Q1 2020 Earnings Call
All participants please standby your conference was about to begin.
Good afternoon, ladies and gentlemen, welcome to the Twentytwenty first quarter conference call constructions for submitted questions will be provided to you later in the call.
Now, let's turn the conference over to Mr. will the board. Please go ahead Sir.
Good afternoon, everyone.
Thank you for joining us today, we always look forward to talking with our shareholders and we hope to inform your well one answer questions.
We also note that we have many other stakeholders, including many employees on the call and our remarks are addressed to them as well as we disseminate our first quarter results in commentary through our network.
With me. This afternoon are thought to Raimo, Martin <unk>, CEO, and President and our Chief Financial Officer, Freddie toll stuff.
Today, we will be discussing Martin raise results for the quarter ended March 31 2020.
But before we talk about results the past is not where our minds are focused these days, but on the president and the future.
Well 2019 was a challenging yet very successful year, we recognize that the covert 19 pandemic has created unique challenges for all of us.
You've seen an unprecedented shutdown of our industry and most of our customers in North America, Brazil in Europe are either not operating or just restarting some of their plants.
We have been extremely focused as a management team and as a board of directors on the crisis and how we best deal with the shutdown of our business is restart and our returned to full production in future.
Management team led by pot as daily meetings to deal with the closure and now it's focused on the best restart possible and we've had weekly update meetings with our board members. Our focus throughout has been firstly on the wellbeing of our employees and those of others in our industry and our loved ones.
We've been very proactive on safety measures and have developed a very robust set of safety protocols for our plants and offices are people have to be safe and feel safe.
Furthermore, the well being over employees extends beyond just the coal with 19 threat of course, our people need to have meaningful work and an ability to sustain themselves economically by coming to work.
In that regard we have been very involved in preparing ourselves and our industry for an expeditious successful and safe restart.
After my opening remarks, Pat will take you through some highlights and give you his perspective, Fred will review the financial results I will finish with some general closing comments now we'll open the call for questions and we will endeavor to answer them.
Our press release with key financial information discussed on a fairly detailed basis has been released or in DNA in financials have been filed on SEDAR and should be available. These reports provided detailed overview of our company, our operations and strategy and our industry in the risks we face.
Given the detailed in our press release and filed documents are formal remarks I'll call today will be generally overview in nature, we're very open to discussing in our remarks, and we hope in the queue and hey, some highlights of the quarter with state of the industry. Today, how we are addressing the challenges and think about coal with 19 and shutdowns and related issues.
And progress in our operations as always we want you to see how we see the world.
As for our usual disclaimer I refer you to the disclaimers in our press release and filed documents are public record, which includes an annual information form and Mdna of operating results is available on SEDAR and you may look to the full disclosure record of the company there and now here's Pat.
Thanks, Ron Good afternoon did you saw in a press release, our Q1 adjusted net earnings per share came in at 38 cents.
Impacted by customer shutdowns D. Copeland 18 endemic.
The quarter also included one month results were acquired operations also representing a two cents share net loss for the quarter.
Q1 production sales came in at 822 million down year over year 927 million again due to March.
27 million at that came from our new Mattel's operations.
With tooling total sales number was 873 million for Q1.
Our adjusted operating income margin for the quarter came in at 5.8% lower year over year due to the affected the cobot buyers on our customer base in volumes.
Excluding the acquired Mattel. So please we actually achieved 6.2% operating margin.
Right you to cope with 19 customers shut ins, we were well on our way to achieve our previously announced Q1 EPS guidance of between 60 65 cents.
We grew Robbie its reasons.
Our net debt to adjusted EBITDA ratio ended the quarter at 1.62 times slightly up quarter over quarter due largely to the financing of the acquisition of Intelsat.
Foreign exchange translation related to our debt levels.
The shut down of our customers were happy to announce new business wins since our last call in March totaling 35 million in annualized sales pure volume.
