Q1 2020 Earnings Call
Welcome to I Tt's, 2021st quarter Conference call.
Today's Friday may 1st 2020.
Today's call is being recorded and will be available for replay beginning at 12 P.M. eastern.
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It is now my pleasure to turn the floor over to the menu woke up pray.
Group's Chief Financial Officer, you may begin.
Good morning, and thank you Maria welcome to ICICI first quarter 2020 earnings call. This is a manual and older <unk> older line. This morning, or Luca Savi, Chief Executive Officer in President and dumps color Chief Financial Officer.
Today's presentation press release, and recall affiliation of non-GAAP financial measures to the most comparable GAAP measure.
Can be found on our website I teach you dotcom forward slash investors.
Our adjusted non-GAAP results exclude certain non operating and nonrecurring items, including but not limited to his best this restructuring asset impairment acquisition related items and certain tax items all adjustments in the quarter a detailed in the reconciliations before.
Well, we begin I'd like to provide a brief overview on our Q1 GAAP results compared to prior year.
Q1, total revenue decreased 5% to $663 million.
Segment operating income decreased 30% to $78 million and yes of 95 cents increased 19%.
Please note that our remaining discussion will primarily focus on non-GAAP or adjusted measures.
Otherwise indicated.
Lastly, today's call will contain forward looking statements that are subject to risks and uncertainties, including impacts from the cobiz 19th endemic.
Actual results may vary materially all such statements should be evaluated together with the safe Harbor disclosures.
The other risks and uncertainties that affect our business, including those disclosed you know as you see findings.
Now, let's turn to slide three where new got will kick things off.
Thank you in Monroe, and thank you all for being with US. This morning, despite the many challenges and unique circumstances that you're dealing with at this time.
I truly wish you and your families. All this threat necessary to get through this crisis.
This morning, we wouldn't do absolute best described the market forces that we're facing and more importantly, the focused actions that we've taken and we've continued to take to come back to those forces and creating even more resilient I did see for the future.
But first I want to take a moment to think all that I did use around the word who work tirelessly. Your R&D spend that you do they care about customers and to take care of each other you need these very challenging times.
Every day during our leadership team briefing.
We will discuss our people to safety and all of the local grassroots efforts that are teens champions to support them local communities.
As you can see in these pictures I did use United to provide the shield.
Active masks and other things, we took a supplies first responders and hospital workers out of bodies communities.
This morning, we played that Nisha, Keith you sound good job during the whole time, probably rhetorical.
We did these.
The owner of the first responders and essentially employees around the word that provide I'd to use we the opportunity to de lever to our customers dissension industries, we serve.
No doubt them these called doesn't happen.
So thank you.
Let's now turn to our Twentytwenty priorities on like for.
This morning, we will use words and phrases that we don't often use in these investor calls like unprecedented endemic and essentially businesses.
These are truly starting time when resilience in the face of adversities Paramount.
And to me no body for Sony fight leadership at the time of crises better than we've done Churchill, who demand. He does all that success is no final.
They there is no sito.
He's the courage to continue then count.
So as I could use only run the word mastered the college to continue to battle. These unprecedented market forces and as we go through these earnings presentation. This morning that he's one word that I want you to remember that best described today I'd T.
Resilience.
Two of meant I'd resiliency to phase of the unprecedented challenges posed by the coffee 19 pandemic I did use all around the world are you not getting their focus in our top three twentytwenty priorities and they are they health about people they house about business and the house about financial.
Our first quarter results are testimony to these focus priority to the resilience of our diversified businesses and to the resilience of our dedicated people.
Well the vast majority of our businesses are deemed essential coffee 19 disrupted operations as we experienced decreased customer demand temporary plant closures and stick to have brought that goes to keep employees safe.
We stay nimble.
Lexie Bowl and humble.
And we went to work.
And we worked harder than ever in more unusual circumstances than ever before to create value for our customers each and every day.
For example.
<unk> employees. This dude in line for hours to cross European borders to get to work.
We had many employees were Sip already four weeks from their families you to bodies travel restrictions and all employees adoptee to U.P.B. and social decency requirement.
But as I did you guys have always done throughout our 100 your history.
We got the job done and produce results for our customers and shareholders.
And as it relates to the health about business and they have about financials in the quarter, we expanded our war chest of south type opportunities through significant incremental new auction totaling $135 million and we executed measures to boost our liquidity to approximately $1.2 billion.
I'm confident that these actions we buy what I did de through these challenging period and position us well to aggressively capture opportunities in the future.
As you see up reality to study the house about people and Im so proud of how hot I did use around the would work together to share best practices and leverage our collective ingenuity to keep each other safe.
But at the highest level I'm still thankful that they'd be tip playbook that was first implemented by dummy double digit in China, and then leverage around the globe has helped to contain confirmed ITD coffee 19 cases to just a single digits.
And to date, no manufacturing facility shutdown due to the spread of the virus and most employees.
The tremendous accomplishment considering how to numerous operating locations in hotspots like China, South Korea, no need to be New York and California.
And that kind of assure you that we would never like Oh God down when he comes to the house about people.
No I'd like to share with you out Q1, Twentytwenty highlights related to the health of our business and they have about financials on slide five.
Starting with the health of our business.
From a customer Centricity standpoint, we can see how strong share gain momentum continued and de friction as we outperformed global OEM production by more than 2000 basis.
And on the strength about Mexico operations, we posted almost 1% growth in North America as we've run production about recent share gains with GM.
However, I want to caution everyone not to expand this kind of outperformance into future quarters as the quarter phasing in twentytwenty, we'd be at rocky and when we cycling through values customer and end market dynamics.
But by the end of the yet we do expect to do both the 700 to 1000 basis points outperformance Miss was global auto production.
These will be our ninth consecutive year of outperformance.
Supporting our continued outperformance empty featured generated yet another quarter of strong blow up a lot from <unk>.
Q1 awards include the conquering two platforms, we de leading you'd be manufacturer that we're pursuing for years.
Opt assistance to building T. Missy with these customers, coupled with our technological and quality leadership.
Paid off.
And these wins I'd nicely to our already strong wind rate on new global E B platform.
Finally, we faced challenges on the aerospace front, our rail and IP businesses. They leave it to Saudi to top line improvement from both in revenue and or the standpoint.
Next from an operational excellence perspective, we continue to drive the productivity actions that have been powering our business over the last several years.
We continue to focus intensely on driving efficiency actions eliminating waste.
And bolstering our war chest of south opportunities across a site.
In the quarter the deep at industrial process for use in 11.3% segment operating margin, representing an improvement of 60 basis points.
These margin expansion was supplemented by 180 basis points improvement the working capital.
Well down George and team.
Considering the sudden drop in demand across industries, you to Kabi 19, we are executing approximately 50 million dollar of new entity wide restructuring actions to recalibrate, our global workforce and delever $70 million in annualized savings.
As we execute these reductions we will also optimize the way we work as an organization.
These approach was exemplified by our planting budget eataly that would use their workforce more and faster than the declining production by the new ways to do more with less.
And the cross I'd T were also drastically Kathy discretionary spending by $20 million and Capex by $35 million.
Next I'd provide inaugural view of the Q1 results and perspective on the health of our financials.
