U.S. Markets open in 3 hrs

Edited Transcript of 1316.HK earnings conference call or presentation 13-Aug-19 12:00pm GMT

Half Year 2019 Nexteer Automotive Group Ltd Earnings Call

SAGINAW Aug 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Nexteer Automotive Group Ltd earnings conference call or presentation Tuesday, August 13, 2019 at 12:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Cameron Wang

Nexteer Automotive Group Limited - IR Director

* Michael Paul Richardson

Nexteer Automotive Group Limited - President & Executive Director

* Robin Milavec

Nexteer Automotive Group Limited - Senior VP, CTO & Chief Strategy Officer

* Tao Liu

Nexteer Automotive Group Limited - Senior VP & Global COO

* William G. Quigley

Nexteer Automotive Group Limited - Senior VP & CFO

================================================================================

Conference Call Participants

================================================================================

* Rebecca Y. Wen

JP Morgan Chase & Co, Research Division - Analyst

* Robin Zhu

Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst

* Tim Hsiao

Morgan Stanley, Research Division - VP

* Yizhe Wang

UBS Investment Bank, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, welcome to the Nexteer Automotive 2019 Interim Results Conference Call. (Operator Instructions) And as a note, this call is being recorded.

I would now like to turn the conference over to Investor Relations Director, Mr. Cameron Wang. Please go ahead, sir

--------------------------------------------------------------------------------

Cameron Wang, Nexteer Automotive Group Limited - IR Director [2]

--------------------------------------------------------------------------------

Thanks, Keith. Good day. Welcome, everyone, and thank you for joining us. Nexteer Automotive 2019 interim results were released at 6:30 p.m. Hong Kong time today. It has been posted on our company website. You can also download the presentation slides for today's call from the Investor Relations folder of the website. Joining us and presenting today are our Executive Board Director, President Mike Richardson; Senior Vice President, Global COO, Tao Liu; Senior Vice President, CTO and the Chief Strategy Officer, Robin Milavec from Hong Kong; and our Senior Vice President and CFO, Bill Quigley, from our U.S. head office. Mike will first give us the overall business update for the first half year 2019 and then Paul and Robin will share more insights about development in their respective operation and technology fields. Then Bill will walk us through the details of financials. After the presentation, we will remain available to answer your questions.

Before I turn it over to Mike, I'd remind you of the safe harbor statement for today's communication.

Welcome, Mike.

--------------------------------------------------------------------------------

Michael Paul Richardson, Nexteer Automotive Group Limited - President & Executive Director [3]

--------------------------------------------------------------------------------

Thanks, Cam, and thanks to everybody who's joined us on this call. For those of us -- those of you who have been with us from the beginning, you know we've been operating in a different automotive environment for the past 12 months. Nothing new to us or unusual in the longer context of automotive but different than you've seen since we've operated as a publicly listed company. We'll talk more about that during this call.

Since the AVIC acquisition of Nexteer, we've benefited greatly from 3 factors: the global recovery of automotive in every market, global legislation that's driven every major OEM to make sweeping technical changes to their vehicles, including the adoption of engine-independent steering. And more recently, our success in gaining Conquest business. In spite of generally being a significantly smaller enterprise than our key competitors, we've moved to a Conquest model by remaining focused on our core competencies, customer relationships, diversification and globalization, all positive factors that are important to us as they impact our future state. That said, we recognize that we never control the number of vehicles produced in the current period.

Tier 1 suppliers follow customer demand. They build and shift very specific product to firm customer orders. Recent environmental changes have not caused us to change our overall strategy for profitable growth. We reviewed these 6 elements in many past sessions, they remain unchanged, so I will not cover them in any detail today but would highlight our recognition of the need for topline growth. Revenue remains our fuel, and objectively, we know that this organization has done great things when presented with scale.

We've also been through many automotive cycles and know that even while demand periodically falls off, this is a moment to maintain focus on broadening our commercial exposure to those customers we see as winning in the future with particular attention paid to those platforms that we judge to bring economies of scale.

The automotive market returns with increased vehicle production. We aim to participate with increased exposure and future state upside. Let's walk through these 3 -- 5 highlights beginning with new product launches. 2019 is a heavy launch year with 50 major launches planned. Again for context, something we've talked about in the past, this compares to 33 or 34 majors in a typical year, at least in the last few years. We've completed 21 launches in the first half with the balance planned in Q3 and Q4. This graphic breaks first half launches down by region, showing heaviest activity was in North America and Asia Pacific divisions, by customer, by platform and by product type.

Launch activity planned in the second half will be more substantial and centered in Asia Pacific. That regional team, led by China-based operations, is focused on delivering these launches flawlessly. Before we can enjoy the revenue associated with this business expansion, regardless of volume attained, we must first deliver these production launches.

A bit of added detail, Q1 and Q2 launches, and I won't dwell on this, but just would share that every region and vehicle segment is represented, both global and local vehicle nameplates. Every EPS mechanization in our portfolio is represented here with the new launch intended to solve a customer need. It's a fairly orderly cadence, no surprises here through the year as we aim to participate with increased exposure and opportunity.

Second, let's move on to backlog. Given the long lead times of the steering vehicle subsystem, backlog remains our most valuable indicator of what comes next. This walk takes us from 2018 year end to the end of H1. I take you through the walk here. We finished last year at USD 25.2 billion. We burned off $1.8 billion revenue in the first half, that product went to the street. We added $2.3 billion in gross new bookings and made it, in this case, a fairly minor adjustment for volume and FX changes. That's what walks us to the first half finish of USD 25.6 billion.

This slide also shows a breakdown by product line, EPS dominating and holding high at 71% of this complete order-to-delivery backlog. By region, becoming increasingly balanced with North America now representing just more than half of global product shipped. And the customer pareto down below there showing again increasing balance. GM, our largest customer, now down to 35% of backlog followed by Ford, FCA, BMW and others.

I also want to return to the market dynamic of Incumbent versus Conquest business. This is a big deal for us. We completed 2018 with nearly half of new business bookings being Conquest. That means, again, we displaced a competitor who was already tooled at making product but customers decided on us instead, making our competitor's future volume ours. While we book this business today and immediately began investing engineering resources and shortly after that capital, revenue comes later, on average, launching about 3 years after we speak about the booking. That means that in our industry, engineering spend always precedes top line growth. You'll see this trend in our historical numbers as we ramp engineering towards booking opportunities well in advance of our realization of revenue.

