Q4 2019 Earnings Call
Good day, ladies and gentlemen, what can so the Shiloh industries' fourth quarter and full year 2019 results Conference call. Today's call is being recorded we will conduct a question answer session immediately following management's prepared remarks, I would now like turn the conference over to Mr., Scott Valley, Vice President corporate controller of the company. Please go ahead Sir.
Good day, Thank you operator, and thank you all for participating at Shiloh industries.
Fourth quarter and full year 2019 results conference call.
I'm joined on today's call by Ramzi, Hermiz, our president and Chief Executive Officer.
William escort, our senior Vice President and Chief Financial Officer.
I'll begin by reviewing our legal disclosure regarding forward looking statement.
I would like to remind all participants that certain statements made during this call may constitute forward looking statements.
Although such statements reflect our current reasonable judgment regarding the direction to her business.
Actual results might differ materially from those in the forward looking statements.
You can find information concerning why the actual results may differ from statements made today and in our filings with the FCC.
Our earnings press release was issued today and husband posted to our website at Www Shiloh Dot com on our Investor Relations page.
The earnings press release contains reconciliations of certain non-GAAP numbers presented on this call today.
Including adjusted EBITDA, adjusted EBITDA margin and adjusted earnings per share.
Our Form 10-K is expected to be filed tomorrow with the FCC.
A replay of today's call will be available.
Instructions for the replay are included in today's press release, I will now turn the call over to Ramzi, Hermiz, our president and Chief Executive Officer.
Thank you Scott and welcome everyone participating on the call.
Today, I will highlight 2019 accomplishments.
Provide our views on industry dynamics and discuss how we've improved our position for 2020 .
Lillian will then provide more detail, we view of our financials and introduce our 2020 guidance.
Overall, I'm pleased with Charles performance during our fiscal 2019.
We delivered our guidance commitments with full year revenue within our range at more than $1 billion and delivered adjusted EBITDA at the high end of our range at nearly $70 million.
I recognize that we had a number of challenges such as premium launch expenses that we overcame we also managed a number of unplanned challenges such as the you wake W. strike a general motors.
We made tough decisions remain focused and delivered on our plan.
We ended the year with good momentum Q4 saw the realization of strategic operational initiatives beginning to have a positive impact on our margins.
We generated higher gross profit and EBITDA dollars on lower revenue expanding our gross margin by 160 basis points in our adjusted EBITDA margin by 140 basis points.
We demonstrated our ability to deliver results in 2019 positioning us for a continued improvement in 2020 .
We made progress on a number of key initiatives that will allow the company to grow profitably and improve the capabilities of our organization.
We took restructuring activities to better align our business with market conditions, and we created a more variable cost structure and a lower breakeven point.
Specific to ask DNA.
Our restructuring efforts reduced SGN, a by $17 million or nearly 20% compared to 2018.
We will continue to control cost and 2020 positioning Shiloh for healthy growth in EBITDA dollars and margin expansion.
Yeah.
The year was very active for product launches, we delivered on these programs and improved and upgraded our launch process. These improvements will prove to be valuable for reducing the premium costs a future programs.
The launches represent higher value, we had products with strong recurring revenue that will improve our mix and contribute to our profitability going forward.
We execute our launch of the Nantong facility on time and on budget and are now moving into full production. The China launch is significant when you consider shiloh outperformed the market like 29% growing nearly 17%, while the broader market declined by 12%.
Right.
In Europe , our customer deliverables are on track and we completed additional launch activity in the fourth quarter.
In North America, we remain very excited about the upcoming sports card program launch that Leverages, our proprietary Dynetek technology.
We engineered differentiated solution that reduced the number of components allowed for significant cost reductions assembly simplification complexity reduction and an overall weight savings of nearly 35%.
Our new business wins totaled approximately $630 million in 2019 with more than $150 million occurring during the fourth quarter for U.S. Asian, and European Oems the strong mix of pickup trucks, Ashu V.C., you V. and premium cars.
We are proud of the progress made during the the year as these programs will provide attractive revenue streams.
