Aptiv PLC (APTV) 2014 Q4 法說會逐字稿

Good morning. My name is Crystal and I will be your conference facilitator today. At this time I would like to welcome everyone to Delphi's fourth quarter 2014 earnings conference call.

(Operator Instructions)

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

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

Joining us today will be Rodney O'Neal, Delphi's CEO and President; our Chief Operating Officer, Kevin Clark; as well as Mark Murphy, our CFO. As seen on slide 3, Rod we will begin with an overview of the quarter, followed by Kevin who will discuss the company strategy, and then Mark will cover the financial results and the 2015 outlook in more detail. With that, I'd like to turn it over to Rod.

Thank you, Jessica. Good morning, everyone. Deeply appreciate you joining us today. Before we get into the presentation, I just want to spend a few moments on some words that I'd like to share with you.

You know, in my 43 year career, I've pretty much seen it all, and never have I had more confidence in a management team than the Delphi's management team. I think our track record, since the IPO, it speaks for itself, and I truly believe that this Company is well positioned for the future.

And as you will see today, we have delivered another great year in 2014, and you should have tremendous confidence that 2015 and beyond will be even better. I want to thank you all personally for your support of me and of this Company. It's been an honor and it's been an absolute privilege to have served you as Delphi's CEO.

Now let's turn our focus to the results. Moving to slide 5. We ended 2014 with a record fourth quarter. Revenue was up 3%, OI up 10%, margins expanded 120 basis points, and EPS up 18%. And for the year, Delphi's revenues were $17 billion, up 4%, and our earnings per share increased 16%.

So in summary, as I said, 2014 was a great year. And we are confident in Delphi and our earnings outlook for 2015. As we've told you in the past, we've built an operating model that allows us to flex our cost structure, to deliver our margin cash flow and earnings per share commitments.

We will also continue to maintain our focus on capital allocation. We returned over $1.3 billion to the shareholders in 2014. And our Board recently approved a $1.5 billion share repurchase plan. So, in summary, I am confident that we will continue to deliver in the strategic imperatives that drive shareholder value.

So Delphi has a lot to be excited about, and I'm extremely proud of our continued strong results. It's a testament to the focus that Delphi has on technologies that our customers want and the markets are demanding. And with that, I'll turn the call over to Kevin.

Thank you, Rod. Good morning everyone. Let me start by thanking Rod for his dedication and commitment to Delphi. Rod has led the Company through a successful transformation and has really positioned the Company as an industry leader. Under his leadership, Delphi has established a track record of strong execution for our customers and tremendous value-creation for it's shareholders.

We're confident we have the right strategy, the right management team, and the right execution formula to build on our accomplishments and drive continued success. We've been very fortunate to have such a great leader, and I'm honored to succeed Rod as Delphi's next CEO.

So, as you can see on slide 7, our priorities for this year remain unchanged. Our first is disciplined revenue growth, with a focus on continuing to diversify our mix of customers and regional revenues. Our second is to expand margins. The optimization of our operating footprint has resulted in the industries absolute best cost structure, which translates into significant operating leverage and very strong margin expansion.

Our third priority is to increase returns. We have a track record of deploying capital in a very disciplined manner. As Rod just mentioned, we returned over $1.3 billion of capital to shareholders in 2014, through both dividends and share repurchases. And our Board recently authorized a new $1.5 billion share repurchase program. During the same period, we also closed two acquisitions. In summary, we remain intensely focused on the priorities that will continue to drive increased shareholder value.

Now turning to slide 8. We booked $7.5 billion of new business in the fourth quarter, bringing the year-to-date total to over $25 billion. In January of this year, we experienced very strong bookings, totaling almost $3 billion, reflecting the slippage of select bookings out of the fourth quarter in to the first quarter of this year.

Awards during the fourth quarter included the Toyota ECU award within the Powertrain segment, a Conquest-Daimler wiring award, as well as an active safety award including a domain controller with a large European OEM, to name just a few. We also had a very balanced mix of regional bookings supporting our revenue diversification goals.

Slide 9 provides a snapshot of our fourth quarter results. As Rod mentioned, revenue was up approximately 3%, two points over market. Operating margins expanded 120 basis points to a record 12.5%, representing 16% EBITDA margins. And earnings per share increased almost 18% to $1.32.