Revenue declined 5% to $663 million.
Segment operating income margin was 14.5% and operating income margin was 13.4%.
S up 80 cents per share was inline with expectations.
Under declined 9%, excluding unfavorable effects of $4 million.
And lastly, we generated $31 million a free cash flow into first quarter represent the went under 43% improvement over the prior year.
Next let me highlight the health of our financials and.
Particularly the strength of our liquidity.
For the past several years, we've built a tremendous balance sheet that as being studied we fortified by many strategic decisions that preserved our investment grade quality four times like these.
When it crises like coffee 19 here.
And you have to balance sheet that we have.
You know that you're entering the crises, we just strong competitive advantage. So our liquidity position of approximately $1.2 billion is just one adamant about financial strength.
We also continue to drive down out of net asbestos liability by generating favorable cash settlement like $66 million set them and we executed in Q1.
Many of our actions like these that contributed with 46% reduction you know net asbestos liabilities liability and the 64% reduction in out of net environmental liabilities scenes spin.
And as a result of these settlements with ample liquidity you know 45 settlement fund to respond to legacy liability outflows in Twentytwenty.
We further preserve I think these cash you independently.
Lastly, the decision we made at the end of 2019 to freeze and immunized U.S. pension plan at the 108% funded status.
Nothing compared to better time.
So a strong liquidity is not only tremendous weapon come back to current conditions, but he will also enable us to season opportunities that we power I think these future when described these BCP.
Now, let me turn it over to Tom to briefly discuss Q1 results before we highlight the decisive actions that we've taken to address market conditions for the balance of Twentytwenty Tom.
Thanks Luca.
On slide six you'll see that we provided the Q1 I can keep results in greater detail.
But for now I'd like to focus on the segment results starting with motion technologies on slide seven.
Despite the challenging auto market conditions, and T. organic revenue declined only 3%.
Empty friction declined 5% on a 4% OEM decline that outperformed the global OEM auto markets by more than 2008 basis points.
Partially reflecting some favorable Q1 timing.
Tony and Axtone could I personally and rail share gains in Europe, and North America.
Partially offset by a 3% decline Wolverine.
M.T. segment operating income declined 14% to 53 million.
Comparison to the prior year were negatively impacted by 1 million of unfavorable foreign exchange and 4 million in strategic investments, including 3 million in prior year government grants.
Despite the current conditions NT delivered solid Q1 margins of 17.8%.
Reflecting unfavorable volume and mix and 150 basis points of incremental strategic investments.
Partially offsetting these items were significant margin improvements aktone, Wolverine and empty, Mexico, and the 20% operating margin and teach trying to produce despite the direct Q1 cobot 19 impacts they face.
And on the award front, there were some real bright spot.
For many years of pursuit, we finally conquer two strategic North American awards with the leading EDI manufacturer.
We advanced our global EGD platform win rate.
We generated a nice conquer went in China based on our execution and then cobot 19 disruptions and we delivered a 21% award improvement at Wolverine.
These awards in combination with the last several years of share gains will continue to power empty significant outperformance compared the global auto market we serve.
In addition, our structural competitive advantages and world class automated processes.
Global process standardization and cutting edge research and development will continue to drive empties outperformance as it always has during difficult market conditions in the past.
Let's now turn to industrial process on flight.
I P delivered solid results across all metrics total revenue in total orders grew 5%.
Margins expanded 60 basis points.
Operating income grew 11% and working capital improved 180 basis points.
The topline is driven by benefits from the RPG acquisition, and a 2% improvement in projects and improved global execution and strong activity in the middle East.
Short cycle sales were flat.
They lead you to valves declines that offset 4% growth in the aftermarket and 4% growth in baseline pumps.
Total IP orders increased 5%, including the benefit from the RPG acquisition.
Organic orders were flat.
Difficult project compares offset a 1% increase in short cycle orders driven by baseline pumps in parts.
On a sequential basis orders improved 5% on 15% short cycle strength.
IP segment operating income increased 11%.
To 26 million and margins improved 60 basis points to 11.3%.
Excluding the impact of the RPG acquisition IP margins actually grew 150 basis points.
The operating income growth is driven by net productivity improved project execution price realization and restructuring savings, partially offset by unfavorable foreign exchange.
Excluding the $3 million unfavorable foreign exchange eyepiece operating income would have improved 24% and margins would've expanded 160 basis points.
As we enter more difficult market conditions ahead, today's IP is better equipped than ever to combat those headwinds our portfolio as more balance than ever with upstream oil and gas only representing 12% of IP business.
Execution is at the highest level in our history, we've reduced our cost structure by proactive restructuring actions and events of the market dynamics that started last year and intensified in 2020.
Now, let's turn to CCT Q1 results on slide nine.
See t. organic revenue declined 17% and weakness across all major end markets.
Operating income declined 37% or lower volumes and margins declined to 12.6%.
The primary drivers of the clients with a volume impacts and cobot 19 in production challenges at Boeing.
The CCT book to Bill rate show in Q1 was one point, though we expect volatile market conditions persist into the second quarter and for the balance of the year.
To combat. These forces CCT has undertaken a comprehensive operational reset that will significantly reduce headcount recalibrate manufacturing capabilities and slash costs to better align with the current demand expectations.
In Q1 prior to fully implementing these actions cctvs decremental margins, excluding the matrix acquisition were approximately 35%.
We plan to prove out as the year progresses, and these new actions take effect.
Now I'll turn it back to Luca.
Thanks, Don So let's start with the help them out people on slide 10.
And here, we saw that there was no better way to defeat how we've kept our people save them they showing pictures of them in action.
As you go around these photos you will see the heavy emphases on protecting our facilities by putting me to these infection and temperature checks.
And on the inside we organize the workplace from the fact really out of the conference room to the cantina seating supplied distancing guidelines between team members.
Many of the actions we've taken to put that out people were bays enough successful playbook in China, where do we do proactive detail and aggressive actions early in the outbreak of these pandemic to put that to health and safety about employees.
And our team in China also led the way to define a broke the safety and the protocols why they weren't to get the on the mask mission to provide P.B. I did use it on the word.
In addition to these China playbook, we enacted the we go to safety measures to all of our site you know site in accordance to W. channel and CDC standards. We expect to continue these measures and T., we did too I mean that could be 19 adequately contained and we will take any additional actions necessary to continue to keep.
Our people say.
And as a result of all these efforts today on a global confirmed cases and being contained to the single digit including no reported cases in China.
Before going into detailed on slide 11, I'd like to highlight that as the result of the demand uncertainty in the end markets, we serve where we drawing I've previously communicated guidance for Twentytwenty.
And now let me provide some perspective on our end markets and how we see the a playing out for the balance of Twentytwenty.
We do expect the most pronounced year over year and sequential declines due to copy 90 in the second quarter.
And from that we would expect it to see graduates sequential improvement as we progress through Q3 and Q4.
The gradual improvements would be the result of the cost actions that we've taken combined with graduate market recoveries.
Next let me share a high level expectations by segment foot Twentytwenty.
At Mt based on our shared gains and ramping platforms, we expect to significantly outperformed weaker global demand for OEM brake pad by 700 to 1000 basis points.
At CCT Boeing seven three cents.
