Visteon Corp (VC) 2011 Q1 法說會逐字稿

Good morning, and welcome to the Visteon first quarter 2011 financial results call.

(Operator Instructions).

Before we begin this morning's conference call, I would like to remind you that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are not guarantees of future results, and the conditions, but rather are subject to various factors, risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements.

(Operator Instructions).

I would now like to introduce your host for today's call, Mr.

Michael Lewis, Vice President, Treasurer, and Director of Investor Relations for Visteon Corporation.

Mr.

Lewis, you may begin.

Thank you, Carly.

Good morning and thank you for joining us for the Visteon first quarter 2011 earnings call.

As Carly mentioned, review materials have been posted to the SEC, as well as our Investor Relations website.

Today's presenters are Don Stebbins, Chairman and CEO, and Bill Quigley, Executive Vice President and Chief Financial Officer.

Following the formal presentation, we'll be happy to take your questions.

With that I would like it turn it over to Don.

Thank you, Michael.

Good morning, and thank you all for joining us today, especially in advance of the General Motors call.

Today's presentation I will review Visteons first quarter 2011 highlights, and then turn it over to Bill for a financial review.

For the first quarter we benefited from a positive global vehicle production environment, which was slightly offset by the impact of reduced production in Japan.

Our year-over-year sales increase substantially outpaced the growth in global vehicle production u you are EBITDA was $159 million, our net income was $39 million or $0.75 per share.

Our equity income was up 47% year-over-year reflecting continued strong performance by our non-consolidated affiliates in Asia.

We also were awarded over $300 million in new business in the first quarter across all of our product lines.

This continues a steady increase in new business wins over the past five quarters.

We ended the quarter with strong liquidity, $901 million in cash, and debt of $566 million translating into a net cash position of $335 million.

And as of April 1st this was a total of $220 million under drawn on our revolving credit facility.

Additionally on April 6th we refinanced $500 million of debt with a lower interest rate, extended maturity and more flexible covenance.

In view of the above and the positive global vehicle production environment we are raising our full year guidance for product sales, adjusted EBITDA and free cash flow, which Bill will detail during his presentation.

Slide three details Visteon's year-over-year sales growth in the first quarter, adjusting for an $88 million impact for divestitures and closures in the first quarter of 2010.

With this adjustment, our first quarter sales significantly outpaced industry vehicle production.

On the left hand side of the slide is our consolidated sales picture which shows Visteon sales up 12.2%, first production growth of 5%.

On the right side of the slide on a market penetration basis, which includes our unconsolidated affiliates, our sales grew 16.9%, versus the market growth of 5%.

The performance was driven by Asia, where on a market penetration our sales grew 26%, versus the market which was flat.

Excluding Japan, our Asian sales grew 28%, while the Asian market excluding Japan grew 15%.

As you may recall on March 9th when we reported our 2010 year-end backlog at $700 million, I mentioned that I expected our backlog to increase due to the fact that we had been removed from sourcing holds, we had been added to sourcing panels, and generally we were seeing more confidence in Visteon from our customers.

That confidence has translated into over $300 million of new business wins this quarter, our fifth straight quarter of increased new business wins.

Approximately $200 million of these wins will be launching over our three year backlog time frame.

Again, it's important to note that this covers consolidated entities only, and does not include new business awarded to our non-consolidated affiliates.

Slide five provides an update from our perspective on the Japan situation.

Visteon has two manufacturing facilities in Japan and 800 employees.

Our facilities were not damaged and are operating and our employees are safe.

These facilities represent about $210 million in consolidated sales and $330 million in non-consolidated revenue.

Our largest customers in Japan are Mazda and Mitsubishi, to whom we supply mainly climate and electronic products.

We're monitoring approximately 100 Japanese suppliers with the shared goal of maintaining the continuity of supply.

In terms of financial impact for the first quarter, we had lost sales of about $11 million, and lost profit of $3 million from Japan and related production disruptions.

There remains a lot of uncertainty around supplier and customer capability as it relates to Japan.

We continue to watch this situation very closely and Bill will discuss the impact of Japan on our full year guidance.

This past quarter we were very fortunate to be recognized by both Ford and Honda for our support of their performance metrics.

We also were recognized in the US media for our support of multi-cultural businesses.

We strengthened our global footprint by announcing plans for a new joint venture to supply instrument clusters in the fast growing market of Indonesia.

This 50/50 venture with PTS Auto Parts is based near Jakarta and is scheduled to start production early next year.

We also announced the expansion of an engineering facility in India to support our rapid growth in that market.

For the first time ever Visteon participated in Auto Shanghai, and given our strong presence in China and Asia it was fitting to have a exhibit that featured both current and advanced products there.

