Aptiv PLC (APTV) 2015 Q4 法說會逐字稿

Good morning. My name is Maria, and I will be your conference facilitator. At this time, I would like to welcome everyone to Delphi's fourth-quarter 2015 earnings conference call.

(Operator Instructions)

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

Thank you, Maria.

Good morning, and thank you for joining Delphi's fourth-quarter earnings call. To follow along with today's presentation, our slides can be found at Delphi.com, under investor presentations.

Please see slide 2 for a disclosure on our forward-looking statements, which do reflect Delphi's current view of future financial performance that can, and may materially, be different from our actual performance.

Joining us today is Kevin Clark, Delphi's CEO and President; and Mark Murphy, our CFO. As seen on slide 3, Kevin will provide an operations update, as well as an overview of the quarter, and then Mark will cover the financial results, and the 2000 (sic - see presentation slides, "2016") outlook in more detail.

With that, I'd like to turn the call over to Kevin Clark.

Thanks, Elena. Good morning, everybody; thanks for joining us. Before Mark gets into our financial results, I'd like to provide some color on the fourth quarter and 2015 full year, as well as our outlook for 2016.

Let's begin with highlights on slide 5. In summary, we had another good quarter, which was a really nice finish to a challenging year in which we had very strong operating performance. Organic revenue growth was a robust 11% for the quarter and 6% for the full year, driven by just under 20% growth in China and roughly 13% growth in our electrical architecture, and electronics and safety segments, during the quarter.

Operating income totaled a record $503 million. That was above our guidance. However, operating margins lagged the prior year, primarily the result of the sequential whipsaw in China volumes.

You probably recall that in response to the third-quarter slowdown in China, we actually reduced headcount by about 4,000 employees, and then had to add back over 6,000 employees to meet the 40% sequential increase in volumes that we experienced in the fourth quarter. While our growth over market inflected in the quarter due to new launch activity, our outlook and our performance also reflected higher manufacturing costs, as a result of this increase in launch activity. To put it in perspective, our operating team did an outstanding job, executing on a record 75 major new program launches during the quarter, and roughly 150 for the full year.

Lastly, Mark will take you through the details, but FX was a bigger impact to margins in the quarter, especially at our E&S segment. For the full year, operating income totaled almost $2 billion, representing a 60-basis-point increase in operating margins. New business bookings exceeded 2014 levels, reaching a record $26 billion.

During the year, we further optimized our manufacturing footprint, improving the flexibility of our cost structure, and we generated $1.7 billion of cash flow from operations and returned roughly $1.5 billion to shareholders through share repurchases and dividends throughout the year. While at the same time making significant progress realigning our product portfolio through accretive acquisitions and investments that strengthen our competitive position, while exiting businesses that did not fit with our strategic and our financial objectives.

Slide 6 covers 2015 new business bookings in more detail, which, as I mentioned, totaled over $26 billion a year. We actually totaled over $4 billion for the fourth quarter.

During the quarter, we had a number of important customer bookings, as well as several conquest wins, including a GDI win with a major North American customer, electrical architecture awards with both Toyota and PSA, and the second wave multi-domain controller award with a European OE. We continue to be successful retaining replacement business with our existing customers, as reflected by our win rate on incumbent business of almost 90%.

The right side of the chart reflects the balanced geographic mix of our bookings, which will drive strong revenue growth over the next few years. And as important, the increased geographic and customer diversity ensures that we are not dependent on any one region, segment or customer for growth. Given our focus on innovation, our portfolio of safe, green and connected technology solutions, and our track record of flawless execution, we continue to be an important strategic partner for our customers.

Slide 7 outlines the view of the macro environment in 2016. Beginning with our view of the tailwinds on the left, regulatory trends and consumer demands continue to influence fuel economy, emissions and vehicle safety standards, driving content per vehicle growth. As a result, we see strong demand for our safe, green and connected technologies.

We continue to expect solid growth in global vehicle production, primarily driven by strong growth in China, North America, and western Europe. As we sit here today, we do not expect foreign exchange rates to be as significant of a headwind as they were in 2015. Additionally, customer price-downs remain relatively stable.

However, we are anticipating some headwinds, as detailed on the right side of the slide, including continued softness in vehicle production in both South America and in eastern Europe, and ongoing weakness in the global commercial vehicle market. As such, we will continue to aggressively optimize our cost structure. The flexibility of our cost structure, and ability to execute in a challenging macro environment, gives us confidence we will continue to deliver on both our short-, as well as our long-term, financial commitments.

Turning to slide 8, our strong bookings growth has led to a significant increase in major program launches, which in turn, has accelerated revenue growth across each of our segments. To put this into perspective, major launches were up five-fold in the fourth quarter of 2015, and two-fold for the full year. We expect that trend to continue, as launches more than double in the first quarter of 2016.

