Q4 2019 Earnings Call

Thank you good afternoon, everyone and welcome to our fourth quarter conference call joining assumption in our members up my executive team, Jim Gerald Gail Schneider, Russia full 10 mile Mark Stoddard, some members of our corporate marketing my name for legal team.

Before I begin I will draw your attention.

To be.

Disclaimer that is going to be any second now displayed on the train.

[music] I'll start off with sales earnings that content and diesel sales for the quarter were 1.62 billion down from last year, but again outperforming soft global markets.

North American vehicle market, our most heavily weighted market was down 9.6% impart due to the impact to the GMV strike that despite such and thanks to global logic Wells, our transportation segment overall before much better with the decline of only 7.1%.

Then sales were up in Europe, despite double digit market declines and North American Telehandler market share growth helped to offset double digit market declines there as well.

The North American called by market was down mid single digit, but I've got sales were actually up versus prior year.

Operating earnings were 112.6 million normalized for balance sheet impact than unusual items that Dale will describe to you see factories driving our performance this quarter worse from larger.

And the transportation sector, gaining traction and working through the transition challenges as well as improved agricultural sales due to 2020 product launch is happening in Q4 last year instead of Q3 as we would normally see.

A few factors were challenged this quarter and hurt our results first of all clearly the G.M. strike took a big bite out of the quarter second double digit market declines in core North American and European access market, triggering skydeck sales decline and thirdly global vehicle market decline.

Normalized net earnings as a percent of sales in Q4 were 4.7% down from last year due to these factors all the positive side. Our overall normalized EBITDA performance remained strong at 13.8% sales for the quarter and 14.6% for the year talk.

Child performance in comparison to our peers.

In North America content per vehicle for the quarter was $156, an 80 cents down from last year, thanks, mainly to impact from the G.M. strike in a market that was down 9.6% Q4 automotive sales in North America, where down over last year at 617.4 million.

For the year North American content per vehicle hit a new record high of 166 17, despite the market pressures reflected our significant launch but playing out.

And your content per vehicle for the quarter was $77 at a one cents up 5.4% over last year, thanks to launching business again in the region and a market that was down 6.4%.

Q4 automotive sales in Europe as a result was slightly down versus last year at 394.6 million for the year, we reached $81. A 58 cents again, a new record for European content per vehicle.

In Asia Pacific content per vehicle for the quarter was $9.92 up 12.1% from my chair on launching business and a market that was down 7%.

Hi Tech World drove our Q4 2019 automotive sales in Asia Pacific all 4.3% compared to last year to reach 122.6 million. We continue to expect consistent growth in Asia over the next several years based on the new business much of the growth is coming from electrify.

Vehicle program launches as you might expect given the stronger focus for new energy vehicles in China in fact already over a third of books of business for our newest facility in China is far electrified vehicles and more than 20% of our overall book China business is electrified similarly electric.

Vehicle programs represent nearly 30% of our high potential business wins in the region.

Overall global content per vehicle was up both for the quarter and for the full year over last year.

It's great to see continued content per vehicle growth globally and in most regions, reflecting our increasing marketshare, thank to large amounts of launching business.

I can share growth is absolutely teach accelerating growth when volumes start to pick up and of course offsetting declining markets when they're soft.

Our automotive sales not captured in these contact calculations for 82.9 million up over last year, mainly due to increased chilling sale.

Commercial and industrial sales were down 9.6% in the quarter at 398.6 million compared to 441 million last year due to lower skydeck sales on volume's down steeply in core North American and European markets offset by some act on sales go.

Thanks to those launches or the 2020 products happening in Q4 instead of Q3.

[noise] investing in our future continues to be a priority frets, Atlanta, Mark, but given economic uncertainties. We are using a very disciplined approach around capex capex in the quarter was 120.1 million or 7.4% of sales that's down 17% from the same quarter last.

Last year total Capex for 2019, with 525 million or 7.1% of sales, which was down from 2018.

2020, we'll see further declines in Capex, so again be below 2019, and under our normal spending wage of 6.8%.