Slide 10 covers our full-year results. Revenues increased roughly 4%, to over $17 billion. Operating margins expanded 70 basis points to 11.9%, bringing EBITDA margins to 15.3% for the full year. Earnings per share increased 16%, to $5.09. And operating cash flow totalled over $2.1 billion.

Moving to slide 11. As we've discussed many times before, the leverage in our operating model efficiently converts earnings into cash flow that can be deployed to drive shareholder value. For example, we used the $2.1 billion in operating cash flow we generated during 2014, as well as balance sheet cash, to fund just over $850 million of CapEx, pay over $300 billion in dividends, repurchase more than one billion of stock, and fund two acquisitions with purchase prices totaling roughly $350 million.

We remain committed to executing a very disciplined and balanced capital allocation plan that continues to drive shareholder value. So with that, I'll turn the call over to Mark to cover the numbers in more detail. Mark?

Thanks, Kevin, and good morning everyone. I will cover the fourth quarter of full year in greater detail and provide our view on 2015. Consistent with prior calls, today's review of our actual and forecasted financials exclude our structuring and special items. The reconciliation between GAAP and non-GAAP is included at the back of this presentation and the press release.

Slide 13 marks our fourth quarter revenue. Revenue was $4.2 billion with volume growth offset by price and currency effects. In Europe, strong Powertrain volume growth was more than offset by the timing of the roll-off and roll-on of programs in our electrical architecture business.

North America adjusted revenue increased roughly 7% due principally to electrical architecture and thermal growth. Growth in Asia remained strong at over 10%, driven by China and share gains across all segments. South America revenue declined on continued economic weakness in the region. Despite some regional headwinds, Delphi's growth-over-market accelerated through the year, to 2% above market in the fourth quarter.

Slide 14 marks the year-over-year increase of 10% in operating income. Operating income margins expanded 120 basis points to a record 12.5% on strong performance and flow-through on volume, partially offset by price.

Slide 15 covers our segments. As forecasted, electrical architecture's adjusted revenue increased 1.3% with strong growth in North America and Asia. Powertrain launches of new diesel and GDI programs drove nearly 6% above market growth. Electronics and safety was down slightly with strong active safety growth more than offset by the previously discussed rationalization of reception systems and [mechtronics].

Thermal grew 6% with above market growth in all regions. All segments expanded margins in the quarter. Powertrain margins expanded 220 basis points on strong performance and volume leverage, E&S margins expanded 260 basis points on improved performance and thermal margins increased 130 basis points.

Turning to slide 16, earnings per share increased 18% due to strong operating and earnings growth, and to a lesser extent, share repurchases. The tax rate for the quarter was approximately 15%.

Slide 17 marks our full-year revenue. In 2014, adjusted revenue increased 4% on volume growth of 5%, partially offset by price reductions. Growth accelerated through the year to approximately 2% over market in the second half. Regionally, revenues in North America and Asia remain strong, and grew at 7% and 11%, respectively. Europe revenues were flat reflecting weak underlying vehicle production and program timing.

Slide 18 marks the year-over-year increase of over 9% in operating income. OI margins expanded 70 basis points to a record 11.9% on strong performance and flow-through on volume growth.

Slide 19 shows our full-year segment results. Electrical architecture and thermal segments delivered the strongest growth and exceeded market growth by 2% and 4%, respectively. Powertrain grew 2.5% and growth accelerated through the year to 5% over market in the second half on new product launches. Electronics and safety revenue was up 1% with strong growth in active safety in Asia, offset by previously mentioned product rationalization. As with the quarter, operating margins expanded across all segments. E&A margins increased 50 basis points, Powertrain 80, and E&S and thermal 90.

Turning to slide 20, earnings per share increased 16% due primarily to strong operating margins growth -- operating earnings growth and share repurchases.

Slide 21 provides our full year guidance assumptions. We expect global vehicle production growth of 1% to 2%. By region, we assume 3% growth in North America. We expect vehicle production in Europe to be flat to 1%. In China we expect 7%, and in South America we're forecasting production to be flat.

Our guidance assumes the1.20 euro rate. In light of euro volatility and as a reminder, for every penny change we estimate around $50 million annualized revenue impact which would flow to OI at 10% to 12%. We expect lower commodity prices to offset euro headwinds at today's rate.

Our full year 2015 guidance is on slide 22. On the right, we have our 2015 guidance, at projected foreign exchange rates, including the euro at 1.20. We expect revenues of $17.1 billion to $17.5 billion. A 6% adjusted growth rate and 4% over market. We forecast growth to accelerate through the year on higher industry growth and new product launches.

