Q2 2020 Visteon Corp Earnings Call
Good morning, I'm, Chris Doyle director of Investor Relations for next year.
Welcome to our earnings call for the second quarter of 2020.
Please note. This call is being recorded and all lines have been placed how much time window to prevent background noise.
Before we again this morning's call I'd like to remind you. This presentation contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Forward looking statements are not guarantees of future results when conditions, but rather are subject to various factors risks and uncertainties that could cause our actual results to differ materially from those expressed in these tenants.
Please refer to the page entitled forward looking information for additional details.
Presentation materials for today's call who are posted on the Investor section understands website. This morning.
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Joining us today are such a one day, president and Chief Executive Officer, and Jerome Rouquet, Senior Vice President and Chief Financial Officer.
Control the call for one hour and well open the lines for your question after Sachin syndromes remarks.
Please limit your questions to one question and one follow up again, thank you for joining US now I'll turn the call neighbors' option.
[music], Thank you, Chris and good morning, everyone.
Before I start produced presentation electric knowledge, the tremendous effort what employees in this challenging times.
They had been resilient and disposable and delivering to our customer commitment.
Industrial reducing cost.
[music] were also like could take a minute reflect on the unexpected passing they would like or earlier this month.
Come to regard him as a friend.
The visteon team since our deepest will insist on his family.
And Chris colleagues at Baird.
[music] the second quarter was marked by extended vehicle production shut down in various parts of the word due to the coordinate can pandemic.
Half of the quarter.
Thing in global vehicle production to be down 45% year over year.
[music] vehicle production at discounts customers was down even more at 53% reduction year over year.
Performing vehicle production at our customers.
Both five percentage points.
[music] the company's started a comprehensive action plan at the onset of depend to make it to focus on five key ideas.
Managing cash and liquidity.
Using operational costs.
Gentlemen, commercial discipline.
Aligning supply chain and manufacturing global demand.
And finally positioning the company for the future.
[music] in the second quarter, we were able to flex operational costs down across the business in response to the reduced sales volume.
Why gross engineering and that just it at your knee were both down approximately 30%.
[music]. This was achieved through a combination of temporary salary reduction.
Or just went up a footprint from high to low cost.
The reduction of contractors and other purchase services and through strict control.
All operational expenditures.
[music] with respect to commercial negotiations with customers.
Hubert before pricing to around 2% of the quote unquote sales.
We also do this chicken cost engineering recoveries were finalizing some negotiations with customers earlier than previously anticipated.
[music] the strong performance on cost reduction and commercial negotiations.
Acted in adjusted EBITDA of negative $3 billion would the quarter, because decremental yodle, where your margin of 15%.
[music].
Extended shut down of manufacturing operations that we experienced in it to lend me, we're ready challenging from a supply chain prospective.
The team did a great job, reducing inventory down $270 million for the quarter, which was down $10 million compared to Q1.
[music] bottle for manufacturing plants globally are up and running.
And to supply chain is improving with each passing b.
[music] increased focus on customer receivables and reduced capex helped mitigate the impact on cash.
Adjusted free cash flow was a negative $52 million for the quarter.
[music] as it has done.
Cash balance was $759 million at the end of the second quarter.
Which gives us ample liquidity to bed the crisis.
[music], our strategy of vending greater share of new business.
And converting it into revenue two new product launches remained on track in the second quarter.
Even with the slowdown of activity, we launched eight new products.
Bringing the total calm grew 21 for the first half.
[music], we also won $900 million of new business into quarter.
Bite the bullet activity that Williams in North America in Europe.
Bringing the first half totaled just over $1.7 billion.
[music] when somebody to company performed well in a challenging environment, but responding to the reduced sales with strong cost performance without impacting our long term plans for growth.
Turning to page three.
[music] automotive production recovered to breed covered levels in China, but the beginning of the second quarter.
Outside of China returned to production was more uneven with Oems restarting production in Europe in early May.
Were delayed until early June to restart their production in North America.
In Brazil, and India production restarted, but the end of me.
But at much lower capacity and did not recover much during the quarter.
And this uneven production environment.
Vehicle production that Paul piston customers was down 53% year over year.
Lower than overall industry, which was down about 45%.
[music] Visteon sales were down 48% excluding currency.
Outperforming vehicle production at our customers, but five percentage points.
This our performance would have been greater if not for the high implant inventories Oems towards the end of the first quarter.
[music] from regional perspective, Visteon sales in Americas, we're down about 70% and in line with the industry.
As we were impacted by late start of production at key customers in both U.S. in Brazil.
[music] in Europe sales continued to outperform the industry due to new product launches.
A couple of customers, including Ford Rindo Ntsc.
In China, although the market was up 6% year over year.
