 5% increase in production for the year, which as I mentioned earlier, we are watching closely. I does give us some concern based on the recent environment in the region. For the first quarter we're forecasting global vehicle production of roughly 22.5 million units. That represents a 4% year-over-year increase.

Turning to slide 24 to reiterate the 2014 full year guidance we provided at the Deutsch Bank conference in January. Before I hit the numbers, we previously mentioned that we intend to implement additional restructuring initiatives during 2014 to further reduce our Western European footprint. These initiatives will bring our cash outlays related to restructuring to roughly $200 million in 2014. That's an increase of roughly $50 million over the prior year.

As a result of the nature and timing of the initiatives, savings in 2014 for these incremental programs will not be significant. We currently expect full year revenues to be in the range of $17.2 billion to $17.6 billion. That's a 6% increase over 2013, roughly 3 points over Delphi's served markets at the midpoint of our guidance range.

Operating income is forecasted to be $1.95 billion to $2.05 billion, reflecting the impact of flow-through on volume and continued strong operating performance, partially offset by a $60 million increase in depreciation and amortization expense, which will totally roughly $600 million in 2014. Operating margins will increase to 11.3% to 11.6%, and EBITDA margins will be in the range of 14.8% to 15.1%. Earnings per share expected to be in the range of $4.70 to $4.95, representing 10% growth at the midpoint and is based on a share count of $309 million and an 18% tax rate.

Turning to the first quarter, we expect revenues to be in the range of $4.2 billion to $4.3 billion, representing 6% growth, roughly 2 points over market. Operating income will be in the range of $435 million to $460 million, reflecting the benefits of volume growth, partially offset by increased engineering and information systems expense and lower engineering rebuilds. Operating margins will be in the range of 10.4% to 10.7%, and EBITDA margins will be in the range of 13.7% to 14%.

We expect EPS to be in the range of $1.04 to $1.08, and again, that assumes 309 million shares outstanding. We expect the first and second quarter tax rate to be 19% this year. That's about 1 point higher than our outlook for the full year, reflecting regional mix and timing of planning initiatives.

I'll now turn it back to Rod for some closing remarks before Q&A.

Thanks, Kevin.

Please move to slide 26. In closing, before we go to the Q&A, just a reminder. Delphi had a terrific year, and the team did a great job in terms of execution. So, looking forward, we are well-positioned for top and bottom line expansion driving earnings-per-share growth. We continue to invest in market leading technologies, and we continue to have a very disciplined approach to how we allocate our capital.

With that, let's open up the call to questions.

(Operator Instructions)

Brian Johnson, Barclays Capital.

Good morning. A couple of housekeeping questions and a strategic question. On the housekeeping, backlog, are you going to be giving that to us at the investor day, or can you comment on it?

Yes, Brian, we're going to give that to you at the investor day. We needed to say something new for that date in March. I will say that we've talked about it in the past. As we look at 2014, we expect net new business to be between $800 million and $900 million for a year, to give you an idea of perspective for the current calendar year.

Okay. And second on the guidance, you talked about FX and commodity rates stable, South America growing. What is the risk there from the current emerging markets' headwinds in South America, and is that something you've considered when you've reiterated you 2014 guidance?

Yes, it's something we've considered. When you look at our exposure to emerging markets, really setting aside China, we have a business model where we typically don't price in local currency. When we do, we have the ability to pass on labor inflation or changes in foreign exchange, Brian. And most of the emerging markets, including places like Turkey, are actually locations that we manufacture in and export out of. So, again, the current environment was contemplated in our guidance, and we think we have it well managed.

Okay, and then the more strategic question is, where can you really see E/EA going? It looks like you're getting both good revenue growth there, we'd say because of Connected Car and good margin results there, certainly year-over-year. Do you see room for both acceleration of revenue growth and for margin expansion, or is it more revenue growth and the margins are where they're going to get?

No, we think there's an opportunity for both. To your point, as content -- electric content goes into the car, there's more opportunity for the electronic backbone and nerve center that electrical architecture provides. And as you look at margins, based on both operating performance as well as mix, when you look at connectors relative to wire harnesses, there's the opportunity to further enhance the margin profile of the business. And we will update at our March investor meeting, our outlook for long-term margins in the business.

