Q2 2020 Linamar Corp Earnings Call
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Hi, good oriented generic.
Hey, John I'm going to get started we didnt hearing introduction, but we're hoping that.
In light load and everybody can yes. So good afternoon, everyone and welcome to our second quarter Conference call. Joining me this afternoon and numbers.
Executive team Jim.
Snyder logical genmark stoddard as well as members of our corporate.
Marketing finance and legal team.
If you can't answer side.
Before I begin I will draw your attention to the disclaimer.
Currently being broadcast.
Okay, I'm going to start off with an update on the Caribbean banking crisis and minimize reaction to such.
As you know we check for step approach to dealing with 19.
Our team gather data make a plan execute on the plan adequate communicate broadly throughout and we have continued to make excellent progress in this regard.
Our focus right now is very much on the next phase of this crisis restarting rejuvenating and we're covering.
Foremost, we are determined to create a work environment, where people feel and are safe or space are coming to work then now coming to work.
More than 90% other employees are now back at work, which is great to see we hot hot.
Positive cases pop up which is to be expected given the easing of restriction broadly the key is to stop any chance of the virus starting within our facilities and I believe we are doing a really good job of that we've had no serious outbreak in any of our plan. We're learning as we go quarterly Jeff.
Turning our protocol does require to address any concerns that the pop up.
Thanks, John I think is really important for asphalt wall in rebuilding confidence display our economic recovery.
Confidence and our ability to work safely, which we absolutely are.
The economy to weather, the storm and governments to manage the debt incurred and trying to mitigate the personnel and economic impact of what we've experienced.
I think were protocol is based on five key principal screening PE clean masks and all of a shale distancing increase cleaning and hygiene and contact tracing we are regularly serving our employees at the health basically at work and the adequacy of the stake work protocols and I've had great.
Consistently strong score for both metrics as we have started doing so if there is a concern and anyone plant or anyone region in terms of how people are feeling we can quickly focusing on that treated data that we're gathering which does allow us to drill down by region and my plan.
We're making excellent progress on the cash management and cost control aspect of our Lindmark, How quick action plan as you see with our second quarter results.
Capital spending was cut by more than 80% in the quarter to just $24 million and we implemented cost savings of more than $30 million realized jump in Q2 alone.
Our global cost team has identified and implemented nearly $30 million of annualized savings and every plant group and region has implemented significantly more savings in their area as well.
In terms of our balance sheet, we continue to be in a very strong position. Thanks to the success of our constant cash initiative.
I'd like to point out that we have not less focus on these areas. As we believe there is still a lot of uncertainty out there and now is not the time for us to become complacent.
We look in detail at forecast at least two quarters out every single week on sales earnings and cash and we stress test. This year were aware of any potential weaknesses.
One stress models and when should we model.
The other two months shutdown, which by the way, we feel very unlikely to happen and others, where we cut output significantly for the remainder at the.
In both cases, we remain profitable for the year generate cash for the full year and do not breach our covenants.
We do not have any debt maturing. This year, we early paid a private placement in the quarter that would do 15 months from now from a risk mitigation perspective, as you take advantage of low cost current borrowing rate.
I will provide more information for you shortly on that transaction.
Jerry you can see the stress scenarios I described which basically cut in half current expected operating earnings levels and as noted still lead of profitable still leave of generating cash and not reaching any covenants.
Another key area of focus was a closing community support.
I think we've done an excellent job and rapidly retooling lines for ventilator component full assembly production and I think it's just a great example of Lindmark innovation.
Responsiveness and our flexibility we were in part production on several orders for ventilator parts within two weeks.
First of all call.
Assembly ready to build the different question unit for clean slate in just four weeks.
[music] Assembly ready to build our IC you in a box integrated ventilator on life support systems for Thornhill contract by the way of 1700 different components and only six weeks, how do we managed to do that while we were able to do it because we are a remarkably agile flexible company.
And our man management style, and our engineering and supply chain management capabilities and in our actual equipment, which can be easily and rapidly which will two new program.
We are technically incredibly deed our team is fantastic and its adaptable and our lean manufacturing skills are transferable.
Following this one a little bit too because were often question and challenged about how lenovo and though a changing landscape of design and technology in yoga, which we call that.
One of our isn't advanced manufacturing company through true, we can design and manufacture products for all kinds of industry and do and we'll continue to do so long into the future regardless of where technologies take take that.
We see technology changes only one thing opportunity and we will as we always have chase those opportunities down and continue to prosper.