Vehicle production at our largest customer FDIC with joint ventures, with GM and VW.
It was down about 7%.
Nonetheless, this joint sales continued to outperform the market in this region, but nine percentage points on account of the new product launches over the past four quarters.
[music] I should mention the higher take rates that we experienced with GM in China in 2019 have now come down to normal levels as a customer has ended the promotional campaign.
Okay sure we continue to be in a product transition phase.
Roll off infotainment that Mazda, which was partially offset by launch of digital clusters at Hyundai and milestone.
In summary, Visteon continue to outperform vehicle production in the second quarter. Despite the challenges with anyone restart of production in different parts of the word.
Moving to page four.
[music] New program launches with customers remained on track into second quarter. Despite the restrictions due to covert 19.
We launched eight new products with Oems in the quarter.
Of which four but in Europe do in Americas.
Two in China, and bringing the total for the first half to 21 new products.
Some of the key launches are shown on the slight starting with the 12 inch cluster for Toyota in China. Our first with this customer into launch on two vehicles in that region.
We also launched it 12 inch cluster with Nissan the new Twentytwenty rope compact issue we.
Which will then be followed by four additional vehicles over the next one months.
We are starting to see all digital clusters come into mass market vehicles like literally in the portfolio because.
We expect this trend to continue going forward.
In addition to clusters, we also launched a first inboard bees infotainment system with VW in South America.
The first launch was on an all new issue, we the newest in Brazil, which would be followed by additional vehicles as of mid cycle agreed.
This infotainment system offers a few features.
Our first for an entry infotainment system for much more could vehicles, such as an app store, but downloadable apps wireless carplay and Android auto and a large tending to display.
This launch has put visteon on the map as an infotainment suppliers.
And Vietnam and discussions with multiple Oems with similar solutions.
[music], we have a very busy second half it's about 40, new products planned for launch that would make twentytwenty a record year for Visteon.
About half of this launches are in China.
Rest spread across the regions.
The majority of the new launches for digital clusters.
Including the 12 inch digital cluster with over the air soften a bit capability for the top selling pickup in North America.
And another 12 inch digital cluster for top of the line luxury sedan, but the German OEM.
Hence threed graphics and augmented reality.
In China. In addition to multiple digital clustered launches. We also have the first launch of our new Smart core system that uses Qualcomm silicon and cloud ecosystem from Tencent.
And the rest of Asia, we have several launches with Honda Hyundai and monster, most before clusters, but also displays and multi display systems, including a dual 12 inch display system integrated these two cluster what an OEM in Korea.
The 21 launches year to date.
The upcoming launches into second half will put visteon in a good position to continue or better than market performance going forward.
Moving to page five.
In the second quarter as I mentioned earlier, new business activity with Oems in Europe, and North America was slow but to shut down and restart of production taking most of their attention.
We had a lot of activity in Asia.
We are seeing an acceleration in the adoption of the new corporate solutions in Asia and in China in particular.
We were able to leverage our technology leadership and displays these two clusters and smartcore given significant business in this region in the second quarter.
Some of the second quarter, New business highlights are shown on the speech.
The first win on the left of the page is that the China OEM for a multi display system with an integrated digital cluster and a large twin disseminated center information display with horizontal orientation.
The second win in the Middle of the Beach is for attendance centered information display for the Japanese OEM.
And we'll include new features such as narrow borders and in cell touch capability.
Displays in costs continue to get larger and with new capabilities.
Expertise and technology leadership in the design and manufacturing of this displays was key to building this business.
[music].
Third than was for the smart core system with the Chinese OEM that leverage is to work we've done for different OEM also in China.
The system offers integrated digital cluster, an Android based infotainment with cloud based apps.
The system would launch on seven different models that this OEM.
Solidify our position as the leader in corporate domain controllers in the China market.
As these wins indicate.
The key trends in cockpit electronics remains strong and continue to drive new business opportunities for Visteon.
I'm, particularly pleased to see that we are building high quality new business in dollars displays and smart poor in addition to digital clusters and broadening our product portfolio.
Moving to page six.
We won $900 million in new business in the second quarter, bringing the first half level to $1.7 billion.
Due to the shutdown in Europe, and North America, most of the Vincent the quarter came from issue.
Second quarter wins, but equally distributed across digital clusters, smartcore and displays.
And for the first half.
Just two clusters make up about half of the new business followed by infotainment industries.
We also had a couple of significant wins for smart quote in China. This year, which will help us maintain a global lead in this category.
As we look ahead to the rest of the year I expect or performance in the second half to be better than first half as Oems in Europe, and South America restart that activities with respect to new business.
Our new opportunity pipeline for the second half is between 8 billion and $9 billion, which is a little lower than in prior years as the industry is still finalizing vehicles medical plans into sponsored the crisis.
