Q4 2019 Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the element solutions Inc. Q4, and year end 2018 financial results Conference call. This call is being recorded.
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It is now my pleasure to turn the floor over to Yashi heady senior associate corporate development and Investor Relations. Please go ahead.
Good morning, and thank you for participating on our fourth quarter and full year 2019 earnings call. Joining me. This morning, our executive Chairman Martin Franklin C O, Ben Gliklich, President and COO, Scot Benson and CFO carried or.
Please note that in accordance with the regulation FD, our first quarter, where webcasting. This conference call any redistribution retransmission or rebroadcast of this call in any form without the expressed written consent elements solutions is strictly prohibited during today's call will make certain forward looking statements that reflect our current.
Views about the company's future performance a financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Please refer to item one day of her most recent form 10-K for a discussion of the most significant risk factors that could cause actual results to differ from.
Our expectations or predictions.
Please note that in the earnings release any supplemental slides issued as opposed to today I'll. Let solutions has provided financial information there has not been prepared in accordance with U.S. GAAP for definitions and reconciliations of these non-GAAP measures to comparable GAAP financial measures. Please refer to the relief on slides, which can be found on the companies.
Website at Www dot elegant solution <unk> dot com and the Investor section under news there that it has now my pleasure to introduce bank Gliklich C.L. that solution.
Thank you and good morning, everyone. Thank you for joining.
We're pleased to report strong results for our fourth quarter and full year 2019, and just your expectations for 2020.
It was a good year in which we accomplished a great deal despite a challenging backdrop.
Slide three shows the priority, we said the beginning of last year and our achievements against.
It was our first years elements solution and we focused a lot of energy on laying a solid foundation to support our ambitious growth objectives.
That Intel developing communicating a shared vision clear in cogent strategy and the right culture.
These were all promptly tested as we manage through the most difficult macroeconomic environment, we've seen in a decade.
Our results demonstrate that we're focusing on the right thing.
Our team was sturdy in our business was resilient outperforming its end market and growing earnings and free cash flow.
We estimate that our end markets were down more than 5% in 2019, well our business declined 4% organically.
This is the type of that performance, we'd expect it to.
Despite this organic decline we grew our full year adjusted EBITDA by 3% on a constant currency basis and delivered meaningful increases in adjusted EPS and free cash flow.
Positive sales mix diligence on cost containment and continued corporate cost savings all contributed to this operating leverage.
[music] strong free cash flow is the hallmark of our business and despite the macro backdrop, we generated a record amount and $29 million to $238 million.
Yes, and the proceeds from the Arista sale gave us an opportunity to demonstrate our commitment to prudent value creative capital allocation.
We took advantage of share price dislocations through our share buyback program repurchasing 15% of shares outstanding and we fully cash funding the tuck in acquisition of caster, which we announced in December.
Caster is a great case study for the type of measure strategic M&A, you should expect for me sorry.
This high quality business is middle of the fairway for acquisition criteria. It is aligned with our existing end markets offers new interesting capabilities to our portfolio and was available at an attractive value.
Most importantly, this is a business, we believe will be better as a part of our company than outside of it.
We're excited to welcome the employee has caster, that's part of the yes I family.
In 2019, we continue to invest in our business, we advanced multiple innovation projects. Many in partnership with our customers and Oems, we built out additional technical service centers in certain key markets and we solidified our new branding and commercial strategy for electronics and automotive.
Our focused R&D process responsive customer service and reliable product development I would drive our business board and will always invest appropriately to preserve and grow that as part of our long term strategy.
Despite taking approximately $50 million, an operating expense out of our business in 2019, R&D spend was roughly flat.
[music].
Moving to slide four we highlight our performance in the fourth quarter of 2019.
We reported net sales of $455 million and adjusted EBITDA of $102 million largely in line with our expectations.
Net sales declined 4% on an organic basis, which reflected continued year over year industrial manufacturing weakness primarily in automotive markets.
We were heartened by signs of stabilization in certain important end markets like electronics and progress in resolving trades attention.
However, Q4 activity levels were still far below levels, we saw in the beginning of 2019 and end up 28.
We believe there's been a recovery in demand, but our cautious to extrapolate a result, particularly in the context of the krona virus that has emerged in Q1.
