Q1 2020 Earnings Call
[music].
Ladies and gentlemen, thank you for extending BOLI and welcome to the Q1 Twentytwenty earnings release Conference call.
At this time all participants are in listen only mode. After the speaker presentation. There will be a question answer session. You asked a question. During this session you will need to press star one on your telephone.
That's why I, probably should the discount rate, it's being recorded today Friday, 24th of April 2020, and no like they had to go in France, all but your first speaker today, almost Johnson executive Vice President Communications and Investor Relations. Thank you. Please go ahead Sir.
Thank you very much spin off.
Yeah.
You're welcome everybody to our first quarter trends trend <unk> earnings conference call Web Call's presentation.
Historically, we have our chairman president and CEO Yakov.
Chief Financial Officer.
Myself Thomas Jonsson Communications.
During the call today YOD wouldn't comment on our current situation and highlights.
Well, that's providing an update on our strategic reviews, and the new customer program a product launches.
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Walk you through the financial results efficiency programs, and then provide some commentary on our updated outlook for the remainder of Twentytwenty.
Okay. This would remain on the line for the Q and I'd say show.
Of course, it's like an earnings release, our available through a link on the home page on our corporate website.
Let me turn to page.
We have on the next page the Safe Harbor statement, which is an integrated part of this presentation includes the acuity that when folder today.
During the presentation, we will reference.
<unk> GAAP measures and the reconciliations of these figures are disclosed in our quarterly press released 10-Q that will be part with yet.
The call is intended to conclude at two P.M.C.D.. So I ask you to limit yourself to two questions had a maximum.
Can get everybody request in.
With that I will turn it over to our Chief Executive Officer Youre close on so you don't take over the course.
Thank you very much too much I also would like to say very warm welcome to everyone to do.
First quarter earnings call for Twentytwenty.
If we had turned the page so again, we have or business highlights for the first culture.
And that's spread over the Corona buyers is first and foremost a global have the crisis and or thought should go to everyone around the world suffering from its consequences.
<unk> health and safety is our first priority and we are taking actions to protect our people and safe guard our operations.
It is frankly speaking I'm believe up all the impact dependent make is having on global economies and impressive particular <unk> automotive industry, Yeah 19 days.
The latest diet chest figures indicate an 18 million drop or 24% in twentytwenty from last year. However, we haven't taken to more conservative approach you know reasons planning assumptions.
Well go China and rest of Asia are gradually recovering, albeit well below the pre crisis levels Oems in Europe, and North America, which are essentially shut down through April or planning for a staggered recovery during may.
This sequence of events has triggered us to take additional actions with or markets adjustment initiative program with a goal.
To offset the lower contribution from lower same with cost mitigation and other cash flow actions.
We are pleased with the market adjustment initiative resolved during the first quarter asked we improved our already strong cash balance to now $970 million.
And we will continue our focus to improve our cash flow and the operating loss performance versus 2019.
Considering the current market situation, we foresee some launch delays. However, order intake remained fairly robust at approximately 175 million well the average annual same during the fourth quarter.
Lastly, I would like to reach out to two they'd be linear team and express my sincere gratitude and up most at rejection for your dedication and strong contribution as we navigate through this difficult and on certain crisis together.
Now looking on the next space age.
Thanks, all of that light vehicle production decline has clearly accelerated over the last 90 days.
We now see approximately 84 million a few where vehicles today for the time period 2019 to 2022 as compared to what we saw in June 2080.
This is an additional 34 million fewer vehicles than what we reported last quarter.
This equates to essentially a 21% reduction in the global light vehicle production development for future years two comp.
Clearly the entire auto industry will be impacted by this downward adjustment the light vehicle production. However, we expect that would be some type of rebound at some point and it may take several years to recover to the 11 seemed 29 team.
As a consequence of this market, though certainty and potential changes to our customer launch cadence. It is too early to provide any updates on our growth beyond twentytwenty.
Fortunately for munier, our future growth will be much more product launch driven and less dependent on the light vehicle production growth.
Therefore, we continue to focus on successful launches, while driving effective cost control and cash flow management.
Looking on the next page on our market adjustment initiative program.
This slide summarizes the threep tenders that comprise our markets Injunctive initiative program, which includes efficiency improvements investment priorities and product portfolio optimization.
All of these actions were taken around this time last year to create financial stability and sufficient liquidity to fund operations and support our investments for growth.
Now, we see that a significant deterioration in or underlying market conditions. We are taking additional actions in the efficiency improvement area. We must will speak more about you know he's portion of these visitation.
Some of these actions include customer cost sharing all the R&D any.
Next thing or direct and indirect costs as much as possible to lower the customer volumes without comprising launches.
And reducing professional services.
And on the discretionary spending.
Turning to page you can look on our investment priorities and product portfolio optimization.
We're pleased to have concluded the strategic review process for say, new with <unk> and or brake system business.