We expect to see continued interest in bringing this to clusters to all vehicle segments, especially for the mainstream B and C segment recalls.
Following the launch of our first Android based infotainment system that VW in Brazil.
Now seeing more opportunities for this product with other Oems.
Got in discussions with multiple potential customers and even though sales cycles for infotainment tend to be long, we hope to close some of the opportunities this year.
With this new infotainment system, our product portfolio is now complete and stronger than it has ever be.
As the industry continues on its part of recovery from the depth of the second quarter.
I'm confident that we will return to our prior levels of new business wins.
Moving to page seven.
On this page I would like to share our thoughts with respect to the ARPU for the industry and for Visteon in the second half of this year.
The global automotive industry recovered late in the second quarter with production in June being down 21% year over year compared to the 61% drop experienced in April.
The outlook for vehicle production for the third and fourth quarters depend on a few factors. The most important being the ongoing crisis, two two corona letters and the resulting impact on global economies.
As well as the geopolitical uncertainties that have impacted consumer confidence even prior to covered 90.
It is difficult to predict when we'll be able to overcome the corona wireless, but it appears unlikely to happen. This year and we may have to live in this environment for the rest of the year.
Our discussions with Oems regarding second half vehicle production leaders to believe that production at Visteon customers, maybe down by about 15% year over year for the second half.
This was slightly lower than the forecast for global auto production by Hs.
Our outlook assumes that the situation with Corona voters will not worsen beyond what we have already experienced.
And that the global economies will start to recover from the bottom experienced in the second quarter.
We expect Visteon sales to continue to outperform the market in the second half due to the favorable cooked electronics trends and due to the contribution of new product launches.
The best we can do in this uncertain environment is to focus on detectors that we can control and let the marketing could schools.
We remain focused on controlling costs and execute on the new product launches in the second half of this year like we have done in the second quarter.
Moving to page eight.
In summary, the company executed very well in the face of a challenging business environment.
Our second quarter sales were better than the underlying vehicle production at our top customers, making it our fifth successive quarter of market outperformance.
The proactive actions, we took to preserve cash and reduce operational costs on helping the company vetted the crisis and puts us in a good position eventually emerge stronger and more competitive than before.
Despite the challenging environment, we launched 21, new products and one $1.7 billion in new business in the first off of Twentytwenty.
Building the foundation for future growth.
In addition to digital clusters in displays.
We launched a first entered based infotainment system with several first to market features.
It drops out our product portfolio and puts the company in a great position predict advantage of all the key trends in the industry.
Now I would like to turn the call over to Jerome.
Thank you Sachin and good morning, everyone to second quarter was unprecedented with the entire automotive industry outside of China grinding to a halt before ramping backup in the second half the quarter.
Very early in the crises, we established a comprehensive action plan to actively preserve cash and aggressively adjust our cost base in response to the dramatic sales volume reduction.
As a result of our actions our balance sheet remains strong.
We ended the quarter with 759 million total cash and 770 million of total debt, we presenting an 11 million net debt position.
We continue to have one of the best balance sheets in the industry.
Net debt to last 12 month EBITDA ratio of 0.1 times and no significant debt maturities before 2024.
Our cash actions in Q2 were mostly focused on capital expenditures reductions and working capital management.
Capex was reduced by approximately 40% in the quarter compared to prior year.
This reduction was achieved through a combination of initiatives, including equipment reuse negotiations with vendors as well as adjusting spending can you activity levels.
We are on track to achieve our Capex target of 115 million for the full year, which represents a 20% reduction compared to prior year, while still investing to support our new business wins.
The second quarter presented numerous supply chain challenges, a supplier and customer manufacturing facilities reopened at different times throughout the quarter.
Despite these challenges we were able to reduce inventory by 10 million compared to the first quarter.
This reduction was facilitated by the creation early in the crises of a global sales and supply chain task force managing to constant changes throughout the quarter.
Finally, we monitored our receivable balances daily during the quarter to ensure timely collections of our customers receivable.
Our strict cost controls in Q2 allowed us to reduce decremental margins for the quarter to a low 15% or manufacturing operations reduce costs by approximately 45% flexing material cost, reducing working hours and curtailing operating expenses grossing.
Generating an adjusted SGN they were both reduced by approximately 30% compared to prior year.
We see the result of our temporary salary reduction program, our focus on flexing contractors and purchase services to adjust to lower activity levels, but as well the benefits of our 2020 restructuring programs combined with our continued focus on cost reduction activities.
We were also able to secure engineering recoveries in the second quarter, which we had previously targeted for later in the year, thereby allowing us to substantially de risk the third and fourth quarter recoveries.