Included in our show were our C-Beyond technology demonstration vehicle, which features more than 40 innovative technologies across all of our product groups.

We also introduced our global growth market car, demonstrating how innovative technologies can be packaged cost effectively for emerging markets.

We also targeted Shanghai for the global launch of our growth market motorcycle, showing how our lighting and electronics technologies can be applied to the two-wheeler segment.

Slide eight presents our consolidated sales by product group, region and customer, at the bottom right of the slide is our market penetration view by customer, which includes both our consolidated and non-consolidated sales.

In the first quarter, Visteons consolidated product sales totalled $1.97 billion.

Adding in our first quarter joint venture sales of over $900 million, our market penetration increased to almost $3 billion for the quarter.

We continue to have a well balanced distribution of sales by product and region, climate, our largest product group, generated 43% of our total sales in the quarter, with electronics and interiors accounting for 29% and 28%, respectively.

On a regional basis, Asia accounted for 40% of our total product sales up from 35% a year earlier, while Europe represented 39%, North America 16% and South America 5%.

And now I will turn it over to Bill for the financial review.

Thanks, Don and good morning, ladies and gentlemen.

Slide nine provides a summary our 2011 first quarter financial results in a comparison to the first quarter of 2010.

In my presentation I will read you a number of these items in further detail, yet overall, a couple of highlights from this page.

First quarter 2011 product sales of $1.97 billion were $127 million higher than first quarter 2010.

Sales were higher for all product groups compared to a year earlier, with climate representing the majority of the increase.

As Don highlighted in his comments, adjusting for the impact of divestiture actions in 2010, consolidated sales increased about $215 million, or 12% from a year earlier.

Note that for both product gross margin and SG&A we have highlighted several items that impacted our reported result.

First is the impact from termination of OPEB benefits in 2010, the second is reorganization related, and other employee costs, which impacted both periods.

Product gross margin was $149 million for the quarter, $268 million lower than last year.

Included in our reported 2010 results, was a net benefit of $246 million associated with OPEB and other items.

In the current quarter, gross margin included $2 million of employee severance costs that were completed and expected staffing reductions.

Adjusting for these items, our 2011gross margin was lower in a year-over-year basis by about $20 million, SG&A expenses in 2011 totalled $102 million, compared to $113 million in 2010, a decrease of $11 million.

OPEB and expenses related to our reorganization, as well as employee severance costs in 2011 totalled $8 million.

SG&A expenseswere lower by $3 million, after adjusting for these items.

First quarter 2011 net income was $39 million, $194 million lower than first quarter last year, which included the impact of expense reductions associated with OPEB, as well as other restructuring related and reorganization items.

Adjusted EBITDA, which excludes the impact of OPEB and reorganization and other costs, was $159 million for the quarter, slightly lower than a year ago.

Free cash flow was the use of $105 million in the current quarter, affecting working capital seasonality, and payments for restructuring Chapter 11 related items and employee performance incentives.

Slide ten provides comparisons of our product sales for the first quarter of 2011 and 2010, as well as a distribution of sales by region.

2011 first quarter sales totalled $1.973 million.

An increase of $127 million over 2010.

The increase primarily reflected higher sales in Asia-Pacific and Europe.

Sales in South America were essentially flat, while sales in North America decreased, reflecting the impact of divestiture and closure actions completed during the course of 2010.

As Don highlighted in his comments, Asia-Pacific represented 40% of Visteon's total first quarter 2011 consolidated sales, 5% percentage point higher than a year ago.

Europe sales remain steady at about 39% of total sales, on North America decreased to 16%.

The bottom of this slide outlines the key drivers of the year-over-year change in sales.

As noted, volume and mix increased sales by $239 million, reflecting an improved OEM production environment, as well as our strong positions with Ford and Hyundai/Kia.

Divestitures and closures lowered sales by about $88 million, two-thirds of this decrease impacted North America.

As we move to complete the exit of a number interiors and electronics facilities during the first quarter of 2010.

The remaining amount related to the December 2010 divestiture of a European interiors facility.

Currency favorably impacted sales by $18 million, primarily reflecting the weakening dollar, versus most major currencies including the Korean Yuan, partially offset by slightly weakening Euro.

Slide 11 summarizes our product group segment consolidated sales for the first quarter of 2011 and provides a comparison the first quarter 2010.

Climate sales in the first quarter of 2011 were $892 million, with Asia accounting for about 61% of the total.

The majority of the remaining sales were split about evenly between North America and Europe.

First quarter sales were $122 million higher than last year, volume and mix increased sales by $121 million, of which $80 million were in the Asia-Pacific region.

Favorable currency further increased sales by $12 million, principally reflecting a stronger Korean Yuan.

