Q4 2019 Earnings Call
Okay, and welcome to <unk> industries fourth quarter and year end 2019 earnings conference call.
I would now like turn to turn todays conference over Detroit for please go ahead Sir.
Thank you good morning, everyone and welcome to our fourth quarter and full year 2019 earnings call.
During our discussion today, we would be referring to our earnings presentation, which along with the earnings release are available on the Investor Relations section of superiors website.
This morning, I'm joined by must be a blue bar on our president and CEO and Matti Masanovich, our executive Vice President and CFO.
Before I turn the call over to modesty I'd like to remind everyone that any forward looking statements contained in this presentation or commented on today.
Our subject to the Safe Harbor provisions of the private Securities Litigation Reform Act a 1995.
Please refer to slide two of this presentation for the full safe Harbor statement entered the company's FCC filings.
Including the company's current annual report on form 10-K for more complete discussion on forward looking statements and risk factors.
We will also discuss non-GAAP measures today, including value added sales and adjusted EBITDA. These non-GAAP measures exclude the impact of certain items and therefore are not calculated in accordance with U.S. yeah.
Reconciliations of these measures to the most directly comparable us GAAP measures can be found in the appendix of this presentation with that I'll turn the call over to modestly.
Thanks, Thanks, Troy and good morning, everyone and thank you for joining us today to to review, our fourth quarter and full year results.
Let me begin by taking you through the highlights for the fourth quarter and full year. I'll. Then provide you an update on this year's progress towards our strategic priorities and finally I'm not applying our strategy moving forward into 2020.
I'll begin on slide three of the earnings presentation to provide an overview about full year results.
And <unk> in 2019, we continue to benefit from the secular trends for more fuel efficient wheels and customer demand for larger premium finishes. We also continue continued to position ourselves as a premium wheel solutions provider advancing our portfolio and enhancing our competitive position.
2019 was very challenging from a volume perspective, we're not I mean customers production down 11% in the fourth quarter and 6% into full year.
Now despite these production declines we made significant progress on our strategic priorities.
Our global teams continue to execute on our premium strategy delivering key product launches in wins as we shifted our portfolio towards larger more complex wheels.
Result.
A 6% increasing value added sales the wheel versus the prior year.
Further in 2019 wheels, 19 inches in greater accounted actually for more than 30% of our portfolio, that's a 10% increase year over year.
This positive shift in mix fundamentally supported growth over market up 2%.
Value added sales despite weaker volumes.
At the top of our priority is our commitment to improving profitability and generating cash flow to enable debt reduction.
As a result of these efforts we delivered record cash flows from operations of $163 million.
Enabling us to reduce net debt by $84 million.
I had tremendous success as we move towards positioning superior.
In the future.
As we discussed last quarter, we are laser focused on optimizing our cost structure to match lower production volumes.
This includes the alignment of our manufacturing footprint.
And overall reduction instructional costs.
And identifying additional initiatives that will further.
[noise] enhance our operational efficiency.
We are pleased to see.
That these actions are bearing fruit.
Despite lower unit volumes in sales, we delivered $169 million of EBITDA on 8% less volume.
Looking to 2020, while we expect a softening production environment, we remain committed to effectively executing on order book enhancing profitability and driving cash flow through earnings working capital and disciplined approach to capital expenditures.
Moving on to slide four as I mentioned, we are executing on our strategy has a premium wheel solutions provider, winning electrification and offering differentiated technologies to the marketplace.
For example, we recently won and launched multiple wheels on electrical vehicle platforms.
During the fourth quarter, we launched a premium yield on the Mercedes IEC you see by the way, which is doing as acute weight.
Which also leverages, our pad printing technology, and exciting technology and capability that allows us to put accents colors.
And stripes across the wheel.
This is actually a a very unique design elements for Oh this vehicle.
Next we are excited about a recent when will the Detroit three OEM on a newly announced on electric platform launching in the coming years as well as a new win and partnership with a silicon Valley Oems specializing in the these.
These platforms highlights our relevance in the space.
Right side of the chart highlights exciting applications and expansion of our technology portfolio.
Now here you see some first for the industry and some first for superior.
The mid engine 2020 corvette is just about a great example, and carries a complete spectrum of our product and process technologies, including our patent did you like technology as well as the flow forming process.