And the situation around the corner virus is shifting everyday we are staying very close to our people in China and the rest of Asia and paying attention first and foremost to their health and safety.
To protect our people Weve drastically limited travel within Asia, and only have a central people working in our offices in China, Singapore and Hong Kong.
All of our facilities have reopened and their operating strict compliance with increased local and national health requirements.
We still have many employees, who have not return from their new your holiday.
Our under home quarantine after their holiday travel.
In electronics organic net sales declined 4% year over year in the fourth quarter, largely due to electronics Assembly end market weakness in both Americas and Asia.
Soft automotive related demand impacted circuitry in China, and Europe, but was partially offset by recovery and high end mobile phone markets in Korea.
Sequentially underlying unit volumes for high end electronics.
Markets remained stable, which was a positive sign coming into January this year.
Strong trends from memory, just customers in the third quarter carried over to the fourth quarter as well.
Semiconductor organic net sales were stable year over year is a continuation of the fiveg infrastructure ramp and automotive electronic content growth offset overall weakness in broader semiconductor markets.
In industrial and specialty organic net sales declined 6% year over year as modest growth with packaging customers and graphics was offset by declines in industrial and energy.
Adjusted EBITDA in the fourth quarter grew 3% on a reported basis and 5% on a constant currency basis.
Margin expansion of 180 basis points. That's primarily result of continued cost containment and realize corporate cost savings.
Year to date and for the full year 2019, SGN is down approximately $50 million year over year, which we consider habits cost savings, but the balance as cost avoidance.
This performance reflects the flexibility of our variable cost structure and good execution by our team to remain disciplined on discretionary cost.
As we enter Twentytwenty, we will maintain cost discipline, but we do expect some cost to return to support organic growth.
We reported adjusted EPS of 22 cents in the fourth quarter.
Turning to page five we highlight our full year results for fiscal year 2019, we reported net sales of $1.8 billion adjusted EBITDA of $417 million, an adjusted EPS at 88 cents.
Organic net sales declined 4% and adjusted EBITDA increased 3% on a constant currency basis.
2019 was a difficult year for key end markets.
As a result evidence the resilience and outperformance we have highlighted in the context of declines in high in mobile phone shipments and automotive production in the midst of an overall weak global manufacturing environment.
Yeah.
Our meaningful year over year free cash flow growth exceeded our expectations with better than forecast interest taxes, Capex and importantly, working capital, which improved in the second half after having been a focus area coming out of Q2.
Full year, adjusted EBITDA margins were 22.7%, reflecting margin expansion of 120 basis points.
Two thirds of this margin expansion came from cost savings and cost containment initiatives with the balance coming from gross profit associated with mix and some improved manufacturing and supply chain initiatives.
We've always said that our business would maintain or improve margins and generates strong cash flow in difficult environments and we proved this and 2090.
With that I'll turn it over to Scot Benson, our president and COO, who will now provide more color on the market trends for each of our business Scott.
Thanks, Ben and good morning, everyone.
I'll start by saying that launching element solution. This past year was very exciting and rewarding.
Even in a difficult business backdrop, our employees and our customers have really embraced the changes for the better.
I am confident that we will reap the rewards of these efforts for many years to come through market outperformance and margin improvement.
On slide six we walk through full year 2019, net sales drivers by segment.
Both segments were impacted by soft end market demand and overall sluggish economic fundamentals.
Lower year over year mobile phone shipments, particularly in higher end devices and automotive production drove organic declines in all three of our verticals in electronics.
The first half a point of United team was particularly weak on your year over year basis as the demand softness that began in Q4 2018 persisted and early 2018 was quite strong.
Q3 was bolstered by seasonal demand in mobile and in Q4, we saw returned a similar unit volume demand that we saw in the first half.
This stabilization is somewhat encouraging as we head into 2020.
With the electronics hardware manufacturing declining in 2019, the printed circuit board markets slowed and our end markets spared worse as the high end smartphone segment declined further.
We continued to focus on product development and innovation related to Fiveg technology, which should pay dividends this year.
The technological requirements for Fiveg circuit boards are far more demanding than their predecessors, which plays to our strength in complex H.T.I. or high density interconnect Pcbs.