Electronics sales in the first quarter with $598 million, $19 million higher than last year, reflecting improved production volumes principally with Ford, offset by the impact of divestitures an closures.

Interior sales were a $567 million for the quarter, $5 million higher than last year, favorable volume and mix of $81 million more than offset the impact of North American European facility exits completed during the course of 2010.

Slide 12 describes a change in product gross margin.

For first quarter 2011 product gross margin was $149 million, $268 million lower than last year.

As previously noted, 2010 gross margin included $234 million in expense reductions associated with the termination of post retirement employee benefit plans, as well as $12 million of customer restructuring reimbursements.

And we should note, we exclude both these items from adjusted EBITDA.

The bottom of this slide provides the key drivers of the year-over-year change in gross margin.

Items excluded from adjusted EBITDA explain about $248 million of the total change of $268 million.

The drivers of the remaining $20 million are comprised of the following.

The now recurrence of benefits received in 2010, related to customer accommodation agreements in both North America and Europe, as well as higher depreciation and amortization related to fresh start accounting, lowered margin by about $24 million.

Volume and mix increased margin by $44 million while divestitures and closers reduced gross margin by $16 million in the quarter.

2010 gross margin was favorably impacted by inventory build aheads in connection with the exit of a number of our North American manufacturing operations.

Currency increased gross margin by $9 million in the quarter, balance sheet revaluation impacts more than offset the impact of a weakening Euro and strengthening Korean Yuan, and as we have noted before, a stronger Korean Yuan has a favorable impact on our sales, but an unfavorable impact on gross margin, as about 30% of Visteon's Korean sales are denominated either in US dollars or Euros and nearly all costs are Yuan denominated.

Cost performance lowered gross margin by about $33 million, customer pricing, certain program launch inefficiencies, commodity inflation net of recoveries, more than offset the impact of material and manufacturing costs we achieved in the quarter.

We do expect pricing commodity inflation impacts to continue through 2011.

Yet will be mitigated by both operating efficiencies, as well as customers discussions and recoveries in succeeding quarters.

Slide 13 summarizes gross margin performance for each of Visteons product group segments for first quarter 2011 and 2010.

We have included the impact of OPEB and reorganization items for each product group, and for each period at the top of the slide.

The key drivers of the gross margin change are outlined at the bottom of the slide for each product group.

The two drivers on the left of the slide, provide the impact of a non recurrence of benefits associated with 2010 customer accommodation agreements, an increased DNA and intangibles amortization, resulting from the adoption of fresh start accounting.

The four key perform drivers we currently measured are outlined on right, volume and mix, the impact of the divestiture and closures, currency and our net cost performance.

Climate gross margin for the quarter was $66 million, $160 million lower than 2010.

OPEB and reorganization items reduced gross margin by $145 million.

Volume and currency were favorable, while net cost performance, the none recurrence of accommodation agreements and higher DNA each reduced gross margin for the quarter.

Cost performance included customer pricing, and higher net commodity costs in excess of material manufacturing efficiencies.

Electronics gross margin was $61 million in the first quarter, $80 million lower than last year, OPEB and reorganization items more than explained this decrease, reducing margins by about $84 million.

Favorable volume was offset by the impact of the closure of a US manufacturing facility in 2010, and the impact of currency principally a weaker Euro.

Net cost performance was positive on a year-over-year basis.

Interiors gross margin was $22 million for the quarter, $28 million lower than last year, again, OPEB and reorganization items reduced gross margin by $19 million, volume and currency improved margin by $15 million, while the impact of the divestitures and closures, net cost performance and the non recurrence of accommodation agreements were offset.

Net cost performance in the quarter did include excess launch and other manufacturing expenses of about $5 million.

Slide 14 provides a summary of SG&A expense for the first quarter of 2011 and 2010.

SG&A expense totalled $102 million in the first quarter of 2011, $11 million lower than the first quarter of 2010.

Like gross margin SG&A was also impacted by the termination of OPEB, reorganization and other employee costs.

As highlighted here, the impact of these items increased first quarter 2010 SG&A by about $14 million, and increased first quarter 2011 SG&A by $6 million.

Adjusting for these items on a year-over-year basis, SG&A cost decreased about $3 million and as a percentage of sales increased from 5.4% in 2010, to about 4.9% in 2011.

We have significantly reduced SG&A over the last several years as you know.

We continue to leverage the current cost structure in a higher sales environment.

In the first quarter of 2011, net income of Visteons non consolidated affiliates totalled $44 million, an increase of $14 million or 47% higher than a year ago.

Higher OEM production volumes, particularly in China, and favorable customer positions with SCIC, SCW and SGM drove significant growth in the YanFeng Visteon and it's affiliates in 2010, and that growth has continued through to the first quarter of 2011.

