Axalta Coating Systems Ltd (AXTA) 2014 Q4 法說會逐字稿

Welcome to Axalta Coating Systems' fourth quarter and full-year 2014 earnings conference call. Presenting today will be Charlie Shaver, Chairman and Chief Executive Officer, and Robert Bryant, Executive Vice President and Chief Financial Officer. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

Today's call is being recorded. Replays of this conference call will be available through March 25, 2015. Those listening after March 11, 2015, should please note that the information provided in this recording will not be updated and it is possible that the information will no longer be current.

At this time, I will turn the call over to Michael Finn, Senior Vice President and General Counsel of Axalta Coating System for brief legal notices.

Thank you, operator. Good morning, everyone. I think you know that after the market closed yesterday, we released our earnings press release and this morning, we posted a slide presentation to the Investor Relations section of our website at www.axaltacs.com. We will be referencing the slide presentation during this call.

Both the prepared remarks and discussion during the call may contain forward-looking statements, reflecting the Company's current view of future events and their potential effect on Axalta's operating and financial performance. These statements involve uncertainties and risks which may cause actual results to differ. The Company is under no obligation to provide subsequent updates to these forward-looking statements.

The presentation also contains non-GAAP financial measures. The Appendix to the presentation, which is available on our website, contains reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures.

For additional information regarding forward-looking statements and non-GAAP financial measures, please refer to our filings with the SEC. I would now like to turn the call over to Charlie.

Thank, Michael. And good morning, and thanks to all of you for joining us and today, we're pleased to be sharing our fourth quarter and our full-year 2014 results. As you know, this marks our first year in as a public Company and our second earnings call following our IPO in November on the New York Stock Exchange.

I would like to begin today's call about providing a brief overview of Axalta for anyone new to the Company and then some highlights from the fourth quarter and the full year. I'll then turn the call over to Robert, who will give a little more detail on our results, walk you through our 2015 guidance and some of the underlying assumptions. After that, we'll open up the line and take your questions.

So if you would refer to Slide 3 of our earnings presentation, it's probably worth taking a few minutes to hit some of the key points about our business for those of you who might be new to the call or to the investment.

As stated, we're a leading global manufacturer, marketer and distributor of high performance coatings. We generate approximately 90% of our revenue in markets where we hold the number one and number two position in the market, including number one position in our core automotive refinished business, with approximately 25% of the global market share.

Our business is organized into two distinct segments: Performance Coatings and Transportation Coatings. Performance Coatings is our largest segment, accounts for nearly 60% of our overall net sales. We do serve both the refinished industrial end markets through this segment.

Over on the Transportation Coatings segment side, it's about 41% of our net sales and in this segment, we serve the light vehicle OEM end market as well as commercial vehicle end market, which is heavy duty trucks, buses, rail, agriculture and construction OEMs.

So with that, we move on to slide 4. I am pleased to report solid results for the fourth quarter as well as for the full year 2014. Fourth-quarter net sales increased 5% over fourth quarter 2013, again, excluding negative impacts of foreign currency translation of 6%, of which we will be talking a lot about today. The fourth quarter was the second quarter in a row where we achieved at least 3% volume growth as our strategy to refocus Axalta on profitable growth continues to take a root across the Company.

More importantly, we continued our relentless focus on creating value for our customers and they're rewarding us and recognizing us for our efforts. Over the last year-and-a-half, we won business in over 30 different OEM plants across the globe, significantly enhanced our position in the growing MSO, or Multi-Site Operator segment of the North America refinish end market, and we reestablished our leadership position in the industrial coatings end market.

We also received confirmation of our customer focus efforts, winning Supplier of the Year awards in 2014 from Daimler Truck and Volvo Bus and even over the past two weeks, we were honored to receive Supplier of the Year awards from General Motors globally and Hyundai in Brazil. The successful separation from our prior owner last year only adds to this focus as we go into 2015.

Our fourth quarter adjusted EBITDA increased by 4% to 2000 -- to $205 million compared to the prior year quarter and our adjusted EBITDA margin expanded by 90 basis points to right at 19%. This fourth quarter marked our seventh consecutive quarter of year-over-year adjusted EBITDA growth and demonstrates what we believe to be the power of our business model as we benefit from a combination of topline growth, cost optimization issues and high-return investment projects.

Our full year net sales of $4.4 billion increased by 4%, again, excluding the 2% negative impact of foreign currency translation and our net sales growth was powered by Asia Pacific and North America regions, offset somewhat by challenging macroeconomic conditions in Latin America and overall flat sales in EMEA. For the full year, we delivered a record adjusted EBITDA of $841 million, which is an increase of 14% over 2013.