A number of the awards during the quarter include laser welded body side, you know panels for F. C. A clean mobility stampings for Jeep brand vehicles, and propulsion parch for multiple G.M. vehicles, including the G.M.C. Silverado.
These wins will utilize existing facilities and equipment, reducing capital investment. These are examples of how we're focusing on product and customer growth opportunities, while staying equally focused on returns on capital.
With the current market uncertainty, we're taking an even more prudent approach to deploying incremental capital as we focus on maximizing reuse and redeployment.
Our restructuring actions are reducing fixed cost and streamlining our business. Since we began this initiative. We've consolidated three manufacturing sites made geographical shifts to place production closer to our customer facilities centralized departments and optimized our product portfolio.
We accelerated our restructuring actions in Europe , given a decline in the commercial vehicle market as well as ongoing weaknesses.
Passenger vehicles.
Acknowledging the challenging market conditions and weaker performance of select customers, we have taken a non cash goodwill impairment charge that Lillian will discuss in more detail.
Overall, our restructuring has created a more flexible and variable cost structure. The success of our strategy was validated as we flagstar operations in North America to manage through the recent Jim strike by controlling costs and improving throughput.
As we look forward, we'll continue to evaluate targeted restructuring actions in 2020 .
It's critical is investing in new product technology is investing in manufacturing technology.
During the year, we continue to upgrade our technology and systems to improve operational and supply chain efficiency and create competitive advantages to digital transformation.
This transformation include system consolidation and process simplification, which will deliver improvements in capacity planning customer support along with improved efficiency and business satisfaction.
We we flawlessly launched our second site under our new ERP system, and we will continue the rollout across our north American manufacturing footprint with the conversion of five additional sites over the next 12 months.
Simon has been diligent in our dedication to improving the environment and the importance of sustainability.
Our vision statement is clear.
We believe in creating innovative solutions for sustainable mobility, and a safer healthier environment.
Our vision statement is more than just aspirationally, we are delivering with real numbers, let me share some of our progress.
Our products are now 100% sustainable made of materials that can be recycled at the end of use.
Our products are produced in our global network of landfill free facilities. In fact in 2018 alone Shiloh is able to eliminate approximately 340 million pounds of waste from landfills.
Additionally, our lightweighting strategy drives the use of less raw material, which lower steel and aluminum mill production.
And raw material and transit the combination of our focus on the environment and are Lightweighting technology ultimately results in lower energy consumption and the reduction of greenhouse gases.
Throughout the value chain.
We are pursuing additional ways to reduce our carbon footprint.
We are we're excited to announce that Shiloh to a strategic partnership with de T. energy is converting three facilities to 100% renewable energy.
The conversion will include two stamping plans and our planet Technical Center. This will occur by January 2021, and make sure held the first automotive supplier in the Michigan Green power program.
We will continue this effort across our global network.
Equally as important Shiloh embraces diversity and inclusion.
Earlier this year, we welcome to Miss China Love It to our board of directors with nearly 30 years of operational experience in automotive and aerospace industries MS Love. It brings a wealth of knowledge and experience to our border. We're happy to have her as part of the Shiloh team.
In addition, we recently announced our partnership with caveat the center for automotive diversity inclusion and advancement Katy is a collaborative organization dedicated to doubling the number of diverse leaders in the automotive industry by 2030.
We are excited about the positive impact that our products and our manufacturing processes have on the environment.
The expanding nature of our sustainability efforts.
And the diversity within our organization.
We will continue to educate the market about a broader radiosurgery efforts and key comp accomplishments.
To recap.
We delivered on our guidance.
We won new business.
We increased organizational flexibility, we improved our launch process and we exited the year with Goodman won't momentum.
Setting the stage for even a stronger 2020 .
With that I'll hand, it over to Lillian to address the financials in greater detail.
Thank you Ramsey.
We delivered results that were consistent with our guidance.
Our full year revenue of $1.05 billion with within guidance and consistent with local production when considering key factors.
A key factor impacting our revenue for the full year was the GM strike, which occurred during our fiscal fourth quarter and reduced revenue by approximately 24 million dollar.
