Q3 2019 Earnings Call
Good morning, ladies and gentlemen, welcome to today see has caused the ultimate buys 2019 set quarterly results webcast and conference call for your information Today's conference is being recorded at this time I would like to send a cold over to John <unk> Global Investor Relations Mr.
Thank you so right now.
Welcome to everyone joining us today for a review of F.C. A's.
Third quarter 2019 results.
The presentation material for today's call along with the related earnings press release has been posted under the investors section of FC ASE Group website.
Our call today will be hosted by the group's Chief Executive Officer, Mike Manley, and Richard Palmer, The group's Chief Financial Officer.
After their presentations, Mike and Richard will both be available to answer questions.
Before we begin I just want to point out that any forward looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the Safe Harbor statement, which is included on page two of today's presentation.
So with that I'm going to turn the call over to Mike.
[laughter]. Thank you John .
Well good morning, good afternoon, everybody and I'd like to start by saying can you very much for joining us.
So today there are effectively full parts of our presentation that we want to give the first one.
And then I'd like to come back and spend some time, giving more detail of the actions taken and underway to continue to improve operational performance in key areas of our business and I'll also during that popped touch on guidance for 2020.
And then the final pause Joe said, we're going to win with a normal keep an eye session.
We achieved a record performance with group adjusted EBIT at 2 billion Euro, which was up 5% over last year at a margin of seven 2.2% up 40 basis points.
These results were in large part attributable to the strong performance of Iran brand.
Which continues to on share in the U.S. large pick up market as a thousand shares were high across all segments compared to last year [noise].
In Q3, we increased our truck share by 170 basis points year over year to 25.4.
What I'm, especially pleased with is that even with this show growth. We also able to increase our customer transaction prices was producing our overall incentives from the same period in the prior year.
No I think this is clear evidence not just of the quality of our trucks.
So the Ram brand teams drive the motivation to grow volume margin and share.
Now by the why this EBIT margin performance in North America means that the regional team has been able to more than double margin, whilst maintaining share over five year period.
But it isn't just North America, our team in Latin America continue to deliver strong results and improved profitability with adjusted EBIT up 83%, that's up 83% a margin increase into 6.9%.
Now we all know the challenges that the the time region presents [laughter] at the moment, particularly with Argentina. So I view this as a great result from the team.
Now as you know we've been working very hard to improve the profitability of our AMEA region and the performance of our out from a brand.
During the quarter, we finalize details for the time its product portfolio plant in Europe for the segment as well that's route for <unk>.
I'm going to spend some time later in his presentation the detail why we've taken these actions.
Now these actions resulted in a noncash impairment charge of 1.4 billion during the quarter. Obviously they are excluded from our reported adjusted results.
No. We also made significant progress in the transformation about Mac plan in Detroit, where we plan to build the all new three rather full size cheap as TV. The construction work is proceeding as planned and the plan is scheduled to be completed early next year with production to began late Q4 2020 .
Now finally, as we announced earlier today, our board and the board of P.S. I have each unanimously agreed to work towards a 50 50 merger that would create the world's fourth largest global OEM.
We're not going to add anything to the detailed joint release, we might this morning. So this call will still be focused as planned on our Q3 results, but I would just light at the following.
Now a merger would bring together too strong a complementary businesses to produce a genuine global mobility leader and exploring this combination is absolutely consistent with everything we've been saying for long time about the need for smart industry consolidation.
Obviously, all the normal cabinets apply but if we're able to finalize this transaction there was significant potential value to be released to the benefit of all stakeholders on both sides and that is the spirit in which everyone is working.
Now in the meantime was still very much focused on running our current day to day business.
Tension to that will not change.
Discussions develop will of course keep you informed as appropriate.
So let me turn to the commercial performance of the business.
In North America. The overall industry was substantially flat however, our market share was up slightly year over year to 12.1%, reflecting the strong performance of the Ram Brian was posted record third quarter sales in the U.S. as well as the continued ramp up of the all new Gladiator.
In EMEA ourselves decrease primarily as a result of the discontinuance of the fair put into a now for a meta as well as lower overall for the fit brand volumes.
However, we recognize our commercial challenges in EMEA also reflect the age of our product portfolio compared with a major competitors, which is one of the key issues, we are addressing and I'm going to provide you more details later on this call.
And finally in Latin America, we had another solid quarter, especially in Brazil, where we continue to see strong performance, which more than offset continued market weakness in Argentina.
Once again, we remain the overall market leader in Brazil, with an 18.4% overall share and continue to have the highest share an important segments such as issue. These well, we had 21.4% share pickups, 41% share and Lcvs, Russia was 41.2.
So I'm just kind of quickly give you an overview of the group's Q3 performance.
Now working with our dealer network to achieve the maintain discipline with stock levels continues to be one of our top priorities and I North America Idealist stock is now in line with demand was that Maserati, we continue to make progress that still somewhat today, though expected to be completed by the end of the year.
I'm, primarily because of the stock related efforts, our total shipments for the quarter that were down nearly 100000 units year over year.
However to reprice and disciplined continued focus on improving mix and rigorous cost control, we were able to more than offset the impact of lower volumes and delivered record adjusted EBIT 2 billion and a record margin of 7.2%.
I'd like to thank all of our regional teams I think delivering a record quarterly result, despite taking out 50000 vehicles from dealer stock during the quarter is a great achievement.
You can say they also effectively how revenues flat year over year with discipline make some pricing actions and this continued with aggressive cost out initiatives, which will continue to benefit from going forward and that was what yielded a record gross margin.
