Axalta Coating Systems Ltd (AXTA) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Axalta Coating Systems first-quarter 2015 earnings conference call. Presenting today will be Charlie Shaver, Chairman and Chief Executive Officer, and Robert Bryant, Executive Vice President and Chief Financial Officer.

(Operator Instructions)

Today's call is being recorded. Replays of this conference call will be available through May 20, 2015. Those listening after May 5, 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 Chris Mecray, Vice President Investor Relations for Axalta Coating Systems for a few brief legal notices. Please go ahead, sir.

Thank you, Melissa, and good morning, everyone. This is Chris Mecray Axalta's VP of Investor Relations. We appreciate your interest in Axalta, and welcome you to our first-quarter 2015 financial results conference call. Joining us today are Charlie Shaver, our Chairman and CEO, and Robert Bryant, EVP and CFO.

This morning we announced our Q1 2015 financial results and posted a slide presentations to the investor relations section of our website at axaltacs.com, which we'll be referencing during this call.

Both the prepared remarks and discussion during this call may contain forward-looking statements, reflecting the Company's current view of future events, the 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.

This presentation also contains certain non-GAAP financial measures. The appendix to the presentation, which, again, 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. Okay, I would like to now turn the call over to Charlie.

Great, thanks, Chris, and good morning and thanks to all of you for joining us today. As we mentioned, we are pleased to be sharing our first-quarter 2015 results.

I'd like to begin today's call by providing some highlights from the quarter and maybe a brief update on our strategic focus and progress today. I'll then turn the call over to Robert who will provide a little more detail on our results and full-year outlook. We'll then open up the lines for your questions.

So if you would refer to slide 3 in our presentation. And since this is only our third call as a public company and because we've got a series of new investors, it's probably worth taking a moment to just highlight our business composition.

As you are aware, Axalta is a leading global manufacturer, marketer, and distributor high performance coatings. Roughly 90% of our revenue comes in markets where we hold the number one or number two share position. And we believe we're the leader in the global automotive refinish market, with about 25% global market share.

Since our formation in 2013, we've organized our business along two distinct segments, performance coatings and transportation coatings. Performance represent about 60% of our net sales, including our refinished industrial end markets where we serve both the high diverse global customer base through direct and indirect sales channels. Our transportation segment, or about 40% of our net sales, serves the light vehicle automotive OEMs, as well as the commercial side of the business OEM, which includes truck, bus, rail, agricultural, and construction end markets.

So if you then turn to slide 4, a little bit about our highlights. I am pleased to report solid results for our first quarter in 2015. Our first-quarter net sales increased by 5% over last year's quarter, which, as we've highlighted previously, was a very strong quarter for us. Now this includes negative foreign currency translation impacts of roughly 11%.

The first quarter saw volume growth overall of nearly 5%, coming from both segments. And that demonstrated sequential acceleration from the fourth quarter, even though we've got difficult year-over-year comparison and certain seasonal impacts that we highlighted as factors in our last call.

As we continue our core strategy of refocusing Axalta on profitable growth, I'm very pleased with the progress we've shown to date, and we certainly demonstrated an ability to grow our core end markets through a focus on the customer and extension of our technology to markets that were not previously considered core. Since becoming a standalone company in 2013, we've won business in a number of new and existing OEM facilities around the world.

We continue to make growth progress in our global refinish markets, including the growing MSO segment, not only in the US, but in other parts of the world. And we're also working to diligently to expand our presence in both core and adjacent industrial coatings end markets. Our progress and focus continues to be recognized and rewarded by our customers.

At the same time, we've continued to focus on controlling our cost structure, which continues to be reflected in our profit growth. As a note, our first-quarter adjusted EBITDA of $182 million exceeded our target for the quarter, driven by both volume growth and continued progress in operating productivity and cost reductions.

Adjusted EBITDA margin expanded by over 60 points to 18.4% from 17.8% last year. And through our adjusted EBITDA it also reflects considerable -- and although it reflects, considerable adverse translation impact of foreign currency. I'm very pleased with the progress we're making in those areas within our control, and I believe we've got substantial opportunity to continue to effect positive change in that regard, even though we've already made some significant strides in reducing cost since our inception.

We are, today, reiterating our guidance for 2015 unchanged after our first-quarter result. As we think about our guidance for 2015, many of the factors we mentioned and discussed back in early March remain constant today.

We continue to see headwinds from translational impact of foreign currency. And although it's encouraging to see stabilization in several of those countries that we've witnessed in our basket since our last call, it's enabled us to reiterate our guidance based on a static set of assumptions made from March.

From a general demand standpoint, we continue to see favorable and supported backdrop in each one of our segments and end markets. Although, as normal, these are areas that we continue to monitor closely, including the challenging South American demand environment, the ongoing positive markets associated with economy and associated with energy, and the political de-stabilization going on in Russia.

In the last quarter, our capital projects and various organic investments have continued on track. As we highlighted this morning, our Jiading facility, Waterborne facility, continues to ramp up with new OEM customer demand in China, and it remains a key element of our growth plan. We are also on track to complete expansions in our Mexico and in Germany later this year to support growth in those regions.