Additionally, we had negative currency effects of approximately $20 million.
Prior year, non repeating customer emergency orders of $20 million and the exit certain unprofitable products of $24 million.
[noise], revealing revenue by region in Europe , we performed slightly better than the market with Shiloh down 4.1% compared to the market decline of 4.3%.
Excluding currency translation and non repeating emergency customer order, we outperformed meaningfully in Europe with the growth of 4.8%.
In China, Shiloh significantly outperform.
Delivering 16.9% growth.
Versus the market, which contracted by 12.2%.
Our 2019 performance in North America, excluding the impact of the GM strike.
The non repeating emergency customer orders and product exit.
Was down 1.6% outperforming the market, which declined by 3.4%.
We improved our gross profit during the fourth quarter as a result of effective cost management action better mix.
And our success moving past the elevated launch costs earlier in 2019.
Gross profit was $24.6 million in the fourth quarter, an increase of $800000 against a 41 million dollar decline in revenue.
Gross margin of 9.5% expanded by 160 basis point.
Care to 7.9% in the year ago quarter.
We remain focused on our product strategy not pursuing opportunities for operational improvement and asset optimization.
We incurred $17.1 million I've restructuring costs for the full year across North America and Europe .
As we look forward, we will assess market condition customer action and other factors and continue to proactively align our operations and business structure.
Full year net loss of $19.9 million compared to a net income of $11.5 million in 2018.
Largely impacted by the 17.1 million dollar restructuring previously mentioned under noncash asset impairment $5.7 million.
Yeah as Randy mentioned during 2019, we continue to restructure and realign our European business to optimize future performance to recent industry and forecasted declines in volume.
Related to those development, we evaluate our goodwill position.
Considering changes in macro economic conditions industry trend.
<unk> operating.
Operating result, and the timing of the transformation.
We recognized a $5.7 million noncash impairment in the fourth quarter due to the reduction in calculated fair value.
Full year loss per share was 85 cents compared to earnings per share a 49 cents in 2018, while adjusted earnings per share of 13 cents compared to 62 cents in 2018.
Adjusted EBITDA was $69.8 million for the full year for an adjusted EBITDA margin of 6.6%.
A 10 basis point improvement over 2018.
Adjusted EBITDA came in at the top of our guidance range of $65 million to $70 million.
We ended the year with good momentum as fourth quarter, adjusted EBITDA, a $16.6 million increased by 11% year over year overcoming the GM strike impact in the fourth quarter.
The adjusted EBITDA margin of 6.4% improved by 140 basis points year over year as a result of the disciplined cost control efforts in productivity improvement.
And improved mix given our recent launches moving into production.
As of October 31st 2019, cash cash equivalents were $14.3 million.
Cash generated from operating activities for the year was $31.2 million and we invested $55.2 million in capital equipment.
We anticipate an improvement in cash generation in 2020, well or investments in capital of putting that Wolverine target you didn't focus.
With an emphasis on maximizing reviews and redeployment.
Net borrowing under our revolving line of credit were $248.7 million.
The leverage ratio was 3.4 time on a net debt to trailing 12 month adjusted EBITDA basis.
Longer term, we continue to target leverage in the mid twos, while managing investments to grow the business.
Turning to our initial outlook for fiscal 2020.
Industry forecasters expect full year automotive production volume to be down 1% to 2% in North American China and down 3% in Europe .
Well certain program delays will have an impact on 2020 overall, we feel we are well aligned with our customers demand trends.
In addition, the commercial market is anticipated decline in 2020.
This has a meaningful impact on our European business.
We had accelerated our restructuring efforts in Europe to better align or operations with market conditions and helped drive profitability going forward.
We are introducing our 2020 revenue guidance of approximately $1 billion and adjusted EBITDA guidance range of 75 million to $80 million.
Well the topline is expected to decline approximately 5% largely in line with the earlier mentioned market conditions we.
We expect to build on our fourth quarter performance and grow our adjusted EBITDA dollars by approximately 7% to 15% compared to 2019.
This represents approximately 90 to 140 basis point improvement of margin expansion over 2019.