And a major highlight of the fourth quarter, we saw a fantastic level of free cash flow of more than $380 million net debt decreased significantly from Q3 levels to 1.56 billion and our net debt to EBITDA they reduced to 1.5.

Times in line with these expectations.

We have repaid more than $600 million that that since our peak in Q1 of 2018, despite soft market great evidence I. Thank everyone in my excellent cost control.

Free cash flow in the fourth quarter two cuts to a total for the year I've more than $670 million that that's excluded walk project. If you recall that we made in Q3, which was more of an acquisition.

We expect to again generate between 500, and 700 million I free cash flow in 2020, thanks to another year as strong earnings at a lower Capex. This should bring our leverage under one times EBITDA by the entity here.

I want to emphasize the importance of a strong balance sheet as strong cash flow in somewhat uncertain economic times.

We are in an excellent position to whether some economic softness and take advantage of additional take over work and consolidation opportunities when many of our competitors simply are not.

Strong cash flow also means the opportunity to return cash to shareholders. We were already in the market with our buyback earlier in the year before I'm afraid blackouts and as Dale will outline we will be back in the market after our blackout and with a renewed and CRB.

[noise] turnings on market outlook, we are seeing stock markets in many areas. This year, but a few expectations of growth industry experts are predicting declining global light vehicle volumes. This year with 16 and half million 27 million and 44.7 million vehicles.

Back to be produced in North America, Europe, and Asia, respectively. This doesn't mean, a small uptick in North America <unk>.

Compared to declines in Europe and of course, a big decline in Asia, largely due to plant shutdown insulated tecogen 19.

Industry experts are predicting on highway medium heavy truck volumes to be down in double digits in North America, as well as Asia, but modestly up and in Europe.

Off highway medium duty and heavy duty volumes are in a bit of a holding pattern is still thinks to trade issues as well as holdups in terms of infrastructure spending in the U.S.

Turning to the access market the industry is expecting double digit declines in core North American and European markets for the aerial work platform market. This year global performance is being driven by declines in scissors booms, and Telehandlers and both North America Europe. This year.

Sat Fi some growth in Asia.

Industry consolidation terrorists, driven higher construction costs, uncertainties and break that issues are if he UK market are the key drivers of these forecasts.

God that black backlog is softer than last year. As a result, you should expect double digit declines for Scott Jack This year with only a modest seasonal uptick in Q1.

Turning to the agricultural market the industry expectation is for a declining combined draper market in Canada. It this year in that double digit thanks to a top harvest last year as well as tariff and political backlash that has hurt north American farmers dampening demand, particularly.

So I mean, it could canola and again, particularly in Canada. The overall North American market will be down in mid single digits. This year global markets are also expected to be down in 2020.

Matt Dhane continues to build market share in certain regions to offset these market decline, but nevertheless, we will peak sales down in double digits for 2020.

Given the strong order in Q4 2019 regarding the later launch at the 2020 products and the strong market headwinds in early 2020 do not expect the normal seasonal uptick from act on in Q1. In fact, you should expect to see some dial back in comparison to Q4.

In terms of liquidity quarterly outlook for the light vehicle business you can see quite different pictured here geographically North America is steady to growing a little bit each quarter of course, a bid dial down in Asia in Q1 for Cobot 19 with recoveries in later quarters and Europe.

Little softer performance in the prior after the year, notably Q1 offset by some growth in the back half.

Current forecasts are showing a global profit production this year and growth reserving resuming in 2021 in most regions at this point, although as noted North American production is expected to dial up slightly after a tough plain 18.

In North America, we've talked about in previous quarters down cycles have typically lasted four years on average with declines of 1% to 5% easier. If I adjust is correct in their assumptions. This will be a three year down cycle in North America, ending this year with a trough about 9% down from the last peak in 2016 and girls Brazil.

To me and 2020, I think I keep your friends to prior cycles down as we didn't have then with the high interest rates and high unemployment that we've seen in the path, which is a positive and likely will mean, a shallow or frost than we've seen in the past as as I guess is predicting we continue to keep a close eye on these poor.