These major launches require additional manufacturing resources, as we trend to normalized run rates over the next couple quarters, which translates into a steady increase in margins over the course of the year. We remain on track to deliver both 2016 and 2017 margin targets.

Turning to slide 9, last month we made our 20th appearance at the Consumer Electronics Show, which seems to have a larger automotive presence each year. CES is a fantastic venue to showcase a few of our advanced technologies that will create a safer, more connected vehicle, and ultimately drive significant revenue and earnings growth.

Our customers, our suppliers and investors had the chance to travel the streets of Vegas in our two automated vehicles, and experience firsthand some of our newer V2Everything technologies. We returned from the show optimistic about the tremendous opportunities in active safety, automated driving, and vehicle connectivity, which is further validated by roughly $1.2 billion of active safety and $2 billion of infotainment bookings during 2015.

Lastly, we are encouraged by the outlook for vehicle electrification. We're seeing accelerated quote activity and revenue growth, driven by the success of the hybrid vehicle technologies like 48 Volt, where content is more than 4 times our standard powertrain content.

Our capital allocation strategy, outlined on slide 10, remains an important lever to enhance shareholder value. We expect CapEx to total roughly $800 million in 2016, supporting new program launches in North America, Europe and China, investments in information systems, and increased efficiency and productivity, and supporting our ongoing footprint rotation to best-cost countries.

We also believe an attractive dividend is another means of enhancing shareholder returns. As a reflection of our confidence in our underlying Business, last month we increased our dividend 16% to $1.16 per share, representing a dividend yield of 1.9%.

Lastly, we remain focused on executing value-enhancing portfolio modifications. As such, we intend to deploy roughly half of our operating cash flow towards value-accretive strategic acquisitions and investments, as well as share repurchases.

On the M&A front, we hope to acquire or make investments in businesses and technologies that further strengthen our competitive position, drive profitable growth, and are accretive to shareholder value. To the extent we have excess cash, we have a track record of returning it to shareholders via share repurchases, as evidenced by the roughly $1.2 billion in repurchases we did last year.

Our current 2016 guidance assumes $400 million in share repurchases. However, we have the flexibility to take advantage of dislocations in the market to ramp up the pace of our repurchase activity.

As shown on slide 11, we believe we are well positioned to deliver shareholder value in 2016. We will continue to optimize our cost structure by rotating our footprint to best-cost countries, increase the flexibility of our workforce, optimize our regional service model, and further integrate the enterprise operating system to ensure flawless execution, while both organically and through acquisitions investing in safe, green and connected technologies that address our customers' challenges, and drive accelerated revenue growth, margin expansion, and enhanced returns.

I'll now turn the call over to Mark for a more detailed look at our financial results. Mark?

Thanks, Kevin, and good morning, everyone.

I'll begin by covering our fourth-quarter and full-year 2015 performance, and then discuss our 2016 guidance. Consistent with prior calls, today's review of our actual and forecasted financials excludes restructuring and other special items, and will address the continuing operations at Delphi. The reconciliation between GAAP and non-GAAP is included at the back of this presentation and the press release.

Let me start on slide 13, with a snapshot of our fourth-quarter financial performance. As Kevin mentioned, we were pleased with our quarter results, which reflected robust revenue growth and record earnings. Revenue was up 3%, or 11% adjusted for currency and commodity effects. Operating income grew 1%, or 12% excluding currency.

Operating margin was down 20 basis points from prior year, including a negative 40-basis-point impact from foreign currency and the sale of the reception systems business. Additionally, as Kevin mentioned, our margin rate for the quarter was impacted by the 40% sequential increase in China volumes, as well as higher manufacturing and engineering spend to support major new growth program launches across all segments.

Earnings per share grew 7%. However, adjusting for the effects of currency and commodities, EPS grew 19%.

Slide 14 provides greater detail on revenue in the quarter. As you can see, currency and commodity effects were significant headwinds. However, organic growth was very strong at 11%, and 8% over market, delivering on our growth outlook from early 2015.

Regionally, Europe and Asia were exceptionally strong at 8 and 10 points over market, respectively. North America remained solid at 7%, and 5 points over market. Though our Business performed better than the market in South America, the underlying market there remains weak.

Turning to profit, slide 15 walks the fourth-quarter year-over-year change in operating income, highlighting the previously mentioned foreign exchange effects. The cost impact of the China volume recovery, as well as the investment to support new program launches, is captured in net performance. These items are expected to remain a headwind to our normal margin flow-through in the first half of 2016, and accordingly, were included in our previously communicated guidance. We are confident in our ability to expand overall margins by roughly 50 basis points in 2016.