Margins for the full year were impressive, expanding by 210 basis points to over 19.3%. We steadily increased our adjusted EBITDA and our adjusted EBITDA margin since the acquisition of the business and we believe we've got that opportunity to continue to increase it further over the next several years as we grow and rightsize our cost structure.

We're seeing the impacts of our European productivity improvement initiative, which we call Fit for Growth and in 2014, we realized approximately $37 million of cost savings in the Europe region, ahead of our initial expectations. We're well on track to generate the $100 million in run savings by the end of 2017. Based on the success of this initiative and other opportunities we've identified, we've launched a broader performance initiative and a productivity initiative called The Axalta Way that you'll be hearing a lot about over the next several quarters.

We anticipate this initiative as a potential to generate another $100 million in incremental adjusted EBITDA by the end of 2017 on top of our European Fit for Growth savings. Robert will talk more in detail about this program and some of the cultural transformation we continue to on go throughout the Company.

While we position the Company for growth, it's also been a top priority to maintain a strong and flexible balance sheet to pay down our debt and to support our strategic initiatives. Since the completion of the acquisition in February 2013, we've lowered our net debt to adjusted EBITDA ratio from 5.6 to 4.0 and going forward, we plan to continue to improve our leverage while continuing to deploy our cash and to high return growth investments.

Since our last earnings call, I've also -- we've also made significant progress on our recently announced capital expansions. For example, our Jiading, China waterborne capacity expansion is now fully operational and I was further pleased to lead the opening ceremonies last week in Shanghai.

An exciting milestone for Axalta as this is our first major expansion project and it will be an important element for meeting growing light vehicle OEM demand in China. This plant, along with our second OEM plant up in Changchun in the north of China gives us unparalleled support for customer growth across the entire country.

Additionally, we remain on track to complete our recently announced in Mexico and Germany for the past expansions during 2015 which will help support growth in these regions. Additionally, on the operations front, we also concluded an excellent year from environmental health and safety perspective, achieving major improvements in all facets of our operations.

As we look ahead in 2015, like everyone else, we see significant headwinds from the translational impact of foreign currency, in particularly, the Euro and continued challenging macro environment in Latin America. We're excited about the overall outlook for our business and continue to execute on our plans for strengthening competitive position and creating shareholder value through revenue growth, profitability expansion, and also cash generation.

Our markets remain fundamentally solid and now I'd like to turn it over to Robert,, who will walk us through Axalta's financial results in more detail as well as a little bit on 2015 guidance. Robert?

Thanks, Charlie, and good morning, everyone. I'd like to ask you to please turn to slide 5 of our earnings presentation where you'll find our Q4 consolidated results. Excluding the 6% negative impact of foreign currency translation, mainly from the devaluation of the Euro and certain Latin America jurisdictions, our fourth quarter net sales increased 5% over the comparable period based on 3% volume growth and 2% higher average selling prices.

We generated strong volume growth in Asia Pacific, North America, and Latin America while EMEA volumes were slightly down, primarily due to the weakness in Russia and Eastern Europe. We benefited from modest price increases in both of our segments. Adjusted EBITDA increased 3.7% year over year to $205 million from $197 million, driven primarily by higher volumes and improved mix as well as lower fixed manufacturing costs from our productivity improvement efforts.

Raw material benefits were minimal, as the timing of lower oil prices did not have a significant impact on our profitability. Adjusted EBITDA margin expanded by approximately 90 basis points to 19%, primarily as a result of the solid operational effectiveness on our cost productivity initiatives and the modest price increases I mentioned previously.

Moving on to our Q4 2014 Performance Coatings segment results. Excluding the negative impact of foreign currency, net sales in our Performance Coatings segment increased 6.3% over the comparable prior period.

Net sales, excluding the negative impact of foreign currency, were higher across North America, Asia Pacific, and Latin America. Volumes were up 4.8% for the quarter and up in all regions with the exception of EMEA.

Average selling prices were 1.5% higher, as prices were selectively increased, especially in jurisdictions with material inflation. The volume and price increases were offset by 7% unfavorable currency exchange translation, again, primarily driven by the Euro and certain currencies in Latin America.

Net sales in our refinish end market grew 7.6% year over year, excluding the negative impact of foreign currency translation, thanks to Axalta's continued penetration of the Multi-Site Operator, or MSO segment, and robust growth in China. Strong demand for Powder Coatings and leveraging our existing product portfolio in other regions drove net sales in our industrial end market to increase 2.9%, excluding foreign currency translation over the same quarter in 2013.

Performance Coatings generated an adjusted EBITDA of $138 million for the fourth quarter. Our adjusted EBITDA margin decreased slightly from Q4 of the prior year, due to the negative translation impact of currency and also higher operating expenses to support our growth initiatives in this segment.

