Axalta Coating Systems Ltd (AXTA) 2015 Q4 法說會逐字稿

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

(Operator Instructions)

Today's call is being recorded. Replays of this conference will be available through February 17, 2016. Those listening after today's call 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 of Investor Relations for Axalta Coating Systems, for a few brief legal notices. Thank you. Please go ahead.

Thank you and good morning. This is Chris Mecray, Axalta's VP of Investor Relations. We appreciate your continued interest in Axalta, and welcome you to our fourth-quarter and full-year 2015 financial results conference call. Joining us today are Charlie Shaver, Chairman and CEO, and Robert Bryant, EVP and CFO. This morning, we released our fourth-quarter and full-year financial results, and posted a slide presentation to the investor relations section of our website at AxaltaCS.com, which we will be referencing during this call.

Both the prepared remarks and the discussion during this 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 materially from those forward-looking statements. 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 contains reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For additional information regarding these forward-looking statements and non-GAAP financial measures, please refer to our filings with the SEC.

I would like to now turn the call over to Charlie.

Good morning, everyone. Thank you for joining us on the call today, during which we will review our fourth-quarter and our full-year 2015 financial results. I would like to begin by pointing out some of the highlights from the quarter, and some broader statements on our progress in 2015, and I will review in detail our goals for 2016, as we continue to work to create shareholder value through continued profitable growth here at Axalta. I'll then turn the call over to Robert, who will provide some additional detail on our financial results and basic assumptions behind our full-year 2016 guidance. We'd then love to take your questions.

If you would turn to slide 3 of our presentation, our Q4 and our full-year 2015 highlights. Axalta continues to perform strongly. We delivered a good fourth-quarter result to finish off a solid year for Axalta, despite a challenging emerging markets and currency environment.

Fourth-quarter net sales rose a solid 4.5% from the prior year, before the impact of currency translation. This was driven by strong mid-single-digit volume gains from both segments, as well as ongoing positive benefit from positive price realization in our refinish end market. Offset somewhat by slightly lower industrial end market pricing.

We also delivered profitable growth as adjusted EBITDA in Q4 rose 4% year-over-year, in spite of significant currency headwinds. Our adjusted EBITDA margins increased 220 basis points from last year to 21.2%. These net sales results were well within our projected ranges that we shared with you for sales growth at the start of the year, and also within our profit range that we bracketed back in December. Notably, fourth-quarter profit received no help from currency, but was generated from strong operating execution, and some relief in China coming off of a challenging third quarter.

Our operating initiatives remain well on track with sound execution to date. We have highlighted our four major capacity expansions undertaken since our carve out, each of which was completed or near completed by year end, on time and on budget. This is a real achievement for a new organization gearing up for growth after a long period of organic under investment, and a testament to the effectiveness of our engineering and operating teams.

Although we don't talk much about them due to their small size, we did complete three small acquisitions last year, including one Company in the fourth quarter in North America named ChemSpec, which increases our presence in certain value-oriented refinish coatings segments. These deals have given us some early confirmation of our tuck-in acquisition strategy that we can build over time. Our pipeline of these types of deals remains robust and attractive today.

We've also made strong progress in our productivity initiatives, achieving $52 million in incremental savings in 2015 from our two programs, The Axalta Way and Fit-For-Growth. We remain on track to meet or exceed our guidance related to these programs given back in December, with a clear swing towards Axalta Way now that Fit-For-Growth is closer to completion after an earlier start. Our 2016 combined incremental savings target remains at $60 million, as we communicated that our analyst investor day back on December 4.

Axalta continued to make progress in reducing leverage and accelerating free cash flow during 2015. We have prepaid $100 million of our term loans in Q4, similar to our Q4 2014 prepayment, and produced over $192 million of free cash flow in the period, for a full-year total of $262 million. With our solid adjusted EBITDA growth, we ended the year with the net leverage of 3.4 times, down from 3.8 times at the start of the year. We held $485 million in cash on the balance sheet at the end of the year, and have over $860 million in total liquidity available to the Company, ensuring a stable financial foundation as we work to further increase cash flow, and associated leverage reduction goals in 2016.

2015 on a full-year basis was a very strong year, albeit masked somewhat by challenging currency headwinds. We produced 5.3% net sales growth before currency impact, and 3.2% reported adjusted EBITDA growth, which included a substantial negative currency impact. It is interesting to note that absent these large translational currency headwinds, our adjusted EBITDA would have likely exceeded the high end of our communicated guidance, all the way back in March. This simply underscores the strength of our operative performance in 2015, and I'm very proud of the work that our team accomplished during the period.

We review our global diversification as a long-term strategic positive, and we expect to see associated financial benefits from this once the current global economic conditions work their way through. As I have said before and it bears repeating, Axalta remains focused on our initiatives to grow the business, refine our cost structure, and improve our operating discipline, as we work to transform Axalta to a best-in-class coatings company. We believe that our results in 2015, including the strong financial metrics, as well as our progress in key operating initiatives, sets us well on that path.

Robert will now walk us through Axalta's financial results in more detail.

Thanks Charlie, and good morning, everyone. Please turn to slide 4, where you will find our Q4 consolidated results. Constant currency and net sales in the fourth quarter increased 4.5% year-over-year, driven by a combination of volume growth from both segments and most regions. We also saw the expected price increases in performance coatings for the quarter, while pricing for transportation coatings was essentially flat.