Brian, that was a little bit of the beauty of the MVL acquisition, was to slightly modify the DNA of our existing electrical architecture business with the infusion of additional connectors. As a result of that, what we try to create and have accomplished is a business that has a really good top line, but also margin expansion. And so we will get into it more at the investor day, but we're quite pleased with where we are, and we believe we have significant market momentum going forward.

And roughly, what is connectors as a percent of EAA after the integration of MVL?

20% to 25%.

Okay, thanks.

Rod Lache, Deutsche Bank.

Can you give us a little bit more on that Q1 guidance. If we were to sort of think about the bridge year-over-year, you've got in your guidance $176 million to $276 million of top line growth and EBITDA growth of $4 million to $29 million, what are some of the headwinds that are Incorporated in that?

Yes, why don't I start.

I'd look at it two ways. One, I'd look at it on a sequential basis, I think that's helpful. And as you look at revenues on a sequential basis, the business will grow roughly 3%. When you -- on a sequential basis, when you look at things like engineering rebuilds, which tend to be much stronger in the fourth quarter than they are in the first quarter, you have about $30 million to $40 million of engineering rebuilds that fall out on a sequential basis. That should help explain some of the transition and profitability.

When you look at it on a year-over-year basis, again, 6% growth, about 2 points above market. When you look at flow-through, we have -- on an incremental basis, we've talked about spending an additional -- making additional investments, I'm sorry, in IT and engineering. There's about $20 million or $25 million on a year-over-year basis that I would call growth investments in engineering and IT that affect the margin.

Okay.

That's the big explanation of the change out regarding flow-through on a year-over-year basis.

What are your regional production assumptions in the quarter?

Regional production assumptions, bear with me one moment. If I could -- Europe up about 3.5%, North America, 6.5%, China about 8% and year-over-year about 4% production.

Okay. In the quarter, in your bridge you showed performance of about $50 million pricing with $60 million, so it's largely being offset. But I think you include the MVL in that line? Could you comment a little bit? If we were to extrapolate from that, what is the underlying ability to mitigate price deflation as you look out to 2014?

Sure. Well, in that line, as you can imagine, there is a lot of moving parts. We build a plan to have performance initiatives that offset price as well as a economics, and we work hard to perform towards that. When you look at it on the fourth quarter basis, we had performance initiatives that actually exceeded price. But we had a little bit of mix, quite frankly, that went against us in the quarter on a year-over-year basis to the tune of about $30 million.

Okay. You are still expecting to exceed that. I think you were originally targeting something line $120 million of synergies in 2014. Is that something that you feel pretty comfortable exceeding the pricing in the year?

Yes, as we look at 2014, the last guides we talked about on Q3, our Q3 call, as we expected between $100 million $120 million of synergies and restructuring benefits in 2014 calendar year.

Great. Okay, thank you.

John Murphy, Bank of America.

Just a first question on South America. I know it's about 6% of your total sales, but could you comment on your profitability down there, just so we can understand what the risk is around sort of the potential macro swings?

Yes, we don't give profitability by region, John. But as we have said in the past, that is a region over the last couple of years, given what's going on from an inflation standpoint, labor cost standpoint, it has been less profitable than our corporate average.

Okay, and then just a second question on power train. You have had a couple of good quarters here. The second quarter was 16.4% on EBITDA margin and fourth quarter was 16%. It sounds like the business is normalizing as far as mix in Europe. Are we going to see a 16% margin potential in power train in the near-term? I know that's longer-term, what some people are expecting, but it sounds like you are performing very well there. I know the second quarter was a big quarter, but we've got another good one here in the fourth quarter.

Yes, listen. I don't know sitting in my chair right now, we are going to definitely have quarters throughout the calendar year that are at 16% or better. I would -- I look at 2014, our expectation would be that EBITDA margins be a little bit below 16% at this point in time and then would be above 16% in 2015 and beyond.

Okay, and then just on DNA versus CapEx, the DNA at $600 million versus CapEx of $800 million, the spread between D&A and CapEx is opening up, which indicates you have got a lot of investment for growth coming in 2014 that should come in 2015, 2016 and 2017. Is that a correct interpretation, or is there something on with timing? And over time, are we three to five years out when D&A matches CapEx, or we going to continue to see this kind of a gap for while?

Listen, it's probably five years out. And when you look at our CapEx spend for 2013 in calendar year 2014, roughly 30% to 40% would be what we refer to as maintenance, the balance is all related to growth initiatives, new programs.