We project growth to increase from 3% over market in the first quarter, to almost 6% over market in the fourth quarter. We expect OI growth of 11% ex currency and a 12.4% margin at midpoint, unchanged from previous guidance. We increased our EPS outlook to 535 to 565 to reflect lower share count, which is growth of 14% ex currency to midpoint.

On slide 23, we have first quarter 2015 guidance. On the right, we have our guidance of projected currency rates, including the euro at 1.20. We expect first quarter revenues of $4.15 billion to $4.25 billion. Adjusted growth of 4%, or 3% over market. We expect operating income between $470 million to $500 million and 30 basis point margin expansion at midpoint. We project EPS to be in the range of $1.15 to $1.30, a growth rate of 8%, excluding currency.

So wrapping up, it was a record quarter and year for Delphi, and we expect to see a continued accelerating of growth over market through calendar year 2015. Crystal, at this time we would like to open up the call to questions.

Thank you.

(Operator Instructions)

Your first question comes from the line of Rod Lache with Deutsche Bank.

Hello?

Good morning, Rod.

Good morning, Rod.

A couple questions. One is, could you maybe comment on what the pace of bookings would have been on a constant currency basis? And any thoughts on what that might imply for the pace of growth for each of the divisions going forward?

I think, Rod, on an absolute basis, I don't have it on a division by division. But year over year, you look at what we booked in 2014. There's roughly a half of a $500 million headwind, as it relates to currency, in year-over-year comparison.

And in terms of your margin targets, it looks like you had a big uptick in profitability in a few places. E&S actually did it at 16.9% EBITDA margin in the fourth quarter, and your target was 16% by 2016. Powertrain was 17.8% EBITDA, and I think LC had a target of 16% by 2016. I was just wondering if you could give us some color on whether there's anything unusual in any of these divisions, and whether we should be thinking that the incrementals start to slow at some point here for these businesses.

Listen, it's Kevin, and Mark, you can certainly comment. There's nothing unusual with respect to the operating margins in any of the segments. I think it's a result of solid revenue growth and strong operating performance. I think as we look forward, we more than likely have to revisit our operating margin targets in some of those selective divisions and evaluate whether we need to move them up.

And just lastly, I was hoping you could give us some color on cash inflows and outflows, non-operating ones for 2015. It looks like you're -- the pace of buybacks accelerated. Should we be extrapolating from that? And any updated thoughts on the sale of thermal, in terms of range evaluations or timing?

With respect to capital allocation we'll continue to be opportunistic as it really is relates to share repurchases. There were some times during the fourth quarter where we did see weakness in stock price, and we used that as an opportunity to repurchase incremental shares. As we said before, our priority to the extent we can find value accretive M&A opportunities is to acquire strong businesses in the electrical architecture Powertrain and E&S space.

We have a fairly strong backlog and a lot of opportunities that we're currently evaluating that could effect, somewhat, the pace of share repurchases in 2015, but we'll see how that plays out. As it relates to your last question about thermal, again, we're not going to comment on market rumors about any of our businesses.

Okay, right. Thank you.

Your next question comes from the line of Brian Johnson with Barclays.

Good morning, Brian.

Two questions: one around cadence and the other around EA midterm. Around the cadence, you talked about the 3% over organic first quarter and then accelerating to the year. Could you give us a sense of how that plays out across the business units, and in particular are there program launches or regulatory timelines we should keep focused on to see if that second-half reflection is on track?

Yes, Brian, for the business in total -- this is Mark. As mentioned, we're going to be about 3% over market in the first quarter. And we expect to be about double that, relative to market, in the fourth quarter. You'll see very strong growth through the year, relative to market, in Powertrain, where it goes from roughly 5%, again to roughly double that by the end of the year. And then at E&S, were goes from roughly at market to high single-digits by the end of the year, relative to market.

E/EA, which has a large program rolling off at the end of this year, the end of 2014 and beginning of 2015. It picks back up, relative to market, 2% to 3% over market, through the rest of the year. Those are the big moves.

Yes. So if I can augment that, you'll see stable growth in E/EA roughly at market for the first couple quarters, accelerating a couple points over market in the back half. On specific programs, you'll see a strong ramp-up in E&S beginning in Q3 related to continued growth in active safety.