Moving to slide 16, let's look at the performance by segment. With sales growth and operating performance, electrical architecture and powertrain expanded margins 60 basis points year over year despite additional costs resulting from the sharp recovery in China volumes.

As expected, electronics and safety growth accelerated in the quarter on new program launches. The reported E&S margin rate of 10.4% was negatively impacted 260 basis points by unfavorable foreign exchange, the impact of the reception systems divestiture, and prior-year non-recurring items. When adjusted for these items, E&S margins for the quarter were down 100 basis points on costs associated with support of new program launches.

As it relates to 2016, we expect continued strong growth from launches. Margins will expand over the course of the year, with lower volume flow-through in the first half.

Turning to slide 17, increased earnings and lower share count drove EPS growth of 7% for the period. Excluding the effects of currency and commodities, earnings per share grew 19%.

Taxes came in as expected in the quarter at 14% on an adjusted basis; 16% adjusted for the year. On a year-over-year basis, we were favorable by $0.01, however, that was offset by higher minority interest; and versus our guidance, HellermannTyton financing, which we completed in the quarter.

Moving to slide 18, our full-year results, we delivered record earnings in a challenging macro environment. In 2015, our results included unfavorable currency and commodity effects of $1.3 billion on revenue, and $178 million on operating income. Organically, revenue was up 6%, with our growth over market increasing through the year. Despite the previously mentioned headwinds, in 2015 we delivered more operating income, expanded margin 60 basis points, and grew earnings per share 16%, excluding currency and commodities.

Looking at the segments on slide 19, we delivered solid growth across all segments, with growth over market strengthening through the year. Our overall margin expansion came in as expected, and going forward, we project margin expansion to continue in line with our guidance and longer-term financial targets.

Turning to 2016, slide 20 highlights our full-year guidance assumptions -- no change from last month. We expect growth in global vehicle production of roughly 2%, reflecting 3% growth in North America, growth in Europe of 2%, a 4% increase in China, and a decline in South America of 10%. Our 2016 guidance maintains a $1.10 euro rate.

On slide 21, we reaffirm our 2016 guidance. Revenue is driven by accelerating organic growth and the full-year effect of the HellermannTyton acquisition. Operating income growth for the year is 14% at the mid-point, expanding margins roughly 50 basis points.

2016 EPS is expected to be in the range of $5.80 to $6.10 -- no change from our prior outlook. We forecast first-quarter revenue growth of 5% to 8% adjusted, with margins up slightly versus the prior year at mid-point. We expect first-quarter EPS in the range of $1.28 to $1.38, up 10% at the mid-point.

As Kevin mentioned, our guidance assumes $400 million of share buybacks in the year. We intend to be opportunistic, while remaining committed to executing a balanced and disciplined capital allocation framework.

In summary, Delphi overcame a number of headwinds, and still delivered a great year. Our 2016 outlook is balanced, and reflects our continued ability to adjust to changing market conditions.

I will now turn it over to Kevin for some final thoughts before Q&A.

Thanks, Mark.

Now summarizing on slide 22, 2015 was a record year, as Mark just said. Once again, we demonstrated our ability to deliver on our commitments, even against the backdrop of a more challenging and volatile environment. While capital markets are reflecting uncertainty in the underlying macro conditions, we are not seeing anything today that would change our assessment of the market or the guidance that we provided last month. While we're counting on a slight lift from global production in the year, if you look at the numbers, the bulk of our growth is driven by our planned new launches and increased content opportunities.

Now, having said that, we continue to actively monitor the dynamics in the industry, and plan our investments prudently. In the event conditions deteriorate, we've demonstrated several times the ability to respond quickly and surgically -- the European slowdown in 2012, as an example, where revenues declined 6% and our operating margins actually increased by 50 basis points, and the China slowdown in the third quarter of 2015, where revenues actually declined $175 million, but we were able to offset that revenue shortfall with productivity initiatives. Those are a few of the examples.

We continue to increase our flexibility and reduce our operating cost to ensure that we are positioned to mitigate unplanned headwinds. Further, our strategy for value creation remains intact. We're supporting growth where we see opportunities, and we remain disciplined in our allocation of capital.

We continue to execute on the relevant breakthrough technologies that are driving incremental growth and margin expansion in 2016 and beyond, enabling us to outperform over the long term. You can expect to see and hear more about these innovations in our long-term roadmap at our investor day coming up in London on April 13.

With that, I'll turn the call over to the operator for questions.

(Operator Instructions)

Rod Lache, Deutsche Bank.

Good morning, everybody. A couple questions. Your overall performance in Q4 was in line, but the E&S margin, specifically, looked a little bit light in the fourth quarter, and you mentioned FX headwinds. I was hoping you could elaborate on that. Also, how we should be thinking about the net performance in 2016. It sounded like it could be -- get a little bit better over the course of the year.

