Q4 2020 Linamar Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the winter.
With Nomura Q4, 'twenty 'twenty earnings call at this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question you didn't answer session to ask a question. During this session you will need to press star one on your telephone keypad. If you require any further assistance. Please press star.
Zero.
I will now turn the conference over to Linda Hudson Fox, Chief Executive Officer, you may begin.
Thanks, very much good afternoon, everyone and welcome to our fourth quarter Conference call. Joining me. This afternoon are members of my executive team, Jim Jarrell, Dale Schneider, Roger Fulton, Mark standard as well as members of our corporate IR marketing finance and legal teams.
Before we begin I'll draw your attention to the disclaimer currently being broadcast.
I'll start off with a short update on the COVID-19 crisis on Lindmark current okay.
It's actually hard to believe it's already been a full year since COVID-19 began impacting the world and we jumped into action with our lend them our health first task force.
We work on data gathering communication and development a harder one to my house brick plant.
The limit of our team did an excellent job of executing on that action plan in the last 12 months for shareholders. We mitigated the negative impact of the global shutdowns end market declined rapidly implemented cost saving and cash management program. In fact, we were able to try the second half of 2020 into it.
A period of growth over 2019 after a tough first half we also generated 50% more cash than we ever had in our history in 2020 with or without that much tougher necessity.
Or are people, we successfully crazy a working environment that is as safe or safer for them to come to work. That's in narcolepsy, which was our goal we are not seeing transmission other buyers in our facilities, which is excellent we.
We have also been able to range, 99% of our global workforce back to fully paid work at this point, 98% of them are working safely onsite, which is also excellent for.
For our customers, we manage a rapid restart of our global facilities flawlessly, keeping in step with the robust ramp up to normal volume.
Market share in good shape with auto and egg running strong and asked us recovering now as well.
And for our communities. We're there every step of the way with PPE and ventilator programs COVID-19 testing programs and most recently our newly launched back pain clinic more on that in a moment.
I believe that a huge part of the reason we successfully navigated the challenges at the last year as the strong culture. We have split our leaders are strong communicators.
Connected to their teams at all times, we balanced our actions as we always do to ensure the success of our people our customers our communities and our financial performance.
Our response to fast moving culture was laser focused on execution and made the decision that I'm glad things are.
Our self contained decentralized teams kept our global operations running smoothly they didn't need a centralized group to help them launch or run their business.
And finally, our focus on flexibility allowed us to pivot operations rapidly to manufacture much needed equipment to support our community our culture at Lamar ensured our success in this crisis as it has time and again in the past.
Our focus now turns to the final stages of this pandemic, where we believe that the rapid vaccination of our community is the key to recovery and getting back to a more normal life. The vaccine rollout of gatherings team globally, just in Ontario in Canada, we already have more than three times the number of vaccination completed.
Compared to the number of positive cases, and that number is growing dramatically every day other global regions or even farther down the road, which is great to see.
Our current focus now is on three key areas first continuing to ensure a safe workplace and now is not the time to become complacent around our safety protocols.
We're focused on testing to help with these community spread and finally, we're focused on vaccinations. Both in terms of encouraging our global employee base to get vaccinated and also helping to deliver those vaccines.
To that end, we have launched a community vaccination clinic Atlanta arc, we are working closely with our local public health net and Wellington back from well to establish a capacity of 2000 injections per day, we will launch on Thursday of this week tomorrow with our first patients our health unit will handle all the register.
<unk> of bookings in line with provincial prioritization guideline and we will simply administer the vaccine.
Putting together our playbook on watching a vaccine clinic with all the necessary information documents and bathroom practices and will be posted on our website as a guideline for any business out there who wants to do the same thing in their community. We believe the faster we all get vaccinated the faster we all get our lives back and we are happy to offer support.
For it to get that done.
Okay with that let's jump into some of the specifics about the quarter, starting with sales earnings and content.
Sales for the quarter were $1 $7 billion up five 5% from last year. The auto sector continues to perform well in North America, and Asia and launching programs are driving better volume and margins Sajak sales continued to drag in the fourth quarter in a slow market, but market share.
Gains in our core North American business helped to mitigate these declines.
In terms of earnings normalized net earnings are up 71, 2% to $129 1 million driven by transportation segment strong sales growth and improved margin on launches as well as cost reductions implemented and government support programs. Although the latter was to a much lower expense.
They have seen in Q3 as markets stabilize.
In North America content per vehicle for the quarter was $171 57 up nine 4% over last year with customers. We have a heavy weighting with also seeing the biggest market share gains.
Vehicle production levels were up 0.8% versus last year, meaning automotive sales in North America grew 10, 2%.