Well at various stages and completion for these different products for the component work for GM goal and ultimately our complete or nearly complete first thornhill, we drilled about 100 units and we have we will have the full order at around 1000 units complete within a few months.
It's a potential for additional volume on this product as well.
Similarly, we've built around 100 units, where the clean slate disinfection assistance and we'll continue to ramp up on production there as we get into the fall.
Okay with that let's jump into some of the specifics around the quarter, starting with sales earnings and content.
So sales for the quarter were $924 million down 56% from last year. So pandemic of course was a key driver well results having cost US an estimated 1.13 billion and sales in the quarter and an estimated $345 million and operating earn.
Thanks for decremental margins of 31% at the OE level.
Lower agricultural sales as expected a bit of a drag on the quarter well.
All of that was mitigated by some fantastic cost savings execution by our team.
Switching business on the transportation side also helped as to some extent did some government programs around the world.
If I strip out covert related sales earnings and any of the subsidy impact we did actually see margin growth in both the transportation segment and overall thanks to this great cost saving work that was done as well as launches.
Overall EBITDA is well remained positive despite the pressures from the panda with double digit margins.
In North America content per vehicle to the quarter with $192.74 up quite a bit over last year with customers. We have a heavy weighting were also seeing the biggest market share gain.
The story in Europe, and Asia is the same with content per vehicle growth for the quarter in both regions at $86.53 at $14.11 respectively.
Production levels were down dramatically in each market most significantly across the North America, and you're right given the lag.
China, joining Phil Gallagher recovering from a tough Q1.
Global content per vehicle was down a little which isn't a surprise well most heavily weighted in our auto business in North America, and Europe, which saw the biggest production decline.
Disproportionately impacting global content per vehicle.
Commercial and industrial sales were down 54% in the quarter due to lower Sky Jack sale on global market down nearly 50% as well as lower Mac on sales on Fox agricultural market. The Draper Hatter market was down in double digits over last year in Canada when that time had strong.
On market share.
These declines were partially offset by great market share growth remarked on in Europe, and yes. In fact mapped on sales in Europe in the first half of this year, we're at 86% over prior year levels, despite the market being down.
This is finicky strategy of knocked on since our acquisition.
It's great to see them delivering on it so strongly.
Rapidly cutting back on our Capex is a key priority in the quarter given the headwinds faced a course due to the pandemic.
As noted Capex is down more than 80% compared to last year at 24 million and we intend to finish the year with Capex down at least one third from last year.
And as I already mentioned, we saw another strong quarter of free cash flow. Despite weeks of no receivable following customer shutdowns.
We saw another $170 million a cash generator, we pay down debt and we kept our liquidity at 1.1 billion. In fact, we've paid down nearly $600 million of net debt from where we stood a year ago. Despite the pressures of the pandemic.
Average turned up similar to 1.8 times EBITDA due to that.
EBIT yet.
Q2 will be the peak quarter for leverage with the ratio improving already in Q3 under current forecasts.
Free cash flow is something landmark is quite good at managing we've seen strong free cash flow over the last five years and expect to see positive free cash flow. This year as well. In addition, we are seeing strong level levels of free cash flow yield.
Our strong balance sheet and liquidity me, we have the ability to weather the financial impact of the situation over the next couple of quarters in a way that a lot of suppliers will not be able to this means we will have the ability to take on takeover work or potentially acquisitions as they arise and drive even more mark.
Share growth to mitigate soft markets and accelerate future growth.
Turning to your market outlook, we are seeing market down across the board this year, which shouldn't be in for Brian.
Industry experts are predicting steeply declining light vehicle volumes globally. This year to 12.6 million 15.9 million and 37.3 million vehicles in North America, Europe, and Asia, respectively. As expected each market is going to see at strong double digit recovery in 2020.
Lineup I'll show you in a minute.
On highway medium heavy truck volumes are predicted to be down significantly in all markets. This year with growth in most regions next year, except Asia.
Any access market the industry is predicting significant declines globally globally. This year, but most notably in North America in Europe, where the market will drop as much as 50% with the cause of 19 pandemic, adding significant pressure to lend already softer year in terms of demand.
Next year should see some grocers them, although it is difficult to predict at this point in time.
Any agricultural market at the end is your expectation is for declining combined Draper how to markets into double digits. This year in North America, Thanks, mainly to a top harvest last year.
Bella Terra political backlash that is hurting north American farmers, and dampening demand, particularly in soybean and canola and particularly in Canada.