At the bottom right hand side of the slide we have provided a summary of YFV's financial results on a US GAAP basis.

This information is also disclosed in notes to our periodic SEC financial filings.

On a US GAAP basis YFV net sales rose to $720 million in the first quarter of 2011, representing $194 million increase compared to a year earlier.

Net income of $69 million in the current quarter increased 40% compared to 2010.

As noted at the bottom of this slide Visteon derives equity income from two sources of YFV's operations, the first being the 50% share interest at the parent level of YFV, and the second from share-ownership and certain electronics and interior subsidiaries under YFV.

Of the $41 million in total equity income from YFV in the current quarter, $34 million was derived from Visteons 50% ownership share at the parent level, and an additional $7 million was derived from Visteons additional ownership share in certain YFV affiliates.

Given the obvious interest in YFV, we wanted to provide some additional color around this important business which is provided on slide 16.

As you know YFV is a joint venture between Visteon and HASCO, a public company listed on the Shanghai Stock Exchange.

SCIC has a 60.1% ownership interest in HASCO.

For full year 2010, HASCO reported full year consolidated sales under PRC GAAP of about $44.1 billion RMB, or about $6.8 billion US dollars, of which the consolidated sales of YFV represented about 70%.

On the left hand of the slide we provide the five businesses comprising YFV, interiors, electronics, seating, exteriors and safety.

The primary partners by each business, YFV's direct ownership share and Visteon's effective ownership share in each.

It's important to note that we have simplified the ownership structure, as for example, YFV Interiors is comprised of multiple operating companies each with varying levels of ownership by YFV, Visteon, as well as certain other parties.

The right hand of the slide provides total sales of YFV for both 2010 and 2011, and the first quarter of 2011 combined sales totalled $1.446 billion, about 27% higher than a year earlier.

From my previous comments, on a US GAAP basis, sales reported by Visteon in our financial statement disclosures include only sales of the interiors and electronics businesses.

In addition to our 50% ownership interest Yanfeng, Visteon also has direct ownership in certain of these entities.

For example, outlined here, Visteon has a 40% direct equity stake in YFV Electronics, as discussed on the previous slide, equity income recognized by Visteon includes both income from our interest in YFV, shown here at the bottom right of the slide as YFV parent, as well as income from additional direct ownership shown here on this slide as YFV affiliates.

YFV obviously is an increasingly important part of our growth strategy and value proposition, given its market leading product positions in each of it's businesses.

It's customer positions and continued growth in Asia.

Slide 17 provides adjusted EBITDA comparisons for the first quarter.

As noted in my previous comments, adjusted EBITDA does excluded the impact of OPEB, restructuring and reorganization related items.

Adjusted EBITDA in the first quarter of 2011 was $159 million, compared to $161 million in the first quarter a year ago.

Similar to the previous slides, the key year-over-year drivers are the change of adjusted EBITDA for the quarter, are summarized at the bottom of the slide and reflect the comments I made earlier in the presentation.

In summary, volume and currency improved adjusted EBITDA on a year-over-year basis, but this improvement was offset by the impact of divestiture's and closures, and the non recurrence of benefits from 2010 accommodation agreements, as well as current net cost performance.

Adjusted EBITDA as a percent of product sales of 8.1% in the first quarter of 2011, 60 basis points lower than the first quarter a year ago.

This decrease is more than explained by the non recurrence of $15 million of benefits from accommodation agreements which reduced EBITDA margin by about 80 basis points, to compared to 2010.

On a sequential basis, the fourth quarter EBITDA as a percent of product sales, improved 80 basis point from 7.3% to 8.1%.

Free cash flow is detailed on slide eight.

Free cash flow in the first quarter of 2011 was a use of $105 million, compared to positive $15 million in the same period in 2010.

Cash from operating activities in the first quarter was the use of $50 million, this use reflected seasonal trade working capital outflows of $86 million, payment of C11 related items of $23 million, and $45 million for employee performance incentive amounts, previously accrued in 2010, which is reflected on the other changes line on this slide.

Cash from operating activities in 2011 was $90 million lower than the first quarter.

The principal drivers of this change are higher cash tax payments driven by jurisdictional profitability, as well as employee incentive payments made in 2011 for our performance of 2010.

Capital expenditures about $55 million in the first quarter of 2011.

Of this amount, $28 million was in our climate product group and totalled about $26 million in Asia.

Nearly 60% of the total spending was in support of future customer program launches and about 22% related to capacity expansion, principally in climate and principally in Asia.

Cash balances at the end of March 2011 totalled $901 million, $78 million lower than 2010 year-end levels.

