Q4 2019 Earnings Call

Welcome and thank you myrsini by I'd like to inform all participants that your lines have been placed on the listen only mode into other question and answer session of today's call. Today's call is being recorded if anyone has any objections. You may disconnect. At this time I would now like to turn the call over to Mark Oswald. Thank you you may begin.

Thank you Amanda good morning, and thank you for joining US as review audience results for the fourth quarter fiscal year 2019, the press release and presentation slides for our call today have been posted to the Investor section of our website <unk> Dot com.

This morning, I'm joined by don't know girls, So Adams, President and Chief Executive Officer, and justify our executive Vice President and Chief Financial Officer.

Today's call Doug will provide an update on the business followed by Jones, who will review, our Q4 results and expectations for fiscal year 2020.

After our prepared remarks, well open the call your question.

Before I turn the call over to drug and Jeff There are few items I'd like to cover.

First today's conference call will include forward looking statements. These statements are based on the environment as we see it today.

Therefore involve risks and uncertainties.

Caution you that our actual results could differ materially from these forward looking statements. Please refer to slide two of the presentation purposely Safe Harbor statements. In addition to the financial results presented on a GAAP basis, we'll be discussing non-GAAP information that we believe is useful in evaluating the companies operating profit.

Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release. This concludes my comments well I'll turn the call over to Doug Doug Great.

Thanks, Mark Thanks to our investors.

Active investors and analysts for joining the call. This morning spending time with us.

As we review our fourth quarter results turning to slide four.

First a few.

Comment on recent developments, including certain of our financial metrics, which are called up at the top slide.

Although our fourth quarter results are down year over year enhanced financial results improved sequentially for the third consecutive quarter.

Its benefits related to turnaround actions implemented earlier this year more than offset industry weakness in China, and the impact of a labor strike NGL.

Hi, good I will comment further evidence that the turnaround continues to track and the right direction.

Sales and adjusted EBITDA for the quarter totaled 3.9 billion 215 million respectively.

Sales were generally in line with our internal expectations adjusting for the GM strike.

Lower production in China, combined with the impact on labor strikes in GM.

More than explain that 35 million year over year decline in EBITDA.

Adjusted earnings per share fell to 63 cents and the most recent quarter a lower level of operating profit dropped right to the bottom line.

With regard to our balance sheet, we ended the quarter with 924 million of cash on hand.

Our fourth quarter financial results reported today enabled the company to deliver on our full year.

2019 commitments, which were stabilized the business.

And improve the Companys financial performance in the second half the year compared to first half results.

This was a significant percentage for the team as we set out to reestablish our credibility with you and other key stakeholders.

Outside of the financial results. Other recent developments include.

The reduction of the company's ownership stake and add in aerospace to 19.99% from a few points or what.

In mid October as you know any <unk> aerospace's joint venture between India, and Boeing established to develops and manufactures seats for the airline industry. Although we continue see future benefits associated with airlines heating business, reducing our stake at this time further enables the company focused on our core business.

Speaking of our core business heading was pleased to be recognized by Judy Our North America.

Three awards for see quality customer satisfaction.

No we've talked enough about the challenges that impact in fiscal 2019, the JV or awards.

Good reminder, a large percentage of adding into operation some programs continue to be expect executed.

An award winning levels.

Launches companies face.

Turning to eliminate number of plans and programs.

Another significant sign that the company is laser focused on customer launches.

It was recognized by general Motors for the successful launch.

The Chevrolet Onyx, Jim Global emerging markets vehicle initially launched in South America.

Turning to slide five just few additional comments on our launches a new business wins.

As you can see from the examples highlighted on the lot, adding continues to win new and replacement business.

The selective wins shown on slide.

Great mix of truck as Judy and luxury platforms, such as BMW X five for transit.

It should be she Triton very important platform for at in Asia.

And the Tesla mile three in China.

I suppose model three which launches in early 2020 is very good wins for total area.

Business when further strengthens our leading position in China and helps offset lost volume in North America, Tesla recently decided to in source the front rows of seats of their model ex us.

Jeff will provide additional color on hotels for its decision impact studies.

20 financials, and just a few minutes.

The customer mix geographic mix and platform mix. These and other recent business awards, we expect adding its leading market position will continue strength in coming years.

When rates for both replacement at new business tracked extremely well in 2019 inline with expectation historical performance.

For example in the seating side replacement business in 2019 was one at a rate of 100%.

In China, 96%.

In the Americas and 90%.

In Europe .

More important than the rate itself the business case for the program business case doesn't make financial sense, we're not afraid to walk away from various programs where customers.

Also mentioned that the rates historically.

Quoted referred to the jet horse and other business.

The team has done a great job.

Managing the business down to the component level.

Turning to the right hand side of the slide we've illustrated a variety of programs recently launched are scheduled to launch in the coming months, including Mercedes GLP.

Cheverly, Onyx, which I mentioned.