The European Mcf markets are also which was expected to decline this year, Although Australia Mi seeping agreement and South America unlikely to stay fairly flat.
The AG market seems to have not been adversely impacted by the current pandemic our market expectations are basically unchanged from our expectation going into the year.
John continues to gain market share and its international markets, most notably in Europe to partially offset global market declines as rich mentioned, but nevertheless, we will be sales down in double digits at knocked on this year with growth within the next year.
As noted almost all of these markets Dallas bounced back meaningfully and 2021, if you look pretty much across the board.
On the auto side, you can see an increase in 2021 in every region globally. After a very top obviously 2020.
No not surprisingly 2020 is expected to be the trough global production levels at nearly 70 million Sixnine half million Q2. This year, we'll of course, the the low points in production from a quarterly Baker.
Production expected to bounce back up over Q1 levels in Q3, although still shy of last year.
Q3.
Production recovery of course drives from consumer demands are you can see here I think we may be one slight ahead. If you could just go back applied.
And one more.
Yeah, no if we can.
Go back.
To the consumer slide.
With the consumer.
Okay.
Yeah, So im sorry, we.
Seem to be are a little bit on.
Our slides I had a fly that showed consumer demand and how that with our reacting in China and North America and in Europe. So I'll just talk through at a little bit I apologize I guess not guide this weighing on the screen I see them at the moment services for.
Our auto business.
So in China, the AG consumer retail demand was up quite negative right out of the gate.
China was quite sharp indeed.
In terms of the reaction, but then quickly event bounce back up well over last year in in terms of vehicle demand of consumer demand, which for the last few months has actually been and the double digits.
Your next curve is deep and broad.
With low levels of demand lingering for much longer longer although we did Jesse July numbers out today, which is basically back up to 2019 levels.
In the you asked the curve is a lot shallower it only went down half the level that.
That we thought in Europe and in China.
Taking a little longer to come back up so its broad like Europe, but it didn't go down as deeply and actually July I was only down 12% to prior year, so not nearly as big a drop in North America, which is great just fee.
Not surprisingly this is driving higher production level.
At.
The moment.
In that in North America, and also in China as should bode well for European production, when we get back from shutdown in a few weeks as well.
So on this slide you can see the changes to both Q2 and Q3 from what was predicted last quarter in terms of global light vehicle production.
Q2, basically turned out exactly have predicted oh wider production level.
For Europe were offset by stronger than expected levels for Asia Q3, and is expected to be just like marginally down.
From last quarter's estimate.
Hi, mainly dropping out at a little bit less production in Asia Pacific offset by little bit stronger production in North America.
It's very consistent to what we're seeing and our customers' behavior at the moment as well.
On this slide illustrates where volumes are now predictor for both 2020 and 2021, both of which are again basically very consistent with expectations last quarter tiny changes as you can see I think it's really good to see that these predictions have leveled off and not continuing to degrade frankly, we've seen.
I think pretty consistently over the last couple of years.
In terms of patterns are correction in North America. This correction fit a standard level of reduction that we've seen apparently which is great news.
So although clearly 19 did accelerate this change painfully Bora. It does mean, we can now look forward to volume starting to build again.
So looking in more detail at the access market you can see on the right I hand graph the sharp declines in both North America and the European market June year to year to date back to the Blue bar, because the actually year to date.
Actions her 2020 full year as of Q2 are represented by the Grey bar, which as you can see for both North and North America in Europe are roughly 50%.
And a little bit changed from the Orange bar, which was the prediction for 2020 and our Q1.
Asia has more positive outlook, but is also a much smaller market and one that we're just getting established and so we're definitely more affected by the North American and European markets.
On a positive side equipment utilized utilization levels.
We're trending up in North America, certainly as we got into the summer and back in June utilization levels of equipment. We're at 93% of what they were in June 2019.
Although we have seen some softening in that regard in July.
Hi here is a little more detail on the agricultural market you can see north American coal mine retail trending up in Q2 after eight first quarter, but notably most of that is driving out of the U.S.
Canada is down 31% year to date and down 26% in Q2.
Well as new what Ed Marathon has dominant market share.
Okay, turning to an update on growth and outlook you will be pleased to know that we've had a solid quarter and new business wins, despite not being able to physically visit our customers.
I will highlight a couple of our worst strategic wins in a moment.
Electrified vehicles I'd like to point out continued to provide great opportunities for you can see at steady build in our global content per vehicle for both battery electric vehicles and hybrid as a result of recent wins.