Finally, we are well underway with our restructuring initiatives announced earlier this year and we have recorded 37 million of restructuring expenses year to date.
These programs I have on average a one year payback period and will allow us to reduce salaried headcount by approximately 10% by the end of the year combined all these actions have helped us to not only navigate the global pandemic, but more importantly to position us to emerge stronger.
When volumes return.
On page 11, we provide our sales and adjusted EBITDA for Q2 2020 versus 2019.
Sales of 371 million in the second quarter decreased 362 million or 48% compare to last year, excluding the impact of currency.
In comparison.
Production volumes at Visteons key customers declined 53% as the spread of could be 19 significantly disrupted operations throughout the automotive industry during quarter two.
Adjusted EBITDA was negative 3 million, representing a decrease of 49 million versus prior year.
The impact of volume mix and net new business decreased adjusted EBITDA by 127 million well I knew old pricing reduced adjusted EBITDA by 8 million.
Pricing represented about 1% of price of your sales and approximately 2% of currency your sales levels near the low end of our historical ranch.
Visteons cost performance increased adjusted EBITDA by 85 million close to 50% of our 85 million reported cost reductions were give rise from reductions in net engineering.
Gross engineering, excluding exchange declined by approximately 30% year over year, three 2 million down to 78 million. This year when engineering recoveries increased approximately 30% year over year or 7 million from 26 million last year to 33 million this year significantly de risking.
Expected recoveries for the full year.
Adjusted as Gionee was 34 million, an improvement of 15 million compared to prior year.
Leading currency.
The remaining 31 million of cost savings, including material purchase price reductions value engineering activities manufacturing efficiencies and the non recurrence of 2019 operational challenges excluding the non recurrence of 2019 operational challenges decremental margins were at a low 15% for them.
Quarter illustrating the significant cost reductions implemented during the quarter in all areas of the company.
I'd like to build on sashimi earlier comments and provide some insight into Q3 and the second half of the year as you would expect due to the continued cobiz 19 pandemic the environment, it's still too uncertain to reinstate guidance for the rest of the year, but we do want to share. We do you how we're thinking about the second half.
The year.
First we anticipate industry production volumes will significantly recover in Q3 compared to the depressed levels experienced in Q2.
But will remain lower than Q3 2019 levels.
Session mentioned earlier.
Our discussions with Oems indicate the production at Visteon customers may be down by about 15% year over year for the second house.
Second we anticipate that Visteon will continue outperforming the market driven by favorable industry trends and the high number of product launches.
Third we're now targeting a 20% year over year reduction in net engineering expense for the full year.
Total gross engineering in the second half of the year will look similar to the total amount of gross engineering in the first half of the year.
Although we expect Q3 in Q4 levels to be higher than Q2 as activity levels resume we expect to see a reduction compared to Q1 driven by both the short term and structural cost measures we are implementing.
Okay.
Like previous years, we expect recoveries to be similar levels in both the first and second house as the year in total which would we present food your decremental margins of approximately 20%, which is a significant improvement from our original expectations a quarter ago, driven by the quick and aggressive.
Sections, we implemented 12 depend to me.
Page 12 provides an overview of our cash and that position at the end of the quarter as well as our adjusted free cash flow for the first half of the year.
As previously mentioned, we have one of the strongest balance sheets in the industry ending the quarter with nearly the same level of cash and debt.
Net debt to last 12 month of adjusted EBITDA is 0.1 times and provides be steel with a significant amount of flexibility as we navigate through the crisis.
First half adjusted free cash flow was negative 66 million, representing a 64 million decrease compared to prior year, mostly driven by the year over year decrease in adjusted EBITDA.
Trade working capital was a source of cash in the first half of the year of 16 million compared to a source of 35 million in the first half of 19.
We closely monitored our receivable balances throughout the quarter and did not see a deterioration in collectability as we finished the quarter.
I'll purchasing and supply chain teams continue to manage to supply chain challenges created by depend to make we were able to keep inventory levels flat compared to the end of the year down 10 million compared to the end of Q1.
Capital expenditures decreased by approximately 40% in the quarter compared to last year, representing 8% decrease in the first half for the year compared to prior year decreasing Capex is a combination of lower activity levels and strict cost controls.
Turning to page 13.
Visteon continues to be a compelling long term investment opportunity.
As a pure play cockpit electronics company, we are well positioned to adapt quickly to the changing environment, while ensuring our product portfolio is well aligned with particular trends in the industry.
We continue to lead the cockpit electronics evolution launching several all digital clusters in the quarter as well as our first Android based infotainment solution with several first to market features.
We have made significant progress in building a competitive cost structure and demonstrated our ability throughout the quarter to quickly flex operating costs to align to nor industry activity.