The expected improvement is result of the strong cost control.
Restructuring.
Productivity action.
Contribution from the ramp up of our China operations, and the mix and higher value products.
I will now turn the call back to Ramsey for some summary remarks.
Thank you William I.
I am pleased which shows progress during the year.
We delivered on a revenue and adjusted EBITDA guidance continued the rollout of major product launches, while improving the efficiency of our process.
One new business strengthen the organization through investments in technology and continue to execute restructuring efforts to optimize our assets.
All of these efforts position the company for continued success.
As we enter 2020 , we're well positioned to navigate market conditions and improve profitability.
With that operator, we're now ready to go to QNX.
Thank you at this time, we will be conducted a question and answer session. If you will like that's question. Please press star one on your telephone keypad a confirmation so in the King Your line is in the question Q.
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For participants using speaker equipment and may be necessary to pick up your had said before persons Sarkies one moment, please while we pull for questions.
One.
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Our first question comes on line of John Murphy with Bank of America. Please proceed with your question.
Hi, good afternoon guys.
Good afternoon Johnny.
The first question I mean, when you're talking about the GM strike you gave us numbers $24 million lost revenue.
In the fourth quarter. Then you also gave us $20 million or lost or revenue that you actually did not lost you you walked away from.
What was that the margins or the EBIT that it was lost in the course of that that Jim strike and if we think about that revenue that you exited of $20 million in the quarter. You know what roughly was that the margin on that was significantly below average.
Oh first John on the on the exit a business that was over through the course or the full year not necessarily just in quarter. Four. So if you think about in the case the general Motors right that was only in quarter four so when walking through those numbers over the full year numbers, but since the general motors strike because of our calendar.
Here.
Be in November one that's the strike from September 16 to our October 28 that was 100% in our fourth quarter. So the so the the fourth quarter impact for G.M. was 24 [noise]. When you look at from a margin basis, we don't really speak to it it on a margin side, but she I'm sorry.
Good robust customer of ours.
And what we really wanted to highlight with the core quarter for what is the ability that we've really dropped down our breakeven point and increase the flexibility and I'll say the variable cost structure of the business. So and that's in part to if you think about margin improvement year over year, and our should say core.
Her over quarter, you see that strength of the activities that we've taken the improvement of the launches is that when might I'm going into a 2020 or 2020, we feel really good about.
Oh, okay.
Okay, but I mean, it's it's pretty impressive that you're you know you've had this kind of improvement year over year in EBITDA margins and you had that kind of walk revenue in the fourth quarter I'm just trying to gauge I mean, it seems like the improvement that you made sort of on Oh on organic basis stripping that out in the fourth quarter was even even better than what we're seeing in in the printed.
Adjusted numbers are actually adjusted numbers still include.
Yes, the GM strike is that correct.
That is correct. The adjusted numbers include that so again, we put it was robust what's a good quarter. We had I think it as you look at where we were going and.
Everything about our guidance through the course of the year each quarter, we had 'em raised the midpoint of the guidance, where we're really proud of the fact, we came in at the high to high end of the guidance and really when you look at its from the response of the organization. You know you begin with the dedication of our employees with the G.M. strike and really how everybody rallied around.
And I'm a situation that was outside of everybody's control operations flexed labor, we worked collaboratively with our our workforce to leverage that we took advantage of the of opportunity to proposal for a pro perform maintenance on equipment take advantage of that and when we went in we went in.
Pretty hard and focused we went in with a the assumption would be a protracted a strike we did not know, but we prepared as if it was and I think that's really highlights what we've been working on over the last couple of years with our restructuring efforts is they have variable cost structure, yes, there's uncertainty in them.
Market going forward and we want to make sure position I mean, it's as you look at the market going forward with USAA U.S.M.C. being passed or at least moved onto the Senate. Today, you know I think that removes a little bit of uncertainty, but at the same time, if you look at the European market.
Oh with what's going out commercial vehicle, you're very familiar with the new standards that are going to go in place moving from 120 to 95 grams of show too there's still a lot of market uncertainty and what we want to build for Shiloh is there variable cost structure that and that is a mindset of.