Okay, that's helpful. And then just lastly on the European restructuring, $200 million being spent in 2014, what's the payback period you expect for that roughly?

Those programs tend to be, as you imagine, restructuring in Europe tends to be more costly. The average program is roughly three years.

Okay, great. Thank you very much.

That's why you're not going to see much incremental benefit in calendar year 2014.

Great. Thanks a lot, guys.

David Leiker, Baird.

Can I start on slide 8, where you listed a bunch of new technologies there? Can you talk about is how much of your revenue base -- and I don't know if that's possible, but how much of your revenue base comes from those products and how much of your backlog does if -- or any color you can give in that kinds of context would be great.

I think we will cover a lot more of that at the investor day. And so if you could just wait a few weeks, we will make you happy then.

I would say these are all technologies that we introduced in 2013 calendar year, so David, as you look at or you talk about lease-specific part numbers, they tend to be relatively small. Now, there's some technologies, right, that are advancing on our existing technologies, like the heavy duty diesel common rail system that meets new standards, we can update you in March.

Okay, and then can we talk a bit about the commercial vehicle site and Euro 6 pre-buy very strong build rates here at the end of Q4. Very weak in Q1 and how much of a factor that's playing into some of the revenue numbers we're seeing.

Yes, we saw a very strong December, and across our businesses, we estimate that the pre-buy was roughly $20 million in the quarter. So, that does explain a little bit of the walk from Q4 to Q1.

Yes, okay. And then lastly, just -- at the CES, you showed a lot of technology and a lot of investments and focus on infotainment, and that's been part of the business in the past. Rodney, you've sort of backed away from a little bit. It looks like it's moved back to the front burner as a growth opportunity for you. Can you just talk about that a bit?

It's a very interesting space, very dynamic. And David, I don't know if I've backed away from it. I think I was just being more futuristic in terms of where I thought the ultimate business would go. But we're very pleased with where the business was today and also, over the short-term horizon, we always felt that it would be a growth engine for our Company.

And so we're pretty excited about it, and as you -- as a convergence of infotainment and safety continue to come together, there's plenty of opportunity. I think you saw an announcement yesterday where the government is beginning to think about legislation of having vehicles talk to one another. The rules of engagement have yet to be determined, but obviously it's pretty exciting for us to hear that, because it's not so much that the vehicles would talk to one another. What's exciting to me and the team is what do we have the opportunity to do when they do begin to communicate.

Because, obviously, you have to take that communication and do something with it in order to mitigate of potential collisions, et cetera. It's a pretty exciting space, particularly when you look at it from a convergence of the safety aspect, and we will cover more of that in March.

Okay, great. Thank you, much.

Ravi Shanker, Morgan Stanley.

A couple of questions on 1Q, the guidance. I think 1Q of 2013 was probably a trough quarter for European production, so I'm expecting that's going to be a tailwind in 1Q 2014 that should at least partially help offset the R&D investment costs. So, if you could comment on that. And also, you seem to be guiding to a pretty sharp ramp in margins through 2014. Does that mean most investment costs are going to be in 1Q?

Yes, Ravi, it's Kevin.

I will take the first shot at it, and Rod, if you want to comment. As we look at the first quarter and we look at Europe, I would say Europe is going to be our slowest, actually from a growth rate standpoint, it will be towards the slower end of overall growth for us.

Part of that will continue to be power train. It's stabilized in Q3 and grew slightly in Q4, but when you look at the year-over-year comparison to Q1 of 2013, it will still be down. So, that's my point on -- it won't be a tailwind in Q1 and quite frankly, it probably won't be in Q2, either. So, that's a bit of what affects growth in the first quarter, or the optics of growth in the first quarter of the year.

As it relates to investment, our investment, in think it's fair to say it's fairly front-end loaded, and performance initiatives rollout through the balance of the year. It's timing of spend, and it's not all in Q1, it's threaded throughout the year. But it's also timing of the rollout of the various performance productivity initiatives that we have.

And Ravi, the other thing is, as you saw in Q3 and Q4 of 2013, the stabilization of both our power train and our thermal business. And then sequentially, as Kevin talked about, we will see improvements through the year. That's a little bit of the ramp-up you're seeing also.

Got it. And just one housekeeping question. Kevin, you said that the first half tax rate is going to be 19%, and you have 18% over the full year. I'm assuming that means 17% for the second half and not 18% the second half.