Having three seven Max challenges reduce OEM production and lower global commercial if traffic, we significantly impacted demand for OEM and aftermarket component and connect us with the balance of Twentytwenty.
At IP as the year progresses, we anticipate that a declining cost <unk> opex and Capex you do the economic conditions and the declining oil and gas prices will result in lower project orders.
However, the short cycle business, representing 75% of IP revenue is expected to improve sequentially through the end of the year as global economic output gradually reset.
So going back to the health of our business.
In these times of the man threat, we're doubling down on a customer centric approach.
We have been deep diving in our easy I request to understand the robustness of our backlog.
Proactively matched production we demand.
And in Q1 I be executed flawlessly on two major projects and for Okcupid, the lead but I had to have expected locked down in India and Savi.
We're also taking advantage of the current environment to secure supply.
Customers, what I'd like to them to benefits of working with <unk> in terms of on time delivery and superior quality.
In terms of operational excellence, we are leveraging the friction standardized global production system to ensure flexibilities, serving our customers and guaranteeing them a consistent level of performance.
We also continue to optimize on manufacturing efficiency through existing automation.
As we discussed earlier about just side has been able to produce more with less resources. Thanks to the well established empty approach.
Another way, we optimize efficiency he has been moving aggressively to close some of our facilities to respond to lower demand levels.
For instance, our friction plans in biology, and 10 would eat that he was closed for two weeks in April and might face it seemed that reduced activity in may.
We obviously have to manufacture safely serve our customers and optimize our production costs.
And so far we managed to successfully execute on these three goals.
We're also accelerating our supply chain, we designed by both implementing redundancy by may regions to ensure procurement continuity and rationalize our supply base with cheap cost reductions through economies of scale.
We have taken significant restructuring actions to adjust to reduce demand and aggressively cut cost only I look at the budgets to keep expense categories.
Finally, we're driving to redesign about production organization by executing on our product line transmitter plan and our footprint reduction, especially at IP and CCT.
We anticipate a difficult and challenging balance of the Indian markets we serve.
And I did team has been working in close collaboration with our customers and suppliers to minimize disruption.
We continue to focus on delivering value for customers by being flexible and taking advantage of opportunities along the way.
Next let's turn to the health of our financials ones like 12.
I see D entered these pandemic with solid investment grade balance sheet, and it's very favorable liquidity position.
But at today's identity, we have never satisfied and never complacent.
Every day, we're actively monitoring market development.
And to take an aggressive measures to stay ahead of the curve.
The five major auctions totaling $135 million they were taking to both to our financial position include.
One global restructuring plan that dramatically, reducing structural costs generating annualized savings of $70 million.
To southern reductions for board, CEO, and executive and the suspension of the four to one came match generating $10 million in savings.
Three an entity why did capex cut generating a $35 million reduction compared to 2090.
For significant reduction in discretionary spending and supply chain productivity generating at least $20 million in savings.
And five aggressive renegotiations with all vendors and service providers.
In addition, we're reviewing our global liquidity on a daily basis to body that expected outflows and ensure that we get paid on a timely basis about customers.
We're also we forecasting our next three month cash flows on a weekly basis to ensure that we stay ahead of the financial occur.
To really bring these sharpened focus to all of our businesses with effective declared war on working capital what ticking constant action on our accounts receivable past views, we have reduced credit lead me to contain our exposure to risk.
Specifically targeting in Bentley and working to drive up tours as we have strictly matching production we demand.
We are collaborating with our supply base to extended payment terms as we focus on the most competitive partners.
Now, let me turn it over to Tom who will describe our liquidity on slide 13.
As Lucas play mentioned I T. T entered this pandemic with a strong balance sheet and solid liquidity due to years of effective capital do two years of effective balance sheet management.
So let me give you a detailed overview of our current liquidity position.
We have approximately 1.2 billion in cash on hand and available revolver capacity.
Revolving credit agreement had outstanding borrowings of $385 million at March 30 Onest.
And since the ended the quarter, we drew the remaining 115 million.
It should be noted here that the average interest rate on the 500 million dollar revolver draw is only 1.1%.
In addition to the 500 million, we secured 200 million of additional borrowing capacity. The 364 day revolving credit agreements executed on April 29.
These revolver actions were conservatively taken to stay ahead of any potential disruptions in the financial markets.
But the only 15 million and long term debt, we clearly do not have any material financial obligations on the horizon, we're just being prudent.
In addition to our cash position, we have $106 million, an asset that will be utilized to fund this vested and environmental cash obligations in 2020.
There you are pension plan was immunized at December 30, Onest 2019, and today, we are 108% funded.
Which eliminates the need for mandated cash London as we prepare to terminate the plan for the ended the year.
All of these auctions that culminated in producing he solid investment grade balance sheet as both the shield the safety today and a weapon of growth in the future.
And lastly, as it relates to capital deployment philosophy, we did execute $73 million and discretionary share repurchases in the first quarter, but we decided to temporarily suspended share repurchases going forward and at this point or dividend policy remains unchanged.
So now let me turn it back to Luca, particularly is on slide 14.
Thanks, Don.
We will effectively navigate this crisis.
Each and every one of us rowing in the same direction, we clear priorities the health of our people the health of our business and the house about financials.
We have a clear and effective playbook that was successfully battle tested by our teams in China.
This will ensure our effectiveness in delivering on our priorities.
We have built operations at the flexible and our Jive to conquest opportunities as they come.
With 45, our liquidity position and we will continue to enhance it through cash flow performance.
And based on the competitive advantages that we have honed over the last three years, well uniquely positioned to play offense for the future.
This year I T D to celebrate the is 100 year anniversary.
As we were founded just after the last major global pandemic in 1918.
Todays <unk> is more resilient than Abba.
Entering these pandemic operations with performing at their highest level ever.
Our manufacturing lines went out to maybe than ever.
And I would try subsets of opportunities was bigger than Abba.
And we amassed more liquidity and balance sheet capacity than we've ever had.
So with these weapons, we will come but these pandemic being aggressive on costs.
Aggressive on execution.
Aggressive on share capture.
And aggressive on preserving liquidity.
Because today, where courageously, creating the identity for the next 100 years.
With that let me now turning back to Maria to take your questions.
[noise]. Thank you as the floors now open for questions.
This time, if you have a question or comment please press star one on your Touchtone phone.
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Thank you My first question is coming from Jeff Hammond of Keybanc capital.
Hey, good morning, guys.
Hi, John and Jeff.
So I guess you know just the dipping down you know to Q, a little bit better can you maybe talk about what you're seeing in terms of April sales in order trends that would help give us some frame on kind of how substantial the the sequential decline or year over year decline would be into Q and maybe just.
Oh, Yeah friction certainly with all the auto you know shutdowns that we've seen a here recently thanks.
Okay. So.
Obviously these that Jeff it depends that market that market by market. So let me talk about friction first and maybe took about the what we're seeing the in in the old This for for April in the in at the end on the project the project side.
To give some color so.
We think that act Q2.
Probably be day, the worst quarter for a for IC t. and we'd be day worst quarter definitely for motion technologies and for fiction disease way and that we will hit the trough, Florida for friction. If you think about Oh, the shutdowns that you have particularly in Europe as well.