Turning to an update on growth and outlook, we're seeing strong levels of new business wins and a strong book of business being quoted in our transportation business Q4 was a fantastic quarter for us in terms of new business wins for our transportation business.

Quite a few notable strategic wins, driven mainly by outsourcing of new electrified platforms as well as continued acceleration of powertrain outsourcing, which is very exciting it back fails to electrified vehicles at minimum art will grow between 2019 and 2023 by then.

Have they seven and a half time for a compound annual growth rate of 50% failed to these future focus vehicles will be nearly $1.4 billion by 2023 and in terms of content per vehicle will already had 2023 for both actually Highbred add battery electric vehicle be at the level we.

Were added in internal combustion engine driven vehicles only a few years ago.

Our addressable market across a range of vehicle propulsion tides continues to look excellent global vehicles World is forecasted to grow at a compound in rate once 2% over the next 25 years each type of vehicle propulsion offers excellent and growing potential for us and our suite of products for each.

Continues to be developed and to grow the total addressable market for us today is more than $120 billion growing to more than 300 billion in the future an increase of nearly two and half time.

We have 165 programs launched at Lindmark today, you should look for ramping volumes on these transmission engine and driveline programs to reach 30% to 40% of maturity levels. This year and these programs will peak at more than $4.2 billion in sales we saw shift of nearly six.

$100 million of programs moving from launch to production last quarter. So big shifts there, obviously, meaning lots of new business one at the same time.

Total this was launched in 2019 was $586 million to reach 1.1 billion in total sales for those launching program. This year, we will see these programs that 40% to 50% immature levels. What that means is incremental sales from launches of between 700 million and 900 million for 22.

Money.

In addition, as noted we are now looking at double digit declines at Sky back this year as well as at Mac thought you need to temper that grows with the lots of business that naturally as each year, noting to expect such at the high end up our normal range of 5% to 10% in 2020 as well as norm.

Well productivity get back.

To summarize expectations for the topline this year, our strong backlog of launching business will offset market softness in our industrial and transportation segments, resulting in flat to modest declines in sales compared to last year on the margin side, we still expect to see margin expansion in the transportation.

Segment as we get to the other side of the transition to next generation platform. Despite these softer markets, but given the headwinds on the industrial business. We do expect to see now some contraction on the margins in that segment.

This will mean net margins overall flat to modestly expanding to stay in the range of 6.25% to 6.75% for the full year 2020.

This will result in low to mid single digit growth in both earnings per share and normalized EBITDA for the year.

Looking specifically at you once the biggest impact to be sure to allow for is of course, cobot 19, which we estimate at between 20 and $30 million Oh E impact to the transportation segment related to shutdown in China, Although it is a bit of a moving target as you would expect.

In the industrial segment as noted Scott that up a little bit mapped on down which means you should expect to see a dial back in both sales and normalized earnings in Q1 compared to Q4 2019, I know that's not the normal seasonal pattern, but it is reflective of the top access an AG markets at the moment.

There is a possibility of continued impact in subsequent quarters for Kobe My team as well in both segments related to supply chain challenges in our business, but more so potentially for our customers although difficult to predict at this time and again a bit of a moving target as things seem to be changing daily.

In this regard.

I would like to highlight a couple of our more interesting wins this quarter, which were quite strong on the driveline. Five first we had a very major win for 220000 P to use and already use per year right here in North America, we're going to do the job in one of our Mexican plants, which.

Has deep expertise in this product production starts in two years.

Secondly, we picked up a very significant program for a balance shopped assembly for one of our European plants, which begins production in 2023, and we'll hit 750000 units per year and annual volume. These products are important opportunities that are resulting from engine downsizing efforts of our customers.

And let them are very well thanks to their technical challenges that are really well suited to our design and process capabilities.

Third we were thrilled to pick up a third major E. ACO program for a high performance vehicle lender my will be tier one on this product meeting not only will we design and manufacture the gearbox, but we also have responsibility for sourcing the electric motor and controller.