We switch now to our Q4 2014 Transportation Coatings segment results. Excluding the negative impacts of foreign currency, net sales in our Transportation Coatings segment increased 3.2% over the comparable prior period.

Net sales, excluding the impact of foreign currency translation, were higher across North America, Latin America and Asia Pacific. The volumes were up slightly over the prior year, as volume increases in Asia Pacific were nearly offset by difficult economic conditions in Latin America and scheduled plant shutdowns by some of our customers.

Net sales in our light vehicle end market were robust in Asia Pacific and North America but, in total, rose only 1.4% excluding foreign currency translation due to lower auto production in Latin America and lower demand from our OEM customers in EMEA. Net sales in our commercial vehicle end market were up 10.2%, excluding foreign currency translation, due to strong demand in most markets, several new color introductions, and new customer wins in both bus and rail markets.

The Transportation Coatings segment generated an adjusted EBITDA of $67 million in the fourth quarter, representing an increase of 16%, driven by higher net sales and lower fixed manufacturing costs, again, partially resulting from our operational improvement initiatives. We move on now to our full-year 2014 consolidated results.

Following on a strong 2013 in which Axalta increased sales to $4.3 billion, and adjusted EBITDA by 11% to $738 million, Axalta realized another convincing year in 2014. Net sales, excluding the negative impacts of foreign currency, increased 4% over 2013 to $4.4 billion. We experienced solid volume growth in all regions in the Performance Coatings segment except for North America -- excuse me, except for Latin America, thanks to our continued penetration of Multi-Site Operators in North America, growth in distribution in emerging markets in the refinish end market, and solid sales growth in the industrial end market.

In our Transportation Coatings segment, we grew sales significantly in Asia Pacific and North America and experienced a sluggish demand environment in EMEA and Latin America. The commercial vehicle end market continued to perform exceptionally well for Axalta, with significant gains in both North America and Asia Pacific.

Our adjusted EBITDA increased 14% year over year to a record $841 million from $738 million the prior year, driven primarily by higher sales, improved mix, and lower manufacturing costs from productivity improvements. Raw material benefits were marginal as the net impact of lower commodity prices did not have a significant impact on profitability.

Adjusted EBITDA margin, as Charlie mentioned, expanded by 210 basis points to 19.3%, primarily as a result of higher sales and stronger execution and strong execution of our productivity initiatives. As Charlie mentioned in 2014, we realized approximately $37 million in savings from our European Fit for Growth Program, ahead of our expectations, and feel that we are on track to reach $100 million in run rate savings from our Fit for Growth Program by the end of 2017.

Moving on to our transition-related and one-time costs. Since the acquisition of the business in February of 2013, we've incurred a significant amount of transition related costs to separate the business from our predecessor owner.

Additionally, we incurred some incremental one-time costs associated with the initial public offering and expenses associated with our productivity initiatives, including certain actions we took in North America, in Latin America during the fourth quarter to compensate for continued challenging economic conditions in that region.

During the fourth quarter of 2014, these costs amounted to approximately $56 million. The transition-related expenses were primarily related to the remainder of our information technology transition activities and our remaining rebranding activities.

In addition, we incurred $13.4 million relating to the acceleration of our sponsor management agreement, which was terminated upon IPO, and $6 million of costs directly associated with the IPO. With the finalization of the separation activities from our predecessor owner, transition-related costs are now fully behind us from an accrual perspective.

From a cash perspective, we have $95 million in transition-related severance and one-time IT-related expenses that we expect to pay in 2015, the largest of which is approximately $50 million in remaining severance payments. Looking at some of our balance sheet items, cash and cash equivalents totaled $382 million as of December 31, 2014.

Our total gross debt was $3.7 billion at the end of the year, resulting in a net debt balance of approximately $3.3 billion. Our net debt to adjusted EBITDA ratio is now 4 times.

If you look at the figure on the right of the page, this illustrates our consistent deleveraging trend over the past seven quarters. While continuing to invest in high return initiatives, over time, we will strive to reduce our leverage ratio to 2.5 to 3 times, assuming a stable macroeconomic and interest rate environment.

Now I'd like to discuss our guidance for 2015. If you move on to Slide 11, since this is the first time that we'll be providing the market with guidance, we wanted to take a moment to explain our approach. We're providing expectations for full-year net sales and adjusted EBITDA along with some cash flow related metrics.

We intend to provide annual guidance with our fourth quarter results and update it on a quarterly basis to reflect any material changes. The following guidance is based on the macroeconomic and currency assumptions laid out on Slide 12 of our earnings presentation.

Excluding the negative impacts of foreign currency translation, 2015 net sales are expected to increase 5% to 7% over 2014. This growth is expected in all regions and end markets, but driven by sales -- by growth in sales volumes, building on commercial initiatives launched in 2014, and selective price increases within our Performance Coatings segment. While the Transportation Coatings segment will be driven largely by volumes from new business already won and the strong economic outlook for both light vehicle and commercial vehicle end markets.