Both reduce weight and improve handling of the vehicle.
This also represents the first laysan etching launch, enabling based group she looked iconic quarterback name across the side of the spoke for those of you haven't seen it it's a it's really quite quite impressive.
Another exciting first we lost we launched our first 23 inch wheel.
This offering has enabled on customer Eau de in this case to capture in emerging market segment, we have not play didnt.
One more first is the application that you see on this chart.
Our full forming technology at Toyota.
First time Toyota has ever used flow forming overall.
Finally, I am pleased to announce that we officially commercialized and launched our PVD process. A premium finished that provides a more environmentally sustainable and competitive alternatives to grow.
Our PBT technology actually is on the road today, it's on the Ford F 150.
We're working closely with customers to further expand this technology is reaching that making very very good progress other customers that excited to see the capability and and the validation and all the technical data related to this technology.
We're proud of the team for executing them on this technology slogan coming really proud of the team for bringing this to a two market.
Moving on to slide five I would like to provide an update on the near term priorities that I mentioned mid last year, which focused on execution enhancing our portfolio talent and improving operational efficiency.
The underlying goals are these actions ought to support EBITDA growth and improved cash flow.
With that in mind, we made tremendous progress so far not only commercializing new products like DVD, but also to do see expenses and optimizing our north American footprint, which by the way is no honored pretended low cost.
Additionally, we are pleased with the reduction in and you will turn to learn.
About a Mexican labor force by 17% year on year.
Now from a margin standpoint, we expect many of these initiatives to narrow the margin gap between our north North American operations and European Opera operations.
Other lunch not portfolio and in particular as we spoke the last the last earnings call with European Oems in Mexico is core to our strategy is absolutely critical.
Especially given as you as you think of the shift in mix.
We had one third of our portfolios now 19, instill greater we're actually adding one 1 billion wheels in that category taught a Mexican operations here in the next next 12. So I would tell you. We're very pleased that now at a Mexican operations I don't know manufacturing and shipping premium wheels to European Oems in North America in Mexico and.
In in the U.S. This has been a it priority and we're excited that that's we're finally finally, there and is core to our growth strategy as we discussed previously.
Moving on now to slide six you will see that these same items cash flow generation EBITDA growth executing our differentiated product portfolio as well as maintaining our customer relationships remain foundational.
Our long term value creation roadmap. This is where I see the company on the journey towards creating value for shareholders. The here now is focused on the current portfolio of lunches fixing troubled product lines, such as PVD and aligning our cost to the current operating environment.
As we move forward the focus will be to continue enhancing also operations driving commercial discipline, reducing manufacturing cost and winning across a balanced portfolio.
All of these initiatives position us for the medium term, what do we can deliver value to shareholders, who revenue enhancement and EBITDA improvements.
To summarize the quarter endear well, we have made great progress to date, there is still much work to be done.
However, you will see wouldn't matter. He takes you through the financial outlook for 2020.
But we expect the margin enhancing activities that we've already executed well start to show through outperformance.
We remain excited about the potential of this business.
Our positioning as a differentiated technology leader.
And the progress to date.
With that let me turn the call over to Maddie to provide the details on our financial results for the three full year and fourth quarter Matti [laughter]. Thanks Marci.
Turning to slide seven our full year 2019 value added sales results outperformed the broader market due to our shift towards larger our concept wheels value added sales for the company declined 2% on 8% lower volume, representing a 2% growth over market and value added sales and value added sales per wheel growth of six per se.
Excluding FX.
In North America value added sales was negatively impacted by lower volumes, including the impact of the way W. strike, which was partially offset by a shift to larger premium wheels. Conversely in Europe value added sales grew 6% and value added sales per wheel grew 9% representing substantial growth over market. We're in.
Mystery production volumes in the region were down 5% as much as you noted in 2000 1919 inch wheels, and greater accounted for approximately 30% of our portfolio compared to approximately 20% in 2018.
Slide eight reflects the breakdown of unit shipments net sales and value added sales by region for the fourth quarter and full year 2019 as compared to the prior year period as much as you mentioned are will shipment units decreased to 4.5 million units in the fourth quarter compared to 5.2 million units in the prior year.
For the full year 2019 wheel shipment units decreased to 19.2 million units compared to 21 billion in the prior year.