This next graphic contains information we technically shared over time. The only new number is the last one, $25.6 billion backlog, showing where we stand today at mid-year. While we generally increased the order-to-delivery backlog over the last 8 quarters, it's admittedly not a record. The record was in Q1 of 2017.

Let me remind you that we periodically temper the backlog, meaning reduce the backlog for material changes in IHS forecast and FX assumptions. While this penalizes the current period backlog long before there's any conversion to revenue, we continue to think that this is the fairest approach to ensure that backlog remains an objective tool, an accurate tool for both internal and external planning. We use it, and you use it the same way.

But here's what I want to point out on this slide. Since peak in Q1 of 2017, we have systematically and preemptively removed volume dollars associated with customer cancellations that was generally 1 big program between the transfer from Opel to PSA at $1.3 billion. And then other changes in the industry forecasts, we're generally using IHS of late. We've been taking even a more conservative view than they do. We account for changes in volume and mix. Those at this point, over this period, amounted to $0.7 million. So taken together, USD 4 billion, we've pulled out of the backlog after booking programs in the past. I'd love to add another $4 billion to the current backlog, but we think it's more objectively stated the way we show here. We've already taken the discounts that we believe are in our future, making this backlog, again, as objective a tool as we can for our use and yours.

Third, continued globalization with regional autonomy. This Slide 12, we've shown a version of in the past. A year ago there were 6 facilities under construction. Today, the update would be 3 are operational with 3 planned to launch later this year. Kenitra, Morocco, will launch this quarter within a new launch, significant launch, every 3 months for the next couple of years. Wuhan begins with a small launch this quarter. Suzhou opens their new technical center in Q4 of 2019. So again, all 6 of these facilities will be operational by the end of the year.

Let me come back to Morocco for a minute on Slide 13. Our booking success in Morocco has been unprecedented for the company, largely driven by driveline. And this investment became as an active phase some time ago with a strong support from both our customers and the government. Industrialization plans are on track with the water production programs for both driveline and steering products. Our first EPS program will initially launch with just final assembly. We'll bring in the major components that we need to deliver that. This is something we've done systematically around the world as we first mobilize production and walk up the value stream. We'll make further investment as customer volumes support it.

Driveline, we've got 6 programs secured at the moment across 3 different customers. Driveline programs, we launched systematically through the year in 2020 and the first half of '21, the bookings that we have to date. In the next season, we remain focused on sequential launches. We expect positive OI contribution from Morocco in 2021. And under the current tempered forecast, generally following IHS or a slightly reduced IHS forecast, we expect to achieve USD 200 million in revenue by 2021. We will continue to ramp up there. And in fact, we're currently evaluating further expansion on this site because we basically built out the initial plant.

Liu Zhou, next slide, is a different story. We've been present there in an industrial park near Wuling customers since 2015, and we started in a leased facility because we were moving very fast in those days. We've now relocated to a wholly-owned facility in the same industrial park and have added all the basic production capabilities you'd expect to find in any global Nexteer plan. Further, we've installed local engineering capabilities such as an NVH lab, noise, vibration, harshness lab; a test track; a vehicle testing lab; and a product analysis center to ensure that we can shortstop questions, be a global company operating locally and satisfying these important customers.

One other quick update on engineering globalization. We recognize that engineering bandwidth is generally what paces our rate of growth today. We can do a lot with open engineering capacity, and we're doing many things right now to make it more efficient and effective. This chart represents the progress we've made in globalizing, and I'll say regionalizing our engineering activities. Percentages shown reflect the level of global engineering performed by the 2 divisions, EMEA-SA and Asia Pacific, in support of the products manufactured there. This metric measures engineering activity associated with product application and continuous improvement. We track every beginning with the award of a new program and continue through end of program life.

These 2 categories represent the majority of engineering effort, about 80% of our global spend. So what I want to point out here is 70% of engineering effort associated with that #1 category is now delivered regionally for regional needs, making us much more quick to respond and cost effective in meeting customer expectations. Through this initiative, we're increasing engineering bandwidth to increase our enterprise capacity for growth.

Fourth, improved operational efficiency. Under the heading of operational efficiency, I'd like to narrow our focus to 1 location at Saginaw, into 1 product line, driveline. Most of our time together over the years has been focused on engine-independent steering. This is where we found greatest opportunity for top line growth and earnings accretion. That opportunity was costly and required enterprise focus. Evident success is seen in the global backlog that's moved since we first met from 29% composition of EPS to 71% as we reach the first half of 2019.

Coming back to driveline, our investment driveline growth has historically been outside the U.S. That's where we found the opportunity, and that's where we recognize an ability to deliver driveline product profitably. So I'm talking about, for many years, China and India, and more recently, Mexico and in about the last 2 years, Morocco. And we're now ready, finally, to launch this quarter.

These regional locations all apply world-class design and process to drive cost-effectiveness and profitability. That process recipe is proven. We know it works. We're now just making the required investment to catch up in North America, specifically, Saginaw, to bring that large operation to the same world-class level in the design, process and product quality.

To tell you a bit more about that, I'm going to ask Liu Tao, our Senior Vice President and Global COO, to provide an update on Saginaw driveline transformation. Tao?

--------------------------------------------------------------------------------

Tao Liu, Nexteer Automotive Group Limited - Senior VP & Global COO [4]

--------------------------------------------------------------------------------

Thank you, Mike. We started the implementation of our Saginaw driveline transformation in the middle of 2018. For priority reasons, we left our Saginaw driveline facility with the 40 years old bill of process unchanged. The old bill of process is basically 90% vertical integration, still in finished halfshaft out.

In the meantime, we have been growing our driveline business globally with the new bill of process, which is a combination of making selective critical components and outsourcing the rest of the components and focusing on subassembly and the final assembly. There are also many new manufacturing technologies that have been implemented such as automation, digital trace, [air propane] and others. The new bill of process is proven to be competitive in quality and cost by our sites in China and India. And it is also implemented in our Mexico and the Morocco site.

The Saginaw transformation is basically to implement the new bill -- global bill of process. Global consistent steel process leads to better quality and customer value, reduces lead time and utilizes more supply technology, improves the efficiency in plant operations, FST utilization as well as facilitates quality and cost improvement.

We are outsourcing many of the components that we currently manufacture in-house to leverage the supply technology and expertise. At the end of the transformation, we will only manufacture about 40% of the operations than we currently perform. We are on track for this conversion and our suppliers have been very supportive of the conversion with their investments and technology commitment.