The Jiading, China waterborne coatings expansion, that Charlie mentioned earlier, will be a critical component for us to meet the demands of our Transportation Coatings customers in Asia in 2015.

Now similar to many multi-national corporations with a significant portion of sales overseas, we expect FX to represent a significant headwind in 2014, particularly in Q1 as the US dollar has strengthened throughout 2014 and into 2015 and most noticeably against the Euro, where we realized almost 40% of our sales in 2014.

As a result, 2015 net sales, including FX, are expected to be flat to slightly down based on the currency assumptions highlighted on Page 12. If the currency assumptions are different than those outlined on Page 12, then our net sales and EBITDA will be affected accordingly.

We anticipate, however, to be able to offset a portion of these FX headwinds, with price increases beyond traditional price increases in jurisdictions with high inflation and devaluation. As we've mentioned in the past, the vast majority of our FX exposure is translational in nature, given our global manufacturing footprint where we're naturally hedged with both sales and expenses largely matched in local currency.

The three main countries where we have transactional FX exposures in addition to translational FX exposures are Brazil, Venezuela, and Russia. We hedge a portion of our exposure financially and operationally in Brazil; however, financial hedging does not exist or is prohibitively expensive in the cases of Venezuela and Russia.

Assuming these currency rates, we expect to generate EBITDA between $860 million and $900 million with a corresponding adjusted EBITDA margin of approximately 20%. On a longer-term basis, given the numerous options for topline growth, opportunities to improve sourcing and manufacturing costs, and opportunities to reduce our fixed cost structure, we believe we can continue to expand our adjusted EBITDA margin.

Regarding the phasing of net sales and adjusted EBITDA, we expect Q1 to be a relatively softer quarter than we anticipate for the remainder of the year. Given that Q1 will have the largest year-over-year translational currency impact, the later post-New Year start up of some of our OEM customers plants in selected markets, a milder Q1 winter in North America and in Europe thus far, compared to last year, and the impact of pre-start-up activities at our new Jiading plant in China. We expect to make up for the slower Q1 throughout the remainder of the year.

We expect our normalized effective tax rate to be between 27% and 29% of earnings before taxes; capital expenditures to be approximately $150 million; and networking capital, excluding previously expensed transition-related items to fall in the range of 13% to 15% of sales.

We move on to slide 12; we wanted to lay out the key macroeconomic assumptions that underlie our 2015 guidance numbers that I just discussed on the previous slide. Our guidance is based on expected global GDP growth of approximately 3%, global industrial production of approximately 4%, and a global auto build of roughly 3%.

We expect to see limited benefits from lower oil prices in 2015 given the extended supply chains and category specific supply and demand dynamics. On the right hand side of the slide are the primary currencies that are expected to have the largest translational impact on our net sales and adjusted EBITDA in 2015.

This list is not exhaustive but does include our major currency exposures. We're not providing exposures to adjusted EBITDA by currency, however, there are some natural correlations. We will, however, provide a key currency sensitivity. Each EUR0.01 of devaluation equates to approximately $13 million US in net sales and $2.5 million US in EBITDA impact at present US-Euro levels.

Finally I'd like to make a few remarks about our ongoing cost reduction and productivity efforts. As Charlie mentioned in his opening remarks, in January of this year, we launched a new worldwide initiative called The Axalta Way. The Axalta Way is really a comprehensive long-term initiative focused on increasing profitability and driving cultural change at Axalta.

The Axalta Way will have as much of a focus on commercial excellence, including aspects such as value-added pricing and mix management as it does on variable and fixed cost reduction and working capital management. We're in the early stages of this initiative and we'll provide more detail on subsequent earnings calls.

At this juncture, we believe The Axalta Way can yield incremental EBITDA of more than $100 million by the end of 2017 on a run rate basis. This initiative is on top of our European Fit for Growth operational improvement and productivity initiative.

We're very excited about the potential for The Axalta Way to play a critical role as we continue to drive transformational change at Axalta in order to become a more profitable and even faster growing Company. With that, I'll turn the call back over to Charlie.

Thanks, Robert. As the numbers show as well as progress we've made on a multitude of fronts, the 2014 year was extremely successful year for us and we think 2015 will be another transformational year for the Company. So if you turn to Slide 12, in summary, we will continue to focus on opportunities to maximize the long-term shareholder return.

From a market perspective, our end market industries and general economies remain solid. From a commercial standpoint we see significant growth opportunities across all of our end markets in 2015. Our R&D pipeline, in particular, is extremely full. We'll continue to bring out advanced products both in the waterborne and solvent born space.