Foreign currency translation reduced reported net sales by 11.5% in the quarter, as devaluation trends during 2015 continued in the fourth quarter. On a sequential basis, as we noted in December, the currency impact worsened slightly from third-quarter levels. Axalta's net sales volumes on a consolidated basis increased 3.9% over the prior-year quarter, reflecting growth in all end markets, and most regions in the period.

In North America, volumes increased mid single digits, led principally by transportation coatings as in previous quarters, benefiting from a strong regional auto market and new business wins. In Asia-Pacific, volumes rebounded nicely, to show renewed overall growth after a weaker Q3. In China specifically, we saw sales volumes in November, December, and January were turned to at or above our budgeted levels.

Latin America saw essentially flat volumes, held back largely by slower light vehicle production. Finally EMEA, volume saw some acceleration in Q4 to grow mid-single digits overall, including positive contribution from all end markets. Although the price contribution in the quarter of 0.6% remained moderate in aggregate, this was on track with our expectations for the period.

Fourth-quarter adjusted EBITDA of $213 million compared with $205 million in last year's Q4, benefiting from volume and price leverage, as well as variable margin savings, offset substantially by currency impact for the period. The impressive 220 basis point improvement in adjusted EBITDA margin that Charlie mentioned reflected the volume and price tailwinds noted previously, as well as savings from cost improvements and productivity enhancement, offset in part by ongoing investments to support growth, similar to prior periods.

Moving on to Q4 2015 performance coatings results on slide 5, net sales in our performance coatings segment increased 4.8% year over year, before the impact of foreign exchange, driven by broad-based regional growth. Volumes increased 3.6% for the quarter, also in most regions, including solid increases in EMEA, led by a combination of refinish and industrial volume gains. Average segment selling prices increased 1.2%, with low single-digit gains in refinish, offset by modest price pressure in industrial.

The volume and price increases were offset by 12.9% currency translation and exchange headwinds, consistent with prior quarters last year. Refinish net sales increased a solid 4.8% on a constant currency basis Q4 2014, including pricing gains as expected, and moderate volume growth in total. Constant currency net sales in our industrial end market increased 4.6% year over year, again showing growth easily above some of the individual end markets we serve.

Volume growth, similar to the third quarter, was led by increases in North America and EMEA, including bottoms-up account gains from our targeted sales efforts. Despite a mixed industrial production backdrop globally, we grew well in excess of overall market growth, thanks to our investment in commercial capabilities, introduction of new products, and some share growth, as we continue to focus on markets where we are relatively underrepresented.

Performance coatings generated adjusted EBITDA of $131 million in the fourth quarter, a slight decline from $138 million in Q4 2014, reflecting the substantial unfavorable impact of currency headwinds, offset by volume, price, and variable cost savings. Adjusted EBITDA margins still increased however, rising 70 basis points to 22.2% from last year, benefiting from the drop-through effect of volume, price, and cost improvements in the period.

Switching now to our Q4 2015 transportation coatings results, net sales in transportation coatings increased 4.2% year-over-year in the fourth quarter, before adverse currency exchange impacts of 9.5%. This result included ongoing volume growth in North America and EMEA, a recovery back to growth for Asia-Pacific, somewhat offset by weaker Latin American performance, consistent with the third quarter. Q4 net sales in our light vehicle end market increased 5.5%, excluding foreign currency translation, including growth in all regions except Latin America.

Net sales in our commercial vehicle end market flattened for the quarter, excluding foreign currency translation, with ongoing growth in EMEA and Asia-Pacific, offset by slower North American and Latin American performance, as heavy-duty truck production slowed in the period. As a reminder though, only about half of our sales in the commercial vehicle end market are from heavy-duty truck. The remainder of our business is mainly generated from bus, rail, agricultural and construction equipment, trailers, and body builders.

Transportation coatings generated adjusted EBITDA of $82 million in Q4, up nicely from $67 million a year ago. With positive volume drop through and progress in our cost initiatives and favorable trends in raw materials, offset partly by foreign exchange impacts. Segment adjusted EBITDA margins stepped up fully 450 basis points from 15.2% to 19.7%, also driven by the elements just described.

Turning to our full-year 2015 consolidated results, for the full-year 2015, net sales increased 5.3% before currency exchange impacts, coming within our 5% to 7% target range, in spite of difficult conditions in emerging markets, the third-quarter inventory correction in China light vehicle, and FX headwinds. We are very proud of this result, which was achieved through in a lot of hard work across the Axalta team.

We believe our organic net sales growth in 2015, excluding the impact of foreign currency, was the highest of any company in the coatings industry. This net sales growth was split relatively evenly between the segments, with mid-digit growth coming from both performance and transportation coatings. It's worth highlighting that we achieved volume growth in all regions for the full year with the strongest performance coming from North America and Asia Pacific.

Adjusted EBITDA for the year increased 3.2% versus 2014, which includes substantial currency headwinds. Our $867 million in full-year adjusted EBITDA was within our guidance range provided in December of $860 million to $870 million in spite of currency effects. The adjusted EBITDA result was driven by the broad volume growth noted previously, a positive impact from price contribution, savings from variable cost reductions, offset in part by foreign currency and operating investments we have also previously discussed.