Our strong balance sheet puts us in a great position to emerge stronger once the near term challenges dissipate.
Thank you for your time today I would now like to open the call for your questions.
At this time.
Ask a question. Please press Star then the number one under a telephone keypad again that is star and the number one we will pause for just a moment to compiled acuity roster.
Your first question if I'm a line of Dan.
Research.
Good morning, Thanks, Thanks for taking my questions.
Just wondering if you could kind of give us.
A bit more color on how you expect.
Your organic growth.
In comparison to Visteons customer volumes.
The trend into the second half and out into 2021.
Good morning, Dan I will take this question first and then can us Jerome to also add more color to it.
So if you look at.
The second quarter, we saw good recovery late in the quarter.
In June.
And as you know in June was down about 20% in terms of production year over year.
As we look ahead to the second half.
That is certainly a lot of uncertainty.
And we at this point.
A little more conservative than I chairs in terms of the underlying vehicle production estimates.
Mainly in in North America and in China.
For example, I chose has four of flat I believe.
We are for the third quarter.
And given the number of new launches.
Lever so yes.
To be more conservative there also in the fourth quarter.
Look at China.
I chose has.
SGN in China up 10% Mitch.
We think it's a bit optimistic so if you look at.
The different puts and takes we think the underlying vehicle production is going to be down 15% year over year.
Now compared to the first off.
There are still want to be a pretty good performance in the second half somewhere around 20% to 25% in terms of the vehicle production increase.
And at the same time as we have been doing for the last three four quarters expect our market outperformance to continue into Q3 in Q4 to spell.
So, let's see Oh in terms of Twentytwenty, one right what how the market would look like there's still some more time to get a better feel for that.
But one thing should be clear with new product launches that we.
Anticipate.
In the second half just this year is going to be a pretty good your photos from a new product launch perspective.
I would expect that market our performance to continue Jerome into you typically the only thing good morning, Dan the only thing I would add is that we're seeing a fairly strong month of July already which is.
Consistent with the exit rate that we had at the end of June so.
As session was saying.
We are cautiously optimistic for Q3 at the state.
Great and if I could just follow up it was interesting that you said your product portfolio is now complete what the Android based infotainment.
I believe that's the biggest.
Infotainment the biggest segment.
Tektronix from from Occam perspective can you talk about your current revenue on infotainment and Youre, what what is your ambition in terms of market share in this market over time.
Sure. So if you look at infotainment as a segment in the industry. It clearly is the largest segment is approximately half of the market and then if you look at Visteon revenue profile.
Our revenues come from clusters.
And infotainment is somewhere between 15% to 20% of revenue. So we have a lot of opportunity for growth. Our current market share is somewhere around 4% of the market and our disposition target doubled that and with this new launch and this new technology that we have.
NOL released in the market I believe you have a great opportunity to accomplish that in the coming quarters.
Okay. Thanks very much.
Your next question. Please open the line of case, it's back with RBC.
Good morning, everyone.
So.
Clearly.
Some good cost control.
In the quarter and I appreciate your comments on Incrementals and Decrementals. They go to the back half, but can we be a little bit more explicit about maybe you know the temporary savings in the quarter.
And and how did those come back because clearly some are not sustainable, but but also that the timing of which one maybe they can replace or some of the more permanent savings on actions you're taking.
Taking.
Yes, sure. So I would say generally speaking we were.
Very diligent in Q2 to focus on cost.
And we were as while very early in a in a quarter focusing on that.
Activity.
And it's a it's it's a few things its commercial discipline first and I will talk maybe a bit later about recoveries, but we were able to de risk the rest of the year by accelerating some negotiations with customers and have a set a fairly.
A decent level of recoveries in Q2 higher than what we've seen in the past on the cost side.
We've got essentially short term actions and long term actions as you said the short on actions work first related to the temporary salary reductions that we announced earlier in the quarter NVS will go on into Q3, so you'll have that impact favorable impact in Q3, but if they will be going away.
In Q4, we have also some actions that were essentially.
Just related to volume and activity levels being lower and some of that will come back in Q3 and is why didn't you for what will stick are essentially the restructuring actions that we took again early in Q2.
And as I mentioned in my script earlier on we're very well advance with a lot of our restructuring actions, we expect head count to be reduced by 10% by the on the year so that will be.
In.
Fairly full effect in the second half a year.
Have a some of that in Q3, and then a pretty significant impact in Q4. So that's how you'll you'll see in fact.
Our cost benefits rolling into Q3 in Q4, but if you step back and if you look at engineering and as DNA.
The way, we look at east that Q3, and Q4 will be at similar levels they'll be higher than Q2, because some of the cost will come back, but they'll still be.