In our refinish, our ever important core refinish end market, we'll continue to expand in emerging markets as well as expand our mainstream offerings. We're going to continue to focus on our mature markets and ensure we maintain solid positions, including maintaining our appropriate share of key critical markets such as Multi-Shop Operator, which is a consolidation of body shops in North America and other countries. We believe that will continue to have a meaningful impact on certain regions throughout the year.

In the industrial end market, we'll have several new product launches in both liquid and powder coatings throughout the year. In light vehicle, our focus for 2015 will be on numerous plant launches in all regions and we're continuing to deepen our engagement with customers through differentiated quality and service.

And lastly in commercial vehicle, our end markets that we have will continue to look for opportunities to expand our business, focus on underserving markets as evidenced by our recent joint venture announcement with Kinlita in China. From an operational standpoint, our focus is on the start-up of Jiading, and the completion of our previously mentioned capacity expansions.

In addition, as Robert mentioned, we're going to be ramping up our global commercial and comprehensive cost improvement initiatives, The Axalta Way, and continue to execute on our Fit for Growth Program in Europe. We'll have -- continue to have more details on this as we move through 2015.

Finally, our financial situation is solid; we have a significant amount of flexibility. Our 2015 focus will continue to be reduced indebtedness and maintain strong liquidity while investing in high IRR projects. In addition, as opportunities present themselves, we're going to look at smaller bolt-on acquisitions as we've previously highlighted as well as partnership arrangements in our core end markets.

So with that, I guess I'll ask the operator to open up the line for questions.

Thank you. We will now be conducting a question-and-answer session. Due to time constraints, we ask that all callers limit themselves to one question and one follow-up. If you have additional questions, you may re-queue and those questions will be addressed, time permitting.

(Operator Instructions)

One moment please while we poll for questions.

Our first question comes from John McNulty with Credit Suisse.

Good morning and thanks for taking my questions.

Good morning, John.

With regard to the Performance Coatings segment, you had indicated that there was some cost of investment for growth and that may have nicked the margin a little bit in the quarter. I guess, can you articulate what some of those investments are and how we should be thinking about when maybe some of the heavy lifting will be done there or is it more just a function of you'll reach a revenue tipping point and then it will be insignificant at that point?

In that case, John, basically what we see is that in the area of refinish, we continue to build out our sales force in some of the markets where we were underserved previously around the world. And then in addition in the industrial end market, that was largely a business that, under our previous owner, was not organized as a business and required certain infrastructure from a managerial and from a sales force perspective in order to position that business for growth.

And we actually believe that's one of our highest potential end markets within our current scope of businesses, so we continue to build out the management and the sales force infrastructure for that business. I think we would expect to see the majority of the build up of resources to grow that business for this initial phase of growth to be completed by the end of this year.

Okay, great. And then just as a follow-up question, you saw some decent pricing across a number of your businesses, it looks like, in the fourth quarter. I guess in this type of a raw material environment, do you see that becoming a more difficult burden going forward or is it more a function of you've got a lot of new products coming out and new services and that's maybe the bigger driver for that? How should we be thinking about that in 2015?

John, this is Charlie. I think that we continue to believe we'll be able to achieve pricing. Clearly, as we go through the year depending on raw material effects, in some regions, we may moderate that some but overall, when you look at the products we have coming out, the newer products, the more productive products that are priced more on a value proposition and less around just strictly a price per unit, especially as you get into waterborne and more exotic colors, more exotic monomers being used, I think our view is that we will continue to get price.

Thanks very much for the color.

Our next question comes from the line of Ramanan Sivalingam with Deutsche Bank.

Hi guys. Good morning. Thanks for taking my questions.

Good morning, Ram.

Just a quick question on Transportation Coatings. You mentioned some outages amongst North American OEMs. Any way to quantify that and are you going to see a catch up in Q1 as those guys come back online?

Yes, what we saw at the beginning of Q1 was we actually had a couple OEMs that because the West Coast port strike, couldn't get parts and actually slowed down and then we also had two OEMs that started off the year about a week later than we would have thought.

In all cases, in dialogue with those customers, they believe they will catch up. As you know, North America demand, especially the people we're aligned with, remain strong this year. If you look at SAR $16 million to $16.5 million car sales this year, I think their view is they will play catch up a little bit.

Got it. That's very helpful and then as you think about the full year, obviously, you guys are clear that the Q1 is going to be a little bit light versus the back part of the year but the growth split between Transportation Coatings and Performance Coatings, how are you thinking about that? Just because you guys are coming off a very strong year in transportation.

Yes, into 2015, given -- this is Robert, just given the amount of business that we've won over the last 21 months in the OEM space, we would expect to see topline sales growth, both with and without currency in the Transportation segment to exceed that of the Performance segment.