The decrease in shipments was driven by the decline in the global industry production volume lower production at our key customers and reduced share due to the focus on larger more complex wheels.
For the fourth quarter, we reported a net loss of $99 million or a loss afford ores and 25 cents per diluted share compared to net income of $8 million earnings of 61 cents per diluted share in the prior year period.
Net loss in the fourth quarter of 2019 was impacted by a noncash goodwill and intangible asset impairment charge of $102 million related to the excess of carrying value over the estimated fair value of our European business unit. The business unit fair value was lower due to the reduction in forecasts.
It industry production volumes and shipments in our long range plan completed in the fourth quarter of 19 as compared to our prior year long range plan, which adversely impacted our cash flow and adjusted EBITDA expectations, resulting in the non cash charge.
While we still anticipate strong performance out of our European business unit going forward compared to today. The goodwill impairment reflects an adjustment from the prior outlook to the current outlook.
For full year 2019, we reported a net loss of $97 million or a loss of $5 in 10 cents per diluted share compared to income of $26 million or earnings of 29 cents per diluted share in the prior year period.
In addition to the goodwill and intangible impairment, we had restructuring and net other expense of $19 million, primarily due to the rationalization of our favorite production facility during 2019.
The total impact on diluted earnings per share of these items is 40 hours a 65 cents. Please see the table in the appendix for the impact of acquisition restructuring and other items on diluted Vps and the reconciliation from net income to dilutive yes.
Income tax benefit for the fourth quarter was $4 million on a pretax loss of $103 million compared to an income tax provision of $5 million on pretax income of $13 million in the prior period.
Tax benefit for the quarter was primarily due to the effect of U.S. taxation on foreign earnings under under the provisions of tax reform and the generation of additional post tax credits based on our investments in Poland.
Income tax provision for the full year 2019 was $3 million on pretax loss of $93 million compared to an income tax provision of $6 million on a pretax income of $32 million for the full year 18.
Similar to the results in the fourth quarter. The tax provision declined from 2018 2019 due to the effects of U.S. taxation of foreign earnings on other provisions of tax reform and the generation of additional post tax credits.
Cash taxes for the company in 2019 were $9 million as compared to the prior year of $7 million. We continue to work on tax planning strategies to minimize taxes.
On slide nine let me walk you through our change in net sales and value added sales year over year for the fourth quarter of 2019 value added sales decreased to $173 million compared to $206 million in the prior year period. The decrease the decrease was driven by lower production volume, including the way W. labor strike as well as the weakened euro.
Offset partially by higher content wheels.
On slide 10, adjusted EBITDA was $38 million for the fourth quarter of 2019 compared to $46 million in the prior year period. The decrease in adjusted EBITDA was primarily primarily driven by as I mentioned earlier earlier lower production volumes.
The labor strike and the weakened euro, which was partially offset by favorable Mexican peso rates. Despite these headwinds the company successfully managed to align costs with production levels.
For reference SGN expense for the fourth quarter of 2019 was $17 million or 5% of net sales flat compared to the prior year period.
Moving to slide 11, which provides more detail on our full year 2019 sales results net sales were $1.4 billion for the year compared to $1.5 billion in 2018 and value added sales for the year were $755 million compared to $797 million in 2018 the reduction in value.
The sales was primarily driven by lower volumes and the impact of a weaker euro which had a negative impact of $24 million.
Turning to slide 12, adjusted EBITDA was $169 million for the full year 2019 compared to $186 million in the prior period. The decrease in adjusted EBITDA was primarily driven by lower volumes higher energy costs and plant efficiencies.
But inefficiencies purchase partially offset by improved product mix comprise a larger diameter wheels, more premium content and procurement savings.
In the full year 2019, adjusted EBITDA as a percentage of value added sales decreased by one percentage points to 22.3%.
SGN expenses for full year, 2019 were $64 million or 5% of net sales compared to $78 million in the prior period. The decrease is primarily due to reduction in acquisition integration expenses in the alignment of reporting for us today both of our regions.
Our full year cash flow and capital structure are addressed on slide 13, net cash from operating activities was $163 million compared to $156 million in the prior period.
Despite $17 million of lower adjusted EBITDA and the initiation of the accounts receivable factoring program in the prior year the improvement in operating cash flow was primarily due to net working capital management, including favorable inventory management and extended payment terms of suppliers.