Our outlook for the year is roughly 50% year-over-year growth in the active safety business. So we're seeing tremendous acceleration there, as well as the roll-on of some infotainment programs with VW Chrysler. On the Powertrain side, that growth is primarily going to be driven by the roll-on of some light-duty diesel programs, with our continued ramp-up of light-duty diesel programs with VW, as well as the launch of some GDi programs.

And in E/EA, it looks like about 2% organic growth. To what extent is that driven by the roll-off you talked about? And is that Mechatronic or is that lawyering businesses you might have like [multiple speakers]. And then secondly, how does that play out over time?

The E/EA business, as you know historically over the last couple years, it has been a very strong growth platform. Over the last couple quarters and into the first two quarters of 2015, we're effectively seeing slower growth as a result of the roll-off of programs in Europe, principally price-related and margin-related. So improving, quite frankly program mix, and you'll see the acceleration of growth, as Mark said, in the back half of the year.

Longer-term, as you see more vehicle electrification, we expect this to be a business that grows a solid two, three, four points over market. The Mechatronics business that you're referring to is in our E&S segment, the electronics and safety segment. As Mark mentioned, that was a headwind during calendar year 2014, and will be a bit of headwind during the calendar year 2015. But we're still projecting very strong growth in E&S, principally in the back half of this year.

Okay, thank you.

Your next question comes from the line of John Murphy with Bank of America Merrill Lynch.

Congratulations on an unbelievably fantastic run. Just a first question, here on the Powertrain and E&S segments, it sounds like there's a real step-function improvement in the margins, in your expectation going forward. What changed there? I understand there's execution, but this is kind of a big step forward, and it sounds like you're thinking about them differently, going forward. What's changed?

Well, it's Kevin, and Rod, you should chime in. On the E&S side, we've talked about the transitioning of that business from a hardware business to a software business. As a result, volume flow-through is very, very strong. Our margin on volume flow-through is very, very strong. And return on capital in that business is very strong.

As it relates to Powertrain, it's really the benefit of two things. As you know, we've been focused on our cost structure and restructuring and repositioning our footprint in that business, as well as getting the benefit of volume growth on that lower cost structure.

Yes, nothing has really changed. It's just playing out exactly the way we said it would. If you think about the E&S rotation, the revenue has been flat the past six quarters. But we told you we were reshaping the DNA of the business. Moving to more software, moving away from being a high capital kind of utilization asset, where it's more intellectual, more engineering.

And I've said it before and I'll say it again, that the return of invested capital in that business would be breathtaking. You're just seeing it play out. So nothing's new, other than the traction of the plan that we've put in place, and that the team is executing flawlessly.

As we think about those margins going forward though, the standard ceilings that we might think about in the automotive business, are you guys going to be breaking through sort of those asset and product limits? Could this be something that has even more significant margin expansion and great -- and much, much greater returns than sort of the mid 20% that we've been talking about?

(laughter) I'll tell you one thing, and I'll leave this with you and his team is focused on it, is that we're never satisfied with where we are. And we've been quite clear from the day that we set sail with the IPO on what our margin expansion would be. We are ahead of schedule, or slightly ahead of schedule to say the least. And I guess we'll talk more about maybe where the -- what I'll call the height of these margins will be. I don't think we're there yet.

But what I'm more excited about is the return on invested capital. I think that is the metric we're extremely focused on, and not the margins as much. Obviously, you get great explosion. You get margin expansion, as well as your EBITDA or OI expansion, and ultimately your return on invested capital explodes. But Kevin's been pretty good at making these predictions at the investor show every year. So I'm going to look forward to, as a retiree, tuning into that one and see what he says in a couple months.

[ Laughter ] [ Indiscernible - multiple speakers ] On a curious note, as well, I think what Rod has done a great job with the team is having us focused on developing products that our customers really need and want. So really having a great value proposition to our customer, and at the same time working day-to-day to execute and reduce our overall cost structure. So balancing the strategic with the tactical and in that sort of scenario, I'm not sure that there's an absolute cap on what margins can or cannot be.

Okay, that's actually very exciting and interesting. A second question: I know you can't comment on asset sales or any specifics that have been reported in the press, but if we think about the proceeds that you could potentially get from any asset sale, whatever it might be. How do we think about the funnel for those proceeds running through sort of your capital allocation strategy? Could they be more directly funneled into share buybacks? Or would they just run through the similar steps of the funnel?

Listen, I think the answer to that is it all depends. As we said, from a priority standpoint, ideally we'd like to find value-accretive transactions. So that would be the primary focus area to the extent we can't, as we've said in the past, we'd return that incremental cash to shareholders, just as we have done historically.