Response, and so yeah. We are proud of what we did in quarter four Oh, we're focused on what we're gonna do in delivering in 2020.
Okay, and then second question and you just alluded to this on on trade around U.S.M.C.A., but because you're so close to this I'm. Just curious what you think about trade going into 2020. It seems like you know the risk is going down reasonably dramatically, particularly around U.S.M.C.A. and it seems like seems like.
Q3, two maybe off the table, but just being very close to it you know Ramsey I mean, what do you what do you kind of thinking about for trade doing 2020.
[noise] well starting with when we look at it from a shallow perspective, what we built a men. We've commented this in prior calls in in market for market strategy. So what we do in China remains in China, Europe , Europe , North American North America, actually U.S.U.S., Mexico, Mexico, when you look at a U.S.M.C.
Okay. That's moving forward I think that's gonna be important because many of the our pure group, where our customers. We're we're not clear on where they want to put capital investment. So from a region standpoint, I think you'll see movement and investment in more shorty in where people are placing their capital dollars.
And I think that there's going to bring stability on that standpoint. It was mid November when the the administration was supposed to comment on to 32, they have not yet and so there's still open ended questions of what the what that means if they have the right to launch to 32 or not but as you said that has I'll say quieted down.
A little bit from a conversation piece, China, you see positive news, but I think that's settled and they're not looking at I'm, putting in some of the additional tariffs that there were discussing so I'd say there is a settling but they're still uncertainty when you go to Europe with Brexit we have into January we have the Brexit disc.
And that's going to happen what is that transition for the year and then what does.
North America U.S. do with the UK I mean, there's there's talk to you. The U.S. will be very quick to form a a trade alliance with the UK on a oh arrangements, which for customers like JLR that were they are important customers I think that brings surety around customers like that.
So I would say we're at a pretty good we're we're settling.
And I think.
Despite piece, there's confidence being built there's other uncertainties like Brexit W. I'm, the new emission standards in Europe , there are gonna still leave.
Some question out there.
Okay and then also on the backlog you mentioned the fourth quarter was pretty strong I think you mentioned a few million dollars of a wins, we think about your backlog you in aggregate. Your what did you booked in 2019 full year and you don't see thinking about what rolls on 2020.
I was reading about the backlog.
Well total for the year was approximately 630 million. So a robust year now what was in a.
Good mix of products from a standpoint of mix of technologies on our side of Lightweighting technologies also good mix of Asian European and <unk> Your West Oems, So a nice balance there and then.
When you look at pick ups Su Vsom premium pass car.
Good.
Again, a nice mix on it so we feel good about that what we really like is the the technologies that were successful our kerviel corporate linear laser welding, which again takes out a lot of weight you look at our structural die cast products, both Mag, an aluminum again weight reduction battery extension so that.
That process continues to go forward so.
Pleased with the I've heard so the sales team in the business development team engineering on what they did we're still pushing for more the the challenge that we have in one of the things as we look at uncertainty is also with the team is that focus on reuse and redeployment of capital we want to be extremely capital conscious as well.
We go forward because of market uncertainty and and you've commented this in your own work papers of they're still that.
You know being used car pricing be it.
You know age a vehicle that they're there there's risks in the marketplace and so we want to be sure back to the variable cost structure as well as continuing to increase their content per vehicle and drive that opportunity forward and really push more and in a in a select vehicles.
Okay, and then just glassy real quick on M&A I mean, you know what kind of capacity you have both on sort of a capital standpoint, if yet if you thought hasn't really attractive human capital perspective, and then also sort of opportunities in the market is that something you would consider I know obviously leverage is something you want.
Focus on taking down, but they're there maybe opportunities avail themselves of just curious how you feel on your capacity and the opportunities in the market.
I would I'd start with right now, we're primarily focused on operational efficiencies and continuing the flawless launch we have a number of launches even going into 2020 that there's significant so right now what is the primary focus is operational efficiency flawless launch net new business.
With our our structure when you look at the recent acquisition and.