Including the 8 million.
Systems group.
Ford GM, and Audi and 7 million in our lightweight structures group for money.
Due to the current environment, we're not giving guidance for Q2, but expect clarity on 2020 over the next number of months.
Related to the current condition, let me highlight what we are see first our customers had begun to restart their facilities. This will accelerate over the next number of weeks. Thank you on June.
Production is now relatively normal in China.
See North America in the rest of the world retire in similar fashion.
Yes, the maturity.
You the STB plant and the most aggressive schedules North America, which bodes well for Martin Ranch, given our platform portfolio.
It had some facilities in production throughout the situation, namely our industrial business.
At a lower level.
In other products that continues to ramp up our there's been a leader stands we are making for general Motors, we've received that product running for the next number of orders. It has been a nice supplement to our Canadian industrial plant.
I'm proud of the industrial team for their ability to fast track developing produced at a record pace Gold star performance during a very difficult store.
Automotive plants has started to ramp ups on key lines over the past week or so.
We will continue to call people back to our facilities as demand rises.
The teams have done an exceptional job improving safety processes throughout the company I expect CB overall to continue to improve as it has been less number of years it mark.
Safety is the number one priority and I expect to maintain our world class activities and an even greater pace.
One unique example, based on internal demand, we've constructed a clean room and are all build plan.
And aborted equipment to make man or our entire company globally.
Over the past few months, we had not San idle.
We have strategically kept key resources in a number of our facilities to make operational improvements during the downtime, allowing us to be even leaner than we were prior to the shut down at multiple locations.
With these improvements we expect full volume, possibly as early as Q4.
We as an organization will run a full operation with less resources than we did prior to the cobot 19 outbreak.
This will support our strong bottom line commitments in the future.
So we Didnt went the crisis getaways.
We capitalized wherever possible to assure long term success in goals they enter site. Despite this disruption.
Lets some new programs have been delayed anywhere from one to six months no major programs from any of our customers has been eliminated.
This is great news.
As we've said in the past new programs meet or exceed our hurdle rates in our key to our plan strong margin over the next few years.
You're all aware the cobot 19 impact on our industry as well as many industries like.
Like every downturn in as we expect the auto industry will lead the.
Every almost certainly as sheri great 2021.
Lastly, I want to think the Martin real leadership in their teams for their response to this overnight industrial shut down.
Nothing short of light speed.
Just incredible leadership and dedication from our Margaret people simply outstanding performance and with that I'll pass it to Fred.
Thanks, Pat and good afternoon, everyone.
I sincerely hope everyone is staying safe and healthy during these very difficult times.
My opening remarks, I'll provide you with a quick summary of our quarterly results.
We'll also discuss some additional relevant topics given the current environment.
Including what we have done and are doing to respond to the cobot 19 pandemic and related shutdowns.
Hi points or M&A for more detailed wrong. These topics I'm also happy to answer any questions you may have on the quarter or otherwise.
Consolidated sales for Q1, 2020 were $872.7 million, a decline of 150.5 million or 14.7% from Q1 2019.
The operations acquired from Atossa results for which were consolidated with those are the company effective March 2nd.
Contributed 28.7 million of year over year total sales.
Excluding the acquired operations first quarter sales decrease year over year by $179.2 million or 17.5%.
Approximately 46 million of this decrease related to tooling sales with the remainder largely due to overall lower industry volumes driven by the coven 19 shutdowns and pre covert volume declines in some areas of our book of business in particular in Europe.
We estimate that Kobin 19 related shut downs impacted first quarter sales by approximately $80 million, excluding the impact that had on our new macassa plants.
As Pat noted adjusted operating income margin was 5.8% for Q1 2020 compared to 8.2% in Q1 19.
Year over year decrease was generally due to the overall lower industry volumes driven largely by the carbon 19 shutdowns and a negative impact on overall margin from the operations acquired from the palace.