Last week we also announced a significant new Asia-Pacific R&D center that we built in Shanghai, which will house the over 500 Axalta personnel that we currently have engaged in R&D, product, development, and technology support in the region. This center will feature product development and application labs, as well as tech-support capabilities that will serve the Company's light vehicle OEM, commercial vehicle, refinish, and industrial customers.

This new facility, which will open up in the second quarter 2016, will also house our global refinish color development center and a new training center for the Company's refinish customers. The facilities will streamline our ability to rapidly develop world-class products, and we've long been a pioneer in the coating industry, and I think that this Shanghai center will help keep us in the lead on product innovation and development.

As you're also aware, in April we worked with Carlyle, completed a follow-on public offering of 46 million shares. This was followed immediately by private placement from Carlyle of additional 20 million shares to Berkshire Hathaway, resulting in over 66 million shares being transferred in the quarter from Carlyle to non-controlling investors.

We're pleased to report now that our free flow is over 55% of our approximately $7 billion market cap. We're very pleased to have a high-quality investor base, including the addition of Berkshire Hathaway, and look forward to continuing to increase that flow over time.

Turning to slide 5, a little bit about delivering on our goals. As we consider the progress that we've made year to date relative to these goals that we've set out, I'm pleased to report that 2015 is another transformational year for us with strong expected gains on a multitude of fronts. We're excited about the overall outlook for the business, and we continue to execute on our plan to strengthen our competitive position and create shareholder value.

In terms of revenue, we've seen volume growth, as previously noted. And I expect this to continue, driven 2015, principally, by the ramp up of the OEM plants, tied to our previously announced transportation coatings OEM wins. This process has enabled us to grow and grow market share from a relatively smaller base in emerging markets as evidenced by the over 20% growth that we saw in light vehicle volumes in Asia-Pacific in the first quarter year-over-year.

From a growth perspective, our businesses are projecting solid demand, and we continue to see significant growth opportunities against all of our end markets. In refinish we'll continue to grow our presence in emerging markets. We'll continue to expand a robust share of the MSO customer segment in body shop consolidations as that continues in North America, also continuing to focus and grow with many of the large dealer groups in China as well.

In industrial, we're focused on growing the business with existing channels with a new sense of rigor and leadership, continuing to add to that the personnel as we go through the year. And we'll extend our market presence in new niches with multiple product launches scheduled throughout this year.

In light vehicle, our current focus is just on executing on all the new model and plant wins that we booked and continuing to deepen our engagement with the customers through differentiating our quality and service. On the commercial side of the business, we continue to target growth in markets and geographies where our Company is under represented and share how our technology and service can be differentiated in areas just like China, where we announced in the first quarter our joint venture with Kinlita. And it's enabling us to touch new customers with new technology.

Our two principal initiatives for productivity and growth are going to continue to show progress. Fit For Growth, which is our European initiative, remains well on track to generate $100 million in run-rate savings by the end of 2017. And we also made solid progress in scoping and defining our Axalta Way initiative, which is really our continuous improvement operating model focused on business process and global cost and productivity.

We have a high degree of confidence in our target for $100 million in incremental adjusted EBITDA by the end of 2017 on that program. And it will begin to generate modest savings during the second half of 2015. And although we continue to be intent on unlocking the growth potential of Axalta and are making associated investments, it really remains a top priority for us to maintain a strong and flexible balance sheet.

So at the end of Q1, our net debt to adjusted EBITDA was 4.1. That was a slight uptick from the fourth quarter, really driven by budgeted factors, which included a seasonable working capital build as we come in to, traditionally, a strong second and third quarter of the year. For the balance of 2015, we expect to make continued progress in debt reduction.

At the same time, we'll continue to balance our deleveraging goals with a focus on disciplined application of capital into high-return projects. Near term, we're focused on the completion of the ongoing plant expansions, which will significantly boost our Waterborne's coatings capacity in Europe and North America. And in addition, as the opportunity is presented, we'll continue to look at smaller bolt-on acquisitions, as well as partnership arrangements in our core markets.

In M&A we'll remain focused on companies close to our core business that offer immediate and beneficial returns to the Company both in market access and technology without impacting our financial leverage. So with that, I would like to now turn the call over to Robert who will walk us through the financial results a little more in detail, as well as a couple highlights on our 2015 guidance. Robert?

Thanks, Charlie, and good morning, everybody. Please turn to slide 6 of our earnings presentation where you'll find our Q1 consolidated results. Excluding the 10.8% negative impact of foreign currency translation, mainly from the devaluation of the euro and currencies in certain Latin America jurisdictions, our first quarter net sales increased 5.2% over the prior-year, driven principally by volume growth and select price increases.

On a consolidated basis, our sales volumes grew 4.8% over what was a strong Q1 in 2014. In North America, volumes were up 9% with strength across all end markets. In Asia-Pacific, volumes were up 15%, driven primarily by the strong performance of light vehicle and industrial end markets.

In Latin America, volumes increased 6% due to a rebound in the refinish and commercial vehicle end markets. Lastly, in EMEA, we saw volumes contract 2%, explained by demand weakness across almost all end markets, primarily due to weakness in Russia and Eastern Europe.

These overall strong volume results were not achieved by lowering price, but rather by volumes coming from new business wins, strong growth from our existing customers, growth of existing products in under-served markets, and our increased focus on commercial execution as part of the Axalta Way. We also benefited from modest price increases in both of our segments.