Debt balances at the end of the quarter were $566 million.

As Don stated, in early April of 2011 we took two important steps related to our debt profile.

First we refinanced $500 million of secured term debt with unsecured notes, this refinancing provided three primary benefits.

Lower interest cost, a maturity extension as well as increased covenant flexibility.

In addition we amended our asset-back working capital facility agreement to increase sizing by $20 million to $220 million, as well as to reduce fees and interest costs.

This facility does remain undrawn today.

As Don stated in his opening comments, we are improving our full year financial guidance for 2011 which is highlighted in slide 20.

We now project full year product sales at $7.8 billion plus or minus $50 million and this guidance is about $400 million higher than our previous .

Full year adjusted EBITDA is now projected at $660 million, plus or minus about $20 million, representing a $20 million improvement over our previous guidance, and we project full year free cash flow at a use of $175 million, a $50 million improvement over our previous guidance.

At the bottom of the slide we have updated guidance on other selected items, most of which are unchanged, with the exception of Chapter 11 claims and restructuring cash payments, which have been reduced from $200 million to about 190million, and capital spending which has been reduced from $270 to $265 million.

Slide 21 depicts the key drivers of the change in Visteon's product sales and adjusted EBITDA guidance.

The top half of the slide details the drivers of the $400 million increase in sales guidance, from $7.4 billion to $7.8 billion for full year 2011.

The bottom half of the slide details the drivers of the $20 million increase and adjusted EBITDA guidance from $640 million to $660 million.

Sales and EBITDA are benefiting from favorable currency, most notably a strengthening Euro.

It should also be noted though, that as the Korean Yuan is also strengthening, this does increase our sales, but has a negative impact on Visteon's profitability.

Sales and EBITDA also benefit from the retention of facility that we had previously planned to divest in the second quarter of this year, that will now remain with Visteon through 2011, in mutual agreement with a key customer.

We are forecasting increased pass-through content, sales in our interiors product group, which has a nominal impact on adjusted EBITDA.

As Don noted earlier, the Japan natural disaster had a negative impact on production volumes, and consequently on both sales and adjusted EBITDA in the first quarter.

Uncertainty remains, our outlook assumes additional impacts during the course of the year, principally in our electronics business, due to anticipated chip and related component shortages.

Lastly, the other driver on this slide largely reflects slightly increased production volumes across all regions and expected customer recoveries associated with commodities inflation.

We expect commodity recoveries, which will increase sales, and other actions will offset most, but not all of our commodity inflation.

With that, this concludes my presentation, and Don and I are happy to take any questions you may have.

Thank

(Operator Instructions).

Your first question comes from Kurt Visokey, with CRT Capital.

Good morning, everyone.

Morning, Kurt.

Morning, Kurt.

Thank you for all this incremental disclosure.

These slides are very helpful.

I'm thinking about, I'm trying to understand the year-over-year change in EBITDA on an apples-to-apples basis, and on slide 12, I know this is abridge of gross profit, but it looks like last years adjusted EBITDA, in the first quarter of $161 million included about $31 million of benefits from businesses that were closed or sold and one-time benefits from accommodation agreements.

Is that a reasonable conclusion?

Kurt, this is Bill.

I think you're right.

If you focus on page 12, our adjusted EBITDA in 2010 did benefit from the impact of accommodation agreements.

That's the $15 million.

And to your point obviously, on a year-over-year basis, we had businesses in 2010 which were under either divestment or closures and obviously that EBITDA was about $16 million.

If we're using product gross margin as a (inaudible).

So to your point, it's about a $31 million move.

Thank you.

And are there any other adjustments that you would, if you wanted to really scrub out all of the non-recurring items in the two years is that, should we come to the conclusion that your EBITDA really was up over 20% year-over-year?

I think to your first question, are there other items to adjust out of EBITDA, I think we carefully go through that reconciliation from net income to adjusted EBITDA , highlighting OPEB termination impacts, we are cost post-bankruptcy, in bankruptcy, as well as obviously we had some severance charges in the first quarter of 2011 as we continue to look for opportunities to right size both our admin and our engineering staffs.

I think the first quarter is as clean as it's been vis--vis, in comparison to 2010 with all the moving parts during the course of the bankruptcy, but in general we attempt to cleanse the adjusted EBITDA to our best of our ability with respect to the run rate of the

Okay.

Yes.

Thank you.

There is a lot of moving pieces here.

With respect to the guidance, if you were just to take a walk through the cash items that you break out, it looks like the free cash flow would be a use of 35.

I know the guidance is improved but still a use of 175.

You may have mentioned this.

I may have missed it, but is the difference working capital?

I think as you kind of walk through it we're going to have a flow through tier, let me back up.

