Q2 2020 Earnings Call
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Now I'd like to turn over the medium to Mark <unk>. Thank you you may begin.
Hello, Good morning, and thank you for joining us and review audience results for the second quarter fiscal year 2020.
The press release, a presentation flight for called the they have been posted to the Investor section of our website at <unk> Dot com.
This morning, I'm joined by Duncan grow so that each president and Chief Executive Officer, and just to follow our executive Vice President and Chief Financial Officer on today's call. Doug will provide an update of business followed by Jeff will review, our Q2 financial results in more detail.
After our prepared remarks, well open the call your questions.
Before I turn the call over to talking Jeff There are few items I'd like to cover.
First today's conference call will include forward looking statements. These statements are based on the environment as we stand today, and therefore involved risks and uncertainties.
I would caution you that are actual results could differ materially from these forward looking statements. Please refer to slide two of the presentation for complete safe Harbor statements.
In addition to the financial results presented on a gift basis, we will discuss the non-GAAP information that we believe is useful in evaluating Humphries operating performance reconciliations of these non-GAAP measures to the closest GAAP equivalent can be found when you're talking this of our full earnings release. This concludes my comments.
I'll now turn call over to Doug.
Okay.
Thanks, Mark and good morning, Thanks to our investors perspective investors analysts joining the call. This morning spending time with US as we review our second quarter results.
Oh, you and your families are staying safe and healthy and things to hold times.
Turning to slide four.
I'll begin with few comments related to.
A recent developments well then focus the majority of my comments around Cobiz 19, specifically, what we're doing saying steps, we've taken and we'll continue to take to mitigate the impact of that pandemic.
Hi, its preparation ability to restart or operations finally Indians expectation for the industry as we move has current crisis.
The toughest like for you can see how do you have like financials, which when you exclude the impact conclusion 19 were solid and built on the momentum established in late 2019 in Q1 2020.
These results further demonstrates the improvement in phase of our turnaround plan, what is accelerating and ahead of schedule.
Sales at 3.5 billion were down about 700 million versus last year Q2, just over 500 million. The volume decrease was attributed to lots of production associated with them.
Adjusted EBITDA increases to 211 million up $20 million year on year.
Excluding the appropriate approximate 100 million impact from Cobot 19 earnings were on pace to eclipse last years second quarter by 120 million.
Similar outperformance the company achieved in the first quarter of this year.
Also worth noting our year to date free cash flow, which is essentially breakeven improved by over 200 million versus same time.
In a year ago.
Improved earnings lower Capex for primary drivers of the improvement.
In the bottom box, we've highlighted at a high level, a proactive actions and talk to help protect the financial health of the company.
As the impact is a pandemic intensified as the quarter progress fees included.
Limitation that cash conservation initiatives actions to bolster allianz cash and financial flexibility, including the successful issuance of 600 million senior secured notes.
And the development of restart procedures to ensure our operations are ready to reopen with proper safety protocols in place.
Brought each of these in a minute finally before leaving this page I'd like to highlight and thank the team members, who worked tirelessly to provide support.
Their local communities through various manufacturing initiatives.
Namely that design and production Uptakes production in Threed printing for parts for pay shields.
Turning to slide six let me expand on a few key points.
I plan to go through these slides relatively quickly.
I know you've had a chance to download the materials and I'd like to leave ample time for Q1 at the end of this call.
The current global automotive environment remains uncertain, although as we looked at China. We are encouraged olive adding some united plants are open impact 45 plants are running two shifts.
All in adding as customers are up and running.
<unk> plants and move on and who have.
Have opened with SGN building 2000 vehicles per year.
Another encouraging data point relates to enhance profitability through the ramp up production.
Because the team acted quickly and decisively to improve on variable costs.
Margins have returned to normalized levels and the first month size production Brazil.
We've taken the proven China playbook and applied.
To Europe in the Americas.
Beginning with significant actions to improve our variable costs and reduce our cash burn well at the same time developing detailed plans to reopen.
With cold that safety precautions in place.
Speaking of reopening in Europe over the past week.
10 days certain of our customers have resumed production some quick steps.
Approximately 20 year merchant plants are in production.
With various rates of pulling from always ranging from 30% to 100%.
We expect 80% to 90% of a we will begin production but ended the month.
The UK is expected to be the last country to restart.
In North America customer restart plans continue to all after certain delays.
Limited restarts our plan for the weeks of May 4th of May 11.
We anticipate meaningful re starts to occur we kept me 18.
In addition, given mexico's shelter in place or still in effect.
Suppliers and always will need to navigate through added layer of complexity.
We are in daily discussions with their customers and suppliers to ensure successful launch.
Turning to slide seven we provide a snapshot of the current environment in China.
Which we hope signals will likely path for Europe, and the Americans and then coming month.
Read all the bullets, but I wanted to point to a few key highlights.
Burst China business activities are gradually resuming.
Almost all supermarkets retail.
Entertainment or open with foot traffic close to normal.