Adjusted EBITDA declined 2.5% year over year to $182 million from $187 million, driven primarily by the impact of foreign currency, offset partly by higher volumes with improved mix, as well as lower fixed manufacturing costs from productivity improvements. Raw material benefits were not significant. Although, we did start to see some modest benefit during the quarter in select inputs.

Adjusted EBITDA margin expanded by approximately 60 basis points from last year to 18.4%, primarily driven by cost improvements and productivity enhancement, as well as some volume benefit. Moving on to our Q1 2015 performance coatings results on slide 7.

Again, excluding the negative impacts of foreign currency translation, net sales in our performance coating segment increased 2.5% year over year, driven by growth in North America, Asia-Pacific, and Latin America. Volumes were up 1.9% for the quarter and up in all regions except EMEA, which saw some impact from weaker Russian and Eastern European markets, as I previously mentioned.

Average selling prices were up 0.6%, as selective increases were applied in certain regions. The volume and price increases were offset by 12.1% unfavorable currency exchange translation, primarily driven by the euro and currencies in Latin America. Net sales in our refinish end market grew by 2.7% year over year, excluding the negative impact of foreign currency translation thanks to Axalta's continued penetration of the multisite operator, or MSO, segment and our continued growth in Latin America.

Net sales in our industrial end market increased 1.9% year over year, excluding foreign currency translation, driven by growth in powder sales in North America, as well as ongoing expansion of our product base in other geographies. Performance coatings generated adjusted EBITDA of $107 million for the first quarter. Adjusted EBITDA margin decreased 100 basis points from the prior year, due to higher operating expenses to support our growth initiatives and a dividend paid to a Chinese joint-venture partner.

If we switch now to our first-quarter 2015 transportation coatings results on slide 8, before foreign currency translation impacts, net sales in our transportation coatings segment increased 9.1% over the comparable period prior year. Net sales on a constant currency basis were led by volume growth in North America, Latin America, and Asia Pacific from new business and growth in car builds, as well as continued robust commercial vehicle volumes. We continued to expect global volume growth in the segment to build, along with vehicle production by our customers on lines where we have secured new coatings positions.

Net sales in our light vehicle end market were robust in Asia Pacific and North America and rose 7.4%, excluding foreign currency translation. In Asia-Pacific in particular, our light vehicle coatings sales increased by 22% in the quarter, compared to the same quarter prior year. Net sales in our commercial vehicle end market increased by a strong 15.4%, excluding foreign currency translation, due to strong demand in nearly all regions and by new customer wins in bus and rail markets.

The transportation coatings segment generated adjusted EBITDA of $75 million in the first quarter, an increase of 20.4%, driven by higher net sales and lower fixed manufacturing costs, partially resulting from our operational improvement initiatives. This result came despite a moderate drag from the start-up expenses associated with our new Jiading, China Waterborne facility. With the benefit of this volume growth and reduced operating costs, our transportation coatings segment EBITDA margin grew by 290 basis points to 17.3%.

Moving on to our cost optimization initiative slide on slide 9, we're pleased to report that our progress on both of our cost reduction and productivity initiatives remains on track. We expect to continue to achieve combined run-rate savings of $200 million by the end of 2017 between the programs, Fit For Growth, which is our European focused initiative, and The Axalta Way, which is our new global business process that we rolled out in the first quarter of this year, which will also house ongoing cost and productivity initiatives going forward. Fit For Growth, which we began to implement in 2014, continued to show solid and methodical process, and we are confident in our forecast of relatively linear savings to be accomplished over the next several years, after generating $37 million of the $100 million in total savings in 2014.

Having already adjusted our labor cost structure to a competitive standard and right-sized the region substantially in the last year, our improvements continue into 2015 and are being carefully tracked. At the same time, our substantial investment in our capacity and infrastructure in Europe remains on track for completion and is expected to form the basis of competitive market participation for some years to come. This investment includes expanded capacity for Waterborne coatings in Europe, as well as consolidation of both manufacturing and distribution infrastructure to enhance productivity.

The Axalta Way, our new business process, is a comprehensive and long-term initiative focused on creating a best of class organization in all aspects and ultimately driving enhanced and sustainable returns on investment for our shareholders. As such, it is focused as much on driving positive employee cultural and behavioral change as it is on driving out costs, though the latter is clearly where we are focused in our investor communication today.

To achieve our $100 million cost-out targets for The Axalta Way, we were focused on completing definitional and scoping processes during Q1 and began more detailed planning and initial execution in recent weeks. We see a clear opportunity to reduce costs across almost all areas of the Company, including, among others, procurement, operations, commercial practices, and many components of SG&A.

Some of our early work has been focused on commercial practices in North America where we've identified significant opportunities to eliminate inconsistencies from a myriad of efforts to measure and streamline our commercial terms across an organization that formerly managed on a more decentralized than regional basis with few metrics supplied across these managerial boundaries.

Our procurement organization also continued to pursue opportunities to address its business on a global basis, including substantial opportunities to reduce spend in both direct and indirect categories. Overtime, we also expect to achieve significant savings from addressing our supply chain operations on a global basis and migrating to best practices among the regions. Other opportunities exist over a longer time frame to reduce SKUs across our operations, which span 130 countries.