We currently utilize about 100,000 square meters of manufacturing floor space across 2 manufacturing plants. Through the outsourcing and plant consolidation effort over the next 2 years, we will be able to move into 1 plant utilizing about 50,000 square meters. We will reduce our production and manage rural staffing. We expect to eliminate half of the -- our production workers by utilizing the supply base and the new manufacturing, new assembly technology and automation.

This is a disruptive change for the business. There will be over 3,900 part numbers impacted by those changes. Over 500 part numbers will be sold to our suppliers. More than 50 sequences of equipment and production material relocations will be performed to complete the consolidation. About 1,100 pieces of equipment will be either moved or relocated into 1 facility. And all of those changes will reduce the production floor space by over 50%.

A significant proof point of the value of this transformation is the first production program we launched 10 months ago. Because of the customer program launch overlap, when we are producing the newly launched product in the new line, the previous generation products are still running and both lines produce similar volume. Compared to the old assembly line, the newly launched assembly line uses global bill of process. We improved our manning by 70%, reduced our production standard hours by 36%, made our production footprint smaller by 63% and reduced our scrap costs by 83%.

We know the new global bill of process works in our global driveline plan. This production launch proves the global bill of process also works in our Saginaw driveline plant. The new launch convinces us that the strategy is effective for the business in Saginaw. We will continue to see those type of improvement as we make the investment and implement the new bill of process over the next 2 years. This disruptive transformation is a strategy that will continue to pay dividends for the business and the site.

--------------------------------------------------------------------------------

Michael Paul Richardson, Nexteer Automotive Group Limited - President & Executive Director [5]

--------------------------------------------------------------------------------

Tao, I know you're not expecting a question right now, but I'm just going to anticipate one. This is a big initiative for the company. We started last year, and this will run through...

--------------------------------------------------------------------------------

Tao Liu, Nexteer Automotive Group Limited - Senior VP & Global COO [6]

--------------------------------------------------------------------------------

2021.

--------------------------------------------------------------------------------

Michael Paul Richardson, Nexteer Automotive Group Limited - President & Executive Director [7]

--------------------------------------------------------------------------------

To 2021. Complete in 2021. Thank you.

Let's round out operational efficiency with this recognition slide as we've done before. Recognitions in this period include really 3 categories. Under the heading of manufacturing, the National Association of Manufacturers awarded us the Leadership Award for Enterprise Integration and Technology Leadership. Ford awarded us the silver supplier award for Suzhou operations; under the heading of excellence, SGMW, an international pioneer with exceptional customer response; PSA awarded us Platinum Supplier; and an ASQ finalist in the International Team Excellence. One other I'll include here under value creation, Moto Idea's Decade Award for contribution to development of the automotive industry in Poland over the last 10 years.

Fifth and final enterprise priority to touch on is our effort and investment in ADAS and NEV technologies. Robin Milavec is our Senior Vice President, CTO, CSO. He's with us here today, so I'm going to ask him to provide a firsthand update on this topic. Robin?

--------------------------------------------------------------------------------

Robin Milavec, Nexteer Automotive Group Limited - Senior VP, CTO & Chief Strategy Officer [8]

--------------------------------------------------------------------------------

Thank you, Mike. The North American light-duty truck market has been foundationally important to Nexteer, and we enjoy a commanding market presence across all 3 domestic OEMs. We are now moving into our third generation of steering products on full-size trucks, with production contracts that take us out to the mid-2020s.

In the past 6 months, we've seen new interest in electrifying powertrains on this class of vehicles, both from the traditional players as well as new entrants. Our rack-assist EPS technology and application experience in this segment has placed us in a strong position to lead the electrification efforts in the light-duty truck steering market.

This next slide represents our power packstrategy for the full size truck market. As the market has advanced with varying levels of automated driving features and [safety] requirements, so has our technology. The chart shows the evolution of our power pack technology and how it supports the various levels of ADAS. We also classify system reliability for each ADAS level in terms of FIT rate. The FIT rate of a device or failures in time is the number of failures that can be expected in 1 billion hours of operation. One method to reduce the FIT rate of a system is to add redundancy, both in terms of hardware as well as software in the form of multipath processing. You can see the impact on FIT rate as we add redundancy in the power inverter, the microprocessor and the input power. Each of these steps increase the reliability of our steering system and ensure that they operate safely. We expect that the future highest volume scenarios are those shown inside the red circle. These power packs support ADAS Level 3 functionality with a 10 FIT rate. We've developed 2 families of power packs in this category, 1 focused to optimize costs and the other to optimize the package space.

Finally, our lowest FIT rate power pack design has been developed for ADAS levels 4 and 5 and consists of a fully independent power and logic board, completely isolated in its own environmentally sealed chamber. A second and independent power and logic board is also isolated in its own chamber. This architecture mitigates a failure mode such as water intrusion into one of the controller cavities. In that case, the EPS system will continue to operate normally on the second controller.

We continue to advance our technical capabilities in the domain of autonomy, looking for ways to accelerate both learning and economic impact while leveraging technical building blocks already in development. This investigation led us to bring our attention to autonomous people shuttles and goods delivery vehicles. We see this market expanding rapidly with many new entrants, thanks to megatrends and mobility-as-a-service and last mile market delivery. Two examples are shown on this slide with EasyMile and Nuro. In this market segment, regulations will likely be reduced due to the low speed and highly controlled navigation routes.

Nexteer will be contributing our expertise in the steering systems and motion control software to this emerging market. We also find alignment with Continental through our CNXMotion joint venture to explore steering and braking domain controllers, including software and algorithms. Technology developed for this market will be foundational and scalable for other more stringent use cases. We continue to see the prize being the automotive market. But this segment will likely be an efficient bridge and provide a fast-paced learning rich journey.

--------------------------------------------------------------------------------

Michael Paul Richardson, Nexteer Automotive Group Limited - President & Executive Director [9]

--------------------------------------------------------------------------------

Thanks, Robin. With that overview, I won't spend any more time on enterprise priorities, but we'll instead turn it over to Bill Quigley, Senior Vice President and CFO. And Bill again is not in the room with us. He is in the U.S. tonight.

Hi, Bill.

--------------------------------------------------------------------------------

William G. Quigley, Nexteer Automotive Group Limited - Senior VP & CFO [10]

--------------------------------------------------------------------------------

Hey, thanks, Mike, and good day to all of you joining us on the call. So as Mike highlighted in his comments, we certainly encountered a number of headwinds in the first half of 2019 compared with last year, many of them being environmental, impacting not only Nexteer but the entire automotive industry as has been reported by both OEMs and suppliers over the last several months. Currency proved to be a headwind in the current half of 2019 given the continued strength of the U.S. dollar against both the RMB and euro.