The effect at the margin level was accretive, with 190 basis point boost from last year to 21.2% in 2015, also a bit ahead of our target. Again, we're very proud of these results, and clearly 2015 was another very strong year for Axalta. We credit this performance to our team's focus on achieving growth, even given an uneven market backdrop, relentless execution on our productivity initiatives, and singular attention to driving positive cultural change in the Company to make this type of strong performance a habit.

Looking at some of the key balance sheet items on slide 8, as of December 31, cash and equivalents totaled $485 million versus $412 million as of September 30. While total reported debt was $3.4 billion, resulting in a net debt balance of approximately $3 billion. Our net debt to full-year adjusted EBITDA ratio was 3.4 times.

As expected, free cash flow improved in quarter to $192 million, net of CapEx of $44 million. For the year, free cash flow was $262 million, net of CapEx of $138 million.

Regarding our capital allocation plans, we continue to focus our free cash flow on debt reduction, targeting leverage of 2.5 to 3 times net debt to LTM adjusted EBITDA. We expect to achieve this target within the next 18 months, based on our current forecasts, and with any potential variance largely associated with uncertain timing of acquisitions as an alternative use of the capital.

We also continue to invest capital on internal projects with high IRRs, as reflected in our CapEx guidance of $150 million, which includes approximately $90 million of growth and productivity spend. We remain satisfied with and continue to evaluate a long list of such projects. Regarding M&A, we closed the third small transaction and our first in North America in the fourth quarter, as previously noted.

Charlie will now address some of our goals for 2016.

Great, thank you Robert. If you look on slide 9, we laid out much of our plan for 2016 back in December, but I would like to revisit those metrics and add a little bit of color to the 2016 goals, which remain unchanged.

First of all, we are targeting to grow net sales before currency 4% to 6% of this year. Our plan to achieve this goal is supported by detailed and realistic operating plans in each business.

First, it is useful to remind everyone that over 40% of our revenues, and even more of our profitability comes from the refinish end market, serving the relatively stable and globally diversified automotive collision aftermarket. This provides for a stable net sales foundation from which to build, and are selling gaining share in this consolidating market over time in all our major regions. We believe the refinish demand will continue to benefit in 2016 from lower fuel prices, which correlates will with increased miles driven and accident rates, as well the purchase of larger vehicles that consume more paint.

Further Axalta, operates in fairly diversified markets. When you factor in our four end markets and the four geographic regions, in aggregate, nearly all of our end markets and regions are expecting core volume growth in the low to mid-single digits in 2016. Of course, there are known pressure points to our overall growth plans, including ongoing fundamental demand pressure in emerging market countries, and expected pull back from near decade highs in North American heavy-duty truck production.

That said, these pressured areas are balanced by our expectation of moderate growth in our core refinish light vehicle industrial niches, where we participate. In addition, our plans call for a continuation of modest share gain in most end markets, largely building on the business success we have demonstrated during the course of the last several years.

While no new contract offers a guarantee of future volume, we do have good line of sight this year from key account wins in 2015 and prior periods. Finally, we continue to expect modest price increases in a few key areas of the business to round out the top line build-out that produces our mid-single-digit guidance for 2016 net sales.

Robert will detail some of the other financial guidance items, but I would like to touch on a couple of our operating goals for 2016 in more detail. First, we continue to progress of ramping up new capacity that has or is coming online to support our medium and long-term growth objectives. Both in our existing and new plants, we have got an opportunity to further refine our operating processes, as we continuous improvement with benefits expected in improved working capital and associated cash flow.

While we exit 2015 with a strong and diverse global business foundation, I believe continued globalization will further fuel our growth engine. We're pleased to sell into 130 countries, but our presence in each country and within key markets is by no means even. This year, we have plans to advance our global presence with growth objectives in a variety of markets across every region including North America.

Even where we have a strong overall market share position, we believe there are many niches where our presence is still limited, and we are underrepresented. These present clear growth opportunities for us going forward.

Of course, even during periods of growth, we'll continue to execute this year in our productivity initiatives, particularly through our Axalta Way. Our combined savings goal of $60 million will require a great deal of hard work across many individual programs, all designed to make Axalta a leaner operating entity, focused on serving our customers with the right product at the right time, and the highest level of quality and reliability. In short, we must leverage our Axalta Way processes together with our industry-leading products and technologies, in a process focused on innovation to ensure our durable competitive edge over time.

Our capital expenditure plan remains consistent with our 2015 levels, which came in slightly below our $150 million target, largely due to timing and modest benefit from currency devaluation. Now that we are largely finished with our major capacity expansion, we're turning our focus towards productivity spending on smaller projects, designed to lower cost, increase throughput, and automate processes where possible.

Regarding M&A, with three small deals successfully completed, we're looking at and expect to execute on similar tuck-in transactions over time, and over 2016, which tend to be low-risk and with attractive returns, without significantly impacting our balance sheet profile. In the meantime, we're content to reduce our net debt leverage as the primary use of our excess capital.

In 2016, we fully expect to make strong progress in lowering our leverage ratios towards our stated target of 2.5 to 3 times net debt to full-year adjusted EBITDA. Our current expectation is we will have more free cash flow in 2016 versus 2015 to apply to these goals.