We're the only global supplier of both Metallization and Assembly Chemistries for advanced H.D. I circuit boards and they've been actively working with Oems to help them develop reliability and performance standards that meet the needs of next generation products.
In 2019, we also saw an increased use of H.T. ice in the automotive industry.
Complex electronic modules in automobiles are increasingly using similar electronic assembly and interconnect materials developed for higher end smartphones.
We expect our Alpha Mcdermott automotive initiative to continue to drive new business wins as these technologies emerge in the development of the connected automobile.
In 2020, we expect overall printed circuit board volumes to be relatively stable, but expect growth in the more complex PCB markets tied to these emerging technologies.
In our industrial and specialty segment organic net sales declined 3% year over year, driven by weak global manufacturing.
Despite this muted demand picture, we had been making good headway I key strategic initiatives relating to sustainable solutions and our automotive OEM initiative.
Sustainability is an increasingly critical concern in the global manufacturing supply chains recycling, reducing carbon in energy footprints and elimination of hazardous chemicals are becoming key commercial issues for our customers as regulation and OEM requirements become more stringent.
We have the tools and know how to help our customers meet new standards.
Our evolve product line for example, which is the first reach compliant decorative chrome plating process has seen significant interest not only in Europe, but also from Oems looking to drive compliance with reach globally.
Lightweighting materials, such as aluminum magnesium and carbon fiber are also seeing increased adoption from Oems looking to achieve emission targets or increase TV range.
These are all exciting growth areas for us, which we are continuing to prioritize.
In graphics growth in our flexible packaging business did not fully offset lower year over year newspaper and screen printing sales.
The lead marketing campaigns by Cpgs led to a low slow start in 2019. So we did see some recovery in the third and fourth quarters.
We expect convenience packaging, especially in emerging markets as well as corrugated packaging associated with a growing E commerce industry to be growth drivers going into 2020.
In energy, we experienced stable growth from Europe, and Asia throughout most of the year and expect that trend to continue in 2020 <unk>.
In Latin America, we expect to lap the partially lost business, we discussed throughout 2019, and we should see growth there as well.
Overall, we left 2019 with a general feeling of stability in our key end markets and encouraged about our continued ability to outperform in all market environments.
With that I will turn it over to carry to discuss cash flow and our balance sheet Kerry.
Thanks, Scott and good morning, everyone.
On page seven we provide an update on our balance sheet and cash flow for the fourth quarter and full year 2019.
We generated 72 million of free cash flow in the fourth quarter driven by increased earnings I saw sequential improvement in net working capital.
This led to full year adjusted free cash flow of $238 million.
This equates to 20% growth I'm 2018 free cash flow if you exclude the impact of Arista and our soon our new capital structure had been in place as of January Onest both years.
I would add that this is on a base a 15% fewer shares outstanding so on a per share basis free cash flow growth was far greater.
This is a strong performance reflects it affects ability and underlying quality market.
Uses of cash in 2019 included 72 million per cash interest.
71 million per cash taxes, and 25 million per net capex.
We were at least cash from working capital, both fourth quarter and full year 2019.
As we looked at 2020, we anticipate slightly lower cash intra year over year.
We expect to continue to repatriate cash to help fund capital allocation priorities rather than draw on our corporate revolver as our first funding source.
In addition, we should see the full year impact of our recent term loan b repricing, which will save us about $2 million this year.
Based on our current full year 2020, adjusted EBITDA guidance, which then will take you through shortly we expect our cash taxes of approximately $80 million and 2020.
2020, capex should be in line with historical trends.
Which is approximately 1.5% net sales for roughly $30 million.
As we have demonstrated we do not need to spend significant capex to grow or sustain our business.
Finally, we expect modest working capital investment in 2020.
In line with the organic net sales growth that battle out why.
There can be regional and end market variability that impacts working capital, but overall it should grow in line with ourselves.
Net debt at the end in the fourth quarter was roughly flat versus the prior quarter and our net debt to adjusted EBITDA ratio decreased to 3.2 times on a trailing 12 month basis.
We use essentially all of our fourth quarter free cash flow on capital allocation activity.
This included the acquisition of catheter for $64 million and the repurchase of about 1 million shares at an average price of 11 16 per share.
While the purchase price of catheter as reflected in our net debt figures. Its full year. Adjusted EBITDA is not included in the trailing 12 month.