In Europe content per vehicle dropped to $70 65 set of market up two 5% due to our customer mix, resulting in automotive sales declined in comparison to last year.
The market in Europe continues to be difficult with continued showroom shut downs and resultant impact on consumer demand as well as complications now arising in Q1 2021 from supply chain issues, such as the semiconductor chip shortages.
Production levels and as a result content per vehicle are likely to remain volatile until the region's battle and we move farther into the post pandemic period.
In Asia content per vehicle was also up significantly at $13 55.
36, 6% over last year again due to our key customers seeing strong market share gains in certain product in a market that was up six 6%. This gave US a 45, 8% boost auto sales in the region to a record $178 7 million.
Global content per vehicle was also up in the quarter driven mainly by the strong growth in North America to $54 and manage that.
Commercial and industrial sales were down one 7% in the quarter Skyjack sales were down on lower markets, but offset by new medical equipment sales.
<unk> continues to see solid market share gains in Europe, South America, and Australia, helping offset a flat market in North America.
Carefully managing Capex continues to be a key theme for us in Q4, we were down 37% from last year, which took us to a full year total of $264 million down 50% from 2019.
In 2021, we will be back to a more normal range of spending.
Linda most utilization of flexible programmable equipment is the key factor in allowing us flexibility in times of market softness to continue to have less new business without requiring significant significant capex. This is a massive advantage that Linda has in comparison with our competitors who made them back in more dedicated.
Witness, which although cheaper and often requiring less flavor is not easy to reallocate to new programs or to scale their lives to match actual customer capacity needs.
Of course, the Big story this quarter again is free cash flow. We again had an absolutely outstanding quarter in terms of free cash flow was $422 million generated taking us to a whopping $1.2 billion for the year.
This is a new record and more than 50% better than any prior year in our history.
We have $1 $6 billion of liquidity available to US, which is also outstanding our strong balance sheet and liquidity means we have the ability to take on takeover work or acquisitions as they arise and an opportunistic market and drive even more growth. In addition, our strong cash position has allowed us to increase the <unk>.
Moving to get dividends again to 16 cents per share.
The solid cash flow has allowed us to reduce net debt levels net debt now sits at $442 million, which is down over $1 $6 billion from early 2019, despite the pressures that the Pentagon.
Leverage likewise improved dramatically to 0.5 times last 12 months EBITDA.
Turning to our market outlook, we're seeing markets sharply up across the board this year, which shouldn't be a surprise after a tough 2020 industry experts are predicting strong growth in light vehicle volumes globally. This year to $16 2 million $18 9 million and $44.
4 million vehicles in North America, Europe, and Asia, respectively.
On highway medium heavy truck volumes are predicted to be solidly up in North America, and Europe, this year, but down in Asia.
The AG industry is predicting solid growth in the combined Draper header market. This year in North America and Europe. After a slow 2020. The order book is up significantly over last year with farmers feeling more confident with a rally in commodity prices a good harvest last year and a perception of a more stable internet.
National trade environment.
Lastly, industry experts predict double digit growth in the access market in North America, and Europe. This year coming off a very tough 2020.
Construction projects start to ramp back up and consumer confidence built post pandemic Asia will continue to grow although a little less strongly than seen in 2020.
Looking at these markets and a little more detail on the auto side, you can see a pattern of recovery and every weekend on vehicle sales versus prior year, China is quite consistently up in double digits, Europe, and North America, a bit up and down and that's really based on lockdown.
And looking at production level compared to what was forecast at our last conference call. In November you can see a stronger Q4 than we had forecast mainly driving that in Asia Q1, 'twenty 'twenty, one will be a little softer than we had expected due to the semiconductor chip shortage, which is training.
Somewhere around $1 1 million units out, but interestingly 'twenty 'twenty. One is now forecast to be better by one 5 million units than we had forecasted in November indicating the shortfall shortfall will be more than made up for it in the back half of the F.
The impact of the chip shortage and other supply chain issue seems to be changing day to day and it is very difficult to predict.
Clearly, we're going to feel an impact in Q1, but the expense as such is not clear we will have a better sense for you in the coming weeks and we'll provide an update with our mid quarter market update in early April.
Looking at the access market in more detail you can see the more positive trend in Q4 markets declined in comparison to the full year are fine, but the market is recovering.
Equipment utilization levels continue to look more positive as well in the last two months utilization levels are between 94% and 106% a 2019 level, which is a very good sign.
Double digit growth is expected in core North American and Europe, our European markets in 2021, and a stronger backlog at Skyjack supports it which should drive double digit sales growth this year.