As a in North America.
So I think that Oh. This is what we will experience in Q2.
One thing that one relevant point that might be important that for you to to have an east for us to shed what we've seen in China.
During the month of April now if you look at what is happening China in Q1, and now China is reacting in April.
Let me give you some at summit some numbers.
The production about automotive in China.
Worked out this way during that first quarter was minus 27 in January was minus 80 in February was minus 40 18 March for a Q1, Oh minus 48 roughly.
Or the numbers for April are not out yet, but to what that we are predicting either in negative high teens. So what do you see in China is that a steady recovery you see China moving into right direction.
And no I'm, not saying that Europe, and North America, we recovered the same way, but definitely yes, China moving in these direction without any stimulus.
ER with few exceptions on you know in the Big Cds the on that they license plates or you know elect rebate cause but no major stimulus from the Chinese government. So they signed that we see in April for a China are positive right direction I said April I decided he is going.
To be a whole riebel is a release month when it comes to feature North America, and friction or Europe.
When you look at that and now they're businesslike like IP for instance.
I P had a very good good quarter.
And that it's important to look at both the AD they added backlog and I just I know when we closed the quarter. So the backlog at for IP.
ER went into it went up at roughly three 3% from from the beginning from the beginning of the yet and when we look at the funnel.
The funnel or is that its interesting because when you look at the final from the beginning of the yet until the end of March I always evolved in Q1. The final actually for active projects went up in Q1, roughly 6% from January to March.
Different picture for different than markets, you had oil and gas active proposals that went down roughly 7% in deepwater and all the others. The chemicals generally and also the actually when top totally for US was up at the end of March what going back to your question comes.
What we see in April what we see in April was oil and gas keeping him coming down the other industries staying stable now if you're asking me I will expect eventually.
Some of these opportunities in the oil in Gaza actually to be postponed delayed the Osama ebay even council knowing what is happening in that the in that manner.
And so your question Jeff.
Yeah, that's that's helpful color.
And then just you know.
We think about the war chest of opportunities coming into the year and then your incremental restructuring how should we think about you know decremental margins, either overall or no across some of the businesses.
You know as you start to see some of that these heavier declines.
Hey, Jeff it's Tom So so the way we're thinking about the Decrementals is a really targeting.
In the in this 30% range 30 to 35, you know anything below 35.
And as we gain momentum with these significant actions that we're taking.
We will obviously be be getting below 35 and target a you know the low thirtys and work as hard as we can do better than that that's the kind of drop we're looking at in Q2 on the difficult revenue.
With all that that Luca articulated whether you look at it sequentially on for on a year over year basis, we're targeting around called the low thirtys on the Decrementals side.
Supporting that as these new incremental actions so the.
70 million of annualized restructuring savings that we talked about today and the other actions, we're taking on supply chain, obviously salary and for a one k. all of those actions 100 million of straight actions that related to Capex. Those actions are all incremental to the war chest that that we have amassed.
So these are these are moves that we had contemplated.
Different times than that we're obviously accelerated in light of of the current circumstances. So I would consider this these new actions as largely incremental to the ones that we have.
Discussed in the past in our war chest.
So low thirtys incrementals into Q, and then we get a little bit better from there.
Yeah, you'll get you'll get Dechra mcdonalds or you know in Q2, and hopefully by the time, where we're talking about Q3, you're starting to see you know the recovery playing through and and much stronger drops.
You know on the positive side sequential basis as revenue picks up sequentially in Q3 in Q4, so well have decrementals on it on it you know a year over year, we'll try to keep those the 30, but we also want to build momentum on the upside when we come out and leverage our new cost structure on a sequential basis to drive better drop.
As as revenue starts to pick up.
Three and Q4 compared to a tough Q2.
Okay. Thanks, a lot I'll get back in Q.
Our next question comes from one of Damian cares of yes.
Hi, good morning, everyone.
Hi, there I mean I mean.
Oh, sorry, I'm glad to hear that you guys have been able to work through this.
Greenlee challenging environment or what's your employees are healthy and your facilities all of them still operational.
So glad to hear that that's going on right.
Just a follow up question on the on the margins here.
Yes. So can you just talked about kind of the 30, 35% detrimental that you're targeting.
It seems like the majority of the actions you're taking a at least on the restructuring side is going to be in 60 key so should we think of that as perhaps kind of.
Where the bulk of the savings are going to come and just thinking of.
The timing of that.
How much of this benefit or have you already realized in the first quarter seems like you've had these actions in place for sometime now.
Okay, maybe I started Tom and you can you can you can complement so we were proactive in that particularly in the CCT and in IP and we did a regionally or some restructuring towards the end of Q4, beginning of Q1 in diesel too.
Vod into these two businesses so.
You and you see a lot of these savings in terms of restructuring in a in a peak for <unk> for example, and in the results of the of IP.
You don't necessarily see seeding the margins for C.D., because I would say CCT easing the perfect storm today, we the seven cities have been Max the called me that day General Aerospace situation.
Now when you look at the restructuring that it's happening.
Now in the Q2 and some in Q3 it its across all the three different value centers. So I will say probably a it's true that for CCT is gonna be the largest.
Second is gonna be motion technologies, and third is gonna be again in <unk> in a peak.
But it involves also corporate so what we've done that he is that really trying to hit that you know the structural cost for identity.
As I did tea and for each value Center I didn't know Tom if you went to.
Add something that.
Yeah, just to kind of underscore the structural element of these of these new action. So we're targeting up to about.
840 heads, 70% to 75% of those actions will be structural in nature.
And each value center and corporate wed be looking at a structural reduction.
You know around 15% to 20% and that's pretty consistent across all three value centers. So it's a comprehensive entity wide set of actions more heavily weighted in the Americas and in Europe, but we have 62 locations that are being impacted by these actions so and the bulk of of these new items.
These are these are new.
Actions the bulk of them are going to be completed 55% to 60% completed.
By Q2, and then balance as the year progresses, but we're comprehensively moving through this but these are actions that are kind of new to some of the ones that we took a Q3 in Q4 at IP and CCT in particular.
Ended and the timing to don't what Tom said in Q2 in Q3 is the U.S. is more Q2 and to Europe, even small Q3, because the route regulation that you need to follow and there are some of the Colby nineteena ads that as cause some government to.
To impose and not to do any any restructuring until a certain dates. So that's the reason of the different timing, Saudi Damian sure I know that makes sense.
And then I guess, if you look at Mt. In the first quarter, obviously, the decrementals there are much higher than 35%.
In particular, you know you did step up the growth investment there just curious you know at that level of investment kind of expected to hold up.
Yeah, Dan and yes. Thanks for the question when when you look at at Q1 for motion Tech, we had foreign exchange and and the strategic investment impact. If you took those two items out the decrementals were in the high Twentys.
So we certainly had a year over year impact, where we had a strong government incentive that came in last year.
To the tune of three three plus million, so that created a little bit of of a distortion in the year over year drop, but if you really take that out and foreign exchange we're looking at.
Got a decrementals in the in the more classic range that we would be targeting four and t. on on a go forward basis as far as the level of investment you know maybe look if you want to comment on on the way a empty is approaching investments in the cycle, but certainly that grant was a onetime benefit last year.