So as I said overall, we're very pleased with the results for the quarter and the momentum. It provides us as we go into Q4 and on the back of this result, most in the quarter idea today, we confirm our guidance for the full year and with that I'm going to hand, you over to Richard Thank you.
Thanks, Mike So starting with page five.
Adjusted EBIT margin for the group of 7.2%.
Which was achieve along with a further reduction in North America dealer stocking levels, a 40000 units.
As North America stock reduction compared to a stock increase last year and was the main reason for reduction in shipments of around 80000 units.
Net revenues were flat or just over 27 billion euros for the quarter with positive FX translation pricing on makes offsetting the volume reduction.
Adjusted EBIT was up 5% year over year to nearly 2 billion euros.
The net profit was down 6% due to an increase in the adjusted tax expense right to 25% from 17% last year, mainly due to the nonrepeat ever U.S. pension contribution last year and a chart a change in FX impact on Mexico, and Argentina Nonmonetary assets.
The adjusted net profit excludes the impairment charges mentioned, a 1.4 billion pretax non cash impairment charge relates so change as Mike mentioned regarding our product product plan going forward, leading to a rationalize European plan, which will focus on a set the vehicle platforms to facilitate electrification.
Portfolio renewal, while maximizing investment efficiency and pot commonality the charges relate mainly to the Alpha Georgia platform for 800 million San Diego segment, many platform in Europe for 400 million.
Industrial free cash flow was 107 million positive for the quarter up from 98 million negative last year.
I know available liquidity increased by <unk> point 3 billion as a consequence of the industrial free cash flow and some positive FX translation, which offset the cost used for bond repayment of 0.2 billion in the quarter.
This strong Q3 operating performance as Mike mentioned allows us to confirm our full year guidance.
Moving on to page six.
Unconsolidated shipment volume was down 94000 units for the group, mainly due to the dealer stock reduction actions mentioned earlier. This impact. It does this data start reduction impacted adjusted EBIT by around 450 million was offset by positive mix of 300 million, mainly in North America and Asia Pacific positive.
Which result in a seasonally seasonally weak cash flow quarter remain positive as mentioned earlier.
Thanks was 2.2 billion for the quarter as we continue progress on the important Grand Wagoneer, three three ROE E.S. UBI projects in North America in particular.
Working capital was negative 2.4 billion, primarily due to seasonality, which was however contained compared to prior year due to more stable level of production from Q2 Q3, and further reductions in inventories changes in provisions was negative due to continued reduction in dealer stock mainly in the U.S. and mother arty.
Financial charges and cash taxes were lower in the quarter due to timing of tax payments.
Our net industrial cash in September was 3.7 billion euros up from 3.3 billion at the end of June reflecting the 0.2 billion positive cash flow.
Positive FX.
Our year to date industrial free cash flow not stand the Euro 0.70 point 7 billion.
And our fourth quarter industrial free cash flow is expected in excess of 0.8 billion.
Compared to 2 billion last year that means were feeling confident about.
Moving to page eight.
If I could significantly reduce its losses year over year and mother Rossi continues to use is stock levels.
Now, we'll get into the individual segments, starting with North America on page nine.
Shipments were down 11% to 600000 units for the quarter compared to sales slightly up to four 641000 units.
It was mentioned dealer stock was further reduced by 40000 units to 71 days of supply.
Shipment nameplate makes was positive with new Gladiator 31000 shipments offset by reductions in lower margin nameplates.
Revenues were flat with favorable nameplate makes an FX offsetting the lower volumes.
Adjusted EBIT was improved due to positive nameplate mix, partially offset by negative market mix due to higher fleet and kind of the volumes, which nearly offset the reduced 73000 of volumes.
Net positive pricing pricing related mainly to the new Ram heavy duty.
The other column is principally due to FX translation from the stronger us dollar.
On page 10, we see the APAC results.
Combined shipments were down 24% to 35000 units driven by China, JV shipments down, 26% and consolidated shipments down 11% net revenues.
Up 18, due to favorable mix with a new wrangler volumes increasing.
Net price was positive due to the non repeat of incentives related to China five transition last year, notwithstanding the topline challenges the progress on commercial discipline and cost reduction has allowed the team to minimize the loss in the quarter.
Industrial cost last year, they were both positive as the team focused on simplifying simplifying the organization structure between the joint venture and let's see a particularly in China and reducing duplicative cost.
The equity result for the JV in China deteriorated by 17 billion to 17 million due to the decreased volumes mentioned earlier.
Moving to page 11, we show the AMEA region.
Combined shipments were down 4% to 270000 units LCV volumes were flat and the reduction was driven principally by passenger car volumes and in particular the discontinued point on me two vehicles as well as the 500 X.
Dealer inventory levels were up from 73 days the 93 days.
Stock was 250000 units at the end of the quarter a slight reduction from the June level, we are targeting to further reduce dealer stock over the next few quarters to support the focus on better profitability through the entire retail sales channel.
Net revenues were 4.7 billion for the quarter down 6% in line with the volume decrease.
Adjusted EBIT was a loss of 55 million driven by the seasonally low volumes as well as negative pricing.
Other includes improved results from both Akshay Bank Anto fashion.
Next on page 12, we review last time as results, which were very strong for the quarter shipments were in line with probably a 150000 units with Brazil up 8% offsetting Argentina down 26%.
Revenues were up 10% to 2.2 billion euros with positive net pricing of 126 million of which about half was due to the recognition of a one off indirect tax credit.
Industrial costs were negative due to input cost inflation on purchasing.