If we had not acquired cats are in the fourth quarter, our net debt to adjusted EBITDA ratio to end the year would have been 3.1 time instead of 3.2 time.
But the full year, we repurchased approximately 45 million shares or 15% of our shares outstanding at an average price of 11 33 per share.
We have $243 million of remaining authorization under our current share repurchase program.
Continued to be opportunistic about capital allocation decisions in 2020, as we weren't 20 Nike.
With regard to share count 2020, how boundaries and their affiliates converted their preferred shares into common stock in February of this year.
This eliminates the future prospects of a founder preferred share dividends and that's further simplified our capital structure.
With that I'll turn it over to Ben to provide an update on our 2020 financial guidance.
Ben.
Thanks Kerry.
Yeah, we introduced our financial guidance for 2020.
Entering year, we saw a certain pockets of growth, particularly in electronics driven by demand for fiveg applications in certain areas of weakness, particularly in western auto.
2019, some material sequential decline declines in all of our businesses with a slight recovery in the back half. So our exit run rate reflects an activity level below the average at the year.
Coming into the air we expected slight organic growth on the topline offset by FX translating to roughly flat sales.
We expect is constant currency EBITDA growth of 2% to 4% on the back of continued mix improvement and carryover impact from cost actions.
Assuming some modestly accretive capital allocation, we expected adjusted EPS of 93 to 97 cents.
January was relatively strong with the pickup we saw in the electronics market carrying into the new year.
We were nicely ahead of plan in the month.
Be outbreak of the Corona virus and its impact on our supply chain was unexpected its overall impact meant unquantifiable at this time.
What do we can say is that as of today our facilities are all open.
We are continuing to supply.
And that we have a breadth of facilities in the region to absorb demand and meet customer needs.
Very few of our competitors are in this position.
And between Terence and now that we believe our broad geographically diverse supply chain is becoming more and more important and will drive business our way.
Well our facilities in China are operating at lower volumes, we have anecdotal evidence that other regions are seeing increased production to compensate for some of the lost capacity in China.
In February we expect the impact of krona virus to net sales for the month will be about $15 million relative to our budget.
Our current expectation is for the impact in March to be less than that.
With any further impact depending on the eventual duration and potential further spread the corona virus.
Before opening the call for questions I'll turn to slide nine to introduce our priorities for 2020.
The first is execution and operating rhythm.
The launch of elements solutions has been successful we've established a strong performance based people centric and customer focused culture with our key internal and external stakeholders.
Now we must continue to hit our stride to deliver on our growth potential execute on our strategic projects and generate the results. We know this business and team are capable of.
The rest of our priorities are the dominoes that fall as we execute delivering in our commitments generating strong cash flow that is a hallmark of our businesses and deploying capital in value, creating ways to compound earnings.
To wrap up I'd like to thank all of our stakeholders for their support in establishing elements solutions and most importantly, our people all over the world. We're only as good as our people and very thankful to have such good people.
Operator, please open the line for questions.
The floor is now open for questions. At this time, if you have a question or comment Please press star and one on your Touchtone phone if at any point. Your question is answered you may remove yourself from the Q by pressing the pound key again, we do ask that while you pose your question you pick up your handset to provide optimal sound quality and to allow every.
On the chance to ask a question. Please ask only one question and one follow up and re queue for any further questions.
Our first question will come from Bob Bob Court with Goldman Sachs.
Hi, good morning.
What about <unk> and I'm, just curious what this strategy or philosophy is.
Oh and shoot I think you mentioned your 3.2 times Levered so.
What the free cash flow that shouldn't be a problem, but maybe the optics to that are sometimes a challenger hurdle for some investors and at the same time. Your cyclicality, we carried in your end markets, which might make share repurchase quite opportunistic.
So how do you think about balancing those.
Conflict so those tension.
That's a good question Bob. Thank you for that look just start we think the capital structure is appropriate for our company.
We continuously look for ways to optimize that balance sheet and will remain opportunistic with regard to deploying the cash that we generate and some of the balance sheet <unk> capacity that we have as we've come you know nicely inside of our three and a half times ceiling that having been set of opportunities aren't there for us we're not in a rush to deploy capital.