The lines as internal combustion engine battery electric vehicle on hybrid global content per vehicle or converting which of course is the goal now interestingly our content per vehicle electric vehicles is now predicted to surpass that hybrid vehicles. A few years out for the first time with continued solid wins in that market seen in the.
Last couple of quarters and also importantly, our global content per vehicle for battery electric vehicle and only three year is actually equivalent to what our global content per vehicle for internal combustion engine vehicles is today, which is fantastic news.
Our adjustable market across a range of vehicle propulsion type continue to look excellent with our total addressable market for us today with around 80 billion growing to more than 300 billion in the future an increase of more than three times.
We have recently updated this analysis to include additional content potential for battery electric vehicle fuel cell electric vehicles as walk hybrid.
You can see the market potential for each is really starting to even out. This is largely driving from the higher potential content. We now have and the battery electric fuel cell electric as well hybrid vehicle. Thanks to continued product development efforts such as the assembled battery trade, we talked about last quarter as an example.
In fact architectural content for battery electric hybrid electric and fuel cell electric vehicles are now equivalents impact a little higher than the content potential we have for internal combustion engine vehicle, which is great to see.
Our launch book is solid and expect the peak at more than $4.3 billion in sale, thanks to new win.
This last quarter, we saw a shift chateau ste $100 million or programs that moved from launch to production last quarter.
Launching programs continue to mitigate market decline despite some delay.
As usual weird summarizing all of these markets a expectation and changes on our outlook fly that's now being displayed.
Obviously, uncertainties about the coming month are still making it difficult to be very specific about our expectations. What we can say is we expect a significant double digit declines in both sales and earnings this year.
We do expect to be profitable overall and in both segments and 2021 should see strong growth on rallying markets and of course, so let expansion on the margin side.
We expect to maintain leverage levels well under two for the year and improved significant significantly from that level in 2021, and we do expect to generate positive free cash flow in both years.
Looking specifically at Q3, the common 19 pandemic, we'll certainly continue to impact our results, but we should see steady improvement.
As noted North American Asia, our newly back to pre global Cogan forecast levels and the E U is improving.
That said the industrial segment has not yet showed signs of bouncing back and frankly is not normally better than Q2 in Q3 in any case.
So I will add as the lawyers Insys I do not impact from covered 19 outbreak are currently not fully understood or determinable in terms of their impact all segments at this point, but of course risks remain.
But that said if current market conditions persist Q3 should see a meaningful improvement back toward two when level for both sales and earnings.
Turning to finish up highlighting a few of our more interesting wins this quarter, which were notable again, mainly for electrified vehicles. So first we picked up a package and he axle gearbox component, where battery electric vehicle in the quarter, representing a meaningful level of annual sales.
His job is for a new entrance into the battery electric vehicle face, they're headquartered in U.S. with a great an innovative vehicle design and Clark that we are excited to again be expanding our portfolio a battery electric vehicle customers.
Secondly, we were awarded a significant camshaft assembly job in the quarter. The design is very innovative I meant to do drive much lower emissions hi in a internal combustion engine design.
The Jabil launch for one of our close facilities and a substantial in.
Its revenue potential as well.
And finally, a wins for hybrid electric vehicles. This one is in China is for a balanced shaft module a key product for smaller sized engine, which are often used in hybrid design and the balance shaft module is key to reducing noise vibration and harshness in those smaller.
I engine, so an interesting world product for us in hybrid vehicle and with that I'm going to turn it over to our CFO, Dan Schneider to lead us through a more in depth financial review they'll over to you.
Thank you Linda good afternoon, everyone.
As I noted Q2 was significantly impacted back over 19 as expected given the shutdowns that occurred.
Despite these impacts it was a great quarter for cash generation as we generate a 170.5 million for free cash flow.
During the year to date Hillary into 317.6 million.
Additionally, we were able to maintain or strong on liquidity at 1.1 billion, which is unchanged from December 2019 levels.
For the quarter sales were 925 24 million down 1.2 billion from 2.1 billion in Q2 2019.
Earning our normalized for FX losses related to the evaluation of the balance sheet and any unusual items that occurred in the quarter.
In Q2 earnings are normalized for the car impact of prepayment 2021 note.
We made the decision to repay the notes early.
The time, there was a high level of uncertainty around OEM research Oems restarting their operations and around their production ramp up schedule. This cause significant uncertainty for Atlanta.
One of our own recovery reserve plans.
To mitigate any potential capital or liquidity risk and given the 30 day notice period within the notes, we decided to me to prepay the notes early.
