Q1 2020 Earnings Call
[music].
Good afternoon, ladies and gentlemen, and welcome to today's Fiat's Chrysler automobiles group.
First quarter 2020.
Well you information today's conference is being recorded.
At this time I would like to turn the call. It touches veltri head if I see a global Investor Relations Mr. about treat please go ahead Sir.
Thank you Jody and welcome to everyone joining us today as we review FC age 2021st quarter results.
First however, I would just like to express my personal wishes that you and all of your loved ones are safe and well during this unprecedented situation. We are all going through right now.
For todays call the presentation material as well as the related earnings release.
Can be found under the investors section of FC ASE Group website.
Our call today will be hosted by the group's Chief Executive Officer, Mike Manley.
Richard Palmer the groups CFO.
After their initial presentation, both Mike and Richard will be available to answer questions.
However, before we begin I just want to point out that any forward looking statements that might be made during today's call are subject to the risks and uncertainties that are noted in the safe Harbor statement, which you can find on page two of today's presentation.
And as always the call will be governed by that language.
With that I want to turn the call over to Mike.
Thank you Josh good afternoon, and good morning, everybody.
Well I'm just trying to also at mine and the rest of the say I colleagues wishes to jobs are they up and the other cool with hopefully everybody in your families as he said a safe and well.
So its customary I'm going to take you briefly through our operational highlights for the quota I also explain the actions we're taking their response to cope with 19 pandemic, so firstly and very importantly, protect and support our employees in the communities within which we operate and secondly to protect our company to ensure we transitioned through this crisis.
Richard will then walk you through the financials in more detail.
As you are saying when is the same with many other companies covered 19 is that a significant impact on our Q1 results.
So when which of those taking you through I'll be back to talk about rigorous plan, so getting the business back up and running in each region answers. The me the actions we've taken to remove costs preserve liquidity and implement new safety protocols.
He believes that we will emerge from this crisis stronger than ever.
So now before we got to the slides I'd also like to personally cycles of our employees for their continued dedication. During this unprecedented period to those of you applying those skills. So the benefit of our communities.
Converting all facilities in Brazil, and Argentina to might shift filled hospitals repairing ventilators assembling key components to assist ventilator manufacturers and producing face masks for those who volunteered to keep up clubs.
Parts distribution senses running to help keep first responders and commercial vehicles on the road until our cross functional teams are formulated comprehensive data driven procedures, there will be replicated around the world to ensure the everyone to turn into a had a messy I facilities comfortable and confident in these plans to keep them site.
And finally all of those adjusted their lives in the lives of their families to work from home.
My Thanks to all of you feel flexibility and resilience what you've demonstrated June was unprecedented times hospice I when I look at everything that you have done well it was in that community or to support your colleagues or to get us ready for a restart of the business you make me very proud to be part of this change so thank you.
So to begin with before the virus outbreak and the resulting disruption in demand.
I can say we were on track for strong quarter in terms of both sales and market share which was in line with different forms we expect because when we initially issued guidance for the year now as a pandemic took hold region by region. We took swift actions to abruptly stopped production around the globe, which is something we had never experienced before or envisaged.
We will have to do.
And as I mentioned earlier, the pandemic other significant impact on our Q1 results.
Adjusted EBIT was down 95% year over year. However, we were able to remain profitable as a group as well as in North America. Adjusted EBIT was half a billion euro with knowledge into Threeq when I person.
We went into this crisis with a very strong balance sheet and notwithstanding the significant cash outflows. During the period. We ended the quarter was 18.6 billion euros of available liquidity.
This was further strengthens in April with a new Threeq onefive fill in your incremental bridge credit facility.
By the market downturn, we significantly increased our market share during the quarter in North America, guiding 40 basis points and in Latin America show was up 70 basis points and prior to the pandemic hitting EMEA, we had how the shares through February.
Now sells of ramp pickups in the U.S. rules have very strong in the quarter with sales up 7% year over year and despite the stay at home old has initiated through many parts of the market beginning in mid March.