As we continue to add granularity to our process, we anticipate sharing specific 2015 targets for both savings and associated spend and expect to be able to share some of this in our next quarterly call. For now, we will simply reiterate that we are confident that we can identify and eliminate costs across our organization by $200 million on a run-rate basis by the end of 2017 and expect to be able to carry these savings down to the EBITDA line as well, based on our existing business plan.

Last quarter we referenced the existence of fixed-cost inflation, which of course is a feature of any global manufacturing organization. Although very real, we do expect that our regular course of business growth and productivity should be able to separately overcome this inflation, enabling our cost-saving programs to flow entirely to the bottom line. We continue to point out that the visibility of savings with no negative cost offsets become hazier with time. But we do expect to be able to continue our productivity drive over time to continuously offset such inflationary elements in the business and maintain or grow our margins, assuming overall stability in the business climate.

Regarding our one-time costs and the EBITDA to EBITDA bridge provided in our release and on slide 9. We would like to highlight that the magnitude of one-time costs related to transition has been significantly reduced after 2014. As we expected, we will no longer incur any transition-related expenses.

This past quarter we identified a few items that are one-time in nature and are primarily tied to ongoing consulting fees related to our cost initiatives and termination benefits primarily tied to our European Fit For Growth program. We also had some expenses related to our follow-on equity offering.

We now look at some of the key balance sheet items on slide 10. As of March, cash and equivalents totaled $223 million, while gross debt was $3.6 billion, resulting in a net debt balance of $3.4 billion. Our net debt to adjusted EBITDA ratio is now 4.1 times.

The figure on the right illustrates our deleveraging trend over the past eight quarters, which was interrupted only slightly this past quarter due to an uptick in working capital as seasonally expected and was budgeted. Our expectation continues to be for solid free cash flow in 2015, and we have reiterated our annual working capital assumptions set out in March on our last call.

Regarding our leverage targets, we continue to focus the majority of our free cash flow on debt paydown and intend to reduce our leverage ratio to 2.5 times to 3 times, in time, assuming a fairly consistent macroeconomic and interest rate backdrop. We would look to update that target in time based on fundamentals, strategic opportunities, and feedback from our shareholders.

In the meantime, we also have significant organic investment opportunities with quite strong IRRs that we continue to prioritize, as reflected in our CapEx guidance that implies around $90 million of such spend per annum. This amount could be increased depending upon any incremental capital availability; though, notably, there is a [gating] factor on such internal products related to management bandwidth, as well as capital availability.

Finally, if we turn to slide 11, as we noted on our March call, we intend to provide annual guidance and then update it on a quarterly basis. With our guidance set out only two months ago, although the first quarter exceeded our expectations, we are maintaining our existing annual guidance that we provided on our Q4 earnings call with no changes.

Again, excluding foreign currency impact, 2015 net sales are expected to grow 5% to 7% over last year. This growth is expected in all regions and all end markets, driven by volume growth from commercial initiatives that we launched in 2014 and selective price increases across our businesses.

Transportation coatings is expected to benefit in volume growth from the new vehicle coatings positions previously announced and the relatively stable outlook for global light vehicle and commercial vehicle end markets, in spite of certain country-specific demand reductions, such as in Brazil. We expect to generate adjusted EBITDA between $860 million and $900 million, with the corresponding adjusted EBITDA margin of approximately 20%.

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

Again, from a cash perspective, we had $95 million in transition-related severance and one-time IT-related expenses from 2014 that we expect to pay in 2015. The largest of which is approximately $50 million in remaining severance payments. This was also noted on our last call.

This concludes our prepared remarks. With that, we'd be pleased to answer any questions you may have. Operator, could you please open up the lines for Q&A? Thank you.

Thank you.

(Operator Instructions)

Ghansham Panjabi, Robert W. Baird.

Hey, guys. Good morning.

Good morning.

Just on the auto OEM side, European auto sales have been pretty strong so far in 2015. Just curious as to what your customers are telling you in terms of production expectations for the year? I know you cited weakness in Russia and Eastern Europe, but what about the Western portion of the continent?

As far as the European OEM, certainly, on the Western side if you look at the first quarter, some of the bigger players like Mercedes, BMW, had a nice uptick in sales, a lot of that's export. What we're hearing from them is pretty steady demand through the year. I think that they are enabled by the euro being a little more competitive right now.

So I think they think their export demand, certainly, on the higher-end vehicles will be a little better. I think there's a couple of other OEMs that we deal with that are kind of looking at things being flat through the year. But a couple of higher-end ones certainly see an uptick this year. So I think in the Western part, we expect activity to be pretty sound through the year.

And then on the same vein in terms of auto OEM in North America, was that in line with the expectations for the quarter in terms of sales growth? Did that end market benefit from some of the issues that you may have seen in the fourth quarter, such as the West Coast port strike?

Yes, I think the first quarter for us OEM in North America was pretty consistent with expectations. And I would comment, of course the other region I think that people will ask about is China. I would go ahead and proactively comment that, right now, as we deal with the OEMs that we're aligned with, while there's certainly a lot of noise around China and they talk a lot about the 7% growth, what we've seen coming through the first quarter is pretty much as predicted demand.