Mark, why don't I start at a high level and then I will turn it over to you. You can go through the numbers in more detail. I think, to Mark's point, with respect to the year over year at E&S, there's a lot of noise in the numbers that you need to make adjustments for, including the divestiture of our reception system business, as well as foreign exchange, as well as a one-time item in the fourth quarter of last year. I think those amounts total roughly 250 to 260 basis points. The balance relates really to the launch activity. The launch activity -- the significant ramp-up of launch activity that is reflected in the underlying growth rate at E&S.

As you roll out for the full year, both at E&S as well as for Delphi in total, you are going to continue to see some ongoing costs related to the China inefficiencies, as well as ramp costs into Q1 -- although at a much lower rate than what we have in the fourth quarter -- and then continue to dissipate through Q2, and be largely gone in Q3 and Q4. So, as you look at margin expansion throughout the year, both for Delphi as well as E&S, you will see a gradual margin expansion on a sequential basis.

As it relates to the FX exposure, Mark, do you want to talk about that?

Rod, we did have -- in the quarter, particularly around euro, renminbi, we had some transactional exposure, some balance sheet rebounds, which contributed several million beyond the normal operating margin flow-through rate we see in a business on FX.

And then, as Kevin mentioned, some elevated costs around launches, which we expect to have peaked in the fourth quarter, remain elevated in the first and then begin to trail off through 2016 as that business returns to more normal margins.

Okay. And then, secondly, I was hoping you could give us a couple of the elements of the bridge just to -- not for E&S specifically but for the overall Company, as we look out at Q1. Does the acquisition revenue roll through at something like a 15% margin? How should we be thinking about the FX commodities performance, as we look at Q1?

On the acquisitions, acquisition revenues for the quarter -- it's $800 million for the full year. It is about $190 million for the quarter at an OI rate that's consistent with our current corporate OI rate. You need to offset that to some extent, Rod, with the divestiture of the reception systems business. So that reduces the number by about $20 million or $25 million in the quarter, and has a small effect on OI.

I think, Rod, just walking from the $472 million last year, we've got volume and price of about 30% flowing through at normal rates. I'm talking OI. As Kevin mentioned, we've got the HellermannTyton revenue flowing through, but offset by some divestments and stranded costs there. A little bit lower flow-through than it will on a run rate basis. We have very little FX effect in the first quarter. Mid-single-digits impact. Unfavorable, but mid-single digits. Then we have what we talked about. Some of these launch costs, in China, inefficiencies on production persisting, but down from the fourth quarter. So we ran -- we will be down about $20 million lower versus what we ran in the fourth on that bucket of costs. Net performance will be close to zero.

Okay. So just to clarify the way you bridged it, $18 million to $48 million of year-over-year EBIT growth. You said 30% incremental on the organic, of around $300 million. That gives you about [$90 million] pricing consistent -- net organic growth minus pricing might be around $20 million positive? The acquisition adds $25 million, and then, did you say that the performance and commodities is kind of a push?

Yes, commodities and FX is roughly mid-single digits. Price is roughly in line with last year. On doing the walk your way, at $76 million. Volume at 30% flow-through, and then the net performance numbers we talked about.

Okay. Great. Thank you.

John Murphy, Bank of America Merrill Lynch.

Good morning, guys. Just a first question. Obviously, leverage stepped up a little bit with the HT acquisition, as expected. It looks like it's about 1.6 times on a gross basis on trailing EBITDA. For both of you, Kevin and Mark, if you think of that number. It was a step up, but it is certainly not anything that's alarming. Would you be willing to maybe take that up somewhat significantly to get a lot more aggressive on share buybacks, just given where the stock is right now? I'm just trying to understand, given opportunities to acquire your own shares or other strategic acquisitions, how far you might push that leverage ratio?

I couldn't give you an exact number with respect to the leverage ratio. As we've told you, over the -- it's our objective to remain an investment-grade company. Having said that, when you look at where our balance sheet is, you look at the cash flow generation forecast for 2016, there certainly is an opportunity to be more aggressive from a share repurchase standpoint. And, as I said in my prepared comments, to the extent there's dislocation in value, we're going to certainly accelerate share repurchases in a meaningful way.

Okay. That's helpful. Then, just a second question. Can you remind us what your commercial vehicle exposure is? It sounds like you're highlighting that as a risk, but I think it's relatively small in the grand scheme of the Company.

Is about 10% of total revenues. Our outlook for the commercial vehicle market this year is flat to down a point or two, depending on market.

And profitability would be roughly close to the corporate average, or a little bit above?

Profitability is in line with the corporate average.

Okay. And lastly, if you could -- bids that are in process right now, as we look at the potential for new business bookings in 2016 and how you think that may shape up -- is there increased activity or is there a little bit of leveling out?

