Kongsberg Automotive ASA

OSE:KOA

Earnings Call Transcript

[Operator]

Good day, and welcome to the Kongsberg Automotive ASA Q2 2018 Earnings Announcement Conference Call. At this time, I would like to turn the conference over to the President and CEO of Kongsberg Automotive, Henning E. Jensen. Please go ahead, sir.

[Henning Eskild Jensen, CEO & President]

Thank you, operator, and welcome, everyone, to our Q2 earnings call. We think we have a pretty exciting quarter behind us, and I'd like to share some information about that with you. If you use the presentation that we've published, and we put straight to Slide 2, from a revenue basis, we actually grew our revenues nicely by about 7% to EUR 287.5 million, that includes negative FX effects of a little bit more than EUR 11 million, so in terms of the pure volume growth, that was actually in excess of 10%, very similar to what we had last quarter. As far as adjusted EBIT, which is -- which to us is the key KPI, we increased our adjusted EBIT by almost 50% to EUR 20.8 million, that also includes some negative FX effects versus last year of EUR 1.3 million.Free cash flow returning to positive cash flow this quarter, we've generated EUR 22.8 million, 2 strong contributors to that, obviously, earnings and also we did reduce working capital in the quarter, which contributed greatly to our free cash. One highlight of the quarter, and it was a highlight of last quarter as well, is our new business wins. We do continue to win a lot of new business and at a much higher rate than in previous years. This has been a major focus of ours. And as I've said in previous calls, we don't really decide when awards are taking place from our customers, that being said, EUR 121 million worth of business wins in the second quarter is a figure that the company has never reached before. That brings our last 12 months total for new business wins to EUR 372 million. And there's a chart on this later on, that is the highest that the company has ever had.From a gearing ratio we came in at 2.2. We completed 2 further plants closures, doesn't mean that all this incision work is done, but we're certainly have put the lock on the door on those 2 facilities. We're still continuing with transition activities such as transferring supply chains, et cetera, but we feel that we've gotten pretty well ahead on that one. Also, and then this is partly subsequent events, and I'm going to talk a little bit more about that later on, following an initiative from one of our major shareholders, we did complete a 10% capital increase at the very end of Q2. That capital increase took place at a premium to the market price, and as I said, I'll talk more about that later on. We also refinanced our bank debts through a bond issue, that was a EUR 275 million bond issue, again, more on that later. Flipping over to Slide 3. Slide 3 is one of my favorite slides, to be quite honest with you. It basically shows the development year-over-year, quarter-by-quarter for our revenues, for our adjusted EBIT, and as well as our adjusted EBIT margins. And one of the reasons this being a slide that I very, very, very much like, is it shows very clearly that we have 6 quarters in a row with growth on top line, growth on absolute adjusted EBIT euros as well as an increase in adjusted EBIT margins. So consist -- so [ this ] consistently, we are improving our performance, both top line, absolute earnings as well as on a margin basis. Flipping further through the package and getting into Slide 5, that's New Business Wins. As you can see -- and our new business wins are typically very seasonal. So Q1 and Q2 are typically not very strong quarters. However, this year they have been very strong. We were up almost 100% in Q1, and we were up 80% in Q2, bringing our new business wins in this quarter to EUR 121 million. Again, this is key to our future health, and to our future top line. Remember that these programs typically take somewhere in the 2 to 3 year neighborhood for them to start generating revenues. So it's important to be out ahead of time on this, which we feel we're doing a reasonably good job on.Flipping over to Slide 6. Overall marketplace on passenger car production, globally speaking, we had a 4% growth this quarter year-over-year. The biggest contributors were China and Europe, both markets where we're decently well represented. China grew by a little bit more than 8%, Europe grew by a little bit more than 4%. This is partially due to seasonality, a little bit more work days this time in Q2 than it was last year in Q2, and that is primarily driven by the way Easter fell. Easter last year was in Q2, Easter this year was in a combination of Q1 and Q2.In North America, production actually fell in terms of units, we talked about this earlier. It's basically a market where -- which I call it the market mix, is shifting from passenger cars to sport utility vehicles. You had a number of American OEMs essentially almost exiting the passenger car market, and really focusing on SUVs. The best example of that is Ford. They announced that they're going to get completely out of cars. For us, it's actually not a negative at all, it's a slight positive, simply because there are more content in the sport utility vehicles for us, than there is in the passenger cars.So North America slightly fell. South America, very strong growth, albeit from very low levels, but the South American market and primarily Brazil, with which is a key geography to that marketplace, is slowly but securely digging their way out of the downturn that they've had and back towards old levels. As far as the truck production, overall truck production actually increased 7%, however, that one is being somewhat distorted by a very, very strong growth in India. And India is not really a market where we have a high presence. It's not really a market with what I would call premium truck and bus applications. So it's not really that relevant to us. In China, the production fell, and the primary reason for that was it -- in China, you had regulation standard changes and those regulation standard changes were anticipated, and therefore, the fleet owners were purchasing trucks and buses ahead of time in order to basically get less expensive vehicles. So that's the primary reason for that decline.In North America and South America, we had very strong growth rates, double digits in both of those markets. And in Europe, we had a modest growth rate