OEM automotive production fell period-on-period across all regions, with decline in China OEM production the most notable. After peaking in the first half of 2018, China OEM production came under pressure in the second half of 2018, and that weakness accelerated to the first half of 2019. Our Asia Pac served customers have been further challenged during the first half of this year, with some posting production declines well in excess of the overall market trend.

As we discussed during our 2018 year-end reporting cycle, General Motors commenced in earnest the North American conversion of the K2XX full-size truck and SUV platform to the new T1XX platform, which is expected to be fully completed in the first or second quarter of 2020. And while we retained our rest position on this platform, we did not secure our columns' incumbency resulting in the current period headwind, which was only partially mitigated by higher volumes for other customer programs in our North American segment. The softer revenue environment, especially when compared with much stronger OEM production in the first half of 2018 significantly pressured Nexteer's earnings and cash flow performance.

So now let's move into the numbers for the first half of 2019. You will note here Nexteer posted revenue of $1.832 billion, lower than last year by $215 million or about 11%. In the coming slide, we will review the key drivers of the change in revenue, yet all of our regional segments were impacted by a lower demand environment with Asia Pacific bearing the most significant reduction.

Moving to EBITDA and net profit for the first half of 2019, lower demand across all regions certainly provide a challenging environment, and our operating teams worked diligently to mitigate the impact on our earnings performance. EBITDA for the first half of 2019 came in at $277 million compared with $331 million last year and our margin performance of 15.1% in the current period compared to 16.2% a year ago.

While our net cost performance partially offset both economics and customer pricing, these actions fell short of offsetting the earnings impact of lower revenue. The EBITDA performance of our North America and Asia Pacific segments were most impacted by the factors highlighted in my opening comments, while EBITDA performance of our EMEA-SA segment continued to improve despite lower revenue.

Net profit for the first half of 2019 came in at $131 million compared with $200 million last year, providing a margin of 7.2% compared with 9.8%, respectively. Lower EBITDA and increased depreciation and amortization expense were partially mitigated by lower net finance costs given the continued strength of our balance sheet. Lower income tax expense in the first half of 2019 reflected lower pretax profit, as well as jurisdictional mix, provided an effective tax rate of 14.7% in line with our expectations.

Last, free cash flow for the first half of 2019 was $45 million compared with $183 million a year ago. Lower EBITDA, timing of customer trade receivable collections and higher capital investment and capitalized product development costs were the principal factors impacting the comparison.

Now let's review in more detail our revenue comparisons. On this slide, we present our segment revenue comparisons as well as the key drivers of the change in revenue for the first half of '19 compared with last year. In our comments earlier, 3 main factors attributed to the decline in revenue in the first half of 2019. First, the U.S. dollar strengthened against both the RMB and euro, driving unfavorable foreign currency translation of 40 million. Second, China OEM light vehicle production fell by 13.5% in the first half of 2019 to about 11.6 million vehicles. Furthermore, a number of key customers of our Asia Pacific segment, SGM Wuling and DPCA as examples, suffered further production declines, negatively impacting the period-to-period revenue comparison by $82 million.

Third, as GM has been transitioning the K2XX platform to a new T1XX platform in North America, revenue derived from our columns product line was negatively impacted by about $84 million. All other revenue changes provided a net headwind of only $9 million in 2019.

Our revenue comparisons by segment are presented on the next slide. North America posted revenue of $1.275 billion in 2019, $68 million or 5% lower than last year. Of this change, $84 million was attributable to lower columns revenue derived from the GM K2XX to T1XX platform transition. Adjusting for the specific item, North America revenue did increase net of customer pricing by $16 million, reflecting an uptick in full-size truck and SUV production, and in particular, strength of Ford Ranger Everest and CD6 vehicle platforms. Asia Pacific posted revenue of $305 million in 2019, $113 million lower than last year. Currency provided a headwind of $20 million period-to-period given a weaker RMB against the U.S. dollar.

During last year, China OEM unit production started to contract, and for the full year 2018, ended lower by almost 4% compared with 2017. And that weakness certainly extended into the first half of 2019 with China production lower by almost 14% compared with a year ago with several key Asia Pacific customers further underperforming the overall market trend. These factors, including customer pricing, lowered revenue by $93 million for the first half of 2019 compared with last year.

EMEA-SA posted revenue of $252 million in 2019, a decrease of $34 million compared with last year, with unfavorable currency accounting for $20 million, reflecting a weaker euro against the U.S. dollar. And during the first half of 2019, overall Europe and South America OEM production fell by 5.6% and 3.1%, respectively compared with that of 2018. Certainly, the softer demand environment and customer pricing lowered revenue by about $14 million compared with last year.

So I will now turn to our product line revenue performance on the next slide. As highlighted here, all of our product line revenue comparisons were impacted by the lower demand environment. EPS revenue of $1.22 billion was lower than last year by $99 million, or down about 8%. As EPS represents more than 70% of Asia Pacific's segment revenue, the overall weak China OEM production environment certainly impacted this comparison. Asia Pacific EPS revenue, including the impact of currency and customer pricing, was lower by $86 million, accounting for 87% of the period-over-period decline.

Higher revenue from increased North America customer demand, principally GM and Ford platforms of about $15 million was more than offset by a decline in EMEA-SA of around $28 million, reflecting demand weakness with both BMW, PSA and FCA.

Columns posted a revenue of $269 million in the first half of 2019, lower than last year by $68 million. And as previously highlighted, the GM K2XX to T1XX platform transition accounted for $84 million of a period-to-period comparison, with higher demand from other North American customers, principally Ford and FCA, providing a partial offset. Driveline revenue of $270 million decreased by $34 million compared with 2018. Lower demand from Asia Pacific accounted for about 60% of the decline, with platform mix in North America driving the remaining variance.

Last, HPS revenue of $71 million for the first half was in line with our expectations given end of production with both Ford and Toyota in Australia in the second half of 2018 as well as lower GM production in the current period due to the changeover of the K2XX heavy-duty platform to a T1XX heavy-duty platform, which was completed in May of this year.