Segment share was up 100 basis points to 24.1%. So as I said at the beginning we made a good stuff through the first two months of this year.
Now, although each of our regions are different stages of the virus trajectory several governments around the world are beginning to progressively shelter in place orders and allow businesses to reopen the people to return to work as such we resumed production in China at the end of February and last week plans in Italy began to realize.
We've also mapped out detailed plans to resume production in all other regions as local restrictions are lifted.
We sharing the details of that with you later in the presentation.
Now as you know, we also announced that idea will be postponed until late June.
In addition, given the current situation the resolution related to the 1.1 billion Euro ordinary dividend announced in December is also under review at this time.
No as I mentioned during my opening comments, a clear priority for US has a move continues to be central to safety, while Barry being of the CIA family in our communities, including first responders.
And I'd like to spend a little bit of time updating you on what we have done in that regard.
Manufacturing, we immediately suspended production temporarily idled about plans and we implemented comprehensive safety protocols.
With all facilities.
In our office locations, we might we might working available to employees, where feasible and in many cases. This was in advance of local style motors.
And I also want to highlight the work being done across the company to help our local communities as well as this pool, we'd given to first responders and healthcare workers.
In China, when there are supposed to see isos than their nights at 500000 mosques. In addition, our China joint venture donated vehicles and medical materials to local nonprofits and hospitals.
In Italy, our engineering and manufacturing teams are working this island engineering, the only domestic producer ventilators to significantly increase their output.
We also made the fleet 300000 fair and Jeep vehicles available so 300.
Fit and Jeep vehicles available to the Italian Red Cross for distribution of food and medicine across the country and also provided several hundreds is.
Based upon the fear to catch up.
In North America, we're working with nonprofit organizations to provide mills to children. They typically rely on middle school and today, we have provided over 1.500 million. Males. We've also done I did more than a million face masks the healthcare workers on first responders throughout North America.
In Brazil were built the first makeshift field hospital for low income families with a 200 bed capacity and a record seven days.
In the process of building two additional hundred bed makeshift field hospitals in Brazil, and Argentina Little says supporting ventilator manufacturers to increase production capacity in Brazil with over 10000 ventilators already produced for the government.
And in China, we can relative to come out plan to produce face masks.
We were able to install the whole production process, including the clean room and less than six weeks starting from scratch.
So converging additional problems in Michigan, and Brazil, our movie capable of producing seven and a half million loss per month.
Early June to support our internal names as well as with the nation to first responders and healthcare workers.
Now during the pools and production our regional security leads and health and safety teams have been working together to identify and implement best practice, the global level, combining our scale experience and lessons learned from other locations, obviously with input from external health experts.
Reconfigured common areas offices, and workstations, including the installation of protected barriers to ensure proper social distancing.
We have expanded already extensive training protocols.
But provide and personal protective equipment all employees.
We have implemented new procedures, such as temperatures checks at all so engine says what price organized by area and faced throughout each shift reduce maximum occupancy cost the company cafeterias extended hours of service similar providing training on safety standards right E learning platforms.
Our employees at facilities other than aplomb spoke aggressively return to work over the next few months, while continuing to leverage the flexibility of remote working.
The first phase of employees to return on site or those who need to access test facilities and laboratories, and then transition others other corporate.
So from being a simple on off switch our reopening opening will be gradual and the responsible process or the safety and well being up our employees who is running at the forefront.
So now let me turn to our commercial performance for the quarter.
The overall market was down year over year in each of our regions, where the more pronounced decline in APAC and EMEA, whether virus here or there than in other regions.
In North America, and Latin America, where the pet pandemic hit later in the core to the industry decline was limited to around 13, 14%.
However, despite lower overall demand we gained significant market share in parts of those regions.
Strong share on the time was on the back of performance and yes, you the pickup and commercial vehicle segments on the North America, our share gang was driven by the substantially increase in Ram pickup cells.