of 2.8%. Long story short on markets, the markets are still holding up well. There's a lot of turmoil and discussions around global trade, tariffs, et cetera, et cetera, et cetera. We have a slide on that a little bit later on, where we try to illustrate what the examples or what the effects could be on a company like Kongsberg Automotive. But long story short, the markets are still holding up well and in our order book, and in our schedules that we've received from our customers, we are not seeing any weakness in the marketplace.If we flip over to Slide 8. Slide 8 is a very broad overview, as far as international performance in our 3 segments over the last 5 quarters. I think the significant news is, for our Interior segment, I think, everyone is aware of the issues that we've had there and that we continue to have. The second quarter is the first quarter where we showed significant improvements in terms of the financial performance of Interior. So sequentially, we grew our revenues in Interior by EUR 2 million, we grew our bottom line by EUR 2.6 million. So that is a strong improvement in Interior. It's not going to stop there, but I don't expect these types of jumps every single quarter, also keep in mind that Q3, from a seasonality standpoint, is a somewhat weaker quarter compared to all other quarters of the year.In Powertrain & Chassis, slowly but securely continuing the improvements. To our case, probably at a little bit of a too slower pace, but anyways, the arrows are pointing in the right direction, and slowly but securely, we're fighting our way back towards a performance level, which is more decent. And we're not shying away from our targets there. In Specialty Products, traditionally Q1 is the best quarter of the year. Q2 little bit weaker in terms of revenues. And you can also see that coming through as far as the absolute adjusted EBIT figures. Also we had a small gain in Q1 of this year as a result of selling ePower, which obviously has not taken place in Q2. But overall, pretty satisfied with our overall performance.Flipping over to Slide 9. Quick update on Interior. Interior is, from a new business wins standpoint, the segment that we have that has had the weakest new business wins, both in Q1 as well as in Q2. It's not really because we're losing contracts, it's more because there haven't been that many contracts that have been awarded in that marketplace or in that area. We expect Q3 and Q4 to pick up as far as the award levels. So we're not seeing this as a danger sign, because those low -- [ knowing ] new business win figures are not a result of us losing business -- or losing quotes, let's put it that way. We talked a little bit about revenues. Yes, we had very decent growth rate year-over-year in Interior, primarily related to the ramp up of products that we've put into production over the past 12 months. Also notably, in light duty cable -- we normally don't speak about our underlying business units, but in light duty cable, particularly in Asia, very strong growth rates more than double the revenues there. Although, that is a low base, it's a market that we've identified as a target market, where we have a reasonably low penetration today.We talked about the adjusted EBIT, also from a footprint standpoint, with the type of growth we have in Interior, we are expanding our footprint to a second facility in Poland and that ramp up is ongoing. Flipping to the next chart, Powertrain & Chassis. Fantastic new business wins. EUR 50 million in the quarter, I don't think any segment has ever done before, so very good bookings. As we've said time after time, from a product portfolio standpoint, our products really fit Asian OEMs, and particularly, local Chinese OEMs, very, very well, and that is a major source of where our bookings are coming from in Powertrain & Chassis.The revenue growth goes hand-in-hand with strong booking figures and now also some strong ramping figures, particularly for heavy-duty trucks coming out of North America. So strong growth rates on that one. And also on adjusted EBIT, strong increase in terms of earnings year-over-year, sequentially the improvement is somewhat less, but still as I said, the arrows are pointing in the right direction and we're continuing the improvements. From a footprint activity standpoint, from a -- the restructuring activities that did take place in Powertrain & Chassis are continuing not as further plant closures, but rather as further integration, particularly of supply chains and also optimizing the production that we've transferred in the new sites that received our production. Flipping over to Specialty Products. Slide 11, strong new business wins, mostly related to extension of current contracts. Notably though is another win for Couplings in Asia, EUR 5 million annual business, the strong growth in Couplings continues. From a revenue standpoint, 8% growth year-over-year, slight decline sequentially, pretty much flat revenues in off-highway, which is normal given the seasonality of that and the so-called rain season being initiated there. In FTS, also pretty much flat -- or actually slightly negative revenue growth sequentially, but year-over-year still strong growth. And in Couplings, we have very decent growth rates. From an adjusted EBIT standpoint, compared to last year, we were up by EUR 2.5 million. So strong growth on that one going very much hand-in-hand with our top line growth. I think the key message here is, as we continue to grow our Specialty Products, which is obviously very attractive from a margin standpoint, we are able to hold margins. So it's not like, we're selling out at low prices in order to increase our volumes here.From a footprint standpoint, we have 2 plant closures that were completed in the quarter in the Specialty Products area, that is Easley and Burton. They were both closed a bit earlier than what we planned for. I think we said that one would be Q2 and the other one would be Q3. We continue to ramp up in the Poland facility that is the one that basically receives all the work from the U.K. The [ Ramos ] one is ongoing. I wouldn't say that this is hugely problematic, but there are certain issues, particularly on the supply chain, where we continue to have the supply chain that's based in the U.S., even though we have transferred all the assembly work from the United States to Mexico. That takes us to our financial updates. And I'll hand over to Norbert with Slide 13.