That's very helpful. Thank you.

Our next question comes from the line of PJ Juvekar with Citi.

Hi, good morning. It's Dan Jester on for PJ.

Good morning, Dan.

Good morning. In commercial vehicle, this is, I guess, the second quarter in a row of quite strong performance so are you gaining share in this market and how should we be thinking about this? Is this sustainable in 2015?

I think there's two things going on there. One in commercial, we had some customers that we believe are gaining share so we're growing along with them. In addition, we also have begun to grow our business in Asia Pacific where we had very little presence.

Okay, great and then for your outlook for 2015, maybe can you just give a little bit more color on what you're thinking for your raw material basket and what's embedded in your guidance for your oil-based raw materials and TiO2? Thank you.

Yes, first of all on the TiO2 market, I'll take your second one first. TiO2, we believe it stayed relatively flat this year. If you'll remember, our TiO2 spend is not, in this type of coatings, our total TiO2 spend is only around $70 million a year so it's not a really big purchase for us and again, when we look at our contracts, we believe that will be flat to slightly down.

On the balance of the raw material basket which includes everything from resins to monomers to isocyanate pigments, we think that basket will be down over the year. As you guessed, we are engaged in discussions with those suppliers right now.

Our caution and I think, probably not unlike some of our competitors, has been some of those in the pigment area and in that isocyanate area because we use specialties. Those are products that are in relatively tight supply/demand so we don't expect a large downward movement in there. Over in some of the solvents and the resins area, clearly, if oil continues to stay down over the next couple quarters, we think we'll see some benefit. I don't think right now, we're not giving a particular percent guidance because we just don't know yet.

Okay, thank you very much.

Our next question comes from the line of Ghansham Panjabi with Robert W. Baird.

Hi guys. Good morning.

Good morning, Ghansham.

What do you estimate the market for automotive refinish grew in the fourth quarter in North America and Europe and how should we think about that for 2015?

So if I think of -- this is Charlie. On the automotive refinish in North America, we think it's a market that last year, grew at about 2% and in Europe, we think the market was relatively flat. And so as we move into 2015, if you look at the overall North America collision market, we think that, that will grow about 1% to 2% this year.

And again, that's the overall cost of the market, the total marketplace around $40 billion this year growing slightly and some of that is miles driven, we think will be up slightly. The cost of repairs are up to offset and we get continued strong new car sales. In Europe, we think the market will be maybe 1% up this year.

Okay, and just as my second question, as it relates to your EBITDA guidance for 2015 and in particular, the range of $860 million to $900 million, can you just sort of give us a sense as to how much of the range is based on variables outside of your control, so foreign exchange, organic growth, versus variability on your internal initiatives such as cost cutting? Thanks so much.

On that, it's actually a combination of both. It's certainly a -- this is a year, a little different from 2014, in which there are a lot of macro variables out there so I think if you look at it, I think to try and break it up, it's probably a combination of 50/50. I think if we see the kind of growth that we're projecting, we should be able to deliver on those results from a market perspective and then the rest is just internal execution.

Very helpful, thanks.

Our next question comes from the line of Duffy Fischer with Barclays.

Yes, good morning.

Good morning.

You talked about kind of the 30 plant wins last year. I was wondering if you could just talk about, is that an extraordinary year in the number of, say, bids that came up for you guys or the win rate that you would expect or is that kind of the cadence that we should expect over the next couple years?

Yes, Duffy, this is Charlie. I think that when we look at 20913 -- when we look at 2014 and 2015 and into 2016, we believe there was clearly above market growth there for us. I would think as you get out past that, you would assume more of a balanced market share approach and I think that, that wasn't because we made a concerted effort to go out there and take share or anything like that.

Some of it was a function of just some of the people we're growing with or had been growing faster than the market overall and we were able to participate in that. And in some cases, it was just several specific RFQs that came up and we happened to have the right product at the right pace. So I think it's above market, as we go in through this year and into 2016 but then I think our projections would be, we fall back to our appropriate market share after that.

Okay, and then on The Axalta Way Program, should we expect some meaningful cash spend on that this year or will that be more into next year?

Duffy, this is Robert. I think what we expect to see this year is a some amount of spend and expense primarily. Not as much in capital in order to be able to achieve some of the savings that we're trying to get this year and then as we move out into late 2015 and 2016, there may be more wider structural changes according with that program.

Okay, great. Thanks guys.

Our next question comes from the line of Jeff Zekauskas of JPMorgan.

Good morning. It's Silke Kueck in for Jeff. How are you?

Silke, good morning.

The first question is on the Transportation segment. So for the year, the sales were about flat and the EBITDA is up $74 million and so the first question is like how exactly do you get there? And given that your volume growth targets for next year is relatively healthier or all things equally expecting more volume growth in 2015 and then what you achieved in 2014, I'd think that the margin expansion potential is probably still there, right?