Now I'll move to our EBITDA performance on the next slide. North America posted EBITDA of $189 million in 2019 on revenue of $1.275 billion, $31 million lower than last year. EBITDA margins came in at 150 basis points lower to 14.8% for the first half of 2019. Lower revenue, principally the impact of a customer platform transition, was a significant headwind. Cost reduction efforts only partially offset base economics, customer pricing and costs associated with the segment's driveline profitability improvement initiative.

Asia Pacific posted EBITDA of $60 million on revenue of $305 million, $28 million lower than last year. EBITDA margin came in at 150 basis points lower to 19.5% for the first half of 2019. Cost reduction actions executed by our Asia Pac team in a certainly challenging revenue environment more than offset economics and customer pricing but fell short of offsetting the impact of significantly lower revenue in the period given the decline in OEM production. Yet the margin profile of the Asia Pac segment continues to remain quite strong.

EMEA-SA EBITDA rose to $34 million on revenue of $252 million in 2019, an increase of $5 million compared with 2018, with margin increasing 320 basis points to 13.3%. Despite lower revenue driven by foreign currency as well as lower customer demand, the EMEA-SA team continued implementing cost efficiency actions which outpaced both customer pricing and economics, moving the margin profile of the segment higher.

Given that global OEM production began to slow in the second half of 2018, we did want to share a sequential view of our revenue and EBITDA performance for each of our segments which is highlighted on the next slide. If you recall, in the second half of 2018, Nexteer posted revenue of $1.865 billion, generating $289 million of EBITDA with a margin of 15.5% compared to our current 2019 results of $1.832 billion in revenue and EBITDA of $277 million with a margin of 15.1%. And this slide provides the revenue and EBITDA sequential comparisons for each of our segments.

As noted here, both North America and EMEA-SA improved their EBITDA margin profile, moving from the second half of 2018 to the first half of 2019. On slightly lower revenue, North America's EBITDA improved sequentially by $6 million and margin improved by 50 basis points from 14.3% to 14.8%. EMEA-SA enjoyed higher revenue given normal seasonality in Europe OEM production and converted on the volume, improving EBITDA by $5 million sequentially and improving margin by 20 basis points to 13.3%. This is a particularly strong performance given that EMEA-SA enjoyed a nonrecurring customer program cancellation recovery in the second half of 2018.

And turning to our Asia Pacific segment, compared to the second half of 2018, China OEM production fell a further 12.6% in the first half of 2019 from about 13.2 million units to 11.6 million units, resulting in lower revenue which further challenged the earnings profile of the segment. Yet continued cost and efficiency actions executed by our Asia Pac team did help to mitigate the impact of the lower revenue trend.

The next slide provides a reconciliation of EBITDA and net profit for both 2019 as well as '18. And I'll just make a couple of observations here on more significant items and comparisons. You'll note depreciation and amortization expense of $117 million in the first half of '19 increased $26 million compared with the same period last year, reflecting the impact of new customer program launches as well as the adoption of IFRS 16 leases which increased D&A by about $6 million in the current period. We also wrote down capitalized product development costs for several Asia Pacific OEM programs in the amount of about $4 million given forward production expectations.

Net finance costs in 2019 of $2 million were lower by $4 million compared to last year, largely attributable to ongoing debt amortization as well as interest income earned on our cash balances. Income tax expense for 2019 was $23 million, lower than last year by $6 million mostly reflecting lower pretax profit as well as jurisdictional mix. And our effective tax rate for the first half of 2019 was 14.7% in line with our expectations.

I'll now turn to our investments for the future on the next slide. Our engineering and product development spend for the first half of 2019 was $144 million, or represent about 7.8% of revenue compared with $127 million a year ago. You'll recall for the full year 2018, our engineering product development spend was $265 million and we expect to 2019 at approximately $300 million, or an increase of about 13%. This reflects our continued focus on expanding our technical capabilities, including localizing and aligning resources close to our served customers with the expansion of our Suzhou, China, and Tychy, Poland technical centers as well as ongoing staffing of our India software center in Bangalore, which is responsible for downstream software product for production and validation. And at the end of June, our engineering staff stood at about 2,500 compared with about 2,300 at the end of 2018.

And turning to the right of the slide, you'll note our capital investment additions totaled about $84 million in 2019, slightly higher than last year. But of this amount, almost 70% is dedicated to servicing new and incumbent customer programs.

Our capital performance and balance sheet is highlighted on the next slide. For the first half of 2019, we generated free cash flow of $45 million, $138 million lower than the same period last year. You'll note on the left of the slide, cash from operations decreased by $83 million, largely driven by lower net profit as well as timing of customer trade receivable collections in the first half of 2019. These factors were partially offset by the receipt of a U.S. tax refund from our prior year federal corporate tax filings.

Cash used in investment activities in the first half of 2019 was $55 million higher than last year, reflecting the timing of cash settlements related to capital equipment additions in the latter part of 2018 as well as an increase in capitalized product development costs in the first half of '19. At the end of June, our cash balances were $585 million compared with $675 million at the end of 2018, reflecting favorable free cash flow offset by cash used for financing activities of $134 million in the first half of '19. Current period financing activities included ongoing debt amortization of about $45 million, dividends paid to our shareholders of $78 million and net interest payments of about $13 million.

And you'll note on the right of the slide we did adopt IFRS 16 leases as of January 1, 2019, which reclassified many leases previously accounted for as operating leases to finance leases. The adoption of this statement resulted in the recognition of both capital assets as well as lease liabilities totaling $64 million and $67 million, respectively, at the end of June. But you'll note here at the end of our first half, our balance sheet continues to remain strong.

So as we move forward through the second half of 2019, we certainly wanted to share with you some perspectives on the business. Given the current economic environment, we do expect the U.S. dollar to remain stronger compared to most major currencies through the remainder of the year, likely providing a slight headwind on a year-over-year basis. Normal OEM production seasonality will come into play as well, especially with European OEMs given the traditional August and December shutdowns.

IHS is currently forecasting lower Europe OEM production of about 9% on a sequential basis. IHS is also currently forecasting a recovery in the second half of 2019 for China OEM production, rising to 13.2 million units compared to the first half actual production of 11.6 million units or 14%. Certainly based upon the last several quarters of actual versus forecast production, we continue to maintain a cautionary view, near term on this very important market. Each of our segments have specific cost reduction targets to achieve and are working diligently on execution now into the rest of the year in certainly a tighter demand environment. And as Mike highlighted in his comments, we do have a significant number of customer program launches to execute in the second half of '19, mainly in our Asia Pacific segment. And while the volumes may be lower than expected in the near term given the current production environment, we must execute each and every one of these launches as efficiently as possible, which will only further position us as a supplier of choice with our customers.