Operating margin in Europe towards especially negative impacted by the addition of the new German Tulsa plant.
The result, operating margins in Europe decrease to breakeven level during the quarter.
I also want to touched upon cash flow on our balance sheet.
During Q1, 2020, we generated $103.2 million and cash from operations after changes the noncash working capital compared to 99.29 in Q1 19.
Excluding tooling, which tends to be volatile nature, we generally experienced an increase in production related working capital in the first quarter of any given year given seasonality.
That does not happen this year as a result of the carbon 19 related shutdowns and corresponding sales decline.
Production related working capital actually decreased during the quarter.
The cash benefit from this was essentially offset by an increase in tooling related working capital, which increased approximately 100 million from parks and 6 million at end of 19.
The cash spend if we have received from the unwinding of production related working capital continued into April velocity reverses or restart production and build the backup.
Free cash flow as the finer and our Mdna for Q1, 2020 was 9.99 compared to negative 21.7 on Q1 19.
Most of 74 million in cash additions to property plant and equipment.
Net debt, excluding the impact the buyer for US 16 increased during the quarter by $52 million to just under 715 million due largely to the financing in the acquisition from a Tulsa and foreign exchange translation.
As Paul noted net debt to adjusted EBITDA again, excluding I for 16 increased during the quarter to 1.62 times from 1.41 times at end of 19, but still very much within our targeted a range of around 1.5 times.
We believe we entered the cobot 19, driven downturn with the strong balance sheet, which will ultimately allow us to keep a long term focus as we work our way through the current state.
In terms of the Coven 19 pandemic. Our response has been measured prudent and decisive with an emphasis on safety cash conservation and enhancing liquidity.
Health and safety of our employees their families our customers in our communities is and will continue to be our top priority.
Patent Rob has touched upon what we're doing in this area.
The company has also taken actions to conserve cash by aggressively flexing, reducing its cost base and eliminating discretionary spending across global footprint.
These actions have included employ layoffs temporary reductions a salaried employee base wages of up to 50%.
Curtailment of Nonproduction spending and the delay of capital and tooling spending where and when appropriate.
We have spent a lot of time on the last two items in particular and continue to do so.
In light of some customer program delays as Paul noted we are working towards decrease in our cash capex spend for 2025% to 20% from pre cobot levels, which are projected to be relatively flat year over year.
The company has also temporarily suspended the repurchases of common stock under its normal course issuer bid the continuation of which is to be reassessed at a later date.
As at March 31st 2020, the company had total liquidity liquidity of $300 million, including cash and cash equivalents and availability under the company's revolving credit lines.
On April 17, 2020, the company further enhances our liquidity position by exercising the accordion feature incorporated and its banking facility, which increased the revolving credit lines available to the company by another $280 million.
The company's banking facility also includes a 300 million dollar allowance for asset based financing that the company can use for additional financing if required.
Of which $236 million was available as at March 30 Onest.
We believe we have ample liquidity to withstand the carbon 19 related downturn and corresponding restart.
The company also completed a forecast of cash flows and covenant compliance using available internal and external information.
Needless to say as result of the production shutdowns of corresponding decline in EBITDA. We are experiencing now our net debt EBITDA ratio will increase from current levels and exceeded our targeted range in the short term.
The company has and will continue to work with all stakeholders to address the challenges of the day.
We're working with our supply base to deal with their challenges, including the restart of production and safety protocols are customers to prepare for the resumption of full production at some point as well as the development of new programs and products.
Our governmental and regulatory authorities to ensure safety and economic well being over industry.
Our capital providers to ensure the quality and our employees to minimize the risks associated with the shutdowns and layoffs in the industry.
Including in many cases engaging in emergency government wage protection programs, where applicable as well as a safe and healthy returned to work.
As the coven 19, pandemic and its economic impact to continue to evolve.
Continue to respond in a measured prudent and decisive manner with continued emphasis on health and safety cash conservation and maintenance of our liquidity position.