For Europe and in particular it so they are an important market for us we held share at 25.3%, while we did see some share declines in Spain and France.
Now while many of our dealers the mandated to close we enhanced our online sales initiatives in place across the regions have minimize the impact on ourselves.
As an example, more than 90% of our U.S. dealer network has implemented web based tools to sell cars and trucks.
As I said, Richard will take you through the financials in detail. So I'm just gonna give me a quick overview of our results for the quarter.
Combine shipments were down 21%, mainly due to the temporary production stoppages and the disruption in demand experienced in all regions due to cope with non team.
Although we were on track for solid first quarter prior to the pandemic hitting and the fact that we took quick and decisive actions to address the impacts of cobot 19.
Studied it was down 95% year over year as a dramatic drop in our global volumes evoke so rapidly and late in the quarter of the effect of our actions did not have a meaningful impact.
However, later I will discuss the range of actions, we have an all taking to reduce our cost structure on the relative financial impact as ours.
What we typically have negative free cash flows into first quarter two one at a significantly higher cash burn as a lower volumes had an impact on profitability and the abrupt production stoppage resulted in the natural unwinding of working capital.
In addition, our capex spend return to normal level or to 4.3 billion euro compared to an unusually low level last year.
And as noted earlier, despite the significant negative cash flows we ended the quarter with them available liquidity at 18.6 billion Euro and we further strengthened our liquidity with addition of a new 3.5 billion Euro bridge credit facility syndicated in April.
With that I'll hand, it over to Richard.
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Hey, Mike.
Okay just to continue some further de though.
On page six.
As Mike mentioned, our adjusted EBIT.
Was down 95%.
Following the abrupt lots of volumes in March.
And that led to a adjusted net loss of 471 million.
Driven by the reduction in adjusted EBIT.
Finance charges were slightly down, but offset by higher taxes, but adjusted level due to the biopsy remeasurement all of our Mexican operations deferred tax liabilities.
Result of the weakening of the Mexican peso.
The net loss of 1.7 billion included impairment charges of zero, six 0.6 billion and deferred tax asset write offs of 0.5 billion, mainly as a result of the estimated it impacts of the Cobiz 19 pandemic on the market outlook of the group's operating.
Funds, mainly in EMEA and Latin America.
Industrial free cash flows.
Mentioned were negative 5.1 billion driven by the working capital absorption and increased Capex.
Able to liquidity was reduced by 4.5 billion with positive and negative cash flow offset by reduced financial services portfolio and debt issuances.
The liquidity at 31st of month does not include the three and a half billion, which debone facility signed almost 26 and the syndicated in April with a group of 13 banks.
Facility has an initial time over 12 months extendable for further six months and is structured to support the group in relation to access to capital markets.
When I say recent press release, we fully drew down 6.25 billion your revolver on April 20.
That revolver, how the duration through April 23 for tranche a on April 24, four tranche b.
Moving to page seven.
Where we show the group adjusted EBIT by operational driver.
Volume was down 204000 units at a consolidated level, mainly due to the production stoppages and all the regions.
<unk> was down 97000 units and North America down 87000 units, which contributed to a positive mix due to lower North America reduction.
Negative price were driven mainly by Latin America juice, and don't repeat a positive tax credit impacts in 2019.
Our industrial costs were negative in North America for on Vermillion due to warranty reserve adjustment.
Some logistics costs, a negative in last time due to cost inflation.
As DNA was reduced in a manner as actions continue to improve efficiency and in North America and other regions and other actions to reduce as a marketing spend were implemented at the end of the quarter.
Moving onto page eight.
We review the industrial free cash flow, our Q1 cash flow it typically negative due to increases in inventory of both work in progress and finished goods as production resistance to the Christmas shut down.
They see a negative cost. So it was 5.1 billion impacted by Cobiz 19, which was largely the reason for 1 billion reduction EBITDA and contribute significantly to the three and a half billion negative working capital impact.