This brings us to the last bullet on this slide. While we navigate the near term, we also must continue to focus on the future, and we are diligently working to secure business opportunities with both current and new customers, both Incumbent and Conquest to further expand our backlog of booked business in a very competitive environment. Success on this front will only provide a brighter future for all of our Nexteer colleagues as well as all of our external stakeholders.

And with that, this concludes our formal presentation, and we'll now hand the call back over to Keith for any questions. We want to thank all of you for participating in our call today as well as your continuous support of and interest in Nexteer.

Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And the first question comes from Tim Hsiao with Morgan Stanley.

--------------------------------------------------------------------------------

Tim Hsiao, Morgan Stanley, Research Division - VP [2]

--------------------------------------------------------------------------------

So 3 quick questions from me. First, we mentioned the column order lost during the platform migration from K2 to T1. So would there be any opportunity for us to get back to orders and how long it will take?

And second question is about cost for the margin turning to second half. Because you mentioned several initiatives into second half and also, if you look at the past few years, second half used to be the low season. So does that mean that the margin parameters might persist into the second half?

And last question is about our potential negotiation with the union in the U.S. because I remember several years ago, we went through a very tough negotiation with the UAW. So as I remember, probably we need to renegotiate with UAW probably sometime next year. So if there's any way we can smooth that this time.

--------------------------------------------------------------------------------

Michael Paul Richardson, Nexteer Automotive Group Limited - President & Executive Director [3]

--------------------------------------------------------------------------------

Tim, this is Mike. I'm going to reach out to Bill on the second question, his thought on the second half versus first half. But on the column loss K2 to T1, that loss was 3 or 4 years ago, again, reflecting the lead times that we deal with. We're just now, finally in 2019, seeing it in our result. I don't have anything to report today on the likelihood that we could rewin that. But I will tell you, those discussions have begun, and there's an opportunity. So maybe the next time we get together, I'll have something to share. Bill, comment on first half, second half?

--------------------------------------------------------------------------------

William G. Quigley, Nexteer Automotive Group Limited - Senior VP & CFO [4]

--------------------------------------------------------------------------------

Yes, sure. Thanks, Tim, for your questions. I think in the first context of first to second half is you have to look at what production forecasts currently are. We are certainly seeing some uptick in full-size truck. IHS is projecting about 1.3% increase in full-size truck. That is -- obviously bodes well for next year. Europe will be seasonal, Tim, with respect to second -- or first half to second half from a production perspective. And as I highlighted in my comments, we're taking a cautionary view near term with respect to the forecasted recovery in China. So again, we're working with the business. We're not expecting that recovery necessarily to occur in the second half. So if you look at just production environment in general and where we're at with respect to the businesses, from a North American perspective, we'll see a slight uptick in revenue. The columns headwind sequentially will diminish a bit. It will be about $10 million. And we are targeting about a 50 basis point improvement in margins for North America.

Holding Asia Pac flat at about 19.5% would be, in a flat revenue environment, would be our target. They've done very well offsetting a very significant and challenging revenue environment. And then last but not least, EMEA-SA always has that seasonality as you referred to. So margins will come in a bit as well. So kind of overall, looking at probably from our first half results of 15.1%, we are targeting a slightly higher EBITDA margin, I would say, 20 to 30 basis points in the second half, really though predicated on the OEM environment. If China does recover, we will see the incremental benefit in the second half driven by our Asia Pac team. They certainly could convert on incremental revenue. They've shown that in the past. Their current actions as well in again, a very challenging environment, are showing that they are laser focused on maintaining a strong margin profile heading into 2020.

--------------------------------------------------------------------------------

Michael Paul Richardson, Nexteer Automotive Group Limited - President & Executive Director [5]

--------------------------------------------------------------------------------

Thank you, Bill. And then the question on U.S. negotiation, let me just back up in time briefly. What Tim is referring to here is in December of 2016, we had a 16 hour strike with the UAW with our local in Saginaw, Michigan. And what I told you then, and I'll just remind you now, is we forced the strike with the prize being flexible work rules, which we gained. And that's what we agreed to at the end of those 16 hours. We didn't bump a customer. We gained something that we thought had greater value for the future. What we've done since then is maximize the flexibility that these work rules give us to balance our production footprint between Saginaw and Mexico. Saginaw is about 2/3 in the North America revenue. Mexico is 1/3. But we've maintained, and in fact, grown Mexico as an alternative to a UAW produced product.

The other thing we did at that settlement was we added 6 months to the life of the agreement, because until this last agreement, the one that's effective now, we were always in the shadow of the big 3 OEMs, and our contract came due exactly when their contracts came due. It was hard to settle anything until they were done. So we moved ourselves out 6 months. As you watch U.S. automotive, you'll see that the big 3 contracts come up in September, ours come up in March of 2020, so there will be some form of precedent agreement that they settle on we will pay close attention to and make our plans. I would expect some increase in the new contract settlement, but we've got more runway than we normally do, and I'm pleased with the way we're positioned in work rules.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

The next question comes from [Zha Zhi] with JPMorgan.

--------------------------------------------------------------------------------

Rebecca Y. Wen, JP Morgan Chase & Co, Research Division - Analyst [7]

--------------------------------------------------------------------------------

It's Rebecca from JPMorgan. So 3 questions from me. First is on the driveline transformation project, is it possible to translate that into financial numbers, like how much cost savings we can expect for 2019 or '20? Or are there any KPI on financial metrics for this project?

And then second is on the GP margin. Is it possible to break down the impacts from FX and the GM platform transition on gross profit margin? So say if we exclude the FX and GM platform transition impact, what will be the GP margin for the first half of the year? And then third, similarly, is there any way to estimate the impact on net profit if we exclude the FX and GM platform transition? So just thinking what could be the normalized earnings here.

And lastly, on the China -- on the Asia Pacific revenue, it was down like 27% in the first half. Can we break down what is the volume versus ASP here? Are we seeing higher ASP pressure because of the new customers like BYD, Geely, Great Wall, etc. and just thinking like what would be the normalized trend there?

--------------------------------------------------------------------------------

Michael Paul Richardson, Nexteer Automotive Group Limited - President & Executive Director [8]

--------------------------------------------------------------------------------

Bill, I'm going to ask your help on margins and net profit. But Tao, do you want to comment on driveline outlook?