Lower than what we've seen in Q1, and adding Q1 in Q2 and Q3 in Q4 H one will be very similar to h. too in terms of cost base SGN engineering, again, and daddy's with higher volumes assessing said.
We're expecting to have volumes industry volumes, 20% to 25% higher in the second half and we'll be able to maintain a cost base flat.
That's great color.
Second question is just Sachin and maybe playing up Dan's question on infotainment.
Specifically within China I saw this suite terrorism.
Another an asteroid Tencent getting involved with automakers are instrumental BMW and I know you have a bunch of initiatives what what 10 cents can you just remind us of how you fit into the picture there as they seem to be getting more involved in the experience within the car you know what your contribution and value add as Ted said those types of initiatives.
Absolutely also again.
If you look at the market in China on it you have the three large cloud ecosystems Tencent being one of them that provide a whole range of services. As you know on that are driven from the cloud off late some of these ecosystems of Tencent in particular have been coming into automotive and offering those technologies.
For integration into in vehicle systems also for US. They are a third party suppliers of technology like many others are all is still the seamless before we are the tier one responsible for integrating this technology is adding our own IP and then delivering a complete.
System to the customer so what what specifically in the case of Tencent that VR offering in the system that we have mentioned in the past as well.
Fluids access to reach at Axis to their voice recognition to service that has delivered through the cloud and then they have a bunch of features you.
You can think of them as apps that run on the infotainment system that connection to the backend powered by 10 cents.
Deliver a host of different are connected services.
And so what you see in China. Unlike today anywhere else in the world, but we expect this to be the longer term trend is that are these services are coming into the the vehicle and that is driving the demand for increased horsepower in terms of the computational needs to be able to.
These level of Oh features and functions inside the cockpit.
So we're seeing really good.
Demand for smart core as a underlying technology to all our.
The applications from our supplies like Tencent.
So is your content opportunity different for.
A systemic guy in China that may be providing let's say in Android based system elsewhere in the world. It is and let me maybe talk about that a little bit more. So if you think about what we have talked about on the call with respect to the new Android business within the launch that's really addressing the more entry independents.
Segment, what must wants to keep us right and if you look at the current state of the industry.
And then systems out flows they do not offer downloadable apps displays tend to be small seminal eight inches.
Additionally, interest segment and so what we have done that launch is really addressing the opportunity in the rest of the word which was frankly behind China when it comes in it.
Image sensors difficult opportunity focus job and Thats outside of China now in China. It looks very different China has already in August head.
Very active infotainment.
Tivity for the last decade, and so laying in the entry within that segment in China does not make a lot of sense for us a lot of supplies market is pretty competitive.
What we see in very few opportunity is to go up the value chain, especially as the local Oems joint ventures or domestic compete with the more.
Premium brands International brands in the cockpit electronics.
But the premium transport offering.
What smart or Nicholas.
Thank you very much.
Your next question is from the line of Mark Delaney with Goldman Sachs.
Yes, good morning, and thanks for taking the questions.
First question is on the engineering recoveries, which I know you came in higher than the company was previously expected gains from the work you did there in the quarter. It can help us understand how much was upside versus your original expectation that the indictments pulled in from the second half and.
I think that brings total if my math right as to 60 million in the first half and I believe you guys had to 69 and.
To age maybe can remind us what the 60 million what.
For a second half this year compared to your second question.
Yes, good morning like market. So John so you're right. So far year to date, we've got $60 million and our expectation is to be close to 60 million as well for the second half a year. So thats a very different to compare to what we had last year last year. We had about two third of the recoveries 90 million where in the us.
The second half versus.
Think 40.
Million in the first out for the year so.
Very different profile and our focus has been really to even.
The the recoveries this year and we've been very active.
Since the beginning of the year, we were only better already in Q1 versus prior year and confirmed that in Q2 as well.
So a pretty pleased with that it really allows us to de risk the rest of the year. It gives us well a no overall EBITDA profile, which is much more smooth there at least going forward in normal environment. So that's been really the goal and so far it's working pretty well.
That's a that's very helpful.
Thank you.
Second question was around free cash flow from the second half there and I realize we're going to come up at our on EBITDA assumptions, you get us into that.
Important pieces to think about forecasting EBITDA, but the on EBITDA, maybe you talked about some of the other puts and takes to free cash flow second happening here in terms of.
Facts working cap at all any other charges or a challenge there should be thinking about thank you.
Yes, sure we've talked about EBITDA.
In terms of Capex, we're maintaining our full year forecast of $115 million, which is going to be essentially 20, but compared to.
What we had last year what it means then for overall adjusted free cash flow for the second half a year is that we will be positive.
We should be very close to breakeven.
Give or take for the full year.
And that's obviously, excluding restructuring payments, which are not in our adjusted free cash flow. So.