So on the on the investment. So we are reviewing absolutely everything just to give you an idea or so we change all the I what the weighted the location of authority in terms of ideas. They now that action that we have taken to a challenge and more every single investment that these that these proposed a company.
Right. We are reviewing the capex. It every single businesses and as you can see where would you seem to capital expenditure by $35 million and that yesterday morning, I was having a call. It actually we that would come into team in terms of reviewing got a major investment that was that was playing for at motion technologies.
In fiction and they're trying to find a we the typical friction ingenuity a different way of doing it the drastically reducing <unk> million dollars of investments. So that adds to the roofing is on the table everything is under review everything that is already being the approved it needs to be.
We have we approved again.
Okay understood that's really helpful. Good luck gentlemen.
Thanks, Dan.
Our next question comes from the line of Brett Linzey, a vertical research partners.
Hey, good morning, I hope you're doing well.
Well we are.
[laughter] just first a point of clarification on the Decrementals you talked about the 30% to 35% was that a pre cost out number or did that include the actions you've already taken.
So so, but that's where we're kinda starting off as we as we come into the year I would say 35 that is beep is pre action and the goal as we started to drive these actions into Q2 in Q3 and the balance of the year, Yeah. It's to start to see us getting to the low thirtys and keep driving from there. So.
Yeah. This is the progression will certainly accelerate.
To the good in Q2, and they actually start to really take hold in Q2 in Q3.
Okay, Great and then just shifting to empty and the outgrowth.
You mentioned for the year, you're looking at 700 or 700000 basis points about growth was that an annual number resetting each quarter going forward.
Okay. So that's a that's a and then we'll number Brett between 701000 basis points, what what is likely to happen in the in Twentytwenty He's more of an erratic.
Pat.
Just because he's a very volatile environment. So what you've seen in Q1 that we outperformed the market by more than 2008 basis points.
And that but I do not expect you know to deliver 2000 basis points on a yearly basis. So we will let we will see more of an erratic outperform and so as we move through the quarters, but we will expect that outperformance in every region in Europe in North America and in China.
Okay got it fellow leave it there and pass it along thanks guys.
Thanks, Brett Thanks, Brett.
Our next question comes from the line as Mike Halloran of Baird.
Hey, good morning, everyone.
Good morning might go.
So.
You're making a lot of actions here, obviously, moving very fast very aggressively how do you bouncing along turned in the short term here.
Other words, what do you guys using as my trips to make sure you're not putting too hard to debone, we think about some of these capex reductions reductions and how you're thinking about some of the growth initiatives that are going to the positive few longer term.
How do you think about that and that kind of reducing some of those actions in the context of the long term servers to short term and then I guess the second piece that is just.
As part of it that some of the returns on some of these investments are also getting pushed out which enables you to push out where the how the dollars you're getting spend any any kind of color and kind of pick some thought process would be helpful.
Okay. So let me let me address the first part and Tom I leave you for for the second and B. So it's a it's a good point or Mike in terms of what we're trying to do he is of course to play defense and we're playing offense for the future. The same time. So let me let me give you a couple of.
Examples here.
We think particularly on day, if you think about motion technologies, if we think about the friction side.
We are playing defense on really going granular in day analyses and critical analyses of the backlog and the order book you know that to ensure that we match supply with demand we need to understand really what is that we had the man here and how much is just the tier one telling you to put to previews just to add.
Safe inventor me, because we need to understand really how much labor, we need and know much raw materials. So that we do not bump up the inventing remedies that's to finish with an inventory of finished goods. So that the face to face and introduction of the workforce, we have it and our strategy in the past the which was quite right.
And as being in TNT yesterday to ever quite to a sizable amount of temporary work as polices working in our plans and that as being an immediate flexibility that we had the at our disposal, but because of the size of the crisis that we're facing that uncertainty and volatility We act to go.
Deeper and we went down on the on the structural cost some of the reduction that to Tom was talking about in terms of the restructuring our structural and some of those out there to stay we will be it better company a stronger when we come out of out of that the Capex reduction is that we are we.
Really looking at every single one to ensure that we apply all our ingenuity to come up with the best solution for that and reducing the capex that at this point in time, we don't need but at the same time I went to give it we play offense for the future. Let me give you a couple of examples on that one we in China.
We went out to on terms of developing a proud of and conquest during the middle of the Kabi 19 in China.
Hey, a sizeable thoughts from four to <unk> with a customer of ours, just because the competitive was not able to supply at that time. These is gonna be temporary it's going to be for the next to seek so nine months. They don't they don't recall exactly but.
Good opportunity and these opening odd, but the opportunity to beat for that block from when he comes to the market. Early next yeah. We the you know and that we scored points that we that with a customer when we close out what plans in the anytime during the month <unk>.
During the month of April for it for a couple of weeks I want to diagnose what are we were working for new products is not a product. So greener products, where we were working for new programs that they kept on running and they were open we will keep on reinvesting in the new programs. So ER and I think also because of our strong.
On the balance sheet, I want liquidity position and our competitive landscape, we are well positioned in there to really at play offense that way and that in the meat long term, where we're coming out of these of these crises and these are just some example of how we're balancing the fans in effect Tom you want to.
Yeah, I would just kind of add on balance the investments are still going up year over year some of.
The actions that we're taking our really kind of pulling back from from budget and I think Luca described the logic, which is focusing where we have to customers attention wherever they have the opportunity to go conquer something now and putting our efforts and going after those conquer wins that it's been our winning formula for downturn to the path.
And when we have more mindshare and focus from some of our customers on some of the medium to longer term things, we would plan to pick that back up but I think we're still looking at it at a year over year increase in investments, but just not at the level that we initially planned.
And then you go ahead.
Go ahead, Mike sorry, we can we can say no.
Please. Please continue look I thought you guys are done.
So when I wanted to give you a couple of examples also aware we kept investing into other businesses. So we'd be successful on the order intake for IP. We then you out I want to new BB to plan at pumps, where we have taken a mega out better like driving performance that some intellectual property in it to.
These as bring some very good results on the order intake and we kept on investing a new VA PBT for new pumps families and that we approve it you know some of those investment that you know just last month and on the CCT front to just to reward ingenuity of on nobody engineer. He came up we the in you.
And you look cost respirator.
Now I don't know if these we let turn now to be a success or not we side. The patents we got the prototype working.
But those investment I keep on going there and we're tying also take opportunities for what is happening around dives into word.
That's very helpful. And then the second question is just how to think structurally about where the IP margins are today.
Obviously, a lot better mix in the business from previous actions from better pricing mechanics.
But but also.
As project activity comes down your mix of business gets a little bit better. So any context kind of twofold here. How do you guys think about what the bottom end of that new structural range could look like.
And then also what kind of the ability to you have to two really mitigate with the downside looks like.
Okay. So let me, let me talk and let me start talking it a bit about the margins and I seen that you know when you look at the margins that for a for a pea.
They keep on improving despite the negative mix. So you think about last year, when we improve quarter after quarter. Despite the negative mix because the project revenue was keep on going up and when you look at Q1, I went negative mix actually impact it was a headwind of roughly 30 basis points and despite.
That we were able to improve you know.