Prepayments was funded with available cash and as such there will be a benefit over the next 15 months I've heard moving to higher fixed interest rates on the notes in comparison to current market rates.
As a result, we are expecting a payback of just over 15 months.
Today's current rate.
The impact from Prepaying. The notes was 11 cents per share anemia.
Earnings for further normalize for FX losses related to revaluation of the balance sheet, which impacted EPS by 13 cents per share.
Normalized operating losses for the quarter were 19.4 million. This compares to earnings of 225.3 million in Q2 2019.
A decrease of 244.7 million or 108.6%.
Normalized net earnings decreased 180.3 million.
Were 113.9% in the quarter to a loss of 22 million.
Fully diluted normalized EPS decreased by $2.74 or 114.2% July 34 cents.
Including earnings for the quarter, where the foreign exchange loss of $11 million, which resulted from a 5.9 million dollar loss related to the revaluation of operating balances.
5.1 million dollar loss to the revaluation of financing balances.
As I mentioned, the net FX loss impacted the quarter Vps by 13 cents.
From business segment perspective, Q2, the FX loss due to the revaluation of operating balances of 5.9 million.
Well the result of a 12 million dollar loss in industrial and 6.9 6.1 million dollar game and transportation.
Further looking at the segment.
Industrial sales decreased by 56.7% or 339.9 million.
259.2 million in Q2.
The decrease for the quarter was due to the sales it got declines associated with the goal over 19 pandemic and the expected agricultural sales decline due to the ongoing issues in these markets as we've discussed over the last several quarters.
Normalized investor operating areas for Q2 decreased 71 million were 66% over last year to 36.5 million.
Primary drivers impacting industrial where the lower volumes as I just discussed.
This was partially offset by various governments for programs were related to over 19.
Turning to transportation.
Sales decreased by 822.6 million over Q2 last year to 664 million.
Sales decreases in second quarter was driven by the impact of cover 90, and the resulting customer shutdowns that incurred in the quarter.
This is lessened by a favorable FX impacted the changes in rate since last year.
Due to normalized earnings for transportation were lower by $173.7 million were 147.5% over last year in the quarter transportation earnings were impacted primarily by the Koby 19, shutdowns, which was partially offset by the targeted cost reductions achieved in the quarter various government support.
Programs for over 90, and a favorable FX impacted the changes in rates since last year.
Returning to the overall them are resolved the company's gross margin was 41 million decreased 293.4 million, primarily due to the lower earnings for the reduced volumes in both segments due the impact over 90.
The lower volumes in agriculture, which was mitigated by the targeted cost reductions achieved and the impact of various global government support programs.
Hi, guys amortization expense for the second quarter was 109.4 million Cogs amortization as a percentage sales increased 11.8% primarily to the significant decline in sales related to covert 19 in the quarter.
Selling general and administration costs decreased in the quarter to 60.4 million from 111 million. The decrease is mainly due to targeted cost reductions tell bosses koby thanking impact on earnings and due to the impact of various government support programs.
Finance expenses increased.
$4 million since last year due to the impact of prepaying. The 2021 note, which was mitigated by the impact of lower interest rates and lower debt levels.
Consolidated effective interest rate for Q2 declined to 2%.
From 2.9% last year.
The effective tax rate for the second quarter decreased to 21.2% compare last year, which was mainly driven by the impact of a tax adjustment related to prior years that was recorded in the quarter.
We are expecting the 2020 full year effective tax rate to be at the high end of a range of 23% to 25%.
[noise] minimum cash position was 375.6 million on June Thirtyth decreased to 62 million compared to June 2019.
Second quarter generated 193.5 million in cash from operating activities, which is used mailing to fund capex and no repayments.
This also resulted in free cash flow generation of 170.5 million in the quarter.
Net debt to EBITDA increased slightly to 1.8 times in the quarter as results of the coded shutdowns, which has lessened the by the strong cash generation in the quarter.
Based on current estimates we are expecting to remain well under two times by the end of the year. This is subject to change the impacts of Koby 19 is still very fluid and may not be currently fully understood.
The amount available credit on our credit facilities was $754 million at the end of the quarter.
Our available liquidity at the end of the Q2 was 1.1 billion and as a result, we currently believe we have sufficient liquidity to satisfy our financial obligations during 2020.
To recap.
Sales and earnings for the quarter was a story over 90 with a dramatic impact the pandemic, having Atlanta market critical story is one of cash and liquidity.
