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TRW Automotive Holdings Corp. (TRW)

January 11, 2012 10:15 am ET


John C. Plant - Chairman, Chief Executive Officer and President

Joseph S. Cantie - Chief Financial Officer, Executive Vice President and Treasurer


Unknown Analyst

Himanshu Patel - JP Morgan Chase & Co, Research Division

Brett D. Hoselton - KeyBanc Capital Markets Inc., Research Division

Rod Lache - Deutsche Bank AG, Research Division


Rod Lache - Deutsche Bank AG, Research Division

Okay. Next up, we've got TRW Automotive. As all of you know, TRW is a global supplier of active and passive safety products with annual sales of $16 billion, a $4.3 billion market cap. This company's above-average industry growth has been driven both by increasing demand for automotive safety as well as fuel economy around the world. Representing TRW today, we're very pleased to welcome John Plant, the company's Chairman and CEO; and Joe Cantie, the Executive VP and CFO. I'll pass it along to you.

John C. Plant

Thanks, Rod, and good morning, everybody. I want to make sure it's got -- right in the middle of the screen, it's got error report. I don't think the error refers to our safe harbor statement, because I'm sure you've seen it before. Thank you. But it's just there because any forward-looking statements, you have to be given this caveat, which I'm sure you're very familiar with. I intend to give an overview of the company and then talk about what's going on and then hand it across to Joe Cantie, our CFO, and then, of course, at the end, we'll be very happy to answer the questions that you may have.

First of all, just to give a summary of the company. Through the first 3 quarters of this year, our results have shown, I think, well. It's been a record and so forth in terms of revenue, in terms of profit, and also, we generated cash every quarter so far this year. And I think in our third-quarter conference, we did say that our intention was to continue to generate cash in the balance of year, although we're not providing any update to that today.

Our strong position and achievements, I think, reflect our core strengths, which John will talk about, in terms of technical innovation, in terms of geographic diversity and a very tight focus on cost and improving the strength of our balance sheet. Of course, when you look at the top of the slide, then I would say to you that macroeconomic factors have certainly impacted the views of the automotive industry this year, being a cyclical industry. And of course, on the tip of everybody's tongue is really -- is what's happening in Europe. And I wouldn't be surprised to receive a question on that later.

Moving onto now to the -- first of all, the company, we're headquartered here in Michigan. We operate in 185 facilities throughout 26 countries. Probably what distinguishes us is that we're able to offer support to our customers around the world no matter where they operate, so we can support those vehicle manufacturers with every technology that we have in basically every jurisdiction, and we do that by providing the active and passive safety products that Rod referred to. And essentially, those on the active safety space, it's braking and steering and suspension products, often with electronics control. And then in the passive safety arena, it's those products which take over in the case of -- if an accident indeed has occurred, which is the implementation of the seatbelt restraints, the airbags and, obviously, the sensing mechanisms to see if indeed a crash have occurred. We do have a modest-size automotive components business, which is, say, about 15% of our sales, which is non-safety-based.

So what do we offer in terms of competitive strength? Really, this provision of safety has served us well. Over the last 7 years, we've grown the company from sales of $10 billion through to $16 billion that, again, Rod referred to, and we don't know the position where [ph] basically vehicle build in the West, certainly in Europe, is still below what we would consider normalized level, so we're still expecting the benefit of that growth to come, plus the benefit of the growth that we see continuing in expansion in China and some of those developed or developing markets.

I am going to show you pictures of the product diversity and the customer diversity. The leading customer for us is VW. It has been probably for the last 5 years. I think our second-largest customer is Ford. And therefore, that gives us a strong customer there to start off with. You will see the diversity of that base. And we've been basically following those customers around the world.

By way of results, I'd say we've shown consistent delivery with our profitability, which has improved. I think part of that improvement is down to the balance posted on the cycle. So I think also the large part of it, maybe 2/3 of it, is down to the fact that we spent a substantial amount, an increasing amount, within absolute terms running percentage of the revenues on our engineering activity. So you can see what I would say is clear improvement in the technical profile of the company over these years, and that's given us the opportunity of repositioning those products.

So you can see we spend money on innovation. We spend money on building out automotive infrastructure, and that gives us the momentum to believe that we'll continue to be a growing and thriving auto parts company into the future, again, with the mantra that we shall make profit and we shall generate cash. And part of that consistency I've talked about is that we've generated cash in years when industry has gone up. We've generated cash in years when industry has gone down. And if you look at it, whether the industry's going up, whether it's going flat or it's going down, I mean, pretty much, TRW has generated cash, and it's a very strong feature of the company. It's enabled us to get our balance sheet in just an outstanding shape and giving us lots of choices of things to do in the future.

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