The actual -- the pool of opportunities is actually higher. The amount of activity that remains out there is actually higher than what it was in 2015, which is certainly a positive sign. We would expect, from a bookings standpoint, to come in roughly in line with what we booked in 2015, from a total new business booking standpoint.

The big opportunities tend to be around, as you can guess, active safety. We're seeing a big ramp-up in demand, off of a small number obviously, on vehicle electrification, including things like 48 volt, as well as a fair amount of activity on our traditional powertrain products like GDI, gas-direct injection. So very good -- a great deal of opportunity out there.

Great. Thank you very much.

Brian Johnson, Barclays.

Good morning. I want to talk a bit about the Powertrain unit. A couple questions. The organic growth of 4% in 4Q, was this expected? Was there commercial vehicle headwinds, there? Secondly, what's the bridge to get to 8% growth in 2016? Does it have to do with take rates? Does it have to do with program launches? Thirdly, how are the dialogues vis-a-vis timing of customer programs going, given both where oil prices are and the views about the cycle? Which I know are more intense on Wall Street than perhaps in OEM headquarters.

We'll start with your last question first. We've seen no shifting in schedules. From a Powertrain, quite frankly, or any of our other businesses. We've seen absolutely none.

With respect to the growth rate of the Powertrain business, in the fourth quarter and in the first quarter this year, Powertrain segment growth will be a bit slower, primarily the result of a challenging comp in our aftermarket business. So, if you remember, Brian, last year, we launched a major program with a US independent aftermarket retailer that had very strong revenue. That effects the year-over-year comp in the Powertrain segment. That's one.

Two, what you will see is consistent in reality with the balance of our businesses. Based on the timing of the ramp-up of all of these launches, growth is going to be stronger in the second half of the calendar year than it is in the first half of the calendar year, consistent with the margin explanation that Mark talked about. So, we're still very optimistic about the Powertrain segment.

The other thing to underscore, though, is we've talked about it in the past and I mentioned it again in my comments. We are starting to see more demand, more of a ramp-up in vehicle electrification, including things like 48 volt. Those are very good for us. 48-volt hybrid content is 4 to 5 times the content that we have on a traditional car. Full EV is 7 times the content.

48 volt is an area that -- quite frankly, a product that we will be talking more with folks like yourself about at our investor conference in April. But the great thing about it is it's 70% of the benefit at 30% of the cost for the OEs. So we think it is a great value proposition.

Also on Powertrain, just to finish up. Margins expanded in the quarter even though revenue ticked up on a headline basis was down, adjusted basis was slowest of your three segments. Is that because of a lack of launch activity? In general, how should we be thinking about the cadence of margin in that segment?

Launch activity was a little slower, but there's still -- relative to the other businesses. I think it's really the benefit of -- as you recall, we've done a fair amount of footprint rotation in our Powertrain business. And it's the benefit related to that footprint rotation.

Okay. And just one final strategic Powertrain question. Are you getting more software work around Powertrain, just given what went on with a major European manufacturer and their diesel issues which centered around software? Is there any kind of desire of OEMs to having a second set of eyes on the software, even if they could do it themselves internally?

That's an interesting question. I don't think we've seen it as a result of that. However, as you know, there's more electrification. There's more software going into the Powertrain. So that is certainly an overall trend that we are seeing. I don't believe it's a result of the event that you're talking about.

Okay. Thanks.

Pat Archambault, Goldman Sachs.

Thank you. Good morning. This is actually Dave Tamberrino on for Pat. Our first question relates to pricedowns. Just looking at the last four quarters, we've seen them accelerate from the 1.5% range to exiting the year at 2%. One, what's driving that? Secondly, as we get a little bit longer here in the cycle, at least in North America, do you anticipate further pressure here?

Yes, that's a good question. We get asked that a lot. We've always said pricedowns will be in the range of 1.5% to 2%. Last year, I think we ended the year at 1.4%. This year, we're at about 1.8%. The primary driver of that, quite frankly, is faster growth in the E&S business, where pricedowns tend to be 2% to 3% versus our Powertrain business and E/EA businesses that have lower pricedowns.

With respect to added pricing pressure, our response is -- our customers always challenge us for pricedowns. It goes on when times are quite as good, it goes on when times aren't quite as good. We would tell you, we haven't really noticed the environment changing.

Okay. That's helpful. And then, we're about six months removed now from the onset of the VW emissions scandal. Just thinking about your business within Europe. Have you seen any shift, really, in production or any of the take rates that are going on within the region?

No. Nothing out of the ordinary, no. We have not seen any change.

Okay. And then, lastly, in the US, looking at January numbers, at least for a couple of the OEMs, it looks like there was some excess inventory exiting January. We're really wondering if you have seen any changes in your OEM partners in terms of what production schedules look like in the short term.