And or had remarkable cash generation quarter. After January 117.5 million in the quarter in 317.6 million year to date to free cash flow and maintaining strong liquidity at 2019 levels of 1.1 billion.
That concludes my commentary and then I'll like to open up for questions.
Okay.
As a reminder, if you like to ask a question. Please press star did the number one on your telephone keypad.
Got it star one Baskin audio question, well pause for just amendment chicken call that Q a roster.
Your first question comes from Mark Nobel with Scotiabank.
HM.
Thanks for taking my questions.
First when do you mean, you may recall Intific Derbio book.
It was sort of clarify that Q3 would you back towards your trend towards Q1 levels.
Sales and profitability what was your Bell's consolidated or industrial.
No I was talking about our overall Q3 results. So if you look at the else outlets fly that being displayed right now over on the five you can see our outlook for Q3.
Talking little bit about the you know the industrial specifically and then at the bottom we're talking about the overall consolidated results that we feel will be bouncing back up.
In a meaningful way to get sad toward.
Well we were in Q1.
Okay.
I know you're not providing sort of an outlook are you I mean this is good color but.
I guess when you make your own assumptions from transfer literally industrial you know sort of.
Do you willing something of a ballpark estimate leasing so maybe down for you. So we consulted industrial.
All right well no I mean, you know as as you know we don't give as Andrew Thanks have a rally around.
What are forward looking information is gonna be and certainly right now where are you know so much uncertainty around what's happening is certainly not the quarter. Just start I gave you a number of tariff.
What's gonna be happening with a with our industrial business.
Sure understood, but is it is recorded a [laughter] [laughter] [laughter] I'm still a border clarification for you the government grants or subsidies in the quarter.
I think it was 52 or two to 3 million the clock and rather will flow through the piano visiting different segments is runs with local ones trying to understand how it.
Helps each business segment in the quarter.
Most yes, the 52.8 million does flow through the statements in various locations because most of it is related to wages and benefits.
So that does hit cost consoles and yesterday we.
We haven't split out by segment, though but obviously the majority of our employees are in the transportation segment, we have the biggest him back.
Yeah.
News will last for Southern Africa, I'm, just wasn't working cap obviously, it was a great quarter.
So I'm not least assume somebody reverses in the second office business ramps.
I'm just trying to get an idea sort of what the second half investment might look like or are you still see some cost for me a little or no.
Yeah I mean.
Certainly on the Capex side, where were you know we're going to start to need to spend again, I mean, we ratcheted back quite.
Significantly and I have a second quarter, but she now we're getting it we will start spending again, but I still say the year should be down significantly from last year.
Hi, interfaced as a non cash I mean, obviously as we ramp up there.
Right, you know pull on noncash working capital but.
Also an opportunity for Ah you know managing the receivables, particularly on the auto side streets in programs. We haven't played so.
That that's sort of offsets out so we don't see.
You know a huge sucking sound on the noncash side.
And I do you actually expects continued to generate free cash flow.
Throughout the back half Thier and Dell did you have anything else you went out to that.
No I thought that was an excellent answer.
Hi, Thanks walk.
Hi, good job into before.
As far.
Your next question comes from.
Christian.
Free federal wage see RBC.
Hi, good afternoon.
Just a question on your free cash flow was it was quite good this quarter in front of the pandemic I was just wondering how you think about returning cash to shareholders as production improve what sort of metrics, you're looking up before becoming more active on your answer I'd be or returning your dividend to pre pandemic level.
Yes so.
I mean on on the dividend side, the Kinex add to half was always meant to be temporary and we'd always envisioned that for a couple of quarters. So I you know if things go well hopefully we'll be seeing that come back up a quite soon and in terms of the M.T.I.D. Oh.
Obviously, we want to support our share price, but given our continued uncertainties out there I think it's definitely premature I had two to do that but that said you know if things continue to.
And as far as we currently expect both as a dividend and the buyback will be firmly back on the table and open for discussion that's where the same great levels of free cash flow and expect to have good free cash flow nextshares well.
Okay. Thanks, and just a question on your CPB. So there was a pretty big Spike this quarter.
I was wondering how sticky is that number as production increases.
Yeah, I think thats as you know when there's volatility in production that content per vehicle number accounts that slop all over the place right. So I think that Sam it's probably not not that sticky, especially the north American number 192.
I mean, it was driven not because.
Customers that we are more heavily weighted with.
Where are the ones that show, where you know driving the most of the production.