60 basis points, despite equal so a negative FX I think the results of that he's a better execution, Mike. So let me give you a couple of examples to contextualize days, we are working and we mentioned two major projects one was in Saudi and one that was execute.
In India for didn't go to refinery now Africa.
Then they knew identity the new management is able to working these ways able to delever. The first one was after the attack to the refineries, Saudi they Saudi team operator to Saudi palatial were very closely with a cost summit to adapt to you know previews orders to what their need where.
What we're able to the lead that I had of time and the same happened for didn't go through refinery. We executed. The project. We finish ahead of time and because of that we delivered before both Saudi Arabia and he can get went in locked down you know DZ something that they knew.
Indeed, a new management is able to work and believe it. So project execution that is one example, I always talk about Korea as wireless Saudi let me talk finally about asset for as well.
Say four delivered in Q1 and on time delivery on the and C line of more than 90%.
Unfortunately mid range was not in the high Eightys, but they got the back in April we close that Ed I think we closed last week April I think and that they they on time delivery of the meat Ranger was actually 88%. They were people shopping Seneca falls, because they've never seen these.
Number in the entire life in Seneca falls, so that execution is really what is bringing better margin, but he's not just better margin. Mike is also better working capital.
Because if you look at the improvement of the working capital you know I P generated $29 million of cash in that in Q1, and all of that came from working capital improvement when other than eight basis points year over year 300 basis points improvement since the end of 2019 and all of that is coming from embed Tony So.
[music].
Right. That's my comments any color on the on the margin.
Appreciate it gentlemen, thank you.
Thanks might look like.
Our next question comes from line of Joe Ritchie of Goldman Sachs.
Thanks, Good morning, everybody apparel well.
Hi, Joe.
Hi, John Ah Hey.
Luca you can just comment a little bit on the supply chain, particularly.
You asked in Europe, you've made some comments around how you guys mens China, but I'm just I'm just wondering how how are we set up managed during this downturn in both of those regions. And then also are there any additional costs that you got to take on as well whether its.
Great or logistics at any comments around that.
Sure.
So.
The management of the two way of this situation as being a.
Daily management and that what as being CLIA in terms of our expectation and the management entities to adapt to that is that you have to be hands on all the time.
This is the case, where you really need to see your lead your lead us are the shepherds and they and they need to smell like a sheep because they're out of down that we that you need to manage every single time.
They logistics because it gets more and more difficult in terms of finding the transportation. When he said he was locking down when that the board. This we're locking down so that was that was that was tricky, but we didn't know face the any any major hiccup.
And we were able to delever everything that we were supposed to the LIBOR, but it was not easy was a daily management was at how really management when you look at the supply chain.
We were able to go through China, when we when coffee 19 exploded in China, we developed our supply chain contingency plans eyewear add back up but scenario and the backup send out it was ensuring that if some of our suppliers were not.
Getting through Colby 19, and then what a couple of the critical ones that they need a lot of help from our resources.
We had that develop a backup from Europe.
And at that Fortunately, we've never had to to use. It. We also we also had the backup of our own plans just in case, we faced difficulties in our plant in China and decided that we have at the same a pro says the same machine the same manufacturing how does that in.
Making these that redundancy working we didn't have to use it though no. When we went the other way round that obviously the reverse happen. So our backup plan when we start.
When he was locking down was okay. If we are having issues in terms of manufacturing and serving our customers from Italy, Okay walk and China do what Ken our Chinese supply your due to support to support that you were up there.
If you didn't come to that because he wasn't necessary, but once again was a daily management to give you an idea and so that this for the first question. The other point is that we face that several difficulties during these lockdowns Joe.
Let me give you when when they get prepared remarks, I was talking about people.
Waiting outside the border.
Think about it you have it plant in almost about in feature making brake pads and the shock absorbers and what do you have it is a lot of Polish worker crossing the border and come to work to our factories now they have more days, where they had to wait in line for hours and then the border.
West Coast. So think about you ought to plan manager and you have to find labor temporary workers to ensure that you use.
You supply your customers and you make your Pat So all of that is really daily management I already management everyday for 24 seven.
Sorry for the long answers.
No no that's super helpful.
I really appreciate it.
Maybe my one follow up and this question for Tom and just thinking about the cost action.
100 million or so.
Non tax related items.
I guess, if I'm thinking about how much that actually benefits twentytwenty it sounds like because somebody absent.
Particularly in Europe happening in Threeq is that fair to say.
You'll see less than half of the savings in 2020, I'm just trying to make sure that I think about right from a modeling standpoint.
Sure.
We'll definitely jump on an already have as you can imagine discretionary cost the better in negotiations for a one k. the the.
The salary related items, which is the 30 million. So we're going to get good realization on that portion very quickly and a lot of that has already been implemented executed or negotiated.
So we'll start rolling benefits there on the head count side really that the 5% of those options should be done through Q2, So we will get a good.
A run rate momentum and some of those actions have already taken place Joe So hard to give exact they think of it but we're.
That's standpoint, I can kind of get is on track to get 55 for some of the actions taken in Q2.
So we should see a good chunk of that savings coming through in 2020 as the year progresses.
Okay perfect. Thanks, guys.
And shelter.
Our next question comes from one of Nathan Jones of Stifel.
Good morning, everyone.
I now doesn't.
I'd love a little bit of a finer point on the Mt outlook I'm Lucky shed some of the auto builds that you saw in China.
Down 48 to set in the first quarter or you know as the viruses road for for me to West are those the kind of auto OEM build numbers that you're expecting to see into Q in Europe into Q in the U.S. or is that you know reason why that would be better or worse than that.
Okay.
Thanks, Nathan I believe that North America in Europe, but will be probably worse than China.
That's my my my my personal belief no what when we look at the full year.
You can look at the <unk> chesa numbers that.
We have taken in more conservative approach in our scenario planning.
In the world wide that but also in each region.
And that in both Europe, and North America in China, but going back to your original question I seen that probably Europe and North America, just looking at how the locked down has been working in Europe and also in North America, they shut down and.
You know that they our customers customers.
I believe in North America, and Europe, Q2, we'd be worse that Q1, China.
Okay.
And then you also had a big chunk in Mt. Ah that's off the market that's replacement brake pads.
Which will typically slow down in a recession as well maybe if you could comment on how you think the look down in Europe effects that business into Q and then if you're I just have any thoughts on a general kind of recession impact that that might have in threeq and fourq you as were getting back back open.
Okay. So.
Now when it comes up.
When it comes to the aftermarket of course, the after them. When you look at a three cents, Iowa or our aftermarket these oh, yes, and a an independent aftermarket.
I talked to continental and some of the customers on what that what they see an aftermarket. It obviously, they see the aftermarket going down as well when you got everybody look down you know in that houses and nuts and not traveling I will you know disease, what that what will happen. So it would be into negative territory as well there is.
We believe how did the aftermarket is not going to be at negative as the Oems. So that these walked the some of our customers are thinking I thinking today and days. They see you know Q2 as the trough as well for the aftermarket.
When he comes to the recovery I would say you know I see.
I see a nice direction.
In the in China.
I do not as Sallie no easy for Europe, and North America going to recover the I'm gonna have recovered exactly the same way off he's going to take any to be longer I.
I would say Chinese recovering that way without any incentive.