In the agricultural business, we are seeing a very optimistic outlook in North America in particular for double digit growth. This year. After a soft 2020 Q4 combined retail in North America ended in line with prior year, although notably Canadian retails were down.
Versus your U S retail sales that were up.
Mark Don can hint continues to build market share in international markets with strong growth in Australia, South America, Europe, and Cif in 2020.
Order intake is significantly ahead of last year at this time, indicating double digit sales growth from act on this year as well.
Turning to an update on growth and outlook, you'll be pleased to know that we had another solid quarter in new business wins as is often the case at year end.
I'll highlight a couple of our more strategic wins in a moment, but first electrified vehicles continue to provide great opportunities for it you can see a steady build and our global content per vehicle for battery electric vehicles as a result of recent wins.
The lines of internal combustion mentioned and battery electric vehicle global content per vehicle are converging, which of course is the goal our content per vehicle and electric vehicles is now predicted to surpass that of hybrid within a couple of years as we see more and more battery electric vehicle wins.
Our addressable market across a range of vehicle propulsion types continues to look excellent with our total addressable market for us today around which is around $80 billion growing to more than $300 billion in the future an increase of more than three times.
As you can see the market potential for each type of vehicle internal combustion hybrid battery electric fuel cell electric are all really starting to even out and this is largely driving from the higher potential content per vehicle. We now have in the battery electric fuel cell electric and hybrid vehicles. Thanks to continued product.
Element efforts, such as the assembled battery tray hydrogen fuel tanks and other products, we've discussed in past quarters.
The potential content for battery electric vehicles hybrid and fuel cell electric vehicles are equivalent to the content potential internal combustion vehicles at roughly $3200 per vehicle, which is great.
I think it's also critically important to point out that the type of equipment utilized to machine parts for electrified vehicles is literally identical to the equipment used to machine parts for internal combustion engine vehicle.
Patrick vehicles use gears they use shafts structural parts in a variety of housing just like internal combustion engine vehicles.
Geared Roger or a shaper used to make a year from an internal combustion engine vehicle is the very same equipment, we would use to make it easier for an electric vehicle I highlight this point if that means we will not have significant levels of stranded assets to deal with as the world transitions into electric vehicles.
With respect to launches we are back to seeing ramping volume on launching transmission engine and driveline platforms, which are predicted to reach 40% to 50% of mature levels. This year generating incremental sales of $500 million to $600 million.
These programs will peak at nearly $3 $8 billion in sales.
We saw a shift of more than $600 million day program moving from launch to production last quarter. The majority of which was offset by solid business wins in the quarter total business launched in 2020 was about $380 million given the tough market conditions and reached in total $1 2 billion.
On the launch curve.
As usual we are summarizing all of these expectations of market changes on our outlook fly which is now showing.
With markets recovering as described we are expecting to see double digit growth on the top line and strong double digit growth on the bottom line in 2021.
This drives from double digit growth at both Skyjack and marathon as market growth in auto and continued ramping of <unk> as well as market growth in auto and continued ramping of launching business.
Margins will be getting back towards our normal range of 7% to 9% at the net level driving from transportation segment margins getting back into the normal range and industrial margins getting close to that.
Leverage levels will continue to improve based on the continued positive free cash flow for the year.
Looking specifically at Q1, you should expect to see auto growing from watches a market growth, but I am cautious about the level of growth given the supply chain challenges our customers are facing at the moment as described.
In agriculture, we will see growth driving out of that followed backlog and access will start to see some growth as well.
Q1 normally sees a big increase in non cash working capital as we move away from the typical year end lows and see the impact of growing sales, which will result in a quarter or a cash use rather than positive free cash flow. This trend will reverse in future quarters to result in a year of positive free cash flow.
We will also see continued dial back on government support as a recovery continues.
I will add as our lawyers insist I do that impacts from COVID-19 outbreaks and subsequent supply chain challenges are currently not fully understood or determinable in terms of there and in fact to all segments at this point, but parts of it for me.
I will highlight a few of our more interesting wins. This quarter first we picked up another significant program for next generation battery electric vehicle deliveries and truck, we will be manufacturing more than a 110000 units per year.
These driveline differential assemblies for this customer from one of our plant in Mexico.
Next is another major gear program win more than 300000 units per year for a high efficiency eight speed transmission. This is for an Asian customer noodle in their mouth about long targeted so we're really excited to see this win.
We picked up a camshaft module assembly program for a highly efficient three cylinder engine program, we're seeing more in the way of much smaller ultra efficient engines to be used either on their own or in hybrid applications, which are creating opportunity for us. This program. As an example, it is about 50%.
Focused on supply for hybrid vehicles.
Another key Driveline program is this carrier program, which launches in a few years here in North America at a rate of 180000 units per year.