Overall, considering the magnitude of on declines in the consequent challenges. We faced we're pleased with our first quarter results and our response to the cobot 19 shutdowns.
I too would like to thank the machinery leadership and their teams for the work they have done throughout this very difficult time.
It has not been easy, but the team has really come through strong and United.
Thank you for all your efforts, it's been nothing short of a remarkable.
Thank you for your attention this afternoon with that and I'll turn it back over to Rob.
Thanks for some brief comments first the general industry comment.
We're all observers of covert 19, the health issues, the economic hardships that need to restart or economy and so forth.
I will not talk here about the macro economy, although we are happy to discuss these things in our Q and a if you like.
These are challenging times, just as we saw an experienced with 911 and what the 2008 nine recession.
What I will say is that from an auto industry perspective, Theres really three phases here first the shutdown phase, which are passed in China and just about past elsewhere second is the restart phase, which we have seen in China and are now seeing here. This is very challenging and the industry has been working very hard to be able to.
The launch as smoothly as possible by working on and developing protocols to keep our people safe and ensuring the whole supply chain can start together, whether plants are in Ontario, Michigan or Mexico. This isn't easy.
The third phase is and will be rebuilding demand.
This requires a return to work in restarting our economy. This has got to happen and I believe the sooner the better not just from an economic perspective, but from a social and health perspective specific to automotive we need to open dealerships and get people moving again. This is coming we may also see some demand stimulus measures like.
Cash for Clunkers type program or government incentives.
Overall, the auto industry is coming back how fast and how far remains to be seen but our people will be there.
Second a comment to our people and our shareholders have Martin Ranch, we believe that our culture is and will be a sustainable competitive advantage for the company over the long term and we believe it has driven the improving financial safety and quality performance over the past several years.
Sustainable companies with great cultures will be around a long time.
We believe we have a company poised to excel over the next decade and beyond.
And we and our people are committed to that.
Our culture comes to the four in the context of the covert 19 challenge, we're working very hard to make People's lives better. We're focused on safety, we're working hard to restart our business and bring back as many people to work as we can when we can.
We've worked with governments in the places in which we have plants on relief for employees, we have had to lay off and many of our people are benefiting from programs available to them.
Over the last few weeks or team members have been working to help fight the spread of covert 19, our industrial and metallics groups are collaborating with general motors on the production of ventilators.
We have any team members, making face masks and hand sanitizer for global frontline workers were making masks employees have volunteered for meals on wheels to help deliver meals to those a knee during this time.
Our team in Spain, or using their own threed printers to make phase shields for hospitals and local police.
They are also producing devices and shields to protect healthcare workers during the intubation process.
Of course, we're also taking measures to ensure that we maintain a strong financial and competitive position through the crisis and beyond as Pat and Fred noted as to the dividend we paid our dividend on April 15, well likely pair next dividend in July once we're back to work in this industry.
It will be dealt with at our next board meeting in June at our AG M, which will be held virtually given the distancing guidelines, our proxy material, including a message to shareholders is now on our public record.
Finally, we're very focused on serving all our stakeholders. It's in our DNA. We thank all our stakeholders for their support we will continue to do our best for used throughout the year. The next decade and beyond we will have a great future together.
Now it's time for questions, we see it we have shareholders analysts and competitors on the phone. So we maybe after IPO little careful their answers, but we'll answer what we can thank you all for call it.
Thank you.
Ladies and gentlemen, we will now take questions from the telephone lines. If you have a question and you are using the speakerphone. Please lift your handset for dialing your selection.
If you have a question you can register by dialing start one on your telephone keypad and you can cancel your question if you wish by dialing up outside.
Please press star one at this time and the first question is from Mark Mark level at Scotiabank. Please go ahead your lifestyle open.
Hi, good evening.
Actually most of them.
So Paul.
This is repetitive but.
Im just curious.
Stop right now but.