To summarize, we are extremely pleased with our 2015 results, especially in the context of the currency headwinds that somewhat masked the underlying volume growth and execution processes that we accomplished. This success is seen, however, in our reported net sales before FX, and in our reported margin improvement. Both showing positive forward progress towards our goal being best in class in the coatings sector, measured by growth, profitability, and eventually our returns on capital invested.

In 2016, we aim to further develop on a strong fundamental business model, and build on those successes. We have a strong foundation, including a resilient aftermarket refinish business as our largest end market, a broad product portfolio, and wide geographic dispersion, all of which we see as the right combination long-term to give us a key competitive advantage, in spite of near-term of macro uncertainties.

We are increasing share in global markets as we introduce new products, globalize our existing products, and apply discipline and metrics-based management to a business that was formerly not a focus area for the previous owners. Our success is paired with a persistent focus on increasing productivity and creating a durable operating model that emphasizes customer service, while definitely minimizing our cost structure, to ensure we can compete effectively.

So now I would like to turn it back to Robert for a few comments on our guidance on slide 10.

Our press release and investor presentation outline our guidance components for 2016 financial modeling. I would like to offer a few added notes on key areas.

Excluding foreign currency impacts, we continue to expect 2016 net sales to grow 4% to 6%. In addition to underlying market growth, Axalta is fortunate to have an abundance of top line growth opportunities, given the myriad self-help actions we continue to execute, and our relatively smaller size in certain markets.

We've updated our FX assumptions as indicated in the appendix to our earnings presentation, and expect reported net sales to be flat to down low single digits. Our full-year forecasted rate for the euro and our guidance is at $1.05; however, yesterday's rate was $1.13. Our constant currency growth is expected to come from all regions and end markets, though we recognize that ongoing economic pressures in South America will limit growth in that region. While commercial truck vehicle growth may also be limited somewhat by lower North American Class 8 truck demand.

We continue to expect refinish market growth to remain stable in aggregate, and assume modest share grain in addition to market growth. Industrial is expected to continue to outgrow its end markets as we develop our business with bottom-up sales efforts and new products, similar to 2015.

Light vehicle growth in low single digits, in line with independent market forecasters, should also be augmented by modest share gain. Commercial vehicle market performance is expected to be slower, but still show modest growth globally in the face of slowing Class 8 demand in North America, while we do not anticipate significant outgrowth versus this end market in our plan.

Our expectation for adjusted EBITDA is a range of $900 million to $940 million for 2016. This range implies a moderate incremental margin on assumed net sales growth, additional savings from our productivity initiatives, most of which are well within our control, rather than dependent on volume, offset by ongoing currency impacts and expected additional cost for ongoing investments in growth, albeit at much lower levels than seen in 2015.

For the first quarter 2016, we note that our expectation is for adjusted EBITDA to fall within the range of 19% to 20% of our full-year EBITDA target. We are also projecting one-time costs on a full-year basis of approximately $25 million for the Axalta Way.

Except for working capital, other model expectations remain unchanged from our presentation on December 4. We expect interest expense at $180 million to $190 million, our tax rate as adjusted to be between 25% and 27%, a diluted share count of 242 million to 245 million shares, capital expenditures of $150 million, and net working capital in the range of 11% to 13% of net sales.

This concludes our prepared remarks. We would be pleased to answer any questions you may have. Operator, would you please open the lines for Q&A?

(Operator Instructions)

Duffy Fischer, Barclays.

Just wondering if you could do a quick waterfall walk from your $867 million to say the midpoint. You called out what some of those were, whether it's FX on the negative side, new volume on the positive. Can you size the buckets of which of the big movers to get us the $60 million of improvement?

Duffy as we look at our guidance for 2016 and the improvement, I think there is a multitude of puts and takes throughout the year, and I think similar to 2015, the exact path on how we get there will be different than what we originally think. But in terms of what we are projecting for 2016, we've got good volume growth across all of our end markets in most of our regions. We have additional variable cost savings. We have additional fixed cost savings.

That was somewhat offset by some additional commercial investment that we will be making to grow the business. We've seen good return on incremental commercial investment that we have made, in particular, in the performance coatings side of the business. And as a result, I expect those end markets where we are under weighted to continue to make commercial investments.

Okay. And then on the cost side, if you hold things flat today, when do you think you would start to anniversary the benefits that we are seeing in raw materials, and how do you see that playing out throughout this year?

As we think about the costs moving forward, I think when you look at the drop of oil that really started to occur in the second quarter, and then you assume approximately three months before you would see that appear in costs of goods sold, and then flow through your financial statements, it's probably at the end of the first quarter that we really start to lap some of those benefits vis-a-vis the lag effect on a weighted average across all of our raw material baskets.

Great. Thank you.

PJ Juvekar, Citi.

It is Dan Jester on for PJ. So maybe we could just talk a bit about margins in the quarter. You noted that in performance coatings, margins were up 70 basis points, but they were up over 450 basis point in transportation coatings. So those segments are probably benefiting from the raw material benefit. Both segments had volume growth. Maybe compare and contrast what is going on, in the margin for those two segments? Thanks.

So in Q4, what you see there with the greater margin expansion on the transportation side of the business, there's a few different components that drive that. One is somewhat regional mix of earnings. The others of course are some raw material savings that did materialize. And the third, as I think we commented on in previous calls, given in particular where the Fit-For-Growth initiative was initially focused in Europe, it was predominantly at plants that tend to serve much more the transportation coatings segment.