I at Europe, and North America are going out with incentives. So I know, it's these will impact positively we will we will have to we'd have to see we're looking at leading indicators to ensure that we our actions are out ahead of the time and we stay ahead of the curve.
Okay. Just one final one on on the balance shape for told here. Maybe you guys have got essentially no long term debt on the balance sheet interest rates are you know about as low as they're going to get a we may look at inflation on the back side of this as we recover and higher interest rates can you talk about how you're thinking about.
The potential to place some medium to longer term debt.
On the business here.
Trading off the the short term increase in interest expense for potentially lower long term interest expense.
Yeah, Nathan I would say that.
In the environment, where we're looking at all that the options and you know kind of keeping keeping goes available to US. There also government programs that are out there that are that are medium and longer term in nature on a global basis that has some very attractive interest rates. So I would say our plan has been too too.
For every option and keep rebalancing.
Our our liquidity profile and the most optimal way so I would say everything.
On the table and being constantly evaluate it obviously we've had some.
Some good success with our current strategies, but but everything from.
Government programs to bonds to kind of everything in between I would say, we explore and we'll see if what's the best opportunity is for us, but you know nothing nothing on the immediate rise and at this point other than the liquidity that we currently are maintaining.
Okay fair enough. Thanks for taking my questions they say.
Thanks, Jason you too.
Okay.
Our next question comes from one of John inch of Gordon Haskett.
Thanks, Good morning, everyone and thanks for letting the called run a little bit longer.
Can I just go back to decremental just for a second on the surface Toluca. So the headline decremental. If you look at the total number was 50%.
But then Tom you are you actually it's called out you said M.T. was high Twentys. If you look at the core right I think that's what you said what we were at core for what was the court for the other two businesses. If you want to think about it that way.
Oh, well kind of the stays print I would say.
He is probably pretty consistent about pulling it occurred in the 23% range for Q1.
And CCT, we set a quick core was 35%.
Published at 39 because of matrix was.
In this year, but not in last year. So just creates some distortion there. So so really once you recalibrate.
Sure. The court is kind of getting into the type of run rate that we would be expecting as we enter Q2, and then we're going to layer on these incremental benefits an accident. So.
I wouldn't read anything into the 50% IBT leveled other than a couple and anomalies that at MTN CCT and the lack of new actions playing through.
Yes, no I understand it's just trying to parse the headline so that if you're talking low Thirtys. Then is the headline gonna look like low thirtys. There. That's there's still going to healthy you're talking kind of almost on a core basis is that that's the way to think about it.
Yes, generally we're thinking on core basis in the low thirtys and trying to break through that now each business is going to have a different dynamic just based on their progression in savings.
Youre going to have.
An array of outcomes, but but we're targeting this kind of 30% range and and as the actions gained momentum. Our goal is to see if we can break through that but but on balance. That's how it is CCT is going to start at the higher end and and come down given the them.
Nature of the business in there and their margin profile IP is kind of at the lower end because of where they are starting but on balance.
30% plus or minus is what we're targeting and we hope we we get below it as quickly as we can.
I wanted to go to the project business of IP that coming out of the 15 16 oil heavy industry downturn, probably didnt see pricing come back all the way and now we're facing I know oil and gas complex that could even be.
Looks pretty darn challenging if not you know more to the nth degree look I know you've been sort of spearheading redesigning pump products and other things kind of on a lower structural cost basis to deal with that sort of a challenge I guess in terms of future project mix and pricing could you talk a little bit about that and if some of that's already running.
Through your numbers and.
You know how how those opportunities maybe will help to sort of bought some of what it could be some very long term pricing headwinds and the projects business for IP.
Sure.
Thanks, John.
I would say when you look at they'd be a b b a.
TVT in terms of they knew palms, and then you probably that a more cost competitive and or some more differentiated from it probably nothing quality point of view.
I would say that I'm, not really running already on that project execution side, John we start seeing them impacting they orders because we have won some nice orders with them. Because we were also price competitive end to end the customer like to you know the performance of of those of those products. So.
The improvement that you see today on the project margins that were executing I really more on that what we have put in place that from an order intake point of view and also from it project execution point of view and the manufacturing efficiency in the operation.
The product I still to come do they answer your question John.
Yeah, you did you did yeah no that's a that's perfect and maybe just one final one there Luca I.
I'm wondering if the performance of ITC and specifically the tough challenges ahead for markets, where you have you know a proportionately high amount of exposure, so aerospace oil and gas et cetera does that cause you to rethink the portfolio strategic positioning maybe because obviously, there will be future up cycles and future down cycles, hopefully not pandemic.
Oriented, but you know maybe with an eye to broadening your end market exposure is you know inorganically or through M&A, just so that you're not so heavily impacted you guys are doing great job, but you know its terms of just sort of thinking about future down cycles that you can never really start to soon.
Hi, how are you thinking about this over all of it.
Yes.
As Tom a jump and just give some some framing portfolio.
You know kind of waiting as perspective, and then looking can give you some of the strategic so I think sometimes.
And our diversified multi industrial portfolio, sometimes there are some.
Assumptions out there that we just want to make sure we get everybody on the same page around so is it kind of thinking about the current portfolio distribution.
We're looking at chemical and industrial pumps in and around 25% of the portfolio.
Oil and gas and this is that the ITC level oil and gas is less than 10% of ITC today, and when you break that oil and gas apart you brought up 4% upstream.
And 6% downstream.
Level so.
And our upstream which is only 4% is not exposed in a meaningful way to the U.S. shale play.
Were between rail and auto worried about the 45% waiting.
And Aero today is around 8% of our portfolio.
Fences Fives, and then general industrial connectors and all other medical 6%. So that's just the current profile and I would want it is give that framework. So some of these these areas where we're seeing more headwinds generally are.
You know below 10% in the case of oil and gas and arrow in particular, so with that I'll, just turn it back to Luca to get the strategic perspective with those numbers in the background.
So this is it goes back to the U.S whoa.
Hi strategic process.
That we go through on that on a yearly basis I think that you know when we look at over all of our businesses. The recent still a good opportunity in terms of combined you creation in the markets that were in and as it stands there now we're more focused dealing trying to outperform the market. So that really reconsidering portfolio a decision at this at this point in time.
And John.
So in other words, a share focus orientation versus a diversification focus is that does that they're in.
In other words, but the diversification seems to be happening actually based on sort of Tom's commentary.
That's fair.
That's fair and to be honest view I was talking to you about the recipe rates are you know the engine you do about what our design engineer I mean, the if you look at medical is a is a business that were probably were making between one and then 30 and went on to the $80 million of revenue and that you might will be that you get that need to be more attention you know just.
Because of you know some of the macro trends they used to seeing at right around the word we depend that make et cetera.
Perfect. Thanks, very much everyone.
Thanks, John Thanks, John.
Our next question comes from one of brine Blair of Oppenheimer.
Good morning, everyone happy to hear brands when those things that.
And then Kim Brown and thank you for fitting me in here.
No problem question.
Thank you though.
More of frictions intermediate term trajectory.
Is there any update you can you can offer on the five year awarded we revenue and how that's trended relative to the prior 3 billion level. You know understanding there are lot of moving parts here I'm. Just wondering if you can somehow quantify the net effect of friction strong when rates versus legacy production declines.