Listen, again, we understand the concern that people in the investment community have with respect to where we are in the cycle and what production schedules look like. We see none. We've seen absolutely no change in production schedules from when we gave guidance originally a month ago. (Technical difficulty) what our outlook was in the fourth quarter of last year, as it relates to 2016. So, we've seen no change. I think if you go back and you track SAR and retail sales, January does tend to be a lower month, relative to the other months in the year.

Thank you very much, guys.

Ryan Brinkman, JPMorgan.

Hi. Thanks a lot for taking my question. Good morning. Just looking at the 1Q margin guidance, 12.3% to 12.7%. Can you qualify at all what the impact is in dollars or in margin from the China production inefficiencies, just to help us better gauge the underlying rates? And then, on the efficiencies, could you remind us of the cadence of them, and whether you expect any sort of lingering impact as late as 2Q, for example?

The China piece in Q4 was roughly $20 million, $15 million to $20 million. Q1, we expect it to basically decline to roughly $5 million. So, there will be a lingering effect in Q1, and then it will fall away in Q2. However, given launch activity, there will still be some of that incremental launch-cost carry-on from Q4 into Q1. Call it another $25 million, roughly, of launch costs in Q1, relative to a higher number, call it roughly $60 million in Q4.

Okay. Thanks. That's very helpful. And then, just last question. It's a macro one. I see on slide 20 that your industry assumption for China is plus 4% in 2016. That's reasonable, of course. I don't think anybody really knows. But I see that IHS is using plus 6%. So I'm just curious about your decision to forecast less than them, whether that's due to something that you're seeing on the ground over there, or is it a different view as to when the current strength in China pulls from? Does it pull from second half 2016 instead of 2017, after the incentives expire, as their forecastings imply? I just thought to ask your thoughts on the market since you have a bigger exposure, and you have been there longer than most?

Sure. The first thing, when you look at IHS, I think you need to make sure when we talk about market assumptions, we include commercial vehicle. That does have an effect, and given the fact that we are flat to slightly down on commercial vehicle versus past car growth, that will have some effect. In addition to that, there may be a little bit of conservatism built into our numbers.

We still remain optimistic about the China market. Q4 growth was very strong. Was, quite frankly, as we said before, a bit of a surprise. Our outlook for the balance of the year is solid growth. If the market ends up being stronger, I think that is an upside to our overall outlook for the business.

Very helpful. Thank you.

Adam Jonas, Morgan Stanley.

Hi, everybody. One question. It's on the start-up costs. The question is -- is it unreasonable to assume that, given the huge growth and very different technologies -- and sometimes untested technologies, or let's say un-commercialized, let's say -- in the E&S business that you are going to see over the next couple of years, that some of the start-up costs and launch costs, I should call them, are just regularly recurring for a while, and can reasonably be assumed to weigh down on margins?

And I ask that because I think everyone on the -- at least on the sales side, I've seen, has margins in E&S going up inexorably each year. I'm just wondering if there's a scenario where the start-up costs are -- we should have them running recurring, basically? (Multiple speakers) larger?

Listen, relative to where we are today and the amount of launch activity at E&S, I'd say no. I think a significant amount of launch activity, Adam, in Q4, Q1, and ramping down in Q2 at E&S. I think you have some normalization. I think long-term margins for E&S, from my perspective, remain in line with what our longer-term outlook was.

I think the question is -- the question I would ask myself is, how aggressive, in terms of investment in new technologies, do we want to be? How aggressive do we want to be in pursuit of those technologies, as well as that business? I think that's something that we have the ability to calibrate on or off, and to the extent we decide to be more aggressive from an investment standpoint, it's something that makes sense financially and we are able to communicate to folks like yourself. And you'd agree with the opportunity.

Thank you, Kevin. Can I ask a follow-up, please?

Sure.

We are seeing a lot of non-traditional players getting involved in the software part of the car, whether it's safety or even in powertrain. I couldn't help but notice the Chevy Bolt. It seems like LG Corp basically made two-thirds of the purchase build materials of that car. I'm sure you saw that, too. Is that factoring into your longer-term views of where the margins of, say, E&S or Powertrain could be? Is the pace of, let's say, non-traditional crowding progressing as you'd expect, or is that something -- is that a variable, a vector to think about?

It's something that we always think about. Today, it's not as direct a competition in terms of space or places that we compete, so it hasn't had an effect, and it's something we watch closely. The Chevy Bolt is a great example. That's a car where we have close to $400 of content. We have a pretty good position from a vehicle standpoint. But, it's something we monitor very closely.

Thanks, Kevin. Thanks, guys.

Joe Spak, RBC Capital Markets.