Volume is pretty low given the high performance nature of the vehicle, but because of the value of these additional subsystems. The overall revenue of this problem I was actually pretty significant.

Finally, and again on the Driveline side, we were awarded a major program for an electric drive unit housing for a battery electric vehicle, we will cap and machine. This highly core product, which is actually perfectly suited for our low pressure I gravity casting processing expertise this isn't it.

By the new product for light metal casting grid more on that in a few minutes.

Another exciting opportunity that is evolving as we discussed last quarter is the takeover work from suppliers failing mostly financially we are seeing stress in the supply base, mainly in Europe, where volumes are had hardy yearago. Thanks to W. Ell TV and if not recovered as well as the difficult transition from.

These are the GAAP vehicle.

We have now one today more than $240 million and takeover work all due to start up inside in the next 12 months.

We continue to called quite significant levels of additional takeover opportunities and hope to get back on some of them quite soon take up a work is the silver lining of industry downturn and one that whenever I've always been that very successful a winning thanks to our responsive nimble approach to these opportunities our technical strength and of course.

Available cash to invest quickly.

[noise] tonnage and innovation not pay we continue that baskin intubation in each of our key businesses.

First we are nearing completion for our I have building in Wow. This facility is going to how's our factory as a future projects that are testing out a myriad of new technologies to further automate and improve the efficiency and quality of our production. So it will also have their additives treaty manufacturing process development team.

And we'll also be the spot for us to incubate new production processes for diversified markets. The team is excited about living in pretty soon I actually early in Q2 of this year [noise].

I like metal casting teams are preparing for future products in the electric vehicle space with the development of products like the electric drive unit housing, which is used in E axle assemblies.

Our expertise in aluminum highly cord low pressure die casting gravity capping processing enables us to provide a compact lightweight technically complex module that these TV applications require this is also a great example of the advantages of one of my vertically integrated capabilities.

And how we are growing future he be contact with customers across a range of components and systems.

As we know mapped out as well known in the harvest same marketplace for it technical leadership for the 2020 production year. They launched the new our two series Rotary disc had her for eight o'clock last summer we attach laid out on a demonstration program that generated great early interest so much so it back that the.

The limited initial production run is actually already sold out.

And lastly, we talked about the great success as Gajuk innovative telematics package known as elevate skyjackings evolving their digital products offering now by rolling out elevate lives. If the next step in providing customers value added information about their fleet.

Elevate lives can cook can provide machine operation and maintenance say that operators as well as fleet owners simply by using any mobile device.

I focus of the program is centered on battery help batteries to be one of the highest class maintenance items for an electric scissor lift this will enable customers increase battery life, leading to better managing the condition in the values the machine over its lifetime, our elevate technology continues to capture industry attention was no less than six.

Industry Innovation awards racked up so far.

We also continued to make considerable progress on our broad Digitization initiative that summarized here on this slide we are rapidly transforming our shop floor to be more Fisher said, what productive more than we acted more proactive as well safer more connected and then the process, creating a lot of exciting career opportunities.

For our employees.

There's a huge amount of opportunity in these technologies to dramatically improve efficiency of our operations both on the shop floor as well as in the back office. So we can deploy on a global basis.

In other areas of operations up plans to continue to perform well both on mature business metrics and it turns the launch our launch systems are excellent and plan controls World class.

In terms of new plants, we have finalize all three of our construction project at this point the new he asked for plant in China, The new yes, the plant in Hungary, and the expansion of our Hungarian fabrication Division to house got back European production in the quarter, we hosted the official Grand opening of our Hungarian he axle plant to.

Great reception.

Strategically in accordingly, as noted the announcement of lender Mars manufacturing agreement it concurrent investment with Synaptics medical exit Lindmark, it's going to be the exclusive manufacturing partner for two key products for this photo based medical device and technology company called the every any noticeable.

Yes.

Modify it is a fully automated hands free robotically control digital microscope with advanced visualization that supports a wide range of sort of a surgical approaches and workflows. The motors five would replace the traditional surgical microscope, which is not very flexible, leaving surgeons in Africa.

