Harman International's Management Present At Deutsche Bank Global Auto Industry Conference (Transcript)

Harman International Industries Inc. ( HAR)

Deutsche Bank Global Auto Industry Conference Call

January 11, 2012 11:45 pm ET

Executives

Robert Lardon - VP, IR

Herbert Parker - CFO

Analysts

Adam Brooks - Sidoti & Company

Chris Ceraso - Credit Suisse

Pat Nolan - Deutsche

Presentation

Okay we are going to kick off our next presentation which is Harman International. Harman is a global provider of premium audio and infotainment solutions. The company has a $2.8 billion of market cap, expected sales of $4.2 billion to $4.4 billion. The company has one of the most impressive secular growth stories within this sector in part driven by growth in vehicle infotainment premium audio. The company still expects to see margin improvement particularly in its infotainment division as the business moves towards the higher margin scalable systems. In representing Harman today, we are very pleased to welcome Herbert Parker, the company's CFO and Robert Lardon, VP of Investor Relations. And I will hand it over to you.

Robert Lardon

Good morning or good afternoon. Thanks for coming guys. Just to give you a sense of how we are going to do things. As Rod mentioned this is Herbert Parker to my right here who is our Chief Financial Officer. I run the IR side of things. What I want to do is highlight a few of the recent awards that you may have seen over the last couple of days that we announced and give you a brief history of our transformation and strategy for those of you that are new to the company.

And then I will turn it over to Herbert who will go through the financials and also some of the prospects for the future if that's okay with you. And we will then take time for some questions. So we will bang through this fairly fast. Most of the slides are derivatives from the Analyst Day that I notice some of you had attended on October 26, down in Nashville. So thank you for coming again and for those of you that didn't, that slide which is up on our IR website has some additional slides that I think you will find of help that are not included in this.

So moving on, please advance slowly, so excuse me, okay. So what we did is on Monday, we were down in a New Delhi for the Auto Show there and we announced the formalization of our new, what we call premium entry system. We have talked about this over the last few months that we are working on it. We now have a commercially realizable product. We don’t have an award yet, but hopefully that will be forthcoming and this is part of the transition of our dominance in the high end infotainment luxury sector, systems that cost around say $3500 at dealer retail to the systems in the premium mid level, systems that would run say a $1000 or $1200 to systems in what we would call the premium entry level and premium entry meaning that we will cherry pick those areas of the entry, compact Class A and B markets where we feel we will get the type of margin realization that we require which is essentially 8% to 10% EBIT.

So that was a fairly big news announcement that we had just a couple of days ago and obviously even though it appeals to the Indian high growth market what we call the two wheeler market as the A and B segment, the scalable approach that we had and I will talk about that a little later, allows us to take this and certainly export it to other markets as well. But this is where we first announced a couple of days ago.

We also had four additional awards. So these are actual awards. The first was being with Hyundai for a continuation of our Lexicon premium audio system. I think those of you that have been following the industry know that the Hyundai that won the 2010 with the Genesis Model of the Year for the most advanced technological vehicle, a lot of that was based on the electronic componentry which of course the infotainment and the premium branded audio system comprise.

So we are very pleased with that. That’s a nice follow-on piece of business and it keeps us in the fold with Hyundai with the next generation Genesis for model year 14.

In addition, we have three net new business awards. Premium audio awards with SsangYong as well as with the Smart Car group. They are not huge awards, but they’re important awards because they are net new to us as well as the fact that as you know, premium audio generates very high margins for us in the 15-plus range.

So these are good awards and the last one is Subaru of America has selected our Aha Radio platform, which is really beyond a Pandora internet radio. It really is a platform for aggregating and repurposing content to mobile devices, whether it be radio or a blog or Facebook or Twitter, like a variety of different medium that is coming in to the cars. So that expands that to Subaru’s OEM installation as well. So we’re quite confident in terms of our adoption rates of Aha it’s moving along very, very fast.

This get back to talking about what we got here about five years ago when we first chaired up at Harman. We inherited the company for all of it’s technical prowess and for having created the infotainment category in 1995 with the acquisition of the Harman Becker radio company in Germany was entrepreneurially led and also run that way in the sense of 17 different business cards, different operating units, 17 different presidents, HR groups, et cetera, with very little at the corporate level, other than basically a few lawyers and accountants in Sydney running things.

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