Hi. Good morning, everyone. I actually just wanted to follow up on Adam's line of questioning a little bit. Obviously there will always be launch costs. It sounds like they will be a little bit lower. I guess, though, what I was wondering is how -- it seems like there's also going to be a period of time when you take on this new business until it gets to a right normal run rate of profitability to bring out the most of the efficiencies you can. So, as we get all this business coming on, can you give us some indication of how long it takes to actually get to the proper run-rate margin for the new business versus the core or the base business, if you will?

Yes, two to three quarters. It depends what the product is, but two to three quarters, Joe. Not any longer than three quarters.

Okay. And then, within E&S -- I'm sorry if I missed this, is -- any breakdown between infotainment or active safety or what really drove that big backlog launch in the quarter?

What drove -- really, it's both. Active safety growth in the fourth quarter for Delphi was 66% for a full year. We are well north of 50%, and we are launching new infotainment programs, where our growth in infotainment in 2016 is going to be roughly 25%. So, those are two very active product lines.

And then, the last is, again, I mentioned vehicle electrification. Our revenue growth in vehicle electrification product line is going to be well north of 50% in 2016. Those are all the big drivers at E&S.

Okay. One more housekeeping. Maybe I'm wrong here, but I think you still did not get the proceeds from the Thermal China JV? Is that accurate, and when do you expect to get that?

We'd expect second quarter of this year. (Multiple speakers.) We have not, but we expect to actually receive them in the second quarter.

And that is roughly $200 million, or so?

No. It's about $90 million.

$90 million. Okay.

Remember, we own half of it. So, your $200 million is probably the view on the total value.

Okay. Thanks a lot.

David Leiker, Baird.

Hello, good morning, this is Joe Vruwink for David. If I consider the quarterly cadence of what might be likely in China from a production standpoint, it would seem that growth rates probably decelerate as the year goes on, and we might even hit a negative comp by Q4. Does your guidance then imply that you're going to see net-net negative performance out of China maybe by Q4, in anticipation of needing to make either headcount changes or line-rate reductions for the production decline?

I think you look at it mathematically, it would be much slower growth to a slight decline in Q4, as you look at the number. I don't think it'd be a significant headcount reduction if we had to do it, nor would it be costly. That's a region where we can change out headcount very, very quickly.

I guess the question is, given what you saw and with the layoffs happening during summer, needing to build staff back up Q3, and then incurring these costs Q4 and Q1, is there any lessons learned? Where you could have done something different, where, as we get into the back half and things might be softening or slowing, maybe the incrementals or the decrementals are better this time around?

Listen, I think once we normalize, I think the incrementals would be the same, maybe a bit better. Listen, we obviously follow the markets very, very closely. The China market, the decline happened very rapidly. I think our view as a Management Team, here, is we'd rather be in front of the cost reductions versus behind it.

I think it would be fair to ask the question, would you act as aggressively in hindsight without knowing that schedules are going to rebound as much as they had in the fourth quarter? Would you react as quickly and aggressively? And I think we'd tell you we would, because we'd rather be in front of a slowdown versus behind it. That's a part of the cultural DNA we have here.

We talk a lot about growth. We talk a lot about opportunities from an innovation and technology standpoint. At the same time, over the last two years, we've closed close to 15 manufacturing facilities, globally. So, we're always focused on -- how do we manage the business? How do we increase the flexibility of the cost structure, under the realization that we operate in a cyclical industry.

Great. I'll leave it there. Thank you.

David Lim, Wells Fargo Securities.

Several questions here. You added back more employees than you laid off in China, if I heard you correctly? Is that more due to a surge in production, or are you thinking that there's just maybe an incrementally better outlook for you guys in 2016 in China than what you guided to?

No, it's what we needed to deal with to deal with the production. In reality, not only was the production ramp-up significant, but you have a new employee who is going to be less efficient or productive than a historical employee, therefore you need more of them.

Got you. And then, on the restructuring side, saw an uptick in Powertrain. Can you give us a little bit more color, there? Was it more in Asia, Europe? And, in theory, wouldn't that yield stronger margins in the coming quarters or the flow-through from the restructuring activity?

Yes, it would be primarily in Europe.

Okay. And, finally, a little bit more of a housekeeping item. How should we think about operating income and revenue cadence, one half versus the second half? Thank you.

Revenue growth will be a couple points higher, second half versus first half. Margin expansion, with the exception of -- you'll see sequential increase in margin expansion, with the exception of the third quarter, which, as you know, David, with the shutdowns in Europe and North America, tends to be the lowest margin quarter.

Great. Thank you so much.

Emmanuel Rosner, CLSA.

Good morning, everybody. I wanted to ask you a little more detail on the content opportunity for you guys on the vehicle electrification. You have been talking about some really impressive numbers -- 4 or 5 times on the 48 volt and up to 7 times on electrical vehicles. Can you unpack a little bit to what goes into these calculations? Is that pure electrical content increase, or does that net add also what you'd potentially lose in terms of powertrain -- traditional powertrain content? And does that assume any level of autonomous driving in there?