So in light of that, I wonder whether you view your own earnings guidance, do you think it's like a really simple one, a conservative one or do you think you're aggressive? That's my first question.

Yes, this is Robert. So I think there's two questions there. The first one on OEM margin. We had certainly a number of opportunities in our Transportation segment in order to -- we had a number of items there we were able to address in the first couple of years from an inherent cost structure and from a mix perspective.

And then in addition, our Fit for Growth Program in Europe, the specific plants where we have undertaken the most efforts have been the plants where we produce more of our Transportation Coatings products. And as a result there are more Fit for Growth savings that are accrued and allocated to the Transportation Coatings segment so that's one of the reasons why you see such a large increase in margin for the OEM business.

And then on your second question, in terms of given that we're expecting volumes to be up in 2015 and the opportunities that, that creates for margin expansion and how we think about that in terms of our EBITDA guidance, I think we feel confident in the range that we're providing of $860 million to $900 million provided that the macroeconomic assumptions that we've laid out are more or less in line as well as the currency assumptions that we've provided are more or less in line.

If I can ask one follow-up; is there any way to quantify what amount of savings you may have achieved in 2014 and what you plan to achieve from 2015? In either form, whether you want to do it by the fourth quarter or how much for the year or whether you want to do it by transportation or performance coatings? However much detail you want to give would be helpful.

So with regarding, with regards to our savings in 2014, I think as we highlighted in our call of comments, we achieved approximately $37 million of savings from our European Fit for Growth Program. We did achieve certain other savings in the area of manufacturing productivity in other parts of the world. Most of those savings and then the other benefits went to offset fixed cost inflation that we incurred during the year so we look at that $37 million as fairly incremental.

As we go through 2015 and look at the ramp up to $100 million on our European Fit for Growth initiatives, I think at this point, we anticipate that, that ramp will be roughly linear. And then with regard to The Axalta Way Program, as we're still working through some of the planning and set up of that initiative, we'll be providing more precise potential savings targets in the future.

Okay, thanks very much. I'll get back into queue.

Our next question comes from the line of Kevin McCarthy with Bank of America Merrill Lynch.

Yes, good morning. My question relates to working capital. On Slide number 11, you indicate an expectation of networking capital of 13% to 15% of net sales. I assume you're calculating that as trade working capital. If I look at 2014, you were running a little shy of 20%, as a kind of high 19% range and so running the math on that, am I correct in understanding that you aim to extract $200 million to $300 million from working capital and if that is correct perhaps you can provide a little color on how you aim to accomplish that?

Kevin, this is Robert. So the definition that we are using for working capital is accounts receivable inventory, accounts payable and accrued liabilities. And within that, in 2014, given the number of one-time expenses that we had -- you have to back those out. So I think for 2014, we were just around that 13% mark in terms of working capital as a percentage of net sales, so again, it's a little bit skewed in 2014, given the number of one-time costs that actually flowed through the financial statements but on a go-forward basis, excluding those costs, we expect to be in the 13% to 15% range.

I see, so relatively stable then; that's helpful. I did not have accrued liabilities or the one-time items in there. Thanks for that color and then as a second question, recognizing that the calendar is reflecting March already, just wondering if you could comment on the volumes that you're seeing in January and February for the Company relative to the 3% growth that you posted in the fourth quarter and what some of the meaningful variances might be.

As we look at Q1 of this year, March is typically a pretty high month for us in terms of sales so March will be fairly determinant in terms of the quarter. I'd say that excluding FX and taking into account the Q1 impacts that we mentioned in our prepared remarks, we expect Q1 to be in line with our internal expectations.

Okay, I'll follow up. Thank you very much.

Our next question comes from the line of Tom Roberts with UBS.

Good morning, guys. Nice quarter.

Good morning, Tom. Thank you.

You said you're hedged in Brazil and you only gave the current sensitivity around the Euro. So is the Euro more than 50% of the 2015 earnings, the headwind from currency. If we focus on the Euro, do we get the majority of the risk around currency?

The Euro would represent from the total currency basket a fairly significant portion of the overall basket.

Okay, but you won't say whether it's more than half or --?

No, not at this stage.

Okay and then since we're largely through the first quarter, is pricing stable sequentially in the first quarter or are you seeing any pressure on pricing sequentially because of raw material issues?

Yes, this is Charlie, Tom. I would say pricing is stable and we're not seeing pressure right now on raw materials.

Okay, thank you.

Our next question comes from the line of Laurence Alexander with Jefferies.