And public transit ridership returned to 90%.
Specific to the auto industry as mentioned Oems have open.
Nearly all dealers are open for business sales are progressing in the positive direction.
Fact early data suggests retail sales between April 1st in April 25th is comparable to last years level, representing a big improvement from March.
And finally, we're seeing a strong mix of business of benefits area as the premium brands in Japanese Oems are outperforming the overall market.
Slide eight illustrates the steps we took in China during the shutdown period to produce.
Hey, Ki bin and improve our variable cost structures.
These actions such as flexing head counts postponing new investments to reduce capital spend.
Driving be JV initiatives, and optimizing engineering resources to name a few resulted in our business maintaining 10% EBITDA margins, despite an 18% drop in volumes.
We've taken the China playbook and applied into the reps global operations.
To manage costs preserve liquidity.
To protect enhance long term health.
Flipping to slide nine.
We outlined the cash conservation actions, we've taken reduce or monthly cash burn rate.
To about 179 million per month.
This monthly rate is based on.
Production environment experienced in April, which was essentially zero in Europe and North America.
These actions are significant and reach across all parts of our organization.
Well planned actions.
Q to quickly and included.
Compensation for us employees, and taking a 20% salary reduction.
Plus an additional 10% salaries deferral.
You us.
Myself and my direct reports are taking the full 30% salary reduction.
On top of that and deferring the rest of my salary till mid July.
Outside the U.S. E band employees are taking an approximate 20% reduction in salary.
We've also worked with unions and employee groups globally to achieve seller reductions throughout Europe, Mexico.
South America and parts of Asia.
Likewise, we've reduced costs at our plants and jvs by for a little indirect and salary plant workers.
Lane Merit increases reducing engineering costs.
Fine subsidy opportunities from local governments.
To further reduce the cash burn.
We have delayed investments that are not critical to TV norplant's operational.
Jeff in the finance team are closely monitoring turning that our receivables in GB dividends to ensure timely collections.
And we'll spend a lot of time on slide 10.
I would say in addition to measures within our direct control Eddie and it's also investigating cash conservation opportunities that result of government stimulus.
Moving to slide 11.
And our restart plants important to remind you that from the beginning of the crisis Eddie's assembled and operational leadership team to manage through the challenges and ensure best practices were share across regions.
The collaboration was extremely helpful. When developing our global restart guidelines.
Since China has proven playbook.
Use those procedures as a framework.
The detailed procedures are posted on its website.
Bottom line any its business operations are prepared to restart.
Which includes not only providing safe working environment for employees.
But also leveraging the covance situation to clean up business from a commercial perspective.
What are the initiatives, we took a few weeks ago was ascend develop lifting cost reduction ideas all of our customers.
That could be asset upon immediately.
We'd be willing to share the benefit associated with that.
In addition, we've taken the opportunities as we all of our open commercial issues probably to restart with our customers.
Using these extraordinary times to push towards resolution.
Some of the premium customers that will say, we had and enhance relationship with.
We've gone and asked for special terms post restart to improve liquidity.
And on the opposite end with certain customers, where we had an unprofitable situation. We've taken this opportunity to exit the business.
The covance situation behave similar to 2009 2010.
Anticipating customers will reduce or delay launches.
And new program development, we think there's significant opportunity for us to continue to flex our cost structure now.
Turning to slide 12, Theres no doubt pandemic has.
Create economic unrest for the consumer.
Cautiously optimistic.
Stimulus being put into the market will help drive consumption.
We've seen at heard many different options that are being explored such as cash for clunkers in the U.S. and in Europe potential. So I mean, those two compliance requirements in Europe.
And incentives to advance alternative propulsion vehicles.
And expects to benefit from any one of these alternatives.
Yes were essentially agnostic with regard to powertrain mix.
In addition vehicle manufacturers are complaining spring selling season advertising with expanded incentives.
Going from zero percent financing.
Deferrals.
First responder discounts to persuade consumers now it's time to pie car.
Finally, before turning the call over to Jeff and flipping to slide 13.
Collections to further flux or cost structure to improve earnings in cash flow in this new sales environment.
I think of this in three phases, the first phase of survival weathered the storm phase.
We've taken steps to do just that many of which we shared with you. This morning.
The second phase is reciting the business to be profitable cash flow positive and the lower sales environment.
They don't view, the lower sales environment as the new norm, but it will likely be with us for a period of time.
And it's adding in is taking steps decides to cost structure accordingly in in line with.
Good sales levels. This includes accelerating.
Plans to turn around our stuff and on business.
When the industry fully recovered 83, we anticipate that the actions we've taken the re sized lower the cost base.
While I'm able add into emerge stronger company with earnings in cast generation comparable to those are closest peers.
With that alternative call over the job. So it can take is through enhance finance.
Annual performance with court.
[noise] good morning, everyone, Thanks dog and and I Echo your earlier comments hope, everyone is safe and and well.
I'll start on the slide 15.