And finally, we were awarded several new cylinder head programs for next generation engine in various global centers, including a win with a domestic Chinese Oems that we have been targeting and aggregate. These programs will generate about $150 million in sales at peak volume.
Turning to an innovation review I'd like to highlight a few great technology developments launch this quarter. The spotlight for this quarter is on Skyjack.
Just trying to time your Skyjack continued to develop and deliver new and enhanced products on our current boom product and initiatives for 2020 was to re visualize and Repower the machine using the telematics and data gathered from elevate in cooperation with our customers we looked at machine power requirement.
And we're able to reduce engine horsepower reduce machine weight reduce maintenance requirements and increased as a result customer return.
This work offered solid energy savings supporting our green technology focus as well as optimizing our customers' business models.
This year, we have also developed and are bringing into the market. Our first micro class machine with a 30 13 that means a 13th platform hike model for North American E&C market and a 13 14 or 14 foot platform hype model for EU and CE markets both of these Ms.
James Ctrip electric drive as well as the total machine weight less than 2000 accounts.
Lastly, with the pandemic disrupting the traditional trade shows and customer interactions.
We needed to pivot to a virtual world. So skyjack creative Sky World, a virtual experience, which created the ability for our customers to walk through our equipment virtually sky World was launched in February of 2021 to a great reception from our customers.
Finally, a quick look at the continued digitization of our shop floor. As you can see we continue to rapidly deployed global robotics to automate repetitive work data collection systems and connection to ensure that our global machine day is fully digitized.
With that I'm going to turn it over to our CFO Dale Schneider to lead us through a more in depth financial review, Jeff. Thank you Linda and good afternoon, everyone.
As Linda noted Q4 was a strong quarter for sales and earnings in addition to being a great recovery from the COVID-19 shutdowns that occurred earlier in the year.
It was also a great quarter for cash generation as we generated $422 3 million and free cash flow, which brings the 2020 year total to $1 2 billion a record year.
Italy, we were able to increase our strong level of liquidity to $1 6 billion.
For the quarter sales were $1 7 billion up $88 7 million from $1 6 billion in Q4 2019.
Earnings are normalized for FX losses related to the revaluation of the balance sheet in an unusual items that may have occurred in the quarter.
In Q4 earnings were normalized for the cost impact of our restructuring during the quarter.
Structuring costs were primarily in our European operations earlier in 2020, our European casting.
<unk> machining and assembly operations were reorganized.
Since the reorganization a number of operational efficiencies were identified and implemented in Q4, which resulted in these one time costs.
The impact on EPS from the restructuring was 10 cents per share.
The earnings were further normalized for FX losses related to the revaluation of the balance sheet, which impacted EPS by <unk> 14 per share.
Normalized operating earnings for the quarter were $176 4 million. This compares to earnings of 106, $112 6 million in Q4, 2019, an increase of $63 8 million or 56, 7%.
Normalized earnings increased 53 point normalized net earnings increased $53 7 million or 71, 2% in the quarter to $129 1 million.
Fully diluted normalized EPS increased 82 cents or 71, 3% to $1 97.
Included in earnings for the quarter was a foreign exchange loss of $12 4 million, which is fully associated with revaluation of our operating balances.
As I mentioned.
Net FX loss impacted the quarter's EPS by <unk> 14 cents from a business segment perspective, the Q4 loss of $12 4 million was a result of a $7 3 million dollar loss in industrial and a $5 $1 million loss in transportation.
Further looking at the segments.
Industrial sales decreased by 6% or $20 3 million to $315 6 million in Q4 the.
The sales decrease for the quarter was primarily due to the access equipment sales decline declines associated with the global pandemic, which were partially offset by increasing market share at Skyjack and all three product families.
Normalized industrial operating in the quarter increased by half a million dollars or one 3%.
Over last year to $39 9 million primary drivers impacting industrial where the ongoing focus on cost savings.
Utilization of government COVID-19, four programs, which were partially offset by an increase in provisions from receivables and the net lower sales volume at Skyjack.
Both of these reductions to operating earnings were the result of the impact from COVID-19 net.
On the access equipment market.
Turning to transportation.
Sales increased by 109 million over Q4 last year to $1 4 billion.
The sales increase in the fourth quarter was driven by the increasing volumes on both launching programs and on certain programs with some of our more significant customers.
The sales increase resulting from the labor disruptions in Q4 2019 significant customer that did not recur.
And the impact of positive FX change changes in rates since last year. These were partially offset by a decline in European sales as these markets do not fully recover from the impact of COVID-19 in Q4.