[Norbert Loers, Chief Financial Officer]

Good morning. So we continue to Slide 13, revenue development. As you can see an FX -- result FX effects, we had strong volume growth in all 3 segments. And then there was finally adjustment to negative effect from FX -- mainly FX and small other effects, which brought us to EUR 288 million in revenue. So good thing is that all 3 segments had strong contribution in growth.Same picture next page in adjusted EBIT, that is more -- even more balanced. So Interior, Powertrain & Chassis and Specialty Products all had around EUR 2.5 million increase in adjusted EBIT, which is a very positive development from a balancing perspective.Next page is Page 15, net profit development. So we started in Q2 last year with EUR 2.9 million. We had that EUR 6.9 million adjusted EBIT improvement. We still had a very significant restructuring costs in that quarter of Q2, related to the transfers from U.K. and U.S., but also some of that attributed to a transition cost from restructuring we contemplated earlier. And it's related to fixing supply chain issues and ramping up and realizing the necessary productivity in the new site. There is a small decline in interest cost or increase in interest cost, that was mainly related to higher levels of borrowing. And then we had other financial items, which consists of realizing unrealized currency effects. Finally, we improved EUR 1.3 million in taxes, that has mainly driven -- is mainly driven by lower corporate tax rates in our main jurisdictions, which is the U.S., and to a certain degree, Norway, and also better overall tax efficiency. Page 16, free cash flow. You'll see that after many quarters of negative cash flow, we had the first quarter of significant positive cash flow now in Q2. A little bit due to seasonality and it was driven by good earnings and good improvements in cash flow from freight working capital. Our investments increased in that quarter to EUR 19.5 million, that is an increase over first quarter. If you go to Page 17, there is a breakdown on cash flow items. So our free cash flow, excluding restructuring, is the first section with EBITDA, changes in net working capital and net investments, minus our net financial expense. So restructuring -- we attribute to restructuring some EUR 10.5 million payment for restructuring cost and investments into the restructured site. The final section is development in facility. We paid back to the banks EUR 10.3 million that is the change in drawn amount. And we increased balancing loss and increase in unutilized facility. So that increased, finally, our unrestricted cash and unutilized facility to EUR 115.5 million end of Q2 2018.Page 18, net financial items. There is a breakdown on the timeline. And you'll see as normal, the currency effects are the lion piece of all these impacts. Most of them are unrealized currency effects. We have also a relative constant development of net interest. It went slightly down in Q2 versus Q1, since we had lower borrowing levels, but that was offset by an increased LIBOR rate. And we also enjoyed now lower margin grid due to the expiry of the waiver period, which ended in Q1 2018. Page 19, financial ratios. So we see, in line with overall profit improvements, all these ratios improving. Adjusted gearing ratio went down to about 2.2 and adjusted return on capital invested is improving quarter-over-quarter to finally 13.6, end of second quarter.Our equity ratio already shows the capital increase that was performed in the last week of June. If you look into our balance sheet, you will see that we show an increase in capital there, and we also show that against receivable and other receivable. The cash effect of that will be only accounted in July. So you will see that in the third quarter reportings. With that, I hand back to Henning to continue on Page 20.