To your point, our current outlook is $175 million, the prior outlook was $225 million.

As we look to our full year guides for adjusted EBITDA we've obviously upticked that by about $20 million currently, and as you kind of look through these other selected items you will note we have a slight improvement in our chapter 11 claims/restructuring of about $10 million.

So that's (inaudible) 30, about $5 million reduction in CapEx is about $35 million, and the remainder is going to be through either working capital changes and/or other accrual changes that we're projecting currently.

Okay.

Thank you and the income taxes of 140 are there any unusual items in there or is that a run rate that you would expect based on current profitability?

That's actual cash taxes.

Obviously, the provision is different, but we think as we kind of move through 2011, the cash tax piece of the equations is a more relevant.

I think in our year-end comments we stated that as we look through the jurisdictional profitability that is pressuring up our cash tax payments.

As that profitability has obviously moved to Asia, but concurrently we also do have some cash forecast if you, will with respect to potential settlements, tax audits, so on, so forth.

So it's not necessarily a full provision related cash tax.

There's probably $20 million to $25 million in other items that are included in that 140 use.

And will those be he recurring in subsequent years if your profitability stayed at the same level or would those go away.

Well, I think the latter part, the $20 million to $25 million, I mean that's going it be based on tax positions that we take during the ordinary course of the business.

I wouldn't necessarily refer to those as recurring.

I think if you look at then kind of a net, that will move obviously as our profitability moves, but concurrently as we take actions with respect to for example our cost of service agreements with our various affiliates around the world, to attempt to again bring more profit to the US to utilize our existing (inaudible) but in general, it is kind of a movement as we progress the business both in Asia and Europe obviously our profitability has been quite good in those regions, in particular in Asia and we're going to have some uptick on the cash tax line.

Okay.

Thank you and then just one last quick one, and I know a lot of people in the industry are trying to get their arms around the impact of Japan and you've estimated that it will be a negative $15 million this year.

I'm just curious how you went about arriving at that number and do you think you will make that back next year?

and that's it.

Thank you very much.

Just briefly.

Obviously it's a very uncertain environment, it continues to be very fluid.

You know we're monitoring a hundred plus of our suppliers in Japan on a daily basis working very closely with them.

And what we've done effectively is based on real component shortages, and this is a Visteon view Kurt, with respect to given what we're seeing in the supply base, our supply base, potential constraints and electronics components supply, we are estimating a full year of about $70 million, about a $13 million or $11 million on a consolidated basis already occurred in the first quarter.

That obviously can change, we are quite certain today it will change as we progress during the course of the year.

I think from a recovery perspective, our key customers in Japan are Mazda and Mitsubishi, as Don highlighted in his comments, I think there will be recovery, but as we forecasted it currently, and again it's uncertainty around this forecast, we would expect some recovery in 2012 on that line.

But again as I think as days unfold, we as well as all suppliers and OEMs, will have a better understanding of the supply chain capability in Japan.

It's very unfortunate.

Thank you very much.

Thanks, Kurt.

Our next question comes from the line of Colin Langan, with UBS.

Good morning.

Hi, Colin.

Can you comment on commodity costs?

I mean how much of a headwind were they in the quarter, and sort of what is your outlook for the year in terms of how much the headwind may be?

I think Colin we talked at year-end obviously we had in our prior guidance included commodity inflation for our key commodities, that being aluminum, copper, steel and resin.

I think in the first quarter, as we kind of looked through it you can see some of that in our climate business with respect to commodities, we certainly had a headwind net if you will, in the quarter and as we look I think over the course of full year 2011 we do expect commodities to remain elevated.

At the same time we are working with our customers diligently with respect to either recoveries through mechanical processes, through existing contracts and/or negotiations, as well as any internal actions that we can take to offset that commodity inflation.

Headwind, probably in the first quarter net $5 million to $7 million of I would say unrecovered commodity costs, and again as we kind of move out through the full year, I think that number can effectively be somewhat static of that headwind.

And from your contract structure and when you say you might have to go back to your customers, I mean do you have on some of them like aluminum do you have pass-through agreements on a lag basis.

I think it will vary, it varies by customers, by region as well as by commodity.

So on the metals front if you will (inaudible) I think it's a well worn path with respect to North American OEM's, which obviously we're not a big supplier to currently.

With respect to auto materials, so there is indexing programs, so on, so forth.

There is a lag obviously as you know, with respect to recovery of any inflation that a supplier may experience.

With respect to other supplier, or other customers around the world, I would say the Asian front is both somewhat contractual, but probably more negotiation, with respect to recovery of abnormal commodity inflation, and in Europe it is mixed between our businesses, and when I say our business's, we obviously have a big footprint in interiors in Europe and that has been obviously been an ongoing process with the customer serviced by our interiors business there.