Accrual and school Octavia.

In summary launches are going well.

Teams focus around this change management enhanced readiness program or views and it's really escalation of potential issues and certainly improved enhance long performance.

2019 progressed.

Was a key component.

Of our improved financial results in the second half of 2019 compared to the first half performance.

Heading into fiscal year 20, we'd expect to trend to continue to be aided by a reduction of overall launches and complexity of those launches.

For example, in the Americas region executed roughly 72 product launches, which was 219, including allowed both.

Platinum.

Arches in fiscal year 20, the expected number of launches drops to 67, but more importantly, the number of plant in both launches troughs six similarly Europe .

Spectrum lower volume up launches.

Complexity for both complete seats in the us business.

Asia expected see a slight uptick the volume of launches. However, the complexity of those launches remain relatively flat.

China's disciplined process around this change management launch readiness gives us confidence in their ability to execute against the plan.

Turning to slide six let me reflect for a moment of fiscal year 19.

The progress made with our turnaround plan, which is solidly on track to as you're aware, we began the year with some very challenging issues facing the company's those issues have been well documented so I won't repeat the narrative here.

We set the priorities around it back to basics mindset, which was very inwardly focused and intend to stabilize the business key tenants included improving our operations.

Specifically, our underperforming plants, improving lunch management driving at launch costs and premium freight getting cost reductions implemented at our plants reestablishing the initiatives and building better relationships with their customers.

Accelerate the pace of change, we reorganized our management structure and made some personnel changes.

Early in North America in Europe .

I'm pleased to report.

And the evidenced by our financial performance in Q4, and the second half of the year. We did what we said we do.

The business will stabilize and importantly, well position and jersian prudent phase of our turnaround.

Before I moved to see improvement phase what to expect in fiscal year 20, Let me provide a few specifics around their stabilization success.

First the team made solid progress improving operating performance or underperforming plans as they continue to execute detailed work plans.

Turning to eliminate operational ways and improve under utilization rates.

He provided an example of the improvement achieved that are Bridgewater plant and weren't Michigan as you can see significant progress was made as we progressed through the year.

Back to customer disruptions.

Where production labor containment headcount on operational ways.

Similar results were achieved a variety of locations across our network plans.

Well its performance as mentioned earlier continued prove as to your progress tangible metrics include.

40% reduction and launch costs in fiscal year 19 versus 18 in the Americas fiscal year 19, second half launch costs decreased approximately 30% versus first half.

In Europe .

Experienced the similar trend with year over year launch costs down 20% influence given 19 second half 19 improved 15% to 20% compared to the run rate in the first half.

The stabilization of our plans to launch is also drove reductions in premium freight containment costs.

For example, in the Americas premium price declines over 70% in 2019 compared to full year 2018, a significant reduction was also recognize in the second half a 2019 versus our first half performance.

Within the assess them business in Europe . The team did an excellent job reducing premium freight costs I just under 70%.

Year on year.

Outside of the benefits achieved through operational improvements, we've made strides improving program profitability by stabilizing or customer relations ratcheting up our view eat initiatives across the globe.

Being focused on returns throughout the product lifecycle will be a key component.

Proven Indians program profitability.

Well, we're pleased with our progress. We're also aware our results in fiscal year 19 work are below pass levels of performance.

The hard work lies ahead to cheat best in class operations on profitability.

Moving to slide seven having stabilized business. The company has began to transition to the improvement faces a turnaround during the space at the turnaround which covers the next three years plus.

We expect continued improvement.

In specific focus areas will result in significant earnings and cash flow growth.

For fiscal year 20 specific focus areas that underpin our expected improvements in earnings and cash flow for fiscal year 19 conclude.

Such management.

Including better launch execution as mentioned earlier a reduction in the number of launches the complexity of those launches.

Continued improvement within operations is expected to drive significant census.

As a team focuses on lean activities manages and better utilizes enhance existing asset base to ensure our footprint is aligned with where the businesses today and where we expected to be especially as we execute rightsizing of Rss another business.

Cost reduction third pillar.

Proven plant.

This includes continued focus on SGN egg costs, which is team did a good job controlling in fiscal year 19.

As well as going after significant opportunities and material value chain.

Expanding efforts within the VIP area.

The key enabler to drive down material costs.

Group is off to a solid start in fact based on idea generation executed benchmarking in customer road shows they.

We expect to see approximately 10 to 15 million in BMD benefits recognized in both Americas Europe region.

In fiscal year 20.

Again, it's how let's start with more opportunities.

Building on the pipeline.

Finally, commercial discipline said another way focusing on returns throughout the product lifecycle rounds out the specific areas of focus.

Fiscal year 20.

Jeff will provide further details on these upwards and how they translate into improved EBITDA and cash flow in 2020.

Just a minute first let me conclude my remarks.

Few comments related to China, and the overall macro environment.

Starting with China latest economic data suggests the economy is beginning to stabilize essentially no signs worsening or improving.