I think if we see anything as we go through this year, we'll have to watch some of the newer facilities and how fast they ramp up. I think that will be second and third quarter where we'll see will China really slow down to more single-digit OEM growth, which is expected this year. But so far for us, China has been about consistent with expectations.

Okay, thanks so much, guys.

Ramanan Sivalingam, Deutsche Bank.

Hey, guys. Good morning. Just a quick question. I think you mentioned you're starting to see the benefits of lower raw materials in certain parts of the supply chain in Q1. So can you opine about what you guys expect Q2 through Q4 as we move through 2015?

Ramanan, this is Robert. On that point, I think we have seen some modest relief in some categories of raw materials from a pricing perspective, which has yet to flow through our financial statements, given, obviously, the drop in the price of oil over the last two quarters. I think as we move forward, of course, oil has moved back up.

So it will be interesting to see as we go through Q3 and Q4 what actually happens to pricing across our commodity basket. In terms of how we've thought about our guidance, again, our guidance was originally put together with a relatively conservative assumption around how much raw material benefit we would receive in 2015.

Got you. That's very helpful. And then, on the commercial side of things, it seems to be pretty strong globally. Just curious to know how you guys are thinking about Asia, just because I think the [ACT] is forecasting a low double-digit decline in commercial vehicle production.

Are you guys gaining share there? Or are you expecting that general market to grow pretty healthily through the rest of the year?

Yes, this is Charlie. A couple of things there, one, as we've highlighted previously, our commercial share in China was pretty fairly low when you talk about heavy-duty truck and bus. So for us, we're growing. I would tell you, so for us, it is share.

I think we concur with those forecasts that say, you'll probably continue to see truck demand, overall large-truck demand in China, decrease year over year, so on mid-single digits. I think that where we are seeing the demand for our products -- some of this through our Kinlita joint venture and just some of it through other existing accounts -- has been a renewed interest in -- and as you're probably aware, they put a solvent tax, a 4% solvent tax, on manufacturers this past quarter in China to encourage manufacturers and through their customers to move to higher solids, lower VOC, and ultimately, in many cases, to waterborne.

So our demand actually is being generated, and again, some of it is share growth, by customers wanting to move to lower solvents from an environmental standpoint and in some cases move to waterborne. So we actually think our business will continue to grow nicely year over year, and certainly as we go into 2016. And that will be at the expense of some of the manufacturers who are just pure solvent born, some of them Chinese national companies.

This is Robert. I would just add to what Charlie said that in addition to heavy-duty truck, of course, we have our other lines of business in that end market. And in China, we are seeing significant amount of growth in the rail sector, as government funding continues for some larger North-South rail projects.

And it places like India we are seeing continued significant growth in the bus business. So just not to leave everyone with the impression that it's just heavy-duty truck in that commercial end market.

Got you. Thank you very much.

P.J. Juvekar, Citi.

Yes, hi, good morning. You talked about growth in MSOs. Could you talk about what kind of share do you have with MSOs? And just give us what's going on with the competition and the competitive landscape in that area?

Yes, I don't think we'll comment on the share that we have. But I think I would just highlight that MSOs, certainly, every region is a little bit different. It's really being led by North America. There are several, as we all know, there are four or five large national players. And then, behind that is a host of mega dealers and also regional players. We continue to see them grow rapidly. There is quite a bit of data out there about the overall MSO growth in the collision industry approaching, over the next five years, 25% of the total market with four players representing upwards of 5% of that market place.

So I think we think that trend will continue. That's being fueled by productivity as they are able to acquire shops; also larger shops wanting to get out of business; and private equity, but also public funding and private funding is continuing to fuel that.

So I think we'll continue to see that. Will that approach $10 billion to $12 billion of the total collision market in North America? I certainly believe so. We do not see that slowing down. I think there's a lot of questions around -- as some of these guys get really big, will they slowdown? Just like any roll-up management challenges, integration challenges, productivity challenges. But we really haven't seen that yet.

I think we're aligned with a couple of the players that are growing rapidly. But I would also caution there is, certainly, some regional players who are well-capitalized and are going to grow as well. We don't see that trend -- that part of MSOs, limited activity in Europe around that. In China you have large buying groups, which comprise maybe half of the marketplace there that we deal in. And we think that those will continue to get stronger as dealer networks continue to grow and form there. But in North America, we think the trend will continue. How fast it continues, I don't care to guess, but it's certainly fueling our growth as we are aligned with several of the players who are growing nicely.

Charlie, your industrial growth was a bit slow. Can you talk about, geographically, where you see slow growth and where are the bright spots? Thank you.

I think our growth is primarily going to be North America and emerging markets. Robert, you want to give any comments on that?

I think in terms of the overall industrial growth, we did see a nice pickup in the first quarter of this year compared to the first quarter of last year. And I think, again, as we've talked about, we've made fairly substantial investment both in terms of the management team and the commercial infrastructure in that business to begin to grow it. And I think we're starting to see the fruits of that labor.

Yes, and I think we see that both on the liquids and the powder side, where we have really good products that we're moving into new regions. And a lot of those initiatives are starting to take place as we go through 2015.

Thank you.

Jeff Zekauskas, JPMorgan.

Good morning, this is so Silke Kueck for Jeff. How are you?

Silke, good morning. How are you?