[Henning Eskild Jensen, CEO & President]

Thank you, Norbert. As I've said, I'll get a little bit back to you on 2 items: One is capital structure-type activities; and then the second one was potential impact from potential tariffs on Kongsberg Automotive. Let's start with the first one on Slide 20, that is the recent capital structure activities. As I've said, at the initiative of one major shareholder, who had strong interest in investing further in the company, and doing so, at the premium, we did reach out to all our shareholders and where we judged that it will be hard for those shareholders to compensate for dilution in the open market. And we set that bar of shareholders with more than 1% shareholding. We reached out to all those shareholders. And at the end of the day, there were 3 shareholders that elected to participate in the private placement, essentially ensuring a 10% capital increase at a premium of 3% to the market that day, the day we actually -- that the board actually made that decision, the premium was at 5%.So we feel that, number one, it was a great thing for the company, and number two, and then probably more importantly, the type of support that we're seeing from our major shareholders is very, very strong. And we're certainly very grateful for that. And I assume that some of them are on the phone and we certainly like to say thank you for that level of support as well as initiative. This was not the capital increase that was driven by capital need from the company, but rather it was shareholders reaching out with the intention of strengthening our overall balance sheet. The capital increase took place at the very end of June, and as Norbert said, the cash inflow is not accounted for in our June financials as that was a receivable and that was still sitting in the brokerage accounts. So you're going to see the accounting for the cash part coming in the third quarter.We also undertook, and that was probably in the second week of July, a refinancing of our bank debt. And we are of the opinion that interest rates are most likely going to go up in the next several years. They're certainly not going to go down, let's put it that way. We also felt that the proper way to try to lock in some rates that, over the refinancing period, would be favorable, maybe a little bit unfavorable in the short term but favorable in the long and average term, would be to go out there with the bond refinancing. That again, required us to go through basically a credit evaluation from the major credit agencies, so that we would receive a credit rating, something the company has never done before. So we went through the credit rating process. We ended up getting Ba3 and BB- from Moody's and S&P, respectively. The corporate ratings were slightly different. We went to market one week. We had strong investor interest from, in my opinion, surprisingly reputable debt investors. The overall placement was oversubscribed. We reached -- well, we raised the capital or raised the debt with a 5% yield for a 7-year bond, noncallable for 3 years. And we think that, that is a pretty good accomplishment in today's market. So long story short, we've replaced our bank debts with a bond. It's a EUR 275 million bond. So as of right now, we no longer have any bank debt, but we have bond debt. And it's a 7-year bond, which is something that really brings stability into our capital structure in the reasonably long term from a capital structure standpoint. So very, very happy with having gotten all that accomplished.Flipping to Slide 22. This is an issue that we received a lot of questions on, both during the road show for the bond as well as calls that I'm getting from investors. Everyone knows that there's been a lot of attention to potential tariffs, trade wars, et cetera, et cetera, et cetera. The one that everyone is aware of, is obviously the aluminum and steel import tariffs or increased import tariffs to the United States. That has been extremely well publicized. Something that I think slightly less publicized, but if you follow the auto industry, it has gotten some headlines and that is as a revenge on the United States imposing certain import tariffs on Chinese goods. The Chinese have done their part of revenge by essentially imposing a 25 percentage point increase in the import tariffs for passenger car vehicles, including SUVs imported from the United States into China. Thirdly, there has been a lot of, I would say, threatening from the side of the United States as far as putting tariffs into place on European-made cars coming into United States.So what we did was to basically do an analysis as far as what this would mean to us. And then the overall assumption here, and I'll get to the vehicles in a second, but if you look at steel, aluminum and other commodities, and unfortunately, that list is growing as we speak. It started off with steel and aluminum only. Then, there were more commodities added to that list. One of them is certain types of plastic resin, and other one is certain electronic components, such as resistors, capacitors, et cetera. So the list is being somewhat added to as we speak. The way we look at this today is, for 2018 as compared to 2017, this will, at the current stage, ending with costing us, give or take, EUR 1 million worth of additional costs.For 2019, partly due to a lot of these things, ramping fairly late in 2019. And also, as I said, the list being added to, we're figuring out that compared to 2017 again, we would be punished in the range of EUR 2 million to EUR 3 million.Our effects on -- or from increased tariffs on the vehicles, either