Q4 normalized operating earnings for transportation were higher by $63 3 million or <unk> 86, 5% over last year.
In the quarter Transportation earnings were primarily impacted by the net sales increase for the reasons I. Just described the utilization of government support programs related to COVID-19, and the positive impact other changes in FX rates since last year and the cost reductions achieved in the quarter.
Okay.
Returning to the overall Lemarr results. The company's gross margin was $273 5 million, an increase of $76 million compared to last year due to the same factors that drove the segment results.
Cogs amortization expense for the fourth quarter was $123 1 million Cogs amortization as a percentage of sales did increase to seven 2%, primarily due to the impact of launching programs and products in the quarter.
SG&A cost increased in the quarter to $106 million from $98 9 million last year. The increase was primarily the result of receivable provisions plus cost savings achieved in the quarter.
Finance expenses decreased by $11 8 million since last year.
Due to the reduction of our average daily debt levels by $830 million since Q4, 2019, and reducing our effective interest rate by 110 basis points.
The consolidated effective interest rate for Q4 declined to one 7% from two 8% last year.
Yes.
The effective tax rate for the fourth quarter increased to 23, 7% compared to last year, but down since Q3 2020.
As a result, we're expecting the 2021 full year effective tax rate to be in the range of 24% to 25% and consistent with the 2020 full year rate of 25, 4%.
<unk> cash position was 861 million on December 31, an increase of $522 9 million compared to last year.
The fourth quarter generated $489 6 million in cash from operating activities, which was used mainly to fund capex and increase liquidity.
This also resulted in free cash flow generation of $422 3 million in the quarter.
As a result net debt to EBITDA EBITDA decreased significantly to half a turn in the quarter.
Based on the current estimates we are expecting net debt to EBITDA to continue to improve by the end of 2021.
The amount of available credit on our credit facilities was $773 1 million at the end of the quarter.
Our available liquidity at the end of the quarter increased to $1 6 billion and as a result, we currently believe we have sufficient liquidity to satisfy our financial obligations from 2021.
To recap sales and earnings for the quarter was a story of COVID-19 recovery driving strong financial performance.
With the dramatic impact the pandemic has had a minimal this year. The critical story remain one of cash and liquidity and minimal Henry Mark remarkable cash generation quarter and year as we generated $422 million in the quarter and $1 2 billion for the year free cash flow, while maintaining strong liquidity above 2019 levels.
To reach $1 6 billion.
That concludes my commentary.
The conference call for questions.
Sure.
At this time I would like.
Everyone in order to ask a question press star.
Any number one on your telephone keypad, well pause for just a moment to compile the <unk> day walks share.
And your first question comes from Mark <unk> with Scotiabank.
Hi, good afternoon, everyone.
Again, great job.
Pretty impressive.
Maybe just start on.
With the free cash and maybe just working GAAP again, I appreciate Theres, a workshop investment coming from Q1.
I presume there would be just given the sales growth, especially 'twenty one investment for the year, but.
The order of magnitude it could be something similar to the growth in sales or is there more efficiencies.
The work done.
Yeah, I mean, and non cash working capital ended at a very in a very strong position at the end of Q4, I mean as a percent of sales is definitely lower than we would normally expect I think.
Better expectation going forward is somewhere in the sort of 6% to 8% of sales range.
Which is part of why we suggest to expect in Q1 that it's going to pop.
Pop back up.
Okay understood.
Maybe I'll just leave the chip shortage for now, but I didn't hear you you didn't speak with commodity price inflation just curious.
And I'm thinking more on the industrial side, but I guess holistically, if theres any sort of.
The risks were pressured the margin from our commodity prices.
Yeah, I mean, we are seeing from pressures both in terms of supply issues and some commodity.
Pricing on.
On the industrial side of the business.
That said, we did give that consideration in our guidance to expect to see some margin improvement. This year I mean, obviously, we're coming off of a very tough 2020, we might not be quite back into the normal level of operating margin for that segment, but we do expect to see.
<unk> and <unk> and we're trying to mitigate those issues as best we can I would say.
The volumes are very good right on the industrial and transportation side, so that helps on from.
From a supply side, the efficiency and productivity that we had or still sort of vague, but as Linda said like transportation or commodity stuff. There is certainly a drive there that we're trying to manage that cost side.
Okay.
Maybe just one last one for getting that can you just just on the balance sheet.
Good tons of liquidity.
You bumped the dividend, but I'm, just maybe thinking about capital allocation from here, if there's any thoughts around buybacks or how you're thinking about M&A.
Yes.
Thanks.
Yeah, I mean I.
As Ive noted we increased the dividend so.
Recognizing that we always want to balance the needs of our shareholders and that we are in an excellent cash position.