In Europe that we made in 18 further casting it's a structural casting and aluminum that those worst trust distressed businesses, we bought them I'll say very competitively and we have opportunity to.
Take on additional business in those operations, we had a huge success as you remember the first quarter couple of hundred million dollar win of contract value in and for our office facility in Europe , which came from an acquisition. So our our acquisition strategy of providing technology.
And.
Growth capital.
It is continuing to work I see the market you know you're seeing a higher number of distressed companies out there. So I think the opportunity for us is really more to compete and taken when that way than necessarily acquire and really focus on on the business going forward you know its.
Again, we don't normally comment on acquisition. So if there's something out there. It doesn't you know I think the priority and where we want to stay focused as the operational efficiency and I think that's going to be the fastest most accretive way for us to increase our margin and shareholder value.
Great. Thank you very much.
Thank you.
Our next question comes a lot of George Gasper private Investor. Please proceed with your question good afternoon.
First question back on China.
Can you identify how many Matt I don't manufacturers you're.
Selling components for now and how many can you identify the components that you're producing at this point.
And and how to second how's that going to change the rest of this fiscal year that you're now and.
[noise] from my from multiple customers it would be five different customers that were working with we have our our Charlotte Shilohcore Dash panel product line, which is a and NVH product the and going very well, we're continue increase growth in that an expanding.
Our business, we have our magnesium structure cross car beams IP structures.
Again, multiple multi customers that business continues to progress on the Nantong facility, which is focused on aluminum transmission components. That's the one that we've just a were in launched by the launch is going great. We're really pleased with the success of.
Our team in China, and really with the support with our American team. Because this was a product we launched in the U.S. then brought it to its a China again, great cab collaboration between the Shiloh activity. So I'm proud of them and that business is really launching in.
Right now and through 2020, if you think about where we stood.
Three or three years plus ago, we had zero revenue and on China will be it will be approaching a 4% of our revenue in 2020. So we're still can see a seen their progress going forward, but.
Again, I was just in China at the.
End of August and the facility looks great. The team's doing some really nice work I'm proud of them.
Okay, and so if I take it back a couple of cartons to go right you answered a question I ask about what you were targeting for revenue stream and.
Year to year basis going forward and I believe that you indicated it would be about 25 million for secure and 50 million the second year.
With what you just referred to.
4% or revenue stream that would be in the 40 million range is that something that you do you would be potentially be able to do 40 million in the current fiscal year or are you talking calendar you know that.
That's kind of where we see ourselves and the curve current fiscal year. So 2020.
Oh, Okay, well that's it that's yet that looks like you're running very nicely ahead of where you. Initially had expected. So that's a positive what when you look when you when you think about it this way George if I may have you know were up nearly 17% year over year. The market was down 12, so from a from.
So were you know the and its and its technology product. It's a high end high value add type of technology. It makes it allows our customers make a better transition transmission Ed the sound management and really when you look at our sound Charlotte core technology with the expansion of.
He views noises, even more important or the ability to to minimize some outside annoying when noise and we'll ambient noise from the from the vehicle wheels. This technology has a strong place in the marketplace. So again our.
Our product opportunity is E V and internal combustion engines, and we feel show is well positioned with our Lightweighting technology.
Okay, and <unk> and then in terms of magnesium and versus aluminum wire aluminium versus magnesium a in the parts generation. They knew the new parts that you're signing contract side is there any.
Substantial <unk> percentage, that's moving toward the magnesium side versus aluminum can you highlight a little bit of that.
Well one of the east the benefits of magnesium is its strength. It's you know strong it's stronger than steel. It's a very stiff product. So you find it in think of product categories like and an IP structure in instrument panels structure, a front end carrier and that is we're still.
From this makes a difference and you see you see that use the aluminum has you see a wider range of applications, where it's used in and we the benefit that Shiloh has is when we put together a value proposition. We can propose to a customer do you want you can have steel at this cost.
This weight and you can have aluminum at this cost it this way weight or magnesium and in some cases, it's part reduction or complexity reduction. So when you look at.
Our.