Okay. And then on your M&A pipeline, any updated thoughts about targeted opportunities for different end markets, or any comments you'd have on the geographic focus for how we should be sticking about your pipeline? And in 2015, can you size how much revenue or profit was added from M&A? Thanks.

Dan, this is Charlie. I will comment on the first one, and I'll let Robert comment on thinking about the sales that resulted. And again, a couple of those in 2015 were later in the year. So their contribution really we'll see in 2016. But our M&A pipeline, I think we said previously that we would primarily stay focused in the performance coatings side of the business.

So again, as we've always highlighted, our largest business and strongest business globally is refinish, and we think that there's a lot of areas there. A couple of our acquisitions last year were focused on refinish, and focused in the mainstream segment of refinish. So I think you'll see it this year, if we're successful with that pipeline, you'll see us continue to add a couple of more bolt-ons in the performance area.

We will continue to look at everything that comes across, because we always learn and think about our businesses differently. But I think we will stay focused on the performance area, where we believe there is plenty of opportunity globally. As part that regions the world that we would prioritize, last year, if you look at the three that we did, we actually did one in Latin America. We did one in North America, and one in Europe. I think our priorities would in that reverse order. North America, Europe, Asia-Pacific, followed by Latin America at this point.

Regarding the second part of your question in 2015, we saw $10 million to $15 million in net sales contribution from the acquisitions that we added, and in 2016 on a full run rate basis, we would expect that to be approximately $50 million.

Okay. Thank you very much.

Aleksey Yefremov, Nomura Securities.

You show the exchange rates that you used for your current guidance, and while I understand the conservatism, can you give us an idea if we were to mark-to-market, let's say Euro, you used $1.05, the current FX rate is $1.12. So if we were to translate your guidance range to this current environment, what range would we be talking about?

I think last year we spoke about a sensitivity, the one currency sensitivity that we did provide at the net sales, and net EBITDA level, which was each EUR0.01 being equivalent at this rate that we are currently at, to approximately $13 million in sales and approximately $2 million to $2.5 million in EBITDA.

Thank you. And turning to performance coatings, you averaged about 3.5% volume growth in the back half of the year there. Are you growing with the market or meaningfully above the market, and if you are gaining share there, have you seen any competitive response by the pricing side, especially in refinish?

Yes, Aleksey this is Charlie. I think overall we are growing a little faster than the market, and I think there are different reasons in different regions. I think we have highlighted previously that in North America, the whole MSO segment is really growing faster, taking from other parts of the market, and we are one of couple players really benefiting from that.

In Europe, it's an introduction to mainstream products, and into some geographies that we are underrepresented. And in China, for example, in Asia-Pacific, we're actually growing a little faster than the market as we penetrate our products into cities that we were not previously there before. Primarily displacing some domestic competition.

So I think as we always highlight, all of these markets are very competitive. And any time -- what we're really trying to do is not by going in with price, we are really going in with different value propositions. And in some cases into segments of the market with products where we didn't perform before. We feel like we can compete and the competitors in those spaces have very limited action back against us.

Thank you.

Ghansham Panjabi, Robert W Baird.

This is actually Matt Krueger sitting in for Ghansham. First on the macro side, can you walk us through your outlook by region as it relates to your various end markets and segments?

So if we just think about it, the context of your question is around our expected growth rate in 2016, Matt, and we can provide a little bit of color there. I think more broadly, from a macro level, I think we're pretty excited about the conditions that we actually see in North America for next year. In Europe, I think we are also cautiously optimistic about the opportunities that we see there.

In Asia-Pacific, I think we also are optimistic about the opportunities that we see there. Unless China, of course, were to go in a different direction than it appears to be going presently. And then in Latin America, I think we continue to see, you have to bifurcate it into Mexico and South America. In Mexico we continue to see good trends in all of our businesses.

And then when you get to South America and especially Brazil, we believe that Brazil, of course it is it a recession and will continue to be in 2016. From our guidance perspective, again, we had, I think as did most companies, a pretty tough year in Brazil, and we have not assumed that situation changes at all in 2016.

Okay. Great. That is really helpful, and then expanding on 2016 guidance, can you outline what variables would drive 2016 EBITDA to either end of your guidance range?

I think the main variable, Matt, would be the global macro economic environment from a top-line perspective. That is probably the single biggest driver. I think we have been relatively conservative there, but as we look at it we just have a number of opportunities in each one of our markets, that are what we continue to call self-help opportunities, where we may have smaller share than the share we would expect to have in that market. As a result, we continue to have commercial opportunities that allow us to grow pretty significantly, without having to take large amounts of market share. That is one variable.

Other variable, of course, would be FX, and if FX rates, I think, as you can see from our guidance, we're assuming about a 6% FX on a combined basis, across all currencies and you see our currency assumptions laid out in the appendix. FX may not be as bad as we are forecasting. I think we're being relatively conservative.

On the other hand, it could go the other way, and be a little more of a headwind. I think that is something that we don't know. And then lastly, certainly what happens with the cost of raw materials could be an additional tailwind, if we continue to be at these levels throughout the rest of the year.

Vincent Andrews, Morgan Stanley.

This is Matt Gingrich on for Vincent. I was wondering if you could speak to the magnitude and timing of new business wins in OEM, and the implications for above market growth in 2016?