As you already know we close the the N.B.S. Asia divestiture during the first quarter.
And also yesterday, we announced that we have signed and non binding agreement to divest the U.S. Brady Corporation is doing well established automotive supplier for a purchase price.
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We expect the transaction to close during the second quarter and looking ahead, we expect to reduce or future cash outflows by approximately 80 million dollar newlink twentytwenty and Twentytwenty well.
From an accounting perspective, we have taken a noncash impairment of the assets held for sale.
$144 million during the quarter, which is partially offset by the seven to 7 million book gain from that the NBS Asia proceed.
We believe this is the prudent approach to take especially during these uncertain macro environment.
Back on the April 2nd we announced at Munir and Volvo cars have reached a mutual agreement to split this into what do you want to venture to pursue respected hey, that's an AB strategy.
Munir will integrate and operate the currency annuity business focused on the development and commercialization of Ada software for collaborative driving.
We expect to bring more than 200 up the parents, who knew what the employees into our system and software team in.
During the year and generate annual cash savings in the range over $13 million to $14 million as well as a one time cash payment of around $15 million top yet to define that agreement.
The process displayed city with he is already underway and is expected to be completed by the third quarter. This year.
Now looking on to our product portfolio optimization on the next slide.
Here, we have summarized or leading global software platform and features.
The image to the left illustrates the complete school, forcing me with team I knew it was formed in 2017 with the purpose and focus on software force sensing sensor fusion decision and control a vehicle controlled.
So I knew it has done a very good job to deliver a commercial offering to the market focusing on Adas features.
And that's you can see by the Mitch two did right of this page the defense feature it seemed that white collar or existing worn ready today.
And the yellow color or features that will be available at soon and support our order book.
Now looking onto our scalable architecture on the next page.
Our strategy has the unique here is to build a scale will end up system that addresses the needs across the full spectrum of the light vehicle market, including the end cap requirements that regulations, we the focus on scale ability and openness.
We have.
Randy a strong position in sensing technologies complemented by the internal develop perception stack, where do we also had a strong market position.
The next step is to integrate the Adas features stack develop vice annuity into our systems and software groups. So we can drive synergies and efficiencies towards our scalable system architecture.
We anticipate this will create a more agility and faster software cycles, and also provide better cost control on our future growth.
We are confident that the software hardware system approach, it's a winning formula for many years to be one of the industry leaders.
Now looking on two or Twentytwenty launches on our next page.
Here, we have or top 50, new program a customer launches for Twentytwenty.
As highlighted in Red we have on day to fight the important changes in timing over the last 90 days, where do we see some customer launch delays.
We have also identified where we see some potential annual vehicle volume changes, although it's too early to estimate the net impact beyond twentytwenty.
In aggregate vehicle models and platform still represent approximately 500 million dollar on average annual sales with an average content per vehicle of approximately $270 per vehicle.
Including brake systems.
Assuming the brake system divestiture losses, and we wouldn't come back with further updates to this slide on the next earnings call.
The content range of these top 15 remains unchanged in the range of approximately $30 to more than $800 per vehicle.
We still expect these launches which are more loaded in the second half of the year and should contribute to our outperformance versus global light vehicle production team Twentytwenty.
Looking now on our products on the next page.
As mentioned on our last earnings call, we have summarized here or key new technology launches during twentytwenty.
Despite some customer timing delays as mentioned on the previous slide those delays are not impacting our internal technology development timing.
From a quality deliver and cost perspective, it's imperative that we maintain our staffing and focus on successful launches of our core product development not only in Twentytwenty, but also in the years to come.
Despite the near term effects at Cobiz 19 pandemic.
I will now leave it over to our CFO lots backbone to walk you through the financials and outlook for Twentytwenty month. Please go ahead.
Thank you very own if we're now both through the next slide.
Considering the sharp decline in light vehicle production year over year and sequentially.
Able to mitigate the effects very well during the quarter as illustrated by overall financial results.
Our net sales for the fourth quarter or 362 million or were in line with our March 20 market uptake.
However were 30 million lower than expected due to the SVP of drop resulting from the covert 90 and some damage.
Or underlying cost structure improvements year over year, including all the any net more than offset the negative sales effects, resulting in operating losses being better than expected primary due to our ongoing market adjustment in each of these.
As you all mentioned earlier, we're pleased to have improved our cash position during the quarter to 970 million.
This was driven by a strong working capital and capital expenditure performance along with the proceeds from the B.M.B.S. Asia divestiture.
Excluding the Divesture divest there'll be MBS Asia, the underlying cash flow business, what's about 80 million for the first quarter, which includes 60 million to see new with the I'm 20 million of favorable timing differences in networking capital that will likely affect the second quarter.
As you know from previous communications or company continues to be in the middle of a tremendous investment period to support to ramp up of what future sales growth, which is supported by a strong order book.
In this environment, we continue to look for ways proposed form at me either reduce our capital expenditures as shown in the quarter, which was 27 million or 7.5% in relation to save.