Recent headlines such as the potential for partial trade deal between China, and the U.S. being viewed as positive and should help improve overall consumer sentiment.

We expect the China auto industry to me or the overall macro environment.

Initially stabilizing followed by modest growth later part of the fiscal year.

Normal seasonality is also factored into our China assumptions, specifically, we expect deal coal sales and production to increase in the first quarter of our fiscal year as manufacturers looked finished the year.

Strong heading into our fiscal second quarter of the first quarter calendar year, 2020 sales and production will likely decline versus first quarter levels due to the Chinese new year holiday.

After we'd expect a modest level of improvement as year progresses.

Outside of China consumers remain cautious this year as overall economic slowdown and geopolitical concerns. These macro concerns are expected to place downward pressure on.

Industry sales and the production in North America in Europe .

Our current outlook is based on a more conservative view vehicle production in both North America in Europe , compared to leading 33rd party forecasting services. Our view is primarily based on customer release schedules.

Fully incorporated into third party estimates.

In Asia, specifically outside China, We're also expecting certain of our major markets such as Thailand in Korea be down versus last year.

In addition to lower production assumption the strengthening dollar an additional headwinds.

I must be overcome in fiscal 2000.

Despite this challenging macro environment, we expect the self help initiatives discussed moments ago.

More than offset these headwinds, resulting in earnings and cash flow growth in 2020.

With that I'll turn it over to Jeff. So you can take us through enhanced financial performance for the quarter of what to expect in fiscal year 2000.

Good morning, Thanks, Doug.

Turning to slide 10.

Hi, adhering to our typical format.

The pages format and with our reported results in the left in our adjusted results in the right hand side of the page, we will focus or commentary on the adjusted results, which excludes special items that we view it either onetime in nature or otherwise skew important trends underlying performance for the quarter. The biggest drivers of the difference between our reported on adjusted.

Adults relate to our pension mark to market purchase accounting amortization restructuring and an asset impairment associated with an engineering center in India being held for sale detail. Those details of these adjustments are in the appendix of the presentation.

Sales were 3.9 billion down 4% year over year, excluding the impact of FX adjusted EBITDA for the quarter was $215 million down 35 million or 14% year on year more than explained by the impact of the lower volumes in the mix within the Americas and Asia.

Including in the included in the Americas region was between seven and $10 million headwind related to the labor strike in General Motors I'll also note that the lab that last year's results included about $20 million of temporary SGN a benefits each quarter that did not repeat this year.

Finally, adjusted net income in Npls were down approximately 52% year over year and $59 million.63, respectively.

You can see most of this difference relates to tax expense as we've discussed our tax expense.

As highly volatile due to the two due to the booking valuation allowances in several geographies.

Full year results are shown on slide 11.

Sales of $16.5 billion finished the year in line with our expectations FX accounted for over half of the 900 million dollar a year over year decline in 2018.

In addition, significant weakness in the China market and lower sales in our European complete seat business also impacted 2019 resolves.

Business performance issues discussed at length throughout the year combined with lower sales more than explained the approximate 400 million dollar decline in EBITDA.

Although down year over year earnings improved sequentially as the year progressed more on our second half versus first half performance in just a minute.

And finally as we've seen throughout the year, the operational challenges lower volume and changes in the tax rate a significant impact in the bottom line as adjusted net income and EPS were down approximately 71% year over year $153 million and $1.63 cents respectively.

Now, let's break down our fourth quarter results in more detail.

Starting with revenue on slide 12.

We reported consolidated sales of $3.9 billion, a decrease of $224 million compared to the same period a year ago.

Lower volume mix, primarily in North American Asia impacted the year over year results by approximately $160 million. In addition, the negative impact of currency movements between the two periods, primarily in Europe impacted the quarter by $64 million.

Moving on with regard to audience on consolidated revenue. Our Q4 results were significantly impacted by much lower vehicle production in China I.

Unconsolidated seating and assets and I'm revenue driven primarily through our strategic JV network in China was down about 11% when adjusting for FX.

Sales for unconsolidated interiors recognized through our 30% ownership stake in Yanfeng automotive interiors were relatively flat year on year when adjusting for FX.

Moving to slide 13.

We provided a look at audience second half 2019, adjusted EBITDA performance compared to our first half results as you can see driven by turnaround actions implemented throughout the year. The combined Americas in EMEA operating performance improved by just under $100 million.

Total audience improved by over $50 million or 78 basis points as the improved results in the Americas, and EMEA or partially offset by significant volume headwinds in China.

Speaking of China. The team did a good job of flexing head counts and cost in Arkansas, and our consolidated entities to mitigate the weaker than expected industry headwinds that can be seen in the margin performance, which was held close to 11% in the first half and just under 10% in the second half despite the steep drop in volumes that impacted.

Both the first and second house.

Achieving our commitment to deliver improved performance in the second half versus the first half provides a couple of important takeaways first the turnaround plan is on track and continues to gain traction.