Hearing to our typical format the pages format. It with a recorded results and the loft and are adjusted results in the right. So you will focus or commentary on the adjusted results, which which exclude special items that we view as either one time in nature, rather wide skew important trends and underlined performance for the quarter the biggest drivers.
The difference between our recorded in are adjusted results relate to restructuring costumed purchase accounting amortization.
Details of these adjustments around the appendix presentation.
Sales were 3.5 billion down 17% year over year, which included over $500 million of estimated negative impact due to cope in 19.
Geneva Dog with a quarter was 211 million included about 100 million dollar impact related to coded 19. Despite the head when you could die was up $20 million year on year end is more than explained by improved business performance across America has a me in Asia.
Note that equity income was down for the quarter due to cope with 19, as we only had $10 million of equity in common a quarter versus $63 million a year ago as about the bulk of our equity in com arises out of China impacted the virus hit our equity income heavily called February and March.
Finally, adjusted net income any P.S. were up significantly year over year at $58 million.62, respectively, and you can see the improved operating results in a lower effective tax rate between periods drove the year over year <unk>.
Making of taxes at his cute to physical 20 effective tax rate is based on an actual tax rate calculation versus an estimated annual effective tax rate calculation.
<unk> methodology was necessary <unk> impacted the pandemic has made illegal entity based outlook in practical.
Now, let's break down or second quarter results in more detail starting with revenue on the slide 16.
We reported consolidating sales at 3.5 billion, a decrease of 717 million compared to the same period a year ago.
Lower volume and mixed across North America, Europe, and Asia impact of the year over year results by approximately 634 million.
And like 530 million of the volume decrease was attributed to Los production volume associated with the pandemic.
In addition, the negative impact currency movements between the two periods, primarily in Europe impact of the quarter by E. $3 million.
Worth, noting the call out on the right side like right hand side slide a consolidated sales in China were down about 36% you're on year better than vehicle production in China, which was down approximately 49% and he isn't exposure to luxury in Japanese <unk> benefit.
Manufacturers outperformed the overall market.
[noise] also noted are out in sales and Thailand, which were essentially in line with industry production.
With regard to add in unconsolidated seating revenue driven primarily through our strategic J.B. network in China sales were down 35% excluding effects of basing the 49% decline in China's vehicle production over the same period.
Also important to know sales in China improved as the court progressed and encourage encouraging sign that fortunately accelerated equal.
Moving to slide 17, we've provided a bridge of adjuster deep adopt show the performance of our segments between period.
The bucket labeled the corporate represent central cost that are not allocated back to the operation, which is executive office communications corporate finance legal and marketing.
Big picture adjusted even Guy was was $211 million and current quarter versus $191 million last year.
Corresponding margin related to the 211 million of adjusted EBITDA was 6% approximately 150 basis points are skewed to last year.
Excluding equity income are <unk> on the consolidated business increased from three per cent last year to 5.7% this year.
Good results, especially considering the sharp decline and rubbing.
As noted earlier this year second quarter, either Doc contains about 100 million dollar headwind hope it 19, excluding $100 million I didn't it was on pays to show similar year over your improvement to the one posted in our first quarter. This year.
A good proved point that out of the turn around plan was accelerating ahead of schedule.
I'll mention also mentioned about two thirds of 100 million dollar covert impact relates to audience consolidated business. The remaining one third is associated with the decline in our equity income.
Based on that you can see the team that a nice job of keeping our detrimental margins shaq.
You're over your improvements in adjusted the job is largely driven by improved business performance and lower S. Junaid cost.
Lower launch ops waist and freight made up the ball could be improved business performance.
With regard to the approximate 40 million dollar reduction in S.G.N.A. costs, which again was spread out between the region driver's included.
Increase efficiency is and the positive benefits associated with the consolidation of audience aerospace at a divestiture Carl.
And also important to point out a portion of the improvement call. It $20 million relates to temporary benefits associated with employee compensation that are not likely to repeat next year. It's temporary benefit was included in the net covia impact of $100 million.
Partially offsetting these improvements was the negative impact the volume and mix call it $93 million and 51 million dollar incline inequity income between periods.
Both of which for primarily driven by the pandemic.
Packs also impact of the year over year comparison, but to a much lesser extent call it 6 million.
Finally, as noted at the bottom of the slide America's and media access and <unk> positive direction with the plant manufacturing results improving about $40 million versus last year's Tutu at approximately $10 million compared with the two 120 20.
To ensure enough time is allocated to that you any portion of the call. We've provided our detailed segment performance slides in the appendix of the presentation.
<unk> business performance and lower S.G.N.A. cost, partially offset by the lower or by the impact of lower volumes is the primary take away from America's in the near regions.
In Asia, <unk> 19 has significant impact chore consolidated revenue an equity in com, what was partially offset by better business performance and lower S. Jeanette costs.
Let me now chefs to our cash liquidity in capital structure on slides 18 1920.