About plans to cease production during much under on slowed significantly in many markets.
A 2.8 billion difference on working capital year over year was mainly due to reduction in trade another payables.
For around 2 billion and our increase in inventories due mainly to high working progress on materials balances from plant shutdowns and increase new vehicles dogs, principally in a manner.
Change in provisions was negative in line with prior years due to reduction as a sequential volumes, partially offset by increased provision for warranty.
Capex was 1 billion higher than prior year, and along with our expectations.
But then a number of key products for Jeep and Missouri.
We closed the quarter with a net industrial cash position of substantially zero compared to netting industrial costs of 4.9 billion a year in 2019.
On page nine we summarize the adjusted EBIT by region, which we will do in the following pages.
And moving too.
On page 10, we show the NAFTA region, sorry, the North America region shipments were down 16% or 87000 units, primarily due to temporary suspension of production from 18.
Total North America due to stock was reduced in the quarter from 672000 units at the end of 2090 to 2019 to 635000 units and the reduction has continued in April.
News were 14 billion down, 9% or 12% at constant FX with positive mix due the Jeep Gladiator underarm heavy duty.
Despite the impact of Koby 19, adjusted EBIT was 548 million with a 3.8% margin.
A reduction of nearly 50% compared to prior year.
Looking at the adjusted EBIT drivers clearly volume was the main impact.
Offset by positive mix due to Ram heavy duty Angie Gladiator.
Industrial costs were negative due to increased warranty expenses over there as I mentioned earlier.
As one of the <unk> preparation costs at worn for the Grand Wagoneer.
The savings and ask you know you relate principally to it reduced advertising spending in March.
On page 11.
We show a pack performance.
The impact to Koby 19 on production started in January and combine shipments were down 49% to 20000 units, mainly due to the join energy JV, which was down 66%.
Consolidated <unk> consolidated shipments were down 24% to 13000 units with Jeep Compass and Alfa Romeo both down.
Consequently revenues decreased 21%.
The adjusted EBIT loss for the quarter was 59 million euros with negative volume as explained as what it increased industrial court costs due largely to reduce well royalty income from the China, JV, partly offset by cost reduction in sales and marketing expenses.
Moving to page 12.
We review the EMEA region was though.
Consolidate they did shipments were down 97000 units of 32% to 205000 for the quarter.
Best performing brands welfare professionals, and 20% and Robin dogs that were positive admittedly on very low volumes, but growing in the middle East.
From a it was down 45% Angie down 40%.
Due to inventory was reduced from your end to 227000 unit.
And to comparing in comparing to last year 20000 units.
Net revenues were down in line with shipments by 26% and reduced volume was a key driver of the adjusted EBIT loss of 270 million.
Industrial costs also negative due to increased compliance costs on the non repeat and positive reserve adjustments last year, partially offset by lower depreciation and amortization on fixed cost reductions and I'll close.
As DNA cost actions were positive for over 50 million with 50% due to reduced marketing spend.
50% due to ongoing overhead cost containment actions.
On page 13, we see the Latin America performance.
Shipments were down 12% production was impacted in late March in both Brazil and Argentina.
Revenues were down 32 person or 23% at constant FX. The reduction was due both to lower volumes on to the Nonrepeat upright went off tax credits.
Adjusted EBIT was a loss of 27 million for the quarter. Cobiz 19 was the fact that both on volumes and on pricing on industrial cost where actions to offset inflation, we're more difficult to execute aggravated by the weaker Brazilian real making important components more expensive.
Net price would have been positive in the absence of the non repeat of tax credits mentioned earlier.
Industrial costs were negative due to inflation and raw materials as well as FX.
On page 14, we review mother Arty.
Sales were down 46% with China and 75%.
South America was better performing down 23%.
Shipments were down due to the market disruption in China, and Europe earlier in the quarter, followed by the suspension of production in mid March.
As a result, net revenues were down 46%.