So overall in a difficult environment, we're pleased with the progress we're making now looking forward with further into the details for the quarter on the next slide.
Our sales for the first quarter declined by 132 million as compared to the same quarter last year.
Which includes 46 million related to the B.M.B.S. divestiture.
The main driver or 15% organic sales declined with the Rcs business, which declined 23%.
Essential in line with L. BP decline of 24%.
Quite active safety decline just 13%. Despite the continued headwinds from the negative rather product mix shifts and the grab your face outdoor mono vision systems at BMW.
Net currency translation effects of 2% accounted for the remaining decline.
The gross profit declined to 32 million for the quarter versus prior year was due to the volume and product mix impact caused by the organic sales decline and that currency effect was minimal.
Maybe MBS divestiture accounted for 6 million of the decline.
Or the any net of 131 million decreased by 25 million during the quarter compared to 29 teens, mainly due to the improved gross cost and engineering reimbursements.
In addition, as DNA improved 8 million year over year due to lower consultancy and type vehicles.
Maybe MBS divestiture benefit for or the any an S. DNA combined with 11 million for the quarter.
Last played a strong operating cash flow for the fourth quarter was 81 million better than last year, mainly due to the 89 million net working capital improvements, which is the reflect a reflection of our ongoing market adjustments in each of these around working capital.
Looking now for a sequential performance on the next lives.
We should remember that's when comparing the fourth quarter sequentially through the first quarter, there or seasonality effects in the figures and I will not quantify those here today.
Our sales decline of 94 million as compared to the fourth quarter was primarily due to the B.M.B.S. Asia divestiture effect of 58 million. In addition, the Rcs sales decline or 35 million or 17% was lower than the sequential decline in l. VP of 23%.
Active safety increase or or organically from the fourth quarter by 17 million or 11%, which is a positive signs to sign for active safety business.
After several quarters or negative sales trends.
Active safety development is a reflection of the order intake in 2016, starting to show some positive effects.
The gross profit sequential decline of 23 million was partly due to they'd be MBS Asia divestiture impact of 10, Amelia why the product and customer mix impact organic sales accounted for the reminder reminder of the change.
The or the Indian that sequential increase was due to lower engineering reimbursement.
Our operating cash flow improved 95 million due for the 89 million improvement in net working capital, which included 30 million a favorable timing effects from the fourth quarter, which we highlighted last quarter.
Last night capital expenditure declined sequentially by 18 million due to delaying and postponing where possible without compromising or customer launches.
Looking now to our market adjustments in each of his form the next slide.
As you all mentioned earlier I was speaking about our efficiency programs as a part of the overall market adjustment in each of the program, which was launched approximately one year ago and are taking additional actions to offset the negative volume effect from the Corbett 19 pandemic.
We continue to focus on being profitable orders with within our core products not only from a margin perspective, but also an MPV perspective with the sharp focus on cash flow.
As a part of this we continue to have ongoing discussions with our customers and suppliers on the scope of current and future contracts.
Next we didn't margin improvements, we know aimed to improve or the Indian that even further by 100 million as compared to 2019 on a comparable basis.
In addition, we continue to reduce professional services costs out then sees and other discretionary spending was flexing our direct and indirect labor in production over have too much matched the customer volume fixation.
Without jeopardizing new program launches.
In addition, we have implemented hiring freeze across the organization for the time being.
Last place on our balance sheet and cash flow you have already seen the results of the progress were made over the last year and we intend to make further improvements in capital expenditure for working capital all though with a working capital we should remember that we all that they have a negative negative net working capital of eight to six media.
We're also exploring various local funding program programs no now available lesser itself. So the Corbett 19, some that mix.
Looking now to Atlantic plant the outlook form the next slide.
As you have heard today were taken significant actions to adapt to the current macro environment and mitigate the effects of our operating loss in cash flow.
In our planning we have taken a more conservative approach them the latest I it chest figures.
As a consequence withdrawing or indication from earlier this year for an organic sales increase in the mid single digits portfolio 20.
However, we expect organic sales to outperform the global NBP, primarily due to our new customer program launches.
Due to our additional market adjustments in Egypt, It's come currently underway, we hold or regional plenty plant the outlook for an operating loss improvement versus 2019.
However, we now expect our cash flow before financing activities to significantly improve from 2019.
Both on a comparable basis.
We also tall get to reduce or the any net by approximately 100 million and plenty plant. The from 29 theme when a comparable basis and targets capital expenditures to be less than 550 million in twentytwenty.
So overall I would say at positive outcome, especially considering the uncertain macro environment.
Now I'll turn the call back over three or.
Thank you much.
Poor presentation.
But flipping to page.
Includes four been remarks for today and.
I will now turn the call back to Europe, and our to manage the you in a session.
Thank you ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question. Please press the star and number one of your telephone keypad.
Your first question comes online or Eric go around from RBC. Please ask your question.