Driven by our global supply chain team.
Net cash used for investing activities was $55 million for full year 2019, compared to $77 million in the prior year period capital expenditures for the full year 2019 were $64 million versus $78 million in the prior period.
During 2019, we directed our capital expenditures towards.
The highest returning activities, including maintaining our equipment and facilities and investing in technologies and capabilities to support our customers future platforms and a differentiated product portfolio.
As a reminder, in the third quarter superior surpassed suspended as quarterly common dividend, allowing the company to reallocate approximately $11 million annually.
The $11 million of cash savings due to the common dividend <unk> suspension will be used to invest in the business and reduced net debt.
Dividends paid for the full year totaled $23 million and purchases from minority holders of superior industries Europe totaled $7 million at the end of the full year, we had approximately $6.5 billion, 4.7% of the minority ownership outstanding.
Also during the year superior repurchased $37 million face value of its 6% senior unsecured notes on the open market for $32 million, resulting in a pretax net gain of approximately $4 million, which is included in other income and has been deducted to arrive at adjusted EBITDA.
The senior unsecured notes repurchased repurchases and other debt payments results in the total reduction of $54 million of debt principal during the year.
In summary, we ended the year with our net debt position $84 million lower than the prior year and with $284 million of available liquidity.
The $284 million of availability includes cash and availability under our credit revolving credit facilities. There are no near term maturities of our funded debt.
On January 30, Onest 2020, the available borrowing limit of our European credit facility was increased from 45 million Euro to 60 million Euro all other terms of the European credit facility remain unchanged.
We also have incremental availability under our accounts receivable factoring programs.
As of the ended the full year, our net leverage was approximately 3.3 times down <unk> 0.2 turns from the prior year period.
Our cash flow and liquidity progression over the past two years is detailed further on slide 14, where you can see that we have significantly increased our liquidity position overtime, while generating substantially more free cash flow available to pay debt in 2019 as compared to 2018.
Now on slide 15, I'll move to our outlook for 2020.
For the full year 2020, given the current industry production outlook that we are seeing we expect unit shipments to be in the range of 18.4 million to 19 million units.
With regard to krona virus, we do not currently see a direct impact on our business. If the impact on China continues there may be some supply opportunities within our facilities, where we have capacity.
The impacts of the krona virus on the greater economies in North American Europe are unknown at this time and our guide does not incorporate any adverse impacts.
Net sales are expected to be in the range of $1.33 billion to $1.39 billion, which as a reminder is impacted by aluminum prices.
Value added sales are anticipated to be in the range of $750 million to $790 million.
We also expect a year over year increased in value added sales per wheel in 2020 as the guidance would imply.
Adjusted EBITDA is expected to be in the range of $170 million to $190 million. This range is supported by the already implemented initiatives must you discussed, including the rationalization of the favorable production facility. The consolidation of the polishing product line to Mexico procurement savings energy investments to reduce energy costs.
In Mexico, and in the proven and mix offsetting the lower volume outlook.
As well we have procurement savings.
Initiatives in 2020, which will take effect through 2020, we should see a continued progression in EBITDA improvement as we move throughout the year.
Our outlook for cash flow and operations is anticipated to be in the range of $125 million to $145 million, which includes cash taxes and cash interest while capital expenditures are expected to be approximately $75 million.
I want to open the call now to question to a question answer session focus on the results of the fourth quarter and the full year ended December 30, Onest 2019.
Well, we have and we will continue to engage with investors on all matters relating to our 2020 annual meeting and our recommended slate of director nominees, we will not be addressing questions. On these matters at this time rest assured in the coming weeks, we will be proactively engaging and meeting with our investors regarding these topics with that ill.
During the call back to the operator.
Thank you. Thank you I'd like to ask a question. Please signaled by pressing star one on your telephone keypad.
Using a speaker phone. Please make sure your mute function turn off to signal to return, but again press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Well take our first question from Chris Van Horn with B. Riley FBR.
Good morning, everyone. Thanks for taking my call.
Good morning brings one Chris Chris.
So I guess just starting on the guidance.
You know I, especially at the Unadjusted EBITDA, what gets you to that higher end of the range and what are kind of the primary puts and takes on that 170 to 190.