In the quarter sell you know as other OEM start to ramp back up to more meaningful levels of production I mean, that's gonna dilute that down.
Again as well.
Okay. Thanks stocks are for me.
And again, if you like Charles Good all your question. Please press Star then the number weighing on your telephone keypad.
That is star one girlfriend audio question. Your next question comes from Peter Skyler with BMO capital markets.
My first question is the.
The government support levels.
That you've benefited from the 53 million, which is quite substantial without the major reason why you.
Revised your guidance for the second quarter is that you saw.
Started to be able to see the benefit coming in you are able to.
I guess calculate what the amount was.
No not at all I mean that was one a piece of a of the telco right. So I'd say.
Usually influential you know inc. in comparing where we thought we'd be when we released first quarter result, I as oppose to where things you know started to look like what were they panned out a was first and foremost much stronger north American production levels than we had.
Then expecting we you know weren't really show what was going to happen in terms of the ramp up I don't think our customers really get either and what ended up happening was a much more rapids, our ramp up high in production then anybody had expected. So that was you know a really big piece.
The puzzle are also very influential was the significant cost savings I mean more than $30 million in the quarter, but that's not an annualized they get back in the quarter a cost savings that will realize that China. You know we it was implemented a lot quicker than frankly, we had expected.
And then you know that the government subsidy is a piece of that but don't <unk> don't forget that that was not to do you know just like a help employers bring employees back to work right. So that they could get pay that either 100% other wage or at least 75% of their weight. So.
Of course, we want to tap into the program for the benefit of those people who were laid off.
But ah and also it enabled us to bring more people back.
You know to full time work than we would've originally done and the costs about of course is not matter at all about 50 million because we did.
We'll have additional costs go down on as well. So there were some costs there that are not not none at all.
Maybe just to add to that.
Peter.
Back to one in the through early May timeframe, I mean, when we're working with our customers are there weekly telling us wash the eyes, Chuck the leases and all those type of thing. So we never really anticipated them jumping back to three ships or you know two shifts in some of these applications. So that was really.
An important factor and then also as Linda said the cost reduction we created a team basically around the world and things that people wouldn't think of rightly.
Stopped doing subscriptions, you know stopped doing uniform cleaning stock picking up garbage I mean things that you you don't have the fee workload going just stopped dosing. So we really focus in on that and then I think the bringing people back to work. If you look at what we did on ventilators and.
Good clean slate <unk> Ultra Violet system, and then also working with the local communities on PB. He like distributing in making things to really supports some of those.
Things in the community to get people back to works, we thought that was really important as well as the time.
Okay, but whats the timeline for these.
[noise] government subsidies to expire because I assume you're seeing them in Canada, U.S. I'm not too sure if you're seeing them in Mexico, and I don't know where you're out in Europe and also like on these cost savings, Jim 30 million in the quarter like they will creep back in one day, because you can only differ them at some point.
We have to cleaner uniforms, and you need garbage pickup.
Certainly like someone.
Yes.
Sorry, Dan Yes, some of them are generic come back, but I mean, a lot of at like there was you know traveled clock that you know were significantly higher and you know like all you know conferences. All these kinds of things that people are going to I mean, those things are not going to come back by any.
Scratch and you know putting something off that okay. We're just talking to do that this year you know there's a lot of cost savings that are sticky and are going to hang on a at least for another a few a few quarters and with regards to the government subsidy itself.
You know it depends on the country, obviously that what's happening on what you know how long it's got a lot, but I mean, certainly that the Canadian program is changing dramatically over the next couple of months as well again to encourage people to come back to work and that's that's the whole a point of it right. So.
You know this you know we had costs associated with bringing all the people back to work that is not considered when you look about 50 million. So you know he do you need to keep in mind as well and I'm, sorry, I interrupted you junkie.
No I think when the same page and it was the same sort of thing anything associated with production Peter's certainly would come back, but I was going to see some of the thing the sustaining stuff about travel and things like that that people are just not doing those are sort of longer term until that sort of give back to normal state of having a cure back.
Seen or something like living thatll be through the Steve status quo.
Andrew and I wish I would just lastly, I'd say as well that Ah you know were still remaining extremely cost conscious and you know as I mentioned in my formal comments, not becoming kind of complacent that okay, well coming out of it because you know there's there's revved up there. So you know.
We're state, we're keeping it pretty tight for awhile.
Okay.
Switching gears ooh like the though as you point out like the outlook for the two industrial markets that you're involved in there it's kind of cloudy. It's it's really put your finger on how they're going to.