Good, thank you. Can you quantify what the dividend payment was to your joint-venture partner in the industrial segment?

Yes, the dividend payment was $3.5 million.

$3.5 million. So if you strip that out, really the EBITDA margin in performance coatings would've been much more comparable to what you report in the first quarter last year, right?

That is correct. In the interest of conservatism and to adhere to the process and the standard that we've used to calculate adjusted EBITDA, we didn't want to alter the definition that we had used historically.

Do expect to make -- are there additional payments that you have to make for the remainder of the year? Or is this one-time in nature for the year?

Yes, typically it's a one-time payment each year. And the payment for this year has already occurred. Therefore, we would not be expecting any future payments this year.

And secondly, you indicated that your light vehicle growth, or volume growth light vehicles, was up, I don't know, 7% in the quarter and was up 22% in Asia-Pacific. How much of that is due to the new business wins and expansions in China?

In terms of the overall -- when you look at it from an overall perspective, we had a very strong performance by OEM in North America and also in Asia-Pacific. The business that we won, I think we mentioned on our last call, about 32 OEM plants since the beginning of 2013. A number of those plants are starting to come online and actually move into production. We actually have revenue being generated at about 50% of the plants that were awarded since 2013. So the plants are starting to come online and they're also starting to ramp up.

Additionally, our customer base has done quite well versus the market. And then within that customer base, the specific models on which we've been fortunate enough to supply certain layers or certain colors have also done, we believe, better than the overall market. Since -- you can have a little bit of a multiplicative benefit in that respect.

And my last question is, in terms of cost savings, I think your goal is to get $60 million in cumulative savings by the end of 2015 from the Fit For Growth strategy. And my guess is that the run-rate savings are probably higher than that. I was wondering what your view as to what your run-rate savings may be by the end of the year, and where you are in the first quarter?

So what I would say is that in the first quarter, in terms of our Fit For Growth program, it exceeded our expectations in terms of what we had internally budgeted for the quarter. So I think that's a good indication as the potential trajectory of the year.

We also have a fairly good insight into the nature of those cost savings. And from the $37 million that we saved in 2014 for 2015 and 2016 and 2017, I think as we mentioned in our comments, we expect the remainder of the savings to be fairly linear in nature.

John McNulty, Credit Suisse.

Good morning, thanks for taking my questions. Looking at some of the guidance numbers, the adjusted EBITDA and the CapEx, and even making some assumptions for interest expenses and taxes, it looks like you should generate some significant free cash in the year. But can you give us some of the puts and takes around any charges that we should be thinking about around some of the restructuring programs and the cost cuts just so we can fine-tune the cash flow numbers a little bit better?

Yes, great question. I think in terms of one-time costs, John, as we look at it for the remainder of the year, we're not expecting any more transition-related one-time cost out of the separation from DuPont or through those, the cash from those will finish pulling out in Q2. And with that, we're done at this stage with what was a huge milestone that we reached in 2014.

Now, we do expect to have non-recurring cost in 2015 related to Fit For Growth and The Axalta Way. And certainly, there will be some CapEx investments that will be required in order to achieve some of those savings in the medium and longer term. I think as we look out over the next 12 months, the aspects in which we have the visibility at the moment, there will probably be three categories.

We will have some severance-related costs to the ongoing execution of Fit For Growth, and also, potentially, some severance costs associated with The Axalta Way. Our consulting fees that we incurred in Q1 of approximately $4 million, we would expect to incur consulting fees at that rate approximately through the rest of the year. And then, we may in Q2 or Q3 incur a one-time charge related to a broader Axalta Way restructuring.

Okay. And any ballpark on the sizes of those charges around the severance and the one-time charge?

Yes. We're still working through that. I think on the expense side, as I've mentioned with expenses, we've got pretty good line of sight on related to the consulting services supporting us on that project. And on our next earnings call, we should be able to provide a little bit more color around some of those other numbers.

Okay. Great. And then just a question on the refinish business. It's still showing some decent growth. But it certainly has decelerated from the last couple of quarters, so I guess I'm wondering what may be driving that? And is it just a difficult comp or are there some other fundamental things that we should be thinking about?

I think as we had mentioned in our 8-K that we issued back in March, and also on the last earnings call, Q1 2014 was an unusually strong quarter not only in refinish, but, of course, in other businesses as well. And what we did see was lower refinish product demand in the first quarter that we attribute primarily to the relatively mild winter that we experienced in North America and Europe and just a slower start. That being said, we did see in January and February some slowness and then quite a bit of pick up in March.

Great. Thanks very much for the color.

Bob Koort, Goldman Sachs.

Thanks, good morning, guys.

Good morning, Bob.

A couple of quick ones. I know you guys gave the 5% to 7% guidance in sales growth for the year, which is consistent with the first quarter. Would you expect the relative growth rates of performance and transportation to remain at 2% to 3% in performance and much stronger than that in transportation?

As we look across the full-year, Bob, this is Robert, I think as we highlighted before, just given the sheer amount of business that we've won in transportation coatings both in light vehicle as well as commercial vehicle, that will drive a higher growth rate on the transportation side of the business compared to the performance side of the business. That being said, we are expecting attractive growth in the performance coatings side of the business.