And then just on the raw material benefits offsetting the ForEx headwinds. It's curious because, we've heard this from a couple other suppliers, as well. But we had thought that a lot of the raw material fluctuations had been worked out with the automakers to be either-stair stepped in, or indexed, or pass-throughs, and just curious, where you're seeing the real benefit from raw material cost? Is this on copper? Just trying to understand there.

Yes, John, this is Mark Murphy. You are correct. Most of our copper doesn't affect our OI, and that it's escalated with customers by contract. There is a portion, small portion, that we hedge. But as we work through the year, it will provide some cost benefit.

In addition, we do expect oil, both through transportation costs and through resin costs, to provide us some benefit. So right now, we see that benefit being about what the current euro rate headwinds are, relative to our guidance.

Okay. Just one point of clarification. I think you mentioned that you said active safety would be up 50%, year-over-year. Just want to make sure I heard that correctly, and off of what base in 2014?

Our outlook for active safety would be growth of roughly 50%, and I think that's off of a baseline. We did roughly $160 million in revenues in 2014.

Okay, great. Thank you very much.

Your next question comes from the line of Patrick Archambault with Goldman Sachs.

Good morning. Yes, I do also want to congratulate Rod on what's been, probably one of the most amazing corporate transitions we've, at least, had the privilege of following, so thanks for that.

Thank you.

I actually wanted to follow up on that last question, not to kind of overdo it on $160 million in sales in active safety, but I am kind of curious. If we could just talk a little bit about the products that you're seeing the highest take rate on in the shorter-term, and if you want to add a little bit of color of how that changes over the next year or two, as we look out on that $1.6 billion of backlog, that would be helpful, as well.

For us, when we talk about active safety product areas, the primary area for us are things like visioning and radar algorithms. That's a primary product area. That's where we're will continue to see tremendous growth.

In addition, we're seeing a fair amount of activity and have in fact, booked some business. I mentioned in my prepared comments, with respect to the multi-domain controllers, which is the real enabler to have increased levels of active safety and automated driving. Those would be the three primary product areas driving growth.

Very interesting stuff. Just on the M&A piece, I know this is something you talk about periodically but, can you give us a sense of what the market is like? And just remind us of the asset priorities, in terms of what you guys are thinking about.

There is a lot of -- consistent with what we saw late last year, there's a fair amount of activity. It ranges from relatively small technology investments that are primarily in and around software, in and around our E&S and Powertrain divisions. To opportunities that are more traditional than any opportunities that augment or strengthen the existing product portfolios that we have in E/EA, and Powertrain, and in E&S.

Okay, then one final one from me. Just on the slippage of the backlog, you mentioned that there were a couple items that you originally anticipated falling into 2014, that got booked in that very large number, in the first quarter. Is this something that is just maybe, specific to you guys? Or is there kind of -- I know at various times, we've seen OEMs sort of push back on programs and delay certain things. So is this just kind of a minor shift, or is it symptomatic of delays or anything more important?

I would not read anything into it other than just the natural ebb and flow of things. Sometimes, particularly at the end of the year, it's just hard to get some of the things closed off. You're in the final throes of negotiations or specification understandings, et cetera. And sometimes things move around.

So I wouldn't read anything into it other than it was just one of those months and years where things went from one quarter to another quarter, and that's about it. Nothing special.

Alright. Thanks for taking my questions, guys.

Be good, be safe.

Your next question comes from the line of Ryan Brinkman with JPMorgan.

Hi, this is [Samit Kiehl] on behalf of Ryan. First of all, I wanted to get your thoughts on the industry. Looking at slide 21, where you lay out your industry growth assumptions for next year. I just wanted to get your thoughts on what are the upside and the downside risks you see in the industry.

And we've been hearing from a few suppliers about the potential of Europe tracking [petal as illustrations] are up like 5% already in this year. So maybe just give us your thoughts on where do you see the biggest risk there.

Listen, it's early February. So I'd say that it's probably too early to call. We feel confident with respect to our macro and industry assumptions that we've laid out now. There's a possibility that you see a stronger Europe, but with what's going on in Eastern Europe right now, I would probably handicap that as low probability.

South America continues to be very weak. We expected it to continue to be very weak. At some point it needs to hit bottom and improve. But based on what we're looking at today, we don't see that happening.