Fundamentally Chris the meet the main driver of the guide on all the initiatives that we've been discussing over the last couple of earnings calls.
We needed to execute to reduce costs to consolidate footprint to improve improve the portfolio. A lot of these actions are in place and other than to begin to take hold and we'll see that in our performance in.
For 2020 results. So fundamentally that's what's in the guide right now.
Okay.
When it when I think about your underlying production assumptions.
Are you using you'll basically HSR LMC data or you adjusting that for your program or platform mix.
No the thought that the bases is III, a chest data which is.
You take North America, Europe, Europe is slightly down North America flat, so it's really flat to slightly downwards.
Clearly, we use customer schedules for the next 12 weeks and and I HSM going forward, we haven't seen any changes in these schedules from our customers now remember we are mainly a European and North American based.
Company.
As you think and ticket forward and think of grown a virus in such a ultimately how that shakes out an impact on the on the Oems and their schedules and hence the impact on us.
Needs to be seen we have nothing quarter made that enough guide.
Okay got it.
And then sorry, just to stay on this on the guidance here operating cash from operations you had a really strong 2019, you it sounds like you're guiding for for that to not be as high in 2020, any any can you give any detail on the on the reduction there.
Well I mean, if you think about it we got a lot on working capital Chris in the in 2019, so it's like a onetime improvement when you when you take out a working capital we're focused on sustaining it.
So oh, we do have improvement actions outline to continue to drive working capital improvements. So for instance de Io and inventory levels. So I think thats one area of improvement that we are going to be looking at and executing on in 2020, but the guide right. Now. The guide is kind of what I'll say is pretty standard for what we can generate what we feel we can generate from.
The from the EBITDA levels that were or articulating and I said it sustains the working capital positions that we had ended the year in 2019 as you know, we're a little bit cyclical as a company we tend to invest in the first half intend on wind we have an aftermarket business in Europe, which requires us to fund some inventory as we build up inventory positions in the first.
So we have you noticed a seasonality of our to our working capital, but at the end of the year I think where we feel very confident in the in their ranges we provided.
Okay, great. Thanks for that color and then maybe shifting over to your technology and even specifically I'm just remind us your content per vehicle on an easy versus maybe a traditional I see depending.
Obviously, a 23 inch wheel is much more content than a than a 19, but maybe just try to apples to apples the comparison between Nic for for your opportunity.
Well I mean, it depends so we make big wheels, So we lightweight.
The bigger wheels, some for some of the customers and so not all of them get flow, forming and value like as a as much as you mentioned earlier, so but electric vehicles are really it's all about lightweighting and so it's as much lighter ways. We can we can put our alkylate technology, which is kind of a back cutting edge technology, where we can carve off more of the aluminum we try to make the.
A more aerodynamic clearly and there is still the aesthetic though that is still want larger wheel. So you'll still see 19, and 20 inch wheels on electing the electric vehicle market space. So.
So we that trend is kind of still alive and well because there's an aesthetic view as well, but up but clearly it's all about lightweighting and it's definitely a value add that we get so we were able to charge more.
When we when we lightweight wheels [laughter].
Got it got it Okay last for me.
Congrats on your on your PVD launch.
Is that a an end of is that that contract with with the F. 150 does that go through its its current lifecycle and then are you actively bidding for the next iteration of the F 150.
And then what's the what's your initial take from the customer on how well that or how there how they're responding to that that that product.
For these cruise food is actually a very excited about this this a this technology, we actually have minimal awarded the PVD application on the next generation on F 150, which is going to start in them in the summer as and as I mentioned, we have a little bit more capacity on that.
We expect to very quickly engaged with other customers, we're making good progress on that front, it's a great story.
But the team has delivered here.
Okay, great. Thank you so much of the time this morning.
You're welcome thank you.
Well take our next question from Richard Slansky with Deutsche Bank.
Hi, Thank you.
Questions first is wasn't clear to me.
Status of the Fayetteville restructuring if you could just update us in terms of.
Our all the workers Dawn.
Real estate there.
2020.
Second question was around the working capital if you could just update us with.
Receivable factoring outstanding at yearend.
Yeah, Lastly, I'd love to get.
Any comments you have.
You mentioned in the guidance.