That's fair. It may in Q3 and Q4 vary a little bit off that 17%, Ravi, but that is a good assumption.

Great. Thank you.

Itay Michaeli, Citigroup.

Just a question on slide 9 on the bookings, you had a terrific fourth quarter. Rod, I'm hoping you could talk about what you're seeing out there in the pipeline today. Was there any pull in Q4 from perhaps 2014 opportunities? And then, are you actually targeting a bookings number for the full year?

What we see for 2014 is a year that's equal to or better than 2013, and there's plenty of opportunity. And we ended the year with a very high win rate, so we expect that to carryover. So, equal to or better than 2013, is where we are looking at.

Perfect. That's very helpful. And then Kevin, just a question on the thermal segment. I think you mentioned you expect margins to gradually rise throughout the year. I think that segment actually has a bit higher South America exposure than some of the others. Can you maybe talk about the dynamics there and what the drivers are for margin improvement throughout the year in thermal?

It's -- Itay, that's a great question. It's a mix of a couple things. The restructuring program, the cost reduction initiatives that was have been putting in place and having them play out for the balance of the year, as well as, you will see a nice revenue ramp-up throughout the year as a result of some of the new business bookings that they've won over the last couple of years. So, a mix of cost reduction, restructuring benefits and volume.

Great, and then just lastly, a quick housekeeping. What was the aftermarket contribution in the fourth quarter? Did that help the power train margins at all, or was that not a big factor?

Not a big factor. Aftermarket was up year-over-year in the fourth quarter for us, but it's a relatively small business, and it wasn't a big contributor to the power train growth.

Perfect. Thanks so much, guys.

Patrick Archambault, Goldman Sachs.

The main one I had left was on the revenue outperformance. You've -- last year, obviously, I think organic growth you said was in and around 1%. I don't know if I'm getting that right. But somewhere around or maybe lower than the addressable market. This year -- obviously, in the fourth quarter that changed. You outperformed the addressable market pretty substantially, and it seems like you have something similar baked in for maybe around 200 basis points of outperformance -- or 300 for 2014.

Can you just give us a breakdown of the components of that shift? How much of it is backlog, how much of it is mix? Geographic versus customer, just to help us understand that.

Yes Patrick, it's Kevin. I'm not sure I have it quite laid out in that sort of away. It is a mix of the new business bookings that we've had, as well as at least in the back half of the year. When you look on a year-over-year basis, not having that, seeing the power train business actually continuing to grow sequentially as well as year-over-year. That will be a big driver of the growth.

Electrical architecture will continue to have very robust growth on a full-year basis, as well thermal as we see a continued improvement in their overall business.

Okay, thanks. And maybe just diving into one element of that. I don't think we've brought up as much this call, which was obviously a big focus last year, which was mix in Europe. One of the things that's been commented on by your peers is that some of the rebound you're seeing might be in Southern Europe more than Germany. How do you see the mix playing out within Europe for your major customers for 2014 versus 2013?

I think if you look at the industry numbers today, I think you're right. Today they would say that the OEs in Southern Europe, from a growth rate standpoint coming off of a fairly low base will outgrow the Northern Europeans. I think that is some the baseline included in our production assumptions, as well as our revenue assumptions for 2014. Rod, if you want to?

No. When you look at the year-over-year, the bulk of the improvement is actually in some of the OEs that had, quite frankly, was a disastrous 2013. So, it's off of a very low number.

Okay, terrific. Thanks a lot, guys.

Emanuel Rosner, CLSA.

I just wanted to come back for a second on your pace of organic growth. Obviously, the fourth quarter was a good one in terms of outperformance versus the industry. For 2014 you are guiding to about 3 points above the market. When we -- when you look further out into your book to business, do you feel that over a time beyond 2014 or maybe there's some delay launches, do you feel that over time you have the room to outperform the market by a larger amount than 2 or 3 points?

Yes. Yes we do. I think when you look at our level of business, setting aside some of the shifting of schedules or launches which can take place, you look at our product areas and where we reside and we are we are making products, we are confident that we have a business that grows in excess of 3 points over market.

Okay, and would that be back to your historical range of 4% or 5%, or is it too early to quantify?

I think maybe it's maybe a little early to quantify, but I think 4 to 5 points over market is very reasonable.