And then our Pete.
Of our reserve adjustment in the prior year.
On page 13, we see mother arty.
Sales were down 29% with similar decreases across all models on a regional level North America had the largest reduction at 37% well China was down 17% on the mayor down 33.
In China, there was a lot of focus on de stocking China five units and that was substantially complete at the end of September .
Shipments were down 48% as dealer stocking production continues with 1500 units taken out in Q3.
Revenues were down, 38%, which drove maserati into a loss for the quarter, a 51 million.
Some de stocking actions a loss would have been about half that number.
Year to date mass or are these loss of 159 million is substantially all related to de stocking actions on the adjustment residual bodies in North America. The we booked in the last quarter clearly the focus of the team is for Maserati to start making money again in 2020 .
Our industry outlook is substantially unchanged unchanged for NAFTA and EMEA.
Argentina continues to be very soft and we are reducing the forecast to 0.4 million units from 0.6 previously.
Also the China weakness continues and so we're just not down by 400000 units for the year down 6% year over year.
Given this outlook.
Reinforced by our strong Q3 result, we confirm our full year financial guidance.
There is imply the Q4 adjusted EBIT of 2.2 billion euros with seasonally higher Q4 volumes driving the improvement versus the Q3 2 billion euros.
Expect North America and group margins to be in line with Q3 levels.
Well I already talked about Q4, industrial free cash flow, which we expect to be an excessive 0.8 billion. So take us all guidance of more than 1.5 billion for the year.
Lastly, if a clarity I want to know that management, we do not expect that the impairment charge would have any impact on the company's dividend policy, which is based on our longer term earnings power and specifically on adjusted net income performance and obviously, our liquidity levels, which was strong as I mentioned earlier.
I will now turn back to Mike's to continue the presentation. Thank you.
Yes.
Thank you Richard.
So this pop Trey.
Presentation with you guys today that its and I realize it's not customary for us to provide guidance for the upcoming year. This far in advance. However, we believe it's important to make an exception this time.
Now as you know up and in this position for 15 months.
And as I've laid out on this page the leadership team, including the new members. We have added I think has accomplished a great deal, which has helped to the company on a very solid foundation.
But you know we still have some challenges.
Let me talk about these issues on previous earnings calls regarding our performance in EMEA AIPAC as well as with Maserati.
Now, we're very confident that we have a clear path to having these parts of our business returned to our expected profit levels.
Which combined with our strong position in North America, and all the time will generate long term sustained profitability.
Now, while we expect improvement next year some of the underperforming areas will require longer period of time to achieve the performance, we expect and therefore, the 2020 targets laid out as part of our capital markets day last year really not reflective of where business is today and in fact.
And I look at the consensus the sell side analyst community. Most of you at the same belief.
Now given all of this I want to recap some of the actions we've taken to address these challenges and give you some context of our expectations for the coming year.
I'm going to begin with Maserati now and I lost cool I provided you the details of our future product portfolio plans for the brands and you can see them again here.
Got it action starting next year.
The first only product you will see as the Maserati Sports car, which will launch late next year and you're Gonna say probably in the first half which will also include a copy our version to launch in 2021.
Next we'll expand the portfolio with an all new D. second usually in 21 and this will be followed the launches or the next generation versions of GTN GC cost report and live and type.
Changes in our Maserati team and the leadership team is in place and we will have completed the subsequent restructuring of our commercial division by the end of the now this is very important because what we've been able to do during this period as Weve Destocked. Our dealers is really think about the structure the skills and the leadership we need in this critical.
In this critical resource area for us to go forward and as I said I'm very comfortable that will be in place and delivered by the end of this year.
And you can tell I hope the I'm really excited about the plan so Maserati because I.
I think that we will address the weaknesses that we are inherent in the business for a period of time that we think it is important to share the vision with the brands stakeholders and we plan to do this virus special event, which will be dedicated to Maserati and is planned for the first half of next year, so details or that will follow very soon.
Now as you know I've not been happy with the performance of out for Meyer and while I fundamentally believe in the brand.
We must make sure that any investments that we make generate an appropriate return.
And we will also maintain the brands premium position in the marketplace.
And I believe these actions will allow the brand to return to profitability.
There are no product actions planned beyond what you see here, obviously I wouldn't rule out that possibility in the future depending on the performance.
Now for EMEA region, I'll spend a little over the time talking about.
This area.
I think really we have three structural issues that were in the process of fixing.
Thirdly, the average age of our portfolio is the highest in the industry and this affects our ability to gain margin and share.
I mean, notwithstanding that as we know that 500 continues to perform very well, but that's because it's an iconic brand.
But it's important for us to address this in our product plans will progressively reduce the average age of our portfolio by approximately four years in the coming years now these product action, starting next year and they build and cadence going forward I mean that most of these product plans include a full range of electrified powertrains.
The second issue in EMEA is that fit as a very high exposure to the a segment.
As you know is relatively low margin.
And we I believe of relinquished fit strong historical presence in the larger higher margin be segment.
By the way, we still have an established car park of approximately 6 million vehicles.
Therefore in the very near future, you'll see us restructure our product portfolio to refocus on these high volume higher margin segment and that will involve a move away from the ice segment as Richard explained.
That drive one of the impairment charges that were taking.
Now the third issue that I think we've got as they start on the utilization of our European plants and although much work has already been done to change this profile with the localization of Jeep and some of the investments in Alpha. This work will be completed as our current plans and future product cadence will enable us to progressively reached full manpower utilization by 20.
T 22.