I guess, if you were to look at potential upside, and I guess it's corollary to what Mark was talking about, in terms of the price of oil, and the impact on raw material prices. It's potentially mixed in North America. More as SUVs, more trucks, as a percent of the total vehicle production, which we have higher vehicle content on. So that would drive incremental revenue growth if we saw that mix improvement.

Great, that's helpful. And then on your 2014 operating margins came in at 11.9%, and when I go back and look at what you are guiding to, at the same time last year, I think the range was 11.3% to 11.6%. So clearly outperformed even the high-end of that guidance. So maybe, what really drove that upside and when I look at 2015 guidance on margins, what is the sort of potential there to outperform that range, as well?

We delivered on all of our performance initiatives, had strong, very solid execution. And the benefit of that solid execution, as well as some -- the benefit of some historical restructuring programs. I think to the extent there's upside in the 2015 guidance, it would be driven by potentially volume, to the extent we see it, volume and mix. As well as continued solid execution.

Okay. Great. And lastly, just more on the housekeeping side, given that you have a low-cost footprint, is it in transaction plans exposure to keep in mind, given what's happened to currencies in the last quarter?

We generally -- we hedge our transactional exposure to the extent they're material. And that's, right now we're not accounting for any upside or downside, relative to our guidance on that.

And there shouldn't be a big impact on that. There shouldn't be an impact, one way or the other.

Your next question comes from the line of David Lim with Wells Fargo Security.

I don't mean to beat at a dead horse here, but obviously E&S and Powertrain margins are really impressive. Just wondering, can you provide additional color? Was that driven by some product mix, some obviously volume and restructuring, I was just wondering if you could box that a little more for us?

It's really across both those divisions. I'll give you big buckets. It really wasn't product mix as much is it was raw material performance, as well as very strong manufacturing performance. Those were the two big buckets for each.

And then when we look at active safety and infotainment, have you guys realized any kind of unexpected increase in take rates in the quarter?

Have we seen an increase in take rates in the quarter?

Yes. Like unexpected.

I'm not sure if it's unexpected, but we have seen an acceleration in growth rate, with respect to active safety revenue. So part of that would be driven by take rates.

And then finally on the 1.20 euro, it is trending lower. What was the thought process there of maintaining that guide versus maybe going to maybe a 1.15 or 1.10?

You know there's been a lot of volatility with respect to FX rates. We have seen a lot of movement over a very short period of time. We gave guidance at 1.20 a couple weeks ago when the euro was at 1.20. We thought it would be the least confusing, and most clear, to keep the assumption at that rate, and make sure that we continue to communicate to people the impact of any sort of change.

Your next question comes from the line of Ravi Shanker with Morgan Stanley.

Just following up on Powertrain. You said that growth's going to actually tumble 5% to about 10% by the end of this year. Which of those two numbers is more reflective of what the medium- to long-term growth rate would be like for the segment?

Powertrain's a business that, when you look at content per vehicle growth, given the demand for fuel-efficiency in CO2 emissions, should be higher growth. As we said last year on Investor Day, our outlook for Powertrain is, it's a business that should grow over the long-term four or five or six points over underlying vehicle production. Our view has not changed.

And just switching to something you've discussed before, but if you look at your base, strong margin traction, and also your net business bookings, is it topping off or plateauing at a certain level over last 2 or 3 years? Can you remind us again on any updated thoughts on growth versus margins, and any potential tradeoffs, maybe that you're thinking of for those two things?

As Rod mentioned, our primary focus is return on capital. So we're constantly evaluating the tradeoff between revenue growth and margin and the capital we need to deploy to get that growth and margin dollar. So that is our primary -- the primary metric that we use, Ravi, in each unique situation. We evaluate it. Our primary objective is to drive increased return on capital.

And Ravi, I don't think you have to make those tradeoffs. I think you can have them both, and we've proven that. And we're going to continue to prove that.

If I can follow-up one thing you said in response to the last question. On euro, if that goes from 1.20 to 1.15, do expect that to hit the bottom line? Or do you see offsets, either from transaction or commodity, that will be incremental and maybe a cushion some of that blow?

Right now, Ravi, we see offsets to that and through commodities.

Understood. And finally, Rod? It's hard to imagine you as a retiree, but good luck on your retirement.

Thank you, bud. You can come rock in the chair with me some time.

Your next question comes from the line of David Leiker with Baird.

I guess two things I wanted to walk through. First of all on active safety side, when does that becomes large enough that, from a margin perspective, it starts to move the needle, either up or down?