I'll focus on your to date results longer time frame house smooth some of the volatility working capital <unk>.
Adjusted free cash flow to find his operating cash flow left cutbacks was about break even at minus $2 million 141 million dollar improvement in adjusted EBITDA.
67 million dollar reduction in capital spending and 50 million dollar [noise].
Declined in restructuring explained the vast majority of the 210 million dollar improvement in free cash flow versus last year.
Trade working capital, which is mentioned in the past tends to be quite volatile throughout each quarter.
And was a partial lhasa.
Thinking of.
Speaking of working capital on the right hand side of the slide we've highlighted how working capital movements between March in May are expected to impact audience cash flow essentially the production stoppage will result in working capital swings, we expect to have a benefit in March or April, but reversing in may and generally.
Neutral during the remainder of a shut down period.
Restart we expect an initial drain and month, one followed by a few months of benefit ultimately upset or.
Going back to capital spending the air over here decline is partially related to the timing of our customers launched plans as well as increased scrutiny overspending.
We anticipate given the impact of Cobin 19 in the likely delays and customer launched plans in new program development further opportunities to reduce spending will materialize.
Looking forward to slide 19.
And executed several actions to increase our financial flexibility.
First we took a partial draw on her I said based revolver abate hundred and 25 million in March it's draw which was included in our cash on hand balance at 1.6 billion a quarter end combined with the remaining undrawn availability of 175 million provided provided out in with about $1.8 billion liquid.
City a quarter end.
That said, it's important to note available liquidity associated with <unk> facility is not static and fluctuates with changes in the underlying business.
In other words, it declines with a shrinking receivable balance such as the situation today is it due to the significant amount of automotive shutdown across the world.
Looking ahead, and realizing we'd be experiencing a contraction of A.B.L. revolver availability due to the shut down at our customers. We successfully entered into the debt markets in issue to 600 million dollar.
A five year senior secured note in April.
After the quarter, and we required to pay $137 million or A.B.L. balance due to the declining error bounds.
In addition, we voluntarily replaced repaid additional $350 million when the facility a month and it's voluntary repayment was not immediately required but rather represented are estimated required repayment in late may do to further expected declines in here bounces, but.
The drawn amounts on the L.A. April 30th was $338 million.
Pro forma for the new secured notes and required 137 million mandatory pay down.
[noise] April are March 31st liquidity would have been 2.2 billion.
So in the current environment.
We believe inadequate level of liquidity to weather the storm, especially when factoring in the staff, we've taken to reduce our monthly cash burn to about $175 million per month.
Burden rate as we've pointed out earlier is based on the production environment. We experienced in April which is essentially zero production in both Europe and the Americas.
Also note that due to the variety of actions taken to mitigate negative cash flow during the shut down period, we were able to lower are estimated cash burn from approximately $300 million per month to the hundred and 75 million figure just noted.
In addition, we expect to close on our previously announced strategic actions before the end of our fiscal year, providing proceeds of about $575 million.
<unk> highly profitable network of China, G.B.'s with a strong balance sheet inconsistent cash dividend further enhances or liquidity as noted on the slide seeding J.B.'s had a net cash balance of approximately 1.6 billion at March 31st and approximately $200 million of cash dividend.
Are expected in physical 20.
<unk> 20 in addition to showing our dads and that that positions.
Total 4.6 billion in 2.9 billion, respectively. At March 31st we've also provided or pro forma luck it audience capital structure, reflecting the issuance of the 600 million five years senior secured notes. We believe this capital structure I only provides flexibility to weather the storm or more importantly, it provide.
It's flexibility to pay down debt after recycle past the crisis.
Proving audience cash generation remains top or Prairie dog pointed out the actions taken.
The actions, adding has taken and plans to take our design to improve our earnings and cash flow to be profitable in a smaller sales environment.
Over the crisis once the crisis is in the rear view mirror, we'd look to pay down some debt.
Using excess liquidity overtime host crisis.
Expect to have zero outstanding balance on the F.D.L. and run with the cash balance somewhere in the area between 500 and $600 million.
Finally, a few closing remarks and slide 21.
Burst as evidence by a few two results and historical operating challenges are being addressed the team as affirm and and the wheel and continues to execute again just commitments that.
And the impact of Kobe 19, as being addressed the play that used in China in February and March it successfully being applied globally.
And third Adam's liquidity, a strong and we believe provide ample flexibility to weather the storm.
Given the unprecedented level of uncertainty or on the global economic landscape and its impact on the auto industry, providing specific guidance for the remainder of 2020, it's not possible at this time broad brush, though are outlook can be thought out in three waves or phases as Doug put it early days the team executed actions are protected.
Natural health at the company limiting our cash burn in ensuring we have adequate liquidity level of liquidity to manage to the crisis.
Those actions executed it seems now focusing on executing additional measures Teresa items business to drive profitability in cash generation lower sales environment, Although we expect a smaller sales environments be with us for a period of time, possibly a year or two we do not think it will be the new normal.