And you could see leverage coming down from where it is today and if opportunities are exciting for us we could take leverage up just a tick but always within the leverage ceiling, we've set up three and half times net debt to EBITDA.
Can you maybe just casters de example, but talk about how you seem terms, a bolt ons or strategic acquisitions, where the greatest opportunity is it is it maybe globalizing some regional products as it may be getting more products. The same customer base. So what you mentioned, it's down the fairway, but what's what are sort of the out.
Oh parameters for for deals where you guys.
Yeah. So the last two acquisitions, we made caster and high Tech are I really exemplary of the way, we think about bolt on M&A right. So cast or just a it's a great case study. It's a business that is in an existing market. We understand it really well it has adjacent technologies that will allow us to grow into summer.
Jason market, some very exciting capabilities and things like thermal interface materials.
It's a business that is better as a part of our company than outside of it which is a way of saying they're synergy content right. So we have some some real synergy opportunity from integrating that business and its brand, though it has a very strong brand and we'll retain its brand in certain aspects.
And finally was available at attractive valuations right and so we were able to get it at a at a reasonable value.
Before including the benefit of those synergies and a very compelling value with the benefit of those synergies.
Hi Tech is another good example that was more of a technology acquisition in Korea, Great technology for Korean customers Didnt take those technologies internationally and we've got.
Thousand salespeople, calling on customers that look similar to the customers that they have in Korea, all over the world and so we've been able to build a pipeline for that business. After owning it for 18 months as larger than the sales of that business that had been around for over 20 years. So again. That's that's an example of the type of M&A again available at attractive value.
As better inside of our portfolio than outside of it and we're not going to stretch our leverage to pursue those acquisitions and we're going to remain opportunistic with regard to other areas to deploy capital friends into buybacks, which we did last year.
Our next question comes from Josh Spector with you Yes. Please go ahead.
Yeah, Hi, guys. So just a question on in terms of the EBITDA guidance, the 2% to 4% constant currency growth I'm curious how much of the cost avoidance, you're planning on coming back into 2020.
If I think about ex that growth, obviously would have been higher so just trying to think about what's what's in there or maybe for considering keeping those costs out given markets remain kind of weak here in the near term.
Yeah. Thanks for that question, Josh So as you guys would have seen from 29 team yeah. The power of our variable cost model right, we were able to take $50 million or cost out in the year about half of that was cost avoidance and the way. We think about cost is that the topline comes back to support. The addition of costs some of that cost will come back up.
The top line isn't there that cost days out importantly, none of the cost avoidance impact the long term growth trajectory of this business as we noted R&D dollar spent were roughly flat year over year, it's really discretionary things like travel expenses and trade shows and and variable compensation.
With respect to our guidance, specifically, we're expecting a roughly flat modestly higher top line into some of that cost you know mid single digits would come back in that context. The topline isn't there that cost will stay out and that allows us to get to our guidance another way.
Great. That's helpful context to think about that and so just in terms of what you're seeing and in China. So I understand your plants in the region operating still what are you seeing at the customer level are they operating still or is there potentially going to be some further delays with inventory being.
Built and not being able to move around.
Yeah. It's a it's a good question, Josh and we're expecting a comment or question on Corona virus. So a few a few additional not to put its impact into into context I think the place to start is that the krona virus has had a greater impact on our supply chain. Our customers then on us directly and that's for several reasons.
The first is that our manufacturing processes are less labor intensive.
And one of the biggest disruptions has been availability of workers for our customers and they have much more people intensive manufacturing processes.
Yes, the other reason for the disruption being less for us than for.
Some of our supply chain partners is because our sites are more located on the coast as opposed to central China, where the outbreak has been more concentrated so as we said all of our facilities are open and we're supplying to customers were were at lower production levels. We have some customers that never closed and we have some customers that are that are still closed.
You know based on today's vaccine what I've heard let's say that we expect the impact to be less in March then it has been in February and that's that based on the fact that our customers are beginning to reopen and we are seeing some momentum in China.
And to date, we haven't seen any impact direct impact that's to say in south Korea, or Italy or anywhere else in the world. You know all of our factories are open and we have availability of labor.
So that that's.
A rough way put in context around the krona virus impact to date, you know coming back to our goals, what we'd say that we believe we can outperform our markets in all markets like we did in 2019 and through that lens. We believe the krona virus is going to impact our result, less than it will our competitors and.