As we said, today we're investing in it. And at $160 million in revenue, it's actually a drag on margins. Our guidance has been effectively -- once that business doubles, which it will do in a short period of time, we're effectively margin neutral. And I think out beyond that, you reach a point where, if growth continues, it'll be a big contributor to overall margin within the E&S division.

I think also important to say at E&S, beginning in Q3 of this year, we're going to see a significant ramp-up in infotainment revenues. Over the last 3 years, we've booked north of $2 billion in infotainment bookings, and that is going to begin to roll-on. And that will be a significant contributor to revenue growth as well as margin expansion.

Great. As we look at what you're bidding activity -- what you're pursuing today, is there any characterization you can give in terms of the number of opportunities, the size of opportunities, when you look what might be launching 2 or 3 years from now, is it a richer environment than what we've come out of?

The overall pool, or funnel, is bigger this year than what it was last year. And our expectations heading into 2015 is that bookings would be roughly $27 billion. That can be effected by FX rates and timing, as Rod talked about earlier. But our outlook is more optimistic this year than what it was last year.

Your next question comes from the line of Itay Michaeli with Citi.

Just on the bookings, are you prepared to update us on the three-year backlog? I'm not sure if you have those in front, versus what you had a year ago?

We'll do that at Investor Day.

And then on margins, if I look at just the gross incremental margin in 2014, I think it's once again, about 33%. You know, in 2015 you have a lot of new business. Does that mean that we should expect a little bit of a lower increment? Or do you think you can maintain that 30% plus growth incremental in 2015?

Yes, Itay, I think you can assume similar rates to what we've been seeing between 20 and 30.

And then, I noticed too, that the net performance other of $61 million in the quarter was a nice acceleration for you, I think probably the highest quarter of the year. Any seasonality there? Or is a sort of a good number for us to work with in 2015, as you deliver additional efficiencies?

I think you've got to keep in mind, in the fourth quarter, we tend to have more engineering rebuilds. So from a calendarization standpoint, as you look at it, fourth quarter relative to other quarters during a given year, we tend to have a higher mix of engineering rebuilds. But other than that, on a year-over-year basis, it's as we said, it's volume and solid operating performance.

Just lastly on the commodity cost, I think you mentioned before, your oil is giving you a bit of tailwind. Any way to get a sensitivity, roughly, for 5% or 10%? I think in my numbers, we may have maybe $20 million for every 10%. Not sure if that's sort of a ballpark to think about the earnings impact from that change in oil as we model some of the FX headwinds out there?

For oil, we're looking at roughly $3 to $5 or so, per $10 of barrel of oil change. So ballpark, that's about it.

So about 5 million marines on each [tower], up or down.

Great. That's very helpful. And Rod? Congratulations on all your accomplishments. It's been a pleasure working with you and I look forward to staying in touch.

Thank you, be good.

Your next question comes from the line of Dan Galves with Credit Suisse.

Thanks for the color on the January bookings. That was really helpful. I was interested in your comment that you won a Toyota Powertrain contract in January. Could you just remind us of your is historical relationship with Toyota? Any color on kind of what region this was in? And does this represent any kind of a breakthrough with this customer?

The Toyota, and I'll let Rod comment on the history of this. The Toyota award was actually in the fourth quarter. Just to make sure I clarify things. Those were fourth quarter awards.

Okay. Got it.

Our relationship with Toyota, which actually is our largest Japanese OEs, is primary focused here in North America. It's been a great relationship. However, I've been pretty clear in the past. When you look at our penetration with the Japanese OEs, somewhere probably in the $500 million to $700 million range total of our total revenue per year, so it's quite small when you consider the amount of cars that they build. But obviously they've got a fleet of suppliers that do very similar things as us, and they've got ownership in those suppliers and we haven't had a lot of opportunity.

That being said, there's been more technical discussions over the past year, year and a half. I wouldn't exactly call it super traction, but I would call it encouraging. And there's nothing in our forecast that we predict a radical change, where we would begin to book more. But I would say that the environment is better for us than it's ever been, and we'll see how it plays itself out.

Just on the cash return side, you returned well over 100% of free cash flow in 2014. Can you just remind us of where you are, versus your leverage targets, and whether there's potential to continue to return more than 100%?

We're under one on a debt to EBITDA, we're at about 0.6 net debt to EBITDA, and we do have additional capacity. As you know, we just recently were upgraded to BBB last quarter, so we have capacity for additional leverage.