You know, we still and talk about the name yet, but they had to see made engine sports car from an American OEM. That's coming out soon you know this is where we eliminated stamping still stampings aluminum parts carbon fiber parts and.
We simplified it with.
An aluminum heat are then technology.
So that was being able to put a value proposition together for a customer that save 35% of the weight, but also save significant amount of cost and tooling investment. So the strength of for one of the many strengths are shiloh is that ability to look at a value prop and design it with the customer in mind and how they have.
Assemble a vehicle and what's their architecture vehicle.
So our strength is they have variability the flexibility of design.
Okay, all right and I am question.
The and the makeup of how the auto manufacturers are moving in the United States here and do you and they can you highlight how you see maybe some further consolidation I plan to plant in North America, particularly U.S.
And Ah in <unk> and see that it looks like for its going to try to concentrate and expansion in factory jobs in Michigan here by 3000 or shirt.
Our show for going forward.
And and it looks like there'll be some new models coming out broadly how do you see yourselves in Michigan.
Can you what do you anticipate that you're gonna have to adjust your facilities in Michigan or or are you going to be able to concentrate on the facilities that you have outside of Michigan supply into any new auto manufacturing.
Really.
Well when you think about from a Michigan standpoint, we do have poor facilities in Michigan and actually as I mentioned I'm proud to again emphasize three of them, we'll be carbon free or in the sense of energy, 100% renewable energy. So we're excited about the progress we're making with the the state of Michigan and DT energy So.
No Shiloh is extremely focused on sustainability and the environment and when you when I as I mentioned earlier I mean are our vision is to support sustainable mobility and cleaner healthier environment. So we are environmentally focused on that and we're able to do that in our plants in Michigan again, 100% renewable stamping plants.
I'd say, that's pretty impressive and we're really proud of that back from an environmental side. So that investment in that some of the Oems are putting in Michigan to F.C.A. is also expanding and building. The first assembly plant in Michigan, probably over 20 years. So the Oems are making investments in Michigan, but at.
The same time, you have a G.M. and LG announced their joint venture for battery production in Ohio.
So we still see that there's.
This is the geographic shift we're going to see and again part of our restructuring efforts, we're really to align with the forward product plans of customers. So we are taking that restructuring and looking out you know that five year tenure window of where we think production will be and how do we.
We aligned our capacity with debt at the same time you know the recent announcement of the P.S. say NFC a a merger.
And we actually F.C.A. is you know a top customer of ours. So we're looking at this is while there's always risk with a a merger on are you won the winning side or the losing sight of depending on that mix. We historically have had a good relationship with per se. So, but we don't do Shiloh does not do.
A substantial amount of business with them. So we're viewing that as an opportunity we'll see how it shakes out in Europe with both of them I'm, having capacity there, but from PSC standpoint, North America. They they don't have that infrastructure, so could that be a win for shiloh as well as in Europe .
I will say, we're gonna stay close with them, so I see that consolidation.
There will be shake out in the supply base there needs to be they you know the the announcement of P. assai and I've see a they talked about a significant amount of the savings coming from purchasing savings and leveraging of the supply base. So how do we make sure that we have the technology that they need but where are so again our strength comes in if you look at.
The European market and needing to get to 95 grams a C. O. Two that's it from the 120, Mark there right now you're not going to get there by engines alone or propulsion systems alone and so this is where our white light weighting portfolio.
Is perfect for this and this is where we see there's opportunity in that front.
Okay, and and and one.
Question on Mexico, and the interplay with your operations in the United States.
This terrorist situation going back and forth and some indication of the variances in Oh, Mexico looks over a can you comment on how do you. How you think you can do there.
[noise] well this goes back to a few years ago. When we launched a not that we knew that this was going to become an issue, but as a focused on efficiency. We established our end market for market strategy and that in again to to clarify in market for market is how do we verticals.
Great raw material supply through our manufacturing process to the customer within that region. So we have worked on and restructure some of our restructuring was supporting.
Moving what we make in Mexico remains we ship it in Mexico, where we make in the U.S. stays in the U.S., So where they had their cross border trade is not a risk to us what was the risk was more of what was going to happen to a customer depending on the the resolution of U.S.M.C.A. So from.