Endgame remains the same probe in 19 has not changed for plan when the industry is fully recovered we anticipate that the actions we have taken degree size the business and lower the cost base will enable audience merge as a stronger company earnings and cash generation horrible for those.
Heartless peers.
The team is focused more than ever and executing actions to enhance shareholder value.
With that let's move into Q. and a portion of the call.
Brighter.
<unk>.
<unk> session.
<unk> no question <unk> <unk> <unk> <unk>.
<unk> <unk> <unk> <unk>, but think of America, yeah, nine or something.
Good morning, everyone. This is dealing snap on for John I think <unk> when looking at 100 million dollar improvement and monthly <unk>, they've been able to achieve during the period of production stoppage.
<unk> more structural animal translate into stronger free cash so I mean, either side of this crisis versus what ignore temporary and may not per se as costs gets added back with production.
Yeah. Good question Eileen I'll start and end up comes up and the a lot of these are really more in the category of stopping the bleeding during adult production environment. So putting our plans on for our laws, taking you know the options we have on.
Reduced salaries in compensation for employees and reduce capital spending associated with the no production environment.
So the the point, we we talked about though is we're taking the opportunity now to do more permanent actions that wall.
Improve our profitability.
As we move forward, but a lot of the actions we talked about getting from the 300 or so to the 175 or temporary quick measures to get an immediate benefit immediate savings during a period of cereal production [noise].
[noise] [noise], great that's helpful and on their misunderstood that that <unk> 600 million I got raised within the poster near term liquidity and much stand that the current market pressure, but over the longer term can you remind us what you view danival or ideal capital structure, specifically any targets longer.
<unk>.
Yeah now it's good question I mean, I mentioned, then my remarks that we look you know for cash somewhere between the five and 600 million dollar range. Obviously, we have a lot more than that today. We also have $575 million coming from the transactions that we plan to.
You know complete are we stuck to complete I should say before the end of the fiscal year and the back half of the year is always the time period, where we get our dividends.
You know, we would've never taken that additional liquidity Ah, but for the code at 19 crisis certainty it creates.
But with you know the amount of sex costs, we thought it was prudent to do it let's see you know these limited amounts of utility for the A.P.L. during the production shut down as I mentioned truest to to raise the nodes.
As we get to the other side of this we will look to pay down debt I and use that excess liquidity to get down to that five or 600 million dollar range. We have the ability obviously to pay our term loan v., which is a little under $100 million today.
Well it further opportunistic measures to to reduce debt load as we get to the other side of this.
From overall data structure I would say.
We've looked at something close to.
Two times leverage ideally inside that a little that.
As you know sort of our long term goal on where to get our capital structure found too obviously coated has given us a setback we expect to come out.
Stock on that mission on the other side this endemic.
Okay and my question can you have any visibility around customer releases beyond the next month or two and gap in North America, particularly anything to to inform the production rather than those regions are there any examples that in China over the past month there <unk>.
Sure.
So you know with all of our customers. So you know beyond just China, we get.
Typically a a 12 we broadcast at her chip plans that are loaded in the system.
So we've we've got very good visibility.
And I think we'd common in in in our form of remarks. So you know we expect your up come on like pretty quickly and get back to 100%.
Production, that's what's reflect it I wouldn't say the only area that.
It is still a little bit flew up right now is in the Americas. That's just the coordination of.
The state governments, providing a the always the opportunity to go back to work and then the fact that.
There's a heavy reliance on Mexico, which has.
They have in place.
In in place at this time.
The.
Releases are in our system and the only reason and discounting it a little bit as we anticipate the shift will occur over the next couple of weeks until we get through that for Easter.
<unk>.
<unk> well <unk> okay.
Good morning, everybody.
Okay had a cup a couple of questions just to follow up your consolidated <unk> was 201 million and that was wondering if you might help us walk through some of the adjustments that we might want to think about to extrapolate to kind of.
Annualized rate yeah, the bit I think you mentioned that there was $20 million of unusual com benefits that I I suspect that you would <unk>, we might want us to track. Then there was also looks like $41 million a positive from commercial settlements on a year for your basis in last.
Quarter, you at talked about have some of that what's normal and some of that was <unk>. You know maybe non recurring kind of true up from prior periods can you just give us a little bit of a sense of what the runway of or the bit that might be at this level of rubber now yeah probing questions Rod on the 211 million of either died.
Posted for the quarter, we mentioned that there was roughly 100 million dollar debt impacts from coded 19 related issues Affectively. If you think of it is like $120 million of.
Total issues offset by $20 million that we took back and some of our incentive compensation. So the hundred million dollars was a number. So you can use the 311 as your.
No more normalized number.
As it related to your question on commercial that's a part of our business. All the time, what we you know we call that out in the fourth quarter because that as a.
Period, where we have an unusual amount of <unk> endive ear negotiation settlements with our customers. If I look at our overall commercial a cruel on our balance sheet, it's roughly the same.