Thank you.
Since the first one is on your order expectations for the full year in relation to that previous 1 billion target.
Is there enough state on that could you say something about what's going on in terms of sort of time, the discussions with customers to others.
Ladies and other eat more look thanks, Glenn Guy.
For.
Hello.
Yeah can you hear me.
Good here, but there was somebody else.
Okay. All right Yeah. So first question on the and an update on the order situation on ambitions for the full year at the second question knowledge that you don't give the new Twentytwenty safety guidance, but you do restaurants Tonight chess estimate.
Several times, so assuming that correct in terms of their splits regionally and so on what would be or organic development for the for the year.
And then thirdly.
This.
Very substantial nordine reduction I mean, what's the.
What's the short on sort of for why that wouldn't sort of limit my in years capabilities and reach medium term.
Yep.
Okay very good.
Yeah, we can start with the first on the order expectations, we are seeing a lower or foreseeing a lower order intake than the 1 billion. It's too early to see a come back with you with a number on that but yeah.
It will most probably be reduced to a lower number that the bailey and we communicated a quarter ago.
A recent but this is of course to core core with 19 pandemic and all the activities have been affected by this and the discussions has been delayed and pushed out in time.
And we're working diligently with their customers and some orders to you know individual customer to customers at some discussions are ongoing at some guy guys have being pushed out.
You know, maybe one or two quarters.
Yes.
Yeah on the second the point that much. So we'll come back to you and talk about a high interest and the same let me take that the third one the ordinary any shortcomings I think the efficiency gain we are seeing here and the fact that we are also restructuring.
Activities through a outsourcing partially et cetera, it's not the affecting our capability at least not effecting the opportunity to execute on or fraud or order book, our current order book and and and also to be able to perform the programs that we have on the launch.
We are safe guarding there.
To the highest six times and we are Furloughing people here in the company as you have ready the in the report a thousand people being furloughed.
We have 4100 people working from home.
So the activities some of the reductions we are doing here is to of course also to two had the covert 19, he's a good way without affecting the execution of our order book.
Lots anything about the same yeah when it comes to the underlying SVP.
Tom Sim for the full year, I mean, I would not give an exact number when it comes through to a difference to the chess update other than that we are more conservative than we see and I checked out there and why is the reason for for it for it.
This being important is really that that's when we are making the plans now for 20 plant. The when it comes to it to the basis for the outlook in terms of cash flow in terms of that or or operating.
Profit Yeah, you need to recognize that we have in the base assumption when we're making the calculation being more conservative than the underlying Hs number just to kind of give the message that we are not we know we don't see more positive outlook for all their more negative.
But second they also important to remind him by whatever we are kind of ending up with in terms of the on the underlying LPP for the year, we're looking at an outperformance for our own.
Organic development due to being more kind of low interest rate plan in terms so that.
The development draw that down the underlying SVP.
And also to the third point just to add to what I said here yeah. The first part of your question the order intake being low where that will also include lower activities from the engineering side. The pursuit to Saatchi is quite big load of the engineering workforce and seeing a somewhat lower activity on that.
While it's of course are helping us down in Latin and people are far lower than.
We are restructuring the point so that's another consequence out of the situation.
Thanks, just quick follow up two months done and I mean, you previously talked about rolling this out at this point there. So I think outperformance versus sell that the is it.
Looking at a very different number now the commercial launch was being such a big part of it or is it still in that ballpark.
No I mean, if it's there I mean that all basically no changes when it comes out or underlying growth being if the more driven by the launch a slot.
To to kind of gave a more I wouldn't like to give more precise number rather than that we're looking at than and outperformance of the of down but I will repeat.
Thank you.
Your next question comes from the line of Dan Levy from Credit Suisse. Please ask your question.
Hi.
Good afternoon. Thank you.
Wanted to start with a question on cash you said you had improved working capital of 89 million how much of that was due to your own afterwards to better manage the worked got plenty of both initiatives versus unwind of working capital during production shutdown and what should we expect working capital once production reserves.
Yes, I looking at the if you take the number that close to 90 million. That's me so in a improvements in the quarter I mean first to what we've talked about is timing effects from differ from the fourth quarter. That's what we definitely had had to help from timing said from the fourth quarter into the first quarter and that's approximately.
30 million.
Looking at the different components in terms of that.
Looking capital we have improvements in all areas. So if I'm looking at the inventory for an instance, about 10 million in terms of an improvement and I think that's a pretty strong number given that that.
We had to kind of slow down on production towards the later part of the of the quarter due to that so the drop in demand with that with the covert situation.
Looking at that.
Accounts receivable as I would say between 30 and 40 million in terms of improvement.
Out of that.
More than 10 million related to a reduction of all that use. So so I mean, it's not much of a kind of an external have 15 thrown in the process is one where reducing the overdue.
At some of that positive effect also coming from increased factoring that in the in the quarter.
On the pay both sites that we will have some math and.