And you mentioned the 30-odd new OEM plants. I'm just curious, how many plants come up a year? Or that was over a multi-year period. How would we consider that in terms of share of new plant awards? Would it be consistent with your market share, above your market share, below? How should we gauge that?

Yes, Bob, I think that as we look at it over the past year and a half, I think it was probably more than our fair share. But I would qualify that by saying, some of that was just the rebalancing we saw a couple of the OEMs do. Some of that was a disproportionate amount of a couple of the OEMs that we're really aligned with growing faster than the general market. And I think you guys kind of know who those are.

So as we go forward, I think we look at a world where we really move more towards, what we would believe, our fair share to be. And that will move around a little bit, again, just depending on who you think in the OEM world is going to continue to grow faster than the market. So we do tend to be -- when we look at overall SARs, we do believe we're aligned with a couple of players who we think will continue to maybe do better than the overall market, the overall market growth rate.

So I think it's, yes, we think we grew maybe a little more than our fair share. But I don't think it was because we were overly aggressive or anything. I think it was the capacity in China coming online, the products, and, to a large extent, decisions the OEMs were making. And so I think we feel pretty good about -- be high-growth over this next year, year and a half, as these plants startup. And then after that, I think the market probably remains fairly balanced, as far as share moving forward. And that is certainly how we've modeled it as we go into 2017.

Thank you, Charlie. And I think that maybe leads to my last question, which is in Asia-Pacific, obviously, a phenomenal year-on-year growth. You've started up the Jiading plant. How long can we expect to sustain that kind of growth? Or what is the ramp-down to a more normalized level, specifically in Asia-Pacific?

So I think as we think about that, Bob, if we look at the business that we've won in 2013 and 2014, which starts to come online in 2015, 2016, and then sort of hits the full ramp rate in the back half of the year of 2016 and the beginning of 2017, I think the expectation would be at this juncture in 2015 and 2016 we would continue to see that strong growth in the Asia-Pacific.

And then in 2017, I think we would expect that, as Charlie had mentioned, given some of the share rebalancing amongst some of the coatings players in the market, as well as the amount of business that we've won in Asia-Pacific, for that to even out. And wouldn't expect it to be able to continue to grow at these kinds of rates, sort of beyond 2017. I think we would expect to grow more in line with market, and then potentially above market depending upon how our individual customers perform.

And I think if you look at car growth in China in 2017, or 2016, 2017, dropping back to mid-single digits. I think that's how we would think of the business as we move into 2017. And again, I think, as Robert highlighted earlier, one of our bigger focuses is, in the other industrial sectors and including commercial. Where, again, underneath the surface, there's a lot of change going on the technology being used, the cost of that technology, and what some of the customers and the government is expecting there. Not just in China, but in a couple of the other countries.

Great. Thanks guys.

Thank you.

Ivan Marcuse, KeyBanc Capital Markets.

Thanks for taking my questions. The first one is, it looks like if the dividend was $3.5 million, the start-up costs related to China were pretty -- would you gauge as roughly $0.5 million? What is your expectation as far as cost related with that plant going forward?

Yes, the start-up costs related to that plant in the first quarter were approximately $1 million. And as we move forward and out of the phase of a mix of test batch and then also finished goods that sold and being consumed by OEMs, as that mix changes and moves forward then the cost for that will start to become absorbed and less of an issue.

Great. And then on the back of that, you have some other investments that are going on. What's sort of your cost expectations for the Germany expansion and the Mexico expansion as we get into the back half of 2015 going into the first half of 2016? Would it be similar to China?

I think the Mexico expansion will be negligible. And I would think the Germany is in the range of EUR1 million to EUR2 million. And that would be just testing costs and product qualification costs.

Okay, great. And then, the last question I have. Your quarter, the first quarter, started off a little bit better than expectations. You maintained the guidance, which I understand, but your markets seem to be going all right. So what does the world or your markets look like to reach the bottom end of your guidance? Or what's the moving parts that keeps you there?

I think that while we see positive momentum in Europe right now, I think that Europe is still just kind of watching where the euro goes, what's going on in Eastern Europe. And then, as we go through the second half of the year, the South America markets are the ones that, as we look at our position in Brazil and some of the other countries there, it is unclear what actions they may take. It's pretty subdued economic activity down there.

And then the third piece is just for us, we still have a lot of start-ups to go this year in China in OEM. And we're following along with the OEMs plans, but sometimes, as you know, those start-ups take a little longer than projected and go a little slower. And I think the one I would highlight that's a really big positive that you've seen that has been, for example, here in North America with the Ford, where last fall with the F-150 plant in Dearborn and now the one, the second one that's being converted. They are taking their time. They're doing it right. But those ramp-ups are going slower that, I think, as a supplier, we would expected.

So I think as we think about those three areas, it holds us back being that earlier in the year on being overly optimistic just because the markets are fine, but we're kind of at the whims of how all that balances out.

Great. The last quick question is, how much of an impact to EBITDA was currency this quarter?

At the sales level, we disclosed that number, Ivan. And at the EBITDA level, since we are naturally hedged to a great extent across the organization, the impact to EBITDA is much less than the impact to sales.

Thanks.

Kevin McCarthy, Bank of America Merrill Lynch.