You know it hasn't moved much during the quarter. So I'd say that it's more just business performance in doing the things that.
You know dog as talked about and what we've talked about we weren't doing as well before the turnaround of just being a working with our customers from either V.A.D.E. opportunities to you know sticking to you know contracts or other elements of volume claims or other things. So I'd say, it's much more normal course, what you're seeing in this.
Quarter from a commercial settlement activity.
Okay. That's that's helpful, but just to to clarify that that hundred million covert impact. There was also corresponding revenue impact. So if we were just to say love.
<unk>, you're sort of at a 14 billion dollar annual lights run rate of revenue.
Would we you know would we annualized the <unk> and maybe just make the adjustment for the.
The consolidated part of the bit which was to have one and then just make the adjustment for the you know that that the the comp adjustments and and and things like that.
Yeah, well so.
I guess if you're.
It depends on if you sound like you're trying to braille another variable of bringing it down in into a lower volume environment.
The the hundred and $20 million of impact less the $20 million of that G.N.A. was 100, we talked about.
The you know if you want to start thinking about that and what we look like an aide.
Jews to operating environment, I guess I would tell you.
For the quarter, we talked about.
You know 530 million estimated Kobe doesn't pack from sales.
With and we said about two thirds of 100 million of impacts related to our consolidated business about a third related equity income. So the <unk>, we're just under 13% on that mark on that level. So so perhaps you can use that to you know fill in whatever.
Revenue level, you want to use in arriving at you know in either Dustmen, yeah. The effect ideally thinking I would maybe cautioned you a little bit extrapolating that directly particularly in the Americas.
We had a relatively light amount of launch activity in the first half of the year that.
That increases significantly in the second half, particularly when we look at launches like the F. series, even though that's delay that's still going.
Going to roll into <unk>.
With that as an exception.
You you can see that we're making pretty good strides when it comes to.
You know just overall material March and performance be a commercial or costs that were take you know.
Prayed launch ups ways et cetera.
The improvement we have an s. chase that as well that and and and maybe just to give yet maybe another hack at that question from a different direction.
Whereas you know until one consolidated excluding equity in Com, We said roughly two thirds of say $67 million that impact on the consolidate aside due to <unk> that is already net of the 20 million. So we'd be closer to them to Seventyish range and then you can make any kind of volume adjust you want to that.
If you if you want to reduce into <unk> reduced environment.
Thank you I next question concerning Brian Johnson by equation line or something.
Yeah, just want to follow up on some comments you made about potentially exiting.
<unk> segments or product customer relationships, you know you've talked about downsizing overtime courts should the assets for them to your to business to the shutdowns accelerate that in any way.
Actually the specific comments were directed more towards some actions we took in China.
Specifically associated with <unk>.
Customers and they don't want to be specific who we just felt long term or in our best interests to heaven or portfolio. They were primarily result, Computrace acquisition that we made and as a result, we were able to consolidate some facilities.
Nothing significant.
In terms of assessing we've been more.
Finding ways to.
You know play the path towards reducing costs and and then finding commercial settlements associated with that on that as ness.
And then beyond that I you know, there's a few customers that I think we see that we want to de emphasize but prefer not this time to disclose though.
Okay and in terms of the cash you mentioned.
I I think to just housekeeping questions first with the receivables coming down does that mean that the A.B.L.
Excuse me revolver needs to be paid down and that you'll use some of the term loan proceeds to do that and then second question, especially with the big kind of the largest <unk> largest product line.
World or country coming up for three large.
You mentioned something about getting accelerated payments for my weekends is that something that you're going to be looking for a heck even have agreements in place has large activity and production restarts.
Maybe I'll take the first part of that one yeah, and then <unk> second the from an A.B.L. standpoint, you know I guess first just thinking about our cash Baum. The end of the quarter was roughly 1.6 billion a half of that represented the A.B. all draw in about half represented just our normal cash.
It it is true that we have to pay down the aisle. We mentioned 137 billion required paid on April we said, we made another 315 billion dollar voluntary payment in April two reflected in our best guess at what that required pay down was going to have to be in may anyway. So you can think you know we we use.
The proceeds we have no the base 800 million or at $1.6 billion to make those repayments. We also have the proceeds of the note that came in late April for 600 million.
We have a significant amount of cash on hand.
And with regard to favorable terms with our customers.
Well I'll ever that activity started.
Usually before we had the successful find out for him.
So that you leave the a. to some of it but we took every opportunity.
Quickly when we have what we say a a very positive relationship with our customer to go and say, there's there's some way we can work this equation.
That that helps us in the short term.
Particularly as we were dealing with us working capital related issue.
I would say most of the successfully had though was actually in the area of tool.
Where we were in the launch cycled with as many of our customers sometimes.
Or.
Really.
Specific kind of bureaucratic issues tooling jet lag.
For many months, sometimes up to a year before we get compensation.
We took it upon.
Ourselves to go at it really push our customers to true up on tooling payments. Those watch activities ahead of schedule. We we were relatively successful there.