Timing effects that going into the second quarter Thats as I said I would estimate in terms of timing effects from the first quarter in for the second quarter to be negative at around 20 million in the second quarter, though.
Yeah. So the improvements we so in the quarter I mean, you cannot expect to see kind of further improvements from that level, we have that right now, but what we're aiming for is.
Keith the level, we have now excluding the kind of the timing effects of approximately 20 million. We see you go into the second quarter.
Okay. So there is as production resumed aside from that tables of 20 million.
There's not some sharp.
Negative working capital letter merges wants production restarts is that correct I mean really it sounds like there's a lot more here that.
Your your own initiatives set another benefit of the working capital.
Got it.
But but naturally I mean, we also I mean for looking at the second quarter and we the run rate you see on the demand side right now yeah, we've been definitely against helpful or that reducing accounts receivables due to the reduced growth so to speak in that in the second quarter and Wansbeck.
Looking at getting back so and on the demand side, you will naturally see appeal stuff on accounts receivable for instance that will have an effect on the working capital.
But I mean, the time being if they're looking at the first quarter, it's very much related to our own activities and actions.
Great. Thank you and then.
My second question it.
The your relationship with a ball the Chile, obviously.
You terminated.
The new any JV.
But vol. Logility those are important customers on the active safety side can you just give us a sense of how much of the active safety order book.
Although or Gilbody accounts for and is there any risk.
Future business that you see.
Let the determination the JV.
I can't give you off the cuff say a number of the order book, we have significant business to both of the company's as you say, we may have to come back to you on that on a number oded setting or maybe being wrong here.
The relationship with Volvo is strong and the relationship with really is also strong we are.
Having a big important programs with both companies.
The plate dose annuity, we don't see any risk of the deteriorating the business relationship with this and this led to a snooty was a growing into this separation based on that Volvo had one priority different from Muni here.
So I'm looking on this as a as a happy separation between the the part that is going to us and departed there's going to Volvo and I see no deterioration from this based or coming from that or from another aspect either we are launching important programs right now to a hold.
And later on to other parts of them all the mobile platform. So.
We are working very integrated with a those guys.
Okay, but I guess, maybe one way to look at it in.
That's helpful commentary that some of the order book you already have with that was secured before.
The JV emerge so there it's not that that your order book was contingent upon.
The fact that you had this this.
JD relationship is that correct I mean, there's some new even though it's not much no. It's not contingent on order them. It's a it's actually the relationship comes with that there is immune to benefit to both partners as we understand it.
For them to have a a close by a supplier integrated working very in a very integrated way with.
And that relationship will last we had this strong orders and religious way before we are entering into the joint venture with this annuity yeah. So we hope to see that to continue and then so that is not a basis for the basis for forming the joint venture wants to combine.
Background, IP and knowledge from the unit together with the knowledge from all cars to be able to create the world's leading software stack for 8080.
We think we have accomplished to a large except that we tried to describe that here on the on some of the sites.
Great. Thank you very much.
Thank you.
Your next question couple of the line of Patrick Falzon from six.
Sure. It. These please ask your question.
Rick from Pareto sub two questions first one is regarding your base rate control business in the U.S, which you already see now its divesting.
But you also mentioned in the press release that you will key.
Legacy brake control business.
And that is I think 17 million you list the for the foreseeable future here, but for how long is stuff that we will this still be out specific segments.
So that's the first question. The second one is Sunday competitive situation now here, the recent moms and especially in our beginning of April how have you seen this develop them change potentially now given this new situation.
If you would take the first question I have to asking some questions Mac, you mean with a competitive situation, but the first part is a legacy businesses. We have here lifetime. So it's approximately 70 million.
We are going to conduct that business, because it's a legacy business.
Actually separated from that one of business that has no is now a signed term sheets about.
We continue for ballpark three years.
Before it's running out so that is the thing when it when you have what do you mean with competitiveness what is it that you're thinking about on competitiveness.
Yes, I mean the more.
Now the competitive landscape, but oh, okay.
I don't think that has been any major changes on the competitive landscape as such I think all the companies in this industry or fighting the core with 19 situation.
We are different strategies I think the quarter. One results here proves that we have been successful yeah, and we don't see any new we don't see any less competitors coming out here, we see a lesser yeah.
Order activity award discussions around orders as I commented here before and so some of the discussions or pushed out in time.
We are strengthening we think our position by integrating that security piece seem to be on here and we are focusing our activities and getting it a strong yeah and roadmap for but in our scale up an architecture.
So I think that's who we are working when this stuff. We can't control then in that sense, I, I guess, where youre, taking significant steps forward and we don't see I need new guys here when we don't see younger guy coming off the bolt here.
Okay. Thank you very much thank you.
Your next question couple of the line of James.
From Keybanc capital. Please ask your question.
Hi, guys.
So.
Can you can you hear me.
Sure.
Great can you just talk about the timing of the the 80 million in cash savings related to the U.S. brake system sale.