Yes, good morning. Recognizing that you were not a public company in the second quarter last year, was wondering if you could comment on which businesses if any you feel that you might have an easier comparison in 2Q 2015, or a more difficult comparison? Any that stand out for modeling purposes?

This is Charlie. No, I don't think so. I think second quarter for us last year and this year, we have pretty good line of sight on. I think the business are pretty straight -- the fundamentals haven't really changed.

Okay. And then, to follow up on performance coatings margin. If I back out the Chinese dividend payment, it looks like your margins still would've been down 40, 50 BPS. You indicated you're investing for growth, obviously, in that business, so your OpEx was up a bit. Just wondering if you could flesh out the latter?

In other words, if we think about all the different investments for growth, how much might that have increased year over year? Or in other words, what would your segment margins be on an apples-to-apples basis year over year?

I think there's two things I would highlight there, Kevin. The first is, I think as we highlighted again, we did see lower refinish product demand in the first quarter, given some of the weather elements that we mentioned in North America and in Europe.

At the EBITDA level, currency does impact performance a little more than transportation, due to the mix of the business that we have in EMEA and Latin America in particular. So you also saw, with currency impact at the top-line level of about 12%, that does impact the performance segment slightly more than the transportation segment.

Okay. Thank you very much.

Laurence Alexander, Jefferies.

Hi, this is Jeff on for Laurence. You mentioned selective price increases in the quarter. Were these targeted within a particular segment or product lines or really just broad-based as contracts rolled over? And then, how are you think about pricing for the remainder of the year?

Yes, this is Charlie. In a lot of our businesses, those are already contracted for. The other thing is, in our refinish side of the business, those tend to be staged throughout the year. And they go by brand, and they go by region.

And those do move around some based on what's going on in any one quarter. So right now we've got our scheduled price increases. Not many of those happen in the first quarter. We've changed the timing on some of those, so you don't see a big difference in price year over year in the segment.

But right now I think our scheduled price increases are out there. And as we talked about on the raw materials earlier, when you look at the coatings that we produce, we are not driven by [t-O2]. We're not driven by high-volume solvents. We tend to have more isocyanates, propylene-based resins.

And if you look at a lot of those categories, some of those raws have not gone down. In fact, propylene in Europe, for example, is as high as it's been in the last four years and driving price increases. So actually, with a lot of our customers, we are having to highlight that and still go after price.

But those in the refinish and the industrial side tend to be scheduled throughout the year, and they tend to be scheduled by product brand. And right now we will go out with our normal price increases, and we expect to get those.

And then, regarding the cost control and productivity initiatives that you have ongoing, can you touch on how these programs may have affected the corporate culture thus far?

Yes, I think it's just, as Robert highlighted earlier, really working on the corporate culture of continuous improvement and productivity. And I would say a combination of just some of the individuals we brought in from around the world who come from cultures of very strong operating systems. And then also just our desire to continuously have the kind of improvement we've talked about on the call with you. I would say it's a big change for the personnel.

And again in coatings, it's a big change for searching for those savings, restructuring organization. I couldn't be happier with the reception we've gotten from our people. But it is, in many cases, relatively new for them. And we're spending a lot of time in the organization being really clear on what we want, how we want it, and how you go about continuously reengineering your business.

So [there are] places with response to people, but it's a very different culture than what we inherited in 2013. But I'm very happy. The people are very receptive to it. There is just a lot of learning that has to go on, on how you actually do that. And in some cases, as Robert has highlighted, there is investment required.

And in many cases, that's investment the business wouldn't have gotten in the past. So the ideas are in the organization, but you have to bring them forward. They have to understand that we're willing to invest to get to this productivity.

So very happy with the progress. I think everybody is rising to the occasion. But it's just a very different work environment than what a lot of them had been used to.

Great. Thank you.

Thank you. Ladies and gentlemen, we've come to the end of our allowed time for questions. I'll now turn the floor back to Mr. Shaver for any final remarks.

Yes, thank you. And again, I'd like to think everybody for your time and your patience this morning on the call. As we highlighted, we're off to a nice start for the year. I think we all know the -- we talked about the headwinds out there from a currency standpoint. And while those are mainly translational for us, they do challenge us to continue to rethink our business and our customers to rethink their business going forward.

I do think we will continue to watch raw materials as we go through the next quarter too, as Robert highlighted. As we speak this morning, Brent crude is $66. WTI is over $60. So we are starting to see what may be the bottom of that cycle as some of this shale oils come off. And we may begin to see some pressure back on raws as we go through the second half of the year.

So I think we've got markets that we feel like are fundamentally sound, good macros out there, and look forward to a good year. However, what we're certainly finding is, quarter to quarter, the world has a pretty big changes going on right now. And we'll continue to navigate through those.

But again, I think we are off to a good start. We feel good about our people, our products, our organization. Most importantly the biggest thing that we have different year over year for us is we are past -- as we've highlighted on our calls with some of the individual investors -- we're past our transition. So the organization is singly focused on growing the business now, and I think we will continue to see a lot of those initiatives start to bear fruit as we go through the next couple of quarters.

Again, we're also in this exciting time for us with a new set of investors. And we will be spending a lot of time with you in conferences over the next couple of quarters and look forward to sharing even more about what we have going on with the business with you. So again, thanks, operator. And we'll see you in the second quarter.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.