Okay, and then just an element of clarification on the additional investments in IT and in engineering. You're pretty clear that in the first quarter this could be a $20 million, $25 million incremental cost on the year-over-year basis and a lot of these things are front end loaded. How should we think about that year-over-year walk for the remaining quarter of the year? Is that all mostly spent in the first quarter, or is it still going to be an incremental cost?

No, it will be an incremental cost. When you look at IT --growth, what we are calling growth investments in IT and engineering on the year-over-year basis, that will be between $75 million and $100 million. Now, that spend we can calibrate, we can adjust to the extent that the market softens and we need to respond to things, correspondingly, it's then that we can accelerate if we need to if the market strengthens.

Understood, and then finally, could you maybe comment on the -- what you're seeing in terms of the environment for acquisition? Obviously you had the -- completed a very successful, and at the end of 2012 and not in 2013. Can you maybe tell us what you are seeing beyond these days?

In the fourth quarter of this past year, at least the acquisition environment improved and the amount of activity that we had in and around acquisitions increased, or potential acquisitions increased. The environment was very strong in Q4, we will see if that continues during 2014.

Perfect. Thank you very much.

David Lim, Wells Fargo.

Happy lunar new year.

Good morning, David. How are you?

Good. Just a couple questions. I just wanted to get your idea or color on infotainment take rates in the quarter. Have seen an acceleration there? And also, if you could characterize the acceleration of recent bookings in the Safety and Infotainment entertainment space. Thank you.

This is Kevin. With respect to take rates on infotainment systems, medium and high end, we've seen an increase called mid to high-single digits from a take rate standpoint on infotainment systems. As it relates to active safety, growth in 2013 was significant year-over-year growth rate was, it almost doubled from an active safety standpoint, so extremely strong. We booked over $1 billion of active safety business in 2013, which is more than we'd booked cumulatively the prior three years. So, a very strong market as it relates to active safety. Your third question, I'm sorry --

No, that was actually it, but I do have a follow-up question. If you did $1 billion in booking in 2013, and maybe I'm getting a little ahead of myself, pre-analyst day, but any idea of the growth rate that you are anticipating for 2014?

2014 for active safety, looking at our active safety business, growth rate will be about 50%.

Great. Thank you very much.

Joseph Spak, RBC Capital Markets.

Just headed back to the acquisition environment comment earlier, obviously you did a very successful one on the EE&A side. What about -- and I think you've said in the past you would still be interested in additional tuck-ins, although they may not be available. But what I'm about on the E&A side, are you comfortable with your portfolio? Is that an area where you could also look for some tuck-in acquisitions?

We've been pretty consistent in terms of the space that we are focused on from an acquisition perspective. It was Powertrain, Electronics and Electrical. And so the answer to your question explicitly is yes, it is. It's an area of focus and we are always looking.

Okay. And then just bigger picture of the E&A side, I think typically you have not seen a lot of displacement, so once you're in with the customer, or certainly platform, given the critical nature and the design process, you're in there. But in speaking to some of the players in the industry, it does seem like there's maybe been a little bit more movement, at least in terms of share on that front. Can you comment on that or confirm that? And if there is a little bit more movement than in the past, why do you think that's happening?

I want to make sure I understand your question. When you say the movement of shares, do you mean like movement from Delphi to another competitor?

If you're gaining share or losing share, I just want to get your perspective on share shifts, yes.

We are doing quite well. Obviously, this business has a very wide moat and deep moat, and it's able to conquest business because of its technical prowess and also because of the complexity of the business and its operational excellence and its global span. I think it operates in 32 countries. So, it's absolutely impressive.

Our win rates have actually accelerated in our business, particularly as the electrical architecture or the more contented vehicles have gotten more complex. And so we're actually seeing a movement of the marketplace into our sweet spot of complexity and ability to do have to -- to do multiple things to win in the marketplace. And one is elimination of weight, creation of space by shrinking the amount of real estate that our electrical architect occupies. And so we have wonderful value prop, not just technically, operationally, but also how we are bringing it all together to create a value profit that is so many things for the vehicle, all the way down to improving fuel economy.

Okay, Kevin, if I can sneak one in, just housekeeping, it's really back to the cadence. In the fourth quarter you outperformed global production by about 4 points, in the second quarter it's looking more like 2 points. Even if we adjust for the year by, which is maybe 50 bps, is that just cadence of launch of the backlog is also a little bit more back half weighted?

I think it's just roll on, roll off of business.

Okay, thanks a lot.