Well that you're just took place over the next 12 months once the sales completed this quarter and then the program you had slated to launch this year was supposed to be north of 1 billion in lifetime revenue just wondering.
What led you to the the one dollar valuation thanks.
We started with a eight.
80 million and on the cash.
Savings that's over 20% 2021, but the majority of that is in front, it's one thing.
Let me draw it okay.
Second part of the question is a strategic review, we have conducted and when we entered into this business. We did at the end the Autoliv days a in the form of a joint venture and we do strategic.
And then opinion that are working at between the electronics and the actuators or a closer relationship than it turned out to be a lot of happened since we entered into the you want venture first of all your joint venture part were turned out not to be interested in growing this business.
Yeah outside the legacy part so future.
As you were north of interest to for them.
We separated from them, we separated munir from Autoliv, we're near has a strategy to clearly focused on the growing Adas market and reviewing the break piece in this sense seeing that the connection between actuators and scalable architecture simply is not there.
We came to the conclusion that it would be better to separate the business.
Of course, the situation is right now.
Supported it seemed that Corbett 19 situation. Yeah. There are a limited number of buyers to such a business because it has to please send that be accepted by the customer it has to be good home for our people.
And it has to fit.
With that technology, and then the capability to to carry any big programs like this.
The last PC. So of course is important that we can.
They are 80 million dollar for use in our core business right now with the situation. We have instead of investing $18 million into something that is not our core business and that is why we ended up here. So several parameters.
To make it to fly and it has been a discussion and continuously between the customer here on the also the buyer and ourselves and it also to safeguard home for people. So that's why we ended up here.
Okay. That's helpful and then.
Just regarding the dissolves snooty JV, you're retaining roughly 35 million in related headcount costs right. That's the based on the net 35 million savings that you outlined when you announced it how much of the of the retained 35 million on an annualized basis will be captured in Argentina.
Thanks.
Yeah I'm just wondering if this is accounted for within your guidance for the 100 million RG any production this year.
Uh huh.
So we have.
In the short answer is yes.
What that when Youre looking at the different drugs because to me we have been quite specific thats about talking about 200 people.
When there is holding the joint venture so.
Yeah, you have cost related to personnel and the two on a people, but we also have other calls.
Related to some assistance and IP and so forth, but it's all of its basically captured in or the any.
And that's included within your guidance.
Yes.
Thank you.
[music].
Your next question to hold the line of be Lorne from then Keybanc. Please ask your question.
There was problem that the mute button here, but I just had a one more question and that is on your Ah I mean sourcing a situation.
You're not talking too much about that I guess that please.
Doing as good as we've gotten there with your upcoming launches is that then oh, okay situation or given everything consider.
Giving everything considered I think it is as good as it gets a it has then of course going from a problems in China to being problems. So I would say went over the one four components here in there but.
I think then when things start stabilizing in China is getting worse in the in other parts of the world, but overall I think we have or in a good position and the whole thing is that the old world. The standing still so the demand for product isn't that high anywhere.
We'll have to see and review how the restart of the industry will happen and how the supply chain when coupled with the restart when when that is happening and when it's ramping up and that's too early to say, but overall, we have not had any specifics offerings on the on the launch on the sourcing side.
And on these launches that you are addressing here and what wed also delays put forward et cetera.
Our Oh.
All those I mean.
That's all the most of the recent discussions and you won't pick up there with that those are going ahead, therefore until.
Current the discussions or how on certain or about to the entire situation.
So if we commented here we are fairly certain when there has been certainly no no cancellations that has been delayed.
On a number of locations. There has also we mention here as Tommy human and some few pull forwards, but then it or delays on the launches and.
You know you could say that approximately half of them are somewhat touched and half of them or toxicity in one way or the other one or two quarters delayed.
So that's the situation I guess this is still fluid we are relatively early in the face anyhow.
Major many of the launches were from the beginning tuned into second half of the year end two backend loaded. So we'll remain to remain to see that factor. We're monitoring it and we are working with the launches programs to get ready when our customers getting ready its a.
Tim I'm certain situation, but.
For the time being it it seems to be as we indicated on the slide here okay.
Perfect.
Thank you.
Your next question to write off.
In the Kelly from Ctss your question.
Great. Thanks, good afternoon everybody.
I'm sorry, just first on just couple of questions on cash I'm just to clarify so the press release mentioned an expectation to enter Twentytwenty wanting a stable cash position just curious kind of what that in relation to is up and listen to your year end 2019.
Cash balance just hoping that.
Clarify that a bit.
Yeah, I think that.
I mean, you can in in order to.
Kind of look at a year and plenty Atlanta cash balance I guess you can.
Use the the cash on hand, now and first quarter denying seventh there starting point on that.
If you're looking at the cash flow for it before funding before financing now for the for the first quarter.
Taking out discreet items in terms of the CMBS said divestiture I would say that we have an underlying.