Positions and having to spend time, moving and refocusing the scope as they should be area. The surgery. The motor side moves with the surgeons were much better ergonomics and shorter surgery ties back to elimination of the microscope adjustment time, which is estimated by the way at about 18% of total surgical time. This is great for efficiency.

Of course, but also much better for patients and better ergonomically for the surgeon, who no longer needs to come toward into awkward positions to work around the microscope a win win win for hospital officially surgeon wellbeing and patient lobby.

Every is an innovative low magnetic field magnetic resonance imaging machine designed to bring the MRI directly to the point of care in the E. R. Any I see you or the operating room saving valuable time, increasing efficiency, a pair and reducing costs associated with citing that's required.

Hi, Hi feel them, our eyes, which can present, a real barrier to access of MRI as well as reducing the operating clock.

Every wave 2000 pounds compared to alternative technology at between 10, and 20000 down and occupies only 250 square feet compared to a thousand plus square feet for traditional system.

This enables placement at multiple points in the hospital not possible with systems available today and for a fraction of the installation caught helium three operation and one button crack imaging reduces operational cost to between a half two up order and the cost of a traditional scanner. Despite the cost improvements the imaging was.

<unk> are very high performance with much less to swear distortion and potential for needing to be scanned the patient again, a big win for both patients and hospital efficiency.

We're very excited about our partnership with synopsis and the opportunity to start branching out into the medical device market [noise].

With that I get a turn it over to our CFO, Dan Snyder to lead us through a more in depth financial review Dell.

Thank you Linda and good afternoon, everyone.

The noted Q4 was a great quarter for cash generation that led to significant debt repayments as we generated more than 380 million in free cash flow in the quarter as a result, the full year 2019 free cash flow.

[noise] was more than 670 million, which is well beyond our minimum target of 500 million.

With the soft market globally. It was great to see that an average we're able to up to seven markets. For example, the three automotive regions that we operate in were down 7.4% for the quarter and 5.8% for the year in comparison to learn more as automotive sales, which were only down 6.7% for the quarter and 2.2% for the year from same region.

As a result, we grew our global content per vehicle in both the quarter end of year. Similarly, when you layer in or other businesses were able to outperform mogens on average.

Turning to the financial results sales were 1.62 billion for the quarter down 115.9 million from 1.73 billion in Q4 2018.

Normalized operating for the quarter were 112.6 million. This compares to 158.9 million in Q4, 2018 decreased 46.3 million or 29.1%.

Earnings were normalize for FX losses related to revaluation and the balance sheet and the unusual items crews in the quarter. These items impacted normalized EPS by 39 cents.

During the quarter, we did incur three unusual items first unusual item relates to the restructuring costs incurred in both segments. This did impact EPS by approximately five cents.

The second unusual item relates to a supplier quality issue in the transportation segment, which one or would normally fully recover.

The supplier quality issue impacted EPS by approximately four cents.

Finally unusual the file unusual item relates to a timing issue in regards to our annual inventory cost review, which was completed in the fourth quarter each year.

European Industrial fabrication facility underwent a major launch program in 2019, which is rare for this facility.

When they inventory costing or updated in Q4. It was determined that cost for understated in Q1, two Q3 2019 and overstated in Q4 with the adjustment that was booked in the quarter. This had no impact on the overall results.

For the year this did impact the best for the quarter by seven cents.

These three unusual items had an impact of increased EPS by 16 cents on an annualized basis with these adjustments in the FX losses normalized net earnings decreased by 40 million for 34.7% quarter 75.4 million.

Fully diluted normalized EPS decreased by 60 cents or 34.3% to dollar 15.

[noise], including earnings for the quarter was a foreign exchange loss of 19.6 million for the revaluation or the operating balances from a business segment perspective, the Q4 loss as a result of a 5.5 million dollar loss in industrial and a 14.1 million dollar loss in transportation.

FX loss did impact the quarters GPS by 23 cents.