Good morning. Just a couple of quick ones. How much of the EBITDA margin drag is the FX translation impact for 2015? And as you look at the share gain you spoke about them in terms of plant wins, but as we think about it as a tailwind to sales, is it fair to benchmark that as 1% to 2% of sales in 2015, 2016 and 2017 or is there going to be a little bit more of a tailwind in 2015 or can you help us sort of think through the actual sales bridge? Just from your own share gains, not your customer share gains in the market.

So with regard to FX, we're not providing information on the relative impact of FX at the EBITDA level but we will say that it's significantly lower than the impact at the sales level.

So your margins are going up with the FX headwind?

If we execute on our plans from the EBITDA margin percentage that we see, we continue to believe that we have the opportunity to grow that over time.

The second question, do you want to repeat that just to make sure we're clear on what you were looking for on the sales bridge?

So just as you were looking at the comments around the plant wins and your own share gains as opposed to your customers winning share in the market, as we -- there's always a lag effect between a plant win and actually getting it flowing through the sales line.

So is it fair to benchmark your share gain tailwinds as, say, 1% to 2% of sales in 2015, 2016 and 2017? Or do you see more of a surge in 2015 or how are you thinking about just the surge that you're getting from your own share gains and wins you've seen so far?

It's a little hard to answer that, just as we are thinking about the timing of every one of those but clearly it's second half of 2015 and 2016.

Okay, thank you.

Our next question comes from the line of Alexi Yefremov with Nomura.

Good morning. I have a follow-up.

Good morning, Alexi.

I have a follow-up question on the cost savings program. Will you expect the $100 million in cost savings from fiscal growth and another $100 million from The Axalta Way to be incremental net savings to your EBITDA? Or would you expect some offset in the form of fixed cost inflation and also just to clarify, your comment about linear ramp in Fit for Growth in 2015. Does it mean we can expect about $40 million of savings this year?

Sure, so with regard to your first question on how the gross versus the net savings play out, our expectation would be that if we look forward to 2017, that we would have an incremental $200 million in EBITDA gross against which we would need to net the fixed cost inflation that we would have at that point in time. Currently, our annual fixed cost inflation is $70 million to $75 million a year.

As we lower our fixed cost base over time, we expect that number to go down. So for a net number, for 2017, as far as run rate savings, at the end of the year, we would net against that $200 million approximately whatever that year's expected fixed cost inflation was. And then in terms of the ramp, I think what we said about being linear, in terms of where we are in the remainder of the savings for the EMEA Fit for Growth Program, that's -- I think the way we've described it is our best estimate as of this point in time.

Obviously, there are a fair number of moving pieces and some of the projects that we have in the first phase, particularly those that were related to severance, are fairly clear in terms of timing because they are kind of one for one, whereas some of the other items that we may have now may require supply chain reconfiguration and some of those other items will make those savings a little bit more chunky.

So I think linear from an estimating perspective is probably the best way to go but it's -- it could be a little bit more than that or a little bit less than that so it's hard to come down with an exact number for 2015.

Thank you. And as a follow-up, could you talk about the status of your backlog in light vehicle OEM business over the next two years? I think in the past, your backlog may have suggested high single digit sales growth excluding FX. Is this still a good target for you based on what you currently have in the books? Thanks a lot.

Yes, this is Charlie. I think our visibility goes through 2016 and I think we still see a good strong backlog, just on wins we already have and the timing of those wins. A lot of this is around new facilities starting up and conversions.

I think the one thing that we'll just have to watch is, as we go into 2017, is you certainly see things like China accelerating this focus on conversion from solvent borne to waterborne and it's favorable to us and a couple of our other competitors. So I think that, that will provide us a lot of opportunities as we go on into 2017. But I think our backlog through 2016 still high single digits is appropriate way to think about it.

Again, a lot of that is based on the base business continuing to perform at the current SAR rates around the world and we do believe that this point when you look at new car production only in the last couple years, while the world economies aren't necessarily really strong and robust, the growth in the car park is expected to continue at a fairly good clip on into 2017.

Great, thank you.

Thank you. We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

All right. Well, thanks. We'll wrap it up then, operator, and appreciate the good questions. We look forward to dialoguing over the next day or two on any follow-up questions you have. Again, a great year for us in 2014, getting our transition completed, a great year operationally.

One of 2015, I would characterize as one of all about execution now, whether it's The Axalta Way, whether it's our OEM wins, it's the growth initiatives we have and refinished around the world, both in our premium and mainstream products, so I think we have a full plate in front of us. We, like everyone else, will continue to navigate through all of the currency translation.

We do think, over time, it's a plus for us when we look at Europe. Our strong manufacturing base in Europe and the net effect of that, while not immediate is, over time, we think a positive for us. So a good strong year for us in 2014, one we're looking forward to in 2015 as we navigate through next steps of our execution. But, so thanks for your investment and your time and look forward to the next quarter.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.