And in the meantime, as you can see on this page the restructuring actions. We started the beginning of this year now yielding results and this will remain a constant focus for the near team going forward.
I just want to say that these issues in EMEA.
Fixed with or without a merger.
Resolution will be considerably enhanced both from a speed and the cost perspective, and the proposed merger announced this morning.
Now with all of that taken as a backdrop, let me share with you our guidance for 2020.
As Richard pointed out earlier, we confirmed our 2019 guidance on the back of record Q3 results.
Looking ahead, there are number of items that challenged our results this year, but we don't expect to repeat in 2020.
Now, perhaps the biggest tell when we're going to have going into next year as the nonrepeat or the impact from our disciplined approach. This year related today less stock, which included about 130000 units or volume in North America.
7000 units from as erotic.
Now this along with positive contributions from having a full year of the only UGI Gladiator Ram heavy duty is expected to more than offset the negative impact from several items, which will include 14 weeks a planned downtime a production of around 1500 classic now we need to do that so we can rule that plant to begin.
Are you, saying the only wagoneer on Grand Wagoneer, which will happen.
Very late this year in Q1, 2021, I remember that's white space product for our Jeep brand very very high margin segment. So we expect significant future margin expansion in volume from that area as those vehicles come online.
We also as you'd expect to have higher regulatory compliance cost in North America in EMEA and higher capex spending year over year from planned product portfolio actions and development of electrified powertrains.
Now.
All of that into a come into account. We are confident lane 2020, we can deliver even higher results. Let me guided you to for 2019 as we expect to deliver an adjusted EBIT of over 7 billion.
Which will be a new record for the group and industrial free cash flows will be an excess of 2 billion.
And when I look out beyond that.
2022, we broadly say the our margins will be in line with the targets from capital markets day, particularly.
Those in North America, but in some of the regions, we still think they'll be lower volumes driven by some of the markets I see think about Turkey, Argentina, China, the dynamics as moment difficult and we think that in some of those markets that will remain that way for a period of time.
As I've already mentioned, the refocus on Alpha and Maserati as premium and luxury brands and that will may not privatization of margin over volume.
And we have made some product plan changes lose some product back such as alpha and we've done that to make sure that weve smoothed our capex over this period the over this period of time.
And you know I've spent some time.
Going through EMEA was true a capital markets day was that we did not for say the deterioration in EMEA that way. If we have from same with very very confident in the plans that we have in place and as I said to them. As you go ahead, I think there will be significantly accelerated.
And I'm comfortable that they will be addressed but obviously these things take some time so with that.
But you have anything to add before we know me good.
Joe I'm going to hand, it back to Q and I. Thank you.
Thank you Mike.
Before we do start the acute M&A session.
I just want to point out that well FC has announced that the company is in discussions with PSC regarding a possible merger.
That the company is not in a position to discuss this matter any further today than what has been disclosed in the press release that was issued earlier this morning.
Therefore, we would appreciate your cooperation during the QNX session by holding any questions related to this matter for the call.
With that I'm going to turn the call over to Cereno and we can begin the QNX session. Please.
Thank you ladies and gentlemen, today's question and answer session will be conducted electronically. If you wish to ask a question. Please press star one.
We will take our fast question from sorry.
Right like she awful Smith.
Please ask your question your line is narrow pet.
You're going to challenge me to cannot ask I think about this PS say, but.
I'll give it a shot.
Thanks for taking my question.
First maybe just preliminary.
Thinking on 2020.
Now that you laid out.
Just based on our in in Europe , the industry pricing announcements that you're seeing do you have any updated views.
On regulatory costs that would be absorbed and what you're expecting will be passed along.
And also related to Europe .
That average age of your portfolio increasing to fix in half years it.
Got it like that was deliberate.
At least it as a few years ago, just because the returns were relatively low and the mass market there.
Hey can you just elaborate a little bit more on on what's changed in what's convinced you that.
Did you actually achieved those kinds of an appropriate level of returns within that market.
Yes, you're right. This is Mike I'm going to go first and Richard can.
Which is can chime in I have to tally that.
When I looked at the pricing in Europe in particular for electrified vehicles I'm actually much more encouraged now than I was a few months ago, particularly on the full battery electric side.
Yes.
Take rates seem to be improving and that seems to be a degree of discipline in the market.
For pricing obviously.
It is very early really and we'll say it develop more as we get into next year, but as I said I personally am more.
Optimistic now than I was several quarters ago, we still carry and our plans just as a matter of record about a 60% recovery.
But we will we have also done with all of our teams is recognize what that out would be and with effectively tasked them to go and get it from other areas of the business because.
We've got a big drive on efficiency and cost as you.
As you, saying.
Interest in second part your question.
Let me.
Well, let me.
Let me give you the answer it this way.
The first 10 years of our existence as you know, we didnt have huge amount of resources.
By the way the characteristic that I'm going to describe now still exists in the company's Saddam thing just because I've described this characteristic we we certainly think we can invest in everything but what we wanted to make our investments was in those vehicles and those products in those regions that we felt.
Given the limited resource that we have will give us the quickest and the best return on the money and you can see that coming through in our margins.
North America, as well as Latin America, and that meant that some parts of our business.
We are we challenge those teams to survive for a longer period. The consequences that is obviously you get an aging fleet.
What we also saw was because they need to pull out of some segments because the age of the vehicles, we will effectively walking away from historical strong point for our brand and on their region and now given the fact that segment will be under intense margin pressure.
It's appropriate for us to move back in.
Not just to take advantage of the 6 million.
The echopark that we've got.