Based on the fact that we have a more globally diversified supply chain, we have greater scale. So we have more flexibility in terms of procurement abroad and in terms of absorbing demand that we say anecdotally has developed in other regions around the world as as supply chain seek alternative to China, and we have more sophisticated logistics cable.
Abilities and competitors don't able in terms of being able to get our product to customers. You know wernette advantaged position. So we think that will will ride through this better than the market.
Uh huh.
Our next question comes from Neel Kumar with Morgan Stanley. Please go ahead.
Hi, Thanks for taking my question.
Can you talk about what kind of contribution you expect from the caster transaction and what's the business then go adequate organically, how do I had a margin capture electronics business.
Yeah. So the caster acquisition is going to contribute high single digit too low double digit millions of EBITDA. This year, you know call our acquisition price roughly one time sales ballpark. It again will have lower margins than the average of our electronics business because it had a metals component it fits.
Into our assembly business and it has slightly lower margin then on assembly business.
But we should be able to bring that up their synergies.
That's helpful and I can you just give a sense of what level share repurchases is embedded in your adjusted EPS guidance I was 93 to 97 cents and generally how should we thinking about the cadence of the remaining 20 to 40, knowing what $243 million lots in your authorization.
Yeah. So a very good question, Neil and thanks for raising that it's an important point with regard to our guidance, which is that at the midpoint of our EBITDA guidance, we don't get to the midpoint of our EPS guidance. There is an assumption of a level of capital allocation right. A few pennies of smart capital allocation, but we're going to be opportunistic about that.
We don't know what the market opportunity will will reveal for us over the balance of the next 10 month at these levels were buyers of our own shares, but theres a lot of days between now and the end of the year and we're confident we'll find a way to to deliver that he has accretion in the in the coming month I don't know.
Martin if there's anything you'd add around capital allocation and compounding earnings.
I like buying on shares back.
That's very simple and are you know, we generate a lot of free cash flow.
I think you know as it looks today unless things change for the west from.
The college states with Uh Huh.
Outbreak Corona virus.
I would venture will be to take advantage of what is becoming a dislocation again in the market.
It goes back to buying our own shut.
Oh by the Yeah, we have 240 $250 million worth of Oh availability about colored program.
Equally would intend to use it if things stay as Dale.
Well take our next question from Mike <unk> with Barclays.
Thanks, guys good morning.
I guess first question on the electronics business I appreciate some of the secular drivers you called out in your 2020 guidance slide, but when we think about the three business as you talk about within the segments. So assembly circuitry and sami's, how should we think about each one of those performing in 2020 versus this past year and we can hopeful.
We set Corona virus aside for a second I guess.
Yeah.
So as we talked about where.
We came into the year.
Much more optimistic about the electronic space relative to where we are coming from in 2019, albeit the activity levels at the end of 2019 were below the average of 2900 because of the activity levels decline through the year you know a lot of that optimism is driven by Fiveg, where we're seeing increasing it.
Yes men in Fiveg infrastructure markets, and we expect that to continue and even you know with kinda buyers were seeing stimulus that's driving even more of that so our guidance didn't come into the are assuming exceptional growth from fiveg assumed a reasonable amount of growth and as we made the comment earlier in January we were.
We're ahead of our plan nicely because of Fiveg investment.
That impacts the entire electronics business from circuitry Assembleon semiconductor.
In a relatively similar.
To a relatively similar extent.
Got it Okay, and then I think you guys have done a pretty solid job. This past year, so driving EBITDA, while maybe sales or end market trends have been.
Weak so I guess just curious how you think about the incremental cost number journey if markets do remain weak is there anyway to quantify or scope.
That incremental cost opportunity in front of view, if if we sit in this end market malaise for a bit longer.
Yes, so I think the place to start is that if we're in a flat market. You should expect you know some additional cost opportunities just from execution and we have a program to add efficiency NGL, They which is a multiyear program you know we've gotten the low hanging fruit from corporate cost less bar.
And then there's still more cost that we can take out on a year over year basis from a you know.
SGN, a because we weren't at the same level of cost containment in the beginning of last year that we were at the end of the year. So there's a modest opportunity around cost that gives us confidence that in a flat market, we can still deliver EBITDA.