Second and probably more importance on when looking to the future. It signals that audience numerous self help initiatives can offset significant macro headwinds, which we expect to enable continued earnings and cash flow growth going forward.

More in our outlook on a few minutes.

Switching back to the quarter, we provided a bridge of adjusted EBITDA on Slide 14 to show the performance of our segments between periods.

Pocket labeled corporate represents central costs that are not allocated back to the operation such as executive Office Communications, corporate finance legal and marketing.

Big picture adjusted EBITDA was $215 million in the current quarter versus $250 million last year, the corresponding margin related to the $215 million adjusted EBITDA was 5.5% down approximately 50 basis points first fourth quarter last year.

The year over year decline is more than explained by the impact of lower volumes in Asia, and the $20 million of temporary SGN a benefits in 2018.

In addition, the Americas decline includes the impact of the labor strike at GM.

Important point out our positive business performance, largely driven by lower launch cost reduced freight and ops waste a positive impact on the quarter and partially offset headwinds I described earlier.

On a side note the month of September was the first month in fiscal 19, where we exceeded prior year EBITDA performance.

In addition, despite being down year over year, our Q4 performance exceeded Q3 results by $10 million. This is a third consecutive quarter improvement and demonstrates the operating environment.

And Americas.

In Americas, EMEA has stabilized and has begun to improve albeit still at a unacceptable levels.

Finally as out to them positive.

Regress positively versus Q3 2019 global results improved by about $17 million sequentially.

Similar to past quarters. We've included detailed bridges for our reportable segments, which consist of Americas, EMEA and Asia on Slide 15, 16, 17 to ensure adequate time is allocated to our 2020 outlook and the Q and a portion of the call I do not plan to review these slides in depth.

Bridges illustrate the key drivers of the year over year variants I would summarize by saying the following the Americas continues to progress in a positive direction as our turnaround actions continue to gain traction quarter benefited from positive business performance, consisting of lower ops waste launch cost and premium freight on.

Fortunately lower volumes and increased SGN cost driven primarily by the temporary benefits recognized last year.

Offset the funds.

In EMEA similar to Americas region is benefiting from turnaround actions implemented as demonstrated by.

By its second half versus first half performance year over year. The region continues to be impacted by containment cost associated with certain of our assessment implants.

$3 million out of 10 million negative business performance as shown in addition, there were approximately $5 million plus customer tooling recoveries that benefited last year's fourth quarter did not repeat in the most recent quarter.

Pointing out assets than them as noted the bottom of the slide improved $12 million year over year and $5 million versus the third quarter.

In Asia volume continues to be the primary driver at the lower and lower year over year performance.

We now shift to our cash and capital structure on slide 18.

On the left hand side of the page, we break down or cash flow adjusted free cash flow defined as operating cash flow less capex was a negative hundred $16 million for the quarter timing differences in trade working capital explained the vast majority of the decline in free cash flow versus last year.

Capital expenditures for the quarter were $118 million compared to $132 million last year.

As you can see in the footnote, we continue to breakout capex by segments.

For the full year capital expenditures totaled 468 million approximately $30 million below the expectations provided to you on our Q3 earnings call and $68 million below last year's fan.

Free cash flow or the negative $160 million better versus the guidance provided on our last earnings call.

On the right hand side, we detail our cash and debt position at September Thirtyth 2019, we ended the quarter with $924 million in cash cash equivalents.

Gross debt net debt totaled 3.738 billion and $2 billion $814 million, respectively on September Thirtyth.

It's worth mentioning there are no new new needs.

No near term maturities, thanks to the refinancing completed in May.

Moving on slide 20% 23, let me conclude with a few thoughts on what to expect for fiscal 2020.

On the right hand side of slide 20, we've laid out our initial planning assumptions for production and FX compare fiscal 19.

As Doug mentioned earlier, we made an overlay to the H. us production assumptions for known and customer release schedules that have not been fully reflected in the third Party party estimates.

This has resulted in our industry volume assumptions being more conservative versus I guess as forecast.

FX, namely movements in Euro in Chinese RMB as an additional macro headwinds included in our assumptions, although overcoming these headwinds will be challenging we expect that the benefits of our salt self help initiatives focused on operational improvements launch management cost containment and commercial discipline on more than offset these.

Macro pressures, resulting in earnings and cash flow growth in 2020.

Our view, how these assumptions impact or 2020 outlook beginning with sales on slide 21.

We've included a bridge at walks or fiscal 2019 sales of 16.5 billion to our expected 2020 sales range of between 15.6 billion at $15.8 billion.

I am and mixed are expected to have the greatest impact on our 2020 performance.

Important to understand the drivers within this buckets.

First as mentioned in the previous slide overall industry volumes will drive a large portion of this year over year decrease as we expect actual production to be worse than currently just outlook.