With regards to M&A of course, we are always looking at possible acquisition opportunities and there are lots of opportunities out there at the moment I mean, we wouldn't.
Standard practice to really comment on that unless we have a concrete yield 10 out obviously nothing more to say at this juncture, but obviously theres opportunities out there.
Sure understood Alright, thanks again.
And your next question comes from Peter Skylar with BMO capital markets.
Hi, good afternoon a.
A few questions here, so I'll just quickly move through them.
Last quarter, meaning Q3, I think you said the amount of wage subsidy with $47 $5 million. Due can you provide us with the amount of wage subsidy and other government benefits for the fourth quarter, yes.
Yes, it dropped significantly.
As you would expect and it's now down to $22 million.
And I will then when you have that combination Peter.
The wage subsidy program here in Canada and other programs.
Now we've tapped into globally.
Okay.
The new give us the amount of that you said you've taken some provision for receivables in the aerials business can you tell us what the amount of the provision was.
It was a general provision just given the softness in the market.
So we haven't disclosed the exact amount, but as you may expect some of the rental houses.
Actually the smaller ones have had a difficult year, so with the increased.
Risk in the market, we took a general provision.
And where are you Dale in terms of.
Financing you provided and how much have you laid off to other financial institutions can you just kind of summarize where where youre going with that.
Yeah.
So as you may recall at both Skyjack and a couple of years ago and knocked on last year, we entered into financing agreements.
So we're not selling.
In the industrial markets.
As we do transactions with our customers those are finance directly with third party financing.
So what you are seeing in 2020, you would have noticed that there was a dramatic decrease in long term.
As you would expect as we're collecting payments from our customers, but we're not adding to it because those financing agreements are taking up most of that.
Sales activity.
So can you.
Sorry go ahead.
So can you give us the amount of receivables of those kinds of receivables.
That are still on the <unk> book and how much provision there is against them.
Second.
Let me just look at the number and then I'll finish off on the auto side of them looking at other.
We also entered into an actual sale of AAR program.
On the on the.
Automotive side as well.
That went into effect in Q4 last year.
So we've been trying to be active with it obviously within our sales volumes increasing on the auto we have been able to be more active with it.
By Q3 and Q4 this year, obviously than we were in the first half with softer growth.
So what do you mean by that Youre selling your your auto receivables.
We are selling certain auto receivables yes.
And have been for like I said from the end of Q4 2019.
Okay.
Sorry, keep going while you're looking that up.
Absolutely.
Owen.
Sorry to be a pain here.
Got it.
Would you characterize the tempo of launch activity now.
Hi, lowered or normal.
I mean, I would say probably normal, but we're probably getting to the backside of the launch curve like you know I would say.
So a year year and a half ago. We were we were kind of that day, the worst point, where we.
We had I not optimal levels of volumes on launching business and suboptimal levels of volume on the business It was replacing sales.
You know that I would say that would have been kind of mid 2019, and since then we've been slowly improving but we still have quite a lot of business that is that is launching I mean as I noted on the call. We're about $1 2 billion into the launch of $3 $8 million worth of.
All works itself.
We still have quite a runway in terms of ramping up the rest of the world. We got we got a lot of <unk>.
Ramp ups still Peter and also incremental volume increases, which were going to have to put extra volume.
So that's one area EV area like Theres, a lot of activity on the EV area that we are launching and so some of those volumes, obviously are not high but theres multiple launches on EV and then even in the back garden Skyjack like Skyjack has about five.
Critical launches going on in that.
Back Don we've got the two series, that's a big big deal for Us from a markdown products. So.
Agree with Linda it's sort of normal, but there's just there's a lot.
Going on though.
Okay.
Linda your comment you provided.
The launches are going to add $500 million to $600 million of sales. This year. So if we wanted to.
Turn that into a forecast should we take that number and then deduct something for the amount of business falling off as well as the price give backs is that how we should massage that number into our revenue estimate.
Yes.
Okay, and then lastly, Dale.
With all this cash you're generating.
Interest rates low.
You gave us some guidance on how.
The interest expense or the financing line looks for 2021.
Well for the corner, our effective interest rate is 1.7%.
We are in the lowest range of our pricing grid, so I'm not really expecting any significant changes in net effect of interest rate unless there is some movement in the market.
Okay.
And so that's all I have except for that outstanding question, Geoff can how much of that.
The long term our receivables in.
The industrial segment actually improved by $128 million in the year, and it's down to $235 million.
Sure.
And how much is that growth is there a reserve against that.
There is general provisions in there yes.
Okay. So thats the net amount.
Yes.
Thanks very much.
Thanks.