coming into China or coming into the U.S., is a little bit more complicated. And I can certainly go through the numbers with you, if there's questions on that in the Q&A session. But long story short, what we have said is, if we only look at the increase in import tariffs to China from U.S. vehicles, and we assume that there is a price elasticity of one, in other words, if you do a 25% increase in tariffs, then you get a 25% decrease in demand for those vehicles, then that is something that will hurt our top line by approximately EUR 2 million on an annual basis.Likewise, although this one is a little bit more complicated, if the import tariffs for European-made cars into the United States, if those increase by 15 percentage points, then we see that affecting us in the neighborhood of EUR 3 million. That figure is a little bit more complicated from a calculation standpoint, the reason for that is that there will some level of substitution in the American market, the assumption is the Americans will still continue to buy cars, but they won't buy European cars, and that means that if not all the content in the European-made cars that would be lost in such a case. The key message behind this is, with these types of tariff increases, and only the Chinese one is in effect, as we speak, and there seems to be a little bit of sense is coming into this discussion, given the meetings this week between the EU and President Trump. But even assuming that both of these will come into place, all those things being constant, it will basically hit us with somewhere in the neighborhood of EUR 5 million from a top line standpoint, something that is not significant to the overall KA financial performance.A little bit premature, it should probably be on the next page, but based on current information as far as what we see -- and we're still on Slide 22. Based on what we see from our customer orders, from the demands that get played into our systems, from our observations of the market, et cetera, et cetera, we do confirm our 2018 guidance from the AGM. For 2019, it's a little bit early for that, but have patience till we announce our Q3 earnings, and get to our Capital Markets Day, in -- which is scheduled for November in Oslo. Flipping to last page, Slide 23, very quickly summarizing as far as from a marketplace, the markets continue to be strong. We benefit over proportionately from that, primarily because of new programs going into production, and as ramping builds up, yes, we do have benefit from the increased volumes, obviously. It is partly offset by negative FX effects by increasing raw materials and some impact from the increased import tariffs, but our fall through has been solid so far this year, and we estimate that they will continue to be solid. New business wins, another very, very strong quarter. It's extremely difficult to predict new business wins for the remainder of the year. I cannot imagine that we're going to have twice as much business wins throughout every single quarter this year. But having the type of or the size of business wins in our pockets from Q1 and Q2 for this year at such an early stage, is certainly something that is very attractive to us.Six consecutive quarters with top line, bottom line and margin improvements. We're not going to stop there, but it's certainly 6 quarters. Slowly but securely, we're building some consistency here. In Interior, we're showing first signs of improvement. Those improvements, they won't be coming as strongly every quarter as it did in the second quarter. But we do foresee improvements in Interior continuing into 2019.As far as plant closures, we did complete the last 2 that we had announced. So there is no open outstanding closures, as we speak, that we have announced. We're basically saying that for now, we're going to focus on really integrating what we have transferred into our plant from the plants that we have closed, and optimizing that, both from a supply chain standpoint as well as from internal processes standpoint, before we undertake any further type restructurings.From a capital structure standpoint, both the capital increase and as well as the debt refinancing completed, secures a stable capital structure for us. It also gives us more freedom in the event that strategic choices are to be made. For Q3, which is traditionally the weakest quarter of the year from a revenue standpoint, this is mostly driven by vacation seasons in the Western world. We do expect revenues of approximately EUR 260 million. That pretty much wraps up our presentation for you. As I said, we're pretty enthusiastic as far as Q2. We thought Q1 was pretty solid. We believe Q2 is a confirmation of Q1 performance. We are seeing some, in our opinion, fantastic levels of business wins, which is great for our future. We are starting to see the first improvement in the Interior segment, which is, some of you guys will probably say that it's long overdue, which I can only agree to, but better late than never is one of those things I say. So we're pretty confident as far as the future. Yes, there are some gray clouds particularly on tariffs and world trade and potential trade wars, et cetera. There is little -- very little we can do to fight that, but with all things considered, we're basically confirming what we said at the AGM as far as the performance for the overall year, which is essentially just an FX adjusted version of what we said at the 2017 Capital Markets Day.So with that, I'd like to turn it over to some questions and answers. So operator, if you can tell people what buttons to press, et cetera, that'll be great.