--------------------------------------------------------------------------------

Tao Liu, Nexteer Automotive Group Limited - Senior VP & Global COO [9]

--------------------------------------------------------------------------------

Okay. We introduced the driveline transformation. This is what we started in the middle of 2018 and we will -- the full project will complete close to end of '21. For this transformation is basically is you transform the business. We'll look at -- this business will be global, the driveline, global side level. So it's -- we started to see the benefit this year. But what I would say that we would look at more than 10 percentage points improvement for the driveline business in Saginaw.

--------------------------------------------------------------------------------

William G. Quigley, Nexteer Automotive Group Limited - Senior VP & CFO [10]

--------------------------------------------------------------------------------

Yes. Just real quickly on -- just to tag along on that. All of you will recall we had about $9 million in what we referred to as excess costs in 2018 around this transformation. We are targeting about the same level in 2019. And as we move forward, the real benefit from this will come not only from the outsourcing but the ability to consolidate the 2 factories into 1. Obviously, there's less infrastructure, less cost, less maintenance, so on and so forth. That's the real opportunity from a margin perspective.

And to Tao's point, as we exit through 2021, we are targeting about a 10% or a 10 point improvement in our profits moving forward. We'll see some incremental in 2019, a little bit in the second half, 2020, a little uptick there as well. The real gem or the diamond comes at the end of 2020 as we complete this transformation project.

Mike I'll take the second one, GM platform. Certainly, the columns business, important business to us, good margin business. Rebecca, the contribution margin on that business in the near term is about 25%. But from an FX perspective, there certainly was a headwind of about $40 million. But really, the margin impact was only about $5 million or so, largely because of revaluating or revaluation of, for example, U.S. dollar of cash balances held in China. We get a benefit from that. So I think if you just kind of normalize the net profits around those types of factors, you can kind of drive what the net profit would look like. I think the last question, Mike, revenue.

--------------------------------------------------------------------------------

Michael Paul Richardson, Nexteer Automotive Group Limited - President & Executive Director [11]

--------------------------------------------------------------------------------

Yes. Let's go to APAC and the growth there. Tao comment on ASP and pricing pressure.

--------------------------------------------------------------------------------

Tao Liu, Nexteer Automotive Group Limited - Senior VP & Global COO [12]

--------------------------------------------------------------------------------

Okay. As we have seen in the Asia Pacific in the OEM in the market price, we see this price pressure and certainly, from all the OEMs, not only the new OEMs that are entering, the existing customer we currently have, we see those price pressures every year. And, I think, the Asia Pacific team has been really -- to reduce the costs, and it's at the same level so that we will be able to maintain the margin in APAC. And this is the history and the ability that Asia Pacific team can deliver.

And I would think that's -- also that I would expect them to do the same thing going forward. And at the same time, we are winning new customers and new programs. During the period of launching the new program, there will be additional costs, and that area would naturally see -- that's when we see the pressure in the Asia Pacific. So I think at the end, we would look for the -- continue to grow the business in Asia Pacific and maintain a reasonable margin for Asia Pacific.

--------------------------------------------------------------------------------

Michael Paul Richardson, Nexteer Automotive Group Limited - President & Executive Director [13]

--------------------------------------------------------------------------------

Thank you, Tao.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

And the next question comes from Robin Zhu with Bernstein.

--------------------------------------------------------------------------------

Robin Zhu, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [15]

--------------------------------------------------------------------------------

Three for me, please. First of all, you've reported a fairly large increase in R&D and CapEx this year versus last year. I mean this was communicated. But I just wanted to understand the drivers of it. Is it because you're doing more R&D on behalf of the OEMs that perhaps -- than you've done in the past? Or were there other reasons? And also, the level and the timing for R&D and CapEx to sort of level off or potentially start falling again over the next year or 2, if you have visibility.

Second, the European margin went up by quite a lot, by 300 basis points. Even the revenue was down. It's obviously very impressive. But if I look at that and look at, say, North America and where margins were down on a year-on-year basis, just wanted to get your thoughts on what was actually different, why there's such a variance in the margin progression and what that means for the future?

Third question, just in terms of free cash flows and -- there was a -- I think you said it's the increase in receivables which led to weaker cash generation, whether you expect that to normalize in the second half. Does that mean that -- your thoughts on full year free cash flow compared to the first half or full year year-on-year and what that means for the dividend.

--------------------------------------------------------------------------------

Michael Paul Richardson, Nexteer Automotive Group Limited - President & Executive Director [16]

--------------------------------------------------------------------------------

Thanks, Robin. I'm going to call on Bill in a minute. But Robin, do you want to comment on increased R&D costs, the reason for that?

--------------------------------------------------------------------------------

Robin Milavec, Nexteer Automotive Group Limited - Senior VP, CTO & Chief Strategy Officer [17]

--------------------------------------------------------------------------------

Sure. So our R&D costs, as Bill mentioned, has been trending upward, and I would say it's driven by 2 things. One is the growth of the business. So as we try and build the backlog, that means we're going to be pursuing new business. We're going to be conquesting new customers, and all of that drives our engineering R&D up and it tends to lead the revenue by 2 to 3 years. So we see an advanced spending in R&D before we get the revenue.

In terms of your second question as when that will level off, again, it will begin to level off once the revenue is in place. So if you think about the spending leading the revenue by 2 to 3 years to the first launch, by the time we get to a full revenue standpoint, it's probably going to be about 3 to 4 years before our engineering would tend to level off back again with our revenue line.

--------------------------------------------------------------------------------

Michael Paul Richardson, Nexteer Automotive Group Limited - President & Executive Director [18]

--------------------------------------------------------------------------------

The way that I might characterize what Robin is doing here is he's trying to balance 2 things. Organic growth, which is really the focus of today's call, requires that we break into new customers, displacing our traditional competitors. We're moving further from home and meeting new people. We're setting up an expanded footprint and infrastructure. All that is going to add costs that leads the revenue. That's what we're up to right now.

But at the same time, Robin has commented on not only a simplification of product, modularization, reduced part count and compact size. Compact size is something you don't want to overlook because the more that we can develop capable modules that package in a range of applications, the less tariff there will be and the less tooling and capital we'll have to deploy the next time we have opportunity to grow over to break into somebody new. Bill, your thoughts on EMEA versus North America and then free cash flow.