Theres no adverse impact from cross the virus.
Firstly your business is one of the few and auto space, which is a potential.
Yes sure area, if I can say that.
So much of your competition competition has manufacturing.
In China.
So I'm wondering if.
Any color you can provide in terms of problems that your competitors maybe facing.
Either starting up plants or otherwise.
I'll take I'll take the first part and modest economic can add to add to the question. So first part of the question was on Fayetteville.
We have no production in Fayetteville.
Effort for Q4, So December we the workforce was rationalize the production were first rationalized. So what we're doing now as a.
Cleaning up the facility moving some equipment to various facilities around the globe, where we had the equipment that we wanted to utilize which which should help offset some of the capex needs of the company on a go forward basis, So where we have I don't want to give exact number but theres a very small workforce left we do have an engineering center, which we will maintain and Fayetteville.
And we have no chance or no plans to change or modify the engineering center. This there where we have R&D and technical capabilities in test capability. So we'll continue with our engineering center in federal as far as a building goes we haven't made any announcements we have a lot of work to do to clean it up and a and B note the equipment, so, but I would say.
Thats, a there's not a there's not a significant amount of proceeds coming that would change the cash flow.
If that's what you're if that you're getting yet as far as a are factoring goes we ended the year 10 million lower than the prior year for a our factory. So we've got about Troy $45 million. They are totally our factory for about $45 million until they are factoring into the year. So we're able to lower the water level up from a factoring perspective.
And then specifically on your China question, we have received calls over.
Over the course, the last two weeks from various Oems.
Inquiring on our capacity in where we have opened pockets of capacity.
So we believe that potentially it could be a tailwind if nothing else it could be neutral to us, but there could be a tailwind coming so from a supply chain standpoint, I don't want to comment on on where the competitors are at an if they're having difficulty but we have had inquiries in the last two weeks Margie anything you want to add to the yeah, just just to frame.
Frame the.
The implications thought business.
Grown a virus.
So first and foremost from an exposure standpoint.
We do not to.
We do not have operations in China, we don't ship product directly into China. So thats first.
Second in terms of from a supply chain, we actually have very limited exposure. There we have some tools and some indirect material.
The team has done a great job of putting plans in place mitigation plans have resourcing tools, where when it makes sense, we havent limited exposure in the context, where Oems shipped the vehicles into China and Thats about that's a very very low percentage of the about exposure out of them out of Europe, now, having having said that.
What is going to happen with those customers in them and production until on as you know that and that remains to be seen and clearly the impact as it comes we will have to we will have to respond and finally as Matt mentioned in terms of opportunities.
Our customers.
There's no our footprint very well and then they're looking for us to support them as they pulled together their risk mitigation plans what exposure to their supply chain from China, and we're working to the supported them one weekend.
Too early to say any positive.
That's correct.
Great. Thank you very much.
Well take our next question from Stephanie Vincent with JP Morgan.
Hi, Thank you very much.
Thanks.
Question on thanks.
[noise] supply chain.
[laughter].
Yes.
[noise] some thoughts on that and then.
Hello.
Oh, yes, becoming.
Obviously some corn.
I'd like to show.
Sure.
Sure.
And.
And then my second question, it's just.
On.
So you had another supplier.
Thanks.
Between five to seven.
It's pretty aggressive.
Expectations, so how much.
Yes.
Got it.
Sure.
So.
More towards the five Oh.
Oh.
Sure.
Okay.
Maybe a feed the questions. So Stephanie was very hard to hear you. So you were coming in it'll kind of every third or fourth word was skips, but if I understand the question. The first question was on supply chain in the exposure to krona virus in our supply chain that correct.
Yes. So so my question is where you can you hear me better now than.
I hear you better now yes.
Okay, that's great I just switch to.
The hands that sorry.
So my first question was on the Crane virus. Thank you for the detail I just wanted to ask a question on your collagen manufacturing exposure given some of that I guess quarantining activities, we have there.
And then also on your supply chain I guess, we've had in chemical players I'm, sorry that they only have a few weeks lasted inventory doesn't know your views on until sourcing on the chemicals side and then finally just on your expectations for I Chess you had a supplier.
Yesterday coming out with a negative five to seven global production do you I know that you have your north American and European exposure, but if we didnt need that global production more towards the down five first as I checked the key how much question do you haven't you're asking that.