So contractual and a constant negotiation not only of comings prices, but the business model as well.

So again it kind of varies by customer, by region and then by commodity.

So obviously interior is being impacted, significantly by a resin buy.

Okay.

And on the resin you don't have those, you don't usually have pass-through provisions?

You'll have some pass-through provision, but resin always proves to be the most difficult commodity from an inflation perspective, vis--vis a customer supplier negotiation.

Okay.

And in terms of restructuring, what was the restructuring was $35 million in the quarter and what is your normal, what are you expecting for the year again and what is the normal payback from the restructuring?

I mean in terms of getting the benefit where we should start seeing some boost to margins.

Well, I think its two fold.

One is if you, when we talk about restructuring I am presuming you are talking about the operational restructuring and not the C 11 related items, correct .

there

Yes.

I think our restructuring cash outflows in the quarter were about $14 million .

Part of that is just being, you know, we took charges obviously during the course of 2010.

We're settling those charges or those liabilities if you will at the end of 2010.

Some of those benefits obviously if you think about where that restructuring is occurring it's largely in Europe and it's necessarily around, you know, basically kind of replatforming certain areas of our business segments there.

On a payback basis, from past restructuring we've had very positive paybacks obviously as we went through our own three year plan of restructuring.

I think as you look forward with respect to the restructuring, it's more of the payback is more of taking out the related fixed costs associated with a particular business.

As an example, we've got a fairly large restructuring cost in 2011, it's about $100 million as we stated in our prior year end call, and that is obviously around restructuring certain plants or plants in Western Europe , and really around likely an exit of certain businesses.

So the payback simply is to takeout the fixed costs since the revenue line

Okay.

Alright.

And actually when you touch on taking out certain businesses, I think you were recently quoted as looking at acquisitions aggressively so which segments are you looking more focused on the acquisition side if that's to bolster your electronics business where you can maybe use better scale, and when you talk about divestitures, I mean would that be across all the businesses or is there certain segments that you would be more focused on?

This is Don.

What we've said is that we believe that there will be activity M &A activity over the next two to three years.

We expect to be a part of that and that we would be surprised if Visteon is the same in its formation at that point in time that it is today, and we really haven't defined what areas we would be looking at, although I would say that certainly climate as you know is our largest business and if we could strengthen that business, that certainly would be something that we would look at.

Okay.

So your priority would be on the climate side?

There well, again we've got needs in every one of our businesses and in the M&A world it is a little bit of what comes up at what time and how that fits.

We certainly have our priorities laid out as to what we would like to see happen.

Sometimes that's available, sometimes that's not.

Okay.

And just one last one in terms of contribution margins I think last guidance implied that they would be flat.

On a normal basis, I mean beyond this year, what is the normal range for a contribution margin?

Is it 15%, 20% type range.

It's in the 15% to 20%.

I think if you kind of look at, we've attempted to provide some additional clarity on that.

If you think about our volume increase, set aside divestitures and closures, currency in the first quarter of this year, sales were up $239 million.

The net contribution margin if you will pre pricing and other material inflation, for example on the commodity side, was at $44 million contribution, so it's about 18% or so.

I think that range of 15% to 20%, Colin, depending on where it comes from, so for example, in our interiors business it's going to be lower, in our electronics business it's going to be higher as well as in climate.

But overall it was about 17% to 18% in the current quarter.

Okay.

Alright.

Thank you very much.

Thank you.

Our next question comes from the line of Jason Alper, with BTIG.

Morning, gentlemen.

High Jason.

I have a question regarding Yanfeng, actually a couple questions.

One, growth there any expectations for future growth?

Do you guys have any anticipations as to what it's going to look like going forward.

I think the expectation for China is that it will grow kind of high single digits this year, and what we tried to outline here is that YanFeng has the ability to grow faster than the normal market there.

It is significantly well positioned with the customer base there in terms of its relationships with Shanghai GM and Shanghai VW, and you all know the strength of those two brands there, so our expectation is that YFV will continue to show good growth.

Okay.

And is some of the growth there and perhaps at your other businesses a result of distress at some of your perhaps Japanese suppliers not being able to perform in light of the disaster in Japan?

I don't think that's a significant player in the growth in the first quarter.

It may, there may be some benefit, but it is not a significant driver, no.

Okay.

And lastly with regards to your non-consolidated assets, I think it's fair to say that the market probably has a hard time valuing that.

Has there been any thoughts to setting up a structure where by the market may have an easier time, whether it's, I know you can't consolidate because you have business partners, but any thoughts of perhaps a tracking stock or an IPL of a small part of the business so we can get a better sense of how the market feels what the valuation of this business which is becoming a large part of your main business?