--------------------------------------------------------------------------------

William G. Quigley, Nexteer Automotive Group Limited - Senior VP & CFO [19]

--------------------------------------------------------------------------------

Yes. Let me talk a bit about that capital investment timing as well, Robin. You're right. The timing of our capital investment is largely predicated on our launch programs with our customers. So I think we've continued to exercise discipline with respect to when we put machinery and equipment on the floor, if you will, in anticipation of customer launches. There was some variability in the first half of 2019 compared to first half a year ago. But you'll recall we had pretty significant ramp up in the second half of 2018 on capital additions. Again, largely fueled by program launch or customer program launch activities.

We'll see an uptick in capital investment this year. That was our expectation when we spoke to all of you in March. That range, probably 220 plus, and that's largely around servicing a number of North American launches that we'll have upcoming here, both in 2020 as well as 2021. A number of full-size trucks platforms converting. And as we post that, things will start to get more on a normal kind of capital investment horizon. But it will be predicated on the success we have in securing new customer awards and new business.

With respect to European performance, Robin, you'll note, we've been focused on improving the margin profile of that business for the last 3 years. And certainly, we're starting to see the fruits of labor come to the financials if you will. And that's largely been around really just manufacturing execution, quality execution, supplier execution. We've got a very focused team in EMEA-SA on the day-to-day fundamentals of operating that business as efficiently as possible. So certainly, that margin progression, we've been very happy with. And certainly, the team continues to execute somewhat in a tough environment. But we're also getting good, I would say, good coordination and collaboration with some of our key customers such as BMW on putting in cost-saving initiatives, which benefit both them as well as Nexteer.

But conversely, if you compare that margin profile to what we saw in North America, that columns business is weighing fairly heavily near term on the EBITDA margin of North America. To Rebecca's question, it was about a 25% contribution margin associated with that business. The teams obviously are working through that. We're working through our driveline implementation, and we do have a fairly significant launch still underway on the left side of the house with T1XX converting from K2XX. So there's some friction costs there, but we're working through that. And I do believe, to my comments earlier, that we'll see a margin profile improvement in the second half of 2019.

Last but not least, free cash flow. Robin, you'll recall at year-end 2018, we had significant performance in free cash flow. And in our comments there, part of that was actually a early collection from one of our key customers in North America of about $50 million plus. And that was basically cash pulled in from the first half of 2019 into the second half of 2018. So all of our metrics are still -- our key performance metrics are still online with respect to our cash conversion cycle. It's just the timing of a large collection from a customer that was pulled forward into the second half of 2018. So that benefit is not reflected in the first half of 2019. As we move forward, we still believe, even in a tough revenue environment, the business will generate good free cash flow. We're targeting plus $120 million to $140 million in free cash flow for the full year. Second half is always better than the first half. And certainly, from a dividend perspective, giving our net cash balance even at the end of June, we do not foresee that impacting our dividend payout ratio in the near term.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

And due to limited time, we will take one last question. That will be from Yizhe Wang with UBS.

--------------------------------------------------------------------------------

Yizhe Wang, UBS Investment Bank, Research Division - Analyst [21]

--------------------------------------------------------------------------------

I have 2 questions. The first is that the Ford F150 will lower into the new generation 1 year from now, and do we expect similar difficulties we see from the K2 platform switch in GM? The second question is also regarding the North America business. Given the volume in North America for the first half of this year, still hold pretty well, I think, but the margin is still going down. Can I know more details of what caused the margin to be a little bit soft for the first half of this year? And then how do you see the maybe medium to long-term margin profile for the North American business from the backlog that you have on hand.

--------------------------------------------------------------------------------

Michael Paul Richardson, Nexteer Automotive Group Limited - President & Executive Director [22]

--------------------------------------------------------------------------------

Bill, I'm going to ask for your help on the second question. Tao, you want to comment on F150 versus T1? Maybe explain why that's even a question.

--------------------------------------------------------------------------------

Tao Liu, Nexteer Automotive Group Limited - Senior VP & Global COO [23]

--------------------------------------------------------------------------------

Yes. Normally, we launch in the new product. In the beginning, there will be a significant launch cost and I think this T1 cost -- launch cost is a little bit more than we normally experience is that when GM launches the T1, they continue to produce the K2XX so that we had an experience of that. So reaching this production in the same line for K2 and T1. So that's the first time we really launched a program in this way. We have learned a lot in the K2 to T1 process launch. We've been sharing the lessons learned with the Ford F150 launching team so that we would still, as a normal cycle of launch, the first launch of this product will have some cost. This is normal, and we would not expect an excessive cost for this launch of the F150 so that we certainly expect this improvement launch for F150 compared to the Q1.

--------------------------------------------------------------------------------

Michael Paul Richardson, Nexteer Automotive Group Limited - President & Executive Director [24]

--------------------------------------------------------------------------------

And maybe I'll just add this. If we backed up in time, we'd probably do T1 differently. Typically, when a new platform we launch, it would get its own new line and tools and be debugged in parallel to current production. What we attempted in the case of K2 to T1 is to reuse the same line. We've learned a lot about changeovers and flexibility. But when Bill referenced this friction cost, this is a classic friction cost, a capacity reduction issue, because the changeover back-and-forth has not been easy and the K2 to T1 transition has been over 2 years because they spent a year on trucks, and they'll spend another year on SUVs. So we'd probably do it differently if we're faced with this question again. F150 is more of a conventional. It's quite radically different because it's, in many cases, a 10 FIT product. But it will have its own new investment, and we'll debug that on inside time with current production. Bill, a comment on North America.

--------------------------------------------------------------------------------

William G. Quigley, Nexteer Automotive Group Limited - Senior VP & CFO [25]

--------------------------------------------------------------------------------

Yes. Sure. And I think it dovetails a bit with Robin's question with respect to the performance of the segment in the first half. We did see a sequential improvement in the EBITDA margin second half to first half of '19. But to your point, on a year-over-year basis, certainly there was some contraction in the margin. And again, I would say the largest contributing factor there was in the near term attempting to offset the contribution margin of the columns transition impact from K2 to T1. So that will -- we'll work through that for the rest of the year and into 2020. And that is really the largest factor there. Certainly, from a business perspective, our pricing has been, I would say, somewhat traditional. But the North American business bears much of that pricing given the size and magnitude as well as, in Mike's comments and highlights, the fact that we've been very successful in booking business with General Motors for example, which will ultimately benefit the North American business in the future. So margin profiles, 15.2%, 15.1%, 15.3%. That range is what we're looking for near term with respect to that business.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

Thank you so much for all the questions and for today's participation. If there are any further inquiries, please contact us at investors@nexteer.com.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.