In addition to specific customer release schedules tracking below industry estimates. We've also adjusted for end markets negatively impacting our sales mix, Thailand is a good example, or adding it enjoys and leading market position. Unfortunately, we expect volume and Thailand to be down more than the global average.

In addition to these volume headwinds audience also facing pressures unique to fiscal 2020 that are expected to reverse in fiscal 2021 for example.

Extended downtime for some of our top platforms such as the Ford F 150, driven by a new model changeover and the Ram which is scheduled to have significant downtime fiscal 2020.

And as you know.

Lost volume related to the GM labor strike.

We'll continue to monitor and assess potential upside as GM attempts to make up lost production.

We expect the volume decline will have more a more significant impact in the second half of fiscal 2020 in the first half.

And the volume into a much lesser extent.

Customer pricing and FX are expected to have a negative impact for the year.

Partially offsetting the volume headwinds are positive contributions expected from adding backlog, you'll see we called out teslas decision to Insource model S and X has negatively impacting our backlog for the year.

Turning to slide 2022 or.

Turning to slide 22 excuse me.

We've also included a high level bridge illustrating our expects expectations for adjusted EBITDA.

Walking from fiscal Bank fiscal 19 results of 787 million. We expect several factors will influence adding performance in 2020, many on the positive side, including benefits driven by the continued execution of the company's turnaround plan specifically focused on operational.

Improvements launch management cost containment and commercial discipline as mentioned on previous calls as evidenced by audience second half 2019 results. These health self help initiatives are not dependent on improving macro conditions.

Jon Benet beyond benefits driven by our turnaround plan audience reduced ownership stake out in aerospace will also contribute to earnings growth in 2020 as the joint venture will no longer be consolidated audience financial results. The investment has shifted to a cost method meeting audience financials going forward will be impacted with diverse.

Ends are paid or at the investment is impaired.

For fiscal 19 audience adjusted EBITDA absorb just under $30 million of investment in this business future, adding funding is not expected.

Moving on the positive influences are expected to be partially offset by just under $200 million headwinds, most significant being lower volume and FX, which I discussed on slide 20 and 21.

Bottom line.

Sifting through the puts and takes we expect adjusted EBITDA to increase to between 820 and $860 million in fiscal 2000.

Now that we've covered our fiscal 2000 expectations for sales and adjusted EBITDA, Let me quickly comment on our expectations for few other key financial metrics on slide 23.

Starting with equity income based on our assumption of stabilizing production in China in current FX rates, we'd expect equity income to range between 265 million and $275 million.

Including Wi Fi approximately $45 million.

Important to note, we're expecting equity income to mirror, China's overall seasonality production pattern, increasing in quarter, one fiscal 20 versus quarter for fiscal 19 as vehicle production improves followed by a decline in our fiscal second quarter impacted by the lower productions are running.

In the Chinese new year holidays interest expense based on our expected cash balance and that should be approximately $200 million cash taxes in fiscal 20 are expected to range between 102 $110 million similar to last years levels.

Important to remember net operating loss carry forwards and offset income as profits increase of cash taxes on audience operation operations should remain low even as profits are increasing.

With regard to audience effective tax rate and for modeling purposes, we're expecting of a rate in high 30% range.

We'd expect that rate to fluctuate on a quarterly basis due to valuation allowances and our geographic mix of income.

Capital expenditures are forecasted to range between 465 and $485 million essentially in line with fiscal 19 results.

Although we see opportunity to reduce capital expenditures further in the out years driven in part by a smaller assets and then business. The current year expenditures are supporting current launch plans.

And finally, one last item for your modeling, we expect our improved operating performance operating profit and reduced level of cash restructuring or result in breakeven free cash flow for the year.

With that.

We have the operator turn it over to the Q and a portion of the call.

Thank you if you'd like to ask your question. Please press Star one our first question comes from our.

Our Minera San Kevin just with Morgan Stanley Your line is open.

Great. Good morning, Thank you for taking the question.

As we think about the operational improvement that and I think you did a nice job highlighting them.

What do we have to think of going forward I know common front seat architecture was a concern last year previous to that it was the SSM transition to next generation mechanisms that seems to be behind us, but maybe you could talk through some of the puts and takes into fiscal 2020, and where you see operational improvement.

And maybe areas of where you still have to improve operationally.

Hey.

Appreciate the question I guess I look at it this way think when we walk.

Through we're overcoming 200 million.

Negative EBITDA headwinds with.

To get the projected guidance earnings growth on a year over year basis.

That really is made up of.

Improve launch performance operational improvements.

Commercial activity reduction of activity NSS to them so I.

I guess at a macro level, that's how you should think of it.

It really is the pillars of the improvement on a year over year basis.

Okay.

And then.

Common front seat architecture, how is that trending just just trying to get a sense of the the operational stamp that you've been able to put on the business and the last year.

Yes in our formal comments.

I think Jeff reflective done.

Year over year improvement as well as I did.

Particularly in Europe , which.