[Operator]

[Operator Instructions]

[Henning Eskild Jensen, CEO & President]

While we wait for some question. There are a couple of online questions. One is, you said that the guidance for 2019 will be updated on the Capital Markets Day. Can you give us some color about what to expect? Is it to account for trade war or a more positive stance with more proof of concept in the plan? Well, I certainly hope that the purpose of the Capital Markets Day is not to start giving huge updates as far as impacts on potential trade wars. That is certainly not the case. Essentially, the way I look at Capital Markets Day is, we got out there in 2016 and it was a big change. It had a lot of moving parts. We came out in 2017 with a slight modification to it, essentially confirming 2016. Unless the world race together, and the world economy starts showing some signs of weakness, our expectations for the 2018 Capital Markets Day should certainly be an update to the 2017 plan. I don't know exactly what the person asking the question means by proof of concept, but we're going to be one year further along. There's going to be some more certainties. As we've announced, we're going to hold off a little bit on further restructuring type activities. There will be some more details around that. But don't -- I mean, the intention is certainly not to adjust the plan downwards. I would say that essentially reconfirming the overall plan and the overall plan direction, that will be what should be expected in the 2019 Capital Markets Day.So that is one question. Let me try to scroll here, it's an impossibly small writing on this thing. Another question that came up online was, can you please give some more color on new business wins? As this seems incredibly strong on a relative, but also on an absolute basis. What were the drivers in P&C and Specialty Products? In particular, what programs build this [ step ] up? Did this level of wins surprise you?Well, I'll take the last one first. I don't think it hugely surprised us. It's certainly something that is taken very positive inside the company, and we're working very harder on this. Essentially, what we've done over the past, I would say 2 years is, we put a lot of focus on our attempts to win contracts. So instead of going for just about everything there is, figure out which programs we have the best probability to winning on, and really make sure that we give it our best on those things or on those programs or those opportunities, so that we can win -- have a higher win ratio. And then basically use our resources better and get better out of that. In Specialty Products, there were essentially 2 very significant wins. One was extension of a contract in off-highway. And other one was, as I said, a win with a second Chinese truck OEM in the Couplings area. So those are the 2 big ones in that area. In P&C, the primary wins in P&C are all in China for the local OEMs. And they're typically for shift-by-wire type applications. So what we've seen over the past, I would say 6 to 12 months, is that our portfolio of shift-by-wire shifters as well as shift-by-wire actuators, fit extremely well to the local Chinese OEMs applications, which typically have small combustion engines, with small advance double clutch or CVT type transmissions. And that is just an extremely good fit to our products due to their solid base design, with easily customizable features, which is something the Chinese love, particularly on the shifters side, but also on the actuator side. So that, for all practical purposes, 1 actuator fits most transmissions with some slight modifications and our design is fairly optimized for making it easily customizable. So I think that one covers that question. And then there's one more question. Can you refresh us on your leverage targets, given your new capital structure? How do you balance your balance sheet ambitions versus potential acquisitions?I'll let Norbert take part 1, and I'll probably come back to part 2 as far as the acquisitions.

[Norbert Loers, Chief Financial Officer]

So that was one of the frequent questions when we went out with our bond. Leverage targets for us is to have 1.5 or better. So less than 1.5 debt divided by EBITDA, and not adjusted EBITDA. And we also think that achieving 35% or plus in equity ratio, a good target. And we believe that both targets are in reach for us within the next 2 to 3 years. That was part 1.

[Henning Eskild Jensen, CEO & President]

Which takes us to the acquisitions. And we made no secret about it that when we went to the AGM and basically got the authorization or the board got the authorization for, what I call, a 10 plus 15 authorization for capital increases. 10 essentially, with little or no conditions behind it. 15 having the conditions that it's got to come in conjunction with non-organic growth/it's got to be something that is offered to all shareholders, unless it's used as a payment for a potential acquisition. We've been very clear that our current plan -- our Capital Markets Day plan is not contingent upon any kind of nonorganic activities such as acquisitions. That being said, if there are acquisitions opportunities that come up, that are attractive, that fit well strategically, and more importantly, are in a reasonable price range and are accretive from day 1, I mean, we're not going to do acquisitions that are going to take 5 years to develop into -- contributing into our financials, then that's something, we're certainly going to look at. We've also said that, particularly in the area of electronics, we are somewhat behind in parts of our [ business ] today. We're trying to catch up with an accelerating train, so to speak, from an analogy standpoint. And as a result of that, that would probably be an area where an acquisition would make a lot of sense. Do we have any concrete targets there? No, we don't. Are we looking? Yes, we're looking, but it's not the only thing we're doing. It's not something that's taking all of our attention. Most of our attention is actually on improving the performance of the company. So there is no immediate acquisition plans. If we come across opportunities that fit our strategic objectives well and that can be additive and accretive to our overall Capital Markets Day plans then we're certainly going to take a long, hard look at it. What's certain is that with our refinancing/revised capital structure, we certainly have a lot more freedom as far as doing these type of things, which can only be positive.

[Operator]

Pardon the interruption, we have a question via the phone from Mats Liss with Kepler Cheuvreux.

[Mats Liss, Equity Research Analyst]

Couple of quick ones if you -- can you hear me?

[Henning Eskild Jensen, CEO & President]

We can hear you Mats.