That needs to be taken into account, obviously as you look at cash flow.
And we are still maintaining a about a 14 million.
Payment for restructuring for the full year for this year.
So that should give you as well a.
Net cash or net debt very close to breaking even for that.
At least at the objective.
Thank you.
Your next question is from the line of Emmanuel Rosner with Deutsche Bank.
Hi, good morning, everybody.
Funding them annually.
I was hoping could provide a little more color on your.
Bookings expectation in your business wins expectation for the second half.
The color on the pipeline Eightnine doing is very helpful. In just remind us in terms of.
Traditional I guess market share, but your win rate that you expect to win and related to this I think you you've spoken recently quite a bit but the unfortunate.
Winning business was refreshes that the automakers to maybe mid cycle.
And how they're sort of Germany interested in larger displays and some of your other technologies. When would you expect to start things some of that in into the pipeline or into the your business one.
Very good so I'll first of all our.
Second quarter, we saw very good activity for new business wins in Asia in China in particular, despite as I mentioned on Europe, and North America, being more or less quiet.
And for the full half.
Our our win rate.
Wasn't the range of 30% to 35%.
Which is similar to what we have done before so we see really no no difference.
No between outperformance to secure in prior years, there's just at the level of activity has reduced the opportunity pipeline.
Now at the same time, the quality of the Vince will actually very good.
If you look at the second half of the $900 million was actually.
Evenly distributed across smart or large displays and digital clusters.
So some very good Vince.
And so we're really pleased with how we have performed in the first off.
Over history, the number would have been higher if not for the lack of activity that upper dahlman will help to the second half.
Seeing activity return to all regions.
And as I mentioned, the pipeline looks pretty robust at $8 billion to $9 billion.
And I do not expect our performance there to be any different from the first off or prior years in terms of the win rate.
So we do expect to do overall better in the second half compared to the first half.
And as the industry.
Formal obvious should be.
Going back to our earlier levels of annual new business wins.
In terms of of the second part of the question with respect to have more mid cycle action versus.
New vehicle models and business wins on those.
Oems in Europe, and North America are still in the middle of our revisiting that cycle plans.
That activity has not concluded as yet.
In the meantime.
The activity is more focused on some of the are more.
Active vehicles of the vehicles that they see more activity and more business on and we expect investments in those or vehicle platforms to continue.
Our by the way already on some of the better vehicle platforms are there are still in even in this environment seeing a good performance. So that gives me a lot of confidence that as we go forward our product mix is going to be better than it has been in the past and then.
As the Oems finalized their vehicle cycle plans, we expect one of two things one that there'll be some extension opportunity on the launches that we have recently had as the vehicles that.
We are on would be.
Seeing some extension of life and we are also seeing other second kind of opportunity where on vehicles. They are not on today.
As a mid cycle action, bringing some of the digital clusters and now this entry infotainment system on Android onto those vehicles more as a mid cycle action of we are starting to see some of those discussions happen now it is still not kicked up in the level that I would.
Expect but we are starting to see that activity already so it is ali optimistic outlook from that perspective for us.
Okay, great to hear.
And then my second question I Wonder if you dig a little bit more bye.
Into your.
Customer mix headwinds.
Okay can you just give a little more color around.
What are the primary factors there I think you mentioned in the slides.
So some of my start roll off I think there's also the.
Hi, GM promotion lapping.
I guess.
And the other one of these all all issues or there's some new ones in terms of customer mix and from a timing point of view when can we expect some of these customer mix headwinds.
Any faced out.
Yes, so the first point that I would like to make very clear is that all of this issues on what we have discussed before so there's nothing new.
So the master roll off is continuing and we've said that Twentytwenty, we'll see the bulk of the roll offs.
Happen and so should be more normal activity going forward after twentytwenty with monster.
One thing that I wanted to clarify also that may not have come across very clearly in the second quarter.
On account of the only one start with some of our Oems we saw impact on that on our our revenues, but as we go forward it would be normalized and we do not expect to see that impact.
And with respect to China, which of the other.
Region, where we've had this issue we have talked about the roll off of.
The not the roll off I should say, but.
This increase.
Great that we experienced last year, which that program being being stopped by the OEM, we're not seeing the benefit of that this year now with SCM. The other issue that we highlighted was that relative to market.
The production was lower so in that sense. It impacted us. Nonetheless, we are still had a better than market performance of it in China. Despite all of these issues.
Thank you very much.
Your next question is from the line of Brian Johnson with Barclays.
Yes, just kind of following up on that is there anyway to kind of.
Quantify, especially as you try to go out second happened. It next year, the impact of backlog versus rolling on potential risks or opportunities from that versus.
Take rates for more digital cockpit. So in terms of you might be.