Potentially smaller size of new platforms et cetera.
So I think that they wait to look at that Ryan is really is that.
What you have is that you have to they mention here and to the two that Russia, you add the market that the ease of re sizing.
Right because you went from a more than 90 million banquet produced in the 2018 to less than 90 in 2019 and that you know it's going to be considerably less in the in the these getting twentytwenty. So you've got that production of baked was going down which is.
Headwind that these reducing your backlog in a way on the other side. The is our market share gain there is actually improved because all the award that we are sharing with you did that a new end conquest I actually New awards, where we have not participating and therefore you got the odd these other they may.
Mentioned on the positive side so.
That does is how it is really going to play.
A lot depends also on the on the production as a sad and it depends on the recovery that he's going to happen.
Towards the second now for 2020 or 2021.
Okay, that's fair.
And then a another longer term one is as we think it down.
The margin potential of your segments overtime in the entitlement margins that you cited previously is there any any change to that outlook and with mid teens, plus IP high teens, plus CCT is that simply pushed back a bit are there other factors in terms of scant a realistic scale or mix of segments anything.
That may pressure the post Kobe level.
No I would say the raise I I don't see any any change and goes one with exception of exactly what you said that he might be pushed back just because of the global reset the what's happening out there and we set of of the market that we're operating in that would be they only the only dynamic that I see that's today.
[music].
Got it okay.
Okay. Thank you for all the color today.
Thank you.
Thanks, Brian.
Our next question comes from line of and open of Bank of America.
Hi, good morning.
Hi, Andrew Andrew.
Just a question about a free cash flow a this here how do you think I think what's a little bit unique about well a lot unique is that you do have these longer cycle businesses like oil and gas and aerospace. So as you think about releasing working capital.
Can you just talk about both challenges of getting paid in aerospace and oil and gas and also sort of the long term nature of orders how long would it take for your guys to sort of take working capital out. Thank you.
Okay. So let me let me start addressing these wanting to know if you Wanna add any color afterwards, Tom is that what a one thing that we have in the improved is that our eye wear cash of course I, what cash management right now is that even the he's getting more attention than ever because.
These kind of situation what a tie that certainty so on a daily basis, we put a system in place with on a daily basis, we have a cashcall where they the Tiger is a is that really looking at how the cash is moving in every single legal entity around the world. That's got 100% visibility of everything and then on a weekly basis I do I have it caught on.
Cash when we're looking really has the cash move in the direction of our forecast for the month and for the next three months and part of that Cold, We're looking at our top 10.
Top 20 receivables and accounts receivable pests you I can tell you just to give you some data on the call of last week I, what I, what accounts with top 20 accounts receivable pest you amounted roughly two $8 million and the out of this $8 million, a $6 million where in day one.
30 days so.
That we haven't seen really major sheath that major changes in the payment of from up from our customers I really.
Our more at the exceptions that then then to the rule on top of that I would say because our executions as improved I think about the two project I shared with you were talking about IP. The project in Saudi and the project then go to in Africa think about these then go to project in Africa is suing engineering MPC.
Contractor, we then African customer and the payments that are almost spot on both that we that what customers in Saudi as well with our cost somebody now Africa. So I haven't seen it so far any or anything that concerns us.
And improvement of IP comes from inventory ended I will expect you know all the business east to improve that inventory in the in the month ahead.
So basically no specific challenges related to long cycle nature of these businesses.
And not so far I just moments in time I haven't seen them.
Just a little bit more color and it's not really about the auto industry by itself or just sort of unlocking.
The supply chain and restart into manufacturing European automotive manufacturers are starting to reopen European countries are starting to reopen and I know people talk a lot about sort of the Chinese experience, but in terms of logistics in terms of just how much visibility you have can you just talked specifically about what's happening.
In the European autos, because seems like it's a more relevant experience to the U.S. and China. Thank you.
Yeah sure I seem to the situation in Europe, it's been a need to be different that and then when you look at China overall, and it seems that particularly when you look at a situation in Italy in France in Spain in the UK is more like a Juan experienced a who bay.
Yes.
In the signs that they really went for the heavy locked down like the one that who bay and wine experience, where other countries like Germany like Poland like Holland like the Nordic countries and experienced more the Colby 19 in the weighted that remaining of China has experienced a.
Give you a couple of examples in Germany.
Our plans of working your way they never shut down and we have almost like zero percent season in Holland, our plans and never shut down making shock absorbers. So they had some absenteeism problem our plans in Poland. They never shut down they are working in rail.
But the countries like Italy, France, Spain, and UK had experienced differently and therefore they went in there have you have locked down.
So at disease, why it would be difficult to compare really the entire Europe, but we then tire China he seems more like.
Most of Europe at East compatible to Bay, we the longer lock down which will make their recovery lead to be longer as well, that's how that's how I see but he's a personal interpretation Andrew.
Thank you very much really appreciate detailed answer.
Thanks.
Tender.
Our next question comes from the line of Joe Giordano of Cowen.
Yes, good morning, Quickset over we're running Super lived here. So just Tom if you could just clarify what the right what the write down in the quarter was and then just on the balance sheet. I. Appreciate the moves you guys made to keep liquidity, but with like zero knows with negative net the no.
How whats your thoughts on being more aggressive here I mean, I insist on the buyback is that more kind of like PR reasons, then liquidity reserve point in one how aggressive do you think about being in M&A here. Thanks.
Thanks, Joe So sort of 16 million write down within the industrial process segment. It was an impairment.
Primarily related to our upstream business, just getting recalibrated to the for the longer term demand environment, but again, the upstream businesses only 4% of of I can see at this point, but we just thought it was prudent move.
Based on on the global upstream dynamics to to look at some of those assets.
Right of the current economic conditions in the projections that we're seeing there.
On the liquidity front I would say you know, we're we're certainly being proactive.
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And conservative in attaining liquidity and doing it in a very conservative way from that from an interest rate perspective, it's a very low low cost insurance policy right now just to make sure that we are staying ahead of any.
Uncertainties in the financial markets. So.
Yeah, we'll continue to monitor that as far as our degree of liquidity.
Yeah, we were super aggressive on the on the repurchase front in Q1.
During a good $73 million in that will certainly help our share count as we go throughout the year. The dividend was was you know kind of executed 15 million in Q1 and that's.
Our plan is to maintain that momentum there. So I would say, it's little too early Jody start thinking about.
More deployment of capital I think the worlds and cycle through Q2, and see how customer payment behaviors play out how other dynamics play out my suspicion is by the time to get through Q2 will have more clarity on.
You know the pacing and sequencing of deployment and some of these other categories, we made and be able and it better positioned to start to to put guidance back on the table. So I think for US right now, let's get through Q2 take another read see where we are on these issues and go from there and lastly, I would say on the M&A front, we're not currently active.
M&A, but we're continuing to cultivate continuing to engage with targets that we've.
Identified over the years and looking for a changing dynamics, there, but we're not planning any transactions and the short term.
Thanks.
Thanks.
Thank you ladies and gentlemen. This concludes the question and answer session and today's teleconference. Please disconnect. Your lines at this time and have a wonderful day.
Hi.
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