In there, but also as you know it's the biggest segment and it's a much higher profit pool than the I segment, and I think the appropriate time for us to do that.
Okay.
Thanks for that and just lastly, obviously the way w. negotiations haven't begun yet.
Just had a very high level.
Any thoughts that you can provide on on the pattern that that has been established and that does your fourth quarter free cash flow guidance include.
An estimate for the signing bonus.
Yes, Mike again on this the fourth quarter cash flow does include an estimate on the signing bonus that is embedded in there.
What I would say is obviously each of us.
Each of the big three and Detroit or in different conditions in terms of labor workforce I don't want to get into too many details I understand that now the Ford.
Gosh actions will go to vote and we will be up next.
You know for US we've continued to work with the UAE W. during this period and I'm, hoping to be able to get to a conclusion of the negotiations and get on with building great cause in the near future, but beyond that I don't want to get into.
The speculation of what my work on what line or here.
Okay. Thank you.
Thank you.
We will now take our next question from Jose Asinine from JP Morgan. Please ask your question. Your line is narrow pen.
That's very much two questions. Please.
While you 2020 guidance.
So can you comment a bit.
If you are baking in substantial improvement.
Both in Europe I laid back.
Everything.
Related to North America in Brazil, and second question.
Hi.
Very good wrap up or what's going on Europe , clearly you are getting low election there.
One of them off it looks to me like you need to go away headcount reduction get closer to the sort of 10% to 11% middle cost to sales ratio. So Mike just would love to actually piece you can just another wave of headcount reduction that you see nothing that's licensing model.
Keep in the coming to US 18 months to return the business through solid profitability and also if you could comment on your thoughts on the FCB mix you're planning.
18 months out because I think so yes uniques on board that little cautious as ratio are key to look on the business the topics.
Hi, This is Mike I heard the first part the question so.
No.
I'm going to answer that.
And then we're going to ask you to if you my a repeat yourself.
Yeah.
So your question in the first part was is that 2020 numbers I gave you.
Much improvement in NAFTA in EMEA and.
China, what I can tell you is we do see improvement we do see I return to profitability in both those regions, but it is not the material driver of our improvement year over year, which again will be a record year for F.C. I should we deliver on this guidance, but the work that we have done we are already seen improvements. If you look at China for example, and.
Which it took you through you can say the restructuring work on the cost out work coming through strongly enough price and our cost what China Nowadays is volume right.
As things I I think we've done a half of the work and a commercial teams up.
Relaunching, our marketing efforts in the fourth quarter and they'll obviously getting traction so I am expecting that to return to profitability, but not to be the material drivers of again another record year for us and the same with Amir.
We've done a number of actions that you're going to begin to see the benefit because our portfolio will begin to get renewed next year with the launch of a full battery electric 500, a plug in hybrid Jeep renegade plug in hybrid.
Jeep compass as well as refresh us on.
Our alpha products in the marketplace.
And if you will not just repeat in the second question, we're trying to turn the Apollo and I think it maybe us.
Yeah.
So so the.
The second quick it's basically Europe profitability, yes, clearly, making inroads you're taking action it looks to me like early this another wave of headcount reduction do you need to do in order to get closer to the 10% to 11% labor cost to sales ratio.
Looks like you're targeting a sorry.
Production and so I think there's a little ways and production needs to be in this region in order to substantially the profitability. If you agree with you state that does not that's the first thing and second if you could comment on your share of your product mix in Europe , a year out.
The share of Oh.
How do you see that evolving please.
Yep I think I've got most of it so if I'm going to try and answer all of it but if not just obviously come back to me.
They.
Hang on my line has gone.
So this work is always going on right I mean, I'm sorry about that.
Problem and alike.
Head count reduction that we reference is 90% already done.
If you look at the efficiency measures that we have whether that's vehicle produced per head count or percentage of.
Percentages for headcount as revenue, we're very well we are lean.
In the marketplace already I think that on the certainly on the commercial side and the brand side. So I think the whether they're going to the.
They have now basically completed will put us in very good shape. We deal we still do have some work in terms of the head count utilization in the plants.
And as I mentioned, we're confident that will reach full utilization of the headcount by 2022, but I do think that they're very very important drivers of the of getting EMEA back to a good levels of profitability in the future.
That was I believe there was a third point.
Thank you very much.
Thank you.
Yes.
The.
Last thing was a percentage mix of acevedo they.
Obviously, the market moving that way I believe that the actual volume of as you. These will grow the percentage mix as we bring on the be segment moves that is well plan now.
The percentage mix of ourselves, we'll probably hold will be slightly diluted because that be segment is much bigger than the segments. We plan and we have I think a really good strategy to to maximize apply there with the brands that we have got LCV, you've heard me say it before is very important dressed as a group I have aspirations for us to become the number one LCD.
Manufacturer in the World, we have a long way to go but I think the team is very very focused on that so you will see moves over the coming is to help us develop in that area. Thank you.
Thank you.
We will change.
Question from July Joan.
It doesn't have a cat. Please ask your question you line is now right.
Good afternoon guys.
Just a first question a follow up on focused on slide 18 in Europe .
The way you're talking about is is manpower utilization.
Plant utilization. So I'm just curious if you you might be able to move some folks around it and close the plan and then also as Youre talking about not being up to full utilization on our manpower basis until 2022.
Is there any opportunity maybe sort of any source some of the work you're doing outside to try to utilize some of some of your labor and really make demonstration as opposed to a drag.
Yeah, John It's Mike, Yes, absolutely that's what we've been looking out to try and get as much efficiency.