[noise] further looking at the segments industrial sales decreased by 5% or 17.5 million to 335.9 million in Q4 sales decrease for the quarter was due to reduced access equipment volumes in Europe, and North America, a certain key customers continue to adjust their capital spend.

In light of the uncertainty in the markets.

Which was partially offset by higher a cultural sales due to the release of the 2020 model your product and additional orders from the harvest being delayed into Q4.

The normalize industrial operating earnings for Q4 decreased by 6 million or 13.2% over last year primary drivers of the industrial operating earnings results were impacted by the not lower volumes as I, just discussed and by the inventory adjustment absorption costs that we as we sold out of inventory.

And reduced production in the quarter due to the market conditions.

Turning to transportation sales decreased by 98.4 million over Q4 last year to reach 1.28 billion sales you piece in the fourth quarters, mainly driven by the impacts of the GM strike continuing into the fourth quarter. The lower volumes as a result to certain programs that are coming to an.

Of life.

The softer automotive markets globally. In addition to a softer market for medium heavy trucks in North America.

And favorable FX impact due to changes in rates since last year. These are partially offset by additional sales from launch programs.

Q4 normalized offerings for transportation were lower by 40.3 million or 35.5% over last year in the quarter transportation earnings were primarily impacted by strike GM and the lower volumes of launching programs as a result softer markets.

Returning to the overall, let them our results. The company's gross margin was 190 597.5 million decreased to 63.3 million, primarily due to the impact to the GM strike.

The lower earnings from the recent volumes in both segments the inventory absorption cost in the industrial segment, and then usual items incurred this quarter.

[noise] Casegoods hold amortization expense for the fourth quarter was 106 point Threemillion Cogs amortization as percent of sales increased to 6.6 cents due to the amortization from wants your programs and the adoption of the new leasing standard in Q1.

Selling general aviation selling general administrative costs decreased in the quarter to 98.9 million from 109.2 million. The decrease is mainly due to lower manager costs net of the restructuring that was occurred in the quarters.

Finances finance expenses decreased by 900000 since last year due to the impact to the lower debt levels and lower interest rates, which was partly offset by less interest earned from lower cash levels and lower long for me our levels.

Consolidated effective interest rate for the quarter was flat at 2.8%.

The effective tax rate for the fourth quarter increased to 22.6% compared to last year, which is mainly driven by unfavorable mix foreign tax rate.

An increase in nondeductible expenses, which was partly offset by tax recoveries recognized in the fourth quarter related to prior years and the recognition of previously unrecognized benefit related tax losses.

We are expecting the full year 2020 tax effective tax rate to remain at the midpoint arranger, 20% to 24%.

[noise] minimalist cash position was 338.2 million in on December 31st a decrease of 133.8 million compared to December 2018, the fourth quarter generating 502.7 million in cash from operating activities, which are used mainly to find capex in debt repayments.

This resulted in free cash flow generation of more than 380 million in the quarter and where the $670 million for the full year compared or minimum target 500 million.

Net debt to EBITDA decreased to 1.5 times in the quarters results of the strong cash generation. We're currently expecting net debt to EBITDA to be under one times by the end of 2020.

The amount available credit our credit facilities was 771.1 million at the end of the quarter.

Thanks for the strong free cash flow in 2019, and expect to strong free cash flow in 2020. It is managements intention to seek to renew the normal course issuer bid.

The board has approved the NC IB and we have initiated the initiated the process because you have the renewal with the TSX. This will allow little more to strategically purchase and cancel shares to help offset put downward pressure to the stock markets and provide a return to our shareholders.

To recap Mynamar had remarkable cash generation quarter, and our sales out performed in comparison to our markets, which is great to see is while Q4 generating more than 380 million in free cash flow for your greatly exceeded our minimum free cash flow target of 500 million as we generated more than 670 million of free cash flow. Additionally.

Linares able to maintain strong annualized EBITDA margin of 14%, even with the tough market conditions in the quarter.

That concludes my commentary and then I'll like to open up for questions.