Okay. So 1 times is your target -- where you feel comfortable?

What we said the past is kind of 1.5 times debt to EBITDA. There will be points in time where it dips below and moves up and we balance the opportunity set for M&A with share repurchase.

Your next question comes from the line of Joe Spak with RBC Capital Markets.

Just maybe one bigger picture question. I mean, you talked a little bit about the move from hardware to software and it seems like a lot of suppliers are increasingly talking about that, and almost building up an army of engineers, as software becomes more important and making it a competitive selling point.

I just wanted to get your view, broadly, on how the industry is evolving there, particularly as it pertains to the segments you participate in. And also how you think you are positioned on that engineering front, and whether you need to make incremental investment there?

I mean, the industry continues to evolve in terms of sophistication of the automobile. Particularly in the space that we staked out, which is safe green and connect, and so, I guess, in my mind and the way we've outlined to you guys, our journey and our story and our value proposition, there is nothing new here.

And so the -- in all three spaces, the whole focus is to get the vehicle cleaner, in terms of environmental impact. Get the vehicle safer, and in doing that, that's the visioning and sensing systems that we've always had. As you remember, Delphi at one point time was in ride down safety products like airbags and belts, et cetera. And we exited those, and we stayed focused on visioning and sensing systems because we felt that was the future.

And so from an investment perspective, we've been pretty clear that our investment both technically from an engineering base, is somewhere in the -- I don't know, 7% to 8% range, per year. And capital is in the 3.5% to 4.5% range. So your question about, do we see as having to invest more, no.

It's been a steady cadence, and that's what we're going to continue to do. And so it's actually -- I'm quite proud that it's played out at exactly the way we've called it. And we're perfectly positioned to captured this next wave of technology advancement in the vehicle, in safe green and connectivities. It's great. We're perfectly positioned for it.

You talked, more housekeeping, you talked a little bit about some of the cross rates. Should we not expect a benefit from your mexican manufacturing footprint?

There may be a small benefit on that through the year. A good part of that is hedged, so as those hedges are reset and we work through the year, that could be additional benefit.

Okay great. Thanks a lot and congrats again, Rodney.

Thank you.

We do have time for one final question. Your last question comes from the line of Emmanuel Rosner with CLSA.

Hi, good morning, everybody, and thank you for squeezing me in. Just trying to put a final point on Europe gross. So this quarter, we saw again, Europe declined a little bit more than the production. Part of it, you mentioned, was roll-off of some E/EA business. It which quarter, or at what point in time, can we expect Delphi revenues to grow in line to faster than the industry, specifically in Europe?

On E/EA, we grew faster than the market in fourth, so we did not grow faster than the market in Europe with E/EA. We have some new programs rolling on in the wire harness business, and expect to pick up, and grow faster than market in the back half of the year in E/EA in Europe.

And I think what's -- if I can chime in. I think with respect to total Delphi, when you look at it during calendar year 2015, growth versus market will effectively be in line with market in Q1 and you'll see an acceleration of growth versus market through Q2, Q3, and Q4.

And that includes in Europe, as well?

That is Europe, specifically.

That was Europe specifically. Okay, perfect. And then, just one point about China. I think that obviously a very strong part of your story, your presence there. Can you just give us an update, or size up your revenue there in 2014, and the sort of growth rate that you expect this year in China specifically?

Our China business is well over $3 billion, and from an overall growth rate, as we look at 2015, overall growth rate is going to continue to be in the double-digit range.

Back to the thermal business, I completely appreciate and understand no comments on asset sales, just what is your official stance in your thermal business right now? Is it officially, evaluating alternatives strategically? Or is it core? How do you think about the business?

It's as we've said in the past. It's an important business. It's a business that we've seen very solid revenue growth during calendar year 2014 and will continue to see it in 2015.

We've seen margin expansion on a year-over-year basis, and we're focused on continuing to improve it. We will achieve 10% EBITDA margins in 2016, and you will continue to see expansion in margin strength in 2015. That's our official stance, which is no different than what we said previously.

Thank you for participating in today's calls. We also wanted to mention our Delphi Investor Day, which will be held April 2 in the afternoon, in New York City. We hope you can join us. As always, we will be available for any additional questions you may have after the call today. Thank you.

That does conclude today's Delphi's fourth-quarter 2014 earnings release conference call. Thank you for joining. You may now disconnect.