As we possibly can across a across Italy I have to tell you that we're working very very closely without unions or.
Not only recognizing that this is an important thing for us to fix together they've been helpful. In this process as well.
I tend to talk about manpower utilization because.
Other of our plans as you know.
I'm not exactly new plant they were built a number of years ago. So technically they have a diavik. They have a technical capacity that significant we would never told them up for that technical capacity. So even though we still look the technical capacity at Harvard capacity manpower utilization.
And the efficient use of our headcount.
It is also equally good measure.
Working with the unions, we have been able from some manufacturing hubs to move some people around them, we'll continue to do that through the period between now and 2022 as well.
It's actually potentially in source some some work to get that manpower utilization up.
The next three years.
Were challenged our engine manufacturing guys to look at what can we do to Insource.
As you know we do some plastics internally, we do some components internally can we can we build up some more modules that currently outsourced.
We have let me put it this way.
We like pressure in the system, we've put plenty of pressure in the system.
Okay. Thanks second question on North America, any one of the stories Thats really benefiting.
Mix is the bonus depreciation or accelerated depreciation on gross Vigo wage of north of 6000 pounds for for all businesses Im just curious how as you look at days how much you think you may have benefited from that in North America.
And how long that may or May last Im just trying understand your how much of your your vehicle sales are actually to small and large businesses, whether they are classified as fleet or not and how much are they benefiting from this.
Hi, it's impossible for me today.
Be anything but also my speculation on the subject, obviously I think it does help.
For me, what I think about.
Truck business in particular in North America is always been very tightly correlated to for example housing starts on what is happening in the housing market.
I think I think from our point of view when I look out there that will be.
Relatively stable, but as you said, there's no doubt that ability for people to accelerate the depreciation has been a has been a benefit how much I don't know I think for us when I look think about our margin is that still a T to grow share as well as increase our transaction prices and reduce our incentives.
So you know our dual track strategy and the 1500 marketplace I think is showing that it will work.
As I mentioned before notwithstanding the drop in.
Wholesalers that we might take dealer stock down the ability to how Holden dry mixing the right way as all benefited in North American business and.
I think the results show this themselves.
And just a follow up that on slide nine I think you being very humble and the way that you're showing up I mean mix far as negative I mean were 73000 less shipments why you must be a big negative which means that next must be a huge positive in the quarter anyway, you guys could break out the door. The two different segments. There Richard I mean, it's a big story the mix.
Sure.
It is John .
I've been through the whole year.
It is a theme of the.
Of the management team in North America, following the industrial realignment and.
The focus on on the high margin segments. So it's something we can definitely think about going forward.
Given obviously that we expected to get better we the Grand Wagoneer Wagoneer three route.
Et cetera.
So maybe you give me an idea for some marketing of no North America results going forward.
Yes.
Okay got it would be helpful. Just lastly on the UAE W. I know you can't get into detailed but can you just give us the percent of workers that are that are temps. The percent of workers that are in progression and the presented or that are senior because I believe it's pretty different than what we're seeing you havent.
Yeah, we have the most.
You know and.
John I have hundreds of numbers in my head I have to tell you I don't have the exact percentage so I apologize but.
Looking at Jive, who should have even more numbers in is that the nowadays could you get the exact percentage of income backend answer a question for the guys.
So, we'll we'll come back on that before the end of the cool.
Okay. Thank you welcome.
We will.
Next question from Brian Jones said no Barclays. Please ask your question. Your line is now.
Hi, Thank you I wanted the businesses, we used to have more visibility into.
Texas, obviously smaller it's now buried in.
The other eliminations can you just give us a very rough sense.
Where that business has trended since we last really.
Which was about 2 billion of revenue and about 1 billion of trading profit.
Yes.
So you're right. It is is that in the others under the other line.
The business is slightly below the 2 billion revenue you mentioned.
So obviously, it's relatively cyclical based on investment levels, but it's a it's slightly below that number and its running it's running.
He bit.
Of.
But.
About.
80 million.
Okay for the second part and we expect that to grow in 2020 , how the pretty healthy backlog for the business.
And we'll we'll give you a bit more visibility.
As we go into January on how common is performing.
Okay, So fair to say that somewhat by the slowdown.
Back capacity additions in China.
Got it back.
Right.
Okay.
Yes.
So I brought <unk>, hey, you're asking the question are you, making a comment.
Okay.
The factory slowdowns in factory openings in China.
The EBITDA down from where.
15 16.
Sorry, Brian .
So I'll come back.
So as you're breaking up.
Okay.
Sorry, with if that's okay to answer that question.
Got it okay. Thanks.
Let's go to the next question.
We will.
Question from come off selling all kept shadow. Please ask your question. Your line is open.
Thank you very much. So this has given us a route.
Two questions. Please first I'd like to come back.
One question on the assumptions for 2020 in the enough for region.
Can you just give us.
Which youre assuming in terms of euro light vehicle market development.
The segment of pickup trucks.
Which has been I think.
As you mentioned several times a key driver for the improvement we've seen the outlets.
Okay and North America.
You want your second question no later.
No that's okay.
I think we're not looking at any significant change in terms of the market conditions and in North America and 2020 .
And I were looking at.
Frankly, we're not looking for any any miracles on the topline either beyond.
The.
Elimination of the impact that we had in 2019 of the de stocking as we mentioned earlier.
This is Mike let me just Theres always say light vehicle, you're talking about the truck market.
Like.
Commercially 15 under 2500.
Well.
Thinking about your market assumptions, because we've seen.