Matt, this is Charlie. I think I would back up a little bit to, I know when we first IPOed over a year ago, we wanted to be very specific about the number of wins and where those were. I think we're moving away from trying to do that. I think it added to confusion in some cases as people tried to add up wins, losses, revenues, everything else.

But what I would tell you is that we continue to see nice business wins, both in the transportation sector and in the performance sector. In transportation, we continue to see those wins not only in Asia-Pacific but in other regions of the world. Interestingly enough, even in Brazil where, while they are not in a great place from a macro, we continue to grow our business there on the transportation side. Clearly in areas like North America and Europe, we continue to pick up business, picking up some share, and in most cases there's just part of the normal procurement processes that the OEMs go through.

We've actually grown share with a couple of OEMs that felt like we were underrepresented with. And we think that will continue. So I think that while there's a lot of questions around global SARs, I think we feel that there is plenty of runway for us, and especially in some of the areas we are underrepresented at, again after our prior owners having not focused on some of those customers, that could continue.

And on the performance side of the business, as you know, it is very fragmented, and it is literally thousands of customers. So our wins, we measure how we grow with existing customers, but then also number of new customers. And particularly in the industrial coatings business, we have rapidly grown a whole new customer list, comprising a lot of the growth in that segment, which has been faster than market, has been new customer growth, new segments for us.

Do you think your multiple to market growth is representative of a run rate in the fourth quarter, or do you expect an acceleration there?

I think that some of that has got seasonal aspects to it, depending on what some of these segments are doing. But I think overall, as we look at the 4% for 6% of 2016, that we're approaching that run rate.

Thanks.

Jeff Zekauskas, JPMorgan.

I have a few questions on your items. What do you expect your stock comp expense to be next year? How much of the $36 million in termination charges have you actually funded, and do your consulting and advisory fees of roughly $25 million change very much next year?

Jeff, we will take each one of your questions one at a time. Your first question on stock comp, in 2015, our stock comp charge was $30 million. In 2016, our estimate for stock comp is $40 million. That increase really comes from the amortization of the retention and the regular annual grants from May 2015, and peaks in 2016, before coming back down somewhat with the three year smoothing effect as we move to more normal annual stock comp grants as a public company.

Okay.

Your second question was on severance?

Yes. How much of the severance, of the $36 million, has been paid out?

So of the $36 million, we have paid out all of it. We have an additional $41 million -- sorry $36 million to be paid.

$36 million to be paid. And the consulting fees, will they change very much?

Yes, in terms of the expenses that we are expecting for next year, we do expect if you look at the components of our one-time costs in 2015, roughly 50% to 60% of them were related to severance, and consulting was around 35% to 50%, depending upon whether you're looking at just Axalta Way or the total for the Company. Next year, we are expecting one-time costs related to The Axalta Way of $25 million.

That number does include some of our consulting fees, as well as expected severance related to programs that we've already identified and have planned for 2016. If there were to be some additional restructuring or additional plans, we would have an additional one-time cost. But as of this point, $25 million is our best estimate.

Lastly, do you have a rough idea of your cash flow from operations next year?

In terms of cash flow for operations for next year, I think in Charlie's comments, as we highlighted, we expect that number to be higher than it was in 2015, but we haven't provided specific guidance on our cash flow for next year.

Okay. Good. Thank you so much.

Bob Koort, Goldman Sachs.

This is Chris Evans on for Bob. I was hoping you could update us on the competitive environment you cited at your investor day around OEMs and new plants. Just wondering if the raw material deflation was being passed through, as you described previously?

Yes, this is Charlie. I think we see a normal competitive environment. What I would call normal, if there is one, competitive environment, in the OEM space.

As we highlighted, most of the OEM business is put out for market test on a routine basis. So any particular OEM at any point in time may have anywhere from 20% to 30% of their business being looked at, either with product changes, model changes, or just normal sourcing practices. And again, each one is a little bit different.

I would say we see a normal environment for that right now, with a normal amount of business being put out there. I think we have always said that we believe that if raw materials stayed down for an extended period of time, that would begin to show up in competitors' bids. And certainly as we went through the second half of last year, we started to see that. At the same time, we have enjoyed, as most of you know on the call, lower raw material prices.

In spite of all of that, we continue to see normal margins and the ability in many cases, depending on product introductions, to actually increase margins. I think we do certainly see an environment where there is pressure on the pricing side of the business, in these competitive processes. Right now, as we look at 2016 and the business that we are looking at, we think that it remains a fairly orderly and disciplined marketplace.

Thanks. You be able to hold price or still continue to grow out there, great. And then could you tell us maybe or give us, how should we be thinking about the impact of that Chinese auto stimulus? Is this material in 2016? Is this just pulling forward 2017 sales? How should we be looking at that?

As you know, the last several years, China has had a series of auto stimuluses. This is another one. I think it is an important sector for China. As you know, just not only jobs are for the economy. So I think China will stay focused on continuing to make sure that their automotive and their light industrial markets stay healthy. So I think, who knows if it pulls from 2017.

I think right now, 4% to 5% growth, we believe the economy can continue to handle that, without it -- certainly as we come into 2016, we haven't seen any radical build-up of dealer inventories, or anything like that. So I think, frankly, everything looks stable at this point. We will get a real test, I think most markets will when everyone comes back from Chinese New Year. But everyone appears to be starting back up as normal.