Thank you as a reminder to ask a question you and these are press Star then one on your telephone to withdraw your question press the pound or hash key please standby when we compile the culinary roster.

Your first question comes from the line of Peter Sklar from BMO capital markets. Your line is open.

Good afternoon first of all on the transportation segment.

The margin.

Operating margin was a little bit lower than we typically seen.

You talked about the G.M. strike and just overall volumes, but were there any other issues during the strike I'm sorry, any other issues beyond volumes and strike that account for the margin turns.

<unk> costs or things of that nature.

Yeah, I mean, I think I don't think there was anything unusual there I if I look at the sales decline and the comparative earnings decline in comparison to let's say the third quarter I to me at lives up or really quite well in terms of contribution.

And then what we generally have a hub guy there that you utilize so like we've talked for a sense about you know when we see a big sales decline that you should it estimate 20% to 25% impact on the err on the now on the net earnings at which would translate to you know 30% to 35% impact that the operating.

Level, though I think if you do the calculations, you'll see that that Ah that actually works pretty pretty.

Cleanly for <unk>.

Comparing Q3 Q4.

Okay.

On the big job like the cash flow generation during the fourth quarter.

Which came from a big working capital swing what was the nature of the working capital swing on this.

And is there further room to reduce working capital in 2020.

Well working capital is always a focus that we have but as we talked about in previous calls a we did have a couple of unique initiatives that we're working on to reduce noncash working capital through financing and other opportunities and as you talked about the plans were always to initiate those agreements.

In Q4, and we were able to accomplish that so that was a big part of it.

But the rest of it was through operational improvements in a AR and inventory and HP.

Okay.

These initiatives could you talk a little bit about what they aren't as have something to do with.

Receivables or payables or what is it yes, we looked at selling certain.

Short term in long term they are.

We enter into a financing agreement to do that.

Okay.

And then lastly on a on the run a virus like you saw.

Had a dramatic impact on.

Retail vehicle sales in China in February.

I'm just wondering what you're hearing from your customers have you seen on it cuts to the Q2 production schedules yet in North America or your.

Yes, so Peter from the standpoint, we get a nice letter every every night from our guys are the China. So you know certainly the trying to volume in February stacked up pretty pretty low like.

80% decline so right now overseer, we've talked to our OEM and we have not had any decline based on this issue.

What we sense, so there could be.

Sort of a log coming to us in April because the supply chain, but right now they're running truck plants. There is still accelerating launches as well. So we haven't had any impact as of this time in North America.

Okay.

Thanks, Jim that's all I have thank you.

Your next question comes from line of Kevin Chiang from Sea I'd be see your line is open.

Thanks for taking my question, maybe if we could just follow on.

Free cash flow questions from Peter.

When I look at your Garrido five to 700 million I think to get to below one times, you probably need to be it's been around the midpoint of that.

I said it sounds like you'll get like 50 to 75 million of Capex savings earnings might be flattish year over year.

That does suggest maybe 150 really love the from working capital one is my math generally correct it too.

Can you just talked to maybe somebody initiatives, you're doing to continue to drive.

Oh elevated working capital release like you saw on 2029 team.

Yeah. So first of all earnings are going to be up in 2020, maybe if you look at reported earnings as close to normalize journey.

Certainly we expect to see an increase.

Capex a absolutely we expect to see a decline and a decline to under a that normal sort of 68% level. So that kind of give you a bit more of a sense of what that decline might be so on on both counts that is going to generate more cash flow, we think noncash working.

Capital, probably pretty steady I don't think we'll see much.

Additional improvement there, maybe a small amount, but would you expect long term accounts receivable to improve I remain remember.

Back out last year actually before last year was started putting in place some of those financing arrangements for to replace the long term a are so that should start kids to roll off as a you know more and more of our contracts are getting into the new financing as opposed to the old and they all are being.

We paid so that's going to be another source of cash for 2020.

That's great color. Thank you very much there and then I.

I was little bit surprised in your market snapshot of.

I guess end market outlook for Asia for Sky, Jack just given.