The.
For a number of yours.
A few people thinking that this market midroll, specifically on the heavy trucks fight.
We've seen in contingent.
Yeah, now I understand and I would agree with Richard out our assumptions.
Our assumptions I think is a slight moderation in overall industry. Some continued movement back.
Some continued but slight movement.
You these and on the truck market relatively stable.
Okay very good second question I'm, sorry, it's borderline with which we're not supposed to talk about that.
You have made it clear presentation or some of the weakness is you have in Europe .
I'd like to understand.
In light of investment into.
Segment, all those areas in Europe , while you may be merging with.
For a larger been company.
Thanks.
Most.
So how are you effectively working out.
This month.
The possibilities of plants may have to be.
<unk>.
I think that's a so I'll give you the answer to that question, obviously, when we think about the potential synergies and Weve clearly done.
Lot of work to calculate those we've looked at the best convergence in terms of.
Platforms technology purchasing all of the normal areas that you would expect.
What is absolutely clear is that there are some projects that are time sensitive, particularly as you go into the.
The latest stages of compliance at 20, 420 526 in Europe , but we've also recognized I think the time that it takes for us to produce vehicles through it through the normal cycle. So I think we've taken a reasonable view to make sure that the synergies we're talking about in terms of studies stay a real.
And I think we've had to reflect that there are some investments that need to continue to make sure that compliances achieved above.
I don't want to even Jive is forbidden me to talk too much about it. So obviously as we work our way through this.
I'm sure there'll be plenty of opportunity for us to discuss in more detail the plan.
Sure. Thank you very much.
We'll now take out next question from Steven right now.
Please ask your question your line is now open.
Yes. Good afternoon. Thank you.
Question on North America could you comment ready on the mix improvement you've seen.
You see AMG Gladiator, how pricing has some pricing has improved more the inventory situation is like they supply on the line on those vehicles and as we go into next year and you take down Warren Fortson, stopping the D.S. production.
You think big was now pretty calm to the end of is natural life.
Running to track strategy.
The DJ takes the low now on that from our promo. Thank you.
I'm going to reverse order the questions absolutely no. They I think the D.S.T.D. combination works very very well.
I think the Ram brand team I've got the pricing right I think they put a lot of so in terms of where the models overlap and where the models don't overlap I think they got good sensor that target market.
And there obviously clearly.
That clearly look into maximize both of those vehicles. So.
No end of end of life on the S that I'm prepared to except at this moment in time.
In terms of in terms of.
Pricing if of if I just take for example in Q3 Q3.
We have seen just under 5% improvement.
He pays and our incentives down.
Roughly 2%.
And that I would say is pretty typical for what we've seen year to date since the launches of come on stream I think it's just over 5% year to date.
For our light and heavy duty trucks, so very pleased with that some of that is mix. Obviously some of that comes in a reduction in incentives because of the quality their trucks and as you probably know.
Our truck as the only truck to have one for example.
The Institute of Highway safety is top safety pick plus something is there any pickup truck. That's why it's just another reflection of the quality the truck.
Thank you for the last just a second follow up question on Europe , and the impairment you've taken on the Georgia platform.
Again, I know that you don't want to say too much about the talks you're having with hearsay, but some.
What are the ones, who will make an assumption for that.
This is already taking this into account.
Maybe a future platforms of even more.
So.
Maybe would be transitioning to some other platforms.
One thing that you can take it.
They're going to be two comments that I like one of the things that you can be sure all this.
If the merger goes I had was going to choose the best platform across the different.
Criteria of decision, making to make sure that we add up in the right place and we will make our convergence is as fast as possible with regard to.
They impairment that we have taken I want to be a little bit clear or books. Okay.
They.
They Georgia platform.
It's a phenomenal platform and has done well.
Underpinning Julia and Stelvio.
Remember, what we need to do though is make sure that it's capable of full electrification going forward. So there's been significant changes to that platform to enable not just a full battery electric but plug in hybrids will change the suspension, we've updated all of the.
Electrical architecture in there so that it can take the next generation infotainment as well as very very advanced say that features that level than that degree of change and remember it's rear wheel drive platform and if you look across the two companies. There's not many will drive platform sites incredibly likely that its be required going forward at that level of change means.
An impairment the original platform.
Thank you.
Im just kind of.
I'm just getting the answer on the err on the question in terms of in progression attempts.
We have 59% of our workforce in progression and 13% of temps. Thanks chance.
Yeah.
We'll now take our next question from Joe Natural Morgan Stanley . Please ask your question your line is that right.
Thanks, very much first I want to say I I just have this image in my mind Sergio.
Up above take on X long drag.
Looking to finance and Mike Richard and John .
How do you.
Well done.
A couple of questions a couple of questions on.
Couple questions on each of these.
Can you can you possibly.
These specific on how much you're actually paying catalyst for the pulling credits. There's just so many why I've seen numbers ranging from 200 million to 2 billion.
Can you just help us and on genuinely to help with that Delta from 19 to 20 on that.
My first question and I just have one follow up.
I Love you to death, but now.
Okay.
We'll move on.
I Love you to.
So.
I would love you more she answered the question, but we'll take that offline.
Oh, good all good.
What about the concept I mean, you're hitting that shack too.
Kind of a competitor for pulling I understand that that's an optimal decision relative to paying fines or two develops staying ahead of him potential merger that may or may not go you know just starts you can't finish kinda. Thanks, I totally understand the value of the flexibility there.
Given the circumstances, but would you also consider.
Purchasing a complete.