How those sectors are going to perform for the rest of the year and into 2021, but you can you comment like what are you seeing in your.
Order book.
First sky Jack and per Mcfe Dawn is is the order book stable or is a building or is a declining like what are you seeing for yourself.
Yeah. So I mean for knocked on a you know as noted we're expecting the market to be down.
And it is down and so but it's not you know 50% down I mean it.
You know not not down at anything closer as like 10% down you know so I is double digit, but it's pretty low double digit.
Decline. So you know we had a a chart, but I showed or not I think year to date was like 9% down so I it'll be around that 50, or so you know.
Hey, actually the outlook is pretty good because although this year's pretty rough year, we're seeing great market share growth like in Europe for instance, a which is a is really helping.
To offset that so you know we feel like Ah you know things are are you know not that bad Army AG side on the access side I mean, I you know for sure we're not seeing signs of the market bouncing back yet so.
Hey, you know, it's it's a very reliant on construction levels and not to line up people being able to leave their houses are more. So you know I think that I thought it was quite positive that we were seeing the the a equipment utilization levels really ramping up a you know June being at 93.
Just kind of where it was a year ago that was great.
But with the I, you know sort of resurgence in the in the U.S.
As a of the virus, we seen things slowdown I in July. So you know, it's a little uncertain. When it went through rental houses are right. So we're not seeing the momentum there yet.
All right you know we're seeing.
The agricultural business performing not too badly I'm, Joe can you give a little more color on that yeah, I was going to maybe had on the AG side. The we watch the dealer inventories and they're not sort of the right levels that we've been thinking through so thats. It thats a pretty important thing that we're watching Peter and then.
Also you know farmer confidence and stuff like that Didnt.
Those seem in line with what a than the set and then.
Access on the access market.
See in general.
We're seeing sort of maybe some postponement of stuff just things like that where we're expecting order intake it might be getting postponed were deferred a little bit right, but that's more what we're seeing there on sort of day to day feel in touch right. So that is living it would seem a little less clear on where the.
Okay, that's going to go in the next the you know couple quarters right and just remind me of the seasonality in the access in terms of the order patterns Q3 is a weaker quarter than Q2 in terms of order development Ism is that true, yes, yes, yes.
I'm, sorry, just bear with me I have one more question, which is.
Like this this ramp that we've had in the North American automotive industry like as you point, though where there really ramping back quite quickly to try and resolve these depleted inventory levels like how how is that go on in terms of the industry has you know have.
Parts suppliers have been able to perform so your see me seeing.
<unk> limited interruption or or is there have been kind of stops and starts as you've ramped up.
Not not saying that little margin issue, but other parts suppliers.
So in L. been an issue in flow Yeah, I mean, I think overall, it's been reasonably Smith.
You know surprisingly so I mean, certainly there than the audio she is here and there and certainly things recently like Mexico, I, you know, it's having issues with them.
Thanks are you know, forcing shutdowns and let's shift, but Jim why didn't you add more hi color to that it's been it's been really fluid and yes. There has been some stops and starts and things like that with some suppliers struggling.
And you know, there's obviously there has been and there will be more coated cases that pop up in the OEM in the supply base and but I got to see overall in general I think the protocols at the automotive side and the supply base has been excellent and people are following those and so you know and I think theres a couple.
Midmonth.
The OEM side to keep going that they're not going to you know.
Stopped things again, they now I think we all know we've got to be doing both things right. We've got to keep you know you know people say, but we also got to keep livelihoods going.
And the and the demands there right. So which is you know really incredible to see as well so.
There's been a little bit if you're there, but nothing like I thought we would see more of a quite frankly, but we've seen some.
Pretty good auction.
Okay. Those are my questions. Thank you.
Great. Thanks.
And there are no further questions I would like to turn it back every calendar for any closing remarks.
Okay, great all right. Thanks, very much well to conclude this evening I'd like to as always leave you with three key messages.
First we have executed strongly on our cost reduction and cash generation action plans with excellent results this quarter, including more than $30 million doesn't realize cost savings I free cash flow of 170 million is hatch that one more time.
Second our balance sheet is in strong shape with that reduce further and liquidity how despite a very demanding quarter in terms of market pressures and finally, we are very clever teams for their outstanding execution on launching complex ventilator at median disinfection systems in worker.
Time and at the same time flawlessly ramping production backup globally, let's now more than 90% of our workers back to work and working safely. So thanks, hi, everybody and I Hope you all keep well.
That does conclude today's call you may now disconnect.