If I can make one additional comment on this. I think it's important. But you look at that business, and this past year, it grew roughly 3 points over market. Some of that is growth in content in vehicles, some of that is market share.

Having said that, one thing, and we don't talk about it a lot, but it is worth noting, there is business that we've decided -- that we've had and we've decided not to pursue because it's not at margin rates or returns that are acceptable and is most prevalent, quite frankly, in the European region. I just wanted to add that.

Great.

Brett Hoselton, KeyBanc.

I just wanted to follow along with the M&A questions. What do you think the likelihood -- you're obviously looking at a number of deals, so on and so forth, but where are you at in the stage of looking at those deals? Are you in the initial stages, or is there something that you're maybe a little bit farther down the road? I guess what I'm really driving at is, what's the likelihood, in your opinion, of completing something in the 2014 timeframe?

We would say it's impossible to predict. Right? Looking at acquisitions, it takes two parties to agree on value, on timing, and there are a lot of variables that affect that. It's too difficult to predict. I would say the level of activity, our activity and just general activity in the market increased in Q4, and I would expect that to continue at least until the early part of 2014.

And then switching gears and talking about margins, as I look back at your presentation from last year, you've got about 50 to 150 basis points of margin expansion necessary to kind of hit your objectives in the electrical power train and electronics segments. As I look at the thermal, it looks like it's kind of around 600, 650 basis points of margin expansion from where you're currently at. Pretty significant change there. Can you talk about, what are your expectations today in that thermal segment for margins longer-term? And then secondly, what are the primary drivers to allow you to improve the margins in that segment?

The expectations should be in the double-digit range, above double-digit, actually. And what's going to drive it is diversification, both customer and geographic of the book business, which is been significant, that is now starting to roll on. So, we're going to get a revenue lift, and then we will also get an operational lift because we're going to be executing at a higher level.

Thank you, gentlemen.

Matthew Stover, Guggenheim.

Hello, Matt.

Matt?

Hello?

Hello.

Good. Thanks for taking the question. Most my questions have been answered. I just have a couple details here. Kevin, did you say that on the EBITDA walk, the R&D rebuilds were favorable effect in the fourth quarter year-over-year comp?

Yes.

To what magnitude?

About $20 million to $30 million year-over-year.

Okay, and if I think of synergy at 100,120 this year, obviously, most of the synergy confers to E&A. What businesses should we see the biggest effect from a restructuring standpoint?

You will see -- some of that does reside in E&A. You will see continued benefits at E&F, you will see continued benefits at thermal, as well some benefits of power train.

Okay. Thanks very much, gentlemen.

Your final question comes from the line of Colin Langan with UBS.

Great, thanks for taking my question. At the beginning of the Q&A, I believe you mentioned that the backlog for 2014 was $800 million to $900 million, which seems to be down from $1.1 billion of last year in the -- through your backlog guidance. Any color on why it's down? Is this remeasurement or it's a business that's been pushed out?

No, it's really -- Collin, it's Kevin. It's pushout of some programs, both European programs that were scheduled to launch that were pushed out by the OEs, as well as some delays in some of the electric vehicle programs in North America and in Europe.

Okay, and could you remind me the impact from lower management incentive accruals this year? I thought it was something like $80 million?

It's about $80 million from -- walking from 2012 to 2013.

And is there any change this year? That was a tailwind, right?

It will be a headwind this year, it will be up roughly $10 million to $20 million.

Okay, and then $80 million, that would be embedded in your net performance and other walks?

Yes.

And then just lastly on cash flow, maybe a little color. It looks like your guidance for cash flow before financing was flat year-over-year. Was that mostly just the higher CapEx, I think you mentioned $50 million in incremental restructuring?

Yes. If you can break it down, there's about $150 million of CapEx, $50 million of incremental restructuring spend, and then you have the investment in working capital as the business grows.

Okay, some working capital. And in terms of that restructuring, it's about $200 million, so is that a tailwind when that comes off in 2015?

Yes. We would expect it to be a tailwind in 2015.

Of about $300 million or something like that?

No, probably not about $200 million, probably in the neighborhood of $50 million to $100 million.

Okay. Thank you very much.

Great. Thank you for participating in today's call. We hope you can join us for our investors day in New York, March 11. As always, we will be available for any additional questions you may have after the call today. Thank you.

That concludes Delphi's fourth quarter 2013 earnings release conference call. Thank you for joining. You may disconnect.