Thank you <unk> Emmanuel Rasner with doing she banking line is okay.
Yeah.
<unk>.
[noise] when it too I still a little bit more color on the your.
The actions you taking his so you're restarting it seemed a little bit sings details on your like 11. So that's customer restart Blitz. You know you includes a lot of you know very eventually positive actions.
The letters to commercial items the premiums executing some Glasforms. Then then you spoke about it a little bit I'm just curious.
<unk> and those that enable you to.
Essentially accelerates commercial in cost actions that would have otherwise taken no but not much much longer. So I guess can you as you move into the rest of this here can you essentially take care of opening stuff will these items, which otherwise would have needed and then the pets when redesign was thinking like that should be taken care.
Yeah, so from a materiality standpoint, we pointed to China and that China. Despite the 18% buying drop we were able to maintain either.
Store it levels.
Much of that activity is is captured you know a slide 11 and some of the.
Preceding slides so we tickets material we're in early games in Europe and in the Americas, whether we can capture the pulled value that we were able to capture in China is to be determined, but it's really pulling all the same lepers.
And.
<unk>, you know I'm fairly confident that.
In a relatively short period of time, you know, we can achieve that won't work.
Really hoping to achieve is that whatever volume drop we experience in the near term.
That get somewhat normalize once plants restart.
That we can at a minimum maintained the contribution associated with the business and then.
You know heck into the fixed costs side of our business. So we can maintain an overall level profitability that we had.
Going in is at a high level, how I look at it.
Okay. That's cool and then the fellow you know, especially on this so obviously your your executing actions to be cash flow positive in the lower sales environments. You also expecting that solar cells environment.
<unk> for 12, or you know 24 months, so I I guess <unk> any kind of when you can give us around that's sort of cash flow positive a benchmark like you said some think that as as soon as.
Industry production stabilizes that even the lower level, you would probably be there based on your current actions or the the <unk>, they're much more than needs to be taken beyond sort of the next quarter or something.
There's a there's a lot of moving parts to that in manually I mean, we're having to have that you know I'd say sooner rather than later I, there's a lot of action sort of under way, but it also truly depends upon.
You know, how the market restarts and specifically how long it takes to restart and then.
At what level of lower we do think it's going to be lower production, but how much lower and the estimates are bouncing around quite a bit on that in the mix of vehicles that sort of sit in there and.
What our customers.
Launch plans turn out to be to they really slow it down which allows us to slow down our cat back. So we definitely need a few things to come.
Into better visibility before we can give you a full road map, but I will say, we're being pretty aggressive on actions I and accelerating a lot of things that we might have done you know a little bit later I enjoyed them now so we do think we'll.
And we are prepared to to be profitable at a significantly lower level of volume than we have today, we'll get back to you as we get a little more definition on on the future and give you a better view of what that timeline books. When we have that clarity yeah. The the the one point I would emphasize adjust comments, what's not clear.
And is a bit out of bar.
Scope right now is what our customers and had to do and.
If you go back to <unk>.
If this place any way similar to what happened in 2009 and 10.
There is a significant pull back and yeah.
Oh say, new launch new development activity, which we're anticipating that there could very well be as they look to cut.
They're spending it as well.
Sickly on the engineering S.G.N.A. side.
That dramatically impacts what.
We'll do what I read.
And what happened in indicted 10 is the customers cut back they extend it.
The production.
Many vehicles in that eliminated.
Things like capital investment for new launches it eliminated launch activity.
And it eliminated kind of role on roll off upset loss of revenue associated with that.
In it so if you get that kind of stability.
That allows us to go much deeper on the cost reduction side, and we think that that will have a pretty dramatic impact on on both are fixed and variable side of inflation. So.
That that's that's a little bit too early to see what's really going to happen there.
But you're starting to see the customers come out.
With with a revised view of of that launch kittens and that product Kline.
Launch activity.
<unk> <unk> <unk> <unk> sound Catholic pets put Morgan Stanley Your line that's helping.
<unk>. Thank you for taking the question Yeah, I I thought it was particularly encouraging to look at the.
You know the the ability to get the operations back up and running in in China, given how much manual Labor's involved with feeding and that you know bodes you know optimistic we as as we think about you know your ability to restart operations in in Europe, and North America. Maybe you can talk about you know some some other measures you've taken in in China, you know when you think.
About you know six feet, a bit and thing et cetera. So it's a really you know get that back up and running.
So sure you have to break it down at our business by the components.
The products that we produce so.
And they're just in time level you know this is our final seat assembly.
Oh, that's relatively easy to implement so that's going in with our industrial engineer, It's free space seemed a line in some case extending the line a little bit to provide that spacing.
A lot of it has to do with a personal protection equipment screening employees tipsy come in.
Two I would point you to our website to not tie up the call too much with everything that we're doing.
We feel it's you know very comprehensive lists and so far as as we've.
<unk> that in China modified it accordingly.