Our standpoint it it just gives our customers more surety about their investment really didn't have a risk to us now where it becomes an opportunity.
Is as.
You know some of the trucks that are being manufactured in Mexico today remain in Mexico versus being brought up to the U.S. So the the labor value content and some other things said the room regional value content. Some of the product that may be imported from outside of Mexico or the U.S. now there's a higher threshold.
Old for what would be considered north American vehicle and that means there'll be some localization in one or two regions, either Mexico, primarily Mexico or the United States I'm, you know BMW announced the localization other transmission to the U.S. So that's an opportunity for us as we have a strong relationship with BMW. So.
So these are opportunities I think U.S.M.C.A. can't create for Shiloh with our our global our global footprint, but our north American footprint and we can supply these companies globally.
Okay, and whatnot and financial side can you comment on how you view or your flexibility in terms of having.
Sufficient capital to do the expansion and changes that you view.
Sure you need to do this going forward process, and then of course, putting more more parts into the field and turn to find the compression systems and what or whatever else goes with that or do you see yourselves, having the financial capability, a without going into the market Uh huh.
Let's see on the equity side.
We do 'em is Lillian mentioned, we see positive cash flow for 2020, and then with what we feel with the book business that we have and the capacity that we haven't place. We have plenty we have the liquidity to go forward, we want to support our growth as we.
Look at it we did comment that year over year.
We will see sales softened us really tied to the market of commercial vehicle like we made that in the prepared remarks, when commercial vehicle is down around the world So that.
That's you know something that we'll manage through Oh, but from a capex side, we feel we have the right mix of capital well, we'll still continue invest and maintenance capital and growth capital to support the the businesses that were booked we talked about the 630 and we still we feel comfortable with will still being the same similar range of.
Of Capex there were this year, but keep in mind some of that capital is associated I talked about the ERP launches and really the the men you know there's product technology and product investment and then there's a systems and infrastructure in the manufacturing facility and so by upgrading.
Our plans and that really the data the digital transformation manufacturing 4.0 to really drive that operational efficiency. As we go forward. We are putting dollars in in that capital to move that forward and will well simply by the end of 12, you know the next 12 months, we'll have eliminated three.
We are P. systems again, we grew a lot to acquisition. So we had a lot of multi systems those will be eliminated again, creating more efficiency for the organization and really as we look at propelling the business and really driving that speed going forward, we're getting drive more momentum.
Okay, all right well, thanks very much for all the explanations and wish you the best going forward here.
And Uh huh.
Really pick up some momentum during a 20 Tony Thank you.
Thank you George fixed charge.
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There are no further questions left in the queue I would like to turn the call call back over to Mr. Ramzi Hermiz CEO . Thank you.
Thank you.
As we mentioned 2019 that we made a lot of a lot of progress and continue to move the business forward. We're excited about 2020, we see that there's a lot of opportunities for us as we focus on our launches and getting flawless launch that's something that we're going to continue to focus on we've improved the process we feel.
We have a much more robust process, we're going to drive that new business wins, we feel that there's opportunities for our technology.
And that this technology has a place and its continuing to be sought after when you look at the environmental side and you know, it's becoming more and more of an opportunity and when you look at Shiloh from a standpoint of our renewable energy use the value our product brings from light weighting in read.
Do seem greenhouse gases. It continues to extend battery range, we feel that their portfolio of.
That we bring both not only from our product, but how we make our product and the value that we can bring to our customers is gonna be important and something we're going to continue.
To market as we go forward.
Business is becoming more and more global yeah, the world's getting bigger and it's getting smaller at the same time and shilohs well positioned with our end market for market strategy and we're excited about that and we're going to continue to perform we provided guidance only for the last two years each year, we've delivered on our guidance you know that's it.
That's our expectation is we are going to continue to perform and we will perform and 2020 .
So with that I would like to wish everybody, a Merry Christmas and the happy holidays, and a wish everybody a safe and happy and healthy new year. So thank you very much.
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