[Mats Liss, Equity Research Analyst]

Well, talking about the new business wins, again, I'm being a bit off and on the conference call, so sorry if you already answered those, but I mean, just to have a feel for what you need to replace your current business? [ Could you say ] if this high-level continues, as you have seen during the last 12 months, how much would that affect your sales figure on an annual basis?

[Henning Eskild Jensen, CEO & President]

Okay, that's one question. Do you have more, or shall we take them one after the other?

[Mats Liss, Equity Research Analyst]

Yes, I guess start with that one.

[Henning Eskild Jensen, CEO & President]

Okay. What we -- fundamentally speaking, our programs typically have lifetimes, somewhere between 5 and 7 years. However, we sell into some markets where bookings and billings occurs pretty much in the same year. So my rule of thumb is, if you take a multiplier of, give or take, 4 or 5, and multiply that by our new business wins over the last 12 months, that would be a proxy from where revenues are going to be somewhere in the 3 to 4 years from now. For -- when we went out with debt offering, we actually tried to improve on the accuracy of this, and we tried to basically go ahead and instead of doing new business win in terms of annualized business, we try to quantify it into what we call lifetime revenues. And as such, to create what we call a book-to-bill ratio. And what we have shown over the past 2 years, or 18 months rather, is that we fairly consistency, been having a book-to-bill ratio of 1.4. So using the same type of argument, but now it's not dependent on the lifetime of the programs, it's more dependent on, what I would call, the implementation time. If you said that it's going to take 2 to 3 years to implement new programs, then you're going to have certain expiring programs. If you have a book-to-bill ratio of 1.4 in the 3 to 4-year range, that means that your revenues should probably be 1.4x compared to what they are today. All those things being constant and the market's holding up. So I hope that gives you some perspective on that as we go forward. And from -- and this is probably a little bit of a preview to Capital Markets Day, but we're going to focus -- in the future we're going to focus more on, what I would call, book-to-bill and less on new business wins as we believe that those are probably more meaningful figures.

[Mats Liss, Equity Research Analyst]

Great. Sounds reassuring there. And as you indicated lead times of the current new business wins seems to be the same, as you've seen previously. No change in the 2 or 3 years from now?

[Henning Eskild Jensen, CEO & President]

No.

[Mats Liss, Equity Research Analyst]

Could you -- just to add some more flavor regarding the R&D need and maybe investment in new production capacity to balance these business wins or we have it all in place [indiscernible]?

[Henning Eskild Jensen, CEO & President]

Well, our CapEx-to-sales, we're actually forecasting that to be, give or take, at the 6% level this year and probably also next year, primarily driven by our book business and new programs that we have in development. Depending a little bit on -- it's hard to predict there's 2 years ahead of time, 3 years ahead of time, because it's obviously going to depend a lot on what we acquire as far as new businesses. If our new business win rate goes down and obviously, the CapEx need goes down and vice versa, it should certainly not be exceeding that 6% level. It could be go -- it could be moving slightly down from that. Do we need new manufacturing facilities to facilitate all the new business that we're winning? Yes, we do. And the most urgent one is probably in China. The good news, from a capital standpoint, is that we typically rent our facilities. So it's only production equipment that would need to go in and that is accounted for in that 6% figure.

[Mats Liss, Equity Research Analyst]

Good. And probably on this one, or maybe you have answered that already, but raw material pricing is up in most areas, do you sort of have got -- could you say something about the impact during the second half? Or...

[Henning Eskild Jensen, CEO & President]

It's very hard -- it's very hard to predict, Mats. Yes, raw materials are going up. I wouldn't call this a natural hedge, but as I said earlier, we fairly have some [ volume ] benefits and they're being partly offset, among other things, from increasing raw material pricing. Generally speaking, the better the economy the higher the raw material price is and vice versa. So there's a little bit of a hedge effect there. We are in the middle of trying to essentially send off a lot of price increases relating to the second half of the year. For me to go out and predict what the impact of that is going be on us, that -- that's hard. It's -- I'm probably going to have better visibility on that in a couple of weeks. But right now, I'm not able to put a figure on that, but you're going to see continued pressure on raw materials prices as we go through the year, but also -- and that's probably, most importantly to you, I don't think that is something that changes our overall outlook for the remainder of the year as we gave it on our annual shareholders meeting.

[Operator]

We have no further questions over the phone.