From a valuation standpoint.

Yes.

I think as Bill outlined and as you know, the YFV shares, the 50% that we it not own, are held in HASCO, which is a public company and right now SAIC and HASCO or going through a restructuring of their own that is changing the ownership structure of the SAIC group.

And before we're able to do anything in conversations with our partners regarding Visteon and its ownership in those types of discussions, we have to allow the SAIC group to finish their restructuring, which we understand it to be sometime in the fourth quarter of this year.

So it sounds like you're thinking about it but you're not able currently to do anything about it.

We understand that people have a difficulty to value it, we have tried to provide as much disclosure as we can.

We're working with our partner to try to broaden that disclosure and, again, we're somewhat limited by what we can do based upon their own restructuring that's going through in China right now.

Okay.

Great.

Thank you very much.

Thank you.

Our next question comes from Michael [Toiston].

Hey guys thank you very much for the disclosure and the slides.

I guess I'm wondering what the incremental margins of the high teens you had mentioned a few months ago that you thought the EBITDA target for the business could be double digits, and I'm wondering if you still kind of think that that will happen, despite the commodity pressures and that what your time frame for that would be.

Thank you very much.

Yes.

We do believe that that is insight in our plans.

You know, that is a three year time horizon that we've put op that and yes certainly the commodity pressure is a headwind to get there, but, again, we have plans in place, as Bill mentioned, to recover that, traditionally we recover somewhere in the neighborhood of 70% to 75% of that so we're in discussion with our customers on that right now.

Great.

Thanks a lot.

Thanks, Michael.

Carly, we have time for one more.

Next question comes from the line of Joe [South] with Susquehanna.

Morning.

Thank you.

Morning, Joe.

I just wanted to ask how you think about your portfolio.

Obviously you're emerging from bankruptcy, the portfolio is what it is and given your recent comments and some questions earlier on the call, is it critical, do you view it critical to have a global footprint, that is do you think in this industry, given how the world has evolved, can you just concentrate obviously on parts of the world that currently are your strengths?

I think it is important to have a global footprint.

There's no question that the customers are moving to more and more global platforms.

I don't have the exact numbers here, but we had a slide that we have used to show that as the customers are sourcing programs, they're more and more globally based, and so there's no question today that we are benefiting from our positions in Russia, in India, in China as we go forward with a number of these customers.

They are all trying to leverage their engineering dollars, their capital dollars across as much volume as they can, which means global platforms.

So it's absolutely critical in most of our products that we are located around the world.

And in the context of allocating capital going forward, you know, to filling in as you described, needs in every one of your businesses, is it fair to conclude more often than not, in those incremental capital dollars would be implemented obviously in higher growth geographies, or for instance in your North American business.

Would you try to allocate significant capital there to kind of resurrect the business going forward?

Yes.

There's no question if you look at 2011's capital expenditure number that is heavily weighted towards Asia and the high growth areas of the world.

We will only invest in North America if we have programs that support that investment and, we also have shown a slide where our revenue profile is about 15% to 20% in North America which matches quite closely the production levels in North America.

So from our perspective would we like to have more business in North America?

Absolutely we would like to, but from the perspective of reaching over investing, that's not our mindset.

Okay.

Final question and I appreciate it.

Just using your YFV investment, you know, structurally how do you make investments in Asia in particular where you, I guess what I'm trying to ask is where you have kind of full clarity and sort of implied control, for instance in your YFV partnership I do understand that they are based on early comments, they're in some level of restructuring, but what type of flexibility do you have there or elsewhere in terms of your equity investments of increasing your exposure there or even monetizing in the context of whether it be a dividend and so forth?

Can you give us some clarity there.

Yes.

A couple of points.

One, the restructuring that's occurring is at the HASCO level.

So it's only where the YFV shares are held that's being restructured.

YFV is not a party to that.

It's just in the mix so to speak.

I understand.

It's a holding company above that.

In terms of the way YFV is run and let's use a dividend discussion, is the Board of Directors of YFV each year reviews the YFV plans and views, you know, their cash availability and then we negotiate the ability to pay a dividend both to us and to HASCO.

Some years there it's greater available and other years there's less and that's the track record that we have.

It is always contemplated that there would be a dividend out of YFV.

Great, thanks very much.

Joe, thanks for the questions.

We would like to thank everybody for their participation in joining us for today's call.

As a reminder Don and Bill will be presenting later today at a separate event.

We will likely be tied up for a good portion of the day and we will return your calls as promptly as we can.

Thank you Carly, and we can close the line now.

Ladies and gentlemen, this concludes today's conference call.

Thank you for your participation.

You may disconnect at this time.

Good day.