And your next question comes from Brian Morrison with TD Securities.
Yeah.
Thanks very much.
On the quarter.
Couple of quick questions. Please.
Linda you talked about the order intake being up significantly up Mcdonald wonder if you're able to quantify that I see some pretty impressive numbers with respect to combine sales disclosed in the supplemental.
Yeah.
As I as we're noting actually on this outlook slide where or guidance in double digit.
Growth at smacked on this year. So it is a pretty substantial increase I, it's driving out of a couple of things commodity price prices.
Our strong harvest was good last year I think people are feeling a little more settled on the trade side. So are.
We are seeing order intake meaningfully up.
Thank also in North America.
The retail side as Linda said commodities and lower inventories inventories are also at play here and I would say Europe for sure we're strengthening over in Europe with the Drapers.
Really a big.
And also the Windrower market I would say we're doing increases there.
Other.
Location I would say it was really really good news, Australia, Australia was.
I think one other best harvests.
Yes.
Alright.
Demand Yeah, our unit unit sales were up dramatically and our market share in Australia is very very pretty well fully almost fully subscribed for 2021 now yeah.
Okay. Thanks, Jim and then deal are you able to provide maybe ballpark guess of you've got these benefits from reduction in discretionary costs, specifically in Q3 and Q4 here. So I'm wondering if you're able to ballpark what the impact is on the operating margin or give us a degree of a sense of what you think.
The potential to come back.
You mean, how much of the cost reduction is going to stick.
Correct, Yeah, so a little hard to quantify I mean for sure there is quite a few things that.
And when you look at things at it from a different lens.
You can you can retain those cost savings.
I would say there's also new ways, we've learned to do things like for instance, travel I suspect. We you know, although we will start traveling again I'm sure.
Jim has already got in the bag.
Yeah, I think what we learned is we don't need to.
Travel as much we can do things very effectively through video. So you know for a quick meeting instead of jumping on a plane and going across the world. Maybe we can do it by a true video very efficiently for all parties. So I think that all that will keep that some of those types of costs down so for sure.
There is some stickiness in and other costs, but I will say as you know we've always been very very cost conscious I feel like it wasn't it's not like there was a lot of low hanging fruit that you know, while we never thought of doing that but I mean, there's always ways to improve and there will be things that stick.
Okay, and then I guess, just a couple of house keeping questions too I guess, so with telematics and innovation across industrial really is does the semiconductor shortage have any impact on the industrial segment.
It has had some in the engine side.
Side of it.
Tcs has.
That's had some impact but relatively not a big deal.
That side, but it has slowed up some of the engine deliveries to us that's where we've seen it on.
Basically skyjack nothing net backed on though.
And will we see any of that in Q1 or other parts.
Yeah.
It's just not material enough I guess, just sort of play it may push sales around a little bit let's put it that way.
Okay and then the last question I have is and again, a housekeeping, but I'm curious with sales coming back so strongly here.
Why do you still qualify for the Canadian wage subsidies should this not be in the past now.
Yeah, I mean as.
As noted is dramatically down from the third quarter and I would say, it's also shifting around right. So like Skyjack for instance has has remained.
At a much lower level in comparison to let's say the auto business. So.
There are still some subsidy deployed through an on on that side, but you can certainly expect Q1 to be at to be down again for that exact reason.
And we shouldn't expect the majority of those subsidies to be in the transportation Division.
But I would say, yes, the majority only because that's where the majority of the people are buying an increasing percentage was in the industrial side in the fourth quarter for instance.
Because as our automotive volumes normalize you'll get less impact yeah, right Skyjack has remained soft.
There are subsidies have been declining.
A decline in much but it's really hard to tell.
Where we're going to go on subsidies.
Because the government literally has been changing the calculations and eligibility on almost every claim. So we are as you may have third day of announced extending it to June.
But they are providing no guidance yet so we don't know what that means but we're not really expecting much in Q1.
Thank you so much.
Graduation.
Yes.
And your next question comes from Christopher <unk> with CIBC.
Hi, Thanks for taking my question.
Just on the Microchip issue I realize it's a very fluid situation, but is your guidance assuming that any production lost in the first half of 2021 is made up in the back half.
We are assuming that that's going to happen I think thats. The general assumption like if you look at IHS forecast for instance, the latest forecasts showed $1 1 million unit impact in Q1, but it's fully being made up in the back half of the year. So I would expect a similar kind of pattern.
I it is a little hard to predict right now just because it's literally changing day to day. So I you know I can't really give you a sense for Q1 until Q1 is done.
So once it is done I think we'll obviously have a better sense for what the impact on our customers was then we can communicate that to you in our in our mid quarter update.