And Greg or take rates in mid range tenure, each day, and then offsetting that I guess just last question, but just started or any specific Oems or platforms that when we model production, we ought to keep our eyes on itself.
Significant headwinds.
Yeah.
And so let me try to address that.
Now if you look at.
The product mix and take rates. If you go back last couple of years.
We have had.
The product roll off impact us negatively and that was largely on account of the mix that we had.
Was not favorable in terms of the trends.
As you look at us today, our product portfolio with digital clusters displays.
As very well aligned with the trends that we see in the industry and so we are seeing the positive contribution of the trends of in terms of the revenue now.
It would be too early to quantify that and provide you some specific details but in terms of the the way to think about all this should benefit us.
The new product launches that you have discussed this year right clearly are going to be a big factor.
In our better than market performance next or onwards.
And so if you look at what those products look like all the 60 that we are launching this year up more than half our digital clusters.
We are seeing digital clusters come down into mass market vehicles. Like for example that we gave on the presentation Nissan role, which is a compact as who we now comes with the 12 inch cluster in some of the trends. So we expect to see more pressure competitively on other OEM subsequently.
Right that.
Kind of.
A mix and so if you look at the Oems and you know.
Instruments out.
And see how this is going to play out over the next few years in terms of the headwinds.
The only one that I would watch are all going forward here that that.
Something that we need to still understand better would be Nissan on their troubles of in.
Public and we need to understand the impact of whatever their plans are on our revenues at this still out at large customer office jointly.
Okay and just following up on the take rate as you put together your revenue bookings forecast what kind of take rates are you assuming when you do get a platform for digital cluster and have you been able to track the assumptions.
That you put in versus the actual take rates and yes.
What I'm fishing for as there are opportunities out there could be upside on has this trend towards mid and low arrange take rates improve sets on.
League model not just the platinum model so forth.
Yes, Brian so at the current.
Assumptions are for making are based on exactly what the OEM, so giving us as the volume for the award you're not making any assumptions on top of that as to what the take rates are so for most of our products.
Option is not determined by the end consumer it's actually determined but the OEM in terms of which trims would take that particular product so pretty.
Well well understood, but then at least planning time as to what the level of volume would be having said that we have had discussions now that the some of them have come back to us.
Asked for increased volume both in Europe, North America of digital posters as they see that are the take rates of that particular trim are increasing and they want to bring that into lower trends. It's too early to give you much more insight at this point in time in terms of the actually impact of that but.
Without a doubt.
That is a clear up positive trend in terms of interest take this traditional products that should be a tailwind for our revenues going forward.
Okay. Thank you.
Your next question is from the line of Steven Fox Fox Advisors.
Thanks, Good morning, a couple of questions. If I could first of all in terms of your discussions with your customers. You mentioned the 21, new programs ramping how did that number compare versus your original thinking pre cobot, how many have been sort of pushed out next year or may be delayed indefinitely.
And then secondly, just in terms of how the industry could shift away from maybe some new models towards higher take rates on your technology mid cycle up upgrades, what would what sort of your lead times be for seeing that.
Come order come back to your production and shipping.
Can get a feel for that thank you.
Sure. So when we started at the beginning of the year, we had about.
65 programs that we're launching and all those 60 will actually.
Make the card. This here some of that were in already in the fourth quarter are being pushed out to next year. So we have not seen a significant delay on account of the Oems shifting the plant whatever has happened has happened largely within the year.
So.
Most of the launches will back end loaded.
Thats, what we are seeing this year as well so the way I would characterize that is seen in your delays on account of all of the corporate related restrictions that have caused people to reap plan. Some of the activities. We have not seen any significant push out into the next year, the four or five that I mentioned, which were early.
We are scheduled for the fourth quarter and now into next year.
In terms of the second part of your question.
We are starting to see some of the move short short cycling or no short frankly, but mid cycle action I should say impact.
Already in our discussions with Oems.
One of the interesting points that I can share with you is off the 1.7 in business wins that we've had in the first half.
Majority more than 80% of that is actually launching.
Under two years.
So typically what that tells you is that is launching on existing vehicles, because it takes them longer than one and a half years to our design and build a all new vehicle. So we are starting to see that.
And I would like to see little more time before we can call that a significant trend.
It's good to see that.
Our products the digital products are the ones that people want to see on even existing vehicles.
And that's the trend that we've been talking about us being favorable to two visteon. So that I expect to continue into second half.
But as I said, it's too early to call that out any more than what I've shared with you today.
Great. That's very helpful. Thank you.
And this concludes our next call for the second quarter of 2020. Thank you for participating in today's call on your ongoing interest understand if you have any follow up questions. Please contact me directly thank you.
Okay.
This concludes this the on second quarter 2020 earnings call you may now disconnect.
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