That comment hardware is was.

A pretty significant burden to us.

Team, particularly in the first half the 19.

And then if you walk into 20 that comes down.

Significantly when we look at launch expense.

And.

What we call operational.

Our standard cost.

Cost of Port quality.

Maybe artist to just to give you some numbers perhaps to.

My age yet some of that slide 31 I believe.

The last age of the Appendix section, we have a supplementary section on the old assets and that business. So we we don't reported as a segment, but we continue to give you some of that to tail and as you know as we started fiscal 19, we were kicking off that front seat architecture in Europe , and while we had some impact.

Movements in fiscal 18, when we ran into the second launch.

Really a more challenging and bigger launch in Europe .

You can see our numbers kind of progressed in the beginning of fiscal 2019, but as you look through the year. We went from I just.

The numbers went from minus 72 in first quarter to minus 51 minus 38 minus 21.

Turning to see bigger improvements in the fourth quarter really represent the first quarter, where we had.

Beat the prior year.

And I think as we go forward, we have seen stabilization in that we're still working a number of front. So I would say, we're nowhere near Don.

As you look one of the big opportunities for us that we're laser focused on ice just going to take some time to improve is that simplified free cash flow you see on the page where.

Last year were minus $168 million of EBITDA with $255 million of Capex. This year $182 million of EBITDA. So a little worse in total but trending much better as the year progressed.

With 222 million of Capex.

We're seeing big improvements on the EBITDA line and on opportunities to take more capex as we move out in the future here and and that's well continue to show you the scorecard at least for a while as we stabilize this business, but this is really one of the fundamental areas that theres no real fire burning we have customers are taking care of here.

But from an overall CNL impact audience, we expect to have continued improvement in this area.

Okay, and just one more here adjusted EBITDA is better but cash interest taxes and capex is a bit lower how are we getting to breakeven free cash flow is is it just working capital or are there other some puts and takes to think about.

Yeah, I mean, I think if you look at working capital for the year back to that slide if you looked at.

Essentially to that I always say that the working capital pieces is pretty heavily driven by timing.

In 2018, we had a benefit of $174 million for the year. If you look 2019, we essentially gave it back right. So the combination of those two years is pretty stable. So we assume and I were planning for a more stable.

Working capital swing for the year as as one component to get ourselves to breakeven.

Our.

Big One in addition to just earnings improvements.

Capex you.

Okay.

Thank you. Our next question comes from Rod.

Wolfe Research your line is open.

Good morning, everybody.

Just wanted to ask first of all on the EBITDA bridge to 2020 looks like you're assuming consolidated EBITDA goes from 501 million to somewhere between 555, and 585 and you talked about the 200 million dollar roughly.

Pack from volume mix and FX so.

You, presumably are assuming business performance improves by 250 to 280 million, which is quite a bit better than the run rate. We're seeing in Q4. So I was hoping you can give us a little bit more color on how that's coming through.

What's the launch comments that you made.

Doug in your prepared remarks, what does that actually mean in terms of dollars.

And what are you expecting in terms of restructuring savings and when we presumably see this and assets and mostly in the near term.

Yeah.

There's a few components to unpack I'll, maybe start a little bit.

Right.

See assets, an end businesses as one that I think from a continuing a Christian I just read through the chart.

Have you focus on that we continue to see improvements, but yes, the business that did $20 million negative in the fourth quarter, but had a 182 million negative for the year.

Continuing to stabilize that is going to be probably the biggest component of those improvements.

But we're seeing we showed the.

Second half versus first half and you start to think of some of those improvements, especially in our consolidated business. We had over 100 basis points improvement in the operations in the second half in and.

In Europe , and the Americas, we content and we're continuing to see improvements as we go forward better commercial discipline.

As we resurrected proved a bunch of the commercial issues, we had with our customers I'd say, we have a much more stable relationship.

The AG opportunities Doug as mentioned the collaboration between ourselves and our customers has increased greatly and we're seeing more of those type of opportunities.

Come to us and collaboration between ourselves and the customer which gives us both opportunities to win win and improve operating performance. So.

It's a lot of little things, there's there's nothing by itself here, but we're starting to see a lot of this momentum build and on the improvements are coming through really in all areas. Yes. So maybe the way I would look at it.

You chunk it into two pieces you have.

What we call.

Place Adams.

Launch related activities.

Going back to the number that is offsetting the $200 million headwinds.

And then you have.

Commercial activity.

And it's roughly it's always about equally split and there was a lot of Grail, what you want.

And how you buckets between.

Ups waste and launch in commercial activities, but if you think about that.

Improvements to the offset is roughly equally split.

The biggest piece of the upside is just.

Driving productivity in our plants.

That is definitely big component of that is the metal at mechanisms business.

The commercial side.

I think there's a lot of.

Typical activity that you would have.

Commercial discipline, the big piece that we're expecting to significantly help us on a year over year basis.