So I think the market can continue to grow at 4% to 5%, and stay healthy and not overrun itself, just on replenishment and continued growth in the economy. It will just have to remain to be seen if that holds. But I do think the Chinese government is focused on maintaining that as a healthy sector. And again, some other macro could affect that, but that certainly is a focus of theirs.

Thank you so much.

John Roberts, UBS.

You must have some excess capacity in South America. I know it is hard to export finished coatings, but can you export any resins or concentrates from there to take advantage of devalued cost?

John, this is Charlie, we do have some capacity there. As you know in coatings plants, we tend to take the costs out by dropping the labor costs, dropping the number of shifts. Interestingly enough, we are looking at doing that out of Brazil, just because where they currently sit, but I don't think it will be a material amount for us.

But as you know, we go from Brazil into Argentina and other countries like that in the region, to the extent we can do more of that, we will continue to look at that. I think reestablishing trade flows going the other way, we always try to make sure that we're not just doing it for one quarter, that if we shift a trade flow, and we have done that between Europe and Asia over the past year and a half, with the changing -- with the drop in the euro, we've actually shifted some flows. But we'll only do it if we believe that it is long-term sustainable, just because it is a lot of work to go back and forth, as you mentioned. Whether it is on coatings, or whether it's even on resins, but we are looking at doing some of that.

And then in South America, are you seeing auto refinish customers consolidate faster, given the economic pressure? And is it possible that there some share gains from that, that might offset some of the market weakness?

Certainly in a country like Brazil, we are seeing two things happen. One is consolidation among customers. We haven't really, at least in our share down there, we haven't seen anything speed up there. We certainly have seen customers be more sensitive to where they can use a mainstream product, instead of a premium product. They will do those types of things, where they can work on, or shift maybe from one product to another one that is a little more productive for them.

We certainly see some of that going on, and that's been part of our focus in Brazil, has been to introduce a broader mainstream line. And again, as we have highlighted before, in many cases, it doesn't mean lower margins, but it is a different product set. We've introduced some mainstream products down there in what we call our fact packs and things like that, to take advantage of that.

Thank you.

Ivan Marcuse, KeyBanc Capital Markets.

In terms of your $60 million in cost savings that you're looking for 2016, are those projects pretty much done, and we will see $60 million flow-through, or are there still things to do where you have to get there? And then how would you expect outflows through the year? Is it more back half weighted than first half?

Good question. In terms of the savings, we are projecting, as you know, $60 million. $20 million of that will come for Fit-For-Growth. At this point, that program is fairly formulaic, in terms of how the savings flow through, and the $40 million that we're expecting from The Axalta Way, we have all of those programs identified. We have implementation plans developed, and we are in the process of implementing those programs as we speak. I think we have a high degree of confidence in achieving at least that $60 million number.

Great, but you would say, $20 million is in the bank, $40 million is still stuff you still have to complete, but should be done by the end of the year?

That is correct.

Got it.

Ivan, it's Chris. I just want to make it clear that the $20 million represents incremental savings from actions taken during this year, but Robert's point is that it is formulaic in the sense that they have been outlined and in progress for some time. But this is not representative of savings taken, based on actions in 2015. They are both incremental.

Right. So $60 million, your cost structure should be $60 million, better than it was a year ago?

Right.

Correct.

Right. My quick follow-up. You talked about account wins. How much of that is in your 4% to 6% of sales growth? How much would you -- of that, would you gauge to account wins. Is that 1%, 2%? I don't know if there's a way to quantify it.

We haven't broken down new customer contribution or new product contribution for different reasons. But I would say, in terms of when you look at our market, certainly on the performance and the transportation coatings side of the business, we do have planned customer acquisitions and those are proceeding on track.

Okay. Thanks.

Laurence Alexander, Jefferies.

Given the much lower raw material environment that seems to be staying around longer than I think people would have expected six months ago, how has your thinking evolved around the longer-term opportunity to reduce costs through switching to dual sourcing, or other changes in your buying practices? More over five to seven years.

When we look at that, Laurence, that is a key area of focus, and one of the longer-term projects under The Axalta Way is to work our way out of single-source situations, and we have a special team inside our procurement organization, solely dedicated to new supplier development. That is one element of it. The other element of it is actually formulation and new product development, where we are leveraging and trying to reduce the number of raw materials that we use, to have more of a uniform batch across our global system, which will actually enable us to require fewer suppliers.

Is the magnitude of the potential savings changing much?

In terms of what we have forecasted for 2016 in the savings, there are not much savings assumed in the $60 million that emanate from moving out of single-source situations. Most of those savings are related to other activities. I think as we look into 2017 and beyond, that is a significant area of opportunity for us.

And in the industrial end markets where you are growing above the market growth rates, are any of them ones that you can call out, where it is a long tail? Or are they mostly cases of just a lot of singles and doubles put together?

I think it is characterized. It is much more of singles and doubles over time.

Okay. Thank you.

Mike Harrison, Seaport Global Securities.

I was hoping that you could give us a little bit of additional color on the four capacity expansions, and the timing of the ramp-up. And in particular, do any of those ramp-ups have some costs that start to hit the P&L before you see any of the volume or efficiency benefits?