Sort of incremental decremental birds.
You could maybe help us with just.
Our for our modeling purposes.
Yes.
So if you look at our release for the quarter.
Sure.
Margin.
21.2% I think thats, a good reasonable estimate going forward.
When volumes kind of fall off a cliff overnight.
In terms of flex your costs.
Sure.
Good.
Okay Thats it thats very helpful.
Yes.
I'll leave previously.
Contemplating about 300 million Capex.
So.
At this point yeah, we adjusted our opening remarks, so generally speaking with this bank.
On our Capex and drilling program.
Whenever we can too.
As much as costs also sold at a moving target still in process, obviously customer timelines milestones are important part of that so working through it.
Right now to be.
Yes in the.
The guidance.
20%.
I think there's some further opportunities there.
Thanks.
For the delays.
We're going to keep close.
Working that but it will come down from Threeq over levels.
Just on the balance sheet, obviously in good shape next time, I think liquidity looks pretty good and you bumped I'm just curious.
Okay share these numbers, but just.
I think financial covenants or.
Obviously, the cheap right now which is just so we can be aware that.
Yes, so I mean, obviously one of the first things of that.
And was a sharper liquidity so.
As in.
We're very comfortable there.
We've obviously been in downturn mode and executing on those action plans. So whilst we've been focused on that.
Along the way of and forecasting modeling is obviously a lot of uncertainty still out there in terms of.
Restart the recovery it looks like timing and so forth.
We generally benchmark.
Based on.
Kind of a frame of reference based on the current view based on the current restart days and what it looks like coming out based on baseline projection.
We feel pretty good about our leverage ratio on and our covenants. So our bank covenants.
Just three times.
Structural disappointing so.
With that of course.
Shutdowns or prolonged and.
There's a certain cases.
We'll go back and locked down.
No circumstance I think.
So it will be having some discussion with our banks.
Quite frankly won't be only one thing I was a good for us.
But.
As you know strong.
Yes, and coupled with that and it's not a hurdle that we.
We believe it or we can overcome.
Yes.
Currently been an emphasis of governments the banks and we're very close to.
Through our backs as far as that goes and I think as you can see when we put our release in March I guess.
Basically pulling back on the guidance, we said we're in discussions with our banks with respect to our alliance as you can see the results of that were very good and we know that will.
Keep having discussions with them.
If things go as planned we should we should be fine and actually.
Position to utilize the strength of our balance sheet and good ways like.
Work and stuff like that.
Yeah.
That's helpful. Maybe just one last I just us on the reached 30 facilities.
And you made a question that's already but just sort of the schedule.
Got it is fully running Europe is in the process and North America.
They should be up and running obviously at reduced rates for the that sort of how to think about it.
China, China has been up and running for a bit I'd say there.
90% level, depending on the plant.
Europe.
For a shorter time, probably between 20 and 30% there some place.
Probably closer to 20 at the moment.
And then this week so some of the North American plant started up Toyota Honda.
A few other plants and the Detroit three are warming up next week, you start to see them kick in in the week after more so so.
Throughout may.
We're all ramping up.
At least by scheduled the expectation is in June.
Im sure they would love to normalize.
As much as possible.
But the supply chain employment all those types of things, obviously, we'll probably play a role so we expect it to be bumpy.
Two or three weeks for sure.
And we'll parallel that so so as they arise will pull people back.
Yes.
Alright, Thanks, guys I appreciate it thank you.
Thank you.
Once again, ladies and gentlemen, please press star one if you have a question at this time.
The next question is from Michael Glenn at Raymond James. Please go ahead. Your line is now open.
Hi, good evening guys.
Yeah.
Pat.
Turning remarks here you talked about.
Some of the work that you've been able to step in at the plant level and get some of the operational improvements in place can you just maybe take a little deeper can you identify some of the specific let's say you're able to get into maybe a bit earlier and accomplished some of these these improvements yes, so no about a year out.