The activity and how we bring that activity port in how we can utilize that.

Vehicle, if you will too to reduce customers expectations, LTAC and how we blend those two activities together.

But.

That's really how I think about piecing that.

Overcoming the headwinds.

A lot of bucket that way.

Thanks, that's helpful.

And just two housekeeping things.

One point you talked about I think it was 100 million dollar decline in Capex, mostly from assets Snam is that still the case should we expect capex to kind of return to a.

Downward trajectory as we go beyond 2020, and can you quantify how big these the Ram and F series.

Temporary disruptions are they that you cited in your prepared remarks.

Sure Let me just.

I would point to make on assessing them to that.

Should have been addressed should address in the couple of other questions We project.

I am sales.

Over the next three years.

Coming down approximately 400 ish million.

Obviously, theres a huge component of capital that comes down.

That's a line with that volume drop and are better asset utilization of our existing asset.

Today, So, yes capital will be coming down in that segment.

It's been a big part of.

The drop in capital on a year over year basis from.

18 to 19, and we expect to see that continue the only thing really significant capital investments that we have.

Coming into this year.

Business is is a less phase of our recliner.

How city.

Okay.

And we're not particularly concerned about that because that's just incremental volume that products southern production now well over a year.

From a manufacturing standpoint, it's fun thoroughly bugs that incremental spend.

We will come with some of the seeing burdens that the initial.

Investments has associated with it.

Then relative to F series.

Yeah I call it.

25.

Millions to protect maybe a 125 to 150 in that range.

Great. Thank you.

Thank you. Our next question comes from Dan with Credit Suisse. Your line is open.

Hi, good morning.

Thanks for taking the questions.

First.

Wanted to just talk to your long term targets.

You know just wanted to get a mark to market for which are ultimately playing for earlier. This year I think you highlighted the opportunity.

Close the gap.

Margins versus your peers I think was like a 400 basis point gap using.

The fiscal year 18 margin. Since then obviously margin compressed in 19, but could you just got an update on on that target that 400 basis points.

Improvement versus 18 is that still in play and I think you talk to pass something like 200 to 250 Bips from core CIT and 100 to 150 from SSM, just trying to get a sense. If that's still ultimately whats your.

Turning for down the road.

Yes.

Has that changed.

I would say we are when we spoke we were pretty open that that was something that was going to take multiple years to achieve that we were looking out into 20.

Two.

23 timeframe to get there I think we're.

On pace to achieve that.

Thanks.

Quarter on quarter.

Improvement reflects that.

So our expectation has not changed.

At all in that being our targeted and that timeframe being the timeframe, we plan to achieve it yeah and I'd say the target is probably loosely defined as just.

Making sure were leased at our competitor.

Level of profitability.

No that you're right that spread is probably increased for the the goal here of closing the gap between ourselves and our peers is is certainly still the goal in the expectation over the next few years.

Great. Thank you and then just second we can all I know we spend a lot of time on.

Some for obvious reasons.

I have along the way sometimes it feels like a hot on our end the the core jets seating business, which is really are much larger business gets reflected and I know.

Over the past couple of years, we've seen a wide variety of launch headwinds dragging down I mean, you can do some math back it out your sort of that.

EBITDA margin of call. It in the 7% range there that's down a few points versus what you've been posting a few years ago.

A few hundred million dollars of sort of business performance headwinds along the way, we just talk about specific to the core CIT seating business. How we should think about the reversal of those business performance headwinds, we see a lot of your initiatives here for operational improvements and launch headwinds can those be applied seem.

Similarly to assess sedan and ceding or is there a different approach that you're applying to ceding along the way something that's a bit more nuance to that particular business.

I would say b.

From a launch operation.

We're applying the same.

Discipline.

And in fact, we've we've consolidated those groups because in many cases, we've got both Jeff and hardware on a on a program and we.

We talk about that in.

Unison in a separate when we noted.

Business unit.

Certainly the businesses the fundamentals from an operation standpoint slightly different.

It is.

Labour intense late assembly for the most part and the metals business is.

It's kind of the opposite it's more automated.

Capital intense.

Later, a portion of labor.

So we're playing a different level operation.

Disciplined in the way we operate that business.

We've done a lot of work too.

Look at our manufacturing footprint and combined.

Both.

Plants instead of separating them. So we can utilize logistics locations better and historically weve done.

I would say whats.

Significantly different.

On the chip side compared to the metal side is the value chain from a material standpoint, and that's where we're spending.

For activity on the chip business finding ways.

The drive down material as a percent of sales.

And.

I think thats really underpins our improvement on the jet side. So when we talk about the.

Activity when we talk about tightening.

Our activity in our purchasing environment to drive down material costs.

I think thats, where.

It's more difficult to do when the metals business.

Because you just don't have.

The same number of components.

It's very much.

Material economic base metals, where the jet you can look for opportunities in the trim covers and fall in metals included in that in.