Just given what's happening in Q1 in China and members of the courts that they're going to Q3 calls I think the optimism around.

Sky Jocks Asian growth opportunities were primarily related to China. So if you could just told me or maybe just walk me through.

Where that optimism is coming from given given the slow start to the or.

Yeah I from my side, the China started the market penetration, we haven't had a great.

Deal penetration there, but we certainly have increased our exposure there looking at strategic alters the sort of located on the ground there.

We're trying to get that done this year, so we're pretty optimistic that gaining market share by being there right now we're shipping.

Things from here to China, which really is a difficult thing to play competitive in that game. So our goal is to basically be on the ground there supplying.

Our product in China throughout this year I mean, obviously the this a certain corporate 19 at sort of held up a little bit this implementation, but thats our goal to get that exposure. There. This year, yeah and with respect to the market. Overall I mean are from you know the research we've done in the industry expert.

We've spoken to you there is an expectation for growth in the market this year notwithstanding.

The fact that sat the virus as situation is obviously, having an impact in the early months again it is a bit of a moving target. So I you know I think as the year evolves, we'll see whether the impact in the early part of the year underestimated by these industry folks that are they now effective.

Okay something.

Something last in terms of growth I in Asia.

Regardless I think from our perspective as Jim said, we are in the process of executing our strategy, there's a pretty small amount of our business today, so whether that market is growing.

Substantially or only moderately as I don't think it in either case it it will have a major impact.

On our sales at Sajak.

Maybe just last one last one for me, but maybe the.

Specifically little more question, but just given.

Given you have a global supply chain any color you can give give in terms of what you're seeing in China. I think there's been some reports of maybe activity started to improve.

At the port level them, maybe on its way to normalization.

What are you seeing on the ground there.

Yeah, I mean, I think as Jim said, we're definitely seeing I improvements in terms of class customers and and you know just broadly a industry getting back up to speed, obviously, it's not uniform across the country as some areas are getting a ramp back up a little slower than others.

But I think there there you know on on the Roche recovery to and again just to maybe get some comments from the nice letter that we receive.

Really this is last night around 70% of business started to operate nationwide in last two weeks. So that's.

A new development local governments have rolled out various policies to too late and reduce taxes.

Domestic production for automotive picking up very slowly lack of consumer demand potentially 40% to 50% reduction in March.

On a city remains shut in automotive production.

And they look like at the end of March they'll start back up.

For US you know our facilities are basically back after the.

After the extended a vacation and we're focused 85%.

Employees back now because every employee gets approved coming back to work.

So those are some of the commentary that were seeing other daily basis.

Just to add to that a little bit you know I know the sticker shock that some of those declines in terms of February consumer activities were a little.

You know scary, but don't forget you can't buy a car if you can't with your house. So you know just because they didn't buy in February I can say were confined to their homes doesn't mean that they're not going to buy in March you know I think that sat and certainly as Jim has mentioned there are already inside tests that are being provided by the government to.

Try to get people back out and buying product as the asked for teens and in China.

That's great color. Thank you very much.

There are no further questions at this time Masland hasn't Chris I turn the call back over to you. Thank you very much well to conclude this evening than I'd like to as early as always we view when three key messages.

First we are thrilled with the at excellent.

Performance I in the quarter on free cash flow of more than 380 million for an outstanding year of more than 670 million cash generated as you know this has been a bid priority for US we are delivering on it we expect to continue to deliver in 2020 and to continue to return cash to shareholders and.

Form a buyback second we are excited about delivering another amazing quarter in new business wins and targeted products such as driveline systems, all electrified vehicle and strong market share growth and core products like boom and Telehandlers and Draper Henderson, our industrial business and finally, we're seeing great progress on.

Cost reductions to offset soft markets, notably in our transportation business as we move through the launch curve as well as in our industrial business with as he may have noted sales down from last quarter, but normalized earnings actually up a little.

So grow cut cost generate cash return cash to shareholders. We think that's a recipe for success in soft markets and we are delivering on all of that Atlanta, Mark right now thanks, very much and have a great evening.

Ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.

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