Cash flow before financing of approximately 80 million.
As I said, we had some some timing yet effect that will that have then.
Yeah no effect on this on the second quarter approximately 20, mainly on the.
But but that gives a little bit so they're all that at sense of the underlying cash flow going forward.
That's helpful and then.
And if that's it made me, perhaps the industry struggles to return to normal production could you give us a sense, perhaps of where you expect your April cash balance to come in or just a sense or maybe what the free cash.
Slower burn situation looks like in the current environment in the pre.
Production recovery environment.
No I was I mean, I'm kinda regulated based but to the question we had about the underlying LTPS assumption for the for the full year in calculating we're planning when it comes to both the PNR less wireless their balance sheet and cash flow we have used draw there.
Conservative assumptions on the underlying your underlying LDP costs I mean, this uncertainty so difficult to say when this will kind of.
From where we are today, so thats a little bit the reason for the more more conservative assumption.
But I wouldn't elaborate the guests.
More than that.
Great and just Super just just lastly, and I apologize if I missed this on the order intake in Q1 can you talk about your win rates how your win rates.
Compare to your internal expectations.
I think up onto the.
End of February it was okay, you always when someone you lose some it has BNS you saw from the or release in March we had ordered win on 160 million up until the end of February and then 175 for the quarter.
Clearly came down in March following the call in 19.
Situation.
Okay. That's all that's helpful. Thank you.
Thank you.
Your next question some of the line of Victoria Grier from Morgan Stanley. Please ask your question.
And they afternoon can you give me okay.
Yes, absolutely great.
And secondly can you just repeat those numbers on the on the order to 675 million in March I got but I missed this I'd be number could you can you give us that again.
Hundred 60 by and all the February 175 months and Tomorrow.
Great. Thank Keith and then I really wanted to come back to your commentary about the Rd any reductions and I mean, I guess I can we can probably thanks bye.
Let me coming just from the program delays that you talk to bite, maybe some more reimbursements from Oems because you've got the product launches could you quantify any of those I guess more mechanical impacts that might bring there aren't any change and and then you should we think here you know yet in having this ardine reduction hobby.
Pause or stop.
The future technology lines that you might otherwise it wants to persist.
Just to bring that aren't anytime.
If you start with the quantification I don't have a good number more than we are aiming to save 100 million dollar on or do you need for the full year.
So that is their qualification we are looking into and if we are working with.
We are introducing several measures into this some of it will be a consequence, as we mentioned of the Corbett 19, a lower soon to activities.
And some of which will be a somewhat different organization and somewhat more partnerships and outsourcing.
So so that is the way we're going to handle the situation on till the year round to start with the second question. It's a very key one for us and that is not being the case that we are deciding.
Outdoor stopping activities on our core engineering core engineering is for us to key elements, all very yoni or to be able to have a leading product portfolio to be able to integrate efficiency. This annuity people to work on our scalable architecture to capture the growing markets in eight us and fight L. B P decline.
We are off their opinion that aid us such will be a growing piece.
Was there in the light vehicle production, so that is not effects.
Great. Thank you.
Maybe to add one thing on the or the any and the savings we see coming through in 2020 were talking net or the any adjusts to rely on but absent port show the improvements will come from an engineering income as well we have the higher reimbursement because one of the key actions we have when it comes through ours.
The market adjustments in Egypt is ongoing negotiations and discussions with customers. When it comes to engineering income. So it's the nets were talking about not only real savings go.
Yes, Thank you and I guess in the end do you have a much higher rate of product launches this year versus last year, so that any way should be higher reimbursement rate.
Yes.
Yeah, yeah, but not necessarily see pan showing how successful we all are in the negotiations when it comes to change requests and other other things that also might that.
At the time, that's an already preformed engineering [noise].
But it's an ongoing discussions with customers.
Thank you.
Just a reminder, we have slightly less than five minutes left over the cooler.
Okay. Your next question Shapell lineup Cdthirty testers from investments. Please ask your question.
Hi, Thank you very much.
Two questions. Please one is just to try to understand your comments on on cash overall, you're looking to obviously reduced the cash burn you're reducing the R&D by 100 million then the Capex by 60 70 million and you have some associate benefits, but then the other hands you have the working capital.
Which has to be come into play for the for the safe run right 500 million ramp up can you help us understand how much she would expect working capital to pick up please.
With the with the bringing you end up the other to new projects.
I think I mean looking at I mean from where we are today and looking at their development. We can foresee foot planted plant, it's very difficult to start quantifying how much that will affect the buildup of working capital cost what is really uncertain thrive now that's the timing of that.
I'm thoughtful or volumes really I mean first of all the restart ore production that we will hopefully see than going forward, but on top of that also the timing of the new loan shifts.
But naturally when we see that kind of starting up that we will see then and organic growth coming through we will start building accounts receivables, we will have effects on inventories, but due to the timing I I don't want to quantify that costs that will affect the guidance if you're looking at the 2020 day isolated number.