EBIT was a loss of 75 million due to the lower volumes on negative mix as China was more impacted than other markets.
On page 15.
We show a mark to market outlook for Twentytwenty.
The significant demand uncertainties in all regions, coupled with regional operating restrictions led us to withdraw Twentytwenty financial financial guidance in the middle of March.
Since then we're focused on reducing our cost base answering some of our investment programs to conserve cash.
We are successfully restarted our plants in China, and our LTV Pond, and Italy, I believe we will continue to phasing of up on reserves during Q2.
Despite that we expect Q2 Q2 to be the worst quarter of the Oklahoma went up from a financial performance viewpoint, but a significant adjusted EBIT loss on negative industrial free cash flow.
With operations, then ramping up through May and June.
Back to have a good level of liquidity at the end of June and then an improved financial performance in the second half.
Market forecasts above.
Our best guess and show up remain regions down by 20% to 30% year over year.
Now I will hand, the call back to Mike. Thank you.
Thank you Richard.
So as you saw the pandemic had a significant impact on our Q1 results.
And well throughout this unprecedented global event my first priority has been the safety and well being of our employees and local community.
Our leadership team is also spent a great deal of time planning and executing on how we're going to really start up business.
In time, either having worked side by side with the majority of this fast we experienced leadership team over the past 10 years and two other cros to say I'm extremely confident in the robustness and successful execution of these plans.
And our plans we've evaluated several thousand workstation and other work terrorism reconfigured certain workstations as required as well as implementing best practices based on our global expertise to ensure maximum protection for our employees.
My regular checks of the work being done and our technology centric Golden Hills and changes will be evident throughout April before even entering the building the over working day as being where you thought you include staggered stop on thermal imaging cameras revised flies and processes for every site one way traffic direction in car those hand sanitizer.
<unk> expenses at all and she's going to new face mask provided every day upon arrival.
Now we work closely with all relevant stakeholders, including our supplies and dealers to make sure that also ready to release stop the proper health and safety protocols in place and together, we have developed and implemented robust plans to restart production and vehicle sales once local restrictions are lifted.
We've been working very hard to continue our development activities for key programs in order to minimize any loosely lies.
For example in EMEA Weve focused our initial product.
Start actions on our upcoming launches as a fair 500 bed and Jeep renegade encompass plug in hybrid models. The rules have been working flat out to fill our commitments to our customers and they list.
Now implemented remote sales programs in key markets, along with a range of commercial initiatives to facilitate the vehicle purchase in process for our customers in the U.S.. We recently relaunched our new online retail experience, which have stainless handily in top purchase process from try it into final signatures. There's still is now.
Liberal on all of our brands websites and I have a thousand WSA lives are using it.
In many European market the car at home project, what's gonna have customers and salespeople via video chat has been rolled out.
And in order to pull customers are now faces on expected financial challenges, we're offering, especially incentives such as no percent financing Friday for months and no time of the 90 days on select models in the U.S.
In Canada, we offer no timing for up to 120 days on certain models across all of our brands and initially we defer pilot in the first installments until next year for all customers financing of vehicle purchase to S. T I think.
Now despite this unexpected crisis, we remain committed to the merger we group here say, that's going to create a leading global mobility company and together, we continue to make progress on the multiple workstreams band led by senior leadership, both companies and we remain committed to completing the transaction by the end of 2000.
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And no doubt preempt, one or more of your questions. Despite certain market rumors or speculation in the time as a deal I'm not paying changed.
I'm now going to take you through three carrier key areas as the business.
Firstly the actions Weve taken.
Hi can to minimize last month the cash.
Then I'll detail the plans and <unk>.
Back to start dates for our plants around the world.
Oh.
Finally, they have.
Great.
What.
Now given our president and CEO nature. There. Since then we've taken this opportunity to challenge historical norms of our business model.
We've taken quick actions to safeguard the earnings power the company and preserve cash many of the actions put in place we'll continue to get asked beyond that.
Okay.