In in Europe at America's It's it's gone relatively well where.
Things are are slightly different in our <unk> so operation.
Really <unk> lay out those facilities order medically.
Put a of say protective barriers in between employees, where we couldn't provide the six feet of separation.
And then within our metals and mechanisms business.
It's a bit easier to accomplish it or fold as pets.
For for the most park fairly automated and spread out so not a big issue but.
And then what we've implemented.
<unk> quarters, we still have the vast majority of our employees operating from home.
Today, what you intend to continue that will probably continue that even if government restrictions are.
Are changed just because we pick it.
It's a safer way for.
Our offices to operate as well.
And and just you know it could see your point you know it sounds like you know that it's a measured we're not too hard to implement but how much has impacted your your capacity or your outputs. You know you operating at you know sort of 90 per cent levels of you know normal capacity given that you had the re space or employees or you know.
How's the how's the impact and your production to build.
Quite frankly, it's it's really not had an impact at all.
You know and we measured that by what's happened in China, and and actually it's increased part labor efficiency some of that had to deal with.
In the early stages, when you were restricted in China with employee availability that wasn't unique tough that was with many many of our customers as well as suppliers.
So that really forced us I'll say health and safety aside to to become more efficient such as.
The basic lean principles that we had to implement an emergency levels.
And that we found that we were able to run more efficiently.
Where the the only point at caution you where it becomes.
Problem is not so much or the health and safety side, we feel pretty good that it's.
It's more on how our customers operate in what they do and how they operate within their place.
So if they lose efficiency in there.
Automotive facilities.
And they run at a slower line rate.
That will force inefficiencies in our plans because well we'll have to man for the line race, but they won't run in it.
We've experienced that in the past during launch activities, usually that translates into some sort of commercial discussion as opposed to us having to burden or operations with that I I would say that's my bigger concern than the last.
Productivity or capital spend that we've had to put in place at our operations.
To be I'll say cobot complain.
Thank you I last question <unk>, R.B.C.N. nine or something.
Thank you very much.
I I just want to get back I guess to that the detrimental margin discussion, which was I think pretty impressive in the corner, but no. The the the mix of regions that that that is I guess impacted in the next quarter look significantly different so <unk>, maybe can just help us with that sequential bread.
Into while you're expecting or or maybe even an indication of what of how the the margins held up maybe in the last two weeks of of this past quarter.
Yeah. It could question Joe Good morning, the you know I I would say our deck <unk> holes in Europe tend to be a little bit worse and they are and you know other areas because we have a lower ability to flex we've been eight into flux in in Europe.
One because you know I think we went in as I said, we are kind of aggressive and a lot of the moves but there are certain limitations you can have from the various countries on how much you can take labor down.
Governments have put in a number of short time work week.
Programs in that have allowed us to take down our our labor cost a bit but I would say it has a probably the worst flexing now the good news for us at the moment you know just trying to mix standpoint is Europe seems to be getting back to work quicker than the Americas. So that will help in the area, where we have the.
The hardest time to flux as well their their sales are coming back and we have 20, some <unk> facilities that you know restarted in.
Into Europe, and that's continuing through the month, so knock on wood, but that shouldn't be helpful. Here from detrimental stand point for me.
Versus April.
Okay and then.
Looking out like you know talking to some of that some of the comments you made it it got me thinking like ever think about some of the issues that I didn't had over the past couple of years I mean, a good a good portion of it just was I think complexity and sort of [noise].
Dealing with blocks are so lucky if we take a view that over the next couple of years.
Industry volume is impacted I I understand like the absolute level of even that might be lower but is there actually.
A version of that were the margin improvement trajectory is actually.
Eater, because you know you you are better able to sort of you know managed to flow volume and and you know new launches that's sort of goes through the system.
Yeah, I I don't want to get too far ahead of it you know <unk> certainly, there's a scenario where that could be a true statement.
I think right now you know our focus is let's get the restart going let's make sure we create the environment that we can.
Have our employees feel comfortable working in.
Let's make sure that we have the proper productivity in our plan.
You know as well if I do you know the supply chain is <unk>. So.
Yeah, we we've got all hands on back to make sure that we can manage.
The unforeseen set up come our way.
But.
If you were to compare.
Scenario, two again, what happened in nine and 10.
I think many many suppliers benefited from.
Kind of that reduce launch cases that I talked about earlier and if I look back what was the you know the biggest issue that we had to deal with as a company and.
17, and 18 to a lesser degree 19 and 20 as we improved was managing the complexity of our launches we'd talked that watch activity spiked in those prior years. It's.
It's very difficult in challenging to manage this this too and we've also pointed to prior to cope with that his hat launch activity came down we anticipated better performance. So I think that's that's a scenario that if it plays that way.
It works for advantage.
[noise], great and it looks like we're at the bottom the hour. So just concludes the call for this morning <unk> calls please do not hesitate to call, we'll get back to you and again. Thank you very much thanks, everyone.
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