But but youre right when we see that inflection point, when we're getting into growth and got restarting. It production, we will start growing at working capital, but I don't want to quantify that.
Right now.
Okay and.
And then the other question was just around the gross margin you have some mix changes. This time in sales with the ramped down another BMW project and the changeover going on in the radar technology, but I'm just looking at the gross margin at about 14.5% can you give us some sense as to how much that might be affected by having excess.
A fixed capacity and maybe give some understanding of how that gross margin should should be normalized as as you start to ramp up the production of the new project.
I mean, if anything we are looking at the gross profit on on the on the gross profit margin I mean first of all it said that there.
The effective fee in the lower gross profit that say I would say fully due to volume that's that volume effect, we have partly being able to mitigate some of that effect. There when it comes to the P. you age I mean first of all we have been quite successfully in the adjusting or or add.
Direct costs in terms of material labor and so forth, but that's where we all right now in terms of investments.
At for the Lorne shares that's effects that they're at P. you age part of that I mean, the fixed cost so to speak the p. wage production overhead cost stuff and that's the effect has yep, partly be mitigated cause we need to continue to invest on that side in order to prepare for launches.
Yeah.
Naturally down when they're going through something like this and we are we are real and reviewing all costs and with the actions we have that will improve the leverage when we see that volumes turning that.
Okay can you give any sense of how important the production overhead is is that as a proportion of cost to goods.
I mean, we're not we're not specifying the difference that.
Components, but for sure it's a meaningful part of the or the Oh that both of them.
Right, okay, but but other than that the the product mix related to the ramped down other BMW contract on the and the change in radar technology and so on that this product mix is relatively representative of what we should see going forward from a gross margin perspective, but then you get the volume effect as you grow is that the young.
Then when all the volume effect is by far the most important part of that.
Right. Okay. Thank you very much.
Right. So with that I think we have time for one more question, but to of course.
Rental car and myself from IR will be available.
For follow ups as needed.
One more question. Thank you.
Your question. So it's a line of it and one where rosner from Deutsche Bank. Please ask your question.
Hi, Thanks for squeezing me in.
Really first question is around your slides.
Slide nine.
Around the launch here in the product delays you serve strikes me is surprisingly on time overall I mean, there's some minor delays, but that doesn't feel like you really large and obviously you still expect some pretty large outperformance versus the market, which means you expect those launches can you maybe just tell us.
Our discussion the level of confidence there hobbies discussions going with.
Automaker customers like it feels like some of the second quarter wins I mean, the lot of the plants are still shut down so they're going to really be able to launch on time and are there any big regional differences in terms of regions, where is likely to happen and others, where you see more delays.
I think that it's across the board predominantly on time.
Some of these or launched in China, and some of them or launched in Europe of course.
Dependent on the that brand and ER and the.
Seth European premium brand you can still be launched in China anyhow. So.
Depending on that to some of these programs may look like they are impossible to launch in Atlanta that always shutdown, but haven't launched anyhow.
There is a lot of work preparation ongoing define the steps during its first cars produced et cetera that is ongoing and several of the cases.
The question is that how will that ramp look like and how willing to go that doesn't have it that big of any impact for all our launch readiness and for the first startup production, we will have to have it or complete by the time Anyhow then it comps seem to have the ramp looks like so far the indications or as we are.
Indicating here and half of them post out somewhat and ER.
So the half ballpark.
Taksta when even some phone for but so.
Yeah that discussion.
Our in the launch common north point of view are still ongoing in a very intense level. All the customers that people are working hard even though as customers working from home and do a lot of work.
Yeah that is an intensive work effort ongoing already.
Of course there.
Okay. That's super helpful and just one last one.
So your strategic review I will see a done the site and uncivil.
Bunches deals is there more to come we see the review essentially concrete at this point.
No. We think we are right now where we want to be we are a and electronics <unk> safety domain focused company and we are focusing on the system aspect with software and hardware capability and the software stack at leading.
Yeah supplier with us to do with the people integrated towards attitude loss.
Fastest growing market in this space and we are and established a supplier of a passive safety electronics.
Yeah. So we are where we want to be for the time being right now there.
Reviews, a strategic reviews are concluded.
You can never guarantee as we sat here and talk to different language. Two three years ago, you can never guarantee anything two three years out of course, but not for the time being it's now we are post focusing around this strategy in the food for side.
I appreciate the color.
Okay. Thank you.
Okay.
Okay and very much then thank you very much a everyone for two days participation on the interesting questions.
Here and listening to our remarks.
We are looking forward speaking you again in a conference call here tentatively down for second quarter on Friday, you lie 24th.
Twentytwenty of course add there I really hope you are all it now staying safe prioritizing a health and safety first and foremost and you want to take very good care and thank you very much for today and a good bye.
Okay.
This concludes our conference for today, Thank you for participating in the all disconnect.
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