It doesn't assume anything on autonomous driving. It is a net number. To the extent we're losing content on a fully electric vehicle, it doesn't include the content of an internal combustion engine. It's things -- like at Electrical Architecture, it's the wiring connectors associated with EVs or hybrids. At E&S, it's inverters, converters, hybrid control units. It's battery pack and controllers, not the battery. It's chargers. Powertrain, it's the supervisory controller. It really effects each one of our segments.

Ultimately, in the fully electrified world, you would have massive segments in E&S and E/EA, and then -- much more in offsetting a shrunk segment in Powertrain?

Yes, I think that's a -- depending on the size of the engine, if it's a hybrid. But I think, in a simplistic -- in a basic way to look at it, you are absolutely right. Very good growth at E&S and E/EA, with potentially lower growth or a decline in Powertrain revenue.

Okay. And then one question on China. We've been seeing, through this past year, a bit of a mix shift towards smaller engines, largely due to the tax cut on those engines, but also I think the growth coming from lower-tiered cities and maybe the lower end of the market. Is that an opportunity for you because, essentially, you could sell your GDIs on these smaller engines? Or is that a negative mix implication, because we are talking about customers that are maybe a little more price sensitive, or segments of the market that are more price sensitive?

No. We would say it is an opportunity. At the end of the day, it's an opportunity. So, first, to give you a perspective, 80% of our revenue in China is on platforms where the vehicles have a 1.6-liter engine or less. So, just to put that in perspective. With respect to the powertrain technology needed to hit the CO2 targets in China, we always need things like GDI. Those are important aspects to have them hit their fuel economy standards. So, they are areas of opportunity for us. They are definitely areas of opportunity.

Great. Thank you.

Thanks.

Anthony Deem, KeyBanc.

Good morning. Thanks for taking my questions. Does your current share price impact your view of M&A? By that I mean, are you more inclined to take advantage of the market dislocation we are seeing? Or is M&A the more attractive alternative, based on the visibility you have in your current pipeline? And, are any deals maybe in advanced negotiations that might impact your share repurchase rate, near term?

Nothing to announce today. Listen, at the end of the day, we always try to be active and look what's out there from a technology and M&A opportunity. We have a pipeline of opportunities that we continue to evaluate. But we always look at M&A from a strategic and financial return standpoint. And we look at it through the lens of where the current value of our stock is. The reality is, it does affect our view. It can't help but affect our view.

But to the extent we could find a very compelling M&A transaction with really great synergies that we looked at and, relative to share repurchase, looked more attractive to driving long-term shareholder value, that is something that we would certainly do. To the extent there is not something out there like that, we would certainly ramp up the pace of our share repurchase activity.

Okay. Then just one extra question from me, please. Within your 2016 guidance, can you share any outlook you have for the light-duty diesel mix? You mentioned there's nothing really out of the ordinary that you are seeing. Maybe I should assume your outlook is similar to before. Maybe diesel is trending a shade below production rate. Just curious to get your latest thoughts on CO2 standards, the role of diesel, if anything has changed in your mind over the medium to long term to hit fuel-economy standards? Thank you.

So, our view on light-duty diesel penetration rates hasn't changed. It's basically -- there will be some growth, but albeit slow, and penetration rates will actually decline in Western Europe. Having said that, based on our discussions with all our OEs, all of them view diesel is absolutely critical to meeting CO2 regulations that are out there. They have to have it. It will continue to be a powertrain solution, although it will grow at a slower rate.

Thank you.

I hope that answers your question. But no change in view. We had that view a year ago.

Thank you.

Our last question comes from Matthew Stover, SIG.

Thanks for taking the question. Two things. One a housekeeping item. Could you just illuminate the acquisition-related expenses that were in the one timers? Two, if you could comment, Kevin, about the increased quoting activity. Is that primarily on HEV activity, or are you seeing an increase in activity relative to fully electrified powertrains?

I would say -- I'll answer the last question, and then Mark can respond to the first one. When you think about it, we are seeing an overall increase in quote activity in general, across all of our segments. When you look at it with respect to alternatives to traditional internal-combustion engine, more on the hybrid-electric side than on the EV side. So, that has been the net change, with respect to the one time.

Hopefully I will answer your question here. There were about $25 million of fees associated with HellermannTyton, but it was adjusted out of OI. Of course it hit cash flow in the quarter. And then, what hit operating income was about $1 million. It was immaterial.

That was the banking and legal fees?

Yes.

Okay. Thank you very much.

Thank you. That concludes Delphi's fourth-quarter 2015 earnings conference call. Thank you for joining. You may now disconnect.