Oh electronic skateboard, if you will or basically contracting with someone like Tesla.
As a supplier for a substantial part of the electric vehicle.
Yes, I can make a decision how do you approach make or buy in terms of ease.
At this stage.
That's what I can I can give you my view an opinion on that.
Firstly, our our relationship with Tesla goes back obviously, a long way.
And we have been going one way relationship.
Well it.
Sure in terms of these transactions, it's a one my relationship.
But the relationship has helped us I.
I think about the credit polling so let me just step back from this.
We.
See I.
Oh, absolutely committed to.
The journey of reducing C. L. Two emissions around the world and we're absolutely committed through our own sustainability policy to drive significant improvements in this area.
What I don't want have CIA Toby.
I don't want Sci sustainability practices to be totally and only driven by.
Compliance needs in the regions I see I as a vision beyond that and that will become more apparent in the months to come so I viewed the Tesla relationship somewhat as a hedge because we began to launch obviously electrified vehicles next year and into 21 technically we could.
With very high penetrations in 21 reach.
Compliance.
On paper.
The reality is still not entirely sure even though I might positive comments, which I do believe at the beginning of this call is still not 100% sure I'll take rates and real pricing recovery. So for me the Tesla was hedged, but it's done in 21, because in 22, we get the full benefit of all of the investments that we have made and as I've said before the merger goes forward.
That will be even more beneficial for us for obvious reasons.
But it is not something that is done.
Other than to be able to give us if you like a floor on the cost that might be there in the marketplace.
In terms of.
It would be would be open to buy and the skateboard from other people I mean that is that is they probably if you think about what we're going to hopefully achieve its the if the merger goes forward.
We're going to do that on a grand scale.
Yeah.
Paul.
It would be wrong and may decide now I wouldn't be interested in someone else's skateboard because it basically talks about conservation of capital and there are certain things that I strongly believe the customer will be agnostic to and that is one of them. So long as you can tune the suspension in June .
To your brands, which you can do.
Thank you welcome Mike.
Thanks.
Final question.
The latest Shah from Jefferies. Please ask your question your line is should.
Yes. Good afternoon. Thank you.
The shoe the first one staying on the subject of tests now.
When you guys to an adjusted EBIT above 7 billion next year does that include any payments for Tesla, which treat those as nonrecurring.
Hey, good utilization of any credits to cover.
You compliance.
In the income statement included for the Okay, Alright, that's great now I'm just wondering about in Q4.
I know societysix subject, but how much how are you getting from the fact that GE and might be a bit low on inventories.
And is that kind of give you confidence in terms of the guidance that you returning today give you a bit of upside.
What can you tell us about this.
None of our Q4.
Expectations.
Adjusted or made on the basis that G.M. may or may not be short on certain product lines. If you look at their overall levels of inventory and a marketplace now I couldn't so specifically to mix maybe that's the article that sold out.
Jim we're able to maintain that sales velocity through the quarter I expect them to be looking to do the same in the fourth quarter.
And that has no impact on a on our outlook if.
The reality, if that changes and there is an impact obviously, we'll take advantage of it but.
Let's now embedded in our forecast.
Okay, and then if I appreciate it thanks for the other metrics some come out for the update and I'm, just wondering where you on the process because I guess, whether there is a merger with P.S. They will not cetera, you are committed to separating come out.
Eventually so.
What progress are you, making their way, which was I guess you running multiple tracks.
Sale.
Appeal or whatever what what can you tell us and can you even get us something tangible and valuation.
Well I think pretty but we go through the process, we'll keep you updated on the various aspects, including including this one so I think is a bit premature to start talking about these items until we have a clear.
Okay way forward that we that we announced together so we'll be doing eventually okay.
Squeeze the last one for for Mike maybe this is more I'm just looking out for you you youre terminating some of the be segments.
You want to move just shift your makes fun H.B. I'm makes a lot of sense.
I'm just wondering about the hiatus we have between.
What's missing in lineup.
And how you're going to deal with dealers and indeed, the health of dealers particular in easily as a kind of ongoing all recurring topic at CA off yet.
And how can you dealers cope with what seems to look like from product interruptions in some ask introducing a key segment for us yet.
Obviously will be going to try and as Mike is absolutely smooth as possible I don't want.
Product interruptions per se and we have enough.
Industrial capacity to make sure.
And that there is minimal impact.
To our dealer body in fact, what I'm, what I'm, hoping to be able to do it by reintroducing them back to a bigger segment is actually improve their volume filling.
Right. Okay, great. Thank you very much thank you.
That concludes the question answer session I would now like to turn the call back over to my family for clarity right now.
So again, I'd, rather than having everybody being Tesla.
Sorry.
Yeah no.
Just like to end by again thanking everybody for making the the time to be on the call today and for for your questions. Obviously today is very important die.
Not only do we reported solid earnings for the group showed continued improvement record earnings record margins, which I'd like to personally. Thank all that a team with NFC eye to deliver for the delivery of this I think it genuinely takes a strong and I know many of my colleagues around the fine So I'm going to stop I think can you guys for everything.
That you've done.
Well, obviously it was important to give you that view on 2020.
And the discussion really in more detail of the programs that are well underway to to underwrite to what we've just talked about and of course. The announcement. This morning, which we've made a commitment and pay as I made a commitment that we will keep you.
We will keep you up to speed with so on the low end with that thank you for your time and we'll talk again soon I'm sure Jeff.
With that said arena I think we're gonna close todays call and I'd just like again, thank everyone for joining and have a pleasant day.
That concludes today's conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.