[Henning Eskild Jensen, CEO & President]

Okay. I have a couple of online questions. One is, you have previously talked about your desire to step up growth in China. Could the trade war and any escalations to that conflict result in a shift in focus to other areas i.e. result in lowering/postponing growth ambitions in China? Well, to the contrary, actually. If you look at where we're growing in China and then -- or let's take a step back. China vehicle production is essentially only serving the local market in China. If there are import tariffs being imposed on cars coming into China, all other things being constant, that will probably boost local production in China. Our objective to significantly boost sales in China remains. Today, we are generating slightly less than 10% of our revenues in China. There's about 1/3 of the cars in the world that are made in China. So we feel that, we are still underrepresented in China. And we can still continue to charge full speed ahead on that. And I actually see that as an opportunity to partly compensate for negative effects coming from potential tariffs into China. So we're still pretty bullish on that. It still remains high on our priority list.I have a last question. And if I'm not answering the questions properly, feel free to post more questions. Last question I have online. Have you seen any perception change of the company by your customers as a result of various changes in the company? Business wins seems to suggest so, but maybe you can detail how those interactions are going, et cetera?Well, I'm just back from the United States, actually, where I met with some key customers earlier this week. And what our customers are clearly appreciating is that we have a pretty clear focus on what we're going to do, what technologies we're going to prioritize, and what that's going to lead to as far as products and technology directions, et cetera. So they're pretty clear that, that is something they look upon as something positive. Secondly, the old saying is, if the supplier makes money then that's kind of bad news, because it's a zero-sum game. Well, it's not really so, because the way we're making money, it's not by increasing prices, but rather it's by improving our own internal performance. And you do want to have business partners that you know are going to be around for a while. And the best way to ensure that you're going to be around for a while, is to have a decently well-performing company. And some of our key customers are clearly expressing that they welcome our improvement plans because they see that as a huge, let's call it, proof of sustainability for us. Whether this is something that has already resulted in new business wins or whether that comes from more focused approach from our side, that I cannot really answer. I guess, my little bit tongue-in-cheek type of answer to that would be, we're putting a lot of effort into winning new business. We're winning a lot of new business, whether it comes from our improvement projects or our better focus or our customers having a better view of us. It doesn't really matter to us as long as we get the wins. Let's put it that way.So that's one. And then the last question I have online is, do you expect to continue growing above global automotive production growth in both Interior and Powertrain segments? Is there major impact from EV/diesel changes to the Powertrain segment?First of all -- and if you do have access to the roadshow presentation that we did for the bond, there is some information in there on that. Yes, the overall vehicle market is not having an extremely strong growth rate. Our growth rate is stronger than that, and it's being driven by multiple factors. I mean, first of all, you have the overall [ premiumization ] of cars, which essentially leads to a growth above and beyond the volume growth in the market, in content per vehicle for automotive suppliers. So that's one effect that's helping us. And that's particularly helping us in Interior. Secondly, you have trickling down of what used to be premium features into more mass market cars. That's also increasing the overall content in cars. Thirdly, which is partly applicable to us, OEMs have historically, and they continue to outsource activities that typically the OEMs did themselves, but now suppliers are doing. So if you look at -- or if you look for a proxy for what the growth really should be for an automotive supplier, that growth rate should be higher than just the pure volume growth rate in terms of vehicles produced. Now by how much higher? That's kind of hard to say. Are we planning to grow significantly stronger than that? I would not say significantly stronger, we're going to go marginally stronger, because in some markets, we're catching up a little bit, such as China. But generally speaking, we do not have growth ambitions, which includes grabbing significant market share. We're going to grab little bit of market share primarily in China. We may be able to grab some pockets of market share, particularly in Specialty Products. In P&C and Interior outside of China, I would say that our plans and our bookings represent pretty much what the market growth is. A little bit of plus/minus, but it's not like we're going to go twice as fast as the market type thing outside of the areas that I identified.I think that pretty much wraps up our online questions. Operator, do you want to make one more test and see if we can get one more question out of the phone?

[Operator]

[Operator Instructions] Well, it seems we have no questions over the phone at this time. And with this, I would like to turn the call back over to you for any additional or closing remarks. Thank you.

[Henning Eskild Jensen, CEO & President]

I think that's pretty much it. This is our second quarter. We are -- certainly welcome you to participate in -- when we get our third quarter earnings out, which is going to be on November 7, immediately preceding our Capital Markets Day, which is also going to be on November 7. So we're very much looking forward to that. Thank you for your interest in the company. And for most of you, thank you for being investors in the company, we certainly do appreciate that, and until next time. Thank you very much.

[Operator]

Thank you, ladies and gentlemen. This concludes today's call. Thank you for your participation. You may now disconnect.