Yes this is Charlie, I know we are about out of time, but I will go through these real quick. Those capacity expansions, to answer in reverse order, all those costs are already in, as we go forward 2016. The large capacity expansions were our China Jiading OEM facility, our Mexico resins reactor. They include an expansion in Europe, for which was part of our Fit-For-Growth and actually started up in the third and fourth quarter of last year. Then a project in Brazil to add some capacity, as well. So in all four cases, they are up and running and the costs are fully baked in for 2016. Clearly, there's a ramp-up on the production side, and revenue as we go through 2016 but again it's built in to our projections.

And then just on the cost side, looking at some of the uncertainty in some of the end markets. Do you have some additional plans in place to maybe accelerate some cost actions, if markets are turning against you, in order to maintain your EBITDA guidance or help to maintain margins?

Yes, this is Robert. We have a series of actions as part of Fit-For-Growth as well as Axalta Way that are plans. Additionally we go through scenario planning as part of our budgeting cycle each year. And we have a secondary list of actions that we could take.

Fortunately, much of our labor base is temporary labor. We have the ability to throttle that pretty easily. And we also have other expenses that we can throttle. So I think that we feel comfortable that in that downside scenario, we have several levers that we can pull.

All right. Thanks very much.

Arun Viswanathan, RBC Capital Markets.

Just a question, what are your plans for deleveraging in 2016, and just update us on your potential refi opportunities?

In 2016, I think we will continue to make progress in reducing our leverage, and over the next 18 or so months, we expect to reach our 2.5 to 3 times of leverage target. As we look at refinancing opportunities, certainly the make-whole premiums to actually take out some of our higher-cost paper have really stepped down, and we're looking at opportunities. The markets right now, at least in the month of January and the first week here in February haven't been very open to these types of transactions, at attractive prices. However, we continue to evaluate that every single week, and we have the materials prepared in order to be able to go out and effectuate that refinancing, once the markets open up and are sufficiently favorable for it to make sense.

Okay. Great, and just a quick follow-up. What are your customers on the OEM side telling you, I guess, as far as production? Are there plans to reduce production at all in 2016 in different regions, or do you still see continued similar levels of production? Thanks.

This is Charlie. Obviously you've got 13 major OEMs, and about 30 parts manufacturers behind that, so probably walking through all of those wouldn't make a lot of sense. But I would tell you overall, you've heard from Ford, you have heard from GM. You heard from the Volkswagen-Audi Group.

Different models have different plans. FCA, they are doing some consolidation in their Jeep line and doing some things. I think everyone of them is continuing to adjust their business, but overall I think, as a rule, most of them have I think fairly decent plans for the year. I think again, you've got to walk by region and by model. I think, clearly, some of them are not happy in some of the areas like Russia and Brazil. They've already taken actions. But right now, we don't see anybody doing any major pull backs.

Again, at the same time, you have to go model by model. So for example if you look in North America, you see pretty robust SUV and truck production. You see less emphasis on some of the smaller cars. I think those trends will continue as we go through the year.

We certainly, you see a lot of the same information, and we don't hear anything differently. But we deal with each OEM at a model by model, production site by production site look. And again, I think we get a lot of questions around this, has there been peak SAR, and I would just offer my view, which is, we look at the various state of the economies throughout the world peak SAR occurs in different regions at different times.

So I think we concur with people's views right now on where North America is, a flat view in Europe, continued pressure in Brazil. Mexico up slightly in support of North America, and China 4% to 5% this year. And I think that right now, at least the best visibility all of us see, we would concur with what we hear from them, when we look at the economies and build rates.

And again, I think there will be some ups and downs, as you know, during the year. But overall, they certainly do not have a pessimistic view on the year as they look at consumer and continued low interest rates, and things like that.

Great. Thanks a lot.

Ladies and gentlemen, we have come to the conclusion of our allotted time for questions. I'll now turn the floor back to Mr. Shaver for any final concluding remarks.

Just a couple of quick comments, and we will let everyone go. First of all, thank you for the first last hour. It has been good to get back out as we get our year end out there, and start talking a little bit more about 2016.

Again, I will just wrap up with, we feel like we had a really good year. We navigated through massive currency swings. Most of it translational, but still, I think our focus on execution, not only our capital but our cash flow, and focused on our earnings, all brought us to a good place as we finished the year. We're certainly very enthused about 2016, in what we do believe will be a challenging macro environment, we're really focused on new products, new markets and new customers, in addition to supporting the customers we have.

As most of you know, we just finished -- we just completed our third year as an independent company, and what a great three years it has been. We're now looking forward to our next year as we execute on all of the things that we highlighted over the past hour. I do think that we have got very good line of sight on where we are going. I'm also confident we won't get there exactly as we planned, but I think Axalta is a Company that has a lot of levers to pull. We are in a lot of markets. We have a lot of horsepower.

When you look at our market positions, especially in places like refinish and in transportation, where we are either the number one or number two market leader in most markets, it really affords us a lot of opportunities to grow our business, take costs out and find new ways and new markets to go into. So again, we will remain focused on execution. It is a risky world out there, as everyone highlights. We think we can contemplate those risks and still grow in the markets we have. So again, thanks to everybody, and we look forward to dialoguing as we go forward over the next few days, and updating everybody as we move heavily into 2016 performance. Thank you.

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