So so so thanks, Stephanie for the question repeating it started to me to repeat it but it was hard to here. The first time around so the supply chain Weve assessed our supply chain. We don't believe we've got significant risk. We did have some we do have some exposure specifically tooling some tooling and some indirect spend in China, we've been at it we've been able to.
To.
Yet get the tools out of China. Prior to the kind of course is really breaking and we were a and weve got alternate sources.
At a at equal cost so we don't necessarily see a big a big issue for us in our supply chain. That's number one on Italian manufacturing standpoint, as you are aware I think our big three customers are the big three German customers and they don't have a huge footprint within the Italian other sales side of it could get impacted but we don't believe the production side is going to be dramatically.
Impacted now as it spreads throughout if it continues to spread enters the cells. It continues to spread we don't have a view on the impact I would say that I don't have a view on what would happen if the krona virus where to expand.
And then from a room a room against guidance standpoint on look I think we'd have would have to come back and assess what a 5% global production, but I believe that supplier had China exposure and so that's really what was driving the guide the guide down, but we have very little China exposure. There is some exposure to some of our customers that export product.
From Europe to China.
But that's pretty much as you know Jaguar land Rover is a big one that does that we have nominal exposure to Jaguar land Rover, and we wouldn't expect to be nominally impacted from export sales into China.
Yes, certainly helpful. Thank you.
Again, if he would like to ask a question. Please press star one we'll take our next question from Glenn Chen with Buckingham Research.
Good morning, Thanks for taking the question.
Glenn.
Just going back to the guidance.
I think your comments.
Comment you mentioned that.
Continued improvement.
EBITDA as you progress through the year is that a function of.
The volume backdrop that you guys anything or is it a function of.
The initiatives that you have with respect to efficiency and operational et cetera.
So it's the latter part so I'll just say that from a launch perspective, we're a little heavier in the first half than we are in the second half from a loss perspective launches are about flat year on year. So overall launches. So we're a little heavier in launch launch active in the first half best one consideration number two is we are going to procurement savings as we drive more procurement savings we have a sense.
For procurement team.
Actively engaged in our in our global spending and trying to global source or the the the bi and so we're going to see continued improvement and all the initiatives will take hold.
You know as we move throughout the year now many of the initiatives as much as you mentioned and were implemented for instance, the vehicle production a rationalization or it was done in Q4, so that was done but as we move forward. We'll start this will continue to see energy savings kind of ramp up as we go through 2000 2020, so it's going to be a should be we should see improvement.
We go forward from an EBITDA perspective.
Okay very good thanks, and then just some questions on via yes.
Can you guys share what's the impact from the you ADW strike was.
Yes terms.
We can't do you give you the vs terms that we had approximately 300000 units are related to the to the you AWB strike.
Okay and then.
Sort of sticking can be a.
Portion of 19 inch feels that came down slightly sequentially is there any seasonality to that or is that a function of cam strike.
Well, it's definitely going to be GM strike and I'd, just say overall mix, but ah, but certainly the gym strike impacted.
Okay, and then May ask so yes.
[music].
Year over year.
He asked declined more than unit sales.
Is that if next was a tailwind.
Give me a secondary.
Share, where the proportion of 19 inch wheels in larger greater year over year and I'm assuming.
Complexity et cetera was also a tailwind, but see a asked was down more than unit sales.
Yes, I think as you go quarter to quarter. If you asked is not always going to be on the on the north side going up you know every quarter quarter in in quarter out clearly Q4 heavily impacted with a the way W. strike and then as we kinda, but as we kind of look forward, we should be seeing going forward continue to see penetration 19 engine wheel space and pre.
Jim content. So we're going to continue to see expansion of U.S. sales specific on a per unit basis, but try I wanted to ask something and then Glenn as you know the mix can have an impact. So we like to use the 19 mentioned greater as a barometer, but a smaller diameter wheel with a premium finish can have a higher values of value added sales per wheel.
So selling price. So there does that does play into the mix, although we both the night you mentioned greater.
Okay.
Hi, good that's it for me gentlemen, thank you.
Thanks.
And we have no more questions in the queue at this time.
Thank you everyone.
Thank you.
This concludes today's call. Thank you for your participation you may now disconnect.
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