Alright that makes sense and just as we look out to 2021 here looking at operating income would it be reasonable to let's say take the your operating income in the back half of 2020 back up to the government wage benefit so that's.
Roughly $287 million.
Were to annualize that and we got to about $575 million is that a good base level assumption for 2021.
Well I would say, we're going to see continued growth I wouldn't say that 2021 is going to be at the run rate of.
2020.
Because auto market is recovering.
Growing in double digits.
Both Skyjack and Mac on are also recovering so theyre both from the end of better position in flow. So I do expect to see growth.
Over.
Over 2020.
Okay perfect. That's it from me thank you.
As a reminder that is star one to ask a question on your next question comes from Kevin Chiang with CIBC.
Thanks, I just had a follow up question here first just.
That's on a good quarter and on a comment a little more.
Company with projects safeguard so it sounds like a great initiative in the golf area there.
Thank you.
Just on one of the slides I caught my attention was the new business wins, just just on the BBB delivery vans and trucks and I'm wondering is that a growing opportunity for a little more on the commercial vehicle side. It just seems like almost every logistics company out there is accelerating their adoption and repeat.
One of the fleet to electric vehicles are supposed onto the green solution.
I'm just wondering if youre seeing that on your end in terms of bidding activity.
Thank goodness.
Accelerating opportunity for you.
Yes, Kevin I think we've talked about.
But we.
We have a lot of activity happening around the commercial vehicle side.
We do have right now.
Two products that are actually in test with.
With some of the delivery companies.
So this is other electrification from pure battery electric but we've also got two that are in there for fuel cell.
We have a lot of activity in both North America Europe.
The commercial vehicle side.
We see some activity happening sort of coming up with some meetings with customers.
And China, but definitely there's been a lot of activity over the last six to eight months on commercial vehicle.
Yes.
Sure.
Does it feel like the replacement cycle of the customer base.
There's also accelerated so you're actually getting.
A higher level of volume versus what is a normalized level would have been a few years ago just does.
Six companies.
And fleet operators look to look to hit their own ESG targets or carbon emission targets.
Well I think you're just seeing volumes from class four right up to class eight are all forecasted to increase this year and yes. They are looking to convert a lot of that flow.
It over two.
Green trucks, and so I think it's going to happen quicker.
The one thing Thats advantageous of other commercial vehicle is as easy to take existing platforms and adopt a battery electric solution to them versus passenger car or small suvs.
Where youre really space constraints.
Okay.
There's a lot of new entrants that are there.
Talking to this market and looking at sort of like that final mile delivery concept is really something that we are working on with as Mark said commercial E axle and things like that.
Okay.
Maybe just last one from me on the markdown front I think theres a feeling entering this year that we might be entering.
And agricultural Super cycle, and I know you had a lot of.
You've talked about from a expansion opportunity I'm, just wondering how youre thinking about in such a way to leverage ratio sits today. How do you think about those plans do you look to accelerate.
Good geographic footprint just to take advantage of this super cycle that some people are predicting.
Yes.
For sure we're seeing great opportunities from an international perspective, I mean since our acquisition of <unk>. We spent some time trying to develop product that would be applicable for let's say the European market for instance, which has <unk>.
Different technical requirements in terms of harvesting equipment, we have that product now we're actively selling it in the market is and fast accurate I mean the market growth.
Growth in Europe had I mean, we've sold double the unit. This year that we did last year almost double so.
Great to see that and as Jim was mentioning earlier Australia.
Also.
Some great movement and same in South America, actually which is a huge market and we saw some really great growth in and in South America in terms of R. R.
Our footprint there so seeing some good opportunities right around the world and of course, it's of course, North America is expecting double digit growth as well. So we will absolutely be taking advantage of that as best we can.
That's super helpful. Congrats on a good Q4, thank you.
Thanks, so much Kevin.
Yeah, no further questions at this time.
I'll now turn the conference back over to Linda Hudson for closing remarks.
Thanks, very much flow to conclude this evening I would like as always to leave you with three key messages first of all we are thrilled to generate again and outstanding $422 million in free cash flow for the quarter, taking our full year results to $1 2 billion, a record year and 50% great.
<unk> then any prior year in our history.
Lee I'm incredibly proud of our team for bouncing back from a full shutdown midyear last year to the exceptional earnings growth realized in Q4, notably in the transportation segment.
Finally, it's great to see market growth resuming in all three of our core markets of auto Aegean access after a tough 2020 that coupled with the solid market share gains we're seeing in all of our businesses intersect to paint a picture of solid growth for 2021 day.
Thanks, very much everybody and have a great evening.
Yeah.
This concludes today's conference call you may now disconnect.
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