Well take our next question from Jim Sheehan with Suntrust.
Good morning, Thanks for taking my question, what's your outlook for working capital in 2020, I think you made some comments there do you see any potential for efficiency gains compared to last year.
Hi, Jim has carried thanks for the question. So you know as we mentioned in the prepared remarks, we you know saw build and working capital.
In accessible would've expected in the first half 2019, and we worked quite hard around the world to bring that in over the second half and actually landed quite well I'm going ahead of expectations for the full year I'm, if we look at.
You know the working capital what percent of sales on 19 versus 18 were only up very marginally every year.
No we expect when our business grows to invest and working capital and so as we talked about you know a modest organic growth expectation for 2020, you should expect some working capital investment to find that yeah. Thanks.
In line with that sales reps, so call it no $10 million plus or minus would be our expectation.
But as a percent of sales we are we still see opportunities to improve that and perhaps how to come in inside of that 10 million growth.
Thank you.
And given your exposure to automotive maybe you could comment on the automotive cycle I think production has been down about six quarters in a row.
Do you think that this cycle. It at this down cycle is going out last longer than usual cycles or maybe you can give you some thoughts on that.
Sure.
I'll have a first swing in that and then Scott if you have anything to add the I think the places started is while we were more optimistic about electronics were more cautious coming into this year about automotive, particularly in the west we didnt expect material growth, we expected flattish auto in our guidance and that's been playing out.
Although only two months into the year and so we don't expect an inflection.
Certainly we're not counting on one as we think about our financial outlook, Scott anything you'd add about auto in cycle.
Yeah, I would concur Ben that we're fairly a cautious on the overall automotive production across the globe. This year, we didnt come in with a tremendous amount of optimism.
Again thinking flat.
In terms of number of units. However, we do see continued growth growth in the E V space, where we're very well positioned with some very high technology products that we're doing very well and so growth in some key areas, but overall flat units.
Our next question from Jon Tanwanteng with CJS Securities.
Good morning, gentlemen, really great job closing out the year end up it's nice to see that kinda confidence and the outlook relative to a you know everything that's going on.
I was just wondering how much offset our you're actually seeing from regions outside of China.
A moment and additionally, a if you have any color on cash flow might be impacted in Q1 by the effects in front of virus that that would be helpful as well.
The good question, John and it's very hard very hard to just aggregate what we considered anecdotal evidence that demand has increased in other markets. The way, we think about that as we had a plan coming in and we were doing better than planned through January and into February in certain.
Markets in Europe, and other parts of Asia, now with a slight offset to be clear a modest offset to the headwind we saw on February from Corona virus.
So you can't say, specifically, it's driven by supply chain seeking alternative sources, but you know that's our best our best feel thus far and we see that continuing to an extent in March while we also see our Chinese business recovering from the impact.
We saw in February.
I'd like to cash flow impacts phasing is clearly off relative to our our plan for the year.
Care you want to add anything yeah, I would just that obviously a portion of the cash flow we see in a corridor relate to the business. We are doing in the prior quarter and so the phasing of our cash flow I think as we look for the full year.
We don't see it two different as a percentage between the different quarters, yeah, there's not a ton of capex or other capital investment associated with what's happening with run a virus. So it's really just a question of the earnings phasing and again Q1 is going to be impacted by Q4 19 earnings I wouldn't expect a material change there.
As we go to Q2 and beyond what well see what happens with with our topline in our EBITDA.
Okay, Great can you remind us how much more cost savings you expect <unk> aside from the cost avoidance that you've been talking about <unk>.
How much of that I do expect to see this your incrementally.
So John we haven't quantified the further let's call it gionee opportunity from optimization of corporate costs right. As we said earlier, we hit the low hanging fruit over the you know the end of 18 and into 19, there's a few million dollars of costs that we should be able to get in there some investment to get that cost.
We should you know also we also are expecting.
The overall cost opportunity you know if the business is flat you know as we said we can continue to drive EBITDA growth, but more modestly.
And there are no further questions at this time, so I'll turn it back to Benjamin Gliklich for any additional or closing remarks.
Thanks, very much and thanks, everybody for joining we look forward to seeing you soon have a good day.
This does conclude today's program. We appreciate your participation you may now disconnect.
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