Option content within the complete seat.

To to drive cost reduction or offset customer productivity. So it's just more affordable.

Product segment for us to us to drive.

What I mean, they look as material to sales ratios.

So the the the reduction of sort of launch complexity that it seems like that that's almost a little easier on the on the jet side. Then it is in metals and my interpreting that correctly.

Yes, it was certainly agree.

I would look at it this way a bad launch.

It is easier to fix it about launch on metals and Thats why some of problems. We've had on metals has linger.

Because with metals.

Add launch usually involves having to fix tools.

Having the fixed automated lives, where the chip business.

Again as light Assembly.

Driving engineering change.

Improving repeatability from a build standpoints just easier to get too.

But they both can be very expensive.

If not properly executed so the discipline from a large management standpoint that we put in place.

This is very much the same.

In a disciplined is.

Is really fundamentally changed launch costs, particularly in the second half of this year and as we move into 2020, we have much better handle on.

On our launches so we are much more proactive with our customers.

Driving resolution of issues well in advance of any kind of volume production.

Really where.

Both products.

Problems have to be soft if you wait till you're actually in production.

It's not.

Good it turned out very well.

Great. Thank you that's very helpful. Appreciate it.

You're welcome.

Thank you. Our next question comes from Joseph with RBC Capital markets. Your line is open.

Thanks, Good morning, everyone.

I just wanted to maybe talk about the.

The EBITDA bridge, one more time knows point as was pointed out earlier on on a consolidated basis at the midpoint it looks like you're guiding it almost 70 million higher.

I think just the you know the.

On consolidation of aerospace is 30 million so you're talking about another 40, Bips EUR 40 million or 25 bips of improvement.

And I think aerospace was in Americas, So, but maybe ex that can you just talk about how you expect some of the performance regionally because it sounds like you're talking about some poor mix and the Americas, we saw some improvement in the Asia consolidated.

Margin and then you're still seems challenging so any color there recently would be helpful.

Yeah the.

I guess first of all on as it relates to aerospace that will be effectively call it $30 million of tailwind for the Americas, you're right. It was in the Americas numbers and.

Effectively it won't be there next year.

And.

Obviously, a big piece of the improvement sales or are the biggest driver Joe as you look through the whole numbers I think based on where were.

Pulling through from where the assessment and business is improving.

Underlying these numbers fixing a lot of those operational things Doug talked about on a consistent sales base. We could do I think you know, we certainly turn at higher result, I believe.

But we have built in a low number of macro pieces here. So I I'd say in Asia kind of thinking through that I think we probably have a little bit more.

Headwinds and Tailwinds as we look through.

Macro pieces and some of the specific pieces, we have I mentioned, Thailand.

Hi.

Business is very important to us we've seen a reduction in exports and highlighted we've seen.

A.

Tightening of credit and the market to which has brought down the market a bit.

But overall I'd, just say, we see a little bit more headwind in the Asia region in General I'd say, both in Europe and in the Americas, I think we have opportunity to outperform.

19 levels and it's going to the whole results here on the patent probably more on sales in the regional mix of those sales but.

Fundamentally operating wise.

From a cash flow add from just.

All the metrics, Doug talked about just the conversion ratios.

At significant performance you saw the second half year.

We don't think or Don yet, we're still seeing improvements on a monthly basis. So we'd expect those things to aid in sort of offset a lot of that sales.

Okay. Thanks, and then just back to the the free cash flow walk if we use sort of the.

Helpful.

Bridge you provide for 19, but then think about your guidance for 20 on that front, if we have EBITDA again sort of at the midpoint of.

840, you know the interest some cash taxes and then.

If we if we make an assumption about.

You getting I guess, 70% of prior year, JV and come back and but then you know netted against the.

On the what's in the EBITDA that seems like another.

70 million, which which and you had in the 475 Capex that I know that's a lot of numbers right here, but that that seems to get you basically to the free cash flow breakeven and so I just wanted to get back to the working capital comment because.

It would seem like it would have to be positive to offset the cash restructuring that you're planning for it. So I just wanted to understand your working capital comments from earlier.

I mean, I think right now we're seeing.

But of a reduction and global sales.

We're seeing a reduction in DSS and them piece of those sales as well as we think there is some opportunity or that business will go down a little bit that is somewhat of a working capital user.

And our structure here.

But net net.

You look over the course of the two years in total our working capital was essentially zero.

I would say, we're probably assuming somewhere around to zero number in our 2020 assumptions, okay and it did you actually state cash restructuring expectation for next year or just slower.

Maybe a little bit lower we didn't give you an exact number.

Okay. Thank you.

And demand it looks like we're at the bottom of the hours. So again I think that concludes the.

The earnings call. This morning, if anybody has additional questions. Please feel free to reach out to dust and myself throughout the day again. Thank you first time. This morning. Thanks, everyone. Thank you.

That concludes today's conference. Thank you for participating you may disconnect at this time.