Planned for the following year improvements.
A lot of those improvements you need line time to do it difficult and full production will get to the lines and and do some of that activity.
So what everybody down and a lot of our plants, we kept our lean people in place and work through a lot of those.
Improvement activities that had been previously planned so in some sense as you could say you you pulled some of those ahead.
So that in combination with plans for them at Tulsa improvements, which we've talked about previously.
We are able to pull those ahead as well and a lot of cases so.
It's really a combination of those two things will allow us to reduce our overall resource base as we go forward and the fact that we're starting slower will give us a little bit more time.
Things are back in full production my expectation as we could be.
Five plus maybe 10% better across but across the board.
Five is probably a better bet, but.
Certainly.
And then on the Telsey.
Given some indication plenty acquired that business. So do you think that you could you should be able to.
Other than what you had initially indicated I guess as well so I.
I would tell you in the case of North America, we were able to pull ahead in the case, Germany, we couldn't get resources there except for a few that decided to stay so we havent been able to get our resources.
When we expect that to get them, So I'd say, Germany will be a bit behind.
But you SM, Mexico will be a bit ahead.
And in China, where back up and running those are relatively small plants and actually had been running.
At 100% or more based on volumes.
The one that when we do face.
Business from.
Expectations when we close it is obviously going as you note so volumes have come down from those initial expectations worse.
That's a deterioration there but longer term or view the business is still intact.
Are going to canton improvement and.
Turning to integrated and get to that eventually.
Asks are coming back and so forth.
As expected levels.
Acquired.
So a lot of our integration team are in Mexico, or the U.S. in Canada, and we were able to get access to the plant.
The U.S. and the ones in Mexico, but one than Germany. Unfortunately.
Solve the.
And ability to cross borders supply we've had to postpone.
Some of that activity.
Okay. That's.
That's helpful and then maybe just.
Working capital.
Comments regarding what was going on working capital can you maybe just.
Can you give.
What should we see what we should expect maybe through the.
The next couple of quarters.
Adjusted two aspects I mean production related working capital is pretty predictable.
So as I noted in my opening remarks.
When the shutdown and we started benefiting from that unwinding, the receivables and payables. So for US we saw a bit of a tailwind in March that casinos in April.
And that's obviously going to reverse itself.
Our production build it back up.
Rebuilding a working capital happening.
Two in Q3.
And then.
Depending on where volumes are.
Seasonal fourth quarter that tends to come down again, so it's a bit of a source of cash.
Oh, that's critical.
Visible to me, what's less predictable the tooling related working capital, particularly this environment, it's volatile by nature, but in particular now.
So we actually saw an increase in Q1.
And.
Expecting at this point, probably not to decrease by the end of the year if anything it may actually increased to some extent. So we're still working through that as I noted on the capex into I understand program, so forth and Pat dates and it's a bit of a moving target right now but.
That is an area that I'm focused in on and.
Could could be.
Okay.
As it relates to cash for the rest.
And any idea what that magnitude a negative might be.
That's not going to be into two big I mean 100 million is pretty high to begin with.
So.
I couldn't tell you exactly but it sounds like print doubling or anything like that sort of the margin.
Got it okay. Thanks for taking my questions.
Thank you.
There are no further questions Mr. World War I would like to talk turn the conference back over to you.
Okay, well that's good because.
I think we only have an hour anyway.
Oh that's.
Mike.
To all of you call then.
We appreciate we appreciate that we're obviously.
Promote as well, we're working well together as a team, but we're not altogether.
Physically so glad with the call went off and I think the technical people for that.
If one has further question would like to discuss any of our issues. Please feel free to call set to contact a number in the press release, thanks and have a great evening.
Thank you ladies and gentlemen, your conference has now ended all callers are asked to hang up their lines at this time. Thank you for joining today's call.
This conference is no longer being recorded.
No. This is putting all this it coffeehouse at that Devon.
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